EXHIBIT 10.38
--------------------------------------------------------------------------------
PLAN AND AGREEMENT OF REORGANIZATION
Dated as of August 9, 1996
By and Among
Castle Dental Centers, Inc.,
Castle Dental Centers of Texas, Inc.,
as Purchaser,
N.A. Dental Services, P.C.,
EFW Dental Services, P.C.,
HDC Dental Services, P.C.,
Midcities Dental Services, P.C.,
NEFW Dental Services, P.C. and
West Ft. Worth Dental Services, P.C.,
as Sellers
and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, D.D.S.,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------------------------------------------------------
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS............................................................2
1.1 Definitions.....................................................2
ARTICLE II
THE TRANSACTION........................................................6
2.1 Purchase and Sale of Assets.....................................6
2.2 Excluded Assets.................................................7
2.3 Assumption of Obligations.......................................7
2.4 Nonassignable Contracts and Leases..............................7
2.5 Closing.........................................................8
ARTICLE III
PAYMENT OF PURCHASE PRICE..............................................8
3.1 Amount; Allocation; Delivery....................................8
3.2 Purchase Price Adjustment.......................................9
3.3 Agency Relationship............................................10
3.4 Escrow Arrangement.............................................11
3.5 No Action to Violate Tax-Free Reorganization...................12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
AND THE SHAREHOLDERS..................................................12
4.1 Representations and Warranties of Sellers and
the Shareholders...............................................12
4.2 Existence and Good Standing....................................12
4.3 Authorization and Validity of Agreement........................12
4.4 Capital Stock..................................................13
4.5 Consents and Approvals; No Violations..........................13
4.6 Subsidiaries and Affiliates....................................14
4.7 Financial Statements; No Material Adverse Change...............14
4.8 Books and Records..............................................14
4.9 Title to Properties; Encumbrances; Condition...................14
4.10 Real Property..................................................15
4.11 Leases.........................................................15
4.12 Material Contracts.............................................15
4.13 Permits........................................................16
-i-
4.14 Litigation.....................................................16
4.15 Taxes..........................................................16
4.16 Insurance......................................................17
4.17 Intellectual Properties........................................17
4.18 Compliance with Laws...........................................17
4.19 Employment Relations...........................................17
4.20 Employee Benefit Plans.........................................18
4.21 Environmental Laws and Regulations.............................18
4.22 Interests in Customers, Suppliers, Etc.........................18
4.23 Compensation of Employees......................................18
4.24 Payors. .......................................................19
4.25 Accounts Receivable; Accounts Payable..........................19
4.26 Solvency.......................................................19
4.27 Disclosure.....................................................19
4.28 Investments....................................................20
4.29 Broker's or Finder's Fees......................................20
4.30 Copies of Documents............................................20
4.31 Investment Representations.....................................20
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND CASTLE DENTAL........................................21
5.1 Existence and Good Standing of Purchaser;
Power and Authority............................................21
5.2 No Violations..................................................21
5.3 Litigation.....................................................22
5.4 Compliance with Laws...........................................22
5.5 Broker's or Finder's Fees......................................22
5.6 Existence and Good Standing of Castle Dental;
Power and Authority............................................22
5.7 Financial Statements...........................................22
5.8 Capital Stock..................................................23
5.9 Litigation.....................................................23
ARTICLE VI
CONDITIONS TO SELLERS' AND THE SHAREHOLDERS' OBLIGATIONS..............23
6.1 Truth of Representations and Warranties........................23
6.2 Performance of Agreements......................................23
6.3 No Litigation Threatened.......................................24
6.4 Consideration..................................................24
6.5 Governmental Approvals.........................................24
6.6 Proceedings....................................................24
-ii-
6.7 Good Standing Certificates.....................................24
6.8 Registration Rights Agreement..................................24
6.9 Stockholders Agreement.........................................24
6.10 Due Diligence..................................................24
ARTICLE VII
CONDITIONS TO PURCHASER'S OBLIGATIONS.................................24
7.1 Truth of Representations and Warranties........................25
7.2 Performance of Agreements......................................25
