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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1996
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ________ to _______
Commission file number 0-26090
COMPDENT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-3185995
(State of incorporation) (I.R.S. Employer Identification No.)
100 Mansell Court East, Suite 400, Roswell, Georgia 30076
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 998-8936
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Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Preferred Stock Purchase Rights
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. | |
The aggregate market value of the voting stock of the registrant held
by non-affiliates of the registrant on March 14, 1997 was $228,765,937.
The number of shares of the registrant's Common Stock, par value $.01
per share, outstanding on March 14, 1997 was 10,064,393.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the Parts
of this Report on Form 10-K indicated below:
(1) The Annual Report to Stockholders for fiscal year ended December 31,
1996 (Part II).
(2) The Company's definitive proxy statement dated March 18, 1997 for the
Annual Meeting of Stockholders to be held on April 30, 1997 (Part III).
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PART I
STATEMENTS MADE OR INCORPORATED INTO THIS ANNUAL REPORT INCLUDE A
NUMBER OF FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934. FORWARD-LOOKING STATEMENTS INCLUDES, WITHOUT LIMITATION, STATEMENTS
CONTAINING THE WORDS "ANTICIPATES," "BELIEVES," "EXPECTS," "INTENDS," "FUTURE"
AND WORDS OF SIMILAR IMPORT WHICH EXPRESS MANAGEMENT'S BELIEF, EXPECTATIONS OR
INTENT REGARDING THE COMPANY'S FUTURE PERFORMANCE. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT MAY CAUSE SUCH DIFFERENCES ARE DESCRIBED IN THE SECTION ENTITLED
"CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS" FOUND ON PAGE 9 OF THIS ANNUAL
REPORT.
Item 1. BUSINESS.
The information contained in this report is provided as of December 31,
1996, unless otherwise indicated.
OVERVIEW
The Company is a full-service dental benefits provider, offering
network-based dental care, referral fee-for-service and third-party
administration and providing dental coverage for approximately 2.4 million plan
members at December 31, 1996. The Company currently has operations in more than
23 states and markets its products through a network of more than 8,000
independent agents and a direct marketing sales force. The Company markets its
products to employers and other business entities ("Groups"), to Group employees
or other members and their families as a unit ("Subscribers") and to
individuals. In addition, the Company has contracted with over 9,000 dental
facilities ("Panel Dentists") to provide dental services to covered individuals
("Members"). CompDent's dental benefit plans also include CompSave(R) (a
discount fee-for-service product), CompNet(R) (a PPO and network dental
product), and administrative services for self-insured dental plans. In the
first quarter of 1997, CompDent established Dental Health Management, Inc.
("DHM"), a wholly-owned subsidiary providing management services to dental
practices.
MARKETS AND OPERATIONS; ACQUISITIONS
The Company commenced operations in Florida in 1978 and until 1987
conducted business only in Florida. The Company established operations in
Georgia and Ohio in 1987 and 1990, respectively. More recently the Company has
established operations on a de novo basis in Alabama (1992), North Carolina
(1993), Mississippi (1993), Tennessee (1994) and South Carolina (1995). In 1994
and 1995 the Company entered markets in eight new states, including Texas,
Kentucky, Indiana and Missouri through acquisitions. In January 1996, the
Company acquired Texas Dental Plans, Inc. and certain of its affiliated entities
(collectively, "TDP") for $23 million in cash. TDP is a San Antonio-based
provider of low cost dental referral plans with operations in fourteen states,
including principally Texas, Louisiana, Oklahoma and Pennsylvania (the "TDP
Acquisition"). As a result of the TDP Acquisition, the Company expanded its
presence in seven states, entered markets in seven new states and expedited the
Company's development of the Company's CompSave(R) product line. In addition, in
May 1996, the Company acquired all of the outstanding capital stock of Dental
Care Plus Management, Corp. and its affiliated companies (collectively, "Dental
Care Plus"), a Chicago-based third-party administrator and managed dental care
plan, for an aggregate purchase price of approximately $38 million (the "Dental
Care Plus Acquisition"). The Dental Care Plus Acquisition significantly expanded
the Company's presence in Illinois. The Company operates in four states through
contractual arrangements with two third-party insurance companies.
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PRODUCTS AND SERVICES
Managed Dental Plans. The Company offers a variety of managed dental
care plans under the principal trade names American Dental Plan, American
Prepaid Dental Plan, DentiCare and CompDent(R) Dental Plan. The Company's
managed dental care plans operate similarly in each state in which business is
conducted.
Under the Company's managed dental care plans a premium or
"contribution" is paid to the Company by the Subscriber through payroll
deduction or directly (in the case of individual Subscribers), or by the
Subscriber's employer, from the date the Subscriber enrolls in the plan. The
Subscriber selects a dentist from the Company's panel to provide dental
services. Each Panel Dentist provides dental services to the Subscribers who
selected that dentist in return for a percentage of the premium paid by the
Subscriber ("capitation payments") which begins once the Subscriber has selected
the Panel Dentist. Thus, the Panel Dentist receives steady monthly capitation
payments from the Company according to the number of Subscribers who have
selected the dentist, regardless of the frequency or value of dental services
performed. Under a managed dental care plan capitation payments are fixed.
Therefore, incentive to control costs and the risk of over-utilization of dental
services are shifted to the dentists.
Members covered under the Company's managed dental care plans obtain
certain basic dental procedures (such as exams, x-rays, cleanings and certain
fillings) at no additional charge beyond premium payments (other than, in some
cases, a small per visit copayment). The plans establish copayments for more
complicated services provided by the Panel Dentist selected by the Subscriber,
such as root canals and crowns which vary in accordance with the complexity of
the service and the level of benefits provided. The Company's managed dental
care plans also cover services provided by specialists participating in the
dental panel rather than by the Panel Dentist selected by the Subscriber,
including oral surgery, endodontics, periodontics, orthodontics and pediatric
dentistry. Members typically receive a 25% reduction from the specialist's usual
and customary fees for the services performed. The Company makes no capitation
or other payments to the specialist in return for this discount. The Company
does not assume traditional underwriting or insurance risk under its managed
dental care plan arrangements, except with respect to certain specialty benefit
plans described in more detail below under "--Specialty Benefit Plan.".
The Company's managed dental care plans are tailored to meet the needs
of different customers, and range from products having relatively higher levels
of benefits and premiums to products having relatively lower levels. A majority
of the Company's revenues from managed dental care plans for the year ended
December 31, 1996 were paid by Subscribers either directly or through employee
payroll deductions, with the remainder paid by employers on behalf of their
employees. The contracts between the Company and its Subscribers require the
payment of a monthly contribution that is generally fixed for one year, although
Subscribers generally are free to terminate membership in the plan at any time.
Premiums paid by Subscribers are subject to premium taxes of up to 2.5% of the
premium paid in several states in which the Company operates.
Dual Choice Plans. The Company's products also include dual choice
plans ("Dual Choice Plans"), which allow Subscribers to choose between a managed
dental care plan offered by the Company and an indemnity dental insurance plan
underwritten by a licensed insurance company but marketed and administered by
the Company under an agreement with the underwriting insurer. The Company
believes that the ability to offer Dual Choice Plans enables it to offer
prospective customers flexibility, particularly when there are potential
Subscribers outside the area served by the Company's dental panel. Certain
states require that managed dental care plans be offered only as part of a Dual
Choice Plan and other states may do so in the future. Dual Choice Plans are
particularly effective as part of the Company's growth strategy in areas in
which the Company's dental panel is less well developed and Subscribers may
value the ability to choose non-panel dentists.
The indemnity insurance portion of the Company's Dual Choice Plans is
marketed and administered by the Company under contractual arrangements
primarily with two independent insurance companies. Under the
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dental indemnity insurance portion of the Dual Choice Plans, Subscribers are
required to pay small deductibles and copayments which are generally higher than
those which are required under the Company's managed dental care plans.
Subscribers who select the indemnity plan are not limited to the Company's Panel
Dentists and may receive dental services from the dentist of their choice. Under
the contract with the third-party insurers the Company retains as a marketing
and servicing fee a specified percentage (typically 10-25%) of premiums paid by
Subscribers under indemnity dental insurance plans underwritten by the insurer
and remits the remainder of such premiums to the insurer. Under one of the
arrangements, the Company shares in the indemnity premium profits above a
minimum profit margin and guarantees the insurer a minimum profit margin on the
indemnity premium. This guarantee is capped at 3% of premium received from
subscribers selecting managed dental care plans under Dual Choice involving the
insurer.
Discount Fee-For-Service Plans. In January 1996, the Company acquired
TDP, a Texas-based referral discount fee-for-service dental company. The
Company's discount fee-for-service products are offered principally under the
trade name CompSave(R). Members receive dental care from a list of participating
dentists who offer discounts from their usual and customary fees. There are no
claim forms or deductibles and no pre-authorization approval is required. No
capitation payments are made to the dentists. The plan covers certain basic
dental procedures as well as orthodontics and cosmetic dentistry.
Network Rental. The Company has contracted to provide a discount dental
benefit plan to members of several HMOs. Under this plan Members of the HMO
receive certain limited dental services from Panel Dentists at discounted rates
as an additional benefit under the health care plan provided by the HMO. The
Company receives a fixed monthly fee per Member to administer this plan and does
not make capitation payments to the Panel Dentists, who receive payments at
rates established under the plan directly from the Members who receive services.
The TDP Acquisition expanded the number of network rental members. The Company
may in the future seek to provide similar plans to other organizations.
ASO Services. In connection with the Dental Care Plus Acquisition, the
Company began providing services as an Administrative Services Organization
("ASO") in Illinois to self-insured dental plans. The Company provides
comprehensive services to employers and other groups offering self insured
dental plans, including billing and collections, claims processing and payment,
Member eligibility processing and customer service. The Company receives a
monthly fee in exchange for such services equal to a specified amount per each
member of the plan serviced.
Specialty Benefit Plan. The Company also offers a managed dental care
plan (the "Specialty Benefit Plan") whereby Members who require covered dental
services from participating specialists rather than their selected Panel Dentist
may receive them for specified copayments rather than at a discount from the
specialists' usual and customary fees (as under the Company's more standard
plans). The Company typically collects a higher premium from the Subscriber for
this benefit and reimburses the specialist for the difference between the amount
of the copayment and the reduced fee which the Company has negotiated with the
specialist, resulting in the Company assuming some risk of utilization of
covered specialty dental services. The Company uses actuaries to determine the
cost of expected benefits under the plan based on the anticipated level of
utilization of specialty services by Members.
Dental Practice Management. The Company has recently established a
subsidiary, Dental Health Management, Inc. Through this subsidiary, the Company
will provide management services to dental practices. The Company will earn fees
paid by dental facilities for providing management services and support to such
dental facilities.
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PANEL DENTISTS
The design and operating features of the Company's dental benefits are
intended to assist it in attracting and retaining quality Panel Dentists. These
plan features include copayments which Panel Dentists may charge, capitation
rate structure, timely remittance of capitation payments in advance of service,
maintenance of accurate Member eligibility information, reduction of paperwork
and other administrative functions for Panel Dentists, and the Company's ability
to deliver a reliable supply of new patients to Panel Dentists. As of December
31, 1996 over 9,000 primary-care and specialty-care dental offices were
participants on the Company's panel.
In its efforts to establish a large panel of quality dentists in
convenient locations, the Company engages in an active marketing and recruitment
program emphasizing personal visits to potential Panel Dentists followed by a
quality management program involving screening of applications for panel
membership, reference checks with state licensing authorities, validation of
malpractice coverage, initial certification and periodic recertification. Once a
dentist has been admitted to the Company's panel, the Company seeks to
recredential the dentist on an annual basis by updating verification of
professional credentials, licenses, malpractice insurance coverage and legal
compliance, conducting an on-site visit and evaluation, and reviewing any
complaints and/or questions received from Members. The Company administers its
quality management program through a full-time staff, including four dentists,
under the supervision of its National Dental Director, who is also a dentist.
Panel Dentists are independent from the Company and provide services to
Members pursuant to contractual arrangements with the Company. The Company's
relationships with its Panel Dentists are terminable by either party, upon
advance written notice (typically thirty days). The contracts do not require
Panel Dentists to provide services exclusively to Members of the Company's
plans. The Company may, following any required regulatory approval, change the
terms, capitation rates, benefits and conditions of the various plans serviced
by its Panel Dentists upon advance written notice. The Company's contracts with
Panel Dentists require the Dentists to maintain their own malpractice insurance.
The Company also carries insurance protecting it against liability relating to
acts or omissions of Panel Dentists.
MARKETING
The Company markets its dental benefits through a large network of
independent agents and a direct sales force consisting of Company employees.
This dual distribution system is designed to reach large groups as well as
smaller groups and individual subscribers in an efficient and cost effective
manner. The Company seeks to avoid competition between its direct sales force
and its independent agents for the same or similar accounts and seeks to conduct
its direct sales efforts in a manner that avoids undermining the loyalty of
independent agents or their incentive to market the Company's plans on a regular
basis. The Company's direct sales force (often working with independent agents)
generally focuses on soliciting larger accounts, including employers with over
250 employees. Independent agents typically target mid-size and smaller
employers and individuals. The Company pays its agents commissions based on
revenue generated (payable monthly as premiums are earned) and pays its direct
sales force through a combination of salary and a bonus program based on new
Subscribers enrolled. Agents typically do not market the Company's dental
benefits on an exclusive basis.
The Company also has several departments and employees who facilitate
Group and Member retention. These departments and employees assist Members on
such matters as schedules of benefits, available Panel Dentists, transfers from
one Panel Dentist to another, emergency dental services, billing issues and
other administrative and customer service matters.
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MANAGEMENT INFORMATION SYSTEMS
The management information systems used by the Company are designed to
facilitate Subscriber, provider and agent service. The Company depends on these
systems for comprehensive customer service, premium collection and
reconciliation, administration of capitation and commission payments, Member
eligibility processing, corporate accounting, and management reporting. The
Company's management information systems are sufficiently flexible to allow it
to offer multiple dental benefits tailored to the needs of its customers and
have the capability to interface directly with the systems of its customers,
which can facilitate expeditious processing of changes in membership
information. In case of emergency, the Company has established a disaster
avoidance and recovery plan and has entered into agreements for the transfer of
its system and backed-up data to a compatible computer in Atlanta. The Company
utilizes a separate management information system in connection with ASO
services provided in Illinois.
COMPETITION
The Company operates in a highly competitive environment. Its
competitors principally include large insurance companies, which offer managed
dental care and indemnity dental products in most of the Company's markets, and
independent companies including for-profit and not-for-profit HMOs, DMOs,
self-funded plans, PPOs and discount fee-for-service dental plans offering
dental benefits similar to those offered by the Company, which typically compete
in particular markets.
The principal competitive factors in the dental benefits industry are
the cost of services (based on the level and type of benefits, premiums and
copayments), the reputation of the plan for providing quality dental care and
the size of the plan's provider network (including the number of available Panel
Dentists and the convenience of their locations). Price competition may be
especially relevant in seeking the accounts of governmental employers which
award contracts on a periodic basis through competitive bidding. The dental
benefits industry in general has been subjected to periods of intense price
competition in the past, and similar intense competition in the managed dental
care industry may occur in the future. The Company has experienced increased
competition from indemnity insurance companies through direct entry into the
managed dental care market. It is likely that these efforts will intensify in
the future. Frequently, such plans are offered in tandem with indemnity dental
insurance coverage and/or PPO alternatives. In addition, an increasing number of
medically-oriented HMOs and PPOs include dental care benefits as part of their
benefit programs.
The Company's business does not require substantial amounts of capital
and, other than government regulation, systems operating costs and the cost of
obtaining and monitoring a dental panel, there are no significant barriers to
new competitors entering the market. There can be no assurance that the Company
will be able to compete successfully with existing competitors or new market
entrants. Any such additional competition could adversely affect the Company's
results of operations.
Indemnity dental insurance coverage offered by insurance carriers may
have a competitive advantage over other dental benefit plans because many such
carriers are better known, are significantly larger and have substantially
greater financial and other resources than the Company. Indemnity dental
insurance coverage also has the benefit of allowing a beneficiary to select
almost any licensed dentist, while participants in the benefits offered by the
Company typically must select a dentist from the plan's panel.
GOVERNMENT REGULATION
The Company's business is and will continue to be subject to
substantial governmental regulation, principally under the insurance laws of the
states in which the Company conducts business and may in the future conduct
business. Although specific requirements vary from state to state, these laws
generally require that the Company's subsidiary operating in that state be
licensed by the relevant state insurance department to offer its
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dental care products and otherwise conduct its operations, prescribe minimum
levels of net worth and reserves, limit the ability of the Company's
subsidiaries to pay dividends to the extent required regulatory capital would be
impaired, establish the manner in which premiums are determined or structured,
require filing for approval of products, certain product literature, premium
levels and contract forms with subscribers, dentists and others (which may
entail substantial delay in implementing changes or introducing new products),
in some cases establish minimum benefit levels for the Company's dental
products, provide for periodic examinations, including quality assurance review,
establish standards for the Company's management and other personnel, specify
measures for resolving grievances and generally prohibit the acquisition of more
than specified levels (as low as 5% in current states of operation) of the
Company's outstanding voting power without prior approval. These regulatory
provisions generally grant plenary power to the relevant agencies in
interpreting and administering the applicable laws and regulations. Various
state regulatory agencies and legislatures have in the past considered, are
presently considering, and may in the future propose regulatory and legislative
changes, such as the establishment of prescribed minimum capitation payments to
Panel Dentists, minimum loss ratios or mandated schedules of benefits and the
adoption of legislation requiring the Company to admit "any willing provider" to
its dental panels, that could adversely affect the Company's business and
profitability. In addition, health care and insurance reform initiatives have
been proposed and may be proposed in the future at the state and federal levels
which may adversely affect the Company's business and profitability. The Company
is unable to determine the likelihood or effect of any such regulatory or
legislative changes.
State regulatory requirements may also limit the Company's ability to
operate in certain existing markets or adversely affect its ability to enter new
markets on a de novo basis or through acquisitions. In some states the Company
can only conduct business through a contractual arrangement with a licensed
indemnity carrier or a full service HMO, which is generally a less advantageous
and more cumbersome arrangement than offering managed dental care plans
directly. The Company conducts business in such states through such arrangements
with Shenandoah Life Insurance Company ("Shenandoah") and Centennial Life
Insurance Company. The Company cannot generally enter new states on a de novo
basis without obtaining required licenses and approvals, a process which can
take as long as two years or more in certain states. The acquisition of managed
dental care companies generally requires the prior approval of the state
regulatory authorities in the states in which these companies do business, which
can take up to six months or more, and relevant state laws concerning regulatory
capital and surplus in many cases prohibit these entities from guaranteeing
parent company debt, thus possibly limiting the Company's ability to obtain
acquisition financing. While the regulated nature of the Company's industry may
interfere with management's plans for further geographic expansion, this
regulatory environment also governs, to a greater or lesser extent, the conduct
and expansion prospects of existing and new competitors.
Failure to maintain regulatory compliance and constructive
relationships with relevant regulatory authorities could adversely affect the
Company's ability to conduct its business, for example, by limiting the
Company's ability to obtain required approvals for new products or premium
increases. In an extreme case failure to comply with relevant laws and
regulations may result in revocation of one or more of the Company's licenses.
The Company's policy is to pay close attention to regulatory compliance matters.
In connection with the marketing and administration by the Company of
the indemnity insurance benefits that are offered as a part of its Dual Choice
Plans, the Company may be subject to licensure and regulation as a "third-party
administrator" in certain states. Such regulation typically is less extensive
than regulation applicable to the managed dental care plans offered directly by
the Company. In addition, if the Company is licensed to offer managed dental
care plans in such states, it may be exempt from regulation as a third-party
administrator.
EMPLOYEES
The Company had approximately 460 employees at December 31, 1996. None
of the Company's employees is covered by a collective bargaining agreement. The
Company believes its relations with its employees are good.
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UNILIFE
The Company's wholly-owned subsidiary, UniLife Insurance Company, an
Arizona chartered, Texas based insurance company ("UniLife"), is licensed to
transact business in Arizona, Colorado, Louisiana, Mississippi, Missouri, New
Mexico, Oklahoma, Texas and Utah. UniLife is a traditional indemnity insurance
carrier and therefore assumes underwriting risk. Effective January 1, 1996,
UniLife and Shenandoah entered into an assumption reinsurance agreement
transferring risk from UniLife to Shenandoah. UniLife has ceded all remaining
business.
Item 2. PROPERTIES.
All offices and facilities of the Company are leased. The Company's
leased properties are in generally good condition and are adequate for
their intended use.
Item 3. LEGAL PROCEEDINGS.
The Company's wholly-owned subsidiary, American Prepaid Professional
Services, Inc. ("American Prepaid"), and its Florida subsidiary, American Dental
Plan, Inc., are currently defendants to a civil complaint filed by three
participating dentists (one of which has since withdrawn) who have entered into
Participating Dentist Agreements with various subsidiaries of the Company
("Subsidiaries"). The complaint alleges a breach of contract and seeks damages
based on the failure of each Subsidiary to make capitation payments to the
participating dentists for the period of time between when affected subscribers
enroll and the time at which the subscribers select a dentist. The plaintiffs
are attempting to bring the suit as a class action. In an order issued July 22,
1996, the trial court ruled that the case could not proceed as a class action.
The plaintiffs have appealed this order denying class certification.
The Company believes its interpretation and administration of the
Participating Dentist Agreements are correct and, therefore, is vigorously
defending the suit. While the ultimate outcome of this lawsuit cannot at this
time be predicted with certainty, management does not expect that this matter
will have a material adverse effect on the consolidated financial position, cash
flows or results of operations of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted during the fourth quarter of the fiscal
year covered by this report to a vote of security holders through solicitation
of proxies or otherwise.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Market Information
The Common Stock of the Company has been traded on the Nasdaq National
Market ("Nasdaq") since the Company's initial public offering on May 24, 1995
and currently trades under the symbol "CPDN." The following table sets forth the
high and low closing sales prices for the Company's Common Stock as reported by
Nasdaq for the periods indicated:
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<TABLE>
<CAPTION>
Market Prices(1)
Fiscal Quarters High ($) Low ($)
- --------------- -------- -------
<S> <C> <C>
1996
First 45 1/8 34 1/2
Second 51 35 1/8
Third 51 11/16 33
Fourth 40 3/8 27 1/2
1995
Second (from May 24) 22 18 3/4
Third 30 1/4 20 1/4
Fourth 41 1/2 27
- -----------------
</TABLE>
(1) The prices listed reflect inter-dealer prices without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
Holders
The number of record holders of the Company's Common Stock as of March
14, 1997 was approximately thirty-four (34). The Company believes that the
number of beneficial owners of the Company's Common Stock at that date was
substantially greater.
Dividends
The Company did not pay cash dividends on its Common Stock during the
years ended December 31, 1996 and December 31, 1995. The Company does not
currently intend to pay cash dividends on its Common Stock in the foreseeable
future. Under the Company's senior credit facility, the distribution of
dividends would require the lender's consent.
Item 6. SELECTED FINANCIAL DATA.
The information set forth in "Selected Consolidated Financial
Information" on page 6 of the Annual Report to Stockholders for the fiscal year
ended December 31, 1996 is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF AND CONDITION AND
RESULTS OF OPERATIONS.
The information set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 7 through 13 of the
Annual Report to Stockholders for the fiscal year ended December 31, 1996 is
incorporated herein by reference.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's actual results could differ materially from its
historical results or from any forward- looking statements made or incorporated
into this Annual Report. Factors that may cause such differences include: the
Company's ability to successfully complete new acquisitions and integrate
acquired companies; the Company's ability to successfully expand its business
to include the management of dental practices; the Company's ability to attract
and retain qualified
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personnel and management; changes in state insurance laws and related government
regulations; increased competition and growth in the dental benefits coverage
market; and other unanticipated changes in economic conditions.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share."
This statement establishes standards for computing and presenting
earnings per share ("EPS") and applies to entities with publicly held common
stock or potential common stock. This Statement simplifies the standards for
computing earnings per share previously found in APB Opinion No. 15, Earnings
Per Share, and makes them comparable to international EPS standards. It
replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual representation of basic and diluted EPS on the face
of the income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to Opinion 15.
This Statement is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods; earlier
application is not permitted. This Statement requires restatement of all
prior period EPS data presented. Implementing the requirements of SFAS No.128
is not anticipated to have a material impact on the financial position,
results of operations, earnings per share or cash flows of the Company.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company set forth on
pages 14 through 32 of the Annual Report to Stockholders for the fiscal year
ended December 31, 1996 are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information appearing under the captions "Information Regarding
Directors" and "Executive Officers" in the registrant's definitive proxy
statement dated March 18, 1997 relating to the Annual Meeting of Stockholders to
be held on April 30, 1997 is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION.
The information appearing under the caption "Executive Compensation"
in the registrant's definitive proxy statement dated March 18, 1997 relating to
the Annual Meeting of Stockholders to be held on April 30, 1997 is incorporated
herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information appearing under the caption "Principal and Management
Stockholders" in the registrant's definitive proxy statement dated March 18,
1997 relating to the Annual Meeting of Stockholders to be held on April 30, 1997
is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
10
<PAGE> 11
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The response to this portion of Item 14 is submitted as a separate
section of this Annual Report beginning on page 10.
(a)(2) Schedules
The response to this portion of Item 14 is submitted as a separate
section of this Annual Report beginning on page S-1.
(a)(3) Exhibits
Exhibits 10.8 through 10.27 constitute all of the management contracts
and compensation plans and arrangements of the Company required to be filed as
exhibits to this Annual Report.
1. The following is a complete list of Exhibits filed or incorporated by
reference as part of this Annual Report.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
2.1 Stock Purchase Agreement by and among the Company and American Prepaid and
Allan B Morris, The Allan B. Morris Family Limited Partnership, W. James Lintner,
Jr., The Lintner Family Limited Partnership, Greylock Limited Partnership and
CompDent Corporation dated as of January 31, 1995 (3)
2.2 Stock Purchase Agreement dated July 13, 1994 by and among American Prepaid and
Henry G. New, DentiCare, Inc., Gibraltar Dental Plan, Inc. and UniLife Insurance
Company (2)
2.3 Amendment No. 1 to the Stock Purchase Agreement by and among the Company,
American Prepaid, the stockholders of CompDent, Greylock Limited Partnership and
CompDent, dated June 23, 1995 (4)
2.4 Stock Purchase Agreement by and among American Prepaid and Daniel Heiman
individually and as trustee of each of the Scott Heiman Trust and the Cynthia Heiman
Trust, Barney P. Randol, Texas Dental Plans, Inc., Dental Plans International, Inc. and
Dental Providers Resources, Inc. dated as of January 8, 1996 (5)
2.5 Asset Purchase Agreement by and among American Prepaid and National Dental Plans,
Inc. and certain of its shareholders dated as of January 8, 1996 (5)
2.6 Stock Purchase Agreement by and among American Prepaid and Theodore Tannebaum,
Sven Philip-Sorenson, Dental Care Plus Management, Corp. and I.H.C.S., Inc. dated as
of February 28, 1996, as amended (7)
3.1 Amended and Restated Certificate of Incorporation (8)
3.2 Amended and Restated By-laws (1)
4.1 Specimen certificate for shares of the Company's Common Stock (2)
4.2 Shareholder Rights Agreement, dated as of August 16, 1996, between the
Company and State Street Bank and Trust Company, as Rights Agent. (7)
4.3 Certificate of Designations, Preferences, and Rights of a Series of Preferred Stock
of CompDent Corporation
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C>
10.1 First Amendment to the Credit Agreement among the
Company, American Prepaid, the lenders named therein
and First Union National Bank of North Carolina, as
Agent, dated May 3, 1996 (10)
10.2 Parent Guaranty of the Company in favor of First Union National Bank of North
Carolina, dated July 5, 1995 (4)
10.3 Parent Pledge Agreement between the Company and First Union National Bank of
North Carolina, dated July 5, 1995 (4)
10.4 Borrower Pledge Agreement between American Prepaid and First Union National Bank
of North Carolina, dated July 5, 1995 (4)
10.5 Noncompetition Agreement dated December 28 1994 by and between American Prepaid
and Henry G. New (3)
10.6 Amended and Restated Investment and Stockholders' Agreement dated as of April 26,
1995 among the Company, American Prepaid, the Brains, the TA Investors, the
Chestnut Investors and the Management Investors (2)
10.7 Consulting Agreement dated as of April 2, 1993 between American Prepaid and
Vincent V. Rex (2)
10.8 Employment Agreement dated May 24, 1995 between American Prepaid and David R.
Klock (1)
10.9 Employment Agreement dated May 24, 1995 between American Prepaid and Phyllis A.
Klock (1)
10.10 Employment Agreement dated May 24, 1995 between American Prepaid and Sharon S.
Graham (1)
10.11 Employment Agreement dated April 14, 1995 between American Prepaid and Ken K.
Bohrer (1)
10.12 Employment Agreement dated June 5, 1995 between American Prepaid and Willis
Warrender (1)
10.13 Key Executive Insurance Policies for David R. Klock and Phyllis A. Klock (3)
10.14 Key Executive Insurance Policy for Sharon S. Graham (1)
10.15 Non-Qualified Stock Option Agreement dated November 1, 1993 between Philip Hertik
and the Company (3)
10.16 Non-Qualified Stock Option Agreement dated as of November 1, 1993 between Joseph
E. Stephenson and the Company (3)
10.17 Non-Qualified Stock Option Agreement dated as of September 25, 1995 between Joseph
Ciffolillo and the Company (9)
10.18 The Company's 1994 Stock Option and Grant Plan (3)
10.19 Stock Redemption Agreement dated July 29, 1994 between the Company and David R.
Klock for 2,500 shares at $5.33 per share (3)
10.20 Amended and Restated CompDent Corporation 401(k) Standardized Profit Sharing Plan
effective January 1, 1997
10.21 Form of Indemnity Agreement between the Company and each of its directors (2)
10.22 Employment Agreement dated February 1, 1996 by and between the Company and
Bruce A. Mitchell (6)
10.23 The Company's Employee Stock Purchase Plan (9)
10.24 The Company's Non-Employee Directors Stock Option Plan
10.25 Form of Non-Qualified Stock Option Agreement under the Company's Non-Employee
Directors' Stock Option Plan
10.26 The Company's 1996 Stock Option Plan
10.27 Forms of Non-Qualified Stock Option Agreement under the Company's 1994 Stock
Option and Grant Plan and 1996 Stock Option Plan
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C>
10.28 Agreement by and between Shenandoah Life Insurance Company and American
Prepaid, effective December 27, 1993 (3)
10.29 Agreement by and between Shenandoah Life Insurance Company and ADP-NC,
effective January 20, 1994 (3)
10.30 Agreement by and between Shenandoah Life Insurance Company and ADP-GA,
effective January 20, 1994 (3)
10.31 Agreement by and between Shenandoah Life Insurance Company and ADP, effective
January 20, 1994 (3)
10.32 Agreement by and between Shenandoah Life Insurance Company and American Dental
Plan of Alabama, Inc., effective January 20, 1994 (3)
10.33 Agreement by and between Shenandoah Life Insurance Company and American Prepaid
Dental Plan of Ohio, Inc., effective January 20, 1994 (3)
10.34 Prepaid Product Marketing/Administration Agreement by and between The Centennial
Life Insurance Company and CompDent Corporation, effective January 1, 1995 (1)
10.35 Indemnity Products Marketing/Administrative Agreement by and between the
Centennial Life Insurance Company and CompDent Corporation, effective January 1,
1995 (1)
10.36 Lease Agreement dated December 22, 1995, by and between Mansell Overlook
100, LLC, and CompDent Corporation for property located at 100 Mansell Court,
Roswell, GA 30076
13.1 Annual Report to Stockholders for the fiscal year
ended December 31, 1996 (such report, except for
those portions thereof which are expressly
incorporated by reference in this filing, is
furnished for the information of the Commission and
is not deemed "filed" as part hereof)
21.1 Subsidiaries of the Company
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule (for SEC use only)
- ---------------
</TABLE>
<TABLE>
<S> <C>
(1) Filed as an exhibit to the Registrant's Registration Statement
on Form S-1 filed with the Securities and Exchange Commission
on August 4, 1995 (File No. 33-95444) and incorporated herein
by reference thereto.
(2) Filed as an exhibit to Pre-effective Amendment No. 1 to the Registrant's Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on April 27, 1995 (File No.
33-90316) and incorporated herein by reference thereto.
(3) Filed as an exhibit to the Registrant's Registration Statement
on Form S-1 filed with the Securities and Exchange Commission
on March 14, 1995 (File No. 33-90316) and incorporated herein
by reference thereto.
(4) Filed as an exhibit to the Registrant's Current Report on Form
8-K filed with the Securities and Exchange Commission on July
5, 1995 and incorporated herein by reference thereto.
(5) Filed as an exhibit to the Registrant's Current Report on Form
8-K filed with the Securities and Exchange Commission on
January 8, 1996 and incorporated herein by reference thereto.
(6) Filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the period ended March 31, 1996 filed with the
Securities and Exchange Commission on May 15, 1996 and
incorporated herein by reference thereto.
</TABLE>
13
<PAGE> 14
<TABLE>
<S> <C>
(7) Filed as an exhibit to the Registrant's Annual Report on Form
10K for the period ended December 31, 1995 filed with the
Securities and Exchange Commission on March 28, 1996 and
incorporated herein by reference thereto.
(8) Filed as an exhibit to the Registrant's Current Report on Form
8-K filed with the Securities and Exchange commission on
August 20, 1996 and incorporated herein by reference thereto.
(9) Filed as an exhibit to the Registrant's Registration Statement on Form S-8 filed with the
Securities and Exchange Commission on September 18, 1996 (File No. 333-12227) and
incorporated herein by reference thereto.
(10) Filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the period ended June 30, 1996 filed with the
Securities Exchange Commission on August 14, 1996 and
incorporated herein by reference thereto.
</TABLE>
<TABLE>
<S> <C>
(b) Reports on Form 8-K.
The Registrant did not file any reports on Form 8-K during the last
quarter of the period covered by this Annual Report.
(c) Exhibits.
The response to this portion of Item 14 is submitted as a separate
section of this Annual Report beginning on page 11.
(d) Financial Statement Schedules.
The response to this portion of Item 14 is submitted as a separate
section of this Annual Report beginning on page S-1.
</TABLE>
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COMPDENT CORPORATION
By:/s/ David R. Klock
-----------------------
David R. Klock
Chairman of the Board and
Chief Executive Officer
Dated: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David R. Klock Chairman of the Board March 28, 1997
- --------------------------------- and Chief Executive
David R. Klock Officer (Principal Executive
Officer) and Director
/s/ Sharon S. Graham Chief Financial Officer and March 28, 1997
- --------------------------------- Treasurer (Principal
Sharon S. Graham Financial and Accounting Officer)
/s/ Joseph Ciffolillo Director March 26, 1997
- ---------------------------------
Joseph Ciffolillo
/s/ Philip Hertik Director March 28, 1997
- ---------------------------------
Philip Hertik
/s/ David F. Scott, Jr. Director March 28, 1997
- ---------------------------------
David F. Scott, Jr.
/s/ Joseph E. Stephenson Director March 27, 1997
- ---------------------------------
Joseph E. Stephenson
</TABLE>
15
<PAGE> 16
Item 14(a)(2) Schedule
REPORT OF INDEPENDENT ACCOUNTANTS
In connection with our audit of the consolidated financial statements of
CompDent Corporation and subsidiaries as of December 31, 1996 and 1995, and for
the years then ended, which financial statements are included in the annual
report, we have also audited the financial statement schedule as of December
31, 1996 and 1995 and for the years then ended listed in Item 14 herein.
In our opinion, this financial statement schedule, when considered in relation
to the basic financial statements taken as a whole presents fairly, in all
material respects, the information required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
------------------------------
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
February 3, 1997
S-1
<PAGE> 17
COMPDENT CORPORATION (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
December 31, 1996 and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Receivable from subsidiary* $ 114 $ 88,139
-------------- -------------
Total current assets 114 88,139
Investment in subsidiaries* 112,069 14,038
-------------- -------------
$ 112,183 $ 102,177
============== =============
STOCKHOLDERS' EQUITY
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares authorized, none
issued at December 31, 1996
Common stock, $.01 par value, 50,000,000 and 18,000,000
shares authorized at December 31, 1996 and 1995, respectively,
10,066,004 and 10,016,693 shares issued and outstanding
at December 31, 1996 and 1995 $ 101 $ 100
Additional paid-in capital 95,820 95,707
Retained earnings 16,262 6,370
-------------- -------------
$ 112,183 $ 102,177
============== =============
</TABLE>
*Eliminated in consolidation
See note to condensed financial statements.
S-2
<PAGE> 18
COMPDENT CORPORATION (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
for the years ended December 31, 1996, 1995, and 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Equity in net income of subsidiaries* $ 9,892 $ 4,706 $ 1,405
------------ ------------ ------------
Net income $ 9,892 $ 4,706 $ 1,405
============ ============ ============
</TABLE>
*Eliminated in consolidation.
See note to condensed financial statements.
S-3
<PAGE> 19
COMPDENT CORPORATION (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995, and 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,892 $ 4,706 $ 1,405
Adjustments to reconcile net income to net cash provided
by (used in )operating activities:
Equity in net income of subsidiaries* (9,892) (4,706) (1,405)
Changes in assets and liabilities:
Receivable from subsidiary 88,025 (88,122) (3)
------------ ------------ ------------
Net cash provided by (used in) operating activities 88,025 (88,122) (3)
------------ ------------ ------------
Cash flows from investing activities:
Capital contributions to subsidiaries* (88,139) (5,000)
------------ ------------ ------------
Net cash used in investing activities (88,139) 0 (5,000)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock 4,000
Proceeds from issuance of common stock 1,003
Retirement of preferred stock (5,377)
Proceeds from initial public offering, net of issuance costs (51,442)
Proceeds from second public offering, net of issuance costs 42,047
Proceeds from exercise of stock options 66
Proceeds from employee stock purchase plan 48
------------ ------------ ------------
Net cash provided by financing activities 114 88,112 5,003
------------ ------------ ------------
Decrease in cash and cash equivalents 0 (10) 0
Cash and cash equivalents, beginning of year 0 10 10
------------ ------------ ------------
Cash and cash equivalents, end of year $ 0 $ 0 $ 10
============ ============ ============
</TABLE>
*Eliminated in consolidation.
See note to condensed financial statements.
S-4
<PAGE> 20
COMPDENT CORPORATION (PARENT COMPANY)
Schedule I - Condensed Financial Information of Registrant
Note to Condensed Financial Statements
The Company publishes consolidated financial statements that are its primary
financial statements. Therefore, these parent company condensed financial
statements are not intended to be the primary financial statements of the
Company, and should be read in conjunction with the consolidated financial
statements and notes thereto of CompDent Corporation.
S-5
<PAGE> 21
EXHIBIT INDEX
Listed and indexed below are all Exhibits filed as part of this Report.
Certain Exhibits are incorporated by reference to documents previously filed by
the Company with the Securities and Exchange Commission pursuant to Rule 12b-32
under the Securities Exchange Act of 1934, as amended.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
2.1 Stock Purchase Agreement by and among the Company and American Prepaid and
Allan B Morris, The Allan B. Morris Family Limited Partnership, W. James Lintner,
Jr., The Lintner Family Limited Partnership, Greylock Limited Partnership and
CompDent Corporation dated as of January 31, 1995 (3)
2.2 Stock Purchase Agreement dated July 13, 1994 by and among American Prepaid and
Henry G. New, DentiCare, Inc., Gibraltar Dental Plan, Inc. and UniLife Insurance
Company (2)
2.3 Amendment No. 1 to the Stock Purchase Agreement by and among the Company,
American Prepaid, the stockholders of CompDent, Greylock Limited Partnership and
CompDent, dated June 23, 1995 (4)
2.4 Stock Purchase Agreement by and among American Prepaid and Daniel Heiman
individually and as trustee of each of the Scott Heiman Trust and the Cynthia Heiman
Trust, Barney P. Randol, Texas Dental Plans, Inc., Dental Plans International, Inc. and
Dental Providers Resources, Inc. dated as of January 8, 1996 (5)
2.5 Asset Purchase Agreement by and among American Prepaid and National Dental Plans,
Inc. and certain of its shareholders dated as of January 8, 1996 (5)
2.6 Stock Purchase Agreement by and among American Prepaid and Theodore Tannebaum,
Sven Philip-Sorenson, Dental Care Plus Management, Corp. and I.H.C.S., Inc. dated as
of February 28, 1996, as amended (7)
3.1 Amended and Restated Certificate of Incorporation (8)
3.2 Amended and Restated By-laws (1)
4.1 Specimen certificate for shares of the Company's Common Stock (2)
4.2 Shareholder Rights Agreement, dated as of August 16, 1996, between the
Company and State Street Bank and Trust Company, as Rights Agent. (7)
*4.3 Certificate of Designations, Preferences, and Rights of a Series of Preferred Stock
of CompDent Corporation
10.1 First Amendment to the Credit Agreement among the
Company, American Prepaid, the lenders named therein
and First Union National Bank of North Carolina, as
Agent, dated May 3, 1996 (10)
10.2 Parent Guaranty of the Company in favor of First Union National Bank of North
Carolina, dated July 5, 1995 (4)
10.3 Parent Pledge Agreement between the Company and First Union National Bank of
North Carolina, dated July 5, 1995 (4)
10.4 Borrower Pledge Agreement between American Prepaid and First Union National Bank
of North Carolina, dated July 5, 1995 (4)
10.5 Noncompetition Agreement dated December 28 1994 by and between American Prepaid
and Henry G. New (3)
10.6 Amended and Restated Investment and Stockholders' Agreement dated as of April 26,
1995 among the Company, American Prepaid, the Brains, the TA Investors, the
Chestnut Investors and the Management Investors (2)
10.7 Consulting Agreement dated as of April 2, 1993 between American Prepaid and
Vincent V. Rex (2)
10.8 Employment Agreement dated May 24, 1995 between American Prepaid and David R.
Klock (1)
10.9 Employment Agreement dated May 24, 1995 between American Prepaid and Phyllis A.
Klock (1)
</TABLE>
1
<PAGE> 22
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
10.10 Employment Agreement dated May 24, 1995 between American Prepaid and Sharon S.
Graham (1)
10.11 Employment Agreement dated April 14, 1995 between American Prepaid and Ken K.
Bohrer (1)
10.12 Employment Agreement dated June 5, 1995 between American Prepaid and Willis
Warrender (1)
10.13 Key Executive Insurance Policies for David R. Klock and Phyllis A. Klock (3)
10.14 Key Executive Insurance Policy for Sharon S. Graham (1)
10.15 Non-Qualified Stock Option Agreement dated November 1, 1993 between Philip Hertik
and the Company (3)
10.16 Non-Qualified Stock Option Agreement dated as of November 1, 1993 between Joseph
E. Stephenson and the Company (3)
10.17 Non-Qualified Stock Option Agreement dated as of September 25, 1995 between Joseph
Ciffolillo and the Company (9)
10.18 The Company's 1994 Stock Option and Grant Plan (3)
10.19 Stock Redemption Agreement dated July 29, 1994 between the Company and David R.
Klock for 2,500 shares at $5.33 per share (3)
*10.20 Amended and Restated CompDent Corporation 401(k) Standardized Profit Sharing Plan
effective January 1, 1997
10.21 Form of Indemnity Agreement between the Company and each of its directors (2)
10.22 Employment Agreement dated February 1, 1996 by and between the Company and
Bruce A. Mitchell (6)
10.23 The Company's Employee Stock Purchase Plan (9)
*10.24 The Company's Non-Employee Directors Stock Option Plan
*10.25 Form of Non-Qualified Stock Option Agreement under the Company's Non-Employee
Directors' Stock Option Plan
*10.26 The Company's 1996 Stock Option Plan
*10.27 Forms of Non-Qualified Stock Option Agreement under the Company's 1994 Stock
Option and Grant Plan and 1996 Stock Option Plan
10.28 Agreement by and between Shenandoah Life Insurance Company and American
Prepaid, effective December 27, 1993 (3)
10.29 Agreement by and between Shenandoah Life Insurance Company and ADP-NC,
effective January 20, 1994 (3)
10.30 Agreement by and between Shenandoah Life Insurance Company and ADP-GA,
effective January 20, 1994 (3)
10.31 Agreement by and between Shenandoah Life Insurance Company and ADP, effective
January 20, 1994 (3)
10.32 Agreement by and between Shenandoah Life Insurance Company and American Dental
Plan of Alabama, Inc., effective January 20, 1994 (3)
10.33 Agreement by and between Shenandoah Life Insurance Company and American Prepaid
Dental Plan of Ohio, Inc., effective January 20, 1994 (3)
10.34 Prepaid Product Marketing/Administration Agreement by and between The Centennial
Life Insurance Company and CompDent Corporation, effective January 1, 1995 (1)
10.35 Indemnity Products Marketing/Administrative Agreement by and between the
Centennial Life Insurance Company and CompDent Corporation, effective January 1,
1995 (1)
</TABLE>
2
<PAGE> 23
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
*10.36 Lease Agreement dated December 22, 1995, by and
between Mansell Overlook 100, LLC, and CompDent
Corporation for property located at 100 Mansell
Court, Roswell, GA 30076
*13.1 Annual Report to Stockholders for the fiscal year
ended December 31, 1996 (such report, except for
those portions thereof which are expressly
incorporated by reference in this filing, is
furnished for the information of the Commission and
is not deemed "filed" as part hereof)
*21.1 Subsidiaries of the Company
*23.1 Consent of Coopers & Lybrand L.L.P.
*27.1 Financial Data Schedule (for SEC use only)
- ------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(1) Filed as an exhibit to the Registrant's Registration Statement
on Form S-1 filed with the Securities and Exchange Commission
on August 4, 1995 (File No. 33-95444) and incorporated herein
by reference thereto.
(2) Filed as an exhibit to Pre-effective Amendment No. 1 to the Registrant's Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on April 27, 1995 (File No.
33-90316) and incorporated herein by reference thereto.
(3) Filed as an exhibit to the Registrant's Registration Statement
on Form S-1 filed with the Securities and Exchange Commission
on March 14, 1995 (File No. 33-90316) and incorporated herein
by reference thereto.
(4) Filed as an exhibit to the Registrant's Current Report on Form
8-K filed with the Securities and Exchange Commission on July
5, 1995 and incorporated herein by reference thereto.
(5) Filed as an exhibit to the Registrant's Current Report on Form
8-K filed with the Securities and Exchange Commission on
January 8, 1996 and incorporated herein by reference thereto.
(6) Filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the period ended March 31, 1996 filed with the
Securities and Exchange Commission on May 15, 1996 and
incorporated herein by reference thereto.
(7) Filed as an exhibit to the Registrant's Annual Report on Form
10K for the period ended December 31, 1995 filed with the
Securities and Exchange Commission on March 28, 1996 and
incorporated herein by reference thereto.
(8) Filed as an exhibit to the Registrant's Current Report on Form
8-K filed with the Securities and Exchange commission on
August 20, 1996 and incorporated herein by reference thereto.
(9) Filed as an exhibit to the Registrant's Registration Statement on Form S-8 filed with the
Securities and Exchange Commission on September 18, 1996 (File No. 333-12227) and
incorporated herein by reference thereto.
</TABLE>
3
<PAGE> 24
<TABLE>
Exhibit No. Description
<S> <C>
(10) Filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the period ended June 30, 1996 filed with the
Securities Exchange Commission on August 14, 1996 and
incorporated herein by reference thereto.
* Filed herewith
</TABLE>
4
<PAGE> 1
EXHIBIT 4.3
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF A SERIES OF
PREFERRED STOCK
OF
COMPDENT CORPORATION
-------------
COMPDENT CORPORATION, a corporation organized and existing under the General
Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by
the Amended and Restated Certificate of Incorporation (as amended) of said
corporation, and pursuant to the provisions of Section 151 of Title 8 of the
Delaware Code of 1953, said Board of Directors, at a meeting duly held on
August 16, 1996, adopted a resolution providing for the designations,
preferences and relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof, of a Series of Preferred
Stock, which resolution is as follows:
See attached pages 2A-7A
<PAGE> 2
I, David R. Klock, Chief Executive Officer of the Corporation, do make
this certificate, hereby declaring and certifying that this is my act and deed
on behalf of the Corporation this 16th day of August, 1996.