7.3 Documents of Conveyance........................................25
7.4 No Litigation Threatened.......................................25
7.5 Governmental Approvals.........................................25
7.6 Consents.......................................................25
7.7 Legal Opinion..................................................25
7.8 Proceedings....................................................25
7.9 JHC............................................................26
7.10 Stockholders Agreement.........................................26
7.11 Due Diligence..................................................26
7.12 Sellers Name Change............................................26
7.13 Termination of Agreements......................................26
7.14 Good Standing Certificates.....................................26
7.15 Releases of Liens..............................................26
7.16 Noncompetition Agreement.......................................26
7.17 License Agreement..............................................27
ARTICLE VIII
COVENANTS OF SELLERS AND THE SHAREHOLDERS.............................27
8.1 Cooperation by Sellers.........................................27
8.2 Conduct of Business............................................27
8.3 Exclusive Dealing..............................................27
8.4 Review of the Assets...........................................27
8.5 Further Assurances.............................................28
8.6 Accounts Payable; Accounts Receivable..........................28
ARTICLE IX
COVENANTS OF PURCHASER................................................28
9.1 Cooperation by Purchaser.......................................28
9.2 Books and Records; Personnel...................................29
9.3 Further Assurances.............................................29
-iii-
9.4 Due Diligence Investigation....................................29
ARTICLE X
TERMINATION...........................................................30
10.1 Termination....................................................30
10.2 Effect on Obligations..........................................30
ARTICLE XI
SURVIVAL AND INDEMNIFICATION..........................................30
11.1 Indemnification of Sellers.....................................30
11.2 Indemnification of the Purchaser...............................31
11.3 Demands........................................................31
11.4 Right to Contest and Defend....................................32
11.5 Cooperation....................................................32
11.6 Right to Participate...........................................32
11.7 Payment of Damages.............................................33
ARTICLE XII
MISCELLANEOUS.........................................................33
12.1 Entire Agreement...............................................33
12.2 Successors and Assigns.........................................33
12.3 Counterparts...................................................33
12.4 Headings.......................................................33
12.5 Modification and Waiver........................................33
12.6 No Third-Party Beneficiary Rights..............................34
12.7 Sales and Transfer Taxes.......................................34
12.8 Expenses.......................................................34
12.9 Notice.........................................................34
12.10 Governing Law..................................................35
12.11 Confidentiality; Publicity.....................................35
12.12 Consent to Jurisdiction........................................35
12.13 Severability...................................................35
12.14 Enforcement....................................................36
SCHEDULES
Schedule 2.2(b) Excluded Contracts
Schedule 2.2(e) Excluded Assets
-iv-
Schedule 2.3 Assumed Obligations
Schedule 4.5 Consents
Schedule 4.6 Asset Owned by Third Parties which are Used in the
Business
Schedule 4.7 Material Adverse Change
Schedule 4.9 Encumbrances
Schedule 4.10 Real Property
Schedule 4.11 Leased Personal Property
Schedule 4.12 Material Contracts and Proposals
Schedule 4.13 Permits
Schedule 4.14 Litigation
Schedule 4.15 Taxes
Schedule 4.16 Insurance Policies
Schedule 4.17 Intellectual Property
Schedule 4.21 Environmental Matters
Schedule 4.23 Employee Compensation
Schedule 4.25 Accounts Receivable
Schedule 5.7 Castle Dental Financial Statements
EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Legal Opinion
Exhibit C Stockholders Agreement
Exhibit D Registration Rights Agreement
Exhibit E Noncompetition Agreement
Exhibit F License Agreement
-v-
PLAN AND AGREEMENT OF REORGANIZATION
PLAN AND AGREEMENT OF REORGANIZATION dated as of August 9, 1996, by and
among Castle Dental Centers, Inc., a Delaware corporation ("Castle Dental"),
Castle Dental Centers of Texas, Inc., a Texas corporation ("Purchaser"),
(hereinafter referred to as the "Agreement"), N.A. Dental Services, P.C., a
Texas professional corporation, EFW Dental Services, P.C., a Texas professional
corporation, HDC Dental Services, P.C., a Texas professional corporation,
Midcities Dental Services, P.C., a Texas professional corporation, NEFW Dental
Services, P.C., a Texas professional corporation and West Ft. Worth Dental
Services, P.C., a Texas professional corporation (collectively, the "Dental
Centers") and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, D.D.S., ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ are referred
to herein collectively as the "Shareholders," and the Dental Centers are
referred to herein collectively as the "Sellers." ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ is made a party
hereto solely for her community property interest in the Assets (as defined
below).
PLAN OF REORGANIZATION
This Agreement is intended to be a reorganization within the meaning of
Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended.
Purchaser shall acquire substantially all of the property, assets and
business of the Dental Centers, in exchange solely for a part of the voting
common stock of Castle Dental, all upon the terms and subject to the conditions
set forth below.
As soon as practical after the Closing (as defined below), the Dental
Centers will completely liquidate and dissolve and will cause to be distributed
to their shareholders, on a pro rata basis based on stock ownership, all of
their right, title and interest in and to the shares of Castle Dental's voting
common stock (including the Escrowed Shares (as defined below)) to be received
in exchange for the surrender by such shareholders for cancellation of
certificates representing all of the Dental Centers' outstanding capital stock.
The foregoing shall be referred to as the Plan of Reorganization.
AGREEMENT
NOW, THEREFORE, for the mutual covenants and other consideration
described herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto approve and
adopt the foregoing Plan of Reorganization and covenant and agree as follows:
-1-
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used herein, the following terms have the meanings
set forth below (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
"ACCOUNTS RECEIVABLE": all notes and accounts receivable of the Dental
Centers.
"ACCOUNTS PAYABLE": the current payables of the Dental Centers to trade
account and other creditors that are not more than thirty (30) days old as of
August 1, 1996.
"AFFILIATE": with respect to any Person, any other Person directly or
indirectly controlling (including but not limited to all directors and officers
of such Person), controlled by, or under direct or indirect common control with
such Person. For purposes of Section 11.1 of this Agreement, the term
"Affiliates" shall include the individuals who have signed lease agreements as
tenant or guarantor on behalf of the Dental Centers, which are being assumed by
Purchaser hereunder.
"AGREEMENT": this Plan and Agreement of Reorganization, as amended from
time to time as provided herein.
"ASSETS": as defined in Section 2.1 hereof.
"ASSIGNED CONTRACTS": as defined in Section 2.3 hereof.
"ASSUMED OBLIGATIONS": as defined in Section 2.3 hereof.
"BALANCE SHEET DATE": as defined in Section 3.2 hereof.
"BASE DATE NET ASSET VALUE": as defined in Section 3.2 hereof
"BOOKS AND RECORDS": all books, records, books of account, files and
data (including customer and supplier lists), certificates and other documents
related to the conduct of the Business or the ownership of the Assets, including
personnel records and files, except that the Books and Records shall not include
any books, records, files and other data of Sellers which relate exclusively to
organizational and corporate governance proceedings of Sellers.
-2-
"BUSINESS": the practice management of dentistry, including orthodontics
and periodontics and all other management and related activities currently
conducted by Sellers related to the Business.
"CASTLE DENTAL": as defined in the preamble to this Agreement.
"CLOSING": as defined in Section 2.5 hereof.
"CLOSING DATE": as defined in Section 2.5 hereof.
"CLOSING DATE BALANCE SHEET": as defined in Section 3.2 hereof.
"CLOSING DATE NET ASSET VALUE": as defined in Section 3.2 hereof.