/s/ David R. Klock
-----------------------------------
By: David R. Klock
Title: Chief Executive Officer
<PAGE> 3
VOTE OF DIRECTORS ESTABLISHING
SERIES A JUNIOR PARTICIPATING CUMULATIVE
PREFERRED STOCK
of
COMPDENT CORPORATION
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware:
VOTED, that pursuant to authority conferred upon and vested in the
Board of Directors by the Amended and Restated Certificate of Incorporation, as
amended as of the date hereof (the "Certificate of Incorporation"), of CompDent
Corporation (the "Corporation"), the Board of Directors hereby establishes and
designates a series of Preferred Stock of the Corporation, and hereby fixes and
determines the relative rights and preferences of the shares of such series, in
addition to those set forth in the Certificate of Incorporation, as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Cumulative Preferred Stock" (the
"Series A Preferred Stock"), and the number of shares initially constituting
such series shall be 50,000; provided, however, that if more than a total of
50,000 shares of Series A Preferred Stock shall be issuable upon the exercise
of Rights (the "Rights") issued pursuant to the Shareholder Rights Agreement
dated as of August 16, 1996, between the Corporation and State Street Bank and
Trust Company, as Rights Agent (the "Rights Agreement"), the Board of Directors
of the Corporation, pursuant to Section 151(g) of the General Corporation Law
of the State of Delaware, shall direct by resolution or resolutions that a
certificate be properly executed, acknowledged, filed and recorded, in
accordance with the provisions of Section 103 thereof, providing for the total
number of shares of Series A Preferred Stock authorized to be issued to be
increased (to the extent that the Certificate of Incorporation then permits) to
the largest number of whole shares (rounded up to the nearest whole number)
issuable upon exercise of such Rights.
Section 2. Dividends and Distributions.
(A) (i) Subject to the rights of the holders of any shares of any
series of preferred stock (or any similar stock) ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders of shares
of Series A Preferred Stock, in preference to the holders of shares of common
stock and of any other junior stock, shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for the
purpose, quarterly
2A
<PAGE> 4
dividends payable in cash on the first day of March, June, September and
December in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment
Date after the first issuance of a share or fraction of a share of Series A
Preferred Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $1.00 or (b) subject to the provisions for adjustment
hereinafter set forth, 10,000 times the aggregate per share amount of all cash
dividends, and 10,000 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares of common stock or a subdivision of the outstanding shares of common
stock (by reclassification or otherwise), declared on the common stock since
the immediately preceding Quarterly Dividend Payment Date, or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. The multiple of cash
and non-cash dividends declared on the common stock to which holders of the
Series A Preferred Stock are entitled, which shall be 10,000 initially but
which shall be adjusted from time to time as hereinafter provided, is
hereinafter referred to as the "Dividend Multiple." In the event the
Corporation shall at any time after August 16, 1996 (the "Rights Declaration
Date") (i) declare or pay any dividend on common stock payable in shares of
common stock, or (ii) effect a subdivision or combination or consolidation of
the outstanding shares of common stock (by reclassification or otherwise than
by payment of a dividend in shares of common stock) into a greater or lesser
number of shares of common stock, then in each such case the Dividend Multiple
thereafter applicable to the determination of the amount of dividends which
holders of shares of Series A Preferred Stock shall be entitled to receive
shall be the Dividend Multiple applicable immediately prior to such event
multiplied by a fraction, the numerator of which is the number of shares of
common stock outstanding immediately after such event and the denominator of
which is the number of shares of common stock that were outstanding immediately
prior to such event.
(ii) Notwithstanding anything else contained in this
paragraph (A), the Corporation shall, out of funds legally available for that
purpose, declare a dividend or distribution on the Series A Preferred Stock as
provided in this paragraph (A) immediately after it declares a dividend or
distribution on the common stock (other than a dividend payable in shares of
common stock); provided that, in the event no dividend or distribution shall
have been declared on the common stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date,
a dividend of $1.00 per share on the Series A Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(B) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A
Preferred Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date
after the record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to
3A
<PAGE> 5
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid on the shares of
Series A Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix in accordance with applicable law a record date
for the determination of holders of shares of Series A Preferred Stock entitled
to receive payment of a dividend or distribution declared thereon, which record
date shall be not more than such number of days prior to the date fixed for the
payment thereof as may be allowed by applicable law.
Section 3. Voting Rights. In addition to any other voting rights
required by law, the holders of shares of Series A Preferred Stock shall have
the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
10,000 votes on all matters submitted to a vote of the stockholders of the
Corporation. The number of votes which a holder of a share of Series A
Preferred Stock is entitled to cast, which shall initially be 10,000 but which
may be adjusted from time to time as hereinafter provided, is hereinafter
referred to as the "Vote Multiple." In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare or pay any dividend on
common stock payable in shares of common stock, or (ii) effect a subdivision or
combination or consolidation of the outstanding shares of common stock (by
reclassification or otherwise than by payment of a dividend in shares of common
stock) into a greater or lesser number of shares of common stock, then in each
such case the Vote Multiple thereafter applicable to the determination of the
number of votes per share to which holders of shares of Series A Preferred
Stock shall be entitled shall be the Vote Multiple immediately prior to such
event multiplied by a fraction, the numerator of which is the number of shares
of common stock outstanding immediately after such event and the denominator of
which is the number of shares of common stock that were outstanding immediately
prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of common stock
and the holders of shares of any other capital stock of this Corporation having
general voting rights, shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(C) Except as otherwise required by applicable law or as set forth
herein, holders of Series A Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are entitled
to vote with holders of common stock as set forth herein) for taking any
corporate action.
Section 4. Certain Restrictions.
(A) Whenever dividends or distributions payable on the Series A
Preferred Stock as provided in Section 2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or not declared, on
shares of Series A Preferred Stock outstanding shall
4A
<PAGE> 6
have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A
Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with
the Series A Preferred Stock, except dividends paid ratably on
the Series A Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then
entitled;
(iii) except as permitted in subsection 4(A)(iv) below, redeem,
purchase or otherwise acquire for consideration shares of any
stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A
Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of any stock ranking
on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock,
except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under subsection (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but unissued shares
of preferred stock and may be reissued as part of a new series of preferred
stock to be created by resolution or resolutions of the Board of Directors,
subject to the conditions and restrictions on issuance set forth herein.
5A
<PAGE> 7
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made (x) to the holders of shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series A Preferred Stock unless, prior thereto, the
holders of shares of Series A Preferred Stock shall have received an amount
equal to accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, plus an amount equal to the greater of
(1) $10,000.00 per share or (2) an aggregate amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 10,000 times the
aggregate amount to be distributed per share to holders of common stock, or (y)
to the holders of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all other
such parity stock in proportion to the total amounts to which the holders of
all such shares are entitled upon such liquidation, dissolution or winding up.
In the event the Corporation shall at any time after the Rights Declaration
Date (i) declare or pay any dividend on common stock payable in shares of
common stock, or (ii) effect a subdivision or combination or consolidation of
the outstanding shares of common stock (by reclassification or otherwise than
by payment of a dividend in shares of common stock) into a greater or lesser
number of shares of common stock, then in each such case the aggregate amount
per share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (x) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of common stock outstanding immediately after
such event and the denominator of which is the number of shares of common stock
that were outstanding immediately prior to such event.
Neither the consolidation of nor merging of the Corporation with or
into any other corporation or corporations, nor the sale or other transfer of
all or substantially all of the assets of the Corporation, shall be deemed to
be a liquidation, dissolution or winding up of the Corporation within the
meaning of this Section 6.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of common stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 10,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of common stock is changed or exchanged,
plus accrued and unpaid dividends, if any, payable with respect to the Series A
Preferred Stock. In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare or pay any dividend on common stock payable
in shares of common stock, or (ii) effect a subdivision or combination or
consolidation of the outstanding shares of common stock (by reclassification or
otherwise than by payment of a dividend in shares of common stock) into a
greater or lesser number of shares of common stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares
6A
<PAGE> 8
of Series A Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of common stock
outstanding immediately after such event and the denominator of which is the
number of shares of common stock that were outstanding immediately prior to
such event.
Section 8. Redemption. The shares of Series A Preferred Stock shall
not be redeemable.
Section 9. Ranking. Unless otherwise provided in the Certificate of
Incorporation or a Certificate of Vote of Directors Establishing a Class of
Stock relating to a subsequently-designated series of preferred stock of the
Corporation, the Series A Preferred Stock shall rank junior to any other series
of the Corporation's preferred stock subsequently issued, as to the payment of
dividends and the distribution of assets on liquidation, dissolution or winding
up and shall rank senior to the common stock.
Section 10. Amendment. The Certificate of Incorporation and this
Certificate of Vote of Directors shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Preferred Stock so as to affect them adversely without the affirmative
vote of the holders of two-thirds or more of the outstanding shares of Series A
Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. Series A Preferred Stock may be
issued in whole shares or in any fraction of a share that is one ten-thousandth
(1/10,000th) of a share or any integral multiple of such fraction, which shall
entitle the holder, in proportion to such holder's fractional shares, to
exercise voting rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of Series A Preferred Stock.
In lieu of fractional shares, the Corporation may elect to make a cash payment
as provided in the Rights Agreement for fractions of a share other than one
ten-thousandth (1/10,000th) of a share or any integral multiple thereof.
7A
<PAGE> 1
EXHIBIT 10.20
COMPREHENSIVE STANDARDIZED 401(k) PROFIT SHARING PLAN
ADOPTION AGREEMENT
- -------------------------------------------------------------------------------
SECTION 1. EMPLOYER INFORMATION
- -------------------------------------------------------------------------------
Name of Employer CompDent Corporation
-------------------------------------------------------------
Address 100 Mansell Court East, Suite 400
-----------------------------------------------------------------------
City Roswell State GA Zip 30076
--------------------------------- ----------------- -----------
Telephone 770-998-8936 Employer's Federal Tax Identification Number 04-3185995
-------------- ----------
Type of Business (Check only one) [ ] Sole Proprietorship [ ] Partnership
[X] C Corporation [ ] S Corporation [ ] Other (Specify)
--------------------
[X] Check here if Related Employers may participate in this Plan and attach a
Related Employer Participation Agreement for each Related Employer who will
participate in this Plan.
Business Code 8098
-----------
Name of Plan CompDent 401(k) Plan
-----------------------------------------------------------------
Name of Trust (if different from Plan name)
-----------------------------------------------------------------
Plan Sequence Number 001 (Enter 001 if this is the first qualified plan the
------ Employer has ever maintained, enter 002 if it is
the second, etc.)
Trust Identification Number (if applicable)
-----------------------------------
Account Number (optional) -----------------------------------------------------
- -------------------------------------------------------------------------------
SECTION 2. EFFECTIVE DATES
Complete Parts A and B
- -------------------------------------------------------------------------------
Part A. GENERAL EFFECTIVE DATES (Check and Complete Option 1 or 2):
OPTION 1: [ ] This is the initial adoption of a profit sharing plan by
the Employer.
The Effective Date of this Plan is
-------------------.
NOTE: The effective date is usually the first day of the
Plan Year in which this Adoption Agreement is signed.
OPTION 2: [X] This is an amendment and restatement of an existing
profit sharing plan (a Prior Plan).
The Prior Plan was initially effective on 08-01-1994 .
------------
The Effective Date of this amendment and restatement is
01-01-1997
---------------------------.
NOTE: The effective date is usually the first day of the
Plan Year in which this Adoption Agreement is signed.
PART B. SPECIFIC EFFECTIVE DATES:
The provisions of the Plan will generally be effective as of the
Effective Date specified in Section 2, Part A. However, the following
provisions will be effective on the dates indicated below (Specify
effective date only if later than the general Effective Date described
in Section 2, Part A):
<TABLE>
<CAPTION>
PROVISION EFFECTIVE DATE
--------- --------------
<S> <C>
1. Commencement of Elective Deferrals*
--------------
2. Matching Contributions (Section 7)
--------------
3. Qualified Nonelective Contributions
(Section 8)
--------------
4. Qualified Matching Contributions
(Section 9)
--------------
5. In-Service Withdrawals (Section 15,
Part A, Item 6)
--------------
6. Hardship Withdrawals of Elective
Deferrals (Section 15, Part A, Item 5)
--------------
7. Hardship Withdrawals (Section 15,
Part A, Item 8)
--------------
8. Loans (Section 17, Item A)
--------------
9. Participant Direction of Investments
(Section 18)
--------------
</TABLE>
*NOTE: Elective Deferrals may commence no earlier than the date this
Adoption Agreement is signed because Elective Deferrals cannot be made
retroactively.
<PAGE> 2
SECTION 3. RELEVANT TIME PERIODS
Complete Parts A through D
- -------------------------------------------------------------------------------
PART A. EMPLOYER'S FISCAL YEAR:
The Employer's fiscal year ends (Specify month and day) 12-31
---------
PART B. PLAN YEAR MEANS:
OPTION 1: [ ] The 12-consecutive month period which coincides with the
Employer's fiscal year.
OPTION 2: [X] The calendar year.
OPTION 3: [ ] Other (Specify)
------------------------------------------
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
If the initial Plan Year is less than 12 months (a short Plan Year)
specify such Plan Year's beginning and ending dates
-----------------------------------------------------------------------
PART C. LIMITATION YEAR MEANS:
OPTION 1: [X] The Plan Year.
OPTION 2: [ ] The calendar year.
OPTION 3: [ ] Other (Specify)
------------------------------------------
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
PART D. MEASURING PERIOD FOR VESTING:
Years of Vesting Service shall be measured over the following
12-consecutive month period:
OPTION 1: [ ] The Plan Year.
OPTION 2: [X] The 12-consecutive month period commencing with the
Employee's Employment Commencement Date and each
successive 12-month period commencing on the
anniversaries of the Employee's Employment Commencement
Date.
OPTION 3: [ ] Other (Specify)
-----------------------------------------
NOTE: If no option is selected, Option 1 will be deemed to be selected.
- --------------------------------------------------------------------------------
SECTION 4. ELIGIBILITY REQUIREMENTS
Complete Parts A through F
- --------------------------------------------------------------------------------
PART A. YEARS OF ELIGIBILITY SERVICE REQUIREMENT:
1. ELECTIVE DEFERRALS.
An Employee will be eligible to become a Contributing Participant
in the Plan (and thus be eligible to make Elective Deferrals) after
completing 1/2 (enter 0, 1 or any fraction less than 1) Years of
Eligibility Service.
2. MATCHING CONTRIBUTIONS.
If Matching Contributions (or Qualified Matching Contributions, if
applicable) will be made to the Plan, a Contributing Participant
will be eligible to receive Matching Contribution (or Qualified
Matching Contributions, if applicable) after completing 1/2 (enter
0, 1, 2 or any fraction less than 2) Years of Eligibility Service.
3. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
An Employee will be eligible to become a Participant in the
Plan for purposes of receiving an allocation of any Employer Profit
Sharing Contribution made pursuant to Section 11 of the Adoption
Agreement after completing 1/2 (enter 0, 1, 2 or any
fraction less than 2) Years of Eligibility Service.
NOTE: If more than 1 year is selected for Item 2 or Item 3,
the immediate 100% vesting schedule of Section 13 will automatically
apply for contributions described in such item. If any item is left
blank, the Years of Eligibility Service required for such item will be
deemed to be 0. If a fraction is selected, an Employee will not be
required to complete any specified number of Hours of Service to
receive credit for a fractional year. If a single Entry Date is
selected in Section 4, Part F, for an item, the Years of Eligibility
Service required for such item cannot exceed 1 1/2 (1/2 for Elective
Deferrals).
<PAGE> 3
PART B. AGE REQUIREMENT:
1. ELECTIVE DEFERRALS.
An Employee will be eligible to become a Contributing Participant
(and thus be eligible to make Elective Deferrals) after attaining
age (no more than 21).
--------
2. MATCHING CONTRIBUTIONS.
If Matching Contributions (or Qualified Matching Contributions, if
applicable) will be made to the Plan, a Contributing Participant
will be eligible to receive Matching Contributions (or Qualified
Matching Contributions, if applicable) after attaining age
(no more than 21). --------
3. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
An Employee will be eligible to become a Participant in the Plan
for purposes of receiving an allocation of any Employer Profit
Sharing Contribution made pursuant to Section 11 of the Adoption
Agreement after attaining age (no more than 21).
-------
NOTE: If any of the above items in this Section 4, Part B, is left
blank, it will be deemed there is no age requirement for such item.
If a single Entry Date is selected in Section 4, Part F, for an item, no
age requirement can exceed 20 1/2 for such item.
PART C. EMPLOYEES EMPLOYED AS OF EFFECTIVE DATE:
1. ELECTIVE DEFERRALS.
Will all Employees employed as of the date that Elective Deferrals
may commence as specified in Section 2, Part B, who have not
otherwise met the Years of Eligibility Service and age requirements
specified above for Elective Deferrals be considered to have met
those requirements as of the Elective Deferral commencement date?
[ ] Yes [X] No
2. MATCHING CONTRIBUTIONS.
If Matching Contributions (or Qualified Matching Contributions, if
applicable) will be made to the Plan, will all Employees employed
as of the date that Elective Deferrals may commence as specified in
Section 2, Part B, who have not otherwise met the Years of
Eligibility Service and age requirements specified above for
Matching Contributions be considered to have met those requirements
as of the Elective Deferral commencement date?
[ ] Yes [X] No
3. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
Will all Employees employed as of the Effective Date of this Plan
who have not otherwise met the Years of Eligibility Service and
age requirements specified above for Employer Profit Sharing
Contributions be considered to have met those requirements as of
the Effective Date? [ ] Yes [X] No
NOTE: If a box is not checked for any item in this Section 4, Part C,
"No" will be deemed to be selected for that item.
PART D. EXCLUSION OF CERTAIN CLASSES OF EMPLOYEES:
1. ELECTIVE DEFERRALS.
All Employees will be eligible to become Contributing Participants
(and thus eligible to make Elective Deferrals) except:
a. [ ] Those Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer and
Employee representatives, if retirement benefits were the
subject of good faith bargaining and if two percent or less of
the Employees who are covered pursuant to that agreement are
professionals as defined in Section 1.410(b)-9 of the
regulations. For this purpose, the term "employee
representatives" does not include any organization more than
half of whose members are Employees who are owners, officers,
or executives of the Employer.
b. [ ] Those Employees who are non-resident aliens (within the meaning
of Section 7701(b)(1)(B) of the Code) and who received no earned
income (within the meaning of Section 911(d)(2) of the Code)
from the Employer which constitutes income from sources within
the United States (within the meaning of Section 861(a)(3) of
the Code.)
<PAGE> 4
2. MATCHING CONTRIBUTIONS.
All Contributing Participants will be eligible to receive Matching
Contributions (or Qualified Matching Contributions) if applicable,
except:
a. [ ] Those Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer and
Employee representatives, if retirement benefits were the
subject of good faith bargaining and if two percent or less of
the Employees who are covered pursuant to that agreement are
professionals as defined in Section 1.410(b)-9 of the
regulations. For this purpose, the term "employee
representative" does not include any organization more than
half of whose members are Employees who are owners, officers,
or executives of the Employer.
b. [ ] Those Employees who are non-resident aliens (within the meaning
of Section 7701(b)(1)(B) of the Code) and who received no
earned income (within the meaning of Section 911(d)(2) of the
Code) from the Employer which constitutes income from sources
with the United States (within the meaning of Section
861(a)(3) of the Code).
E. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
All Employees will be eligible to become a Participant in the Plan
for purposes of receiving an allocation of any Employer Profit
Sharing Contribution made pursuant to Section 11 of the Adoption
Agreement except:
a. [ ] Those Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer and
Employee representatives, if retirement benefits were the
subject of good faith bargaining and if two percent or less
of the Employees who are covered pursuant to that agreement
are professionals as defined in Section 1.410(b)-9 of the
regulations. For this purpose, the term "employee
representatives" does not include any organization more than
half of whose members are Employees who are owners, officers,
or executives of the Employer.
b. [ ] Those Employees who are non-resident aliens (within the
meaning of Section 7701(b)(1)(B) of the Code) and who received
no earned income (within the meaning of Section 911(d)(2) of
the Code) from the Employer which constitutes income from
sources within the United States (within the meaning of
Section 861(a)(3) of the Code).
PART 3. HOURS REQUIRED FOR ELIGIBILITY PURPOSES:
1. ____________ Hours of Service (no more than 1,000) shall be required
to constitute a Year of Eligibility Service.
2. ____________ Hours of Service (no more than 500 but less than the
number specified in Section 4, Part E, Item 1, above) must be
exceeded to avoid a Break in Eligibility Service.
3. For purposes of determining Years of Eligibility Service, Employees
shall be given credit for Hours of Service with the following
predecessor employer(s) (Complete if applicable)
--------------------------------------------------------------------
--------------------------------------------------------------------
PART F. ENTRY DATES:
1. ELECTIVE DEFERRALS.
The Entry Dates for purposes of making Elective Deferrals shall be
(Choose one):
OPTION 1: [ ] The first day of the Plan Year and the first day of
the seventh month of the Plan Year.
OPTION 2: [X] The first day of the Plan Year and the first day of
the fourth, seventh and tenth months of the Plan Year.
OPTION 3: [ ] The first day of the Plan Year.
OPTION 4: [ ] Other (Specify)
---------------------------------------
---------------------------------------
2. MATCHING CONTRIBUTIONS.
If Matching Contributions (or Qualified Matching Contributions) will
be made to the Plan, the Entry Dates for purposes of Matching
Contributions (or Qualified Matching Contributions, if applicable)
shall be (Choose one):
OPTION 1: [ ] The first day of the Plan Year and the first day of
the seventh month of the Plan Year.
OPTION 2: [X] The first day of the Plan Year and the first day of
the fourth, seventh and tenth months of the Plan Year.
OPTION 3: [ ] The first day of the Plan Year.
OPTION 4: [ ] Other (Specify)
---------------------------------------
---------------------------------------
<PAGE> 5
3. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
The Entry Dates for purposes of Employer Profit Sharing
Contributions shall be (Choose one):
OPTION 1: [ ] The first day of the Plan Year and the first day of
the seventh month of the Plan Year.
OPTION 2: [X] The first day of the Plan Year and the first day of
the fourth, seventh and tenth months of the Plan
Year.
OPTION 3: [ ] The first day of the Plan Year.
OPTION 4: [ ] Other (Specify)
-------------------------------------
-------------------------------------
NOTE: If no option is selected for an item, Option 1 will be deemed to
be selected for that item. Option 3 or Option 4 can be selected for an
item only if the eligibility requirements and Entry Dates are
coordinated such that each Employee will become a Participant in the
Plan no later than the earlier of: (1) the first day of the
Plan Year beginning after the date the Employee satisfies the age and
service requirements of Section 410(a) of the Code; or (2) 6 months
after the date the Employee satisfies such requirements.
- -------------------------------------------------------------------------------
SECTION 5. METHOD OF DETERMINING SERVICE
Complete Part A or B
- -------------------------------------------------------------------------------
PART A. HOURS OF SERVICE EQUIVALENCIES:
Service will be determined on the basis of the method selected below.
Only one method may be selected. The method selected will be applied
to all Employees covered under the Plan. (Choose one)
OPTION 1: [ ] On the basis of actual hours for which an Employee is
paid or entitled to payment.
OPTION 2: [ ] On the basis of days worked. An Employee will be
credited with 10 Hours of Service if under Section
1.24 of the Plan such Employee would be credited with
at least 1 Hour of Service during the day.
OPTION 3: [ ] On the basis of weeks worked. An Employee will be
credited with 45 Hours of Service if under
Section 1.24 of the Plan such Employee would be
credited with at least 1 Hour of Service during the
week.
OPTION 4: [ ] On the basis of months worked. An Employee will be
credited with 190 Hours of Service if under Section
1.24 of the Plan such Employee would be credited with
at least 1 Hour of Service during the month.
NOTE: If no option is selected, Option 1 will be deemed to be
selected. This Section 5, Part A, will not apply if the Elapsed Time
Method of Section 5, Part B, is selected.
PART B. ELAPSED TIME METHOD:
In lieu of tracking Hours of Service of Employees, will the elapsed
time method described in Section 2.07 of the Plan be used? (Choose one)
OPTION 1: [ ] No.
OPTION 2: [X] Yes.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
- -------------------------------------------------------------------------------
SECTION 6. ELECTIVE DEFERRALS
- -------------------------------------------------------------------------------
PART A. AUTHORIZATION OF ELECTIVE DEFERRALS:
Will Elective Deferrals be permitted under this Plan? (Choose one)
OPTION 1: [X] Yes.
OPTION 2: [ ] No.
NOTE: If no option is selected, Option 1 will be deemed to be
selected. Complete the remainder of Section 6 only if Option 1
is selected.
PART B. LIMITS ON ELECTIVE DEFERRALS:
If Elective Deferrals are permitted under the Plan, a Contributing
Participant may elect under a salary reduction agreement to have his or
her Compensation reduced by an amount as described below (Choose one):
OPTION 1: [X] An amount equal to a percentage of the Contributing
Participant's Compensation from 1% to 20% in
increments of 1%.
OPTION 2: [ ] An amount of the Contributing Participant's
Compensation not less than __________ and not more
than ___________.
The amount of such reduction shall be contributed to the Plan by
the Employer on behalf of the Contributing Participant. For any
taxable year, a Contributing Participant's Elective Deferrals shall
not exceed the limit contained in Section 402(g) of the Code in
effect at the beginning of such taxable year.
<PAGE> 6
PART C. ELECTIVE DEFERRALS BASED ON BONUSES:
Instead of or in addition to making Elective Deferrals through payroll
deduction, may a Contributing Participant elect to contribute to the
Plan, as an Elective Deferral, part or all of a bonus rather than
receive such bonus in cash? (Choose one)
OPTION 1: [ ] Yes.
OPTION 2: [X] No.
NOTE: If no option is selected, Option 2 will be deemed to be
selected.
PART D. CEASING ELECTIVE DEFERRALS:
A Contributing Participant may prospectively revoke a salary reduction
to cease Elective Deferrals (Choose one):
OPTION 1: [X] As of the first day of any payroll period.
OPTION 2: [ ] As of the first day of any month.
OPTION 3: [ ] As of the first day of any quarter.
OPTION 4: [ ] As of any Entry Date.
OPTION 5: [ ] As of such times established by the Plan
Administrator in a uniform and nondiscriminatory
manner.
OPTION 6: [ ] Other (Specify. Must be at least once per year.)
-----------------------------------------------------
-----------------------------------------------------
PART E. RETURN AS A CONTRIBUTING PARTICIPANT AFTER CEASING ELECTIVE DEFERRALS:
A Participant who ceases Elective Deferrals by revoking a salary
reduction agreement may return as a Contributing Participant
(Choose one):
OPTION 1: [ ] No sooner than as of the first day of the next
Plan Year.
OPTION 2: [ ] As of any subsequent Entry Date.
OPTION 3: [X] As of the first day of any subsequent quarter.
OPTION 4: [ ] As of such times established by the Plan Administrator
in a uniform and nondiscriminatory manner.
OPTION 5: [ ] Other (Specify. Must be at least once per year.)
----------------------------------------------------
----------------------------------------------------
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
PART F. CHANGING ELECTIVE DEFERRAL AMOUNTS:
A Contributing Participant may modify a salary reduction agreement to
prospectively increase or decrease the amount of his or her Elective
Deferrals (Choose one):
OPTION 1: [ ] As of the first day of any payroll period.
OPTION 2: [ ] As of the first day of any month.
OPTION 3: [X] As of the first day of any quarter.
OPTION 4: [ ] As of any Entry Date.
OPTION 5: [ ] As of such times established by the Plan
Administrator in a uniform and nondiscriminatory
manner.
OPTION 6: [ ] Other (Specify)
-------------------------------------
-------------------------------------
NOTE: If no option is selected, Option 3 will be deemed to be
selected.
PART G: CLAIMING EXCESS ELECTIVE DEFERRALS:
Participants who claim Excess Elective Deferrals for the preceding
calendar year must submit their claims in writing to the Plan
Administrator by (Choose one):
OPTION 1: [X] March 1.
OPTION 2: [ ] Other (Specify a date not later than April 15)
--------
PART H: ONE-TIME IRREVOCABLE ELECTIONS:
May an Employee make a one-time irrevocable election, as described in
Section 11.205 of the Plan, upon first becoming eligible to participate
in the Plan to have the Employer make contributions to the Plan on such
Employee's behalf (Choose One):
OPTION 1: [ ] Yes.
OPTION 2: [X] No.
NOTE: If no option is selected, Option 2 will be deemed to be
selected.
<PAGE> 7
Page 7
- -------------------------------------------------------------------------------
SECTION 7. MATCHING CONTRIBUTIONS
- -------------------------------------------------------------------------------
PART A. AUTHORIZATION OF MATCHING CONTRIBUTIONS:
Will the Employer make Matching Contributions to the Plan on behalf of
Qualifying Contributing Participant's? (Choose one)
OPTION 1: [X] Yes, but only with respect to a Contributing Participant's
Elective Deferrals.
OPTION 2: [ ] Yes, but only with respect to a Participants Nondeductible
Employee Contributions.
OPTION 3: [ ] Yes, with respect to both Elective Deferrals and
Nondeductible Employee Contributions.
OPTION 4: [ ] No.
NOTE: If no option is selected, Option 4 will be deemed to be
selected. Complete the remainder of Section 7 only if Option 1, 2 or 3
is selected.
PART B. MATCHING CONTRIBUTION FORMULA:
If the Employer will make Matching Contributions, then the amount of
such Matching Contributions made on behalf of a Qualifying Contributing
Participant each Plan Year shall be (Choose one):
OPTION 1: [ ] An amount equal to % of such Contributing Participants
Elective Deferral (and/or Nondeductible Employee
Contribution, if applicable).
OPTION 2: [ ] An amount equal to the sum of____% of the portion of
such Contributing Participant's Elective Deferral (and/or
Nondeductible Employee Contribution, if applicable) which
does not exceed ____% of the Contributing Participant's
Compensation plus____% of the portion of such Contributing
Participant's Elective Deferral (and/or Nondeductible
Employee Contribution, if applicable) which exceeds____%
of the Contributing Participant's Compensation.
OPTION 3: [X] Such amount, if any, equal to that percentage of each
Contributing Participant's Elective Deferral (and/or
Nondeductible Employee Contribution, if applicable) which
the Employer, in its sole discretion, determines from year
to year.
OPTION 4: [ ] Other Formula. (Specify)_________________________________
_________________________________
NOTE: If Option 4 is selected, the formula specified can only allow
Matching Contributions to be made with respect to a Contributing
Participant's Elective Deferrals (and/or Nondeductible Employee
Contribution, if applicable).
PART C. LIMIT ON MATCHING CONTRIBUTIONS:
Notwithstanding the Matching Contribution formula specified above, no
Matching Contribution will be made with respect to a Contributing
Participant's Elective Deferrals (and/or Nondeductible Employee
Contributions, if applicable) in excess of ____ or____% of such
Contributing Participant's Compensation.
PART D. QUALIFYING CONTRIBUTING Participant's:
A Contributing Participant who satisfies the eligibility requirements
described in Section 4 will be a Qualifying Contributing Participant and
thus entitled to share in Matching Contributions for any Plan Year only
if the Participant is a Contributing Participant and satisfies the
following additional conditions (Check one or more Options):
OPTION 1:[x] No Additional Conditions.
OPTION 2:[ ] Hours of Service Requirement. The contributing Participant
completes at least____ (not more than 500)Hours of Service
during the Plan Year. However, this condition will be
waived for the following reasons (Check at least one):
[ ] The Contributing Participant's Death
[ ] The Contributing Participant's Terminination of
Employment after having incurred a Disability.
[ ] The Contributing Participant's Termination of
Employment after having reached Normal Retirement Age.
[ ] This condition will not be waived.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
<PAGE> 8
Page 8
- -------------------------------------------------------------------------------
SECTION 8. QUALIFIED NONELECTIVE CONTRIBUTIONS
- -------------------------------------------------------------------------------
PART A. AUTHORIZATION OF QUALIFIED NONELECTIVE CONTRIBUTIONS:
Will the Employer make Qualified Nonelective Contributions to the Plan?
(Choose One):
OPTION 1: [ ] Yes.
OPTION 2: [X] No.
If the Employer elects to make Qualified Nonelective Contributions, then
the amount, if any, of such contribution to the Plan for each Plan Year
shall be an amount determined by the Employer.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
Complete the remainder of Section 8 only if Option 1 is selected.
PART B. PARTICIPANTS ENTITLED TO QUALIFIED NONELECTIVE CONTRIBUTIONS:
Allocation of Qualified Nonelective Contributions shall be made to the
Individual Accounts of (Choose one):
OPTION 1: [ ] Only Participants who are not Highly Compensated
Employees.
OPTION 2: [ ] All Participants.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
PART C. ALLOCATION OF QUALIFIED NONELECTIVE CONTRIBUTIONS:
Allocation of Qualified Nonelective Contributions to Participants
entitled thereto shall be made (Choose one):
Option 1: [ ] In the ratio which each Participants Compensation for the
Plan Year bears to the total Compensation of all
Participants for such Plan Year.
OPTION 2: [ ] In the ratio which each Participant's Compensation not in
excess of ____ for the Plan Year bears to the total
Compensation of all Participants not in excess of ____ for
such Plan Year.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
- -------------------------------------------------------------------------------
SECTION 9. QUALIFIED MATCHING CONTRIBUTIONS
- -------------------------------------------------------------------------------
PART A. AUTHORIZATION OF QUALIFIED MATCHING CONTRIBUTIONS:
Will the Employer make Qualified Matching Contributions to the Plan on
behalf Qualifying Contributing Participants? (Choose One)
OPTION 1: [ ] Yes, but only with respect to a Contributing Participant's
Elective Deferrals.
OPTION 2: [ ] Yes, but only with respect to a Participants
Nondeductible Employee Contributions.
OPTION 3: [ ] Yes, with respect to both Elective Deferrals and
Nondeductible Employee Contributions.
OPTION 4: [X] No.
NOTE: If no option is selected, Option 3 will be deemed to be selected.
Complete the remainder of Section 9 only if Option 1,2 or 3 is selected.
PART B. QUALIFIED MATCHING CONTRIBUTION FORMULA:
If the Employer will make Qualified Matching Contributions, then the
amount of such Qualified Matching Contributions made on behalf of a
Qualifying Contributing Participant each Plan Year shall be (Choose
one):
OPTION 1: [ ] An amount equal to ____% of such Contributing
Participants Elective Deferral (and/or Nondeductible
Employee Contribution, if applicable).
OPTION 2: [ ] An amount equal to the sum of ____% of the portion of
such Contributing Participants Elective Deferral (and/or
Nondeductible Employee Contribution, if applicable) which
does not exceed____% of the Contributing Participants
Compensation plus____% of the portion of such Contributing
Participants Elective Deferral (and/or Nondeductible
Employee Contribution, if applicable) which exceeds____%
of the Contributing Participants Compensation.
OPTION 3: [ ] Such amount, if any, as determined by the Employer in
its sole discretion, equal to that percentage of the
Elective Deferrals (and/or Nondeductible Employee
Contribution, if applicable) of each Contributing
Participant entitled thereto which would be sufficient to
cause the Plan to satisfy the Actual Contribution
Percentage tests (described in Section 11.402 of the
Plan) for the Plan year.
OPTION 4: [ ] Other Formula. (Specify)_________________________________
_________________________________
NOTE: If no option is selected, Option 3 will be deemed to be selected.
<PAGE> 9
Page 9
PART C. PARTICIPANTS ENTITLED TO QUALIFIED MATCHING CONTRIBUTIONS:
Qualified Matching Contributions, if made to the Plan, will be made on
behalf of? (Choose one)
OPTION 1: [ ] Only Contributing Participants who make Elective
Deferrals who are not Highly Compensated Employees.
OPTION 2: [ ] All Contributing Participants who make Elective
Deferrals.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
PART D. LIMIT ON QUALIFIED MATCHING CONTRIBUTIONS:
Notwithstanding the Qualified Matching Contribution formula specified
above, the Employer will not match a Contributing Participants Elective
Deferrals (and/or Nondeductible Employee Contribution, if applicable) in
excess of ____or ____% of such Contributing Participants Compensation.
- -------------------------------------------------------------------------------
SECTION 10. ADP AND ACP TESTING OPTIONS
- -------------------------------------------------------------------------------
PART A. ACP TEST AND ELECTIVE DEFERRALS:
Will Elective Deferrals under this Plan (and any other Plan of the
Employer, as provided by regulations) be taken into account, and
included as Contribution Percentage Amounts for purpose of performing
the Average Contribution Percentage (ACP) test? (Choose one):
OPTION 1: [ ] No.
OPTION 2: [X] Yes, in the following amounts (Choose one):
SUBOPTION (A): [X] Only such Elective Deferrals
that are needed to meet the Average
Contribution Percentage test.
SUBOPTION (B): [ ] All Elective Deferrals.
NOTE: If no option is selected, Option 1 will be selected.
PART B. ACP TEST AND QUALIFIED NONELECTIVE CONTRIBUTIONS:
Will Qualified Nonelective Contributions under this Plan (and any other
plan of the Employer, as provided by regulations) be taken into account,
and included as Contribution Percentage Amounts for purposes of
performing the Average Contribution Percentage (ACP) test? (Choose one):
OPTION 1: [ ] No.
OPTION 2: [X] Yes, in the following amounts (Choose one):
SUBOPTION (A): [X] Only such Qualified Nonelective
Contributions that are needed to meet
the Average Contribution Percentage
test.
SUBOPTION (B): [ ] All Qualified Nonelective Contributions.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
PART C. ADP TEST AND QUALIFIED MATCHING CONTRIBUTIONS:
Will Qualified Matching Contributions under this Plan (or any other
plan of the Employer, as provided by regulations) be taken into
account as Elective Deferrals for purposes of calculating Actual
Deferral Percentages when performing the Actual Deferral Percentage
(ADP) test? (Choose one):
OPTION 1: [ ] No.
OPTION 2: [X] Yes, in the following amounts. (Choose one):
SUBOPTION (A): [X] Only such Qualified Matching
Contributions that are needed to meet
the ADP test.
SUBOPTION (B): [ ] All such Qualified Matching
Contributions.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
PART D. CORRECTION OF AGGREGATE LIMIT:
If the Aggregate Limit described in Section 11.102 of the Plan is
exceeded, the following adjustment will be made in accordance with
Section 11.402(B)(1) of the Plan (Choose one):
OPTION 1: [X] The ACP of Highly Compensated Employees will be reduced.
OPTION 2: [ ] The ADP of Highly Compensated Employees will be reduced.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
<PAGE> 10
Page 10
- -------------------------------------------------------------------------------
SECTION 11. EMPLOYER PROFIT SHARING CONTRIBUTIONS
Complete Parts A, B and C
- -------------------------------------------------------------------------------
PART A. CONTRIBUTION FORMULA (Choose one):
OPTION 1: [X] Discretionary Formula. For each Plan Year the Employer
will contribute an amount to be determined from year to
year.
OPTION 2: [ ] Fixed Formula.____% of the Compensation of all
Qualifying Participants under the Plan for the Plan Year.
OPTION 3: [ ] Fixed Percent of Profits Formula.____% of the Employer's
profits that are in excess of ____.
OPTION 4: [ ] Frozen Plan. This Plan is frozen effective ____ and the
Employer will not make additional contributions to the
Plan after such date.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
PART B. ALLOCATION FORMULA (Choose one):
OPTION 1:[X] Pro Rata Formula. Employer Profit Sharing Contributions
shall be allocated to the Individual Accounts of
Qualifying Participants in the ratio that each Qualifying
Participants Compensation for the Plan Year bears to the
total Compensation of all Qualifying Participants for the
Plan Year.
OPTION 2:[ ] Flat Dollar Formula. Employer Profit Sharing Contributions
allocated to the Individual Accounts of Qualifying
Participants for each Plan Year shall be the same dollar
amount for each Qualifying Participant.
OPTION 3:[ ] Integrated Formula. Employer Profit Sharing Contributions
shall be allocated as follows (Start with Step 3 if this
Plan is not a Top-Heavy Plan):
Step 1. Employer Profit Sharing Contributions shall be
first be allocated pro rata to Qualifying
Participants in the manner described in Section 11,
Part B, Option 1. The percent so allocated shall
not exceed 3% of each Qualifying Participants
Compensation.
Step 2. Any Employer Profit Sharing Contributions remaining
after the allocation in Step 1 shall be allocated
to each Qualifying Participants Individual Account
in the ratio that each Qualifying Participants
Compensation in excess of the integration level,
but not in excess of 3%
Step 3. Any Employer Profit Sharing Contributions remaining
after the allocation in Step 2 shall be allocated
to each Qualifying Participants Individual Account
in the ratio that the sum of each Qualifying
Participant's total Compensation and Compensation
in excess of the integration level, but not in
excess of the profit sharing maximum disparity rate
as described in Section 3.01(B)(3) of the Plan.
Step 4. Any Employer Profit Sharing Contributions remaining
after the allocation in Step 3 shall be allocated
pro rata to Qualifying Participants in the manner
described in Section 11, Part B, Option 1.
The integration level shall be (Choose one):
SUBOPTION (A):[ ] The taxable Wage Base.
SUBOPTION (B):[ ] ___________(a dollar amount less than the
Taxable Wage Base).
SUBOPTION (C):[ ] ________% (not more than 100%) of the
Taxable Wage Base.
NOTE: If no option is selected, SUBOPTION (a) will be
deemed to be selected.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
<PAGE> 11
Page 11
PART C. QUALIFYING PARTICIPANTS:
A Participant will be a Qualifying Participant and thus entitled to
share in the Employer Profit Sharing Contribution for any Plan Year only
if the Participant is a Participant on at least one day of such Plan
Year and satisfies the following additional conditions (Check one or
more Options):
OPTION 1: [X] No Additional Conditions.
OPTION 2: [ ] Hours of Service Requirement. The Participant completes at
least _______ (not more than 500) Hours of Service during
the Plan Year. However, this condition will be waived for
the following reasons (Check at least one):
[ ] The Participant's Death.
[ ] The Participant's Termination of Employment after having
incurred a Disability.
[ ] The Participant's Termination of Employment after having
reached Normal Retirement Age.
[ ] This condition will not be waived.
- -------------------------------------------------------------------------------
SECTION 12. COMPENSATION
Complete Parts A through D
- -------------------------------------------------------------------------------
PART A. BASIC DEFINITION:
1. ELECTIVE DEFERRALS
For purposes of Elective Deferrals, Compensation will mean all
of each Participant's (Choose one):
OPTION 1: [X] W-2 wages.
OPTION 2: [ ] Section 340(a) wages.
OPTION 3: [ ] 415 safe-harbor compensation.
2. MATCHING CONTRIBUTIONS.
For purposes of Matching Contributions, Compensation will mean all
of each Participant's (Choose one):
OPTION 1: [X] W-2 wages.
OPTION 2: [ ] Section 340(a) wages.
OPTION 3: [ ] 415 safe-harbor compensation.
3. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
For purposes of Employer Profits Sharing Contributions, Compensation
will mean all of each Participant's (Choose one):
OPTION 1: [X] W-2 wages.
OPTION 2: [ ] Section 340(a) wages.
OPTION 3: [ ] 415 safe-harbor compensation.
NOTE: If no option is selected for an item, Option 1 will be deemed to
be selected for that item.
PART B. MEASURING PERIOD FOR COMPENSATION:
1. ELECTIVE DEFERRALS
For purposes of Elective Deferrals, Compensation shall be determined
over the following applicable period (Choose one):
OPTION 1: [X] The Plan Year.
OPTION 2: [ ] The calendar year ending with or within the Plan
Year.
2. MATCHING CONTRIBUTIONS.
For purposes of Matching Contributions, Compensation shall be
determined over the following applicable period (Choose one):
OPTION 1: [X] The Plan Year.
OPTION 2: [ ] The calendar year ending with or within the Plan
Year.
3. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
For purposes of Employer Profits Sharing Contributions, Compensation
shall be determined over the following applicable period
(Choose one):
OPTION 1: [X] The Plan Year.
OPTION 2: [ ] The calendar year ending with or within the Plan
Year.
NOTE: If no option is selected for an item, Option 1 will be deemed to
be selected for that item.
<PAGE> 12
Page 12
PART C. INCLUSION OF ELECTIVE DEFERRALS:
1. ELECTIVE DEFERRALS.
For purposes of Elective Deferrals, does Compensation include
Employer Contributions made pursuant to a salary reduction agree-
ment which are not includible in the gross income of the Employee
under any of the following Sections of the Code? (Answer "Included"
or "Excluded" for each of the following items.)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Section 125 (cafeteria plans) [X] Included [ ] Excluded
Section 402(e)(3)(401(k) plans) [X] Included [ ] Excluded
Section 402(h)(1)(B)(salary deferral SEP plans) [X] Included [ ] Excluded
Section 403(b)(tax-sheltered annuity plans) [X] Included [ ] Excluded
</TABLE>
NOTE: If a box is not checked for an item, "Included" will be deemed
to be selected for that item.
2. MATCHING CONTRIBUTIONS.
For purposes of Matching Contributions, does Compensation include
Employer Contributions made pursuant to a salary reduction agree-
ment which are not includible in the gross income of the Employee
under any of the following Sections of the Code? (Answer "Included"
or "Excluded" for each of the following items.)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Section 125 (cafeteria plans) [X] Included [ ] Excluded
Section 402(e)(3)(401(k) plans) [X] Included [ ] Excluded
Section 402(h)(1)(B)(salary deferral SEP plans) [X] Included [ ] Excluded
Section 403(b)(tax-sheltered annuity plans) [X] Included [ ] Excluded
</TABLE>
NOTE: If a box is not checked for an item, "Included" will be deemed
to be selected for that item.
3. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
For purposes of Employer Profit Sharing Contributions, does
Compensation include Employer Contributions made pursuant to a
salary reduction agree- ment which are not includible in the
gross income of the Employee under any of the following Sections
of the Code? (Answer "Included" or "Excluded" for each of the
following items.)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Section 125 (cafeteria Plans) [X] Included [ ] Excluded
Section 402(e)(3)(401(k) plans) [X] Included [ ] Excluded
Section 402(h)(1)(B)(salary deferral SEP plans) [X] Included [ ] Excluded
Section 403(b)(tax-sheltered annuity plans) [X] Included [ ] Excluded
</TABLE>
NOTE: If a box is not checked for an item, "Included" will be deemed
to be selected for that item.
PART D. PRE-ENTRY DATE COMPENSATION:
1. ADP AND ACP TESTING PURPOSES.
For the Plan Year in which an Employee enters the Plan, the
Employee's Compensation which shall be taken into account for
purposes of Actual Deferral Percentage(ADP) and Actual
Contribution Percentage (ACP) testing shall be (Choose one):
OPTION 1: [X] The Employee's Compensation only from the time the
Employee became a Participant in the Plan.
OPTION 2: [ ] The Employee's Compensation for the whole of such Plan
Year.
NOTE: If no option is selected for an item. Option 1 will be deemed
to be selected.
2. OTHER PURPOSES.
For the Plan Year in which an Employee enters the Plan, the
Employee's Compensation which shall be taken into account for
purposes of the Plan(other than ADP or ACP testing) shall be
(Choose one):
OPTION 1: [X] The Employee's Compensation only from the time the
Employee became a Participant in the Plan.
OPTION 2: [ ] The Employee's Compensation for the whole of such Plan
Year.
NOTE: If no option is selected for an item. Option 1 will be deemed
to be selected.
<PAGE> 13
- -------------------------------------------------------------------------------
SECTION 13. VESTING AND FORFEITURES
Complete Parts A through H
- -------------------------------------------------------------------------------
PART A. VESTING SCHEDULE FOR EMPLOYER PROFIT SHARING CONTRIBUTIONS. A
Participant shall become Vested in his or her Individual Account de-
rived from Profit Sharing Contributions made pursuant to Section 11 of
the Adoption Agreement as follows(Choose one):
<TABLE>
<CAPTION>
YEARS OF VESTED PERCENTAGE
VESTING SERVICE Option 1 [ ] Option 2 [ ] Option 3 [ ] Option 4 [ ] Option 5 [X] (Complete if Chosen)
<S> <C> <C> <C> <C> <C>
1 0% 0% 100% 0% 0%
- - --- - -
2 0% 20% 100% 0% 40%
- -- --- - --
3 0% 40% 100% 20% 60% (not less than 20%)
- -- --- -- --
4 0% 60% 100% 40% 80% (not less than 40%)
- -- --- -- --
5 100% 80% 100% 60% 100% (not less than 60%)
--- -- --- -- ---
6 100% 100% 100% 80% 100% (not less than 80%)
--- --- --- -- ---
7 100% 100% 100% 100% 100% (not less than 100%)
--- --- --- --- ---
</TABLE>
NOTE: If no option is selected, Option 3 will be deemed to be selected.