"CODE": the Internal Revenue Code of 1986, as amended from time to time,
and the regulations promulgated and rulings issued thereunder. Section
references to the Code are to the Code as in effect at the date of this
Agreement and any subsequent provisions of the Code amendatory thereof,
supplemental thereto or substituted therefor.
"DENTAL CENTERS": as defined in the preamble of this Agreement.
"ENCUMBRANCES": liens, security interests, options, rights of first
refusal, easements, mortgages, charges, debentures, indentures, deeds of trust,
rights-of-way, restrictions, agreements, encroachments, licenses, leases,
permits, security agreements, or any other encumbrances and other restrictions
or limitations on use of real or personal property or irregularities in title
thereto that would have a Material Adverse Effect.
"ENVIRONMENTAL CLAIM": any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violations, investigations or proceedings relating in any way
to any Environmental Law (for purposes of this definition, "Claims") or any
permit issued under any such Environmental Law, including without limitation (i)
any and all Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, remedial or other actions of damages pursuant to any
applicable Environmental Law and (ii) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAW": any federal, state or local statute, law, rule,
regulation, ordinance, code, policy or rule of common law now in effect and in
each case as amended and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree
-3-
or judgment, relating to Hazardous Materials, the environment or health relating
to or arising from environmental conditions, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended 42 U.S.C. ss. 9601 ET SEQ.; the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. ss. 1801 ET SEQ.; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. ss. 6901 ET SEQ.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. ss. 1251 ET SEQ.; the Toxic
Substances Control Act, 15 U.S.C. ss. 2601 ET SEQ.; the Clean Air Act, 42 U.S.C.
ss. 7401 ET SEQ.; the Safe Drinking Water Act, 42 U.S.C. ss. 3808 ET SEQ.; the
Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 ET SEQ.; and relevant state and
local laws.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA as in effect at the date of
this Agreement and any subsequent provisions of ERISA amendatory thereof,
supplemental thereto or substituted therefor.
"EXCLUDED CONTRACTS": as defined in Section 2.2(b) hereof.
"FINANCIAL STATEMENTS": as defined in Section 4.7 hereof.
"GAAP": generally accepted accounting principles consistently applied.
"HAZARDOUS MATERIALS": (i) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
(ii) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "contaminants" or "pollutants," or words of similar import
under any applicable Environmental Law; and (iii) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by an
governmental authority.
"INTELLECTUAL PROPERTY": domestic and foreign patents, patent
applications, registered and unregistered trademarks, service marks, trade names
and logos, registered and unregistered copyrights, computer programs, data
bases, trade secrets and proprietary information relating to the conduct of the
Business.
"JHC": ▇▇▇▇ ▇. ▇▇▇▇▇▇, D.D.S., P.C., a Texas professional corporation.
"MATERIAL ADVERSE EFFECT": material adverse effect on the assets,
liabilities, Business, condition (financial or otherwise), results or operations
or prospects of Sellers, or its Affiliates.
-4-
"PERMITS": as defined in Section 4.13 hereof.
"PERMITTED ENCUMBRANCES": as defined in Section 4.9 hereof.
"PERSON": any individual, partnership, joint venture, corporation,
trust, unincorporated organization, government or other department or agency
thereof or other entity.
"PLANS": as defined in Section 4.20 hereof.
"PRE-CLOSING PERIODS": as defined in Section 4.15(a) hereof.
"PRICE ALLOCATION": as defined in Section 3.1 hereof.
"PURCHASE PRICE": as defined in Section 3.1 hereof.
"PURCHASER": as defined in the preamble of this Agreement.
"RETURNS": as defined in Section 4.15(a) hereof.
"RELEASE": disposing, discharging, injecting, spilling, leaking,
leaching, dumping, emitting, escaping, emptying, seeping, placing and the like,
into or upon any land or water or air, or otherwise entering into the
environment.
"SELLERS": as defined in the preamble of this Agreement.
"SELLERS' PROPERTY": any real property and improvements thereon
presently owned, leased, operated or occupied by Sellers.