- -------------------------------------------------------------------------------
PART B. VESTING SCHEDULE FOR MATCHING CONTRIBUTIONS. A Participant shall
become Vested in his or her Individual Account derived from Matching
Contributions made pursuant to Section 7 of the Adoption Agreement as
follows (Choose one):
<TABLE>
<CAPTION>
YEARS OF VESTED PERCENTAGE
VESTING SERVICE Option 1 [ ] Option 2 [ ] Option 3 [ ] Option 4 [ ] Option 5 [X] (Complete if Chosen)
<S> <C> <C> <C> <C> <C>
1 0% 0% 100% 0% 0%
- - --- - -
2 0% 20% 100% 0% 40%
- -- --- - --
3 0% 40% 100% 20% 60% (not less than 20%)
- -- --- -- --
4 0% 60% 100% 40% 80% (not less than 40%)
- -- --- -- --
5 100% 80% 100% 60% 100% (not less than 60%)
--- -- --- -- ---
6 100% 100% 100% 80% 100% (not less than 80%)
--- --- --- -- ---
7 100% 100% 100% 100% 100% (not less than 100%)
--- --- --- --- ---
</TABLE>
NOTE: If no option is selected, Option 3 will be deemed to be selected.
- -------------------------------------------------------------------------------
PART C. HOURS REQUIRED FOR VESTING PURPOSES:
1. _______ Hours of Service (no more than 1,000) shall be required to
constitute a Year of Vesting Service.
2. _______ Hours of Service (no more than 500 but less than the number
specified in Section 13, Part C, Item 1, above) must be exceeded to
avoid a Break in Vesting Service.
3. For purposes of determining Years of Vesting Service, Employees
shall be given credit for Hours of Service with the following
predecessor employer(s)(Complete if applicable)
___________________________________________________________________
___________________________________________________________________
PART D. EXCLUSION OF CERTAIN YEARS OF VESTING SERVICE:
All of an Employee's Years of Vesting Service with the Employer are
counted to determine the vesting percentage in the Participant's
Individual Account except (Check any that apply):
[ ] Years of Vesting Service before the Employee reaches age 18.
[ ] Years of Vesting Service before the Employer maintained this Plan
or a predecessor plan.
PART E. FULLY VESTED UNDER CERTAIN CIRCUMSTANCES:
Will a Participant be fully Vested under the following circumstances?
(Answer "Yes" or "No" to each of the following items by checking the
appropriate box)
<TABLE>
<S> <C> <C>
1. The Participant dies. [X] Yes [ ] No
2. The Participant incurs a Disability. [X] Yes [ ] No
3. The Participant satisfies the conditions for Early Retirement Age (if applicable). [X] Yes [ ] No
</TABLE>
NOTE: If a box is not checked for an item, "Yes" will be deemed to be
selected for that item.
<PAGE> 14
Page 14
PART F. ALLOCATION OF FORFEITURES OF EMPLOYER PROFIT SHARING CONTRIBUTIONS:
Forfeitures of Employer Profit Sharing contributions shall be (Choose
one):
OPTION 1: [ ] Allocated to the Individual Accounts of the
Participants specified below in the manner as described
in Section 11, Part B (for Employer Profit Sharing
Contributions).
The Participants entitled to receive allocations of
such Forfeitures shall be (Choose one):
SUBOPTION (A): [ ] Only Qualifying Participants.
SUBOPTION (B): [ ] All Participants.
OPTION 2: [ ] Applied to reduce Employer Profit Sharing Contributions
(Choose one):
SUBOPTION (A): [ ] For the Plan Year for which the
Forfeiture arises.
SUBOPTION (B): [ ] For any Plan Year subsequent to the
Plan Year for which the Forfeiture
arises.
OPTION 3: [X] Applied first to the payment of the Plan's
administrative expenses and any excess applied to
reduce Employer Profit Sharing Contributions (Choose
one):
SUBOPTION (A): [X] For the Plan Year for which the
Forfeiture arises.
SUBOPTION (B): [ ] For any Plan Year subsequent to the
Plan Year for which the Forfeiture
arises.
NOTE: If no option is selected, Option 1 and Suboption (a) will be
deemed to be selected.
PART G. ALLOCATION OF FORFEITURES OF MATCHING CONTRIBUTIONS:
Forfeitures of Matching Contributions shall be (Choose one):
OPTION 1: [ ] Allocated, after all other Forfeitures under the Plan,
to each Participant's Individual Account in the ratio
which each Participant's Compensation for the Plan Year
bears to the total Compensation of all Participants for
such Plan Year.
The Participants entitled to receive allocations of
such Forfeitures shall be (Choose one):
SUBOPTION (A): [ ] Only Qualifying Contributing
Participants.
SUBOPTION (B): [ ] Only Qualifying Participants.
SUBOPTION (C): [ ] All Participants.
OPTION 2: [ ] Applied to reduce Matching Contributions (Choose one):
SUBOPTION (A): [ ] For the Plan Year for which the
Forfeiture arises.
SUBOPTION (B): [ ] For any Plan Year subsequent to the
Plan Year for which the Forfeiture
arises.
OPTION 3: [X] Applied first to the payment of the Plan's
administrative expenses and any excess applied to
reduce Matching Contributions (Choose one):
SUBOPTION (A): [X] For the Plan Year for which the
Forfeiture arises.
SUBOPTION (B): [ ] For any Plan Year subsequent to the
Plan Year for which the Forfeiture
arises.
NOTE: If no option is selected, Option 1 and Suboption (a) will be
deemed to be selected.
PART H. ALLOCATION OF FORFEITURES OF EXCESS AGGREGATE CONTRIBUTIONS:
Forfeitures of Excess Aggregate Contributions shall be (Choose one):
OPTION 1: [ ] Allocated, after all other Forfeitures under the Plan,
to each Contributing Participant's Matching
Contribution account in the ratio which each
Contributing Participant's Compensation for the Plan
Year bears to the total Compensation of all
Contributing Participants for such Plan Year. Such
Forfeitures will not be allocated to the account of
any Highly Compensated Employee.
OPTION 2: [ ] Applied to reduce Matching Contributions (Choose one):
SUBOPTION (A): [ ] For the Plan Year for which the
Forfeiture arises.
SUBOPTION (B): [ ] For any Plan Year subsequent to the
Plan Year for which the Forfeiture
arises.
OPTION 3: [X] Applied first to the payment of the Plan's
administrative expenses and any excess applied to
reduce Matching Contributions (Choose one):
SUBOPTION (A): [ ] For the Plan Year for which the
Forfeiture arises.
SUBOPTION (B): [X] For any Plan Year subsequent to the
Plan Year for which the Forfeiture
arises.
NOTE: If no option is selected, Option 2 and Suboption (a) will be
deemed to be selected.
<PAGE> 15
Page 15
- -------------------------------------------------------------------------------
SECTION 14. NORMAL RETIREMENT AGE AND EARLY RETIREMENT AGE
- -------------------------------------------------------------------------------
PART A. THE NORMAL RETIREMENT AGE UNDER THE PLAN SHALL BE (Check and complete
one option):
OPTION 1: [X] Age 65.
OPTION 2: [ ] Age (not to exceed 65).
OPTION 3: [ ] The later of age ________ (not to exceed 65) or the _____
(not to exceed 5th) anniversary of the first day of the
first Plan Year in which the Participant commenced
participation in the Plan.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
PART B. EARLY RETIREMENT AGE (Choose one option):
OPTION 1: [ ] An Early Retirement Age is not applicable under the Plan.
OPTION 2: [X] Age 62 (not less than 55 nor more than 65).
OPTION 3: [ ] A Participant satisfies the Plan's Early Retirement Age
conditions by attaining age ______(not less than 55) and
completing _____ Years of Vesting Service.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
- -------------------------------------------------------------------------------
SECTION 15. DISTRIBUTIONS
Complete Parts A and B
- -------------------------------------------------------------------------------
PART A. DISTRIBUTABLE EVENTS. Answer each of the following items.
1. Termination of Employment Before Normal Retirement Age. May a
Participant who has not reached Normal Retirement Age request a
distribution form the Plan of that portion of the Participant's
Individual Account attributable to the following types of
contributions upon Termination of Employment?
Elective Deferrals [X] Yes [ ] No
Matching Contributions (if made) [X] Yes [ ] No
Employer Profit Sharing Contributions [X] Yes [ ] No
2. Disability. May a Participant who has incurred a Disability request
a distribution from the Plan of that portion of the Participant's
Individual Account attributable to the following types of
contributions?
Elective Deferrals [X] Yes [ ] No
Matching Contributions (if made) [X] Yes [ ] No
Employer Profit Sharing Contributions [X] Yes [ ] No
3. Attainment of Normal Retirement Age. May a Participant who has
attained Normal Retirement Age but has not incurred a Termination of
Employment request a distribution from the Plan of that portion of
the Participant's Individual Account attributable to the following
types of contributions?
Elective Deferrals [X] Yes [ ] No
Matching Contributions (if made) [X] Yes [ ] No
Employer Profit Sharing Contributions [X] Yes [ ] No
4. Attainment of Age 59 1/2. Will Participants who have attained age
59 1/2 be permitted to withdraw Elective Deferrals while still
employed by the Employer? [X] Yes [ ] No
5. Hardship Withdrawals of Elective Deferrals: Will Participants be
permitted to withdraw Elective Deferrals on account of hardship
pursuant to Section 11.503 of the Plan? [X] Yes [ ] No
6. In-Service Withdrawals. Will Participants be permitted to request a
distribution of that portion of the Participant's Individual Account
attributable to the following types of contributions during service
pursuant to Section 6.01(A)(3) of the Plan?
Matching Contributions (if made) [ ] Yes [X] No
Employer Profit Sharing Contributions [ ] Yes [X] No
<PAGE> 16
Page 16
7. One-Time In-Service Withdrawal Option. Will the one-time in-service
withdrawal provisions described in Section 6.01(A)(5) of the Plan
apply to the following types of contributions?
Matching Contributions (if made) [ ] Yes [X] No
Employer Profit Sharing Contributions [ ] Yes [X] No
If the answer is "Yes," specify percentage that a Participant may
withdraw: _________%
8. Hardship Withdrawals. Will Participants be permitted to make
hardship withdrawals of that portion of the Participant's Individual
Account attributable to the following types of contributions pursuant
to Section 6.01(A)(4) of the Plan?
Matching Contributions (if made) [X] Yes [ ] No
Employer Profit Sharing Contributions [X] Yes [ ] No
9. Withdrawals of Rollover of Transfer Contributions. Will Employees
permitted withdraw their Rollover or Transfer Contributions at any
time?
[ ] Yes [X] No
NOTE: If a box is not checked for an item, "Yes" will be deemed to be
selected for that item. Section 411(d)(6) of the Code prohibits the
elimination of protected benefits. In general, protected benefits
include the forms and timing of payout options. If the Plan is being
adopted to amend and replace a Prior Plan that permitted a distribution
option described above, you must answer "Yes" to that item.
PART B. TIMING OF DISTRIBUTIONS:
1. Termination of Employment. Where a Participant who is entitled to a
distribution under the Plan has a Termination of Employment (for
reasons other than death. Disability or attainment of Normal
Retirement Age), distributions shall commence (Check one):
OPTION (A): [X] As soon as administratively feasible following
the date the Participant requests a
distribution.
OPTION (B): [ ] As soon as administratively feasible following
the close of the Plan Year within which the
Participant requests a distribution.
OPTION (C): [ ] As soon as administratively feasible following
the close of the Plan Year within which the
Participant requests a distribution or the
Participant incurs ______(not more than 5)
consecutive one-year Breaks Vesting Service,
whichever is later.
NOTE: If no option is selected, Option (a) will be deemed to be
selected.
2. Death, Disability or Attainment or Normal Retirement Age. Where a
Participant dies, incurs a Disability or attains Normal Retirement
Age, and a distributable event has occurred, distributions shall
commence (check one):
OPTION (A): [X] As soon as administratively feasible following
the date the Participant (or Beneficiary of a
deceased Participant) requests a distribution.
OPTION (B): [ ] As soon as administratively feasible following
the close of the Plan Year within which the
Participant (or Beneficiary of a deceased
Participant) requests a distribution.
OPTION (C): [ ] As soon as administratively feasible following
the close of the Plan Year within which the
Participant (or Beneficiary of a deceased
Participant) requests a distribution or the
Participant incurs ______ (not more than 5)
consecutive one-year Breaks in Vesting Service,
whichever is later.
NOTE: If no option is selected, Option (a) will be deemed to be
selected.
- -------------------------------------------------------------------------------
SECTION 16. JOINT AND SURVIVOR ANNUITY
- -------------------------------------------------------------------------------
PART A. RETIREMENT EQUITY ACT SAFE HARBOR:
Will the safe harbor provisions of Section 6.05(F) of the Plan apply?
(Choose only one Option)
OPTION 1: [X] Yes.
OPTION 2: [ ] No.
NOTE: You must select "No" if you are adopting this Plan as an amendment
and restatement of a Prior Plan that was subject to the joint and
survivor annuity requirements.
PART B. SURVIVOR ANNUITY PERCENTAGE. (Complete only if your answer in Section
16, Part A is "No.")
The survivor annuity portion of the Joint and Survivor Annuity shall be
a percentage equal to _____% (at least 50%, but no more than 100%) of
the amount paid to the Participant prior to his or her death.
<PAGE> 17
- -------------------------------------------------------------------------------
SECTION 17. OTHER OPTIONS
- -------------------------------------------------------------------------------
Answer "Yes" or "No" to each of the following questions by checking the
appropriate box.
If a box is not checked for a question, the answer will be deemed to be "No."
A. Loans: Will loans to Participants pursuant to Section 6.08 of the Plan be
permitted? [X] Yes [ ] No
B. Insurance: Will the Plan allow for the investment in insurance policies
pursuant to Section 5.13 of the Plan? [ ] Yes [X} No
C. Employer Securities: Will the Plan allow for the investment in qualifying
Employer securities or qualifying Employer Real Property? [ ] Yes [X] No
D. Rollover Contributions: Will Employees be permitted to make rollover
contributions to the Plan pursuant to Section 3.03 of the Plan?
[X] Yes [ ] No
[ ] Yes, but only
after becoming
a Participant.
E. Transfer Contribution: Will Employees be permitted to make transfer
contributions to the Plan pursuant to Section 3.04 of the Plan?
[ ] Yes [X] No
[ ] Yes, but only
after becoming
a Participant.
F. Nondeductible Employee Contributions: Will Employees be permitted to make
Nondeductible Employee Contributions pursuant to Section 11.305 of the Plan?
[ ] Yes [X] No
Check here if such contributions will be mandatory. [ ]
- -------------------------------------------------------------------------------
SECTION 18. PARTICIPANT DIRECTION OF INVESTMENTS
- -------------------------------------------------------------------------------
PART A. AUHTORIZATION:
Will Participants be permitted to direct the investment of their Plan
assets pursuant to Section 5.14 of the Plan? (Choose one)
OPTION 1: [X] Yes.
OPTION 2: [ ] No.
NOTE: If no option is selected, Option 2 will be deemed to be selected.
Complete the remainder of Section 18 only if Option 1 is selected.
PART B. INVESTMENT OPTIONS:
Participants can direct the investment of their Plan assets among the
following investments (Choose one):
OPTION 1: [X] Only those investment options designated by the Plan
Administrator or other fiduciary.
OPTION 2: [ ] Any allowable investment.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
PART C. ACCOUNTS SUBJECT TO PARTICIPANT DIRECTION:
Participants can direct the following portions of their Individual
Accounts (Choose one):
OPTION 1: [ ] Those accounts that the Plan Administrator may designated
from time to time in a uniform and nondiscriminatory
manner.
OPTION 2: [X] Entire Individual Account.
OPTION 3: [ ] The following accounts (Check all that apply):
[ ] Elective Deferral Account.
[ ] Matching Contribution Account.
[ ] Employer Profit Sharing Account.
[ ] Rollover Contribution Account.
[ ] Transfer Contribution Account.
[ ] Other (Specify)______________________________________
______________________________________
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
<PAGE> 18
PART D. FREQUENCY OF INVESTMENT CHANGES:
Participants may make changes to the investment within their Individual
Accounts with the following frequency (Choose one):
OPTION 1: [1] In accordance with uniform and nondiscriminatory rules
established by the Plan Administrator or other fiduciary.
OPTION 2: [X] Daily.
OPTION 3: [ ] Monthly.
OPTION 4: [ ] Quarterly.
OPTION 5: [ ] Other (Specify)__________________________________________
__________________________________________
NOTE: If no option is selected, Option 1 will be deemed to be
selected. Also that the Plan's Valuation Dates must be at least as
often as the frequency chosen here.
- -------------------------------------------------------------------------------
SECTION 19. MISCELLANEOUS DEFINITIONS
Complete Parts A and B
- -------------------------------------------------------------------------------
PART A. VALUATION DATE:
The Plan Valuation Date shall be (Choose one):
OPTION 1: [X] The last day of the Plan Year and other date designated by
the Plan Administrator which is selected in a uniform
nondiscriminatory manner.
OPTION 2: [X] Daily.
OPTION 3: [ ] The last day of each Plan quarter.
OPTION 4: [ ] The last day of each month.
OPTION 5: [ ] Other (Specify)__________________________________________
__________________________________________
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
PART B. DISABILITY:
For purpose of this Plan, Disability shall mean (Choose one):
OPTION 1: [ ] The inability to engage in any substantial, gainful
activity by reason of any medically determinable physical
or mental impairment that can be expected to result in
death or which has lasted or can be expected to last for
a continuous period of not less than 12 months.
OPTION 2: [X] The inability to engage in any substantial, gainful
activity in the Employee's trade or profession for which
the Employee is best qualified through training to
experience.
OPTION 3: [ ] Other (Specify)
NOTE: If non option is selected, Option 1 will be deemed to be selected.
- -------------------------------------------------------------------------------
SECTION 20. LIMITATION ON ALLOCATIONS
More Than One Plan
- -------------------------------------------------------------------------------
If you maintain or ever maintained another qualified plan in which any
Participant in this Plan is (or was) a Participant or could become a
Participant, you must complete this section. You must also complete this section
if you maintain a welfare benefit fund, as defined Section 419(e) of the Code,
or an individual medical account, as defined in Section 415(1)(2) of the Code,
under which amounts are treated as annual additions with respect to any
Participant in this Plan.
PART A. INDIVIDUALLY DESIGNED DEFINED CONTRIBUTION PLAN:
If the Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a master or
prototype plan:
1. [X] The provisions of Section 3.05(B) (6) if the Plan will apply as
if the other plan were a master of prototype plan.
2. [ ] Other Method. (Provide the method under which the plans will
limited total annual additions to the maximum permissible amount,
and will properly reduce and excess amounts in a manner that
precludes Employer discretion.)
<PAGE> 19
PART B. DEFINED BENEFIT PLAN:
If the Participant is or has ever been a participant in a defined
benefit plan maintained by the Employer, the Employer will provide below
the language which will satisfy the 1.0 limitation of Section 415(e) of
the Code.
1. [X] If the projected annual addition to this Plan to the account of
a Participant of any limitation year would cause the 1.0
limitation year shall be reduced so that the 1.0 limitation
shall be satisfied.
If it is not possible to reduce the annual benefit of the defined
benefit plan and the projected annual addition to this Plan to the
account of a Participant for a limitation year would cause the 1.0
limitation to be exceeded, the Employer shall reduce the Employer
Contribution which is to be allocated to this Plan on behalf of such
Participant so that the 1.0 limitation will be satisfied. (The
provisions of Section 415(e) of the Code are incorporated herein by
reference under the authority of Section 1106(h) of the Tax Reform
Acto of 1986.)
2. [ ] Other method. (Provide language describign another method. Such
language must preclude Employer discretion.
- -------------------------------------------------------------------------------
SECTION 21. TOP-HEAVY MINIMUM
Complete Parts A, B, C and D
- -------------------------------------------------------------------------------
PART A. MINIMUM ALLOCATION OR BENEFIT:
For any Plan Year with respect to which this Plan is a Top-Heavy Plan,
any minimum allocation required pursuant to Section 3.01(E) of the Plan
shall be made (Choose one):
OPTION 1: [X] To this Plan.
OPTION 2: [ ] To the following other plan maintained by the Employer
(Specify name and plan number of plan)
_______________________________________________________
_______________________________________________________
OPTION 3: [ ] In accordance with the method described on an
attachment to this Adoption Agreement. (Attach language
describing the method that will be used to satisfy
Section 416 of the Code. Such method must preclude
Employer discretion.)
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
PART B. PARTICIPANTS ENTITLED TO RECEIVE MINIMUM ALLOCATION:
Any minimum allocation required pursuant to Section 3.01(E) of the Plan
shall be allocated to the Individual Accounts of (Choose one):
OPTION 1: [X] Only Participants who are not Key Employees.
OPTION 2: [ ] All Participants.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
PART C. TOP-HEAVY RATIO:
For purposes of establishing the present value of benefits under a
defined benefit plan to compute the top-heavy ratio as described in
Section 10.08(C) of the Plan, any benefit shall be discounted only for
mortality and interest based on the following (Choose one):
OPTION 1: [X] Not applicable because the Employer has not maintained
a defined benefit plan.
OPTION 2: [ ] The interest rate and mortality table specified for
this purpose in the defined benefit plan.
OPTION 3: [ ] Interest rate of _______% and the following mortality
table (Specify)
_______________________________________________________
_______________________________________________________
NOTE: If no option is selected, Option 2 will be deemed to be
selected.
PART D. TOP-HEAVY VESTING SCHEDULE:
Pursuant to Section 6.01(C) of the Plan, the vesting schedule that will
apply when this Plan is a Top-Heavy Plan (unless the Plan's regular
vesting schedule provides for more rapid vesting) shall be
(Choose one):
OPTION 1: [X] 6 Year Graded.
OPTION 2: [ ] 3 Year Cliff.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
<PAGE> 20
Page 20
- -------------------------------------------------------------------------------
SECTION 22. PROTOTYPE SPONSOR
- -------------------------------------------------------------------------------
Name of Prototype Sponsor Aetna Life Insurance and Annuity Company
-----------------------------------------------------
Address 151 Farmington Avenue, Hartford, CT 06156
-----------------------------------------------------------------------
Telephone Number 860-273-1000
--------------------------------------------------------------
Permissible Investments
The assets of the Plan shall be invested only in those investments described
below (To be completed by Prototype Sponsor):
________________________________________________________________________________
________________________________________________________________________________
- -------------------------------------------------------------------------------
SECTION 23. TRUSTEE OR CUSTODIAN
- -------------------------------------------------------------------------------
OPTION A: [ ] Financial Organization as Trustee or Custodian
CHECK ONE: [ ] Custodian. [ ] Trustee without full trust powers, or [ ]
Trustee with full trust powers
Financial Organization _________________________________________________________
Signature ______________________________________________________________________
Type Name ______________________________________________________________________
COLLECTIVE OR COMMINGLED FUNDS
List any collective or commingled funds maintained by the financial organization
Trustee in which assets of the Plan may be invested (Complete if applicable).
________________________________________________________________________________
________________________________________________________________________________
OPTION B [X] Individual Trustee(s)
Signature /s/ Bruce A. Mitchell Signature ______________________________
---------------------
Type Name Bruce A. Mitchell Type Name ______________________________
---------------------
Signature _____________________ Signature ______________________________
Type Name _____________________ Type Name ______________________________
- -------------------------------------------------------------------------------
SECTION 24. RELIANCE
- -------------------------------------------------------------------------------
An Employer who has ever maintained or who later adopts any plan (including a
welfare benefit fund, as defined in Section 419(e) of the Code, which provides
post-retirement medical benefits allocated to separate accounts for key
employees, as defined in Section 419A(d)(3) of the Code, or an individual
medical account, as defined in Section 415(I)(2) of the Code)in addition to this
Plan (other than a paired standardized money purchase pension plan using the
same Basic Plan Document as this Plan) may not rely on the opinion letter issued
by the National Office of the Internal Revenue Service as evidence that this
Plan is qualified under Section 401 of the Internal Revenue Code. If the
Employer who adopts or maintains multiple plans wishes to obtain reliance that
his or her plan(s) are qualified, application for a determination letter should
be made to the appropriate Key District Director of Internal Revenue.
The Employer may not rely on the opinion letter issued by the National Office of
the Internal Revenue Service as evidence that this Plan is qualified under
Section 401 of the Code unless the terms of the Plan, as herein adopted or
amended, that pertain to the requirements of Sections 401(a)(4),401(a)(17),
401(1), 401(a)(5), 410(b) and 414(s) of the Code, as amended by the Tax Reform
Act of 1986, or later laws, (a) are made effective retroactively to the first
day of the first Plan Year beginning after December 31, 1988 (or such later date
on which these requirements first become effective with respect to this Plan):
or (b) are made effective no later than the first day on which the Employer is
no longer entitled, under regulations, to rely on a reasonable, good faith
interpretation of these requirements, and the prior provisions of the Plan
constitute such an interpretation.
This Adoption Agreement may be used only in conjunction with Basic Plan Document
No. 04.
- -------------------------------------------------------------------------------
SECTION 25. EMPLOYER SIGNATURE
Important: Please read before signing
- -------------------------------------------------------------------------------
I am an authorized representative of the Employer named above and I state the
following:
1. I acknowledge that I have relied upon my own advisors regarding the
completion of this Adoption Agreement and the legal and tax implications of
adopting this Plan.
2. I understand that my failure to properly complete this Adoption Agreement
may result in disqualification of the Plan.
3. I understand that the Prototype Sponsor will inform me of any amendments
made to the Plan and will notify me should it discontinue or abandon the
Plan.
4. I have received a copy of this Adoption Agreement and the corresponding
Basic Plan Document.
Signature for Employer /s/ Bruce A. Mitchell Date Signed 12/12/96
--------------------- ---------------------
Type Name Bruce A. Mitchell Title Exec Vice President and
---------------------- General Counsel
-------------------------
<PAGE> 1
EXHIBIT 10.24
COMPDENT CORPORATION
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The purpose of this Non-Employee Directors' Stock Option Plan (the
"Plan") is to promote the interests of CompDent Corporation (the "Company") by
providing an incentive to obtain and retain the services of highly qualified
persons who are not employees of the Company to serve as members of the Board
of Directors of the Company through the granting of options, as herein
provided, to acquire shares of its Common Stock, $.01 par value (the "Common
Stock"). The effective date of the Plan shall be February 1, 1996 (the
"Effective Date"). Options granted under the Plan are not intended to qualify
and shall not be treated as "incentive stock options" under Internal Revenue
Code Section 422.
1. SHARES OF STOCK SUBJECT TO THE PLAN
The stock that may be issued and sold pursuant to options granted
under the Plan shall not exceed, in the aggregate, 100,000 shares of the Common
Stock of the Company, which may be (i) authorized but unissued shares, (ii)
treasury shares or (iii) shares previously reserved for issuance upon the
exercise of options under the Plan, which options have expired or been
terminated; provided, however, that the number of shares subject to the Plan
shall be subject to adjustment as provided in Section 6.
2. ELIGIBILITY
Options will be granted only to persons who are Directors of the
Company on the date of grant of options hereunder and who are not also
employees of the Company or any subsidiary of the Company ("non-employee
Directors").
3. GRANT OF OPTIONS - PURCHASE PRICE
a. Grant of Options. Each non-employee Director shall automatically
be granted an option to purchase 20,000 shares of Common Stock on the date such
non-employee Director is initially elected or appointed to the Board of
Directors of the Company. All options granted under this Plan shall vest
annually beginning on the first anniversary of the date of grant in four equal
installments over a four-year period.
b. Purchase Price. The purchase price of shares which may be
purchased under each option shall be equal to the Fair Market Value of the
Common Stock on the date the option is granted. Fair Market Value shall mean
the last reported sale price of the Common Stock on the Nasdaq Stock Market on
any given day, or if no sales of Common Stock were made on that day, the last
reported sale price of the Common Stock on the next preceding day on which
sales were made.
c. Limitations. All grants of options hereunder shall be subject to
the availability of shares hereunder, and no option shall be granted under this
Plan except as provided in this Section 3.
4. PERIOD OF OPTION AND CERTAIN LIMITATIONS ON RIGHT TO EXERCISE.
a. Period. Each option shall become exercisable as provided in
Section 3 hereof, but in no event shall any such option be exercisable after
the earlier of (a) the date ten years after the date such option is granted or
(b) with respect to unvested options, the date on which the Director to whom
such option was granted ceases for any reason to serve as a Director of the
Company and with respect to vested options, the date three months after the
date on which the Director ceases for any reason to serve as a Director of the
Company; provided, however, that
1
<PAGE> 2
in the event of termination as a result of disability or death, the Director or
the Director's personal representative may exercise any outstanding options not
theretofore exercised, to the extent exercisable on the date of such disability
or death, during the six month period following such disability or death.
b. Exercise. The delivery of certificates representing shares under
any option will be contingent upon receipt by the Company from the optionee (or
a purchaser acting in the optionee's stead in accordance with the provisions of
the option) of the full purchase price for such shares by one or more of the
methods specified below and the fulfillment of any other requirements provided
in the option or under applicable provisions of law; and until such receipt of
the purchase price and fulfillment of such other requirements no optionee or
person entitled to exercise the option shall be, or shall be deemed to be, a
holder of any shares subject to the option for any purpose.
Options may be exercised in whole or in part, by giving written notice
of exercise to the Company, specifying the number of shares to be purchased.
Payment of the purchase price may be made by one or more of the following
methods:
(A) In cash, by certified or bank check or other instrument
acceptable to the Board of Directors or its authorized committee;
(B) In the form of shares of Common Stock that are not then
subject to restrictions under any Company plan, if such shares have
been held for at least six months prior to the exercise date and
permitted by the Board or its authorized committee, in its discretion.
Such surrendered shares shall be valued at Fair Market Value on the
exercise date; or
(C) By the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company cash or a check payable and
acceptable to the Company to pay the purchase price; provided that in
the event the optionee chooses to pay the purchase price as so
provided, the optionee and the broker shall comply with such
procedures and enter into such agreements of indemnity and other
agreements as the Company shall prescribe as a condition of such
payment procedure. Payment instruments will be received subject to
collection.
5. NON-TRANSFERABILITY OF OPTION
Each option granted under the Plan shall provide that it is personal
to the optionee, is not transferable by the optionee in any manner otherwise
than by will or the laws of descent and distribution and is exercisable, during
the optionee's lifetime, only by the optionee. However, the rights and
obligations of the Company under the Plan and any option may be assigned by the
Company to a successor to the whole or any substantial part of its business
provided that such successor assumes in writing all of such rights and
obligations.
6. DILUTION OR OTHER ADJUSTMENT
The terms of the options and the number of shares subject to this Plan
shall be equitably adjusted in such manner as to prevent dilution or
enlargement of option rights in the following instances:
a. The declaration of a dividend payable to the holders of Common
Stock in stock of the same class;
b. A split-up of the Common Stock or a reverse split thereof; or
c. A recapitalization of the Company under which shares of one or
more different classes of stock are distributed in exchange for or upon the
Common Stock without payment of any valuable consideration by the holders
thereof.
2
<PAGE> 3
The terms of any such adjustment shall be conclusively determined by
the Board. No fractional shares of Common Stock shall be issued under the Plan
resulting from any such adjustment.
7. EFFECT OF CERTAIN TRANSACTIONS
In the case of (a) the dissolution or liquidation of the Company, (b)
a merger, reorganization or consolidation in which the Company is acquired by
another person or in which the Company is not the surviving corporation, or (c)
the sale of all or substantially all of the assets of the Company to another
corporation, the Plan and options issued thereunder shall terminate on the
effective date of such dissolution, liquidation, merger, reorganization,
consolidation or sale, unless provision is made in such transaction for the
assumption of options theretofore granted under the Plan or the substitution
for such options of a new stock option of the successor corporation or a parent
or subsidiary thereof, with appropriate adjustment as to the number and kind of
shares and the per share exercise price, as provided in Section 6 of the Plan.
In the event of any transaction which will trigger such termination, the
Company shall give written notice thereof to the Optionees at least twenty days
prior to the effective date of such transaction or the record date on which
shareholders of the Company entitled to participate in such transaction shall
be determined, whichever comes first. In the event of such termination, any
unexercised portion of outstanding options, whether or not vested and
exercisable at that time, shall be exercisable not later than the date of such
termination; provided, however, that in no event shall options be exercisable
after the applicable expiration date for an option.
8. ADMINISTRATION AND AMENDMENT OF THE PLAN
The Plan shall be administered in accordance with Rule 16b-3 under the
Securities Exchange Act of 1934 (the "1934 Act") by the Board or an authorized
committee thereof (in which case all reference to the Board shall refer to such
committee while such committee administers this Plan), which shall make any
determination under or interpretation of any provision of the Plan and any
option. Any of the foregoing actions taken by the Board shall be final and
conclusive. The Board may amend and make such changes in and additions to the
Plan (and, with the consent of the applicable optionee, any outstanding option)
as it may deem proper and in the best interest of the Company; provided,
however, that no such action shall adversely affect or impair any options
theretofore granted under the Plan without the consent of the applicable
optionee. If and to the extent determined by the Board to be required under
the 1934 Act to ensure that options granted under the Plan are exempt under
Rule 16b-3 under the 1934 Act, Plan amendments shall be subject to approval by
the Company stockholders entitled to vote at a meeting thereof.
Notwithstanding anything to the contrary herein, the provisions of Section 3.a.
shall not be amended more than once in every six-month period, other than to
comport with changes in the Internal Revenue Code, the Employee Retirement
Income Survey Act, or the regulations promulgated thereunder.
9. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon approval of the holders of a
majority of the shares of Common Stock of the Company present or represented
and entitled to vote at a meeting of stockholders. Subject to such approval by
the stockholders and to the requirement that no Common Stock may be issued
hereunder prior to such approval, options may be granted hereunder on and after
the Effective Date.
10. EXPIRATION AND TERMINATION OF THE PLAN.
Options shall be granted under the Plan as provided herein during the
ten years from the date the Plan is adopted by the Board, as long as the total
number of shares purchased under the Plan and subject to outstanding options
under the Plan does not exceed 100,000 shares of the Common Stock of the
Company, subject to adjustment as provided in Section 6. The Plan may be
abandoned or terminated at any time by the Board, except with respect to any
options then outstanding under the Plan.
3
<PAGE> 1
EXHIBIT 10.25
FORM OF
NON-QUALIFIED STOCK OPTION AGREEMENT
UNDER THE COMPDENT CORPORATION NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
<TABLE>
<S> <C>
NAME OF OPTIONEE:
-----------------------
NO. OF OPTION SHARES: 20,000
-----------------------
OPTION EXERCISE PRICE:
-----------------------
GRANT DATE:
-----------------------
EXPIRATION DATE:
-----------------------
</TABLE>
THIS AGREEMENT dated as of the date of grant set forth above (the
"Grant Date") by and between COMPDENT CORPORATION, a Delaware corporation, with
its principal office at 8800 Roswell Road, Suite 295, Atlanta, Georgia 30350
(the "Company"), and the person named above (the "Optionee").
WHEREAS, the Company desires to provide to Optionee the opportunity to
acquire an equity interest in the Company as an additional incentive for
serving as a director of the Company; and
WHEREAS, to facilitate the above the Company's Board of Directors has
authorized and the stockholders of the Company have approved of the issuance of
certain options to purchase shares of the Company's Common Stock pursuant to
the CompDent Corporation Non-Employee Directors' Stock Option Plan (the
"Plan").
NOW, THEREFORE, in consideration of the promises and of the covenants
and agreements herein set forth, the parties hereby mutually covenant and agree
as follows:
1. Grant of Option. The Company hereby grants to the Optionee,
who is a non-employee director of the Company, an option to purchase on or
prior to the expiration date
<PAGE> 2
specified above (the "Expiration Date") all or any part of an aggregate number
of 20,000 shares of common stock, par value $0.01 per share ("Common Stock"),
of the Company (hereinafter such shares of Common Stock are referred to as the
"Option Shares" and the option to purchase the Option Shares is referred to as
the "Option"), at the per share option exercise price specified above, subject
to the terms and conditions set forth herein and in the Plan. Notwithstanding
anything herein to the contrary, this Option shall be subject to and governed
by the terms and conditions of the Plan. All capitalized terms used herein and
not otherwise defined shall have the respective meanings set forth in the Plan.
2. Exercise Price. The price to be paid for the Option Shares
which is set forth above (the "Exercise Price") shall be equal to the Fair
Market Value (as such term is defined under the Plan) of the Common Stock on
the Grant Date.
3. Vesting and Exercisability. Option Shares may be purchased
pursuant to this Option at any time and from time to time during a period of
ten (10) years from the Grant Date, in whole or in part, subject to Sections 5
and 8 and subject to the provisions hereof:
(a) No Option Shares may be purchased during the first
twelve (12) month period following the date hereof;
(b) On or after the first anniversary of the Grant Date,
Optionee may purchase up to twenty-five percent (25%) of the Option Shares;
(c) On or after the second anniversary of the Grant Date,
Optionee may purchase up to an additional twenty-five percent (25%) of the
Option Shares;
(d) On or after the third anniversary of the Grant Date,
Optionee may purchase up to an additional twenty-five percent (25%) of the
Option Shares;
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<PAGE> 3
(e) On or after the fourth anniversary of the Grant Date,
Optionee may purchase up to an additional twenty-five percent (25%) of the
Option Shares;
(f) The option to purchase such Option Shares as set
forth above shall accumulate from year to year, but all options to purchase
Option Shares must be exercised on or before the Expiration Date, at which time
all unexercised Options shall expire.
4. Exercise of Option. The Option may be exercised only by
written notice, which shall specify the number of Option Shares being purchased
in cash or its equivalent. Said notice shall be delivered or mailed by
postpaid, registered or certified mail addressed to the Company at its
principal office, Attention: President. Such purchased shares shall be
forthwith delivered to Optionee upon payment of the purchase price which may be
made by one or more of the following methods:
(a) In cash, by certified or bank check or other
instrument acceptable to the Board of Directors or its authorized committee;
(b) In the form of shares of Common Stock that are not
then subject to restrictions under any Company plan, if such shares have been
held for at least six months prior to the exercise date and permitted by the
Board or its authorized committee, in its discretion. Such surrendered shares
shall be valued at Fair Market Value on the exercise date; or
(c) By the Optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company cash or a check payable and acceptable to the
Company to pay the purchase price; provided that in the event the Optionee
chooses to pay the purchase price as so provided, the Optionee
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<PAGE> 4
and the broker shall comply with such procedures and enter into such agreements
of indemnity and other agreements as the Company shall prescribe as a condition
of such payment procedure. Payment instruments will be received subject to
collection.
5. Termination. In the event that the Optionee's position as a
member of the Board of Directors of the Company terminates for any reason, this
Option shall no longer vest after the effective date of such termination, and
this Option may thereafter be exercised, to the extent it was vested and
exercisable on the date of such termination, by the Optionee until the earlier
of the Expiration Date or three (3) months from the effective date of such
termination; provided, however, in the event of the death or disability of the
Optionee, the Optionee s personal representative may exercise this Option, to
the extent vested and exercisable on the date of such death or disability,
until the earlier of the Expiration Date or six (6) months after such death or
disability.
6. Transferability. The Option herein granted shall not be
transferable by the Optionee otherwise than by will or the laws of descent and
distribution. The Option may be exercised during the life of the Optionee
solely by the Optionee, except that in the case of death or disability of an
Optionee, the Optionee's personal representative shall have the power to
exercise the Options within the time period prescribed in Section 5 above.
7. Adjustments Upon Changes in Capitalization. If the
outstanding shares of the class then subject to this Option are increased or
deceased, or are changed into or exchanged for a different number or kind of
shares or securities, as a result of recapitalizations, stock splits, reverse
stock splits, stock dividends or the like, appropriate adjustments shall be
made in the number and/or kind of shares or securities for which the
unexercised portions of this Option may thereafter be exercised, all without
any change in the aggregate exercise price applicable to the unexercised
portions of this
4
<PAGE> 5
Option, but with a corresponding adjustment in the exercise price per share.
No fractional share of stock shall be issued under this Option or in connection
with any such adjustment. Such adjustments shall be made by or under authority
of the Board of Directors of the Company whose determination as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive.
8. Effect of Certain Transactions. In the case of (a) the
dissolution or liquidation of the Company, (b) a merger, reorganization or
consolidation in which the Company is acquired by another Person or Persons
(other than a holding company formed by the Company) or in which the Company is
not the surviving corporation or (c) the sale of all or substantially all of
the assets of the Company to another Person or Persons, this Option shall
terminate on the effective date of such transaction or event, unless provision
is made in such transaction or event, in the sole discretion of the parties
thereto as the case may be, for the assumption of this Option or the
substitution for this Option of a new stock option of the successor Person or a
parent or subsidiary thereof, with such adjustment as to the number and kind of
shares and the per share exercise price as to which such parties shall agree.
The Company shall give written notice of any such transaction or event to the
Optionee at least twenty (20) days prior to the effective date of such
transaction or event or the record date on which shareholders of the Company
entitled to participate in such transaction or event shall be determined,
whichever comes first. If this Option shall terminate pursuant to this Section
8, the Optionee shall have the right, at such time prior to the consummation of
the transaction or event causing such termination, to exercise the unexercised
portions of this Option, including
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<PAGE> 6
the portions thereof which would not yet be exercisable; provided, however,
that in no event shall the Option be exercisable after the Expiration Date.
9. This Option shall not confer upon the Optionee any right with
respect to the continuance of the relationship between Optionee and the Company
or its related corporations, nor shall it interfere in any way with the right
of the Company to terminate the Optionee's relationship with the Company or any
of its subsidiaries.
10. This Agreement shall be governed and interpreted by the laws
of the State of Delaware.
11. As used in this Agreement, the masculine, feminine or neuter
gender and the singular or plural number shall be deemed to include the others
whenever the context so indicates or requires.
12. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof, and no change or
modification shall be valid unless made in writing and signed by the party
against whom such change or modification is sought to be enforced.
13. Notices hereunder shall be mailed or delivered to the Company
at its principal office, Attention: President, and shall be mailed or
delivered to Optionee at the address set forth below, or in either case at such
other address as one party may subsequently furnish to the other party in
writing.
6
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this Non-Qualified Stock
Option Agreement to be executed by its duly authorized officers and the
Optionee has hereunto affixed his hand as of the day and year first above
written.
COMPDENT CORPORATION:
By:
-------------------------------------
Title:
----------------------------------
OPTIONEE:
----------------------------------------
Name:
Optionee's Address:
----------------------------------------
----------------------------------------
7
<PAGE> 1
EXHIBIT 10.26
COMPDENT CORPORATION
1996 STOCK OPTION PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the CompDent Corporation 1996 Stock Option
Plan (the "Plan"). The purpose of the Plan is to encourage and enable the
officers, employees, directors, consultants, advisors and other key persons of
CompDent Corporation (the "Company") and its Subsidiaries (as defined below)
upon whose judgment, initiative and efforts the Company largely depends for the
successful conduct of its business to acquire a proprietary interest in the
Company. It is anticipated that providing such persons with a direct stake in
the Company's welfare will assure a closer identification of their interests
with those of the Company, thereby stimulating their efforts on the Company's
behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Award" or "Awards," except where referring to a particular category
of grant under the Plan, shall include Incentive Stock Options and
Non-Qualified Stock Options.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" has the meanings specified in Section 2.
"Fair Market Value" of the Stock on any given date means (i) if the
Stock is admitted to quotation on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), the Fair Market Value on any
given date shall not be less than the average of the highest bid and lowest
asked prices of the Stock reported for such date or, if no bid and asked prices
were reported for such date, for the last day preceding such date for which
such prices were reported; or (ii) if the Stock is admitted to trading on a
national securities exchange or the NASDAQ National Market System, the Fair
Market Value on any date shall not be less than the closing price reported for
the Stock on such exchange or system for such date or, if no sales were
reported for such date, for the last date preceding such date for which a sale
was reported; or (iii) if the Stock is not publicly traded on a securities
exchange or traded in the over-the-counter market or, if traded or quoted,
there are no transactions or quotations within the last ten trading days or
trading has been halted for extraordinary reasons, the Fair Market Value on any
given date shall be determined in good faith by the Committee with reference to
the rules and principles of valuation set forth in Section 20.2031-2 of the
Treasury Regulations.
<PAGE> 2
"Incentive Stock Option" means any Stock Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of
Stock granted pursuant to Section 5.
"Stock" means the Common Stock, par value $.01 per share, of the
Company, subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities, beginning
with the Company, if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT
PARTICIPANTS AND DETERMINE AWARDS
(a) Committee. The Plan shall be administered by the Board of
Directors of the Company, or at the discretion of the Board by a committee of
the Board of not less than two "Non-Employee Directors" within the meaning of
Rule 16b-3(b)(3)(i) under the Act. On and after the date the Plan becomes
subject to Section 162(m) of the Code, each member of the Committee shall be an
"Outside Director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder. All references herein to the Committee
shall be deemed to refer to the entity then responsible for administration of
this Plan at the relevant time (i.e., either the Board of Directors or a
committee of the Board, as applicable).
(b) Powers of Committee. The Committee shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the officers, employees, directors,
consultants, advisors and key persons of the Company and its
Subsidiaries to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the
extent, if any, of Incentive Stock Options and Non-Qualified Stock
Options, or any combination of the foregoing, granted to any one or
more participants;
(iii) to determine the number of shares of Stock to be
covered by any Award;
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<PAGE> 3
(iv) to determine and modify from time to time the terms
and conditions, including restrictions, not inconsistent with the
terms of the Plan, of any Award, which terms and conditions may differ
among individual Awards and participants, and to approve the form of
written instruments evidencing the Awards;
(v) to accelerate at any time the exercisability or
vesting of all or any portion of any Award and/or to include
provisions in Awards providing for such acceleration;
(vi) to impose any limitations on Awards granted under the
Plan, including limitations on transfers, repurchase provisions and
the like and to exercise repurchase rights or obligations;
(vii) subject to the provisions of Section 5(a)(ii), to
extend at any time the period in which Stock Options may be exercised;
(viii) to determine at any time whether, to what extent, and
under what circumstances Stock and other amounts payable with respect
to an Award shall be deferred either automatically or at the election
of the participant and whether and to what extent the Company shall
pay or credit amounts constituting interest (at rates determined by
the Committee) or dividends or deemed dividends on such deferrals; and
(ix) at any time to adopt, alter and repeal such rules,
guidelines and practices for administration of the Plan and for its
own acts and proceedings as it shall deem advisable; to interpret the
terms and provisions of the Plan and any Award (including related
written instruments); to make all determinations it deems advisable
for the administration of the Plan; to decide all disputes arising in
connection with the Plan; and to otherwise supervise the
administration of the Plan.
All decisions and interpretations of the Committee shall be binding on
all persons, including the Company and Plan participants.
(c) Delegation of Authority to Grant Awards. The Committee, in
its discretion, may delegate to the Chief Executive Officer of the Company all
or part of the Committee's authority and duties with respect to Awards,
including the granting thereof, to individuals who are not subject to the
reporting and other provisions of Section 16 of the Act or "covered employees"
within the meaning of Section 162(m) of the Code. The Committee may revoke or
amend the terms of a delegation at any time but such action shall not
invalidate any prior actions of the Committee's delegate or delegates that were
consistent with the terms of the Plan.
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<PAGE> 4
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a) Stock Issuable. The maximum number of shares of Stock
reserved and available for issuance under the Plan shall be 900,000 shares of
Stock. For purposes of the foregoing limitations, the shares of Stock
underlying any Awards which are forfeited, canceled, reacquired by the Company,
satisfied without the issuance of Stock or otherwise terminated (other than by
exercise) shall be added back to the shares of Stock available for issuance
under the Plan. Subject to such overall limitation, shares of Stock may be
issued up to such maximum number pursuant to any type or types of Award;
provided, however, that on and after the date the Plan is subject to Section
162(m) of the Code, Stock Options with respect to no more than 250,000 shares
of Stock may be granted to any one individual participant during any one
calendar year period. The shares available for issuance under the Plan may be
authorized but unissued shares of Stock or shares of Stock reacquired by the
Company.
(b) Recapitalizations. Subject to Section 3(c), if, through or as
a result of any merger, consolidation, sale of all or substantially all of the
assets of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other similar transaction,
the outstanding shares of Stock are increased or decreased or are exchanged for
a different number or kind of shares or other securities of the Company or any
successor company, or additional shares or new or different shares or other
securities of the Company or any successor Company or other non-cash assets are
distributed with respect to such shares of Stock or other securities, the
Committee shall make an appropriate or proportionate adjustment in (i) the
maximum number of shares reserved for issuance under the Plan, (ii) the number
of Stock Options that can be granted to any one individual participant, (iii)
the number and kind of shares or other securities subject to any then
outstanding Awards under the Plan, and (iv) the price for each share subject to
any then outstanding Stock Options under the Plan, without changing the
aggregate exercise price (i.e., the exercise price multiplied by the number of
shares) as to which such Stock Options remain exercisable. The adjustment by
the Committee shall be final, binding and conclusive. No fractional shares of
Stock shall be issued under the Plan resulting from any such adjustment, but
the Committee in its discretion may make a cash payment in lieu of fractional
shares.
(c) Mergers and Other Transactions. In the case of (i) the
dissolution or liquidation of the Company, (ii) a merger, reorganization or
consolidation in which a majority of the outstanding voting power of the
Company is acquired by another person or entity (other than a holding company
formed by the Company), (iii) the sale of all or substantially all of the
assets of the Company to an unrelated person or entity, or (iv) the sale of all
of the Stock of the Company to an unrelated person or entity (in each case, a
"Transaction"), all outstanding Options held by participants, to the extent not
fully vested and exercisable, shall not become fully vested and exercisable
except as the Committee may otherwise determine either in connection with the
granting of an Award as reflected in the terms of the relevant Award or in its
discretion thereafter. Upon the effectiveness of the Transaction, the Plan and
all Awards granted hereunder shall terminate, unless provision is made in
connection with the Transaction
4
<PAGE> 5
for the assumption of Awards heretofore granted, or the substitution of such
Awards with new Awards of the successor entity or parent thereof, with
appropriate adjustment as to the number and kind of shares and, if appropriate,
the per share exercise prices, as provided in Section 3(b) above. In the event
of such termination, each optionee shall be permitted to exercise for a period
of at least 15 days prior to the date of such termination all outstanding
Options held by such optionee which are then exercisable.
(d) Substitute Awards. The Committee may grant Awards under the
Plan in substitution for stock and stock based awards held by employees of
another corporation who become employees of the Company or a Subsidiary as the
result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Committee may direct that
the substitute awards be granted on such terms and conditions as the Committee
considers appropriate in the circumstances.
SECTION 4. ELIGIBILITY
Participants in the Plan will be such officers and other employees,
directors, consultants, advisors and other key persons of the Company and its
Subsidiaries who are responsible for or contribute to the management, growth or
profitability of the Company and its Subsidiaries as are selected from time to
time by the Committee, in its sole discretion.
SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be pursuant to a stock
option agreement which shall be in such form as the Committee may from time to
time approve. Option agreements need not be identical.
Stock Options granted under the Plan may be either Incentive Stock
Options or Non-Qualified Stock Options. Incentive Stock Options may be granted
only to employees of the Company or any Subsidiary that is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code. Non-Qualified
Stock Options may be granted to officers, employees, directors, consultants,
advisors and other key persons of the Company and its Subsidiaries. To the
extent that any Option does not qualify as an Incentive Stock Option, it shall
be deemed a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after
December 18, 2006.
(a) Terms of Stock Options. Stock Options granted under the Plan
shall be subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the Plan,
as the Committee shall deem desirable:
(i) Exercise Price. The exercise price per share for the
Stock covered by a Stock Option shall be determined by the Committee
at the time of grant but shall not be
5
<PAGE> 6
less than 100% of the Fair Market Value on the date of grant. If an
employee owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) more than 10% of the
combined voting power of all classes of stock of the Company or any
parent or subsidiary corporation and an Incentive Stock Option is
granted to such employee, the option price of such Incentive Stock
Option shall be not less than 110% of the Fair Market Value on the
grant date.
(ii) Option Term. The term of each Stock Option shall be
fixed by the Committee, but no Incentive Stock Option shall be
exercisable more than ten years after the date the option is granted.
If an employee owns or is deemed to own (by reason of the attribution
rules of Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company or any parent or
subsidiary corporation and an Incentive Stock Option is granted to
such employee, the term of such option shall be no more than five
years from the date of grant.
(iii) Exercisability; Rights of a Stockholder. Stock
Options shall become vested and exercisable at such time or times,
whether or not in installments, as shall be determined by the
Committee at or after the grant date; provided, however, that Stock
Options granted in lieu of cash compensation shall be exercisable in
full as of the grant date. The Committee may at any time accelerate
the exercisability of all or any portion of any Stock Option. An
optionee shall have the rights of a stockholder only as to shares
acquired upon the exercise of a Stock Option and not as to unexercised
Stock Options.
(iv) Method of Exercise. Stock Options may be exercised
in whole or in part, by giving written notice of exercise to the
Company, specifying the number of shares to be purchased. Payment of
the purchase price may be made by one or more of the following
methods:
(A) In cash, by certified or bank check or other
instrument acceptable to the Committee;
(B) In the form of shares of Stock that are not
then subject to restrictions under any Company plan and that
have been held by the optionee free of such restrictions for
at least six months, if permitted by the Committee in its
discretion. Such surrendered shares shall be valued at Fair
Market Value on the exercise date;
(C) By the optionee delivering to the Company a
properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company
cash or a check payable and acceptable to the Company to pay
the purchase price; provided that in the event the optionee
chooses to pay the purchase price as so provided, the optionee
and the broker shall comply with such procedures and enter
into such agreements of indemnity and other
6
<PAGE> 7
agreements as the Committee shall prescribe as a condition of
such payment procedure; or
(D) By the optionee delivering to the Company a
promissory note if the Board has authorized the loan of funds
to the optionee for the purpose of enabling or assisting the
optionee to effect the exercise of his or her Stock Option;
provided that at least so much of the exercise price as
represents the par value of the Stock shall be paid other than
with a promissory note.
Payment instruments will be received subject to collection. The
delivery of certificates representing the shares of Stock to be
purchased pursuant to the exercise of a Stock Option will be
contingent upon receipt from the optionee (or a purchaser acting in
his or her stead in accordance with the provisions of the Stock
Option) by the Company of the full purchase price for such shares and
the fulfillment of any other requirements contained in the Stock
Option or applicable provisions of law.
(v) Termination. Stock Options shall terminate at such
times as are specified in the relevant Award.
(vi) Annual Limit on Incentive Stock Options. To the
extent required for "incentive stock option" treatment under Section
422 of the Code, the aggregate Fair Market Value (determined as of the
time of grant) of the shares of Stock with respect to which Incentive
Stock Options granted under this Plan and any other plan of the
Company or its parent and subsidiary corporations become exercisable
for the first time by an optionee during any calendar year shall not
exceed $100,000. To the extent that any Stock Option exceeds this
limit, it shall constitute a Non-Qualified Stock Option.
(b) Reload Options. At the discretion of the Committee, Options
granted under the Plan may include a "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(iv)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with the same expiration
date as the original Option being exercised, and with such other terms as the
Committee may provide) to purchase that number of shares of Stock equal to the
number delivered to exercise the original Option.
(c) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee. Notwithstanding the foregoing, the
Committee may provide in an option agreement that the optionee may transfer,
without consideration for the transfer, his or her Non-Qualified Stock Options
to members of his or her immediate family, to trusts for the benefit of such
family members, to partnerships in which such family members are the only
partners; or to charitable
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<PAGE> 8
organizations; provided, however, that the transferee agrees in writing to be
bound by the terms and conditions of this Plan and the applicable Option
Agreement.
SECTION 6. TAX WITHHOLDING
(a) Payment by Participant. Each participant shall, no later than
the date as of which the value of an Award or of any Stock or other amounts
received thereunder first becomes includable in the gross income of the
participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Committee regarding payment of, any federal,
state, or local taxes of any kind required by law to be withheld with respect
to such income. The Company and its Subsidiaries shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the participant.
(b) Payment in Stock. Subject to approval by the Committee, a
participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Stock owned by the participant with an aggregate Fair Market Value (as of
the date the withholding is effected) that would satisfy the withholding amount
due.
SECTION 7. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary
or from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness,
or for any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the Committee
otherwise so provides in writing.
SECTION 8. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the
Committee may, at any time, amend or cancel any outstanding Award (or provide
substitute Awards at the same or reduced exercise or purchase price or with no
exercise or purchase price in a manner not inconsistent with the terms of the
Plan), but such price, if any, must satisfy the requirements which would apply
to the substitute or amended Award if it were then initially granted under
8
<PAGE> 9
this Plan for the purpose of satisfying changes in law or for any other lawful
purpose, but no such action shall adversely affect rights under any outstanding
Award without the holder's consent. If and to the extent determined by the
Committee to be required by the Act to ensure that Incentive Stock Options
granted under the Plan are qualified under Section 422 of the Code, Plan
amendments shall be subject to approval by the Company stockholders who are
eligible to vote at a meeting of stockholders.
SECTION 9. STATUS OF PLAN
With respect to the portion of any Award which has not been exercised
and any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly
determine in connection with any Award or Awards. In its sole discretion, the
Committee may authorize the creation of trusts or other arrangements to meet
the Company's obligations to deliver Stock or make payments with respect to
Awards hereunder, provided that the existence of such trusts or other
arrangements is consistent with the foregoing sentence.
SECTION 10. GENERAL PROVISIONS
(a) No Distribution; Compliance with Legal Requirements. The
Committee may require each person acquiring Stock pursuant to an Award to
represent to and agree with the Company in writing that such person is
acquiring the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Committee may require the placing of
such stop-orders and restrictive legends on certificates for Stock and Awards
as it deems appropriate.
(b) Other Compensation Arrangements; No Employment Rights.
Nothing contained in this Plan shall prevent the Board from adopting other or
additional compensation arrangements, including trusts, and such arrangements
may be either generally applicable or applicable only in specific cases. The
adoption of this Plan and the grant of Awards do not confer upon any employee
any right to continued employment with the Company or any Subsidiary.
SECTION 11. GOVERNING LAW
This Plan shall be governed by Delaware law except to the extent such
law is preempted by federal law.
Adopted and Effective: December 18, 1996
9
<PAGE> 1
EXHIBIT 10.27
NON-QUALIFIED STOCK OPTION AGREEMENT
UNDER THE COMPDENT CORPORATION 1994 STOCK OPTION AND GRANT PLAN
NAME OF OPTIONEE:
NO. OF OPTION SHARES:
GRANT DATE:
OPTION EXERCISE PRICE:
EXPIRATION DATE:
Pursuant to the CompDent Corporation 1994 Stock Option and Grant
Plan (the "Plan"), CompDent Corporation, a Delaware corporation (the
"Company"), hereby grants to the person named above (the "Optionee"), who is
an officer or full-time employee of the Company or any of its Subsidiaries, an
option (the "Stock Option") to purchase on or prior to the expiration date
specified above (subject to the further provisions hereof, the "Expiration
Date") all or any part of the number of shares of Common Stock, par value $0.01
per share ("Common Stock"), of the Company indicated above (the "Option
Shares"), at the per share option exercise price specified above, subject to
the terms and conditions set forth herein and in the Plan. All capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Plan.
1. VESTING AND EXERCISABILITY.
This Stock Option shall be fully vested as of the date hereof
and may be exercised in whole or in part at any time prior to the Expiration
Date, subject to the terms of this Section and Section 6. In the event that the
Optionee's Service Relationship (as hereinafter defined) with the Company and
its Subsidiaries terminates as a result of the Optionee's resignation,
retirement, or termination by the Company, upon the Optionee's death
<PAGE> 2
or disability, or for any other reason, regardless of the circumstances thereof,
this Stock Option may thereafter be exercised by the Optionee until the earlier
of (i) twelve months from the effective date of such termination or (ii) the
Expiration Date, subject to extension in the discretion of the Committee,
whereupon it shall terminate to the extent not exercised. For purposes hereof, a
"Service Relationship" shall mean any relationship as an employee, part-time
employee or consultant of the Company or any Subsidiary of the Company such
that, for example, a Service Relationship shall be deemed to continue without
interruption in the event the Optionee's status changes from full-time employee
to part-time employee or consultant.
2. EXERCISE OF STOCK OPTION.
(a) The Optionee may exercise only this Stock Option in the
following manner: Prior to the Expiration Date (subject to Sections 1 and 6),
the Optionee may deliver a Stock Option Exercise Notice (an "Exercise Notice")
in the form of Appendix A hereto indicating his or her election to purchase some
or all of the Option Shares. Such notice shall specify the number of shares to
be purchased.
Payment of the purchase price for the Option Shares may be made by one
or more (if applicable) of the following methods: (a) in cash, by certified or
bank check or other instrument acceptable to the Committee; (b) in the form of
shares of Common Stock that are not then subject to restrictions under any
Company plan and that have been held by the Optionee for at least six months;
(c) by the Optionee delivering to the Company a properly executed Exercise
Notice together with irrevocable instructions to a broker to promptly deliver to
the Company cash or a check payable and acceptable to the Company to pay the
option purchase price, provided that in the event the Optionee chooses to pay
the option purchase
2
<PAGE> 3
price as so provided, the Optionee and the broker shall comply with such
procedures and enter into such agreements of indemnity and other agreements as
the Committee shall prescribe as a condition of such payment procedure; or (d) a
combination of (a), (b) and (c) above. Payment instruments will be received
subject to collection.
(b) Certificates for the Option Shares so purchased will be
issued and delivered to the Optionee upon compliance to the satisfaction of the
Committee with all requirements under applicable laws or regulations in
connection with such issuance. Until the Optionee shall have complied with the
requirements hereof and of the Plan, the Company shall be under no obligation to
issue the Option Shares subject to this Stock Option, and the determination of
the Committee as to such compliance shall be final and binding on the Optionee.
The Optionee shall not be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares of stock subject to this Stock
Option unless and until this Stock Option shall have been exercised pursuant to
the terms hereof, the Company shall have issued and delivered the Option Shares
to the Optionee, and the Optionee's name shall have been entered as a
stockholder of record on the books of the Company. Thereupon, the Optionee shall
have full dividend and other ownership rights with respect to such Option
Shares, subject to the terms of this Agreement.
(c) Notwithstanding any other provision hereof or of the Plan,
no portion of this Stock Option shall be exercisable after the Expiration Date
hereof or such earlier expiration date as is specified in Section 1 or 6 hereof.
3. INCORPORATION OF PLAN. Notwithstanding anything herein to the
contrary, this Stock Option shall be subject to and governed by all the terms
and conditions of the Plan.
3
<PAGE> 4
4. TRANSFERABILITY. This Stock Option or any portion thereof may be
transferred, without consideration for such transfer, to members of the
Optionee's immediate family, to trusts for the benefit of such family members,
to partnerships in which such family members are the only partners, or to
charitable organizations, provided that the transferee agrees in writing with
the Company to be bound by all of the terms and conditions of this Agreement
including without limitation termination of the Stock Option on the date which
is twelve months following termination of the Optionee's Service Relationship as
provided in Section 1. Further this Stock Option shall be transferable by the
laws of descent and distribution. This Agreement is personal to the Optionee and
is not otherwise transferable by the Optionee in any manner other than by will
or by the laws of descent and distribution and may be exercised during the
Optionee's lifetime only by the Optionee. The Optionee may elect to designate a
beneficiary by providing written notice of the name of such beneficiary to the
Company, and may revoke or change such designation at any time by filing written
notice of revocation or change with the Company; such beneficiary may exercise
the Optionee's Stock Option in the event of the Optionee's death to the extent
provided herein. If the Optionee does not designate a beneficiary, or if the
designated beneficiary predeceases the Optionee, the Optionee's personal
representative, heirs or legatees to whom ownership has passed may exercise this
Stock Option to the extent provided herein in the event of the Optionee's death.
5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Subject to Section 6
hereof, if the shares of Common Stock as a whole are increased, decreased,
changed or converted into or exchanged for a different number or kind of
shares or securities of the Company, whether through merger, consolidation,
reorganization, recapitalization, reclassification, stock
4
<PAGE> 5
dividend, stock split, combination of shares, exchange of shares, change in
corporate structure or the like, an appropriate and proportionate adjustment
shall be made in the number and kind of shares and in the per share exercise
price of shares subject to any unexercised portion of this Stock Option. Subject
to Section 6 hereof, in the event of any such adjustment in this Stock Option,
the Optionee thereafter shall have the right to purchase the number of shares
under this Stock Option at the per share price, as so adjusted, which the
Optionee could purchase at the total purchase price applicable to this Stock
Option immediately prior to such adjustment. Adjustments under this Section 5
shall be determined by the Option Committee of the Company and such
determination shall be final, binding and conclusive.
6. EFFECT OF CERTAIN TRANSACTIONS. In the case of (a) the dissolution
or liquidation of the Company, (b) a merger, reorganization or consolidation in
which the Company is acquired by another person or entity (other than a holding
company formed by the Company), (c) the sale of all or substantially all of the
assets of the Company to another person or entity, or (d) the sale of all of the
stock of the Company to an unrelated person or entity, this Stock Option shall
terminate on the effective date of such transaction or event, unless provision
is made in such transaction in the sole discretion of the parties thereto for
the assumption of this Stock Option or the substitution for this Stock Option of
a new stock option of the successor person or entity or a parent or subsidiary
thereof, with such adjustment as to the number and kind of shares and the per
share exercise price as such parties shall agree to. In the event of any
transaction which will result in such termination, the Company shall give to the
Optionee written notice thereof at least thirty (30) days prior to the closing
or anticipated consummation date, or the record date for such transaction, if
earlier. Until the earlier to occur of such
5
<PAGE> 6
effective date or record date, the Optionee may exercise all or any portion of
this Stock Option, but after such effective date or record date, as the case may
be, the Optionee may not exercise this Stock Option unless it is assumed or
substituted by the successor as provided above.
7. WITHHOLDING TAXES.
(a) The Optionee shall, not later than the date as of which
the exercise of this Stock Option becomes a taxable event for federal income tax
purposes, pay to the Company or make arrangements satisfactory to the Committee
for payment of any federal, state, and local taxes required by law to be
withheld on account of such taxable event. The Optionee may elect to have such
tax withholding obligation satisfied, in whole or in part, by authorizing the
Company to withhold from shares of Common Stock to be issued or transferring to
the Company, a number of shares of Common Stock with an aggregate Fair Market
Value that would satisfy the withholding amount due. For purposes of this
Section 7 "Fair Market Value" on any given date means the last reported sale
price at which Common Stock is traded on such date or, if no Common Stock is
traded on such date, the next preceding date on which Common Stock was traded,
as reflected on the principal stock exchange or, if applicable, any other
national stock exchange on which the Common Stock is traded or admitted to
trading. The Optionee acknowledges and agrees that the Company or any subsidiary
of the Company has the right to deduct from payments of any kind otherwise due
to the Optionee, or from the Option Shares to be issued in respect of an
exercise of this Stock Option, any federal, state or local taxes of any kind
required by law to be withheld with respect to the issuance of Option Shares to
the Optionee.
6
<PAGE> 7
8. MISCELLANEOUS PROVISIONS.
(a) Equitable Relief. The parties hereto agree and declare
that legal remedies may be inadequate to enforce the provisions of this
Agreement and that equitable relief, including specific performance and
injunctive relief, may be used to enforce the provisions of this Agreement.
(b) Change and Modifications. This Agreement may not be orally
changed, modified or terminated, nor shall any oral waiver of any of its terms
be effective. This Agreement may be changed, modified or terminated only by an
agreement in writing signed by the Company and the Optionee.
(c) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
(d) Headings. The headings are intended only for convenience
in finding the subject matter and do not constitute part of the text of this
Agreement and shall not be considered in the interpretation of this Agreement.
(e) Saving Clause. If any provision(s) of this Agreement
shall be determined to be illegal or unenforceable, such determination shall in
no manner affect the legality or enforceability of any other provision hereof.
(f) Notices. All notices, requests, consents and other
communications shall be in writing and be deemed given when delivered
personally, by telex or facsimile transmission or when received if mailed by
first class registered or certified mail, postage prepaid. Notices to the
Company or the Optionee shall be addressed as set forth underneath
7
<PAGE> 8
their signatures below, or to such other address or addresses as may have been
furnished by such party in writing to the other.
(g) Benefit and Binding Effect. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, their
respective successors, permitted assigns, and legal representatives. The Company
has the right to assign this Agreement, and such assignee shall become entitled
to all the rights of the Company hereunder to the extent of such assignment.
(h) Counterparts. For the convenience of the parties and to
facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
COMPDENT CORPORATION
By:
----------------------------
Title:
----------------------------
8
<PAGE> 9
The foregoing Agreement is hereby accepted and the terms and conditions
thereof hereby agreed to by the undersigned.
Dated as of _____________ OPTIONEE:
--------------------------
Optionee's Address:
--------------------------
--------------------------
Designated Beneficiary:
--------------------------
Beneficiary's Address:
--------------------------
--------------------------
9
<PAGE> 10
APPENDIX A
STOCK OPTION EXERCISE NOTICE
CompDent Corporation
Attention: Chief Financial Officer
- --------------------------
- --------------------------
Dear Sirs:
Pursuant to the terms of my stock option agreement dated
____________ (the "Agreement") under the CompDent Corporation 1994 Stock Option
and Grant Plan, I, [INSERT NAME] ___________________, hereby [CIRCLE ONE]
partially/fully exercise such option by including herein payment in the amount
of $_______ representing the purchase price for [FILL IN NUMBER OF OPTION
SHARES] __________ option shares. I have chosen the following form(s) of
payment:
<TABLE>
<S> <C>
[ ] 1. Cash
[ ] 2. [CERTIFIED OR BANK] Check payable to CompDent Corporation
[ ] 3. Other (as described in the Agreement (please describe) ______________.
</TABLE>
Sincerely yours,
--------------------------
Please Print Name:
10
<PAGE> 11
NON-QUALIFIED STOCK OPTION AGREEMENT
UNDER THE COMPDENT CORPORATION 1996 STOCK OPTION PLAN
NAME OF OPTIONEE:
NO. OF OPTION SHARES:
GRANT DATE:
OPTION EXERCISE PRICE:
EXPIRATION DATE:
Pursuant to the CompDent Corporation 1996 Stock Option Plan (the
"Plan"), CompDent Corporation, a Delaware corporation (the "Company"), hereby
grants to the person named above (together with his or her successors or assigns
as contemplated hereby, the "Optionee"), an option (the "Stock Option") to
purchase on or prior to the expiration date specified herein, all or any part of
the number of shares of Common Stock, par value $0.01 per share ("Common
Stock"), of the Company indicated above (the "Option Shares"), at the per share
option exercise price specified above, subject to the terms and conditions set
forth herein and in the Plan. All capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Plan.
1. VESTING AND EXERCISABILITY.
(a) No portion of this Stock Option may be exercised until such portion
shall have vested.
(b) Except as set forth below and in Section 6, and subject to the
determination of the Compensation Committee of the Board of Directors of the
Company or the Board of Directors of the Company, as applicable (the
"Committee"), in its sole discretion to accelerate the
<PAGE> 12
vesting schedule hereunder, this Stock Option shall be vested and exercisable
with respect to the following number of Option Shares on the dates indicated:
Incremental (Aggregate) Number
of Option Shares Exercisable* Vesting Date
Further, and notwithstanding anything herein to the contrary and
without limitation of Section 6, this Stock Option shall be deemed vested and
exercisable in full upon the date on which the Optionee's employment with the
Company and its Subsidiaries terminates if such termination occurs in the year
following a Change of Control (as hereinafter defined) of the Company or any
entity controlling the Company (a "Parent") and either (i) such termination
occurs pursuant to or under the circumstances contemplated by Section 6(e) or
Section 6(f) of the Employment Agreement dated_____________, between the Company
and the Optionee (the "Employment Agreement") (i.e., without cause termination
by the Company or termination by the Optionee following a material and uncured
default by the Company) or (ii) without limitation of clause (i), such
termination is preceded during such year by any material elimination or adverse
modification in the duties, title, principal employment location or compensation
of the Optionee without his or her written consent, subject, however to the
following sentence. Notwithstanding the foregoing, in the event that the Company
receives written advice from its independent public accountants in connection
with any transaction constituting a Change of Control (as hereinafter defined)
to the effect that vesting of this Stock
- ------------------
* Subject to Section 5
2
<PAGE> 13
Option under the circumstances contemplated by the preceding sentence would
preclude or otherwise adversely affect the ability of the Company or any other
party to such transaction to account for the same as a "pooling of interests"
within the meaning of APB No. 16 (or any successor provision), which transaction
would otherwise qualify for such accounting treatment, then vesting of this
Stock Option shall not accelerate on a subsequent termination of employment
within the year following a Change of Control as contemplated by the preceding
sentence, and in such circumstance this Stock Option shall continue to vest in
accordance with the annual schedule set forth above.
For purposes hereof, a "Change of Control" shall mean any of the
following events occurring after the date hereof: (i) the direct or indirect
beneficial ownership (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Regulation 13D-G
thereunder) of a majority of the outstanding Common Stock of the Company or
Parent is acquired or becomes held by any person or group of persons (within the
meaning of Section 13(d)(3) of the Exchange Act) (a "Group"), (ii) the sale,
mortgage, lease or other transfer to any person or Group in one or more
transactions not in the ordinary course of business of all or substantially all
of the assets on a consolidated basis of Parent, the Company and the Company's
Subsidiaries (taken as a whole), (iii) a change of stock ownership of the
Company of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A promulgated under the Exchange Act and any successor Item
of a similar nature; or (iv) the acquisition of beneficial ownership, directly
or indirectly, by any person (as such term is used in Section 13(d) and 14(d)(2)
of the Exchange Act) of securities of the Company or Parent representing 25% or
more of the combined voting power of the
3
<PAGE> 14
Company or Parent's then outstanding securities; or (E) a change during any
period of two consecutive years of a majority of the members of the Board of
Directors of the Company or Parent for any reason.
(c) In the event that the Optionee's Service Relationship (as
hereinafter defined) with the Company and its Subsidiaries terminates for any
reason or under any circumstances other than those described in Section 1(b)
above, including the Optionee's resignation, retirement or termination by the
Company, upon the Optionee's death or disability, or for any other reason,
regardless of the circumstances thereof, this Stock Option shall no longer vest
or become exercisable with respect to any Option Shares not vested as of the
date of such termination from and after the date of such termination, and this
Stock Option may thereafter be exercised, to the extent it was vested and
exercisable on such date of such termination, until the Expiration Date
contemplated by Section 1(d), except as the Committee may otherwise determine.
Upon a termination of employment following a Change of Control under the
circumstances contemplated by Section 1(b), vesting shall occur or continue, as
applicable, as contemplated by such Section. For purposes hereof, a "Service
Relationship" shall mean any relationship as an employee, part-time employee or
consultant of the Company or any Subsidiary of the Company such that, for
example, a Service Relationship shall be deemed to continue without interruption
in the event the Optionee's status changes from full-time employee to part-time
employee or consultant.
(d) Once any portion of this Stock Option becomes vested and
exercisable, it shall continue to be exercisable by the Optionee or his or her
transferees or successors as contemplated herein at any time or times prior to
the earlier of (i) the date which is 12 months
4
<PAGE> 15
following the date on which the Optionee's Service Relationship with the Company
terminates for any reason or (ii) October 29, 2006, subject to the provisions
hereof, including, without limitation, Section 6 hereof which provides for the
termination of unexercised options upon completion of certain transactions as
described therein (the "Expiration Date").
2. EXERCISE OF STOCK OPTION.
(a) The Optionee may exercise only vested portions of this
Stock Option and only in the following manner: Prior to the Expiration Date
(subject to Section 6), the Optionee may deliver a Stock Option Exercise Notice
(an "Exercise Notice") in the form of Appendix A hereto indicating his or her
election to purchase some or all of the Option Shares with respect to which this
Stock Option has vested at the time of such notice. Such notice shall specify
the number of shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one
or more (if applicable) of the following methods: (a) in cash, by certified or
bank check or other instrument acceptable to the Committee; (b) in the form of
shares of Common Stock that are not then subject to restrictions under any
Company plan and that have been held by the Optionee for at least six months;
(c) by the Optionee delivering to the Company a properly executed Exercise
Notice together with irrevocable instructions to a broker to promptly deliver to
the Company cash or a check payable and acceptable to the Company to pay the
option purchase price, provided that in the event the Optionee chooses to pay
the option purchase price as so provided, the Optionee and the broker shall
comply with such procedures and enter into such agreements of indemnity and
other agreements as the Committee shall prescribe as a
5
<PAGE> 16
condition of such payment procedure; or (d) a combination of (a), (b) and (c)
above. Payment instruments will be received subject to collection.
(b) Certificates for the Option Shares so purchased will be
issued and delivered to the Optionee upon compliance to the satisfaction of the
Committee with all requirements under applicable laws or regulations in
connection with such issuance. Until the Optionee shall have complied with the
requirements hereof and of the Plan, the Company shall be under no obligation to
issue the Option Shares subject to this Stock Option, and the determination of
the Committee as to such compliance shall be final and binding on the Optionee.
The Optionee shall not be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares of stock subject to this Stock
Option unless and until this Stock Option shall have been exercised pursuant to
the terms hereof, the Company shall have issued and delivered the Option Shares
to the Optionee, and the Optionee's name shall have been entered as a
stockholder of record on the books of the Company. Thereupon, the Optionee shall
have full dividend and other ownership rights with respect to such Option
Shares, subject to the terms of this Agreement.
(c) Notwithstanding any other provision hereof or of the Plan,
no portion of this Stock Option shall be exercisable by the Optionee or his or
her transferees and successors after the Expiration Date hereof or such earlier
expiration date as is specified in Section 1 hereof.
3. INCORPORATION OF PLAN. Notwithstanding anything herein to the
contrary, this Stock Option shall be subject to and governed by all the terms
and conditions of the Plan.
6
<PAGE> 17
4. TRANSFERABILITY. Any portion of this Stock Option which is vested
may be transferred, without consideration for such transfer, to members of the
Optionee's immediate family, to trusts for the benefit of such family members,
to partnerships in which such family members are the only partners, or to
charitable organizations, provided that the transferee agrees in writing with
the Company to be bound by all of the terms and conditions of this Agreement
including without limitation termination of the Stock Option on the date which
is twelve months following termination of the Optionee's Service Relationship as
provided in Section 1(d). Further, this Stock Option shall be transferable by
the laws of descent and distribution. This Agreement is personal to the Optionee
and is not otherwise transferable by the Optionee in any manner and may be
exercised during the Optionee's lifetime only by the Optionee. The Optionee may
elect to designate a beneficiary by providing written notice of the name of such
beneficiary to the Company, and may revoke or change such designation at any
time by filing written notice of revocation or change with the Company; such
beneficiary may exercise the Optionee's Stock Option in the event of the
Optionee's death to the extent provided herein. If the Optionee does not
designate a beneficiary, or if the designated beneficiary predeceases the
Optionee, the Optionee's personal representative, heirs or legatees to whom
ownership has passed may exercise this Stock Option to the extent provided
herein in the event of the Optionee's death.
5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Subject to Section 6
hereof, if the shares of Common Stock as a whole are increased, decreased,
changed or converted into or exchanged for a different number or kind of shares
or securities of the Company, whether through merger, consolidation,
reorganization, recapitalization, reclassification, stock
7
<PAGE> 18
dividend, stock split, combination of shares, exchange of shares, change in
corporate structure or the like, an appropriate and proportionate adjustment
shall be made in the number and kind of shares and in the per share exercise
price of shares subject to any unexercised portion of this Stock Option. Subject
to Section 6 hereof, in the event of any such adjustment in this Stock Option,
the Optionee thereafter shall have the right to purchase the number of shares
under this Stock Option at the per share price, as so adjusted, which the
Optionee could purchase at the total purchase price applicable to this Stock
Option immediately prior to such adjustment. Adjustments under this Section 5
shall be determined by the Committee of the Company and such determination shall
be final, binding and conclusive.
6. EFFECT OF CERTAIN TRANSACTIONS. In the case of (a) the dissolution
or liquidation of the Company, (b) a merger, reorganization or consolidation in
which a majority of the outstanding voting power of the Company is acquired by
another person or entity (other than a holding company formed by the Company),
(c) the sale of all or substantially all of the assets of the Company to another
person or entity, or (d) the sale of all of the stock of the Company to an
unrelated person or entity, other than a merger transaction to be accounted for
as a "pooling of interests" under APB No. 16 in which the surviving entity
assumes this Stock Option (a "Pooling Transaction"), this Stock Option shall be
deemed fully vested and exercisable as of the closing or consummation of such
transaction, provided that such acceleration and any notice of exercise of
options that become vested as of such closing or consummation shall in all cases
be subject to and contingent upon such closing or consummation. From and after
the closing or consummation of any such transaction, other than a Pooling
Transaction, this Stock Option shall terminate and no longer be exercisable as
8
<PAGE> 19
to any Option Shares unexercised on or prior to the closing or consummation date
of such transaction or event, unless provision is made in such transaction in
the sole discretion of the parties thereto for the assumption of this Stock
Option or the substitution for this Stock Option of a new stock option of the
successor person or entity or a parent or subsidiary thereof, if any, with such
adjustment as to the number and kind of shares and the per share exercise price
as such parties shall agree to. In the event of a Pooling Transaction, this
Stock Option shall remain in effect in accordance with its terms as provided
herein and shall become an obligation of the surviving entity, with appropriate
adjustments to the number and kind of shares an the per share exercise price as
contemplated by Section 5. In the event of any transaction subject to this
Section 6, the Company shall give to the Optionee written notice thereof at
least thirty (30) days prior to the closing or anticipated consummation date, or
the record date for such transaction, if earlier.
7. WITHHOLDING TAXES.
The Optionee shall, not later than the date as of which the
exercise of this Stock Option becomes a taxable event for federal income tax
purposes, pay to the Company or make arrangements satisfactory to the Committee
for payment of any federal, state, and local taxes required by law to be
withheld on account of such taxable event. Subject to approval by the Committee,
the Optionee may elect to have such tax withholding obligation satisfied, in
whole or in part, by authorizing the Company to withhold from shares of Common
Stock to be issued or transferring to the Company, a number of shares of Common
Stock with an aggregate Fair Market Value that would satisfy the withholding
amount due. For purposes of this Section 7 "Fair Market Value" on any given date
means the last reported sale price at which Common
9
<PAGE> 20
Stock is traded on such date or, if no Common Stock is traded on such date, the
next preceding date on which Common Stock was traded, as reflected on the
principal stock exchange or, if applicable, any other national stock exchange on
which the Common Stock is traded or admitted to trading. The Optionee
acknowledges and agrees that the Company or any subsidiary of the Company has
the right to deduct from payments of any kind otherwise due to the Optionee, or
from the Option Shares to be issued in respect of an exercise of this Stock
Option, any federal, state or local taxes of any kind required by law to be
withheld with respect to the issuance of Option Shares to the Optionee.
8. MISCELLANEOUS PROVISIONS.
(a) Equitable Relief. The parties hereto agree and declare
that legal remedies may be inadequate to enforce the provisions of this
Agreement and that equitable relief, including specific performance and
injunctive relief, may be used to enforce the provisions of this Agreement.
(b) Change and Modifications. This Agreement may not be orally
changed, modified or terminated, nor shall any oral waiver of any of its terms
be effective. This Agreement may be changed, modified or terminated only by an
agreement in writing signed by the Company and the Optionee.
(c) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
(d) Headings. The headings are intended only for convenience
in finding the subject matter and do not constitute part of the text of this
Agreement and shall not be considered in the interpretation of this Agreement.
10
<PAGE> 21
(e) Saving Clause. If any provision(s) of this Agreement
shall be determined to be illegal or unenforceable, such determination shall in
no manner affect the legality or enforceability of any other provision hereof.
(f) Notices. All notices, requests, consents and other
communications shall be in writing and be deemed given when delivered
personally, by telex or facsimile transmission or when received if mailed by
first class registered or certified mail, postage prepaid. Notices to the
Company or the Optionee shall be addressed as set forth underneath their
signatures below, or to such other address or addresses as may have been
furnished by such party in writing to the other.
(g) Benefit and Binding Effect. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, their
respective successors, permitted assigns, and legal representatives. The Company
has the right to assign this Agreement, and such assignee shall become entitled
to all the rights of the Company hereunder to the extent of such assignment.
(h) Counterparts. For the convenience of the parties and to
facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
COMPDENT CORPORATION
By:
--------------------------------
Title:
--------------------------------
11
<PAGE> 22
The foregoing Agreement is hereby accepted and the terms and conditions
thereof hereby agreed to by the undersigned.
Dated as of ______________ OPTIONEE:
-------------------------
Optionee's Address:
--------------------------
--------------------------
Designated Beneficiary:
--------------------------
Beneficiary's Address:
--------------------------
--------------------------
12
<PAGE> 23
APPENDIX A
STOCK OPTION EXERCISE NOTICE
CompDent Corporation
Attention: Chief Financial Officer
- ---------------------
- ---------------------
Dear Sirs:
Pursuant to the terms of my stock option agreement dated
____________ (the "Agreement") under the CompDent Corporation 1996 Stock Option
Plan, I, [INSERT NAME] ___________________, hereby [CIRCLE ONE] partially/fully
exercise such option by including herein payment in the amount of $_______
representing the purchase price for [FILL IN NUMBER OF OPTION SHARES] __________
option shares. I have chosen the following form(s) of payment:
<TABLE>
<CAPTION>
<S> <C> <C>
[ ] 1. Cash
[ ] 2. [CERTIFIED OR BANK] Check payable to CompDent Corporation
[ ] 3. Other (as described in the Agreement (please describe) ______________.
</TABLE>
Sincerely yours,
---------------------------
Please Print Name:
13
<PAGE> 24
NON-QUALIFIED STOCK OPTION AGREEMENT
UNDER THE COMPDENT CORPORATION 1996 STOCK OPTION PLAN
NAME OF OPTIONEE:
NO. OF OPTION SHARES:
GRANT DATE:
OPTION EXERCISE PRICE:
EXPIRATION DATE:
Pursuant to the CompDent Corporation 1996 Stock Option Plan (the
"Plan"), CompDent Corporation, a Delaware corporation (the "Company"), hereby
grants to the person named above (the "Optionee"), who is an officer or
full-time employee of the Company or any of its Subsidiaries, an option (the
"Stock Option") to purchase on or prior to the expiration date specified above
(subject to the further provisions hereof, the "Expiration Date") all or any
part of the number of shares of Common Stock, par value $0.01 per share
("Common Stock"), of the Company indicated above (the "Option Shares"), at the
per share option exercise price specified above, subject to the terms and
conditions set forth herein and in the Plan. All capitalized terms used herein
and not otherwise defined shall have the respective meanings set forth in the
Plan.
1. VESTING AND EXERCISABILITY.
This Stock Option shall be fully vested as of the date hereof
and may be exercised in whole or in part at any time prior to the Expiration
Date, subject to the terms of this Section and Section 6. In the event that the
Optionee's Service Relationship (as hereinafter defined) with the Company and
its Subsidiaries terminates as a result of the Optionee's resignation,
retirement, or termination by the Company, upon the Optionee's death
<PAGE> 25
or disability, or for any other reason, regardless of the circumstances thereof,
this Stock Option may thereafter be exercised by the Optionee until the earlier
of (i) twelve months from the effective date of such termination or (ii) the
Expiration Date, subject to extension in the discretion of the Committee,
whereupon it shall terminate to the extent not exercised. For purposes hereof, a
"Service Relationship" shall mean any relationship as an employee, part-time
employee or consultant of the Company or any Subsidiary of the Company such
that, for example, a Service Relationship shall be deemed to continue without
interruption in the event the Optionee's status changes from full-time employee
to part-time employee or consultant.
2. EXERCISE OF STOCK OPTION.
(a) The Optionee may exercise only this Stock Option in the
following manner: Prior to the Expiration Date (subject to Sections 1 and 6),
the Optionee may deliver a Stock Option Exercise Notice (an "Exercise Notice")
in the form of Appendix A hereto indicating his or her election to purchase some
or all of the Option Shares. Such notice shall specify the number of shares to
be purchased.
Payment of the purchase price for the Option Shares may be made by one
or more (if applicable) of the following methods: (a) in cash, by certified or
bank check or other instrument acceptable to the Committee; (b) in the form of
shares of Common Stock that are not then subject to restrictions under any
Company plan and that have been held by the Optionee for at least six months;
(c) by the Optionee delivering to the Company a properly executed Exercise
Notice together with irrevocable instructions to a broker to promptly deliver to
the Company cash or a check payable and acceptable to the Company to pay the
option purchase price, provided that in the event the Optionee chooses to pay
the option purchase
2
<PAGE> 26
price as so provided, the Optionee and the broker shall comply with such
procedures and enter into such agreements of indemnity and other agreements as
the Committee shall prescribe as a condition of such payment procedure; or (d) a
combination of (a), (b) and (c) above. Payment instruments will be received
subject to collection.
(b) Certificates for the Option Shares so purchased will be
issued and delivered to the Optionee upon compliance to the satisfaction of the
Committee with all requirements under applicable laws or regulations in
connection with such issuance. Until the Optionee shall have complied with the
requirements hereof and of the Plan, the Company shall be under no obligation to
issue the Option Shares subject to this Stock Option, and the determination of
the Committee as to such compliance shall be final and binding on the Optionee.
The Optionee shall not be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares of stock subject to this Stock
Option unless and until this Stock Option shall have been exercised pursuant to
the terms hereof, the Company shall have issued and delivered the Option Shares
to the Optionee, and the Optionee's name shall have been entered as a
stockholder of record on the books of the Company. Thereupon, the Optionee shall
have full dividend and other ownership rights with respect to such Option
Shares, subject to the terms of this Agreement.
(c) Notwithstanding any other provision hereof or of the Plan,
no portion of this Stock Option shall be exercisable after the Expiration Date
hereof or such earlier expiration date as is specified in Section 1 or 6 hereof.
3. INCORPORATION OF PLAN. Notwithstanding anything herein to the
contrary, this Stock Option shall be subject to and governed by all the terms
and conditions of the Plan.
3
<PAGE> 27
4. TRANSFERABILITY. This Stock Option or any portion thereof may be
transferred, without consideration for such transfer, to members of the
Optionee's immediate family, to trusts for the benefit of such family members,
to partnerships in which such family members are the only partners, or to
charitable organizations, provided that the transferee agrees in writing with
the Company to be bound by all of the terms and conditions of this Agreement
including without limitation termination of the Stock Option on the date which
is twelve months following termination of the Optionee's Service Relationship as
provided in Section 1. Further this Stock Option shall be transferable by the
laws of descent and distribution. This Agreement is personal to the Optionee and
is not otherwise transferable by the Optionee in any manner other than by will
or by the laws of descent and distribution and may be exercised during the
Optionee's lifetime only by the Optionee. The Optionee may elect to designate a
beneficiary by providing written notice of the name of such beneficiary to the
Company, and may revoke or change such designation at any time by filing written
notice of revocation or change with the Company; such beneficiary may exercise
the Optionee's Stock Option in the event of the Optionee's death to the extent
provided herein. If the Optionee does not designate a beneficiary, or if the
designated beneficiary predeceases the Optionee, the Optionee's personal
representative, heirs or legatees to whom ownership has passed may exercise this
Stock Option to the extent provided herein in the event of the Optionee's death.
5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Subject to Section 6
hereof, if the shares of Common Stock as a whole are increased, decreased,
changed or converted into or exchanged for a different number or kind of
shares or securities of the Company, whether through merger, consolidation,
reorganization, recapitalization, reclassification, stock
4
<PAGE> 28
dividend, stock split, combination of shares, exchange of shares, change in
corporate structure or the like, an appropriate and proportionate adjustment
shall be made in the number and kind of shares and in the per share exercise
price of shares subject to any unexercised portion of this Stock Option. Subject
to Section 6 hereof, in the event of any such adjustment in this Stock Option,
the Optionee thereafter shall have the right to purchase the number of shares
under this Stock Option at the per share price, as so adjusted, which the
Optionee could purchase at the total purchase price applicable to this Stock
Option immediately prior to such adjustment. Adjustments under this Section 5
shall be determined by the Option Committee of the Company and such
determination shall be final, binding and conclusive.
6. EFFECT OF CERTAIN TRANSACTIONS. In the case of (a) the dissolution
or liquidation of the Company, (b) a merger, reorganization or consolidation in
which the Company is acquired by another person or entity (other than a holding
company formed by the Company), (c) the sale of all or substantially all of the
assets of the Company to another person or entity, or (d) the sale of all of the
stock of the Company to an unrelated person or entity, this Stock Option shall
terminate on the effective date of such transaction or event, unless provision
is made in such transaction in the sole discretion of the parties thereto for
the assumption of this Stock Option or the substitution for this Stock Option of
a new stock option of the successor person or entity or a parent or subsidiary
thereof, with such adjustment as to the number and kind of shares and the per
share exercise price as such parties shall agree to. In the event of any
transaction which will result in such termination, the Company shall give to the
Optionee written notice thereof at least thirty (30) days prior to the closing
or anticipated consummation date, or the record date for such transaction, if
earlier. Until the earlier to occur of such
5
<PAGE> 29
effective date or record date, the Optionee may exercise all or any portion of
this Stock Option, but after such effective date or record date, as the case may
be, the Optionee may not exercise this Stock Option unless it is assumed or
substituted by the successor as provided above.
7. WITHHOLDING TAXES.
(a) The Optionee shall, not later than the date as of which
the exercise of this Stock Option becomes a taxable event for federal income tax
purposes, pay to the Company or make arrangements satisfactory to the Committee
for payment of any federal, state, and local taxes required by law to be
withheld on account of such taxable event. The Optionee may elect to have such
tax withholding obligation satisfied, in whole or in part, by authorizing the
Company to withhold from shares of Common Stock to be issued or transferring to
the Company, a number of shares of Common Stock with an aggregate Fair Market
Value that would satisfy the withholding amount due. For purposes of this
Section 7 "Fair Market Value" on any given date means the last reported sale
price at which Common Stock is traded on such date or, if no Common Stock is
traded on such date, the next preceding date on which Common Stock was traded,
as reflected on the principal stock exchange or, if applicable, any other
national stock exchange on which the Common Stock is traded or admitted to
trading. The Optionee acknowledges and agrees that the Company or any subsidiary
of the Company has the right to deduct from payments of any kind otherwise due
to the Optionee, or from the Option Shares to be issued in respect of an
exercise of this Stock Option, any federal, state or local taxes of any kind
required by law to be withheld with respect to the issuance of Option Shares to
the Optionee.
6
<PAGE> 30
8. MISCELLANEOUS PROVISIONS.
(a) Equitable Relief. The parties hereto agree and declare
that legal remedies may be inadequate to enforce the provisions of this
Agreement and that equitable relief, including specific performance and
injunctive relief, may be used to enforce the provisions of this Agreement.
(b) Change and Modifications. This Agreement may not be orally
changed, modified or terminated, nor shall any oral waiver of any of its terms
be effective. This Agreement may be changed, modified or terminated only by an
agreement in writing signed by the Company and the Optionee.
(c) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
(d) Headings. The headings are intended only for convenience
in finding the subject matter and do not constitute part of the text of this
Agreement and shall not be considered in the interpretation of this Agreement.
(e) Saving Clause. If any provision(s) of this Agreement
shall be determined to be illegal or unenforceable, such determination shall in
no manner affect the legality or enforceability of any other provision hereof.
(f) Notices. All notices, requests, consents and other
communications shall be in writing and be deemed given when delivered
personally, by telex or facsimile transmission or when received if mailed by
first class registered or certified mail, postage prepaid. Notices to the
Company or the Optionee shall be addressed as set forth underneath
7
<PAGE> 31
their signatures below, or to such other address or addresses as may have been
furnished by such party in writing to the other.
(g) Benefit and Binding Effect. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, their
respective successors, permitted assigns, and legal representatives. The Company
has the right to assign this Agreement, and such assignee shall become entitled
to all the rights of the Company hereunder to the extent of such assignment.
(h) Counterparts. For the convenience of the parties and to
facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
COMPDENT CORPORATION
By:
----------------------------
Title:
----------------------------
8
<PAGE> 32
The foregoing Agreement is hereby accepted and the terms and conditions
thereof hereby agreed to by the undersigned.
Dated as of _____________ OPTIONEE:
--------------------------
Optionee's Address:
--------------------------
--------------------------
Designated Beneficiary:
--------------------------
Beneficiary's Address:
--------------------------
--------------------------
9
<PAGE> 33
APPENDIX A
STOCK OPTION EXERCISE NOTICE
CompDent Corporation
Attention: Chief Financial Officer
- --------------------------
- --------------------------
Dear Sirs:
Pursuant to the terms of my stock option agreement dated
____________ (the "Agreement") under the CompDent Corporation 1996 Stock Option
Plan I, [INSERT NAME] ___________________, hereby [CIRCLE ONE] partially/fully
exercise such option by including herein payment in the amount of $_______
representing the purchase price for [FILL IN NUMBER OF OPTION SHARES]
__________ option shares. I have chosen the following form(s) of payment:
<TABLE>
<S> <C>
[ ] 1. Cash
[ ] 2. [CERTIFIED OR BANK] Check payable to CompDent Corporation
[ ] 3. Other (as described in the Agreement (please describe) ______________.
</TABLE>
Sincerely yours,
--------------------------
Please Print Name:
10
<PAGE> 1
STATE OF GEORGIA EXHIBIT 10.36
COUNTY OF FULTON
LEASE AGREEMENT
THIS LEASE, made this 22nd day of December, 1995 between MANSELL
OVERLOOK 100, LLC, a Georgia limited liability company having his principal
office at 70 Mansell Court, Suite 225, Roswell, Georgia 30076, telephone no.