"TAX": any net income, alternative or add-on minimum tax, advance,
corporation, gross income, gross receipts, sales, use, AD VALOREM, franchise,
profits, license, value added, withholding, payroll, employment, excise, stamp
or occupation tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty imposed by any
governmental authority with respect thereto, and any liability for such amounts
as a result either of being a member of an affiliated group or of a contractual
obligation to indemnify any other entity.
"TRANSFER DATE": August 1, 1996.
-5-
ARTICLE II
THE TRANSACTION
2.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions of
this Agreement, Purchaser agrees to purchase from Sellers, and Sellers agree to
sell, convey, transfer, assign and deliver, and cause to be sold, conveyed,
transferred, assigned and delivered, to Purchaser, on the Closing Date, against
the receipt by Sellers of the consideration specified in Section 3.1 hereof, the
Assets, free and clear of any Encumbrances except Permitted Encumbrances. The
term "Assets" shall mean all of the rights, title and interests of Sellers and
the Shareholders in and to the assets used in or relating to the conduct of the
Business on the Closing Date, tangible and intangible, real, personal and mixed,
wheresoever situated and whether or not specifically referred to herein or in
any instrument of conveyance delivered pursuant hereto. The Assets shall include
but are not limited to the following categories of assets:
(a) all title to, interest in or rights with respect to real
property, including leasehold interests, described in Schedule 4.10 attached
hereto together with all buildings, facilities, fixtures and other leasehold
improvements thereon and all easements, rights-of-way, transferable licenses and
permits and other appurtenances thereof;
(b) plant, machinery, equipment, operating equipment, tools,
supplies, inventories, furniture, fixtures, furnishings, vehicles and other
fixed assets owned or leased and used or held for use in the conduct of the
Business;
(c) contracts, documents, instruments, insurance and indemnity
policies and general intangibles of Sellers, other than the Excluded Contracts;
(d) Accounts Receivable as of August 1, 1996;
(e) all licenses, permits, registrations and authorizations,
proprietary information, methods, know-how, designs, processes, procedures,
goodwill and all rights to other Intellectual Property used in the Business;
(f) Books and Records;
(g) any rights pertaining to any counterclaims, set-offs or
defenses it may have with respect to any Assumed Obligations;
(h) all deposits, advance payments, prepaid claims, prepaid
taxes, prepaid insurance premiums and other prepaid expense items; and
-6-
(i) third-party indemnities, policies of insurance identified by
Purchaser, fidelity, surety or similar bonds and the coverages afforded thereby
relating to the Assets.
2.2 EXCLUDED ASSETS. The Assets shall not include any of the following
(the "Excluded Assets"):
(a) cash, cash equivalents, securities, letters of credit naming
Sellers as account party, certificates of deposit, notes, drafts, checks and
similar instruments;
(b) each dentist employment contract, managed care contract,
insurance or third-party reimbursement agreement or other contract set forth on
Schedule 2.2(b) (the "Excluded Contracts");
(c) tax refunds related to the Business or the Assets received or
receivable by Sellers or the Shareholders relating to taxes paid by Sellers or
the Shareholders for all periods prior to the Closing Date;
(d) minute books and governance documents of Sellers;
(e) any Asset listed on Schedule 2.2(e); and
(f) the consideration which Purchaser agrees to pay Sellers
hereunder.
2.3 ASSUMPTION OF OBLIGATIONS. Upon the sale of the Assets by Sellers,
Purchaser shall assume and agree to pay, perform and discharge, in a timely
manner and in accordance with the terms thereof, only such of the obligations of
Sellers in respect of (a) the licenses, leases, permits, contracts, notes and
other debts set forth in Schedule 2.3 (the "Assigned Contracts") which are being
assigned to Purchaser hereunder, and (b) the Accounts Payable (collectively,
"Assumed Obligations"). Notwithstanding anything contained herein to the
contrary, Purchaser does not assume, and hereby expressly disclaims
responsibility for, any obligation or liability of Sellers or the Shareholders
not described on Schedule 2.3.