(770) 993-5056, facsimile no. (770) 998-0515 (herein called "Landlord") and
COMPDENT CORPORATION, a Delaware corporation, having its principal office at
8800 Roswell Road, Suite 295, Atlanta, Georgia, 30350, telephone no. (770)
998-8936, facsimile no. (770) 992-4359 until the Commencement Date and
thereafter at the Premises (herein called "Tenant").
PREMISES 1. Landlord hereby leases to Tenant and Tenant hereby
AND rents and leases from Landlord the following described space
TERM (herein called the "Premises") being approximately 56,406
square rentable feet (which is 34.9% of the Building) Suites #
400 and # 500 on the 4th and 5th Floors in Mansell Overlook
Building # 100 (hereinafter referred to as the "Building")
located at 100 Mansell Court East, Roswell, Georgia 30076
(hereinafter referred to as the "Property") in Land/Lot(s) 543
of the 1st District 2nd Section in The City of Alpharetta. In
addition to the Premises, Tenant is hereby granted a
non-exclusive right to use the common areas associated with
the Building, in accordance with the terms of the Lease; a
non-exclusive right to park 266 automobiles in the parking lot
located upon the Property; a non-exclusive right to park 80
compact automobiles during Normal Business Hours as set forth
in paragraph 8(a) below and subject to Landlord's relocation
rights set forth in paragraph 11, below, on the land adjacent
to the Property known as Mansell Court East (the "Extra
Parking"); and a nonexclusive right to park an additional 20
compact automobiles during Normal Business Hours as set forth
in paragraph 8(a) below and subject to Landlord's relocation
rights set forth in paragraph 11 below, in locations
determined pursuant to paragraph 11 of this Lease. The
Building, the Property, and the location of the Extra Parking
are shown on the site plan attached hereto as EXHIBIT A. The
Premises being more particularly shown and outlined on the
plan attached hereto as EXHIBIT A-1 and made a part hereof;
FOR A TERM to commence on the Commencement Date and to end at
the later of 6:00 P.M. on the 30th day of August, 2003 or the
last day of the eighty-fourth (84th) full calendar month after
the Commencement Date (herein called the "Term"). No easement
for light and air is granted hereunder. Landlord hereby
represents that the rentable square footage of the Premises
and the Building shall be computed in accordance with the
standards of the American National Standard Z65.1-1980 as
published by the Building Owners Management Association, as
reasonably adjusted to allocate to the Premises 906 square
feet of lobby common areas not addressed by such standards for
each of the 4th and 5th Floors. Within thirty(30) days of the
Commencement Date, Landlord shall deliver to Tenant a
statement from Landlord's architect certifying as to the
square footage of the Premises and the Building. If Tenant
disagrees with such statement, Tenant may retain an
architect to remeasure the Building and the Premises. In the
event the measurements of Landlord's architect and Tenant's
architect differ, the determination of the square footage of
the Premises and the Building shall be made by a third
architect satisfactory to Landlord and Tenant, or if Landlord
and Tenant cannot agree on such a third architect,
Smallwood, Reynolds, Stewart, Stewart & Associates, Inc. (or
an architect selected by the American Arbitration Association
in accordance with its then current procedures in the event
Smallwood, Reynolds, Stewart, Stewart & Associates, Inc. is
not willing to perform such services). The measurements of
the third architect shall be conclusively binding on Landlord
and Tenant. If the square footage of the Premises and the
Building as ultimately determined is different than the
amounts set forth above, then Landlord and Tenant shall enter
into an amendment of this Lease amending Tenant's pro rata
share of the Building for purposes of paying Adjustments
pursuant to Paragraph 9, the amount of Base Rental payable by
Tenant, the amount of the Tenant Improvement Allowance
provided pursuant to Paragraph 39 below, and such other
modifications as are appropriate.
BASE 2 (a) Tenant shall pay to Dove Properties, Inc., as
RENTAL Agent for Landlord at Suite 225, 70 Mansell Court, Roswell,
Georgia 30076 or at such other places as Landlord designates
in writing, without demand, deduction or set-off, rental in
the amount of $815,066.76 per year ($14.45 per rentable square
foot per annum; hereinafter called "Base Rental") payable in
equal monthly installments of $67,922.23 in advance, on the
first day of each calendar month during the Term. A pro rata
monthly installment shall be due for the first and last month
of the Term should the Term begin or end on other than the
first or last day of the calendar month. On the date on which
Landlord and Tenant have executed this Lease, Tenant has
deposited with Landlord $93,304.93, representing the
installment for the first monthly Base Rental payable
hereunder plus the installment for the first monthly
Adjustment payable in Paragraph 9(j).
(b) Landlord and Tenant hereby agree that beginning
with the Base Rental payment due on the first anniversary of
the Commencement Date and every anniversary date thereafter
during the Term, the monthly Base Rental shall be increased by
the "Rental Adjustment" being an amount equal to the product
of (i) the monthly Base Rental in effect for the previous
month (as such sum may have been increased by any previous
Rental Adjustment hereunder), multiplied by (ii) four percent
(4%).
<PAGE> 2
DELIVERY OF 3.(a) The "Commencement Date shall be the sooner to
POSSESSION occur of the date of Substantial Completion of the Building
TO TENANT and the Premises or the date on which Tenant commences the
BY LANDLORD operation of its business in the Premises. For purposes of
this Lease, "Substantial Completion" shall occur on the first
date on which all of the following conditions have been
satisfied: (i) the Building shall be completed in accordance
with the Building Plans (as hereinafter defined) and the
Premises shall be completed in accordance with the Tenant
Improvement Plans (as hereinafter defined) except for minor
punchlist items which do not materially and adversely affect
the full use and occupancy of the Premises by Tenant and do
not detract from the aesthetic appearance of the Premises;
(ii) a final certificate of occupancy shall be issued with
respect to the Premises; (iii) the electrical, mechanical,
life safety, and HVAC systems serving the Premises shall be
completely installed and in good operating condition; (iv) the
paved parking areas, driveways and walkways serving the
Building shall be completed; (v) all common areas and
facilities necessary for the use and enjoyment of the Premises
shall be completed; and (vi) ten (10) days shall have expired
since Tenant shall have been given access to the Premises
(with ceilings and carpet installed) for the purposes of
installing its furniture, cabling and computer and other
equipment. All furniture, computer and other equipment and
other personal property moved into the Premises shall be at
Tenant's sole risk, subject, however, to the terms of
subparagraph 20(f) establishing liability on the part of the
Landlord for proven acts of negligence or willful misconduct
committed by Landlord, its agents, contractors or employees.
(b) Landlord shall notify Tenant of the anticipated
completion not less than thirty (30) days prior to the
Commencement Date. The taking of possession by Tenant shall
conclusively establish that said improvements have been
completed in accordance with the building plans and the plans
depicting improvements to be made to the Premises referred in
paragraph 39 below (the "Tenant Improvement Plans") and that
the Premises are in good and satisfactory condition at the
time possession is taken, subject to "punch list items"
submitted to Landlord prior to occupancy and latent defects
discovered during the first year after the Commencement Date.
(c) Tenant's contractors, consultants, vendors and
suppliers shall have access to the Premises during the thirty
(30) day period prior to the Commencement Date for the
purposes of installing Tenant's cabling, telephone system and
otherwise preparing the Premises for occupancy by Tenant,
except that Tenant may not move furniture into the Premises
prior to the issuance of a certificate of occupancy unless the
appropriate governmental authorities permit such furniture to
be moved into the Premises. Tenant's contractor shall also
have earlier access to the Premises for the purpose of
installing computer and other cabling in the slab of the
Premises provided such installation is coordinated with the
Landlord and its contractor. Tenant agrees not to unreasonably
interfere with Landlord's contractors, subcontractors,
employees and agents. Tenant acknowledges that in the event of
a conflict between the work to be performed by its contractors
and work to be performed by Landlord's contractors, Landlord's
contractors shall have priority.
(d) Landlord will use its reasonable, good faith
efforts to cause the Commencement Date to occur on or before
September 1, 1996. If the Commencement Date has not occurred
on or before November 1, 1996, Tenant shall have the right to
terminate this Lease upon thirty (30) days prior written
notice to Landlord, in which event Landlord shall refund to
Tenant the $93,304.93 previously paid by Tenant to Landlord
pursuant to paragraph 2(a), above. Notwithstanding anything
herein to the contrary, however, the November 1, 1996 deadline
for the occurrence of the Commencement Date set forth above
shall be extended (for a maximum period of sixty (60) days)
upon the occurrence of any force majeure. As used herein,
"force majeure" shall mean strikes, lockouts, sitdowns,
material or labor restrictions by any governmental authority,
unusual transportation delays, riots, floods, washouts,
explosions, earthquakes, fire, storms, acts of the public
enemy, wars, insurrections and any other cause not reasonably
within the control of Landlord and which by the exercise of
due diligence Landlord is unable, wholly or in part, to
prevent or overcome.
REPAIRS BY 4.(a) Subject to Landlord's repair obligations set
TENANT AND forth in Paragraph 6(a) below, Tenant will, at Tenant's
REMOVAL OF expense, take good care of the Premises and the fixtures and
IMPROVEMENTS appurtenances therein, and will suffer no active or
AND permissive waste or injury thereof. Subject to the terms of
ALTERATIONS Paragraph 22 below, Tenant shall, at Tenant's expense, but
UPON under the direction of Landlord, promptly repair any injury or
TERMINATION damage to the Premises or the Building caused by the misuse or
neglect thereof by Tenant, or by persons permitted on the
Premises by Tenant, or Tenant moving in or out of the
Premises.
(b) Tenant shall not make any alterations,
additions or improvements to the core of the Building or in or
about the Premises which affect the electrical, mechanical or
plumbing systems or structural integrity of the Building. No
alteration work shall materially interfere with other Tenants
in the Building. Tenant may make any other alterations,
additions or improvements to the Premises without Landlord's
consent provided Tenant shall give Landlord prior written
notice describing with reasonable specificity any proposed
alteration, addition or improvement. If the alteration,
addition or improvement in question will materially and
adversely affect the marketability of the Premises upon the
expiration or earlier termination of the Term (determined with
reference to other "second generation" office space in the
Market), Landlord may, within ten (10) days of the receipt of
Tenant's notice, notify Tenant that Landlord will require that
Tenant, no later than ten (10) days following the expiration
or earlier
-2-
<PAGE> 3
termination of the Term, remove such alteration, addition or
improvement to the Premises and restore the Premises to the
condition that existed prior to such alteration, addition or
improvement being made (reasonable wear and tear excepted). If
Landlord timely notifies Tenant that it will require the
alteration, addition or improvement in question to be removed
upon the expiration of the Term and Tenant moves forward and
installs such alteration, addition or improvement, then, upon
the expiration of the Term, Tenant shall be required to remove
such alteration, addition or improvement and restore the
Premises to the condition that existed prior to such
alteration, addition or improvement being made (reasonable
wear and tear excepted). The parties agree that the following
alterations or improvements could be required to be removed
pursuant to the standard established by this subparagraph:
alterations consisting of a raised floor computer room,
alterations resulting in offices or office areas smaller than
the offices constructed as part of the initial improvement of
the Premises, and material alterations to the reception area
which materially affect pedestrian flow through the reception
area. In addition to complying with the Rules and Regulations
set forth on Exhibit "C" attached hereto and the other terms
of this Lease, Tenant shall not do or permit anything to be
done in or about the Premises nor bring or keep anything
herein which is not within the permitted use of the Premises
which will in any way increase the existing rate or affect any
fire or other insurance upon the Building or any of its
contents or cause a cancellation of any insurance policy
covering said Building or any part thereof or any of its
contents. In the event that Tenant's actions, omissions or
occupancy of the Premises shall cause the rate of fire or
other insurance on the Building and/or the Premises to be
increased, Tenant shall pay, as additional rent, the amount of
any such increase promptly upon demand by Landlord. Landlord
agrees to use to give Tenant written notice of the
proposed voiding, suspensions, or increase in the premium of,
such insurance, and an opportunity to cease any conduct
causing same, prior to Tenant's incurring the cost of such
increased premium. Tenant shall have the right to pay of any
such increased premium cost in lieu of ceasing such conduct,
as long as such conduct is not otherwise prohibited in the
Lease. The foregoing to the contrary notwithstanding, Tenant
shall not use or permit the Premises to be used in violation
of the prohibitions of Paragraph 4 of the "Rules and
Regulations" attached hereto. In no event shall Tenant be
required to remove any improvements made pursuant to the
Tenant Improvement Plans.
(c) All alterations, additions or improvements in
or to the Premises (including, but not limited to carpets,
drapes and drape hardware) made or installed by Tenant which
were paid for by Tenant and were not part of the Tenant
Improvement Plans shall become the property of Landlord at the
expiration of the Term. Notwithstanding anything herein to the
contrary, Tenant may elect to have Landlord remove any
alterations, additions or improvements to be removed pursuant
to subparagraph 4(b) above, at Tenant's expense, provided
Tenant so notifies Landlord in writing prior to the expiration
of the Term and pays to Landlord on or before the last day of
the Term the funds necessary to complete such removal and
restoration, the amount of which funds shall be determined by
Landlord in its reasonable discretion. Landlord acknowledges
that Tenant shall be allowed to remove at Tenant's expense all
modular work station cubicles, and any computer hardware,
which is owned or which was purchased by Tenant.
(d) Subject to the terms of subparagraphs 4(b) and
(c) above, no later than the last day of the Term, Tenant will
remove all Tenant's personal property and repair all injury
done by or in connection with installation or removal of said
property and surrender the Premises (together with all keys to
the Premises) in as good a condition as they were at the
beginning of the Term, reasonable wear and tear and damage by
casualty or condemnation excepted (subject, however, to the
terms of paragraph 20 below). All property of Tenant remaining
on the Premises after Tenant has vacated the Premises shall be
deemed conclusively abandoned and may be removed by Landlord,
and Tenant shall reimburse Landlord for the cost of removing
the same, subject however, to Landlord's right to require
Tenant to remove any improvements or additions made to the
Premises by Tenant and for Tenant to restore the Premises to
its original condition pursuant to the preceding subparagraph
4(b) above.
(e) In doing any work of any nature in, to or about
the Premises, Tenant will use contractors or workmen approved
by Landlord. Tenant shall promptly pay and discharge any and
all licenses, imposts, liens or other charges arising out of
or in connection with the performance of any act required of
or permitted Tenant hereunder and shall keep the Premises free
and clear from any such liens or charges. In furtherance
thereof, Tenant agrees to indemnify and hold Landlord harmless
from and against any and all losses, costs, damages or
liabilities resulting from or attributable to any liens or
claims of lien for said work and Tenant shall remove any such
lien or claim of lien promptly upon notice from Landlord or
upon any prior notice of such lien or claim of lien.
(f) In the performance of acts required or
permitted by Tenant under Paragraph 7 or any other provisions
of this Lease, Tenant shall obey and comply with all lawful
requirements, rules, regulations and ordinances of all legally
constituted authorities existing at any time during the
continuance of such performance which in any way affects the
Premises or the use of the Premises by Tenant. Such
compliance shall include compliance by Tenant with
requirements of the Occupational Safety and Health Act and all
amendments thereto, as the same applies to Tenant's use of the
Premises. Should any such requirement, rule, regulation or
ordinance which does not apply to the Building generally, but
which instead applies by virtue of Tenant's specific manner of
use of the Premises, require any alteration or addition to the
Premises, Landlord shall perform same at Tenant's expense.
Landlord shall, at Landlord's
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expense but subject to inclusion in Adjustments pursuant to
paragraph 9 below [subject, however, to the limitations set
forth in subparagraphs 9(k) and (m)], perform any alterations
or additions to the Premises required by any law or act which
are not required by virtue of Tenant's specific manner of use
of the Premises.
TENANT 5. Landlord shall not be liable to Tenant for any
RISK theft of or damage to any personal property brought into the
Building or the Premises by Tenant, its employees, agents,
contractors, licensees and invitees, except where such theft
or damage results from proven acts of negligence or willful
misconduct for which Landlord or its agents, contractors or
employees are proven to be responsible.
REPAIRS AND 6. (a) Tenant shall be responsible for its pro
MAINTENANCE rata share of the cost of all maintenance and repair
required in connection with the Premises and the Building
to the extent such costs fall within the scope of the
Adjustments in accordance with Paragraphs 8 and 9. Landlord
shall not be liable to Tenant,except as expressly provided
in this Lease, for any damage or inconvenience, and Tenant
shall not be entitled to any abatement or reduction of rent,
by reason of any repairs, alterations or additions made by
Landlord under this Lease, except as provided in Paragraphs
8 and 10. Landlord shall not be required to make any repairs
to the Premises except repairs necessary for safety and
tenantability, repairs to the systems (including without
limitation the plumbing, electrical, and heating,
ventilating, and air conditioning systems) serving the
Premises, repairs to the roof and structural components of
the Premises, and repairs necessitated by the proven acts of
negligence or willful misconduct of Landlord, its agents,
contractors or employees. Landlord shall also be responsible
for repairing and maintaining in good condition the common
areas of the Building and the parking areas, driveways,
walkways and landscaped areas serving the Building. All such
costs shall be included in the Adjustments pursuant to the
terms of Paragraph 9 below.
(b) Subject to the terms of Paragraph 22 below,
Tenant shall, at its own cost and expense repair or replace
any damage or injury to all or any part of the Premises caused
by Tenant its agents, employees, invitees, licensees or
visitors; provided, however, if Tenant fails to make the
repairs or replacements within the cure period provided in
Paragraph 12, Landlord may, at his option, make the repairs or
replacements and Tenant shall reimburse the cost to Landlord
on demand.
(c) Tenant shall not commit or allow any waste or
damage to be committed or any hazardous materials to be stored
or used on any portion of the Premises or in the Building
(except in compliance with applicable laws). The cost and
expense of any repairs and clean-up necessary to restore the
condition of the Premises to its condition existing on the
Commencement Date, ordinary wear and tear excepted, shall be
borne by Tenant, and if Landlord undertakes to restore the
Premises, it shall have the right of reimbursement against
Tenant, or as provided in Paragraph 4 above. Tenant's
obligation to remove alterations, additions, or improvements
shall be as set forth in Paragraph 4 above.
USAGE 7. Tenant shall use and occupy the premises as
general offices and uses ancillary thereto (including, without
limitation an employee break room) and for no other purpose.
Tenant shall use the fifth floor as an executive office floor
accommodating no more than 126 people and the fourth floor as
a clerical floor accommodating no more than 241 people. For
purposes of this paragraph, the number of people accommodated
on either floor shall be determined based on the total number
of desks, offices, cubicles, conference training room seats,
or other designated spaces located thereon. Tenant
acknowledges that the accommodation of 241 people on the
fourth floor of the Building exceeds the current design
standards for the Building and agrees to pay to Landlord all
costs associated with increasing the capacity of the Building
systems beyond the design limit of 166 people to accommodate
such increased personnel density. Such Building systems
upgrade shall be governed by the terms of paragraph 4, above.
Tenant may use Landlord's Building Architect and Landlord's
consulting engineers to design the changes required to densify
the Building as aforesaid but, in the event Tenant engages
other architects or engineers to design such changes, Tenant
shall reimburse Landlord for the expense incurred by Landlord
in having Landlord's Building Architect and consulting
engineers review and approve the plans and specifications for
such design changes. Tenant's use of the Premises shall not
violate any ordinance, law or regulations of any governmental
body or the "Rules and Regulations" of Landlord as made a
part hereof. In case of breach of this covenant, Tenant
agrees that Landlord may declare the lease to be in Default
as defined in Paragraph 12 below (if such breach is not cured
within the applicable cure period) and may terminate either
this Lease or Tenant's right to possession hereunder by
giving Tenant sixty (60) days notice to vacate. Landlord
represents that Tenant's permitted use of the Premises set
forth in first sentence of this Paragraph 7 shall be in full
compliance with all applicable zoning, land use and
development laws and that if Tenant uses the Premises as
permitted herein, its use shall not cause any increase in
the existing rates payable with respect to any fire or
other insurance policies relating to the Building. The
Premises shall be used for purposes otherwise in keeping
with the Class A nature of the Building.
Services, 8. (a) Landlord shall furnish, at Tenant's pro rata
Elevator, Water cost and expense as provided in Paragraph 9, the following
Cleaning & services: (i) elevator service; (ii) heating and air
Electricity conditioning; (iii) hot and cold domestic water and common use
of restrooms, and (iv) cleaning services; (v) security
services consisting of electronic keyed access to the Building
and a manned on-site after-hours station; and (vi) exterior
window washing. The services described in clauses
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(i), (iii) and (v) shall be provided each day during the
Term of this Lease. The services described in clause (iv)
shall be provided on each normal business day except
Holidays. The services described in clause (ii) shall be
available from 8:00 a.m. until 6:00 p.m. Monday through
Friday inclusive, and 8:30 a.m. until 1:00 p.m. on Saturdays,
except Holidays (herein referred to as "Normal Business
Hours"). As used herein, the term "Holidays" shall mean New
Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and other holidays
generally observed by the owners of comparable buildings in
the Market. Heating, air conditioning and electric service
shall also be available on demand by Tenant by virtue of
switching located within the Premises to switch on the
heating and air conditioning by floor or quadrant of a floor
of the Premises at Tenant's expense during hours after Normal
Business Hours at rates not in excess of the lowest rate
charged to other tenants of the Building for comparable
service (hereinafter referred to as the "After Hours Cost").
The After Hours Cost shall be equal to the sum of (1) the
cost of all electricity consumed in the operation of the
Premises (as recorded on electric submeters installed by
Landlord at Tenant's expense); (2) the cost of all water
consumed for air conditioning and restroom facilities; (3)
the actual cost of Landlord's maintenance personnel or
contractors needed to serve Tenant's after hours
requirements, if any; and (4) the product of (i) the number
of hours the Premises are occupied by Tenant above the Normal
Business Hours, multiplied by (ii) the "After Hours Rate" (as
hereinafter defined) The "After Hours Rate" shall be an
hourly rate equal to the sum of: (1) the increased
maintenance cost, if any, per hour resulting from Tenant's
after hours use of all Building and Premises systems; (2) the
incremental hourly cost of all water and electricity consumed
by the Building systems (e.g., cooling tower, fresh air fans,
elevator, lobby, lighting, etc.) which is attributable to
Tenant's occupancy of the Premises during times other than
the Normal Business Hours; and (3) if the heating and air
conditioning system was used, the hourly replacement cost of
the Building and Premises heating and air conditioning
systems computed by dividing the installed replacement costs
of such systems by the operating life (in hours) of such
systems. Landlord may charge Tenant for administering the
After Hours Cost the lesser of $35.00 per usage beyond the
Normal Business Hours, $200.00 per month or $2,400.00 per
calendar year. The charges for After Hours Cost plus the
administrative charges shall be invoiced to Tenant by the
twentieth (20th) of each month and paid by Tenant to Landlord
by the first of the succeeding month. Paragraph 9(k) of the
Lease shall govern the After Hours Cost.
(b) As provided in Paragraph 9, Landlord shall also
furnish, at Tenant's pro rata cost and expense pursuant to
Paragraph 9 below, electric current on the Premises for
lighting and for small business machinery only (e.g., desk top
computers, fax machines, printers, kitchen appliances in
Tenant's employee breakroom and other small office equipment)
using 110 volt, 20 AMP circuits. Tenant will not use any
electrical equipment which in Landlord's opinion will overload
the wiring installations or interfere with the reasonable use
thereof by other tenants in the Building. If Tenant shall use
any equipment which would result in subparagraph 8(e) below
being applicable, Tenant shall notify Landlord within ten (10)
business days after installing such equipment. Tenant shall
not, without Landlord's prior written consent, in each
instance, make any alteration to the electrical system. All
additional circuits or equipment required shall be provided by
Landlord and the reasonable cost of installation and the power
consumption thereof shall be paid by Tenant upon Landlord's
demand.
(c) If Tenant uses any of the services or electric
current enumerated in this paragraph in an amount or for a
period in excess of that provided for herein, on an average
basis, taking into account both floors of the Premises, then
Landlord reserves the right to charge Tenant as additional
rent a reasonable sum as reimbursement for the direct cost of
such added services. In the event of disagreement as to
reasonableness of such charge, the opinion of the appropriate
local utility company or local independent professional
engineer shall prevail.
(d) Subject to the terms of subparagraph 20(f)
below, Landlord shall in no way be liable for cessation of any
of the above services caused by strike, accident or breakdown,
nor shall Landlord be liable for damages from the stopping of
elevator nor elevator service, or any of the fixtures or
equipment in the Building being out or repair, or for injury
to person or property, caused by any defects in the electrical
equipment, heating, ventilating and air conditioning system,
elevators or water apparatus, or for any damages arising out
of failure to furnish the services enumerated in this
paragraph. Notwithstanding the foregoing, in the event that
(i) Landlord fails to provide services in Paragraph 8(a) to
Tenant or to make any repair as required by this Lease for a
continuous period in excess of seven (7) business days
following written notice from Tenant of such failure (which
notice shall specify the date on which such failure first
occurred) and such failure is not caused by the failure of any
public utility to provide service to the Premises or the
Building, and (ii) such failure results in all or a
substantial portion of the Premises being untenantable,
Landlord shall provide Tenant an offset against rents next
owing, in an amount equal to the Base Rental and Adjustments
due under this Lease (with the amount of such offset of rent
being prorated based on the portion of the Premises which is
rendered untenantable in the event such failure does not
render the entire Premises untenantable) from and after the
expiration of such seven (7) business day period and until
such time as Landlord resumes providing such service or
services to Tenant or makes the repair in question. The
following are examples of conditions that the parties agree
will result in all or a portion of the Premises being
untenantable: the unavailability of air conditioning during
hot summer months; the unavailability of heating during cold
winter months; the absence of janitorial services; and the
absence of electrical services to the Premises.
(e) In the event that Tenant uses equipment which
consumes electricity
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in excess of the electricity consumed by equipment typically
used in the operation of a business office (e.g., personal
computers, printers and fax machines) or in the event Tenant
consistently operates its business in all or a substantial
portion of the Premises for hours in excess of hours specified
in subparagraph 8(a), Landlord may separately meter the
electrical consumption of the Premises or a substantial
portion of the Premises. In such event, Tenant agrees to pay
Landlord Tenant's pro rata share of such cost derived from
Tenant's floor area of the Premises as a ratio of the total
floor area of the Building or any smaller component thereof
having a separate utility and/or service measuring device
(e.g., meter) to determine such cost. Such payment by Tenant
to Landlord shall be paid in the same manner and time as Base
Rental in Paragraph 2, above. Landlord agrees to include a
provision such as this in the leases relating to other space
in the Building and enforce its provisions as to any tenant
which uses any disproportionately large amounts of utilities
and/or services. Any costs paid by Tenant pursuant to the
terms of this subparagraph 8(e) shall not be included in
Adjustments pursuant to Paragraph 9 below. In the event that
all or a substantial portion of the Premises is separately
metered, then an appropriate adjustment to the amount of
Adjustments shall be made (e.g., in the event that the entire
Premises is separately metered, then the only cost of
electricity included in Adjustments shall be electricity
consumed in connection with the common areas of the Building).
(f) In the event Tenant does not pay Landlord for
utilities, Base Rental, and/or services when due and fails to
cure such default within the applicable cure period, Landlord
may, after three (3) days written notice to Tenant,
discontinue supplying such utilities and/or services. Tenant
hereby holds Landlord harmless for actual and consequential
damages incurred by Tenant due to discontinuance of utility
and/or services caused by Tenant's failure to pay Landlord
amounts due.
ADJUSTMENTS 9. In addition to the Base Rental provided in
Paragraph 2 herein above, Tenant shall pay to Landlord the
following expenses of operating the Premises and Tenant's pro
rata share of the following expenses of operating the
Building, such expenses are herein called "Adjustments" (for
purposes of this provision, Tenant's pro rata share shall be
computed by dividing the total floor area of the Premises by
the total floor area of the Building, which pro rata share is
hereby agreed to be 34.9%):
(a) All real estate taxes on the Building and the
Premises, including land, the Building and improvements
thereon. Said real estate taxes shall include all real estate
taxes and assessments that are levied upon and/or assessed
against the Premises, including any taxes which may be levied
on rents and/or any cost incurred by Landlord in contesting or
mitigating same.
(b) All insurance on the Building and the Premises
including all insurance premiums for fire, extended coverage,
liability, and any other insurance that Landlord deems
necessary on the Building and the Premises.
(c) All costs to maintain, repair and replace
common areas, parking lots, sidewalks, driveways and other
areas, facilities and equipment used in common by the tenants
of the Building. It is agreed that Tenant shall pay 100% of
the costs to maintain the Extra Parking.
(d) Any parking charges, utility surcharges, or
any other costs levied, assessed or imposed by, or at the
direction of, or resulting from statutes or regulations, or
interpretations thereof, promulgated by any governmental
authority in connection with Tenant's use or occupancy of the
Premises or the parking facilities serving the Premises.
(e) The cost of providing the services enumerated
in Paragraph 8 above.
(f) The cost of maintaining and repairing the
Building, its mechanical, electrical, plumbing and heating,
ventilating and air conditioning systems, and exterior,
including the roof system and glass.
(g) The cost of maintaining and repairing the
Premises.
(h) The cost of property management, not to exceed
four percent (4%) of gross rentals and revenues collected from
Tenant.
(i) Tenant is hereby notified that the estimated
monthly installments of "Adjustments" are payable per month in
the amount of $25,382.70 and at the rate of $5.40 per square
foot (rentable) per year beginning on the Commencement Date,
and continuing each month in advance on the first day thereof.
Tenant shall continue to make said monthly payments until
notified by Landlord of a change thereof. By April 1st of each
year Landlord shall give Tenant a statement showing the total
Adjustments for the Building for the prior calendar year and
Tenant's allocable share thereof, prorated from the
Commencement Date. Landlord's statement shall show a breakdown
of Adjustments into at least the following categories: real
estate taxes, insurance, common area maintenance, building
maintenance, utilities and garbage and property management
fee. In the event the total of the monthly payments which
Tenant has made for the prior calendar year are less than the
Tenant's actual pro rata share of such Adjustments, then
Tenant shall pay the difference in a lump sum with the next
installment of Base Rental but no less than ten days after
receipt of such statement from Landlord and shall concurrently
pay the difference between the revised monthly payments for
the then current calendar year versus the amount actually
paid. In the event the total of the monthly payments
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which Tenant has made for the prior calendar year are greater
than Tenant's actual pro rata share of such Adjustments, then
the amount of such overpayment shall be credited towards the
monthly Base Rental or Adjustments next coming due. The
projected actual Adjustments for the current year shall be
used for the purposes of calculating the anticipated monthly
Adjustments for the then current year with actual
determination of such Adjustments after each calendar year as
above provided. Even though the Term has expired and Tenant
has vacated the Premises, when the final determination is made
of Tenant's share of said Adjustments for the year in which
this Lease terminates, Tenant shall immediately pay any
increase due over the estimated Adjustments previously paid
and, conversely, any overpayment made shall be immediately
rebated by Landlord to Tenant.
(j) Notwithstanding anything to the contrary
contained in this Lease, the following items shall be
excluded (or, as applicable, deducted) by Landlord in
determining or calculating Adjustments: (i) the cost of
repairs or other work occasioned by fire, windstorm or other
casualty or loss, or by the exercise of eminent domain, to
the extent that same are covered by proceeds of insurance or
condemnation awards; (ii) rental concessions or lease
buy-outs; (iii) the costs of renovating or otherwise
improving or decorating, painting or redecorating other
premises for tenants of the Building or any other costs
related to procuring new leases or renewals, expansions or
extensions of existing leases; (iv) depreciation; (v) amounts
paid to Landlord, subsidiaries or affiliates of Landlord,
for services to the Building if and to the extent the cost
therefor exceeds competitive costs for such services in
comparable projects or buildings located within the Market
were they not so rendered by Landlord, or a subsidiary or
affiliate of Landlord; (vi) payments of principal, interest
or other payments or any kind on any deeds to secure debt,
mortgages, ground or underlying lease(s), or other
hypothecations for security of all or any part of the Project
or the Building by Landlord; (vii) any compensation paid to
clerks, attendants, or other persons or entities in any
commercial concessions operated by Landlord; (viii) all items
and services and goods for which Tenant or any other tenant,
occupant, person or other party reimburses Landlord or pays
third parties; (ix) wages, salaries and other compensation
paid to employees of the Landlord at the Building who are
above the grade of Building superintendent or manager; (x)
brokerage, legal and professional fees expended by Landlord
in connection with negotiating and entering into any leases
and any related instruments (including without limitation,
guaranties, surrender agreements, leasing amendments and
consents to assignment or subletting) with any tenant
or other occupant of any portion of the Project or the
Building and the enforcement of any such instruments; (xi)
estate, inheritance, gift, transfer, net worth, intangibles,
franchise and income taxes of Landlord (but in no event shall
this subparagraph exclude rent taxes or any net worth,
franchise or income tax assessment in lieu of and in
substitution for real estate taxes); (xii) all other items
for which Tenant or any other tenant, occupant or other party
compensate Landlord under this Lease so that no duplication
of payments by Tenant to Landlord shall occur; (xiii) any
costs, fines or penalties incurred due to violations by
Landlord of any law; (xiv) the cost of the initial
construction of the Building or any subsequent additions
thereto and the cost of correcting any defects in such
construction; (xv) expenses for the replacement of any item
covered under warranty to the extent of proceeds or payments
actually received by Landlord under such warranty; (xvi)
Landlord's general corporate overhead and administrative
expenses except as permitted in Paragraph 9 (i); (xvii) any
expenses related to the removal of hazardous substances as
defined in any presently existing applicable environmental
law or regulation brought on the Premises by Landlord, its
agents, contractors or employees; (xviii) costs and expenses
incurred in connection with financing, refinancing or
syndication of the Building; (xix) any cost or expense which
is specific to Buildings 10, 20, 30, 70 or any other building
which is hereafter part of the project of which the Building
is a part (the "Adjacent Buildings"); (xx) other items not
customarily included as operating expenses for comparable
buildings in the Market; (xxi) costs or expenditures
resulting from Landlord's default or from proven acts of
negligence or willful misconduct committed by Landlord, its
agents, contractors or employees. Any cost or expense which
benefits one or more of the Adjacent Buildings in addition to
the Building shall be allocated among the benefited buildings
in proportion to the square footage of the benefited
buildings.
(k) Within three (3) months of Tenant's receipt of
a statement from Landlord showing computation of the
Adjustments (or at any time if Landlord fails to provide such
a statement), Tenant may, upon thirty (30) days' written
notice to Landlord and at Tenant's sole cost and expense,
conduct an audit of Landlord's books and records with respect
to Adjustments. Officers or agents of Tenant shall conduct
such audit during regular business hours at Landlord's
offices. If such audit shall disclose an error in Landlord's
calculation of Adjustments for such year, proper adjustment
shall forthwith be made between Landlord and Tenant to correct
any overpayment or underpayment of Adjustments by Tenant (with
any adjustment by Landlord in favor of Tenant to be in the
form of a credit against future rent). In the event such audit
discloses an overstatement of Adjustments by Landlord of more
than ten (10) percent, Landlord shall pay the cost of such
audit.
(1) Any costs which would be capitalized in
accordance with generally accepted accounting principles
("Capital Costs") shall be amortized on a straight line basis
over the useful life expectancy of same. The amortized cost
allocable to a particular year shall be includable in
Adjustments for such year in accordance with the following:
(i) any costs incurred in acquiring and installing any device
or equipment reasonably believed by Landlord to improve the
operating efficiency of any system within the Building shall
be included in Adjustments in its entirety; (ii) any costs
incurred in making an improvement to the Building in order to
comply with any law enacted after the date the Building is
constructed shall likewise be included in
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Adjustments in its entirety; (iii) the costs to maintain the
Extra Parking, (iv) otherwise, the amount included in
Adjustments on account of such Capital Costs (exclusive of the
costs described in clauses (i), (ii) and (iii) which shall be
included in their entireties) in any year shall not exceed the
Capital Costs Cap. The term "Capital Cost Cap" shall mean (i)
$.30 per square foot during the first year of the Term and
(ii) during each succeeding year an amount equal to the
product of $.30 per square foot and a fraction, the numerator
of which is the Index most recently published prior to the
first day of the year in question and the denominator of which
is the Index most recently published prior to the Commencement
Date. As used herein, the Index shall mean the Bureau of Labor
Statistics Consumer Price Index (All Urban Consumers - U.S.
City Average 1982-84 = 100). In the event the Index ceases
being published, Landlord shall select a replacement index
which will result in comparable adjustments.
DESTRUCTION 10. If the Building is totally destroyed (or so
TO substantially damaged as to be unable to be restored or
PREMISES repaired within 180 days of the fire or other casualty as
determined by Landlord's Insurance adjuster) by storm, fire,
earthquake, or other casualty, the Lease, shall at the option
of either party, by giving notice within thirty (30) days of
such destruction or damage, terminate as of the date of such
destruction or damage, and rental shall be accounted for as
between Landlord and Tenant as of that date. If the Premises,
but not the entire Building, are damaged or are rendered
partially or wholly untenantable by any such casualty, rental
shall abate in proportion to the area of the Premises which
cannot be used or occupied by Tenant as a result of such
casualty and Landlord shall restore the Premises within 180
days of the date of such casualty unless prevented from doing
so for reasons beyond Landlord's control, in which event such
restoration period shall be so extended for up to 60 days. If
the Premises are not restored within the period of time
specified in the preceding sentence, Tenant shall be entitled
to terminate this Lease by written notice to Landlord. In no
event shall rent abate if damage or destruction to the
Premises is the result of negligence of Tenant, its agents or
employees, except to the extent or rental or business
interruption insurance proceeds received by Landlord.
RULES 11. Tenant will observe and comply with the "Rules
AND and Regulations" attached hereto as Exhibit C and made a part
REGULATIONS hereof and such further reasonable rules and regulations as
EXTRA PARKING Landlord may prescribe, on written notice to Tenant, for the
safety, care and cleanliness of the Building, and the comfort,
quietness and convenience of other occupants of the Building.
Landlord shall have the exclusive right to regulate and
control parking areas and Tenant hereby agrees to conform to
such rules and regulations as Landlord may establish. Tenant
shall have the nonexclusive use of 266 automobile spaces for
free parking on the Property shown in Exhibit A-1 for its
employees, vendors, and business invitees. Tenant shall not
allow more than 266 cars to be parked on the Property for any
employee, visitor, contractor, vendor, or other business
invitee. Landlord shall make available to Tenant on a
non-exclusive basis within sixty (60) days after prior written
notice from Tenant, 20 extra parking spaces in an area no more
than 450' from any door of the Building, so that Tenant shall
have access and non-exclusive use of a total 366 automobile
parking spaces (266 on the Property, 80 on Extra Parking, plus
20 undesignated). Notwithstanding any to the contrary,
Landlord shall have the right to relocate the Extra Parking
within an area 450' from any door of the Building in
connection with the dedication of all or any part of Mansell
Court East to the City of Alpharetta. In no event shall
Landlord adopt any rule or regulation which does not apply to
all tenants, including rules and regulations providing for
reserved parking except for the Extra Parking. Landlord shall
not provide reserved parking on the Property except that up to
150 parking spaces may be reserved for tenants if such spaces
are no closer than 200 feet from the Building, provided a pro
rata share of such spaces are provided to Tenant. Landlord
shall not enforce any of the rules and regulations in a
manner which is discriminatory against Tenant.
Default 12. (a) The following constitute a Default: Any
failure to pay rent or other charges due hereunder as and when
the same shall be due and payable (provided, however, that no
more than twice during any calendar year, a Default shall not
have occurred unless Tenant has failed to cure any such
failure within three (3) days following written notice thereof
from Landlord) or if Tenant defaults in performing any other
of Tenant's non-monetary obligations hereunder and fails to
cure such default within thirty (30) days after written notice
from Landlord (or such longer period as may reasonably
necessary to cure such default if such default is not
reasonably susceptible of being cured within thirty (30) days,
provided Tenant promptly commences its efforts to cure such
default within thirty (30) days and proceeds with due
diligence and good faith thereafter); or if Tenant files for
or is adjudicated a bankrupt; or if a permanent receiver is
appointed for Tenant's property, including Tenant's interest
in the Premises, and such receiver is not removed within sixty
(60) days after written notice from Landlord to Tenant to
obtain such removal; or if whether voluntarily or
involuntarily, Tenant takes advantage of any debtor relief
proceedings under any present or future law, whereby the rent
or any part thereof is, or is proposed to be reduced or
payment thereof deferred; or is proposed to be reduced or
payment should be levied upon or attached under process
against Tenant, not satisfied or dissolved within thirty (30)
days after written notice from Landlord to Tenant to obtain
satisfaction thereof; then and in any of said events, all
rental and other charges then due shall immediately be due and
payable by Tenant. Landlord may, at its option, at any time
thereafter (but only during continuance of such Default or
condition) terminate this Lease by written notice to Tenant.
After an authorized assignment or subletting, the occurrence
of any of the foregoing defaults or events shall affect this
Lease only if caused by or happening to the assignee or
sub-lessee. Upon such termination by Landlord, Tenant will at
once surrender possession of the Premises to Landlord and
remove all of Tenant's effects therefrom; and Landlord may
forthwith enter the Premises and repossess himself thereof,
and remove all persons and effects therefrom; using
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<PAGE> 9
such force as may be necessary, without being guilty of
trespass, forcible entry or detainer or other tort.
(b) Landlord acknowledges and agrees that the Landlord's
agreement to provide a total of 366 parking spaces for the
Tenant is a material inducement to Tenant to enter into this
Lease, and that Tenant would not have entered into this Lease
but for such agreement. When more than eight percent (8%) of
the 366 parking spaces allocated to Tenant herein are made
unavailable for use by Tenant due to causes within the
exclusive control of Landlord, including without limitation,
the sale, conveyance, or foreclosure of property on which
Tenant has parking rights (hereinafter referred to as a
"Parking Deficiency"), Tenant shall notify Landlord of such
Parking Deficiency. If the Parking Deficiency continues for a
period of one-hundred eight (180) days without Landlord
providing during such time reasonable, replacement parking
alternatives at no cost or expense to Tenant, then Tenant may
cancel this Lease after thirty (30) days notice to Landlord.
As to the 266 parking spaces allocated to Tenant within the
Property, only Tenant's pro rata share of such parking spaces
(rounded down to the nearest whole number) shall be included
in the computation of the number of parking spaces made
unavailable for use by Tenant. Tenant's pro rata share of each
parking space located within the Property is hereby agreed to
be thirty-eight percent (38%). Accordingly, for each such
parking space made unavailable for use, 0.38 parking spaces
shall be deemed to have been made unavailable for use by
Tenant. As to all parking spaces allocated to Tenant other
than those located within the Property, each such space made
unavailable for use shall be deemed to be a parking space made
unavailable for use by Tenant. By way of example, in the event
10 spaces within the Extra Parking and 30 spaces within the
Property are made unavailable for use, a total of 21 spaces
(10 within the Extra Parking and 11 within the Property)
shall be deemed to be made unavailable for use by Tenant. For
purposes of this Lease, causes of parking unavailability not
within the exclusive control of Landlord shall include, but
shall not be limited to, force majeure, maintenance of
underground utilities, exercise(s) of the power of eminent
domain, or changes in any zoning or other laws, ordinances or
regulations (or in the application or interpretation thereof).
RE-LETTING 13. Upon Tenant's Default of this Lease, as defined
BY herein above, Landlord, at Landlord's option, without
LANDLORD termination of this Lease and as Tenants agent, may enter upon
and rent the Premises at the best price obtainable by
reasonable effort, without advertisement, and by private
negotiations and for any term Landlord deems proper. Tenant
shall be liable to Landlord for the deficiency, if any,
between all rent reserved hereunder and the total rental
applicable to the Term hereof obtained by Landlord on
re-letting, and for Landlord's expense in restoring the
Premises and all costs incident to such re-letting.
EARLY 14. No termination of this Lease prior to the normal
TERMINATION ending thereof by the lapse of time or otherwise shall affect
Landlord's right to collect rent and other charges due.
ASSIGNMENT 15. Tenant may assign this Lease and any interest
SUBLETTING hereunder, or sublet the Premises or any part thereof, or
permit the use of the Premises to or by any affiliate of
Tenant without the approval of Landlord. Tenant may not assign
this Lease and any interest hereunder or sublet the Premises
or any part thereof or permit the use of the Premises by any
party other than an affiliate of Tenant without the prior
written consent of Landlord. The term "affiliate" shall mean
any entity now or hereafter directly or indirectly in control
of, controlled by or under common control with Tenant or its
principals; or into which or with which Tenant intends to
merge or consolidate; or which agrees to acquire all or
substantially all of Tenant's outstanding stock, partnership
interests or assets. The terms "control", "controlled by" and
"under common control with" shall mean, with respect to any
entity, the possession of the power to direct or cause the
direction of the management and policy of such entity, whether
through the ownership of voting securities or contracts.
Tenant agrees to provide to Landlord notice of any such
assignment or sublease to an affiliate of Tenant. If Landlord
approves Tenant's sublease or assignment, Landlord, as a
condition of its approval, shall (1) be paid $1,000.00 to
reimburse Landlord for its administrative review of the
sublease or assignment; (2) receive a fully executed copy of
the sublease or assignment; (3) hold Tenant liable under this
Lease as if there were no sublease or assignment (4) modify
paragraphs 1, 7, and 11 of this Lease to provide for
automobile parking and personnel occupancy to be reduced to
4.0 people or cars/1000 square feet rentable (226 people or
cars) in lieu of the 366 people or cars provided otherwise
herein; (5) require a Security Deposit in the amount of
$100,000; and (6) delete paragraph 40, hereof so that there
shall be no Renewal Option. In the event Tenant subleases or
assigns the Premises or any part thereof to a party other than
an affiliate at a rental rate exceeding the Base Rental due
Landlord herein, the excess rental received by Tenant, less
the cost of subleasing or assigning the Premises, shall be
due to Landlord within ten (1O) days after receipt of such
excess by Tenant.
EMINENT DOMAIN 16. If all or any substantial part of the Premises,
the land on which the Building stands, any portion of the
common areas necessary for the use and enjoyment of the
Premises or any estate therein is taken by virtue of eminent
domain or is conveyed or leased in lieu of such taking, the
Lease shall expire on the date when title shall vest, or the
term of such lease shall commence, and any rent paid for any
period beyond said date shall be repaid to Tenant. Widening of
streets abutting the land on which the Building stands and/or
loss of less than 8% of the total Parking Spaces including
Extra Parking shall not affect this Lease, provided no part of
the Building is taken. Tenant shall not be entitled to any
part of any condemnation award granted to Landlord or to any
payment in lieu thereof, but Tenant shall be entitled to file
its own
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<PAGE> 10
claim for damages with the condemning authority. If less than
substantially all of the Premises, the land on which the
Building stands, or the common areas necessary for the use and
enjoyment of the Premises is so taken and such taking renders
a portion of the Premises untenantable and Tenant could
reasonably be expected to continue to operate within the
remaining Premises, Landlord shall provide Tenant an offset
against the Base Rental and Adjustments next owing under this
Lease (with the amount of such offset being determined pro
rata based on the portion of the Premises rendered
untenantable) from and after the date of such taking until
such time as said portion of the Premises, the land on which
the Building stands, or said common area so taken is restored
by Landlord; provided, however, that Landlord shall have no
restoration obligation pursuant to this Paragraph 16.
ENTRY 17. Landlord may enter the Premises at reasonable
hours and upon reasonable verbal request to show the Premises
to mortgagees, or prospective purchasers or tenants, or to
inspect the Premises, or to make repairs required of Landlord
under the terms hereof or repairs to adjoining space within
the Building. Such entry by Landlord shall not entitle Tenant
to any rent abatement, unless such entry by Landlord deprives
Tenant of the use of all or a substantial portion of the
Premises during operating hours of the Building as specified
in Paragraph 8(a). In such event, Base Rental shall abate on a
pro rata basis for the unusable space from and after the
seventh (7th) day during which Tenant's use and enjoyment of
the Premises is so deprived. Landlord agrees to exercise its
rights pursuant to this paragraph 17 in a manner so as not to
unreasonably interfere with Tenant's use and enjoyment of the
Premises.
TRANSFER 18. OMITTED
OF TENANTS
SUBORDINATION 19. (a) This Lease shall be subject and subordinate
to all security deeds which may now or hereafter affect this
Lease or the real property of which the Premises form a part,
and also to all renewals, modifications, extensions,
consolidations and replacements of such underlying security
deeds. In confirmation of the subordination set forth in this
Paragraph 19, Tenant shall, within five (5) days after written
request of Landlord or the holder of any security deed,
execute and deliver such further instruments as may be desired
by any holder of an underlying security deed. Notwithstanding
the provisions of this Paragraph 19, Tenant shall, at the
request of any holder of a security deed, mortgage or other
lien affecting this Lease of the real property of which the
Premises form a part, be bound to any such holder which
succeeds to Landlord's interest through foreclosure or
otherwise under all the terms, covenants and conditions of
this Lease for the term remaining, and Tenant shall promptly
attorn to such succeeding party as its Landlord under this
Lease. Tenant agrees that should any succeeding party require
a separate attornment agreement regarding matters covered by
this Lease, then Tenant shall enter into any such attornment
agreement, provided it does not otherwise modify this Lease
and has no adverse effect upon Tenant's continued occupancy of
the Premises. Landlord hereby advises Tenant that as of the
date of execution hereof, the real property of which the
Premises is a part is encumbered by and subject to a deed to
secure debt. Landlord shall cause its lender to enter in a
subordination, nondisturbance and attornment agreement with
Tenant, similar in from to Exhibit "D", attached hereto,
within thirty (30) days after the date of this Lease. There is
no mortgage on the Extra Parking land except for mortgaged
access easement right benefitting the adjacent properties.
Notwithstanding any provisions to the contrary contained in
this paragraph 19, in no event shall this Lease be subject and
subordinate to any future security deed, mortgage or lien
unless the holder thereof provides an agreement, in form and
substance reasonably satisfactory to Tenant, agreeing to
recognize this Lease in the event of a foreclosure.
(b) If Tenant shall not be in default beyond any
applicable notice or grace period, Tenant shall have the right
to peaceably and quietly occupy and enjoy the full possession
and use of the Premises, subject, however, to the terms of
this Lease. Landlord agrees to take reasonable steps to cause
any noises, odors or other similar occurrences originating in
portions of the Building other than the Premises from
disturbing Tenant's use and enjoyment of the Premises. Tenant
acknowledges that certain levels of noise and certain odors
are unavoidable consequences of occupying space in a
multi-tenant office building. Tenant acknowledges further that
the construction of improvements on floors adjacent to the
Premises will occur from time to time during the Term and that
such construction will result in noise which Tenant may find
unpleasant. Landlord nevertheless agrees to take such actions
as are taken by the owners of comparable buildings in the
Market to cause construction activities to be conducted in
such a way as to minimize the disruption of Tenant's use and
occupancy of the Premises.
INDEMNITY/ 20. Tenant hereby on behalf of itself and any party
HOLD holding by, through or under Tenant agrees to indemnify and
HARMLESS hold harmless Landlord, its agents, contractors and employees
in the following manner:
(a) Against any default under this Lease by Tenant
or any party holding by, through or under Tenant for any and
all damages, costs, claims of liabilities of whatsoever nature
sustained by Landlord or any party holding by, through or
under Landlord as a result of such default or failure.
(b) Against any and all claims, damages, losses
and liabilities, whatsoever their nature, cause or origin,
attributable in any manner to the negligence of Tenant,
agents,
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<PAGE> 11
contractors, employees or to the use and occupancy of the
Premises or the Building by Tenant, its agents, contractors,
employees, licensees or invitees.
(c) Against any and all damage or injury to the
Premises, to Tenant's own property, to Tenant, its agents,
contractors, employees, invitees or licensees arising from any
use or condition of the Premises, and from any act or failure
by Tenant with respect thereto.
(d) Against any and all damages to Tenant of
whatsoever nature resulting from or caused by the condition of
the Premises, or the Building and or cessation of operations
or malfunction of any equipment or apparatus serving the
Premises or the Building.
(e) Against any and all losses or damages to any
person or property of Tenant, its agents, contractors,
employees, invitees or licensees occasioned by fire, act of
God, public enemy, injunction, riot strike, insurrection, war,
court order, requisition, or order of governmental body or
authority, or other matters beyond the reasonable control of
Landlord.
(f) Notwithstanding the terms of subparagraph (a)
through (e) above, the only exception to Tenant's full
assumption of and liability for any and all claims whatsoever
their nature, cause or origin which relate to the Premises,
the Building and equipment and apparatus located therein and
walks and entryway thereto shall be only those claims
resulting from Landlord's default or from proven acts of
negligence or willful misconduct committed by Landlord, its
agents, contractors or employees. Notwithstanding the terms of
subparagraphs (a) through (e) above, Landlord hereby and on
behalf of itself and any party holding by, through or under
Landlord agrees to indemnify and hold harmless Tenant, its
agents, contractors and employees from any and all loss,
damage, liability, cost and expense (including without
limitation, attorney's fees and court costs) incurred by
Tenant, its agents, contractors, employees, invitees or
licensees resulting from Landlord's default or from proven
acts of negligence or willful misconduct committed by
Landlord, its agents, contractors or employees.
(g) Tenant's obligation in Paragraph 20 shall be
secured by a $5,000,000 liability insurance policy covering
this obligation issued by a company rated "A" by Best's Rating
Service with a certificate thereof deposited with Landlord
upon the execution hereof. Said policy shall name Landlord as
an additional insured and shall not be terminated or canceled
without thirty (30) days prior written notice to Landlord by
carrier of such insurance. Tenant's failure to provide and
maintain said insurance policy within the applicable notice
and cure period shall be a Default in Paragraph 12, above.
FIRE AND 21. Tenant shall carry fire and extended coverage
EXTENDED insurance insuring its interest in Tenant's improvements in
INSURANCE the Premises and its interest in its office furniture,
COVERAGE equipment and supplies therein. Tenant shall, within thirty
(30) days following notice from Landlord, deposit with
Landlord the policy or policies of such insurance or a
certificate or certificates thereof. The instrument or
instruments deposited with Landlord hereunder shall evidence
that such insurance is in full force and effect, that such
insurance will not be terminated or canceled without ten (10)
days prior notice to Landlord by the carrier of such
insurance. Landlord covenants and agrees that it will carry a
"Special Form" all risk insurance policy with respect to the
Building in an amount not less than 100% of replacement cost
of the Building (subject to customary deductibles).
WAIVER OF 22. Anything in this Lease to the contrary
SUBROGATION notwithstanding, Landlord and Tenant hereby waive and release
each other, and their respective partners, agents and
employees, of and from any and all rights of recovery, claim,
action or cause of action against each other, their agents,
officers and employees, for any injury or death or any loss or
damage that may occur to the Premises, the Building or any of
the contents thereof, to the extent that such loss or damage
is covered by the insurance carried by Landlord and Tenant
hereunder (or if either Landlord or Tenant defaults in its
obligation to carry insurance pursuant to the terms of
paragraphs 20 or 21 above, to the extent that such loss or
damage does not result from gross negligence or intentional
misconduct of the party being released and such loss would
have been covered under the policies required to be carried
pursuant to paragraph 20 or 21 above taking into account any
so-called "deductibles") and regardless of cause or origin,
including but not limited to negligence of Landlord or Tenant
or their agents, officers and employees. Because this
paragraph will preclude the assignment of any claim mentioned
in it by way of subrogation or otherwise to an insurance
company, each party to this Lease agrees immediately to give
to each insurance company which has issued to it policies of
insurance covering all risk of direct physical loss written
notice of the terms of the mutual waivers contained in this
paragraph, and to use its reasonable good faith efforts to
have the insurance policies properly endorsed, if necessary,
to prevent the invalidation of the insurance coverages by
reason of the mutual waiver contained in this section. If
despite using its good faith efforts, either party is unable
to obtain such an endorsement, such party shall promptly
provide written notice of such failure to the other party. In
such event, the waiver and release granted above by the party
unable to obtain such endorsement shall not apply until such
time as such endorsement is provided. Landlord and Tenant
acknowledge that the waivers and releases set forth in this
paragraph are intended to result in any loss or damage which
is required to be covered by insurance pursuant to the terms
of this Lease being borne by the insurance carrier of Landlord
or Tenant, as the case may be.
LANDLORD'S 23. The rights given to Landlord herein are in
RIGHTS addition to any rights that may be given to Landlord by any
statute or otherwise.
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<PAGE> 12
HOLDING 24. If Tenant remains in possession of the Premises
OVER or any part after expiration of the Term hereof with
Landlord's acquiescence and without any specific agreement
between theparties, Tenant shall be a "Tenant at Will" and
such tenancy shall be subject to all the provisions hereof
except that the monthly portion of the Base Rental shall be
increased by fifty percent (50%) for the first two months of
the hold-over period then shall be doubled for the remaining
hold-over period and there shall be no renewal of this Lease
by operation of law. Nothing in this Paragraph shall be
construed as a consent by Landlord to the possession of the
Premises by Tenant after the expiration of the term other
than as "Tenant at Will".
NO WAIVER 25. (a) The failure of either party to insist in any
CHANGES instance on strict performance of any covenant or condition or
hereof, or to exercise any option herein contained, shall not
be construed as a waiver of such covenant, condition or option
in any other instance. This Lease cannot be changed or
terminated orally.
MARGINAL 26. The marginal notations in this Lease are included
NOTATIONS for convenience only and shall not be taken into consideration
in any construction or interpretation of this Lease or any of
its provisions.
NOTICE 27. Any notice by either party to the other shall be
valid only if in writing and delivered personally (including
delivery by express courier), sent by registered or certified
mail addressed (1) if to Tenant at 8800 Roswell Road, Suite
295, Atlanta, Georgia 30350 prior to the Commencement Date,
and thereafter at the Premises c/o the President of Tenant,
and (2) if to Landlord, at Landlord's address set forth above,
or at such other address for either party as that party may
designate by notice to the other. Notice shall be deemed
given, if delivered personally, upon delivery thereof, and if
mailed, upon the delivery thereof or refusal to accept
delivery thereof.
HEIRS AND 28. The provisions of the Lease shall bind and enure
ASSIGNS to the benefit of Landlord and Tenant, and their respective
successors, heirs, legal representatives and where permitted
assigns, it being understood that the term "Landlord", as used
in this Lease, means only the owner, or the lessee for the
time being of the land and the Building of which the Premises
are a part, so that in the event of any sale or sales of said
property or of any lease thereof, the Landlord named herein
shall be and hereby is entirely freed and relieved of all
covenants and obligations of Landlord hereunder accruing
thereafter, and it shall be deemed without further agreement
that the purchaser, or the lessee, as the case may be, has
assumed and agreed to carry out any and all covenants and
obligations of Landlord hereunder during the period such party
has possession of the land and the Building. Should the land
and the entire Building be severed as to ownership by sale and
or lease, then the owner of the entire Building or lessee of
the entire Building that has the right to lease space in the
Building to tenants shall be deemed the "Landlord". Tenant
shall be bound to any succeeding party Landlord for all the
terms, covenants and conditions hereof and shall execute any
attornment agreement not in conflict herewith at the request
of any succeeding party Landlord.
ENTIRE 29. This Lease contains the entire agreement of the
AGREEMENT parties hereto and no representations, inducements, promises
AND or agreements, oral or otherwise, between the parties not
ENFORCEABILITY embodied herein shall be of any force or effect. If any term
or provision of this Lease shall be invalid or unenforceable,
the remaining terms and provisions hereof shall not be
affected thereby; if the application of any term or provisions
of this Lease to any person or circumstance shall to any
extent be invalid or unenforceable, such term or provision
shall remain applicable as to those persons or circumstances
to which it shall be valid and enforceable; and each term and
provision of this Lease shall be valid and enforceable to the
fullest extent permitted by Law.
SECURITY 30. OMITTED, subject to Tenant being rated "A" by
DEPOSIT Moody's upon the Commencement Date.
ATTORNEY'S 31. Any amounts payable hereunder by Tenant to
FEES AND Landlord or vice versa which are not paid within five (5) days
HOMESTEAD of the date due shall incur a late fee of five percent (5%) of
the amount due and shall bear interest per annum at the rate
published by the Wall Street Journal as the prime rate per
annum plus four percent (4%) or the highest legal interest
rate from said due date. If amounts owing Landlord by Tenant
or Tenant by Landlord are collected by or through an attorney
at law, the party owing such sums agrees to pay the reasonable
attorney's fees actually incurred by the other party. Tenant
waives all homestead rights and exemptions which he may have
under any laws as against any obligation owing under this
Lease. Tenant hereby assigns to Landlord his homestead and
exemption.
GENDER 32. The parties "Landlord", "Tenant" and "Agent" and
pronouns relating thereto, as used herein shall include male,
female, singular and plural, corporation, partnership or
individual, as may fit the particular parties.
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NO ESTATE 33. (a) It is understood and agreed that Tenant has
IN LAND only a usufruct under this Agreement, which is not subject to
levy and sale, and that no estate shall pass out of Landlord
to Tenant hereunder with Tenant's rights to the use of the
Premises being solely contractual.
ENVIRONMENTAL 34. Landlord represents to Tenant that the real
MATTERS property on which the Building is to be built and the Building
upon construction shall contain no Hazardous Substances.
Landlord agrees to indemnify and hold Tenant harmless from and
against any and all losses, liabilities, costs and expenses
(including without limitation, attorney's fees, court costs,
inspection fees and remediation costs) suffered by Tenant on
account of the breach of the foregoing representation. Tenant
agrees to indemnify and hold Landlord harmless from and
against any and all losses, liabilities, costs and expenses
(including without limitation, attorney's fees, court costs,
inspection fees and remediation costs) suffered by Landlord
arising from any Hazardous Substances introduced, released by
or placed in the Premises, the Building or the real property
on which the Building is located by Tenant, its agents,
contractors or employees. As used in this Lease, the term
"Hazardous Substances" means asbestos, polychlorinated
biphenyl, petroleum products and such materials, waste,
contaminates or other substances defined as toxic, dangerous
to health or otherwise hazardous by cumulative reference to
the following sources as amended from time to time: (i) the
Resource Conservation and Recovery Act of 1976, 42 USC ss.6901
et. seq. ("RCRA"); (ii) the Hazardous Materials Transportation
Act, 49 USC ss. 1801, et. seq.; (iii) the Comprehensive
Environmental Response Compensation and Liability Act of 1980,
42 USC ss.9601 et. seq. ("CERCLA"); (iv) applicable laws of
the jurisdiction where the Property is located, and (v) any
federal, state or local statutes, regulations, ordinances,
rules or orders issued or promulgated under or pursuant to any
of those laws or otherwise by any department, agency or other
administrative, regulatory or judicial body.
TIME OF 35. Time is of the essence of this Agreement.
ESSENCE
COMMISSION 36. Landlord and Tenant hereby acknowledge that Dove
Properties, Inc. ("Dove") acted as agent for Landlord and CB
Commercial Real Estate Group, Inc. (Dove and CB are herein
referred to as the "Agents") acted as agent for the Tenant in
this transaction. The Landlord, its successors and assigns
shall be responsible for Agents' commission, as specified in a
separate agreement between Landlord and Agents. Landlord and
Tenant hereby respectively acknowledge that no other party
acted as agent for it in this transaction and agree to hold
harmless and indemnify each other against claims to the
contrary.
ESTOPPEL 37. Tenant shall, from time to time, no more than
CERTIFICATE once a year, upon the request of Landlord, deliver the
Landlord an estoppel certificate or certificates, jointly or
separately addressed to Landlord, or any holder of a security
deed, mortgage, or other lien affecting the Premises,
executed by an appropriate representative of Tenant, and
stating to the extent accurate that: (1) Tenant has uncondi-
tionally accepted the Premises; (2) to the best of Tenant's
knowledge, Landlord is not in default under this Lease,
(3) Tenant has not paid any rent in advance of the date when
due under this Lease; and (4) Tenant has no known offset,
charge or deduction against its rent obligations. Tenant will
also certify to any other matter reasonably required by
Landlord or any such holder. Landlord shall provide a
comparable certificate to Tenant upon request from time to
time, but no more than once a year.
EXCULPATORY 38. If Landlord fails to perform its obligations in
LANGUAGE accordance with any of the provisions of this Lease, Landlord
agrees that it shall, to the extent and under the conditions
provided for in this Lease, be liable to Tenant on account of
any damages caused thereby, but Tenant agrees that any money
judgment resulting from such failure shall be satisfied only
out of Landlord's interest in the Building and the land of
which the Premises are a part, and no other real, personal or
other property of Landlord or of the partners comprising
Landlord, or of the officers, shareholders, director,
partners, or principals of such partners comprising Landlord,
shall be subject to levy, attachment, or execution, or
otherwise sued to satisfy any such judgment. Tenant hereby
waives any right to satisfy a judgment against Landlord except
from Landlord's interest in the Building of which the
Premises are a part. The term, "Landlord", as used in this
Paragraph, shall mean only the owner or owners at the time in
question of the fee title or interest in a ground lease of the
Premises, and in the event of any transfer of such title or
interest, Landlord herein named (and in case of any subsequent
transfers, the then grantor) shall be relieved from and after
the date of such transfer of all liability as respects
Landlord's obligations thereafter to be performed (but not
from previously accrued liabilities), provided that any funds
in the hands of Landlord or the then grantor at the time of
such transfer, in which Tenant has an interest, shall be
delivered to the grantee. The obligations contained in this
Lease to be performed by Landlord shall, subject as aforesaid,
be binding on Landlord's successors and assigns, only during
their respective periods of ownership. For the purposes of
this paragraph 38, "Landlord's interest in the Building" shall
include the amount of any insurance proceeds or condemnation
awards received by Landlord, net of any amounts retained by
Landlord's Lender, and any net rents received by Landlord
after the occurrence of an event of default by Landlord.
TENANT 39. (a) Landlord shall spend on behalf of Tenant
IMPROVEMENT fifteen and 00/100 dollars ($15.00) per rentable square foot
ALLOWANCE (herein referred to as the "Tenant Improvement Allowance") for
tile cost of designing, permitting, and constructing tenant
improvements in the Premises according to the
-13-
<PAGE> 14
Tenant Improvement Plans. This expenditure shall be in
addition to Landlord's cost to construct the Base Building
Improvements as reflected on EXHIBIT 8 (Landlord hereby
agreeing to construct the Building so as to include the Base
Building Improvements described on EXHIBIT B), except that
demising walls, excluding core bathroom walls, shall not be
Base Building but shall be included as tenant improvements.
Tenant's desired fourth and fifth floor elevator lobby finish
shall be provided to Landlord for its approval at the same
time that Tenant provides Landlord its Tenant Improvement
Plans. Tenant shall not be entitled to propose changes to the
elevator entrance finishes.
(b) Tenant shall provide Landlord with architectural
drawings on or before January 2, 1996, and Tenant shall
provide Landlord with mechanical, electrical, and plumbing
plans and specifications no later than January 22, 1996.
Landlord shall provide Tenant with any comments or suggested
revisions to such items delivered within eight (8) days of
receipt thereof. In the event Landlord fails to respond to
Tenant within such eight (8) day period, Landlord shall be
deemed to have approved the Tenant Improvement Plans. If
Landlord provides Tenant comments and suggested revisions to
the Tenant Improvement Plans within such eight (8) day period,
Tenant shall make revisions within eight (8) days and provide
the revised Tenant Improvement Plans to Landlord. The review
and revision process shall proceed in accordance with the
procedure outlined above until such time as the Tenant
Improvement Plans have been approved by Landlord. The deadline
for approval of the Tenant Improvement Plans is January 31,
1996.
(c) Landlord agrees that Tenant may elect to apply up
to $1.10 per rentable square foot of the Tenant Improvement
Allowance towards design and construction management fees.
Landlord agrees to pay such sums directly to Tenant's design
firm. Tenant shall be responsible for its design firm's errors
and omissions, including failure to comply with all laws,
codes, and ordinances. If Tenant does not use Landlord's
architect and consulting engineers to design the Tenant
Improvement Plans, the actual cost of their review of the
plans shall be deducted from the Tenant Improvement Allowance.
(d) Landlord agrees to obtain bids as to the cost of
construction of the work depicted in the Tenant Improvement
Plans from R.J. Griffin & Company, Neil Loia, Inc., and
Peachtree Building (subject to Landlord's reasonable approval
thereof). Landlord agrees that Tenant may substitute either or
both of Humphries & Company or Parker & Co. for one or two of
the contractors named in the previous sentence, so long as
Tenant demonstrates to the reasonable satisfaction of Landlord
that such substituted contractor is sufficiently capable and
financially stable to perform the tenant improvements.
Landlord agrees to award the contract for tenant improvements
to the contractor of Tenant's choice, regardless of whether
such contractor is the lowest bidder, provided such contractor
executes a commercially reasonable construction contract
consistent with Landlord's obligations hereunder. Landlord
shall not receive any construction management fees or other
compensation relating to the construction of the tenant
improvements, nor shall there be any chargebacks against the
Tenant Improvement Allowance in connection with the Base
Building Work. If the estimated cost of constructing the work
on the Tenant Improvement Plans exceed the Tenant Improvement
Allowance, Tenant shall deposit such excess (hereinafter
referred to as the "Excess Tenant Finish Deposit") with
Landlord upon ten (10) days notice from Landlord prior to
start of construction of the tenant improvements. Likewise,
the cost for any changes to the Tenant Improvement Plans shall
similarly be deposited as Excess Tenant Finish Deposit upon
ten (10) days notice from Landlord. Any unused portion of the
Tenant Improvement Allowance or Excess Tenant Finish Deposit
provided pursuant hereto shall be paid to Tenant in cash
within sixty (60) days of the Commencement Date. If not paid
within such sixty (60) day period, Tenant shall be entitled to
offset any such unused portion of Tenant Improvement Allowance
against Base Rental and Adjustments owing under the Lease
(e) If the Tenant Improvement Plans require such
systems, Tenant agrees to reimburse Landlord by Landlord
deducting from the Tenant Improvement Allowance the actual
prorata cost to Landlord for the following items:
(i) Install submeter of 4th and 5th floors for electrical
consumption; (ii) capacity in Landlord's generator for
emergency lighting in lieu of purchasing battery packs; (iii)
capacity in Landlord's generator for emergency power back-up
to communication and computer systems; and (iv) extra cooling
capacity from Landlord's cooling tower.
(f) The Tenant Improvement Allowance shall be
increased by the following for Base Building Work to be
installed as Tenant Improvements:
(i) Ductwork, VAV boxes (6), controls and
installation for $10,740 4th and 5th floor interior zones.
(g) Landlord acknowledges that Tenant intends to
install a supplemental air conditioning unit, at Tenant's sole
cost and expense, to serve the portion of the Premises housing
Tenant's main computer equipment, which supplemental unit
shall utilize no more than 20 tons of Landlord's cooling tower
capacity. Tenant agrees that Tenant shall obtain the consent
of Landlord, which shall not be unreasonably withheld, with
regard to the placement and installation of any such
equipment. Tenant will pay
-14-
<PAGE> 15
formula for the After Hours Cost defined in paragraph 8(a),
except the rate shall be adjusted to reflect Tenant purchased
equipment in lieu of Landlord-owned equipment; and to delete
the administrative changes from Landlord.
RENEWAL OPTION
40. (a) So long as there is then no continuing
Default by Tenant under this Lease, Tenant shall have the
right to lease the Premises for a renewal term of seven (7)
years on the same terms and conditions as set forth herein
except that (i) Base Rental shall be at a rate equal to the
then-prevailing market rate for comparable space located in
the Building leased for a term comparable to the renewal term,
and (ii) Tenant shall also be entitled to such concessions as
are offered to tenants in leases as to such comparable space
and lease term (including without limitation, free rent or
other rental concessions and tenant improvement allowance or
improvements provided by Landlord). The terms described in
subparagraphs (i) and (ii) are hereinafter referred to as the
"Market Terms."
(b) Tenant shall exercise its renewal option by
providing written notice to Landlord no later than one (1)
year prior to the expiration of the Term.
(c) Within thirty (30) days of the receipt of
Tenant's written notice, Landlord shall provide Tenant a
written notice specifying the then-prevailing Market Terms. If
Tenant notifies Landlord that it approves of the Market Terms,
then this Lease shall be renewed on the Market Terms. If
Tenant disapproves of the Market Terms, Tenant shall notify
Landlord within thirty (30) days from the receipt of
Landlord's Notice and Landlord and Tenant shall thereafter
negotiate in good faith as to mutually acceptable Market
Terms.
(d) In the event that Landlord and Tenant have
not reached mutually acceptable Market Terms by the one
hundred eightieth (180th) days prior to the expiration of the
Term, then Tenant's renewal option shall expire.
REASONABLENESS 41. Except in the case of exercise of remedies,
Landlord and Tenant each agree with the other that at any time
during the term of this Lease either Landlord or Tenant has
the right or privilege of giving approval, consent, judgment,
determination or estimate (including without limitation
estimates of monetary amounts), exercising an option or
election, determining the other party's conformity with any
standard, or otherwise making a decision or taking action or
an action affecting the rights of any other tenant, all such
approvals, consents, judgments, elections and decisions by
Landlord or Tenant, as the case may be, shall be made both
reasonably (and not arbitrarily) and with reasonable
promptness.
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties therein have herunto set their hands and
seals, in triplicate, the day and year first above written.
TENANT:
Signed, sealed and delivered COMPDENT CORPORATION
in the presence of:
/s/ A. Summey Orr III
- ---------------------------------- By: /s/ David Klock
Witness -------------------------------
Name: David Klock
Name: A. SUMMEY ORR III --------------------------
----------------------------- Title: Chairman & CEO
Title: ATTY -------------------------
----------------------------
ATTEST:
By: /s/ Sharon Graham
-------------------------------
Name: Sharon Graham
--------------------------
Title: Treasurer
-------------------------
[CORPORATE SEAL]
Signed, sealed and delivered LANDLORD:
in the presence of:
/s/ A. Summey Orr III MANSELL OVERLOOK 100, LLC
- ----------------------------------
Witness /s/ William M. Johnson (SEAL)
----------------------------
Name: A. SUMMEY ORR III WILLIAM M. JOHNSON
-----------------------------
Title: ATTY
----------------------------
The Undersigned owner of the real property on which are located the Extra
Parking consents to the use of the Extra Parking granted to Tenant in Paragraph
1 herein so long as this Lease is not in Default nor has been subleased. The
Undersigned hereby executes this Lease agreement for the sole purpose of
evidencing his consent to the granting to Tenant hereinabove certain
non-exclusive rights in and to the Extra Parking Spaces.
Signed, sealed and delivered
in the presence of:
/s/ A. Summey Orr III
- ----------------------------------
Witness /s/ William M. Johnson (SEAL)
----------------------------
Name: A. SUMMEY ORR III WILLIAM M. JOHNSON
-----------------------------
Title: ATTY
----------------------------
WHEN EXECUTED, PLEASE RETURN ALL ORIGINAL COPIES OF THE LEASE TO THE LANDLORD
FOR ITS EXECUTION. THE LANDLORD WILL THEN RETURN ONE FULLY-EXECUTED COPY TO
THE TENANT.
NOTE: If the Tenant is a corporation, two authorized officers must execute
this Lease in their appropriate capacity for Tenant, affixing the
corporate seal.
16
<PAGE> 17
EXHIBIT "A"
[MAP]
MANSELL OVERLOOK
MANSELL 400 BUSINESS CENTER
ALPHARETTA, GEORGIA
JOHNSON DEVELOPMENT COMPANY R.J. Griffin & Company
General Contractors
---------------
LYMAN
DAVIDSON
DOOLEY
INC.
ARCHITECTURE
INTERIOR DESIGN
PLANNING
---------------
<PAGE> 18
EXHIBIT "A-1"
[FLOOR PLAN]
TYPICAL FLOOR PLAN
MANSELL OVERLOOK
MANSELL 400 BUSINESS CENTER
ALPHARETTA, GEORGIA
JOHNSON DEVELOPMENT COMPANY
R.J. Griffin & Company
General Contractors
---------------
LYMAN
DAVIDSON
DOOLEY
INC.
ARCHITECTURE
INTERIOR DESIGN
PLANNING
---------------
<PAGE> 19
EXHIBIT B
MANSELL OVERLOOK 100
AT
MANSELL 400 BUSINESS CENTER
BASE BUILDING IMPROVEMENTS
(1) The Building structure will be designed for a minimum floor live load of
80 lb. per square foot for all perimeter building bays and 125 lb. per
square foot for the interior building bays. Live structural loads
include all tenant added weight to be supported by the building
structure including partitions, doors, furniture, equipment, and people.
The increase in live load capacity for the interior building bays is to
provide tenants with high capacity structural needs for file rooms,
libraries, and vaults.
(2) The Building shell will include a built out and finished interior first
floor corridor, stairwell enclosures and exterior perimeter walls and
all building columns. The interior core on each floor will include men's
and women's rest room facilities, two drinking fountains per floor,
electrical, telephone, janitorial and mechanical closets, stairways and
an elevator lobby. All walls adjacent to public traffic areas will be
vinyl finished. The rest room facilities on each floor of the Premises
will have four (4) granite lavatories and four (4) enclosed water
closets for women plus three (3) granite lavatories, two (2) urinals,
and two (2) enclosed water closets for men. Facilities include one
handicapped accessible water closet for each men and women bathrooms on
each floor, as required per applicable laws or building codes.
(3) A Concrete floor will be installed with a smooth trowel finish for
installation of glued-down carpet. The Floor will be poured level and
finished in accordance with current ACI Standard Specifications 117.
Perimeter walls will be utilized for grounded electrical, data
communications and telephone wiring installations in the Premises, at
locations to be determined by Tenant.
(4) The Ground-level building lobby will be a two-story atrium in the front
lobby and a one-story lobby in the rear. Granite floors with marble
bands and column bases will be accented by chrome and bronze exterior
and elevator doors. Mahogany suite entry doors are included as Tenant
Finish.
(5) A Life Safety system will be installed in accordance with the more
stringent of applicable national, state and local codes or the Americans
with Disabilities Act Regulation throughout the Building, including all
corridors and stairwells. It shall consist of sprinklers, smoke
detectors, internal fire alarm and annunciator system, elevator recall,
emergency lighting, self-illuminating exit signs hoses and extinguisher
as required by applicable codes or Tenant's safety requirements. Smoke
detectors will also be installed in the ceiling of any telecommunication
room with both smoke and water detectors installed under the raised
floor. The sprinkler system will have an approved water flow alarm
connection and tamper-proof detection device connected to a central
station or direct to the fire/police departments. It will include all
distribution of mains, laterals, uprights and upright heads. Finished
heads or "armovers" will be configured to Tenant's space layout as part
of the Tenant Improvement Allowance.
(6) Electrical distribution will be provided to the main panel boxes in the
electrical closet on each floor. The electrical capacity for tenant
lighting and receptacles shall be sized for 6 1/2 watts per usable
square foot for Tenant's consumption, over and above base building
electrical requirements.
(7) A suspended, revealed edge, acoustical ceiling will be installed in Base
Building grid. Tiles are stacked on floor as part of Base Building. The
ceiling height will be a approximately 10'-0" on the first floor, 9'-0"
on floors 2 - 6. Fine textured, non-directional acoustical tile will be
installed on a 2' x 2' mechanically suspended grid system. It will have
an average noise reduction coefficient of .65, an average sound
transmission classification rating of .37, and a minimum combustibility
rating of Class I or equal to that of local code requirements, whichever
is greater.
(8) Purchased as Base Building costs and stacked on floor are modern
fluorescent lighting, based on one fixture per 80 s.f. in accordance
with the most recent edition of the Illuminating Engineering Society
Lighting Handbook. Maintained minimum of 50 foot candles will be
furnished at desk height, and the fixtures will be arranged so as to
provide an even distribution of light. The light fixtures will be 2' x
4', 3 lamp fixtures. Recessed parabolic fixtures will be provided with
parabolic 18 cell. Lamps are to be of the "warm white" energy saving
type. Ballasts shall also be energy efficient, high power factor.
(9) The Building will be equipped with a variable air volume (VAV) heating,
ventilation and air conditioning system with Direct Digital controls
through a central personal computer work station. Typical building
floors will be provided with 16 exterior zone PIU's (with heat), 1 core
PIU (with heat), and 8 interior zone variable air volume boxes (no
heat). The system will contain polyester air filters with an efficiency
of no less than 30%. The fan system shall run continuously during
business hours, no duty cycling. All Ducts shall be separately zoned by
floor, with individual controls provided within Tenant's Premises. These
individual zones, thermostatically controlled, shall be preset and
tamper proof. Typical floors will have one (1) thermostat and a PIU or
VAV box on the average of 1,100 square feet of usable area, and a
minimum of one (1) diffuser for each 200 square feet of useable areas.
Exterior slot diffusers and thermostats along the Building perimeter are
Base Building Costs, all
<PAGE> 20
others are Tenant Finish Costs. The location of interior thermostats and
diffusers will be configured according to Tenant's final space plan. The
system will be designed to maintain a space temperature between 70-75
degrees F on a year-round basis, based on a maximum average occupancy of
one (1) person for each 150 square feet of usable area and at least 10
cfm outside air per person. The requirements for ventilation shall
comply with present ASHRAE (American Society of Heating, Refrigeration
and Air-Conditioning Engineers) standard 62-1989 as a minimum
requirement. The system is a self-contained floor-by-floor variable air
volume system by the Trane Company (brochure available). A premium
upgraded controls system using PC Windows-based software can control
each digital thermostat in the building. An electronic variable speed
drive has been upgraded from inlet vanes to save on maintenance and
power consumption.
(10) Telephone service, as provided by the local utility, will be brought to
Tenant's main telephone room. Base Building will include necessary
conduit/sleeves to distribute data and telephone cable between floors.
(11) Horizontal window blinds will be installed on all tenant windows as a
Base Building Cost.
(12) Three automatic passenger elevators, one of which will be designed to
serve both as passenger and freight elevator and will be equipped to
carry supplies and furniture when necessary. Elevator cabs will be
equipped with an emergency communications/alarm system, including a bell
annunciator, connected to the building security guard station or to a
central alarm system. The elevator controls will have Braille lettering
for eyesight impaired persons.
(13) A loading area will be provided with a maximum tractor/van clearance, as
shown on the site plan.
(14) An electronically controlled card access building security system, or
equivalent system, will be provided. This system will control all entry
areas to Tenant's Premises from elevator lobbies on full floors which
Tenant occupies or at suite entrances from public corridors and all
stairwells. This system will control main building systems to ensure
that Tenant's employees and property are adequately safeguarded. Each
card is to be separately coded for individual employee access, and the
system will be configured for a multitude of authorized access levels.
(15) Demising walls, including common corridor walls and walls between Tenant
suites, will be provided. These walls will include tenant entry doors
from public corridors. Demising walls will include sound attenation batt
insulation to the floor deck above. Dernising walls and suite entry
doors are part of the Tenant Improvement Allowance.
(16) Carpeting, in color and type as selected by Landlord, will be installed
in elevator lobbies and in common corridors on all multiple-tenancy
floors.
(17) All roadways necessary for Tenant's access to and egress from the
Building will be completed. A directory shall be provided in the lobby
of the Building, and Tenant shall be allowed space on the directory in
proportion to the total rentable area which Tenant occupies in the
Building. Landlord shall also provide exterior monument signs on the
site, wherein Tenant shall have its prorata signage based on its
occupancy of 34.9% of the Building.
(18) Aluminum conductors will be used for service entrance conductors with
hi-compression lugs used for teminations.
(19) The Building cooling tower has the capacity to generate 60 tons extra
cooling for Tenant conference/training rooms or computer/copier rooms.
(20) The Building has the capability to provide (at an extra charge)
emergency generator power back-up to telephone and computer systems by
enlarging the Base Building 14.5 kW generator. All Building core spaces
emergency lighting and security systems are powered by this generator.
Tenant shall pay its prorata share of enlarging the generator to provide
emergency lighting to the Premises, in lieu of Tenant buying battery
packs for Landlord-supplied lighting in the Premises.
<PAGE> 21
EXHIBIT C
RULES AND REGULATIONS
(which are referred to in the within Lease and made a part thereof)
1. The sidewalks, entry passages, corridors, halls, elevators and
stairways shall not be obstructed by tenants, or used by them for any purpose
other than those ingress and egress.
2. The water closets and other water apparatus shall not be used for
any other purpose than those for which they were constructed, and no sweepings,
rubbish, or other obstructing substances shall be thrown therein.
3. Except as provided herein, no advertisement, sign or other notice
("sign") shall be inscribed, painted or affixed on any part of the outside or
inside of the Building without the Lessor's express written consent to the sign
and its location. Window shades, blinds or curtains of a uniform color and
pattern only shall be used throughout the Building to give a uniform color
exposure through exterior windows. No awnings shall be placed upon the Building.
4. No Tenant shall do or permit to be done in the Building or bring or
keep anything thereon, which shall in any way injure or annoy them, or conflict
with the laws relating to fires, or with the regulations of the Fire Department,
or any part thereof, or conflict with any of the rules and ordinances of the
Board of Health. Tenants, their invitees and employees shall maintain order in
the Building, shall not make or permit any improper noise in the Building or
interfere in any way with other tenants or those having business with them. No
rooms shall be occupied or used as sleeping or lodging apartments at any time
without permission of Landlord. No part of the Building shall be used or in any
way appropriated for gambling, immoral or other unlawful practices. No
intoxicating liquor or liquors shall be sold in the Building by Tenant without
Landlord's permission.
5. Tenants shall not employ any persons other than the janitors of
Landlord (who will by provided with passkeys into the offices) for the purpose
of cleaning the Premises.
6. No animals, birds, bicycles or other vehicles shall be allowed into
the offices, halls, corridors, elevators or elsewhere in the Building.
7. No painting shall be done, nor shall any alterations be made, to any
part of the Building by painting up or changing any particulars, doors or
windows, nor shall there be any nailing, boarding or screwing into the woodwork
or plastering nor shall any connection be made to the electric wires or gas or
electric fixtures, without the consent in writing on each occasion of Landlord
or its agent. All glass, locks and trimmings in or upon the doors and windows of
the Building shall be kept whole, and when any part thereof shall be broken, and
same shall immediately be replaced or repaired and put in order under the
direction and to the satisfaction of Landlord, or its agents, and shall be left
whole and in good repair. Tenants shall not deface the Building, the woodwork or
the walls of the Premises.
8. The equivalent of one key for each approximately 2,000 square feet
will be furnished to tenants without charge. Tenants shall not, under any
circumstances, have any duplicate keys made. No additional locks or latches
shall be put on any door without the written consent of Landlord. Tenant at the
termination of their Lease of the Premises shall return to Landlord all keys to
doors in the Building.
9. Landlord in all cases retains the power to prescribe the weight and
position of iron safes or other heavy articles. Tenants must make arrangements
with the superintendent of the Building when the elevator is required for the
purpose of the carrying of any kind of freight.
10. If tenants require wiring for a bell or buzz system, such wiring
shall be done by the electrician of the Building only, and no outside wiring men
shall be allowed to do work of this kind unless by the written permission of
Landlord. If telegraphic or telephonic services are desired, the wiring for same
shall be done as directed by the electrician of the Building or by some employee
of Landlord who may be instructed by the superintendent of the Building to
supervise them, and no boarding or cutting for wiring shall be done unless
approved by Landlord or its agents.
11. Parking facilities supplied by Landlord for tenants, if any, shall
be used for vehicles that may occupy a standard parking area only (i.e., 8' x
18'). Moreover, the use of such parking facilities shall be limited to normal
business parking and shall not be used for a continuous parking of any vehicle
or trailer regardless of size. Landlord reserves the right to establish Visitors
Only parking areas and to enforce visitors only parking in such areas.
12. Landlord reserves all vending rights, except Tenant shall be
entitled to install one or more vending machines in its breakroom.
13. The Landlord shall not be responsible to any tenant for the
nonobservance or violation of any of these Rules and Regulations by any other
tenants, but Landlord shall use its reasonable efforts to cause other Tenants to
observe the Rules and Regulations if the failure to observe such Rules and
Regulations shall materially and adversely affect Tenant's use and enjoyment of
the Premises. The Landlord reserves the right to make such other reasonable
rules and regulations as in his judgment may from time to time be needed for the
safety, care and cleanliness of the Premises, and for the preservation of good
order therein. Regulations shall be binding upon the parties hereto the same as
if they had been inserted at time of execution. This paragraph is subject to the
terms of Paragraph 11 of the Lease.
<PAGE> 22
After recording please return to:
James H. Keaten
Powell, Goldstein, Frazer & Murphy
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
This subordination, Non-Disturbance and Attornment Agreement (this
"Agreement") dated as of ,1995, is made among, a corporation ("Tenant"),
Mansell Overlook 100, LLC, a Georgia limited liability company ("Landlord"), and
NationsBank of Georgia, N.A., a national banking association ("Mortgagee").
WHEREAS, Mortgagee is the owner of a Promissory Note (herein, as it may
have been or may be from time to time renewed, extended, amended or
supplemented, called the "Note") dated of even date herewith, executed by
Landlord payable to the order of Mortgagee, in the principal face amount of
$15,000,000, bearing interest and payable as therein provided, secured by,
among other things, a Deed to Secure Debt, Assignment and Security Agreement
(herein, as it may have been or may be from time to time renewed, extended,
amended or supplemented, called the "Mortgage"), recorded, or to be recorded,
in the Office of the Clerk of the Superior Court of Fulton County, Georgia,
covering, among other property, the land (the "Land") described in Exhibit "A"
which is attached hereto and incorporated herein by reference, and the
improvements ("Improvements") thereon (such Land and Improvements being herein
together called the "Property");
WHEREAS, Tenant is the tenant under a lease which, including all
amendments and supplements thereto, is described as follows: that certain
Lease Agreement dated, by and between Landlord and Tenant, as tenant, (herein,
as it may from time to time be renewed, extended, amended or supplemented,
called the "Lease"), covering a portion of the Property (said portion being
herein referred to as the "Premises"); and
WHEREAS, the term "Landlord" as used herein means the present landlord
under the Lease or, if the landlord's interest is transferred in any manner,
the successor(s) or assign(s) occupying the position of landlord under the
Lease at the time in question;
THEREFORE, in consideration of the mutual agreements herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Subordination. Tenant agrees and covenants that the Lease and the
rights of the Tenant thereunder, all of Tenant's right, title and
interest in and to the property covered by the Lease, and any lease thereafter
executed by Tenant covering any part of the Property, are and shall be
subordinate and inferior to (a) the Mortgage and the rights of Mortgagee
thereunder, and all right, title and interest of Mortgagee in the Property, and
(b) all other security documents now or hereafter securing payment of any
indebtedness of the Landlord (or any prior landlord) to Mortgagee which cover
or affect the Property (the "Security Documents"). This Agreement is not
intended and shall not be construed to subordinate the Lease to any mortgage,
deed to secure debt or other security document other than those referred to in
the preceding sentence, securing the indebtedness to Mortgagee. Without
limitation of any other provision hereof, Mortgagee may, at its option and
without joiner or further consent of Tenant, Landlord, or anyone else, at any
time after the date hereof subordinate the lien of the Mortgage (or any other
lien or security interest held by Mortgagee which covers or affects the
Property) to the Lease by executing an instrument which is intended for that
purpose and which specifies such subordination; and, in the event of any such
election by Mortgagee to subordinate, Tenant will execute any documents
required to evidence such subordination; provided however, notwithstanding that
the Lease may by unilateral subordination by Mortgagee hereafter be made
superior to the lien of the Mortgage, the provisions of the Mortgage relative
to the rights of the Mortgagee with respect to proceeds arising from an eminent
domain taking (including a voluntary conveyance by Landlord) and/or insurance
payable by reason of damage to or destruction of the Premises shall be prior
and superior to and shall control over any contrary provisions in the Lease.
2. Non-Disturbance. Mortgagee agrees that so long as the Lease is in
full force and effect and Tenant is not in default in the payment of rent
additional rent or other payments or in the performance of any of the other
terms, covenants or conditions of the Lease on Tenant's part to be performed
(beyond the period, if any, specified in the Lease within which Tenant may cure
such default),
a. Tenant's possession of the Premises and other rights under
the Lease shall not be disturbed or interfered with by
Mortgagee in the exercise of any of its rights under the Mortgage,
including any foreclosure or conveyance in lieu of foreclosure, and
b. Mortgagee will not join Tenant as a party defendant for the
purpose of terminating Tenant's interest and estate under the
Lease in any proceeding for foreclosure of the Mortgage.
EXHIBIT "D"
page 1 of 6
<PAGE> 23
3. Attornment.
a. Tenant covenants and agrees that in the event of foreclosure of the
Mortgage, whether by power of sale or by court action, or upon transfer of the
Property by conveyance in lieu of foreclosure (the purchaser at foreclosure or
the transferee in lieu of foreclosure, including Mortgagee if it is such
purchaser or transferee, being herein called "New Owner"), Tenant shall attorn
to the New Owner as Tenant's new landlord, and agrees that the Lease shall
continue in full force and effect as a direct lease between Tenant and New
Owner upon all of the terms, covenants, conditions and agreements set forth in
the Lease and this Agreement; provided, however, that in no event shall the New
Owner be:
(1) liable for any act, omission, default, misrepresentation, or
breach of warranty, of any previous landlord (including Landlord) or
obligations accruing prior to New Owner's actual ownership of the Property;
(2) subject to any offset, defense, claim or counterclaim which
Tenant might be entitled to assert against any previous landlord (including
Landlord) other than any offset provided pursuant to the express provisions of
the Lease;
(3) bound by any payment of rent, additional rent or other
payments, made by Tenant to any previous landlord (including Landlord) for
more than one (1) month in advance;
(4) bound by any amendment, or modification of the Lease hereafter
made, or consent by any previous landlord (including Landlord) under the Lease
to any assignment or sublease hereafter granted, without the written consent of
Mortgagee, which consent shall not be unreasonably withheld; or
(5) liable for any deposit (other than the deposit described in the
last sentence of Paragraph 2(a) of the Lease) that Tenant may have given to any
previous landlord (including Landlord) which has not, as such, been transferred
to New Owner.
b. The provisions of this Agreement regarding attornment by Tenant shall
be self-operative and effective without the necessity of execution of any new
lease or other document on the part of any party hereto or the respective
heirs, legal representatives, successors, or assigns of any such party. Tenant
agrees, however, to execute and deliver at any time and from time to time, upon
the request of Landlord or of any holder(s) of any of the indebtedness or other
obligations secured by the Mortgage, any instrument or certificate which, in
the reasonable judgement of Landlord or of such holder(s), may be necessary or
appropriate in any such foreclosure proceeding or otherwise to evidence such
attornment, including, if requested, a new lease of the Premises on the same
terms and conditions as the Lease for the then unexpired term of the Lease.
4. Estoppel Certificate. Tenant agrees to execute and deliver from time
to time, upon the request of Landlord or of any holder(s) of any of the
indebtedness or other obligations secured by the Mortgage, a certificate
regarding the status of the Lease, consisting of statements, if true (or if
not, specifying why not), (a) that the Lease is in full force and effect, (b)
the date through which rentals have been paid, (c) the dare of the commencement
of the term of the Lease, (d) the nature of any amendments or modifications of
the Lease, (e) that no default, or state of facts which with the passage of
time or notice (or both) would constitute a default, exists under the Lease,
and (f) such other matters as may be reasonably requested.
5. Acknowledgement and Agreement by Tenant. Tenant acknowledges and
agrees as follows:
a. Tenant acknowledges that landlord will execute and deliver to
Mortgagee in connection with the financing of the property an
Assignment of Lessor's Interest in Leases assigning the rent and all other
sums due under the Lease to Mortgagee as additional security for the
indebtedness evidenced by the Note. Tenant hereby expressly consents to
such assignment and Tenant agrees that such assignment shall, in all
respects, be superior to any interest Tenant has in the Lease or in the
Property, subject to the provisions of this Agreement. Tenant will not
amend, alter, terminate, or waive any provision of, or consent to the
amendment, alteration, termination or waiver of any provision of the Lease
without the prior written consent of Mortgagee (which consent shall not be
unreasonably withheld), and no termination of the Lease, whether pursuant to
the terms of the Lease or otherwise, will be effective without the prior
written consent of Mortgagee. Tenant shall not prepay any rents or other
sums due under the lease for more than one (1) month in advance of the due
date therefor. Tenant acknowledges that Mortgagee will rely upon this
instrument in connection with such financing.
b. Mortgagee, in making any disbursements to Landlord, is under no
obligation or duty to oversee or direct the application of the proceeds of such
disbursements, and such proceeds may be used by Landlord for purposes other
than improvement of the Property.
page 2 of 6
<PAGE> 24
c. From and after the date hereof, in the event of any act or
omission by Landlord which would give Tenant the right, either
immediately or after the lapse of time, to terminate the Lease or to claim
a partial or total eviction, Tenant will not exercise any such right (i)
until it has given written notice of such act or omission to the Mortgagee;
and (ii) until the same period of time as is given to Landlord under the
Lease to cure such act or omission shall have elapsed following such giving
of notice to Mortgagee, but in any event 30 days after receipt of such
notice or such longer period of time as may be necessary to cure or remedy
such default, act, or omission, during which period of time Mortgagee shall
be permitted to cure or remedy such default, act or omission; provided,
however, that Mortgagee shall have no duty or obligation to cure or remedy
any breach or default. It is specifically agreed that Tenant shall not, as
to Mortgagee, require cure of any such default which is personal to
Landlord, and therefore not susceptible to cure by Mortgagee, but Tenant
reserves all rights and remedies available to Tenant on account of such
default.
d. In the event that Mortgagee notifies Tenant of a default
under the Mortgage, Note, or Security Documents and demands that Tenant
pay its rent and all other sums due under the lease directly to
Mortgagee, Tenant shall honor such demand and pay the full amount of
its rent and all other sums due under the Lease directly to the
Mortgagee or as otherwise required pursuant to such notice beginning
with the payment next due after such notice of default, without inquiry
as to whether a default actually exists under the Mortgage, Security
Documents or otherwise in connection with the Note, and notwithstanding
any contrary instructions of or demands from Landlord.
e. Tenant shall send a copy of any notice or statement under the
Lease to Mortgagee at the same time such notice or statement is sent
to Landlord if such notice or statement has a material impact on the
economic terms, operating covenants or duration of the Lease.
f. Tenant has no right or option of any nature whatsoever, whether
pursuant to the Lease or otherwise, to purchase the Premises or the
Property, or any portion thereof or any interest therein, and to the extent
that Tenant has had, or hereafter acquires, any such right or option, same
is hereby acknowledged to be subject and subordinate to the Mortgage and is
hereby waived and released as against Mortgagee.
g. This Agreement satisfies any condition or requirement in the
Lease relating to the granting of a non-disturbance agreement as to the
loan which is the subject of the Security Documents, and Tenant waives any
requirement to the contrary in the Lease.
h. Mortgagee and any New Owner shall have no obligation nor incur
any liability with respect to the erection or completion of the
improvements in which the Premises are located or for completion of the
Premises or any improvements for Tenant's use and occupancy, either at the
commencement of the term of the Lease or upon any renewal or extension
thereof or upon the addition of additional space, pursuant to any expansion
rights contained in the Lease.
i. In the event that Mortgagee or any New Owner shall acquire
title to the Premises or the Property, Mortgage or such New Owner shall
have no obligation, nor incur any liability, beyond Mortgagee's or New
Owner's then equity interest, if any, in the Property or the Premises,
and Tenant shall look exclusively to such equity interest of Mortgagee
or New Owner, if any, for the payment and discharge of any obligations
imposed upon Mortgagee or New Owner hereunder or under the Lease or for
recovery of any judgement from Mortgagee, or New Owner, and in no event
shall Mortgagee, New Owner nor any of their representatives, servants,
employees or partners ever be personally liable for such judgement.
j. Nothing herein contained is intended, nor shall it be
construed, to abridge or adversely affect any right or remedy of
Landlord under the Lease in the event of any default by Tenant in the
payment of rent and/or any other sums due under the Lease or in the
performance of any of the other terms, covenants or conditions of the Lease
on Tenant's part to be performed.
k. Landlord has not agreed to any abatement of rent or other sums
or period of "free rent" for the Premises unless same is specifically
provided in the Lease, and Tenant agrees that in the event Mortgagee, or
any New Owner becomes the owner of the Property, no agreement for abatement
of rent or any other sum not specifically provided in the Lease will be
binding on Mortgagee or New Owner.
6. Acknowledgement and Agreement by Landlord. Landlord, as landlord
under the Lease and grantor under the Mortgage, acknowledges and agrees for
itself and its heirs, representatives, successors and assigns, that: (a) this
Argument does not constitute a waiver by Mortgagee of any of its rights under
the Mortgage, Note, or Security Documents, or in any way release Landlord from
its obligations to comply with the terms, provisions, conditions, covenants,
agreements and clauses of the Mortgage, Note, or Security Documents; (b) the
provisions of the Mortgage, Note, or Security Documents remain in full force and
effect and
page 3 of 6
<PAGE> 25
must be complied with by landlord; and (c) Tenant is hereby authorized to pay
its rent and all other sums due under the Lease directly to Mortgagee upon
receipt of a notice as set forth in paragraph 5(d) above from Mortgagee and
that Tenant is not obligated to inquire as to whether a default actually exists
under the Mortgage, Security Documents or otherwise in connection with the
Note. Landlord hereby releases and discharges Tenant of and from any liability
to Landlord resulting from Tenant's payment to Mortgagee in accordance with this
Agreement. Landlord represents and warrants to Mortgagee that a true and
complete copy of the Lease has been delivered by Landlord to Mortgagee.
7. Lease Status. Landlord and Tenant certify to Mortgagee that neither
Landlord nor Tenant has knowledge of any default on the part of the other under
the Lease, that the Lease is bona fide and contains all of the agreements of
the parties thereto with respect to the letting of the Premises and that all of
the agreements and provisions therein contained are in full force and effect.
8. Notices. All notices, requests, consents, demands and other
communications required or which any party desires to give hereunder shall be
in writing and shall be deemed sufficiently given or furnished if delivered by
personal delivery, by telegram, telex, or facsimile, by expedited delivery
service with proof of delivery, or by registered or certified United States
mail, postage prepaid, at the addresses specified at the end of this Agreement
(unless changed by similar notice in writing given by the particular party
whose address is to be changed). Any such notice or communication shall be
deemed to have been given either at the time of personal delivery or, in the
case of delivery service or mail, as of the date of the first attempted delivery
at the address and in the manner provided herein, or, in the case of telegram,
telex or facsimile, upon receipt. Notwithstanding the foregoing, no notice of
change of address shall be effective except upon receipt. This Paragraph 8
shall not be construed in any way to affect or impair any waiver of notice or
demand provided in this Agreement or in the lease or in any document
evidencing, securing or pertaining to the loan evidenced by the Note or to
require giving of notice or demand to or upon any person in any situation or
for any reason.
9. Miscellaneous.
a. This Agreement supersedes any inconsistent provision of the
Lease.
b. Nothing contained in this agreement shall be construed to
derogate from in any way impair, or affect the lien, security interest,
or provisions of the Mortgage, Note, or Security Documents.
c. This Agreement shall inure to the benefit of the parties
hereto, their respective successors and permitted assigns, and any New
Owner, and its heirs, personal representatives, successors and
assigns; provided, however, that in the event of the assignment or
transfer of the interest of Mortgagee, all obligations and liabilities
of the assigning Mortgagee under this Agreement shall terminate, and
thereupon all such obligations and liabilities shall be the
responsibility of the party to whom Mortgagee's interest is assigned
or transferred; and provided further that the interest of the Tenant
under this Agreement may not be assigned except to an "affiliate" (as
defined in Section 15 of the Lease), or transferred without the prior
written consent of Mortgagee, which consent shall not be unreasonably
withheld.
d. THIS AGREEMENT AND ITS VALIDITY, ENFORCEMENT AND INTERPRETATION
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF GEORGIA AND APPLICABLE
UNITED STATES FEDERAL LAW.
e. The words "herein", "hereof", "hereunder" and other similar
compounds of the word "here" as used in this Agreement refer to this
entire Agreement and not to any particular section or provision.
f. This Agreement may not be modified orally or in any manner
other than by an agreement in writing signed by the parties hereto or
their respective successors in interest.
g. If any provision of the Agreement shall be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality
or unforceability shall not apply to or affect any other provision hereof,
but this Agreement shall be construed as if such invalidity, illegibility,
or unenforceability did not exist.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and sealed as of the date first above written.
page 4 of 6
<PAGE> 26
Signed, sealed and delivered in MORTGAGEE:
the presence of:
/s/ Rainey L. Astin
- -------------------------------
Unofficial Witness By: /s/Gregory J. Wolkom
------------------------------
Name: GREGORY J. WOLKOM
/s/ Elayne S. Bouyer ----------------------------
- ------------------------------- Title: SUP
Notary Public ---------------------------
My Commission Expires:
November 22, 1998
- -------------------------------
[NOTARIAL SEAL]
[ELAYNE S. BOUYER
NOTARY
EXPIRES
GEORGIA
JULY 14, 1998
PUBLIC
FULTON COUNTY NOTARIAL SEAL]
Signed, sealed and delivered in TENANT:
the presence of:
/s/
- -------------------------------
Unofficial Witness By: /s/
--------------------------
Name:
/s/ Lynette A. Pearson --------------------------
- ------------------------------- Title:
Notary Public --------------------------
My Commission Expires:
November 22, 1998
- -------------------------------
[NOTARIAL SEAL]
Signed, sealed and delivered in LANDLORD:
the presence of:
/s/ Rainey L. Astin Mansell Overlook 100, LLC
- -------------------------------
Unofficial Witness By: /s/ William M. Johnson
------------------------(SEAL)
William M. Johnson
/s/ Elaine S. Bouyer Managing Member
- -------------------------------
Notary Public
My Commission Expires:
- -------------------------------
[NOTARIAL SEAL]
[ELAYNE S. BOUYER
NOTARY
EXPIRES
GEORGIA
JULY 14, 1998
PUBLIC
FULTON COUNTY NOTARIAL SEAL]
ADDRESS OF MORTGAGEE:
Real Estate Banking Group
NationsBank Plaza-6th Floor
600 Peachtree St., N.E.
Atlanta, Georgia 30308
Attention: Gregory J. Wolkom
Senior Vice President
ADDRESS OF TENANT:
ADRESS OF LANDLORD:
70 Mansell Court
Suite 225
Roswell, Georgia 30076
Attention: Wiliam M. Johnson
Managing Member
page 5 of 6
<PAGE> 27
EXHIBIT "A"
OVERLOOK 100 TRACT
ALL THAT TRACT OR PARCEL OF LAND lying and being in Land Lot 543 of the 1st
District, 2nd Section, City of Alpharetta, Fulton County, Georgia, containing
8.177 acres and being depicted as "Mansell Overlook 100" on that certain
Survey, dated March 6, 1995, last revised September 13, 1995, for Mansell
Overlook 100, LLC, NationsBank of Georgia, N.A., and Chicago Title Insurance
Company prepared by Anastasios S. Costarides of C&C Land Surveyors, Inc.,
Registered Georgia Land Surveyor No., 2448, said land being more particularly
described as follows:
TO FIND THE TRUE POINT OF BEGINNING, commence at a point located at
the intersection of the easterly right of way line of Warsaw
Road (a 60 foot right-of-way) and the southerly right-of-way line of
Mansell Road (a variable right-of-way);
RUNNING THENCE along the southerly right-of-way line of Mansell Road
South 86 degrees 12 minutes 39 seconds East a distance of
108.24 feet to a point;
THENCE CONTINUING along the southerly right-of-way line of Mansell Road
South 87 degrees 18 minutes 39 seconds East a distance of
100.57 feet to a point which point is the TRUE POINT OF BEGINNING;
THENCE CONTINUING along the southerly right-of-way line of Mansell Road
South 87 degrees 18 minutes 39 seconds East a distance of 4.54
feet to a point;
THENCE CONTINUING along the southerly right-of-way line of Mansell Road
South 87 degrees 35 minutes 38 seconds East a distance of
100.92 feet to an iron pin found;
THENCE CONTINUING along the southerly right-of-way line of Mansell Road
South 88 degrees 30 minutes 28 seconds East a distance of
676.49 feet to a point;
THENCE LEAVING said right-of-way line and running South 00 degrees 58
minutes 37 seconds West a distance of 130.61 feet to a point;
RUNNING THENCE North 89 degrees 01 minutes 23 seconds West a distance
of 18.00 feet to a point;
RUNNING THENCE South 00 degrees 58 minutes 37 seconds West a distance
of 403.80 feet to a point;
RUNNING THENCE South 58 degrees 00 minutes 43 seconds West a distance
of 6.77 feet to a point located on the northeasterly
right-of-way line of Mansell Court East (a 60 foot private drive);
RUNNING THENCE along the northeasterly right-of-way line of Mansell
Court East an arc distance of 199.44 feet along a curve to the
left (said curve having a chord line running North 62 degrees 47
minutes 28 seconds West a distance of 192.64 feet and a radius of
219.91 feet) to a point;
THENCE CONTINUING along the northerly right-of-way line of Mansell
Court East North 88 degrees 47 minutes 18 seconds West a
distance of 588.92 feet to a point;
THENCE LEAVING said right-of-way line and running North 01 degrees 30
minutes 50 seconds East a distance of 250.31 feet to a point;
RUNNING THENCE North 01 degrees 18 minutes 42 seconds East a distance
of 209.01 feet to a point, which point is the POINT OF BEGINNING.
page 6 of 6
<PAGE> 1
EXHIBIT 13.1
SELECTED FINANCIAL DATA
The selected consolidated statement of income data and balance sheet data
set forth below for, and at the end of, the years ended December 31, 1994,
1995, and 1996, are derived from, and are qualified by reference to, the
financial statements of the Company audited by Coopers & Lybrand L.L.P.,
independent auditors, included elsewhere in this annual report. The selected
consolidated statement of income data and balance sheet data for, and at the
end of, the periods ended December 31, 1993 and prior, are derived from audited
financial statements of the Company not included herein. The selected
consolidated financial information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements
and related notes.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY(1) THE COMPANY
-------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
YEAR ENDED DEC. 31, JUNE 30, DEC. 31, YEAR ENDED DEC. 31,
1991 1992 1993 1993 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Income Data:
Revenues $ 29,311 $ 36,013 $ 22,004 $24,033 $ 55,192 $ 106,661 $ 141,069
--------------------------------------------------------------------------------
Dental providers' fees and claim costs 16,109 19,583 11,932 13,055 30,262 62,218 73,431
Commissions 4,167 5,139 3,028 3,143 6,800 10,763 12,184
--------------------------------------------------------------------------------
Gross profit 9,035 11,291 7,044 7,835 18,130 33,680 55,454
General and administrative 6,795 7,734 6,418 4,537 10,827 20,827 31,412
Depreciation and amortization 267 350 205 884 2,195 2,717 5,153
--------------------------------------------------------------------------------
Operating income 1,973 3,207 421 2,414 5,108 10,136 18,889
Interest expense -- -- -- 1,208 2,464 1,970 1,935
Other (income) expense, net (240) (123) 1,139 -- (77) (803) (804)
--------------------------------------------------------------------------------
Income (loss) before provisions for
income taxes and extraordinary item 2,213 3,330 (718) 1,206 2,721 8,969 17,758
Income tax provision 862 1,180 55 553 1,316 3,765 7,866
--------------------------------------------------------------------------------
Income (loss) before extraordinary item 1,351 2,150 (773) 653 1,405 5,204 9,892
Extraordinary loss, net of applicable
tax benefit of $305 -- -- -- -- -- 498 --
--------------------------------------------------------------------------------
Net income (loss) $ 1,351 $ 2,150 $ (773) $ 653 $ 1,405 $ 4,706 $ 9,892
================================================================================
Income per common share:
Income before extraordinary loss 0.30 0.68 0.97
Extraordinary loss -- (0.07) --
----------------------------------
Net income per common share (1) $ 0.30 $ 0.61 $ 0.97
==================================
Weighted average number of
common shares outstanding (1) 4,252 7,352 10,177
==================================
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY THE COMPANY
DECEMBER 31, DECEMBER 31,
1991(1) 1992(1) 1993 1994(2) 1995(2)(3) 1996(4)(5)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Total current assets $5,474 $5,261 $ 8,776 $14,488 $ 46,254 $ 34,083
Total assets 8,175 8,462 37,202 63,342 129,396 184,167
Total current liabilities 4,406 5,008 8,640 16,597 21,041 24,273
Total liabilities 5,328 5,436 34,252 53,983 27,219 71,984
Redeemable preferred stock -- -- 1,050 5,159 -- --
Stockholders' equity 2,847 3,026 1,900 4,200 102,177 112,183
</TABLE>
(1)Presents consolidated financial data of the Company's predecessor, American
Prepaid, for periods prior to the Company's acquisition of all of the
outstanding stock thereof effective in June 1993.Because of such transaction,
certain aspects of the consolidated results of operations for periods prior to
the period beginning July 1, 1993 are not comparable with those for subsequent
periods. Consequently, net income per share data are presented only for the
years ended December 31, 1994 and thereafter. For purposes of the Consolidated
Statement of Income Data, references to common shares include common share
equivalents. Net income per common share for the years ended December 31, 1994
and 1995, has been computed after deducting $109,000 and $219,000,
respectively, from net income attributable to preferred stock dividend
accumulation.
(2)The DentiCare and Unilife acquisitions were completed on December 28, 1994,
and DentiCare and UniLife are therefore included in the consolidated balance
sheet of the Company at December 31, 1994 and thereafter, and the consolidated
statement of income of the Company for the years ended December 31, 1995 and
thereafter.
(3)The CompDent acquisition was completed on July 5, 1995, and CompDent is
therefore included in the consolidated balance sheet of the Company at December
31, 1995 and thereafter, and the consolidated statement of income of the
Company for the years ended December 31, 1995 and thereafter.
(4) The Texas Dental acquisition was completed on January 8, 1996, and Texas
Dental is therefore included in the consolidated balance sheet of the Company
at December 31, 1996, and the consolidated statement of income of the Company
for the year ended December 31, 1996.
(5) The Dental Care acquisition was completed on May 8, 1996, and Dental Care
is therefore included in the consolidated balance sheet of the Company at
December 31, 1996, and the consolidated statement of income of the Company for
the year ended December 31, 1996.
SIX
<PAGE> 2
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The Company's actual results could differ
materially from those set forth in the forward-looking statements. Certain
factors that might cause such a difference include, among others, risk
associated with the successful completion of new acquisitions, the effective
integration of new acquisitions, general competitive and pricing pressures in
the marketplace, and continued growth in the dental coverage marketplace. Other
risk factors are listed in the Company's Prospectus and in required filings
with the U.S. Securities and Exchange Commission.
The following discussion should be read in conjunction with the attached
consolidated financial statements and notes thereto, and with the Company's
audited financial statements and notes thereto for the fiscal year ended
December 31, 1996.
OVERVIEW
Types of Services
The Company is a full-service dental benefits provider. Approximately 85%
of revenues are generated from managed dental care plan subscriber premiums.
The balance of revenues are generated by referral fee-for-service plans and
third-party administrator services.
Under managed dental care plans, subscribers pay a premium to receive
dental services from a dentist which the subscriber selects from a panel of
dentists. The panel dentists are paid by the Company a monthly capitation fee
which is fixed under the participating dental agreement regardless of the
extent of services provided. Historically, the cost structure within managed
dental care plans results in capitations of approximately 60% of revenues,
commission expense of approximately 10% of revenues, and general and
administrative expenses of approximately 20% of revenues, leaving an operating
margin of approximately 10% of revenues. Dual choice plans allow members to
choose between a managed dental care plan offered by the Company or a
traditional dental indemnity insurance plan underwritten by an unaffiliated
insurance company, but marketed and administered by the Company under
agreements with the underwriting insurers. A small portion of the Company's
revenues is generated from commissions earned from the insurance companies
underwriting such dental indemnity insurance.
In referral fee-for-service plans, the subscriber pays a fee for access to
a panel of dentists. The dentists on the panel have agreed to provide services
at discounted rates. The subscriber pays the dentist at the discounted rate
for services provided at the time of service delivery. Therefore, this type of
plan involves no payment by the Company to the dentists. Historically, the cost
structure within referral fee-for-service plans consists of no capitation
expense, commission expense of approximately 25% of revenues, and general and
administrative expenses of approximately 40% of revenues, leaving an operating
margin of approximately 35% of revenues.
Revenues from third-party administrator arrangements are earned by
managing the claims processing and paying function for groups. The groups fund
the claims and pay a service fee to the Company. Historically, the cost
structure within third-party administrator arrangements consists of no
capitation expense, commission expense of approximately 5% of revenues,
and general and administrative expenses of approximately 70% of revenues,
leaving an operating margin of approximately 25% of revenues.
History and Growth
The Company's predecessor, American Prepaid Professional Services, Inc.
(American Prepaid), began operations in Florida in 1978. Since 1987 the
Company has begun de novo operations in seven additional states. In December
1994, the Company entered the Texas market through the acquisitions of
DentiCare, Inc. (DentiCare), a Houston-based managed dental care company, and
UniLife Insurance Company, an indemnity insurer (UniLife). In July 1995, the
Company entered or expanded its presence in additional markets, including
Kentucky, Indiana, Missouri, and Tennessee, through the acquisition of CompDent
Corporation (CompDent), a Louisville, Kentucky-based managed dental care
company. In January 1996, the Company acquired Texas Dental Plans, Inc. and
affiliated entities (Texas Dental), a referral fee-for-service dental company
based in San Antonio, Texas, which increased the Company's presence in Texas,
broadened the Company's product line, and expanded the Company's operations to
an additional seven states. Dental Care Plus Management, Corp. and its wholly
owned subsidiary, I.H.C.S., Inc. (Dental Care), a Chicago, Illinois-based
third-party administrator and managed dental care provider, respectively, were
acquired in May 1996 and greatly expanded the Company's presence in Illinois.
SEVEN
<PAGE> 3
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In addition to growth by acquisitions, the Company has achieved internal
revenue growth from increases in the number of subscribers, a shift toward
products with higher benefit levels and higher premiums and, to a much more
limited extent, premium rate increases. The Company has historically
introduced an across-the-board rate increase of approximately 6% to 8% every
three years with a gradual implementation of the new rates throughout the
subscriber base resulting in price increases of approximately 3% per year on
average. The Company is currently in the process of implementing new products
and rates which the Company anticipates will result in revenue growth in 1997.
The Company's revenues have increased at a compound annual rate of
approximately 37% from 1991 revenues of $29.3 million to 1996 revenues of
$141.1 million. Earnings before interest expense, income taxes, depreciation
and amortization (EBITDA) have increased at a compound annual rate of
approximately 59% over the past five years from $2.5 million in 1991 to $24.8
million in 1996. The number of the Company's subscribers and dental facilities
(including general dentists and specialists) has increased from 184,000 and
1,500, respectively, at December 31, 1991, to 1,180,000 and over 9,000,
respectively, at December 31, 1996. A subscriber is defined as an individual
who has enrolled in the dental plan, either as an employee of a group, through
affiliation with a group, or individually. By contrast, a member is defined as
a covered individual, which would include the spouse and/or dependent(s) of the
subscriber. At December 31, 1996, the Company provided coverage to
approximately 2.4 million members comprising over 19,700 groups in 23 states.
Business Combinations
On June 29, 1993, the Company acquired all of the issued and outstanding
capital stock of American Prepaid for approximately $29.5 million in cash. The
1993 acquisition was funded through the incurrence of $20.0 million of senior
indebtedness (the "1993 Loan") and the issuance of $6.85 million of
Subordinated Notes, $1.0 million of Redeemable Preferred Stock and $1.7 million
of common stock. The Company repaid the entire outstanding balance of the 1993
Loan and retired all outstanding Subordinated Notes and Redeemable Preferred
Stock (including accrued unpaid interest and accumulated dividends) on June 1,
1995, with a portion of the net proceeds from its initial
public offering. The 1993 acquisition has been accounted for using the
purchase method of accounting. The Company recorded $3.0 million related to a
non-competition agreement and $23.5 million of goodwill, which are being
amortized on a straight-line basis over 5 and 40 years, respectively.
On December 28, 1994, the Company acquired DentiCare and UniLife for $17.0
million plus approximately $600,000 in transaction costs. These
acquisitions were funded through the incurrence of $12.0 million of senior
indebtedness (the "1994 Loan") and the issuance of $4.0 million of Redeemable
Preferred Stock and $1.0 million of common stock. On June 1, 1995, the Company
repaid the entire outstanding balance of the 1994 Loan and retired all
outstanding Subordinated Notes and Redeemable Preferred Stock (including
accrued unpaid interest and accumulated dividends) with a portion of the net
proceeds from its initial public offering. The DentiCare and UniLife
acquisitions have been accounted for using the purchase method of accounting.
The acquired assets and liabilities were recorded at their estimated fair
market values at the date of acquisition, which in the case of UniLife resulted
in a write-down of certain assets. In connection with the DentiCare
acquisition, the Company recorded $15.6 million of goodwill, which is being
amortized on a straight-line basis over 40 years. The Company's strategy with
respect to DentiCare has been to seek increased penetration of Texas markets
for managed dental care plans while reducing DentiCare's general and
administrative expenses through the elimination of redundant overhead functions
and the extension to DentiCare of the Company's management systems and
policies. The Company's strategy regarding UniLife has been to wind down over
time UniLife's dental indemnity insurance business. As of October 1, 1995, the
Company reinsured UniLife's dental indemnity insurance business and its group
term policies with another insurance company. In April 1996, the Company
completed the conversion of all of UniLife's real estate and other assets into
cash and cash equivalents. DentiCare's business consists mainly of managed
care dental plans, which historically have a cost structure consisting of
capitations of approximately 60% of revenues, commission expense of
approximately 10% of revenues, and general and administrative expenses of
approximately 20% of revenues, leaving an operating margin of approximately 10%
of revenues. Prior to reinsuring UniLife's dental indemnity business,
UniLife's cost structure historically consisted of dental costs of
approximately 75% of revenues, commission expense of approximately 13% of
revenues, and general and administrative expenses of approximately 12% of
revenues, leaving an operating margin of approximately 0% of revenues. After
reinsuring UniLife's business, its revenues and costs are immaterial.
On July 5, 1995, the Company acquired CompDent for $32.5 million plus
approximately $1.1 million in transaction costs. The CompDent acquisition was
funded through the incurrence of $25.0 million of senior indebtedness
EIGHT
<PAGE> 4
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
under the Company's revolving credit facility and proceeds from the Company's
initial public offering. The Company then repaid the outstanding indebtedness
under its revolving credit facility with a portion of the net proceeds received
from its second stock offering. The CompDent acquisition has been accounted
for using the purchase method of accounting. The acquired assets and
liabilities were recorded at their estimated fair market values at the date of
acquisition. In connection with the CompDent acquisition, the Company recorded
$34.3 million of goodwill, which is being amortized on a straight-line basis
over 40 years. The Company's strategy with respect to CompDent has been to seek
increased penetration of the CompDent markets for managed dental care plans
while reducing CompDent's general and administrative expenses through the
elimination of redundant overhead functions and the extension to CompDent of
the Company's management systems and policies. CompDent's business consists
mainly of managed care dental plans, which historically have a cost structure
consisting of capitations of approximately 62% of revenues, commission expense
of approximately 5% of revenues, and general and administrative expenses of
approximately 19% of revenues, leaving an operating margin of approximately 14%
of revenues.
On January 8, 1996, the Company acquired Texas Dental, a Texas-based
referral fee-for-service dental company for an aggregate cash purchase price of
approximately $23.0 million including approximately $540,000 in transaction
costs. The Texas Dental acquisition was funded with net proceeds remaining
from the Company's second stock offering. The Texas Dental acquisition was
accounted for using the purchase method of accounting, with the acquired assets
and liabilities recorded at their estimated fair market values at the date of
acquisition. Goodwill of $26.0 million was recorded in the acquisition and is
being amortized over 40 years on a straight-line basis. The referral
fee-for-service products offered by Texas Dental broaden the Company's existing
product line. The Company's strategy with respect to Texas Dental is,
therefore, to seek further penetration in Texas and nationally through the
expanded product line while reducing Texas Dental's general and administrative
expenses through the elimination of redundant overhead functions and the
extension to Texas Dental of the Company's management systems and policies.
Texas Dental's business consists mainly of referral fee-for-service plans,
which historically have a cost structure consisting of no capitation expense,
commission expense of approximately 25% of revenues, and general and
administrative expenses of approximately 40% of revenues, leaving an operating
margin of approximately 35% of revenues.
Effective May 8, 1996, the Company acquired Dental Care. The aggregate
purchase price for Dental Care was $38.0 million (including
approximately $843,000 in transaction costs), of which the Company paid
approximately $27.0 million in cash and assumed approximately $11.0 million in
accrued liabilities. Dental Care is based in Chicago, Illinois, and provides
managed dental care services through a network of dental care providers.
Dental Care also acts as a third-party administrator and provides management
services to Health Care Systems, Inc., a non-profit dental company. The
Company financed the purchase of Dental Care as well as satisfaction of the
assumed liabilities by drawing down the Company's revolving credit facility.
The acquisition of Dental Care was accounted for using the purchase method of
accounting, resulting in the Company recording $41.2 million in goodwill which
is being amortized over 40 years on a straight-line basis. The Company's
strategy with respect to Dental Care is to seek further penetration in Illinois
and nationally through the expanded product line while reducing Dental Care's
general and administrative expenses through the elimination of redundant
overhead functions and the extension to Dental Care of the Company's management
systems and policies. Dental Care's business consists mainly of managed care
dental plans and third-party administrator arrangements. Managed care dental
plans historically have a cost structure consisting of capitations of
approximately 60% of revenues, commission expense of approximately 10% of
revenues, and general and administrative expenses of approximately 20% of
revenues, leaving an operating margin of approximately 10% of revenues.
Third-party administrator arrangements historically have a cost structure
consisting of no capitation expense, commission expense of approximately 5% of
revenues, and general and administrative expenses of approximately 70% of
revenues, leaving an operating margin of approximately 25% of revenues.
RESULTS OF OPERATIONS
Year ended December 31, 1996, compared to the year ended December 31, 1995
Revenues increased by $34.4 million, or 32.3%, to $141.1 million in 1996
from $106.7 million in 1995. This increase was primarily attributable to a
$30.9 million, or 29.5% increase in subscriber premiums to $135.8 million in
1996 from $104.9 million in 1995. The addition of Texas Dental and Dental Care
subscriber premiums following the acquisitions of these companies accounted for
$8.8 million and $10.0 million, respectively, of this increase. The
acquisition of CompDent in July of 1995 impacted 1995 for part of the year and
impacted 1996 for the full year, resulting in higher subscriber premiums in
1996 of approximately $16.6 million. Internal growth accounted for $9.7 million
of the growth in subscriber premiums. These increases in subscriber premiums
were partially offset by a decrease of $14.2 million in UniLife premiums.
NINE
<PAGE> 5
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Effective October 1, 1995, UniLife reinsured all of its indemnity insurance
with another insurance company. This completed the Company's strategy upon
acquiring UniLife to wind down UniLife's dental indemnity insurance business.
Other revenue increased by $3.5 million, or 198.5%, to $5.3 million in
1996 from $1.8 million 1995. The increase was primarily attributable to $3.2
million of Dental Care third-party administrator fees and management fees
recorded in 1996 following the May 1996 Dental Care acquisition.
Dental care providers' fees and claim costs increased $11.2 million, or
18.0%, to $73.4 million in 1996 from $62.2 million in 1995. Dental care
providers' fees represent capitation payments paid to panel dentists under the
Company's managed dental care plans. Under managed dental care plans,
capitation payments to panel dentists are fixed under the participating dental
agreement regardless of the extent of services provided. Dental claim costs
represent amounts payable to dental care providers under certain non-capitated
plans. Dental care providers' fees and claims costs decreased to 54.1% from
59.3% of subscriber premiums in 1996 and 1995, respectively. This decrease as a
percentage of subscriber premiums is due to the acquisition of Texas Dental
which, as a referral fee-for-service dental company, has subscriber premiums
with no corresponding capitation expense. Providers' fees and claim costs as a
percentage of subscriber premiums were also lowered by the elimination of
UniLife claims costs. As discussed above, effective October 1, 1995, UniLife
entered into a reinsurance agreement and thus incurred no claims cost after
this date. The addition of Dental Care providers' fees and claims at 61.2% of
subscriber premiums following the May 1996 acquisition partially offset these
decreases.
Commission expense increased $1.4 million, or 13.2%, to $12.2 million in
1996 from $10.8 million in 1995. The addition of Texas Dental and
Dental Care commissions in 1996 resulted in a $1.4 million increase while the
elimination of UniLife commissions resulted in a $1.9 million decrease. The
acquisition of CompDent in July of 1995 impacted 1995 for part of the year and
impacted 1996 for the full year, resulting in higher commission expense in 1996
of approximately $0.9 million. The remaining $1.0 million increase in
commission expense was the result of internal growth in subscriber premiums.
As a percentage of subscriber premiums, commissions decreased to 9.0% in 1996
from 10.3% in 1995. This decrease related primarily to the addition of Dental
Care commissions at 1.0% of subscriber premiums and the elimination of UniLife
commissions at 13.4% of subscriber premiums, partially offset by the addition
of Texas Dental commissions at 15.4% of subscriber premiums. Without the
effects of Dental Care, UniLife, and Texas Dental on subscriber premiums and
commissions, commissions as a percentage of subscriber premiums decreased
slightly from 9.8% in 1995 to 9.2% in 1996. The slight decrease as a percentage
of subscriber premiums was primarily attributable to an increase in the number
of large employer groups for which the Company's direct sales force typically
plays an active role in sales and servicing, resulting in a lower commission
rate or no commissions being paid to independent agents with respect to these
accounts. The costs associated with the increased number of sales
representatives employed by the Company were reflected in general and
administrative expenses, rather than commissions.
Premium taxes decreased as a percentage of subscriber premiums to 0.7% in
1996 compared with 1.3% in 1995. This decrease was a result of the addition of
Texas Dental and Dental Care subscriber premiums in 1996 and the elimination of
UniLife subscriber premiums in the third quarter of 1995. Texas Dental is a
referral fee-for-service dental company and, accordingly, its revenues are not
subject to premium tax in the state of Texas. Dental Care revenues are not
subject to a premium tax in the state of Illinois. UniLife premiums in 1995
were subject to the Texas premium tax rate of approximately 2.5%.
General and administrative expenses increased $11.0 million, or 56.4%, to
$30.4 million in 1996 from $19.4 million in 1995. As a percentage of total
revenues, this expense increased to 21.5% in 1996 from 18.2% in 1995. This
increase as a percentage of revenues is due to a higher general and
administrative level added following the January 1996 acquisition of Texas
Dental and the May 1996 acquisition of Dental Care. The increased use of
in-house sales and marketing staff, as opposed to independent agents paid
commissions, also contributed to the increase. The Company's strategy regarding
acquisitions includes, in part, the reduction of general and administrative
expenses through the elimination of redundant overhead functions and the
extension of the Company's management systems and policies. While comparing
1996 with 1995, general and administrative expenses as a percentage of revenue
show a year-to-year increase; quarterly results show that since the second
quarter of 1996, when the acquisition of Dental Care took place, general and
administrative expenses as a percentage of revenues have decreased from 22.5%
in the second quarter of 1996 to 20.7% in the fourth quarter of 1996. The
Company believes further assimilation of acquired business will continue to
result in reductions of general and administrative costs, subject to the
temporary increases caused by any future acquisitions.
TEN
<PAGE> 6
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Depreciation and amortization expense increased $2.4 million, or 89.7%, to
$5.1 million in 1996 from $2.7 million in 1995. Amortization of intangible
assets (goodwill and non-compete agreements) increased $1.8 million to $3.8
million in 1996. Of this increase, $1.3 million is the result of additional
goodwill amortization recorded following the Texas Dental and Dental Care
acquisitions. The remaining $0.5 million of the increase is primarily due to
the amortization of CompDent goodwill being recorded for only that portion of
1995 following the acquisition compared to the full 12 months in 1996.
Depreciation expense increased $636,000 due to additional office furniture,
equipment, and leasehold improvements obtained in conjunction with the
acquisitions in January 1996 and May 1996, and for new office space occupied by
the Company in September 1996. Depreciation expense in 1997 is expected to be
slightly higher due to the addition of leasehold improvements, and computer and
phone equipment.
Interest income decreased from $735,000 in 1995 to $585,000 in 1996.
Interest income consists of interest earned on available cash balances
as well as interest earned on cash balances which are restricted by state
regulatory agencies. Interest income declined due to the Company having less
cash to invest in 1996, due to the completion of the Texas Dental and Dental
Care acquisitions.
Interest expense decreased slightly to $1.9 million in 1996 from $2.0
million in 1995. The Company had $26.6 million of debt outstanding from January
1995, of which $1.0 million was retired with proceeds from operating cash flows
and the remainder with proceeds from the Company's initial public offering in
June 1995. The Company incurred $25.0 million of new indebtedness in July 1995
under its revolving credit facility to partially finance the CompDent
acquisition and repaid this indebtedness in August 1995 with proceeds from the
second stock offering. In May 1996, $38.0 million was borrowed under the
revolving credit facility to finance the acquisition of Dental Care. At each
quarter end, the Company draws from its credit facility to pay down
intercompany balances. Any future acquisitions may cause the Company to incur
additional indebtedness under its revolving credit facility or otherwise.
Other expense and income items total $219,000 in 1996, consisting mainly
of the gain on sale of unneeded properties obtained in past acquisitions.
In 1996, the Company's effective income tax rate increased to 44.3%
compared with 42.0% in 1995. The increase is primarily attributable to
additional nondeductible goodwill amortization recorded in 1996 following the
recent acquisitions.
Year ended December 31, 1995, compared to year ended December 31, 1994
Revenues increased by $51.5 million, or 93.3%, to $106.7 million in 1995
from $55.2 million in 1994. This increase was primarily attributable to a
$50.5 million, or 92.9%, increase in subscriber premiums to $104.9 million in
1995 from $54.4 million in 1994. The addition of DentiCare and UniLife
subscriber premiums following the acquisitions of these companies in December
1994 accounted for $12.6 million and $14.3 million, respectively, of this
increase. CompDent subscriber premiums provided an additional $16.5 million
following the July 1995 acquisition. The remaining $7.1 million increase in
subscriber premiums was attributable to an increase in the Company's subscriber
base during 1995. Other revenue increased by $944,000, or 115.3%, to $1.8
million in 1995 from $819,000 in 1994 due primarily to the addition of UniLife
investment and reinsurance fee revenue in 1995.
Dental care providers' fees and claims costs increased $32.0 million, or
105.6%, to $62.2 million in 1995 from $30.3 million in 1994. Dental care
providers' fees increased to 56.4% from 54.8% of managed dental care subscriber
premiums in 1995 and 1994, respectively, due to the addition of DentiCare and
CompDent dental care providers' fees at 56.0% and 61.1% of such subscriber
premiums following these acquisitions. Dental claims of $12.1 million were
recorded in 1995, representing 75.5% of indemnity dental premium revenue.
UniLife indemnity insurance plans were fully reinsured as of October 1, 1995.
In 1995, CompDent had $3.5 million in annualized revenues whereby dentists were
reimbursed for services rendered through claim payments.
Commissions increased $4.0 million, or 58.3%, to $10.8 million in 1995
from $6.8 million in 1994. The addition of DentiCare and UniLife commissions
accounted for $677,000 and $1.9 million, respectively, of this increase.
CompDent commissions accounted for an additional $834,000 following the July 5,
1995, acquisition. As a percentage of revenues, commissions decreased to 10.1%
in 1995 from 12.3% in 1994. Commissions on existing subscriber revenues were
12.0% combined with DentiCare, UniLife, and CompDent commissions of 5.4%,
13.4%, and 5.0%, respectively, for 1995. The slight decrease as a percentage
of the existing subscriber revenues was primarily attributable to an increase
in the number of large employer groups for which the Company's direct sales
force typically plays an active role in sales and servicing, resulting in a
ELEVEN
<PAGE> 7
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
lower commission rate or no commissions being paid to independent agents with
respect to these accounts. The costs associated with the increased number of
sales representatives employed by the Company were reflected in general and
administrative expenses, rather than commissions.
Premium taxes increased as a percentage of revenues to 1.3% in 1995 from
1.2% in 1994. This increase was a result of the addition of DentiCare and
UniLife premiums which are subject to a higher Texas premium tax rate of
approximately 2.5%.
General and administrative expenses increased $9.2 million, or 90.7%, to
$19.4 million in 1995 from $10.2 million in 1994. As a percentage of revenues,
this expense decreased to 18.2% in 1995 from 18.5% in 1994. This decrease as a
percentage of revenues is due to the realization of cost savings following the
acquisitions of DentiCare and UniLife, partially offset by a higher level of
CompDent general and administrative expenses, following the July 5, 1995,
acquisition.
Depreciation and amortization expense increased $522,000, or 23.8%, to
$2.7 million in 1995 from $2.2 million in 1994. This increase is attributable
to additional goodwill amortization recorded following the DentiCare, UniLife,
and CompDent acquisitions, partially offset by a decrease in depreciation
expense. Depreciation expense for 1994 included a one-time charge of $664,000
associated with a change in the estimated depreciable lives of certain computer
hardware and software.
Interest income increased $654,000, or 807.4%, to $735,000 in 1995 from
$81,000 in 1994 as a result of the Company investing excess cash balances
remaining from the second stock offering in August 1995.
Interest expense decreased $494,000, or 20.0%, to $2.0 million in 1995
from $2.5 million in 1994. The Company repaid its existing indebtedness on
June 1, 1995, with proceeds from its initial public offering, including $12
million of new indebtedness incurred at the end of 1994 to partially finance
the DentiCare and UniLife acquisitions. The Company incurred $25 million of
new indebtedness in July 1995 under its revolving credit facility to partially
finance the CompDent acquisition and repaid this outstanding indebtedness in
August 1995 with proceeds from the second stock offering. Interest expense in
1994 was attributable to indebtedness incurred to finance the Company's 1993
acquisition.
The Company's effective income tax rate decreased to 42.0% in 1995 from
48.4% in 1994 due primarily to tax-free interest income recorded and a lower
proportion of nondeductible goodwill to taxable income in 1995.
On June 1, 1995, in conjunction with the repayment of existing
indebtedness following the Company's initial public stock offering, the Company
wrote off unamortized loan fees of $498,000, net of a tax benefit of $305,000.
This write-off is presented as an extraordinary item for the year ended
December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash in 1996 have been operating
activities and borrowings under its revolving line of credit. The primary uses
of cash for the period were the acquisitions of Texas Dental and Dental Care.
Cash flows from operating activities were $9.5 million and $8.5 million
for 1996 and 1995, respectively. Cash flows from operations consist primarily
of subscriber premiums and investment income net of capitation payments to
panel dentists, claims paid, brokers' and agents' commissions, general and
administrative expenses, and income tax payments. The Company receives some
premium payments in advance of anticipated capitation payments and claims and
invests cash balances in excess of current needs in interest-bearing accounts.
Cash used in investing activities was $64.5 million in 1996 and $31.1
million in 1995. The increase in cash used relates primarily to $62.5 million
used to acquire Texas Dental and Dental Care in January and May 1996,
respectively, compared to $31.2 million used for the acquisition of CompDent in
July 1995. The $1.3 million increase in capital expenditures for 1996 compared
with 1995 is due primarily to purchases of new office furniture, equipment and
leasehold improvements for new office space occupied by the Company in
September 1996, and enhancements and upgrades to computer and
communications equipment. The Company expects to make additional capital
expenditures of approximately $4.0 million in 1997, mainly for further
enhancements to its computer and telephone equipment.
Cash flows from financing activities in 1996 were $41.6 million,
representing borrowings under the Company's revolving line of credit to finance
the acquisition of Dental Care and to repay intercompany borrowings to its
regulated
TWELVE
<PAGE> 8
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
subsidiary companies at quarter-ends. Cash provided by financing activities
was $53.3 million in 1995, which primarily represents the net of initial public
offering proceeds of $51.4 million, secondary offering proceeds of $42.0
million, and the use of $39.9 million of these proceeds to repay outstanding
indebtedness and retire preferred stock.
On June 30, 1995, the Company obtained a reducing revolving $35 million
line of credit (the "Credit Facility") from banks. On July 5, 1995, to
partially finance the acquisition of CompDent, the Company borrowed $25 million
under the Credit Facility. On May 3, 1996, the Credit Facility was amended to
increase the available line of credit to $65 million. On May 7, 1996, the
Company borrowed $38 million under the Credit Facility to finance the
acquisition of Dental Care. The Credit Facility as amended requires a 33%
reduction in available borrowings on December 31, 1998, a 33% reduction in
available borrowings on December 31, 1999, and expiration of the Credit
Facility on December 31, 2000. Outstanding indebtedness under the Credit
Facility bears interest, at the Company's option, at a rate equal to the prime
rate plus up to 1/4% or LIBOR plus up to 1 3/4%, with the margin over the prime
rate and LIBOR decreasing as the ratio of consolidated debt to EBITDA
decreases. Currently borrowings under the Credit Facility bear interest at the
LIBOR-based rate. The Credit Facility prohibits payment of dividends and other
distributions and restricts or prohibits the Company from making certain
acquisitions, incurring indebtedness, incurring liens, disposing of assets or
making investments; and requires it to maintain certain financial ratios on an
ongoing basis. The Credit Facility is collateralized by pledges of the stock
of the Company's direct and indirect subsidiaries. The Company had $41.7
million of borrowings outstanding as of December 31, 1996, under the Credit
Facility.
The Company believes that cash flow generated by operations will be
sufficient to fund its normal working capital needs and capital expenditures
for at least the next 24 months. Historically, the Company's operations have
not been capital intensive; however, the Company's recent initiative in the
establishment of dental offices through its subsidiary operation Dental Health
Management, Inc. will present capital needs, the extent of which is
indeterminate. Additional financing, under the Credit Facility or otherwise,
will be required in connection with an acquisition or acquisitions which the
Company may consummate in the future.
Under applicable insurance laws of most states in which the Company
conducts business, the Company's subsidiary operating in the particular state
is required to maintain a minimum level of net worth and reserves. In general,
minimum capital requirements are more stringent for insurance companies, such
as UniLife. The Company may be required from time to time to invest funds in
one or more of its subsidiaries to meet regulatory capital requirements.
Applicable laws generally limit the ability of the Company's subsidiaries to
pay dividends to the extent that required regulatory capital would be impaired,
and dividend payments are further restricted under the Credit Facility.
LITIGATION
American Prepaid and its Florida subsidiary, American Dental Plan, Inc.,
are currently defendants to a civil complaint filed by three
participating dentists (one of which has since withdrawn) who have entered into
Participating Dentist Agreements with various subsidiaries of the Company
("Subsidiaries"). The complaint alleges a breach of contract and seeks damages
based on the failure of each Subsidiary to make capitation payments to the
participating dentists for the period of time between when affected subscribers
enroll and the time at which the subscribers select a dentist. The plaintiffs
are attempting to bring the suit as a class action. In an order issued July
22, 1996, the trial court ruled that the case could not proceed as a class
action. The plaintiffs have appealed this order denying class certification.
The Company believes its interpretation and administration of the
Participating Dentist Agreements are correct and, therefore, is vigorously
defending the suit. While the ultimate outcome of this lawsuit cannot at this
time be predicted with certainty, management does not expect that this matter
will have a material adverse effect on the consolidated financial position,
cash flows or results of operations of the Company.
INFLATION
The Company does not believe that its financial performance has been or
will be materially affected by inflation.
THIRTEEN
<PAGE> 9
CONSOLIDATED
BALANCE SHEETS
December 31, 1996 and 1995 (Dollars in Thousands, Except Share and Per Share
Data)
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets: $ 26,959 $ 40,388
Cash and cash equivalents
Accrued interest receivable 48 84
Premiums receivable from subscribers 3,121 3,637
Income taxes receivable 247
Assets held for sale 532
Deferred income taxes 3,106 1,416
Other current assets 602 197
------------------
Total current assets 34,083 46,254
------------------
Restricted funds 2,070 1,463
Property and equipment, net of accumulated depreciation 2,977 1,937
Excess of purchase price over net assets acquired 135,040 71,063
Noncompetition agreements 945 1,521
Unamortized loan fees 189 172
Reinsurance receivable 5,388 6,332
Cash surrender value of officers' life insurance 140 155
Deferred income taxes 2,026 243
Other assets 1,309 256
------------------
$184,167 $129,396
------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Unearned revenue $ 9,582 $10,300
Accounts payable and accrued expenses 10,956 7,372
Income taxes payable 883
Accrued interest payable 390
Life policy and contract claims reserves 68 37
Dental claims reserves 1,421 2,437
Other current liabilities 1,856 12
------------------
Total current liabilities 24,273 21,041
------------------
Aggregate reserves for life policies and contracts 5,338 5,323
Aggregate reserves for dental contracts 172
Notes payable 41,663
Deferred compensation expense 338 384
Other liabilities 372 299
------------------
Total liabilities 71,984 27,219
------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none issued at December 31, 1996
Common stock, $.01 par value, 50,000,000 and 18,000,000
shares authorized at December 31, 1996 and 1995, respectively,
10,066,004 and 10,016,693 shares issued and outstanding at
December 31, 1996 and 1995, respectively 101 100
Additional paid-in capital 95,820 95,707
Retained earnings 16,262 6,370
------------------
Total stockholders' equity 112,183 102,177
------------------
$184,167 $129,396
------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
FOURTEEN
<PAGE> 10
CONSOLIDATED
STATEMENTS OF INCOME
for the years ended December 31, 1996, 1995, and 1994
(Dollars in Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C>
Subscriber premiums $ 135,807 $ 104,898 $ 54,373
Other revenue 5,262 1,763 819
------------------------------------------
Total revenue 141,069 106,661 55,192
Expenses:
Dental care providers' fees and claim costs 73,431 62,218 30,262
Commissions 12,184 10,763 6,800
Premium taxes 1,018 1,392 638
General and administrative 30,394 19,435 10,189
Depreciation and amortization 5,153 2,717 2,195
------------------------------------------
Total expenses 122,180 96,525 50,084
------------------------------------------
Operating income 18,889 10,136 5,108
------------------------------------------
Other expense (income): (585) (735) (81)
Interest income
Interest expense 1,935 1,970 2,464
Other, net (219) (68) 4
------------------------------------------
Total other expense 1,131 1,167 2,387
------------------------------------------
Income before provision for income taxes
and extraordinary item 17,758 8,969 2,721
Income tax provision 7,866 3,765 1,316
------------------------------------------
Income before extraordinary item 9,892 5,204 1,405
Extraordinary loss on early extinguishment of debt,
net of applicable tax benefit of $305 (see Note 8) (498)
------------------------------------------
Net income $ 9,892 $ 4,706 $ 1,405
------------------------------------------
Income per common share:
Income before extraordinary item $ .97 $ .68 .30
Extraordinary loss (.07)
------------------------------------------
Net income per common share $ .97 $ .61 $ .30
------------------------------------------
Weighted average common shares outstanding 10,176,756 7,351,655 4,252,489
==========================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
FIFTEEN
<PAGE> 11
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
For the years ended December 31, 1996, 1995, and 1994
(Dollars and Shares in Thousands)
<TABLE>
<CAPTION>
Class A Additional
Common Stock Common Stock Paid-In Retained
Shares Value Shares Value Capital Earnings Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 1,287 $ 13 2,305 $23 $ 1,276 $ 587 $ 1,899
Issuance of Class A Common Stock 556 5 1,001 (1) 1,005
Net Income 1,405 1,405
Accumulated preferred stock dividend (109) (109)
----------------------------------------------------------------
Balance, December 31, 1994 1,843 18 2,305 23 2,277 1,882 4,200
Issuance of Common Stock in initial
public offering, net of issuance costs 3,933 40 51,402 51,442
Conversion of Class A Common Stock
to Common Stock in connection with
public offering (1,843) (18) 1,843 18
Issuance of Common Stock in second
offering, net of issuance costs 1,935 19 42,028 42,047
Net income 4,706 4,706
Accumulated preferred stock dividend (218) (218)
----------------------------------------------------------------
Balance, December 31, 1995 0 0 10,016 100 95,707 6,370 102,177
Issuance of Common Stock pursuant
to option agreements 48 1 65 66
Issuance of Common Stock pursuant
to employee stock purchase plan 2 48 48
Net Income 9,892 9,892
----------------------------------------------------------------
Balance, December 31, 1996 0 $ 0 10,066 $ 101 $95,820 $16,262 $112,183
================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
SIXTEEN
<PAGE> 12
CONSOLIDATED STATEMENTS OF
CASH FLOWS
for the years ended December 31, 1996, 1995, and 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,892 $ 4,706 $ 1,405
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,248 2,855 2,391
(Gain) loss on sale of assets held for sale (174) 23
Gain on sale of property and equipment (53)
Extraordinary loss on early extinguishment of debt 803
Deferred income tax expense (benefit) 1,526 (255) (282)
Changes in assets and liabilities:
Premiums receivable from subscribers 1,813 (203) (387)
Income taxes receivable (231) 213 301
Other assets (73) (1,181) 109
Unearned revenue (1,445) 1,213 366
Accounts payable and accrued expenses (3,200) (424) 1,686
Income taxes payable (903) 854
Other liabilities (2,895) (146) (44)
------------------------------------
Net cash provided by operating activities 9,505 8,458 5,545
------------------------------------
Cash flows from investing activities:
Additions to property and equipment (2,394) (1,076) (343)
Proceeds from sale of assets held for sale 694 1,323
Increase in restricted cash (607) (106)
Proceeds from sale of property 253
Cash surrender value of life insurance 15 (28) (38)
Purchases of businesses, net of cash acquired (62,462) (31,188) (14,784)
------------------------------------
Net cash used in investing activities (64,501) (31,075) (15,165)
------------------------------------
Cash flows from financing activities:
Proceeds from notes payable 12,000
Repayment of notes payable (26,600) (4,800)
Borrowings under credit agreement 57,697 25,000
Repayments under credit agreement (16,034) (25,000)
Loan fees paid (112) (240) (202)
Repayment of subordinated notes (7,947)
Proceeds from issuance of preferred stock 4,000
Retirement of preferred stock (5,377)
Proceeds from issuance of common stock 1,004
Proceeds from initial public offering, net of issuance costs 51,442
Proceeds from second public offering, net of issuance costs 42,047
Proceeds from exercise of stock options 66
Proceeds from employee stock purchase plan 48
Other (98)
------------------------------------
Net cash provided by financing activities 41,567 53,325 12,002
------------------------------------
(Decrease) increase in cash and cash equivalents (13,429) 30,708 2,382
Cash and cash equivalents, beginning of period 40,388 9,680 7,298
------------------------------------
Cash and cash equivalents, end of period $ 26,959 $ 40,388 $ 9,680
Supplemental disclosures of cash flow information: ====================================
Cash paid during the period for:
Interest $ 1,450 $ 1,961 $ 1,716
====================================
Income taxes $ 7,474 $ 2,619 $ 1,198
====================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
SEVENTEEN
<PAGE> 13
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and Per Share Data)
1. ORGANIZATION AND BASIS OF PRESENTATION
CompDent Corporation and subsidiaries (collectively, the "Company")
operate a system of dental benefit plans in 23 states. The Company's primary
source of revenue is managed dental care plans offered either separately or
together with a traditional indemnity insurance plan, underwritten by a
third-party, under a "dual-choice" plan. The Company markets its plans
primarily through independent agents to private and governmental employers.
Dental services are provided through a network of selected independent dentists
who are responsible for each member's individual dental care. The Company
currently conducts business principally in Florida, Georgia, Kentucky, Texas,
Illinois and Ohio. For the years ended December 31, 1996, 1995, and 1994,
Florida operations accounted for approximately 35%, 42%, and 73%, respectively,
of the Company's revenues.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned subsidiary,
American Prepaid Professional Services, Inc. (American Prepaid), and through
American Prepaid, the following wholly owned subsidiaries: American Dental
Plan, Inc. (a Florida corporation); American Dental Plan of Georgia, Inc.;
American Prepaid Dental Plan of Ohio, Inc.; American Dental Plan of Alabama,
Inc.; American Dental Plan, Inc. (a North Carolina corporation); American
Dental Plan of North Carolina, Inc.; DentiCare, Inc. (DentiCare); UniLife
Insurance Company (UniLife); CompDent Corporation and its wholly owned
subsidiaries; Texas Dental Plans, Inc.; National Dental Plans, Inc.; Dental
Plans International, Inc.; Dental Provider Resources, Inc.; and Dental Care
Plus Management, Corp. and its wholly owned subsidiary, CompDent of Illinois,
Inc. (formerly I.H.C.S.). All significant intercompany balances and
transactions have been eliminated in consolidation.
SUBSCRIBER PREMIUMS - Managed care subscriber premiums revenue is recognized as
earned over the related contract period. The unexpired portion of such revenue
collected is reported as unearned revenue in the consolidated balance sheets.
Indemnity dental and life premiums are recognized as earned on a pro rata basis
over the risk coverage periods. Reserves are provided for the portion of
premiums written for dental and life insurance which relate to the unexpired
coverage period.
DENTAL CARE PROVIDERS' FEES AND CLAIM COSTS - The Company contracts with
various independent dentists to provide services to covered enrollees. Most
dentists participating in the managed dental care plan are compensated by the
Company on a capitation basis. Indemnity dental and life benefits are charged
to expense in the period that the claims are incurred.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
CONCENTRATIONS OF CREDIT RISK- The Company collects the majority of its revenue
before services are provided. However, in instances where this does not occur,
the Company extends credit without requiring collateral. Management believes
exposure to losses on receivables is minimal due to the nature of this business
and the fact that the financial condition of the Company's groups is monitored
closely.
The Company's cash and restricted funds in financial institutions exceeded the
federally insured deposit limit by $27,336 and $39,017 at December 31, 1996 and
1995, respectively.
ASSETS HELD FOR SALE - Assets held for sale are stated at the lower of cost or
estimated net realizable value. At December 31, 1995, the former corporate
office of UniLife with a carrying value of $532 was classified as a current
asset. In 1996, the Company sold this office and recognized a gain of $174.
PROPERTY AND EQUIPMENT - Property and equipment are carried at cost less
accumulated depreciation which is computed using the straight-line method over
the estimated useful lives of two to seven years of the related assets.
Maintenance and repairs are charged to expense as incurred. Upon sale,
retirement or other disposition of these assets, the cost and the related
accumulated depreciation are removed from the respective accounts, and any gain
or loss on the disposition is included in income.
EIGHTEEN
<PAGE> 14
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and Per Share Data)
During 1994, the Company changed the estimated useful lives of certain of
its computer hardware and software from five years to two years. Management
believes this change better aligns the allocation of these costs with their
expected use and results in useful lives more consistent with technological
expectations. The effect of this change in estimate on pretax income was a
decrease of $664 in 1994. The change in estimate had no effect on cash flow.
Depreciation expense was $1,350, $719, and $998, for the years ended December
31, 1996, 1995, and 1994, respectively.
INTANGIBLE ASSETS - Deferred financing costs are amortized as an increase to
interest expense on a straight-line basis, which approximates the effective
interest method, over the terms of the related debt agreements (see Note 7).
Accumulated amortization at December 31, 1996 and 1995, was $130 and $34,
respectively.
Noncompetition agreements are amortized on a straight-line basis over the
terms of the related agreements. Accumulated amortization at December 31, 1996
and 1995, was $2,135 and $1,509, respectively.
The excess of purchase price over net assets acquired (goodwill) is being
amortized on a straight-line basis over 40 years. The Company assesses the
recoverability and the amortization period of the goodwill by determining
whether the amount can be recovered through undiscounted cash flows of the
businesses acquired, excluding interest expense and amortization, over the
remaining amortization period. If impairment was indicated by this analysis,
measurement of the loss would be based on the fair market value of the
businesses acquired. The Company considers external factors relating to each
acquired business, including local market developments, regional and national
trends, regulatory developments and other pertinent factors in making its
assessment. The Company does not believe there currently are any indicators
that would require an adjustment to the carrying value of the goodwill or its
remaining life as of December 31, 1996. Accumulated amortization at December
31, 1996 and 1995, was $5,432 and $2,270, respectively.
INCOME TAXES - Under SFAS No. 109, deferred income taxes are provided based on
the estimated future tax effects of differences between financial statement
carrying amounts and the tax bases of existing assets and liabilities.
The Company and its subsidiaries file a consolidated U.S. federal income
tax return. Subsidiaries are allocated a tax provision as if each subsidiary
filed separate income tax returns.
AGGREGATE RESERVE FOR POLICIES AND CONTRACTS - The Company's financial position
includes liabilities associated with indemnity insurance coverage. Liabilities
for future life policy benefits are computed by the net level premium method
based upon estimated future investment yield, mortality and withdrawal
assumptions, commensurate with the Company's experience. Assumed mortality is
based on various industry published tables, modified as appropriate for the
Company's actual experience.
POLICY AND CONTRACT CLAIMS RESERVES - The Company's financial position includes
liabilities associated with indemnity insurance coverage. Policy and contract
claims reserves include provisions for reported claims and claims incurred but
not reported based upon analyses of historical claim development patterns.
Estimates and assumptions with respect to the Company's policy and contract
claims reserves are required in accordance with generally accepted accounting
principles. Actual results could differ from these estimates. Changes in these
estimates are reflected in the results of operations in the period in which
such changes occur.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount of the Company's cash
and cash equivalents approximates fair value because of the short maturity of
those instruments. The fair value of the Company's notes payable approximates
its carrying amount because the interest rate associated with the debt is
variable.
LONG-LIVED ASSETS - In 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of, which
requires review of long-lived assets and certain identifiable intangibles for
impairment whenever events or changes indicate the carrying amount may not be
recoverable. Implementing the requirements of SFAS 121 did not have a material
impact on the financial position, results of operations or cash flows of the
Company.
NINETEEN
<PAGE> 15
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and Per Share Data)
STOCK-BASED COMPENSATION - In 1996, the Company adopted the provisions of SFAS
No. 123, Accounting for Stock-Based Compensation, which defines a fair value
based method of accounting for stock-based employee compensation plans. In
accordance with the provisions of SFAS No. 123, the Company has chosen to
continue to apply the accounting provisions of Accounting Principles Board
(APB) No. 25, Accounting for Stock Issued to Employees, to its stock-based
employee compensation arrangements. Implementing the disclosure provisions of
SFAS No. 123, which supersede the disclosure requirements of APB No. 25, did
not have any material effect on the financial position, results of operations
or cash flows of the Company (see Note 9).
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
ADVERTISING COSTS - Costs of advertising are expensed when incurred.
EARNINGS PER SHARE - Earnings per share are computed by deducting preferred
dividends ($0, $218, and $109 for the years ended December 31, 1996,
1995, and 1994, respectively) from net income. This amount is then divided by
the weighted average number of common shares outstanding and common stock
equivalents, which consist of stock options. The number of common stock
equivalents is determined using the treasury stock method. Pursuant to the
requirements of the Securities and Exchange Commission, common shares and common
equivalent shares issued at prices below the initial offering price of $14.50
per share during the 12 months immediately preceding the date of the filing of
the Registration Statement associated with that offering have been included in
the calculation of common shares and common equivalent shares, using the
treasury stock method, as if they had been outstanding for all periods
presented.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform with current year presentation.
3. REGULATORY REQUIREMENTS AND RESTRICTED FUNDS
The Company has set aside certificates of deposit bearing interest at
variable rates as required by various state statutes. Additionally, the
subsidiaries of American Prepaid are required to maintain certain levels of
regulatory capital for statutory reporting. At December 31, 1996 and 1995, the
various subsidiaries were required to cumulatively maintain approximately
$3,663 and $1,375, respectively, in capital and surplus. Accordingly, the
subsidiaries may be limited in their ability to pay dividends to American
Prepaid, and it in turn to the Company.
4. BUSINESS COMBINATIONS
Effective July 5, 1995, the Company completed the acquisition of CompDent
Corporation (CompDent), a Kentucky-based provider of managed dental care plans,
and affiliated entities, for an aggregate purchase price (including transaction
costs) of $33,600. The acquisition was financed partially through borrowings of
$25,000 under the Company's revolving credit facility and partially with
proceeds remaining from the Company's initial public offering. The acquisition
of CompDent was accounted for using the purchase method of accounting with the
results of operations and cash flows of the businesses acquired included from
the effective date of the acquisition. The acquisition resulted in excess of
purchase price over net assets acquired of $34,300 which is being amortized
over 40 years.
The following is a summary of assets acquired, liabilities assumed, and
consideration paid in connection with the acquisition:
<TABLE>
<S> <C>
Fair value of assets acquired, including goodwill $ 37,279
Cash paid for assets acquired, net of cash acquired (29,823)
Acquisition costs paid (1,060)
--------
Liabilities assumed $ 6,396
========
</TABLE>
TWENTY
<PAGE> 16
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and Per Share Data)
Effective January 8, 1996, the Company completed the acquisition of Texas
Dental Plans, Inc., a Texas-based referral fee-for-service dental company, and
affiliated entities (Texas Dental), for an aggregate cash purchase price of
approximately $23,000. The acquisition was funded with net proceeds remaining
from the Company's second stock offering. The Texas Dental acquisition was
accounted for using the purchase method of accounting, with the results of
operations of the business acquired included from the effective date of the
acquisition. The acquisition resulted in excess of purchase price over net
assets acquired of $26,000 which is being amortized over 40 years.
The following is a summary of assets acquired, liabilities assumed, and
consideration paid in connection with the acquisition:
<TABLE>
<S> <C>
Fair value of assets acquired, including goodwill $ 27,239
Cash paid for assets acquired, net of cash acquired (23,132)
Acquisition costs paid (540)
--------
Liabilities assumed $ 3,567
========
</TABLE>
Effective May 8, 1996, the Company acquired all of the outstanding capital
stock and options of Dental Care Plus Management, Corp. (Dental Care). The
aggregate purchase price for Dental Care and its wholly owned subsidiary,
I.H.C.S., Inc. (I.H.C.S.), was $38,000, of which the Company paid approximately
$27,000 in cash and assumed approximately $11,000 in accrued liabilities.
Dental Care and its subsidiary, I.H.C.S., are based in Chicago, Illinois, and
provide managed dental care services through a network of dental care
providers. Dental Care also acts as a third-party administrator and provides
management services to Health Care Systems, Inc. (HCS), a non-profit dental
company. The Company financed the purchase of Dental Care as well as
satisfaction of the assumed liabilities by drawing down the Company's revolving
credit facility. The acquisition of Dental Care was accounted for using the
purchase method of accounting with the results of operations of the businesses
acquired included from the effective date of the acquisition. The acquisition
resulted in excess of purchase price over net assets acquired of $39,700 which
is being amortized over 40 years. During the third quarter, the Company
finalized its allocation of the purchase price of Dental Care which resulted in
an increase to excess of purchase price over net assets acquired of $1,500 to
$41,200.
The following is a summary of assets acquired, liabilities assumed, and
consideration paid in connection with the acquisition:
<TABLE>
<S> <C>
Fair value of assets acquired, including goodwill $ 46,770
Cash paid for assets acquired, net of cash acquired (26,836)
Acquisition costs paid (843)
--------
Liabilities assumed $ 19,091
========
</TABLE>
Unaudited pro forma results of operations of the Company for the years
ended December 31, 1996 and 1995, are included below. Such pro forma
presentation has been prepared assuming that the Dental Care and Texas Dental
acquisitions had occurred as of January 1, 1996, and January 1, 1995, the
CompDent acquisition and the initial public offering and second stock offering
had occurred as of January 1, 1995.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenues $147,243 $135,340
==================
Income before extraordinary item $ 8,767 $ 7,710
==================
Net income $ 8,767 $ 7,212
==================
Income per common share:
Income before extraordinary item $ .86 $ .74
Extraordinary item (.05)
------------------
Net income per common share $ .86 $ .69
==================
</TABLE>
The unaudited pro forma results include the historical accounts of the
Company and historical accounts of the acquired businesses and pro forma
adjustments including the amortization of the excess purchase price over the
fair value of the net assets acquired; the amortization for the noncompete
agreements entered into by the former owners of CompDent, Texas Dental and
Dental Care; the reduction of revenues for an intercompany management fee
charged by
TWENTY-ONE
<PAGE> 17
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and Per Share Data)
Dental Care to its subsidiary I.H.C.S.; the reductions of revenues for UniLife
business reinsured effective October 1, 1995; the elimination of consulting
costs incurred by Dental Care under various contractual arrangements with
related entities of Dental Care which were terminated upon the Company's
purchase of Dental Care; the elimination of salaries and benefits paid to the
former employee owners of CompDent and Texas Dental who will not be replaced;
the reduction in depreciation expense to reflect the sale of certain
non-operating assets to the former owners of CompDent; the elimination of
interest expense assuming the repayment of debt with offering proceeds; and the
applicable income tax effects of these adjustments. The pro forma results of
operations are not necessarily indicative of actual results which may have
occurred had the operations of the acquired companies been combined in prior
periods.
5. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following as of December 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 37
Building 116
Office furniture and equipment $ 1,836 1,152
Data processing equipment and software 3,085 2,238
Leasehold improvements 1,278 636
-----------------
6,199 4,179
Less: accumulated amortization and depreciation (3,222) (2,242)
-----------------
Property and equipment, net $ 2,977 $ 1,937
=================
</TABLE>
6. INCOME TAXES
Income tax expense includes income taxes currently payable and those
deferred because of temporary differences between the financial statements and
tax bases of assets and liabilities. Income tax expense consists of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Currently payable:
Federal $5,286 $3,427 $1,440
State 1,054 593 158
----------------------
6,340 4,020 1,598
----------------------
Deferred:
Federal 1,386 (217) (253)
State 140 (38) (29)
----------------------
1,526 (255) (282)
----------------------
$7,866 $3,765 $1,316
======================
</TABLE>
The differences between actual income tax expense and income tax expense
computed using the federal statutory income tax rate were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Computed "expected" tax expense $6,215 $3,049 $ 925
Nondeductible goodwill amortization 1,106 477 200
Tax-exempt interest (73) (89)
State income taxes, net of federal benefit 825 357 85
(Decrease) increase in valuation allowance (131) 88 25
Other, net (76) (117) 81
----------------------
Income tax expense $7,866 $3,765 $1,316
======================
</TABLE>
TWENTY-TWO
<PAGE> 18
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and Per Share Data)
Components of deferred tax balances as of December 31, 1996 and 1995, are as
follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Unearned revenue $ 215 $ 423
Investments held for sale 63
Investment in affiliate 36 33
Property and equipment, net 288 217
Accrued liabilities 3,503 975
Net operating loss carryforwards 5,065 997
Capital loss carryforward 204 186
----------------
Total deferred tax asset 9,311 2,894
Valuation allowance (3,750) (1,106)
----------------
Net deferred tax asset 5,561 1,788
----------------
Deferred tax liabilities:
Reserves 429 123
Other assets 6
----------------
Total deferred tax liability 429 129
----------------
Total net deferred tax asset $ 5,132 $ 1,659
================
</TABLE>
From December 31, 1995, to December 31, 1996, the valuation allowance
decreased by $131 excluding the increase in the valuation allowance added
pursuant to the purchase of Dental Care. This was the result of the origination
and reversal of temporary differences.
SFAS No. 109 specifies that deferred tax assets are to be reduced by a
valuation allowance if it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The Company has established
valuation allowances primarily for net operating loss carryforwards and capital
loss carryforwards related to certain acquired companies due to uncertainty
surrounding their utilization prior to expiration. For similar reasons the
Company has established a valuation allowance for certain state operating loss
carryforwards generated at the holding company level.
To the extent that certain of the preacquisition loss carryforwards are
utilized in the future and the associated valuation allowance reduced, the tax
benefit thereof will be allocated to reduce excess of purchase price over net
assets acquired. At December 31, 1996, the portion of the valuation allowance,
if utilized, that would reduce excess of purchase price over net assets
acquired is approximately $2,776.
At December 31, 1996, certain subsidiaries have federal and state net
operating loss carryforwards expiring as follows:
<TABLE>
<CAPTION>
Year of Expiration Federal State
<S> <C> <C>
1998 $ 195,678
2000 72,013
2001 20,503
2002 $ 990,843
2003 706,138
2007 564,400
2008 903,421
2009 65,568 236,016
2010 1,271,116
2011 11,225,684 12,050,460
------------------------------
$12,988,233 $15,313,607
==============================
</TABLE>
TWENTY-THREE
<PAGE> 19
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and Per Share Data)
7. LONG-TERM DEBT
<TABLE>
<S> <C>
Long-term debt consists of the following at December 31, 1996:
Notes payable pursuant to a $65,000 reducing revolving line
of credit agreement with banks [interest accrues at prime plus up
to 1/4% or LIBOR plus up to 1-3/4%, with the margin over prime
and LIBOR decreasing as the ratio of consolidated debt to EBITDA
(as defined) decreases; American Prepaid's borrowing rate at
December 31, 1996 was 6.9%] $41,663
=======
</TABLE>
In June 1995, American Prepaid obtained a reducing revolving $35,000 line
of credit (the "Credit Facility") from a combination of lenders. In May 1996,
the Credit Facility was amended by the First Amendment which increased the line
of credit to $65,000. American Prepaid pays a commitment fee of 0.375% per
annum on any unused portion of the Credit Facility.
The Credit facility as amended requires a 33% reduction in available
borrowings on December 31, 1998, a 33% reduction in available borrowings on
December 31, 1999, and expiration of the Credit Facility on December 31, 2000.
The Credit Facility prohibits payment of dividends and other distributions
and restricts or prohibits American Prepaid from making certain acquisitions,
incurring indebtedness, incurring liens, disposing of assets or making
investments, and requires it to maintain certain financial ratios on an ongoing
basis. The Credit Facility is collateralized by pledges of the stock of the
Company's and American Prepaid's direct and indirect subsidiaries.
<TABLE>
<S> <C>
Aggregate maturities of long-term debt are as follows:
Year Ending December 31:
1999 $19,996
2000 21,667
-------
$41,663
=======
</TABLE>
8. STOCK OFFERINGS
In anticipation of an initial public offering (IPO), the Company's Board
of Directors, effective March 31, 1995, increased the number of shares
authorized to 7,380,000, and effected a 1.8-for-1 stock split, effective in the
form of a dividend. All references to the number of Company shares authorized,
issued and outstanding have been adjusted to reflect the stock split on a
retroactive basis.
On May 24, 1995, the Company's IPO of 3,420,000 shares of common stock at
an offering price of $14.50 per share was declared effective by the Securities
and Exchange Commission. On June 1, 1995, the Company completed the IPO, issued
the common stock and received net proceeds (after deducting issuance costs) of
$44,527. On June 1, 1995, the Company sold an additional 513,000 shares of
common stock at the initial offering price of $14.50 per share pursuant to the
exercise of the overallotment option granted to the underwriters in the IPO.
Net proceeds of $6,915 (after deducting issuance costs) were received by the
Company.
In accordance with the terms of the Class A common stock, upon
consummation of the IPO, each outstanding share of Class A common stock
converted to an outstanding share of common stock. In addition, all options to
purchase Class A common stock converted to options to purchase common stock.
All references to Class A common stock, where appropriate, have been changed to
reflect the conversion to common stock.
In accordance with the terms of the then existing 10% cumulative
redeemable preferred stock and the 10% subordinated notes, the Company used
approximately $5,400 and $7,900 of the net proceeds of the IPO to redeem the
preferred stock and accumulated dividends thereon and the subordinated notes
and accrued interest thereon, respectively. During the year ended December 31,
1995, the Company accumulated $218 in dividends through a charge to retained
earnings and a credit to the carrying value of the preferred shares. In
addition, the Company used approximately $26,600 of the net proceeds of the IPO
to repay both of the then existing term loans payable to the bank.
TWENTY-FOUR
<PAGE> 20
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and Per Share Data)
The repayment of the term loans in the second quarter resulted in a pretax
extraordinary loss (due to the write-off of unamortized loan fees) on early
extinguishment of debt of $498, net of a tax benefit of $305.
On April 18, 1995, the Company's stockholders approved an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
shares of common stock to 18,000,000 and to authorize the issuance of 2,000,000
shares of preferred stock, par value $0.01 per share, with such rights and
preferences as the Board of Directors may establish from time to time. The
stockholders then approved the elimination of the 10% cumulative preferred
stock and the Class A common stock. Upon completion of the IPO and after the
redemption of the preferred stock and the conversion of the Class A common
stock to common stock, the Company filed certificates with the State of
Delaware prohibiting the issuance of either form of stock.
On August 22, 1995, a second stock offering of 3,400,000 shares of the
Company's common stock at an offering price of $23.25 per share was declared
effective by the Securities and Exchange Commission. Of the 3,400,000 shares
offered, 1,500,000 were sold by the Company and 1,900,000 shares were sold by
selling stockholders. The Company also sold 435,000 of the 510,000 underwriter
overallotment shares. On August 25, 1995, the Company completed the second
stock offering, issued 1,935,000 shares of common stock and received net
proceeds (after deducting issuance costs) of $42,047. $25,000 in proceeds from
the second stock offering were used to repay outstanding indebtedness under the
Company's revolving credit facility.
On April 29, 1996, the Company's stockholders approved an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
shares of common stock to 50,000,000.
9. STOCK OPTIONS
Under the 1994 Stock Option and Grant Plan (the "1994 Plan"), the Company
may issue to officers, employees, consultants and other key persons options to
purchase up to 360,000 shares of the Company's common stock. The Option
Committee may specify periods which options may be exercised following
retirement or termination of employment.
During 1996, the Company established the 1996 Stock Option Plan (the "1996
Plan") whereby the Company may issue to officers, employees, directors,
consultants, advisors, and other key persons options to purchase up to 900,000
shares of the Company's common stock. Unless specified by the Option Committee,
options are automatically terminated upon termination of employment.
The 1994 and 1996 Plans allow for incentive and nonqualified stock
options. Options granted are at an exercise price which is determined by the
Option Committee of the Board of Directors. The exercise price of the incentive
stock options shall not be less than fair market value of the stock on the date
of grant. Options are exercisable in installments as designated by the Option
Committee. Options granted under the plans shall expire no later than ten years
after date of grant.
During 1996, the Company established the Non-Employee Director's Stock
Option Plan (the "Director's Plan") whereby the Company may issue to directors
nonqualified options to purchase up to 100,000 shares of the Company's common
stock. Options granted are at an exercise price which is determined by the
Option Committee of the Board of Directors. The exercise price of the incentive
stock options shall not be less than fair market value of the stock on the date
of grant. Options are exercisable in installments over a four-year period.
Options granted under the plan shall expire no later than ten years after date
of grant.
Prior to the adoption of the Director's Plan, the Company had granted
options to certain of its directors to purchase 72,000 shares of common stock
at $.49 per share. These options vest 25% per year and, unless exercised,
expire at the end of six years. A total of 18,000, 36,000, and 18,000 of these
options were exercisable at December 31, 1996, 1995, and 1994, respectively.
During 1996, 36,000 options were exercised.
TWENTY-FIVE
<PAGE> 21
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and Per Share Data)
Pertinent information regarding the Plans are as follows:
<TABLE>
<CAPTION>
Number of Range of Weighted Average Vesting
Options Exercise Prices Exercise Price Provisions
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding, December 31, 1993 72,000 $ .49 $ .49 25%/year
Options granted 55,800 $ 2.96 - 5.89 4.66 25%/year
-------
Options outstanding, December 31, 1994 127,800 $ .49 - 5.89 2.31 25%/year
Options granted 112,400 $ 14.50 - 29.00 24.82 25%/year
Options canceled (28,800) $ 5.89 - 14.50 10.20
-------
Options outstanding, December 31, 1995 211,400 $ .49 - 29.00 13.21 25%/year
Options granted 377,000 $ 29.75 - 42.75 32.45 25%/year
Options granted 270,000 $ 29.75 - 30.75 29.94 immediate
Options canceled (36,700) $ 2.96 - 29.75 23.97
Options exercised (47,700) $ .49 - 5.89 1.37
-------
Options outstanding, December 31, 1996 774,000 $ .49 - 42.75 $28.63
======================================
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices 12/31/96 Life Price 12/31/96 Price
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ .49 - 5.89 58,500 7.82 $ 2.12 27,000 1.80
14.50 18,000 8.42 14.50 4,500 $14.50
29.00 - 30.75 561,500 9.56 29.86 287,000 29.88
36.25 - 42.75 136,000 9.33 36.87
--------------------------------------------------------
774,000 9.29 $28.63 318,500 $27.28
========================================================
</TABLE>
The options above were issued at exercise prices which approximate fair
market value at the date of grant. At December 31, 1996, 610,300 shares are
available for grant under the plans.
At December 31, 1996, the Company has stock options outstanding under
three stock-based compensation plans which are described above. The Company
also has an Employee Stock Purchase Plan which allows employees to purchase
common stock at certain times during the year. The Company applies APB Opinion
25 and related Interpretations in accounting for its stock plans. Accordingly,
no compensation cost has been recognized for its fixed stock options or stock
purchase plan. Had compensation cost for the Company's stock-based compensation
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method prescribed in SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net income - as reported $9,892 $4,706
Net income - pro forma $7,905 $4,654
Earnings per share - as reported $ .97 $ .61
Earnings per share - pro forma $ .77 $ .60
</TABLE>
The pro forma amounts reflected above are not representative of the
effects on reported net income in future years because, in general, the options
granted typically do not vest for several years and additional awards are made
each year.
TWENTY-SIX
<PAGE> 22
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and Per Share Data)
The fair value of each option grant is estimated on the grant date using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Dividend yield 0% 0%
Expected life (years) 4.2 5
Expected volatility 41.45% 41.45%
Risk-free interest rate 5.24-6.18% 6.01-6.18%
</TABLE>
The Company has a stock redemption agreement with its Chairman under which
the Company may, contingent upon a certain member of management exercising
options, redeem up to 4,500 shares of common stock issued to the Chairman at a
redemption price of $2.96. The agreement is in effect until all shares are
redeemed or the certain member of management's options are no longer
exercisable.
10. EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) profit sharing plan for all full-time
employees who have completed six months of service. The plan allows
employees to defer from 1% to 20% of their earnings on a pretax basis through
contributions to the plan. Employer matching contributions are based upon a
fixed percentage of voluntary employee contributions. Employer profit sharing
contributions are based upon a fixed percentage of qualifying plan participants'
annual compensation. Both employer matching and profit sharing contribution
levels are discretionary and are determined by the Company and approved by the
Board of Directors on an annual basis. Employees are always 100% vested in their
contributions and become fully vested in employer contributions after five years
of service. The Company also maintained 401(k) profit sharing plans that were
acquired with the DentiCare, UniLife, CompDent, Texas Dental, and Dental Care
purchases. Effective January 1, 1996, participants in the CompDent, DentiCare,
and UniLife plans transferred their balances to and became participants in the
Company's 401(k) profit sharing plan. Effective January 1, 1997, participants in
the Texas Dental and Dental Care plans transferred their balances to and became
participants in the Company's 401(k) profit sharing plan. The Company
contributed a total of $203, $82 and $31 to all of the plans during 1996, 1995
and 1994, respectively.
11. RELATED PARTY TRANSACTIONS
As part of the Dental Care purchase, the Company assumed an agreement
whereby Dental Care provides marketing, processing, and other administrative
services to HCS, a non-profit dental company. The management fee may be waived
if HCS will have a net loss after recognition of the fee and cannot exceed 30%
of net premiums, as defined in the agreement. The management fee for the year
ended December 31, 1996, was $1,749.
The Company has an agreement with a former stockholder of American Prepaid
who is also a current stockholder of the Company that provides for such
stockholder to receive certain future payments for a ten-year period upon
retirement. The stockholder retired in 1993 and commenced receiving payments
upon retirement. Amounts accrued for such future payments were $329 and $370 as
of December 31, 1996 and 1995, respectively. Deferred compensation expense
recognized pursuant to this agreement was $38, $35, and $30 for the years ended
December 31, 1996, 1995, and 1994, respectively.
The Company has an agreement with a former stockholder of American Prepaid
who is also a current stockholder of the Company that provides for such
stockholder to receive future payment of medical costs. The Company has
recorded an actuarially determined liability of approximately $245 at December
31, 1996 and 1995. The discount rate and medical cost trend rate used to
compute this benefit was 7% and 10%, respectively. A one percent increase in
the medical cost trend rate would increase the liability by approximately $18.
Expense recognized pursuant to this agreement was $6, $13, and $12 for the
years ended December 31, 1996, 1995, and 1994, respectively.
The Company has consulting agreements in place with a former director and
the former president of American Prepaid. The consulting agreement with the
former president expired in 1996, while the agreement with the former director
expires in 1998 and requires annual payments of $55. Payments made pursuant to
these agreements were $165 for each of the years in the three-year period ended
December 31, 1996.
TWENTY-SEVEN
<PAGE> 23
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and Per Share Data)
12. OPERATING LEASE COMMITMENTS
The Company leases office facilities and certain office equipment under
various noncancelable operating leases expiring through 2003. Collective future
minimum lease payments under these agreements are as follows:
<TABLE>
Year Ending December 31:
<S> <C>
1997 $1,685
1998 1,460
1999 1,143
2000 959
2001 969
2002 and thereafter 1,692
------
$7,908
======
</TABLE>
Rental expense under such leases for the years ended December 31, 1996,
1995, and 1994, was $1,770, $741, and $471, respectively.
13. ARRANGEMENT WITH INDEMNITY INSURERS
Effective January 1, 1996, the Company entered into a new two-year
agreement with an unrelated indemnity insurer, wherein the Company may offer
dual-choice (managed or indemnity) dental coverage. For subscribers in groups
offering dual-choice dental coverage, subscribers select the type of coverage
desired and indemnity coverage is underwritten by the indemnity insurer. The
Company invoices and collects all dual-choice premiums. The Company retains
100% of all premiums related to the managed product and 10% of indemnity
premiums collected under the dual-choice plan to cover commissions and
processing costs. The remaining 90% of indemnity premiums are remitted to the
indemnity carrier. The agreement also provides for additional payments to the
indemnity insurer dependent on loss ratios of the underlying business. The
Company records retention of indemnity premiums as other income. Any additional
payments subject to the risk-sharing provisions of the agreement are recorded
as reductions to other income.
The Company has an arrangement with another unrelated indemnity insurer,
expiring December 31, 1997, wherein the Company may offer indemnity dental
coverage. The indemnity coverage is underwritten by the indemnity insurer. The
Company invoices and collects all indemnity premiums, retaining 25% of all
gross premiums collected to cover commissions and processing costs. The Company
records these indemnity premiums as other income. The Company is not liable
under indemnity insurance underwritten by the insurer.
In certain states, this indemnity insurer also underwrites prepaid and
indemnity dental plans. Under this arrangement, the indemnity carrier receives
2% of prepaid premiums (plus applicable premium taxes).
14. REINSURANCE
In 1992, UniLife ceased writing life insurance, other than a small amount
of group life, and ceded substantially all of its existing ordinary life
insurance to another insurer. The face amount of these ceded ordinary life
policies is $15,611 and $16,401 at December 31, 1996 and 1995, respectively.
UniLife has recorded aggregate reserves of $5,338 and $5,323 and corresponding
receivables from reinsurer for the same amount at December 31, 1996 and 1995,
respectively.
Additionally, for its group life policies, UniLife had ceded amounts in
excess of $10 on any one-term life policy. The face amount of these policies at
December 31, 1996, is $91,520, of which $54,837 is subject to reinsurance. As
of October 1, 1995, pursuant to the reinsurance arrangement mentioned below,
all of the $91,520 is reinsured by a combination of reinsurers.
Effective October 1, 1995, UniLife reinsured all of its dental indemnity
and life insurance with one of the Company's unrelated indemnity insurers (see
Note 13). For the period October 1, 1995, to December 31, 1995, UniLife
administered the policies and received a fee, based upon net premiums, from the
indemnity insurer.
TWENTY-EIGHT
<PAGE> 24
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and Per Share Data)
Effective January 1, 1996, UniLife and the indemnity insurer entered into
an assumption reinsurance agreement, transferring all risk from UniLife to the
indemnity insurer and notifying the policyholders of the transaction. For three
years, the indemnity insurer will pay UniLife a ceding commission of 2% of
dental indemnity premiums recognized on the policies transferred from UniLife.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to the Company; therefore, allowances are established if amounts are
determined to be uncollectible. Management monitors the financial condition of
its reinsurers on a routine basis. Any exposure from deterioration of
reinsurers' financial condition would be recognized currently.
The following table summarizes the effects of reinsurance on premiums and
benefits for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Direct premiums earned $ 218 $19,083
Premiums assumed 1,592
Premiums ceded (218) (4,616)
--------------
Net premiums earned $ 0 $16,059
==============
Direct benefits $ 165 $14,393
Benefits assumed 1,163
Benefits ceded (165) (3,425)
--------------
Net benefits $ 0 $12,131
==============
</TABLE>
Activity in the life and dental claims reserves for the years ended
December 31, 1996 and 1995, is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------
Dental Life Dental Life
----------------------------
<S> <C> <C> <C> <C>
Balance, January 1 $1,308 $37 $2,249 $107
Reinsurance receivables 1,129 (10)
----------------------------
Net balance, January 1 2,437 37 2,249 97
----------------------------
Dental claims reserves assumed in connection with
purchases of I.H.C.S. and CompDent, respectively 220 488
Prior claims reserves ceded during current year (1,978)
Incurred related to:
Current year 7,388 12,314 102
Prior years (262) 31 (238) (47)
----------------------------
Total incurred 7,126 31 12,076 55
----------------------------
Paid related to:
Current year 5,967 11,494 65
Prior years 417 2,011 50
----------------------------
Total paid 6,384 13,505 115
----------------------------
Net balance, December 31 1,421 68 1,308 37
Plus reinsurance recoverables 1,129
----------------------------
Balance, December 31 $1,421 $68 $2,437 $37
============================
</TABLE>
TWENTY-NINE
<PAGE> 25
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and Per Share Data)
15. CONTINGENCIES
American Prepaid and its Florida subsidiary, American Dental Plan, Inc.,
are currently defendants to a civil complaint filed by three participating
dentists (one of which has since withdrawn) who have entered into Participating
Dentist Agreements with various subsidiaries of the Company (Subsidiaries). The
complaint alleges a breach of contract and seeks damages based on the failure
of each Subsidiary to make capitation payments to the participating dentists
for the period of time between when affected subscribers enroll and the time at
which the subscribers select a dentist. The plaintiffs are attempting to bring
the suit as a class action. In an order issued July 22, 1996, the trial court
ruled that the case could not proceed as a class action. The plaintiffs have
appealed this order denying class certification.
The Company believes its interpretation and administration of the
Participating Dentist Agreements are correct and, therefore, is vigorously
defending the suit. While the ultimate outcome of this lawsuit cannot at this
time be predicted with certainty, management does not expect that this matter
will have a material adverse effect on the consolidated financial position,
cash flows, or results of operations of the Company.
Various legal proceedings have arisen or may arise in the normal course of
business. Management does not believe that there are currently any asserted or
unasserted claims that will have a material adverse effect on the financial
position, results of operations, or cash flows of the Company.
16. EMPLOYEE STOCK PURCHASE PLAN
During 1996, the Company adopted an Employee Stock Purchase Plan to
provide substantially all employees who have completed six months of service an
opportunity to purchase shares of its common stock through payroll deductions.
Annually, on December 31, participant account balances are used to purchase
whole shares of stock at the lesser of 85 percent of the fair market value of
shares on January 1 (offering date) (August 1, 1996, for initial offering
period) or December 31 (exercise date). The aggregate number of shares
purchased annually by an employee are subject to limitations imposed by the
Internal Revenue Code. A total of 100,000 shares are available for purchase
under the plan. During the year ended December 31, 1996, there were 1,611
shares issued under the plan at an exercise price of $29.96.
THIRTY
<PAGE> 26
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and Per Share Data)
17. SELECTED QUARTERLY DATA (UNAUDITED)
The following table, which has not been audited or reviewed by independent
accountants, sets forth summary unaudited quarterly financial information of
the Company for each quarter in 1996 and 1995. In the opinion of management,
such information has been prepared on the same basis as the audited
consolidated financial statements appearing elsewhere in this annual report and
reflects all adjustments necessary for a fair presentation of such unaudited
consolidated quarterly results. The quarterly results should be read in
conjunction with the audited consolidated financial statements of the Company.
Results of operations for any particular quarter are not necessarily indicative
of results of operations for a full year.
<TABLE>
<CAPTION>
1995 1996
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Subscriber premiums $22,790 $23,238 $31,463 $27,407 $30,831 $33,384 $35,443 $36,149
Other revenue 241 238 409 875 554 1,377 1,704 1,627
---------------------------------------------------------------------
Total revenues 23,031 23,476 31,872 28,282 31,385 34,761 37,147 37,776
---------------------------------------------------------------------
Expenses:
Dental care providers' fee
claims costs 13,700 13,832 18,802 15,884 16,481 17,967 19,196 19,787
Commissions 2,592 2,674 3,115 2,382 3,013 3,091 2,949 3,131
Premium taxes 325 352 375 340 259 264 264 231
General and
administrative 3,740 3,896 5,721 6,078 6,771 7,831 7,964 7,828
Depreciation and
amortization 565 534 818 800 1,047 1,287 1,389 1,430
---------------------------------------------------------------------
Total expenses 20,922 21,288 28,831 25,484 27,571 30,440 31,762 32,407
---------------------------------------------------------------------
Operating income 2,109 2,188 3,041 2,798 3,814 4,321 5,385 5,369
Interest (income)
expense, net 918 534 171 (388) (107) 289 580 588
Other (income)
expense, net 11 (6) (23) (50) (10) (299) 96 (6)
---------------------------------------------------------------------
Income before provisions
for income taxes and
extraordinary item 1,180 1,660 2,893 3,236 3,931 4,331 4,709 4,787
Income tax provision 522 709 1,246 1,288 1,694 1,924 2,103 2,145
---------------------------------------------------------------------
Net income before
extraordinary income 658 951 1,647 1,948 2,237 2,407 2,606 2,642
Extraordinary loss, net of
---------------------------------------------------------------------
applicable net tax
---------------------------------------------------------------------
benefits of $305 498
---------------------------------------------------------------------
Net income $ 658 $ 453 $ 1,647 $ 1,948 $ 2,237 $ 2,407 $ 2,606 $ 2,642
=====================================================================
</TABLE>
The Company experiences no significant seasonality revenues with respect
to its revenue. However, because the enrollment of new groups and changes in
membership are typically concentrated in the first quarter of each year, the
Company generally experiences an increase in general and administrative expense
in the preceding fourth quarter resulting from higher staffing levels and
printing and communication costs.
THIRTY-ONE
<PAGE> 27
REPORT
OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
COMPDENT CORPORATION AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of CompDent
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of CompDent Corporation and subsidiaries as of December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
- -----------------------------
Atlanta, Georgia
February 3, 1997
THIRTY-TWO
<PAGE> 28
MARKET AND
DIVIDEND
INFORMATION
The common stock of CompDent Corporation is traded on The Nasdaq Stock
Market under the symbol CPDN. As of March 5, 1997, the Company had
approximately 2,035 stockholders based on the number of holders of record and
an estimate of the number of individual participants represented by securities
position listings.
The following table sets forth the reported high and low closing sales
prices for CompDent's common stock as reported by Nasdaq:
<TABLE>
<CAPTION>
High Low
- ---------------------------------------
1996
<S> <C> <C>
First Quarter 45 1/8 34 1/4
Second Quarter 51 35 1/8
Third Quarter 51 11/16 33
Fourth Quarter 40 3/8 27 1/2
1995
Second Quarter 22 18 3/4
Third Quarter 30 1/4 20 1/4
Fourth Quarter 41 1/2 27
</TABLE>
Compdent Corporation did not declare or pay cash dividends on its common
stock during the year ended December 31, 1996. The Company does not plan to pay
cash dividends on its common stock. The Company intends to retain earnings to
support the growth of the Company's business.
<PAGE> 1
EXHIBIT 21.1
American Prepaid Professional Services, Inc. - Florida
American Dental Plan, Inc. - Florida
American Dental Plan of Georgia, Inc. - Georgia
American Dental Plan of Ohio, Inc. - Ohio
American Dental Plan of Alabama, Inc. - Alabama
American Dental Plan, Inc. - North Carolina
American Dental Plan of North Carolina, Inc. - North Carolina
Dental Care Plus Management, Corp. - Illinois
CompDent of Illinois, Inc. - Illinois
Texas Dental Plans, Inc. - Texas
National Dental Plans, Inc. - Delaware
Dental Plans International, Inc. - Texas
Dental Provider Resources, Inc. - Texas
DentiCare, Inc. - Texas
UniLife Insurance Company - Arizona
CompDent Corporation - Kentucky
CompDent of Alabama - Alabama
CompDent of Georgia, Inc. - Georgia
CompDent of Tennessee, Inc. - Tennessee
HealthStream Services, Inc. - Tennessee
* Dental Health Management, Inc. - Delaware
* DentLease, Inc. - Delaware
* American Dental Providers of Arkansas, Inc. - Delaware
* Diamond Dental of Arkansas, Inc. - Delaware
*formed January 1997
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
CompDent Corporation, on Form S-8 (File Numbers 33-97372 and 33-12227) of our
report dated February 3, 1997, on our audits of the consolidated financial
statements and financial statement schedules of CompDent Corporation as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996, which report is incorporated by reference in the Annual
Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1996 AND THE AUDITED
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 29,029
<SECURITIES> 0
<RECEIVABLES> 3,121
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,083
<PP&E> 2,977
<DEPRECIATION> 0
<TOTAL-ASSETS> 184,167
<CURRENT-LIABILITIES> 24,273
<BONDS> 0
0
0
<COMMON> 101
<OTHER-SE> 112,082
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<CGS> 0
<TOTAL-COSTS> 122,180
<OTHER-EXPENSES> (219)
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<INCOME-TAX> 7,866
<INCOME-CONTINUING> 9,892
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<NET-INCOME> 9,892
<EPS-PRIMARY> .97
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</TABLE>