2.4 NONASSIGNABLE CONTRACTS AND LEASES. In the case of any Assigned
Contracts which are not by their terms assignable or with respect to which a
consent to assignment is not obtained by the Closing Date, Sellers and the
Shareholders agree to use their best efforts to obtain, or cause to be obtained,
prior to the Closing Date, any written consents necessary to convey to Purchaser
the benefit thereof. Purchaser shall cooperate with Sellers and the
Shareholders, in such manner as may be reasonably requested, in connection
therewith, including without limitation, active participation in visits to and
meetings, discussions and negotiations with all Persons with the authority to
grant or withhold consent. If Sellers and the Shareholders are unable to obtain
such necessary written
-7-
consents for the remaining term of such Assigned Contract, Purchaser shall act
as such Sellers' and the Shareholders' agent in the performance of all
obligations and liabilities under such Assigned Contract and such Sellers and
the Shareholders shall act as Purchaser's agents in the receipt of any benefits,
rights or interests which inure to such Sellers or the Shareholders under such
Assigned Contract.
2.5 CLOSING. Subject to the satisfaction of the conditions to closing
set forth herein, the closing (the "Closing") of the transactions contemplated
hereby shall be held at the offices of ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, L.L.P., ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, on or before July __, 1996, or such
other place, date and time as may be mutually agreed upon by the parties.
Such time and date are referred to herein as the "Closing Date."
ARTICLE III
PAYMENT OF PURCHASE PRICE
3.1 AMOUNT; ALLOCATION; DELIVERY.
(a) In addition to assuming the liabilities set forth in Schedule
2.3, the purchase price (the "Purchase Price") for the Assets shall consist of
three hundred thirty-seven thousand (337,000) shares of common stock of Castle
Dental, $.001 par value per share (the "Common Stock"). The shares of Common
Stock shall be distributed among the Sellers as follows:
Total Number of
Shares of Received at Escrowed
Dental Center Common Stock Closing Shares
------------- -------- -------- --------
EFW Dental Centers, P.C ................. 21,315 16,590 4,725
NEFW Dental Centers, P.C ................ 70,280 54,605 15,675
HDC Dental Services, P.C ................ 65,095 50,620 14,475
Midcities Dental Services, P.C .......... 71,432 55,532 15,900
West Ft. Worth Dental Services, P.C ..... 59,912 46,562 13,350
N.A. Dental Services, P.C ............... 48,966 38,091 10,875
-------- -------- --------
TOTALS .................................. 337,000 262,000 75,000
(b) Pursuant to Section 3.4 below, seventy-five (75,000) thousand
shares of Common Stock to be delivered by Purchaser, which will be beneficially
owned by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, will be placed in escrow (the "Escrowed Shares"). The
Escrowed Shares are listed under the column heading "Escrowed Shares" in Section
3.1(a) above.
(c) Once the Dental Centers have liquidated and dissolved
pursuant to the Plan of Reorganization, the Shares of Common Stock shall be
distributed to the shareholders of the Dental Centers, on a pro rata basis based
on stock ownership, as follows:
Shares of Common Stock
to be Received
by Shareholders
----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇ A. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Dental Centers ▇▇▇▇▇▇ (In Escrow) ▇▇▇▇▇▇▇
-------------- -------- -------- --------
EFW Dental Centers, P.C ................. 16,590 4,725 --
NEFW Dental Centers, P.C ................ 54,605 15,675 --
HDC Dental Services, P.C ................ 50,620 14,475 --
Midcities Dental Services, P.C .......... 50,532 15,900 5,000
West Ft. Worth Dental Services, P.C ..... 46,562 13,350 --
N.A. Dental Services, P.C ............... 38,091 10,875 --
-------- -------- --------
TOTALS .................................. 257,000 75,000 5,000
3.2 PURCHASE PRICE ADJUSTMENT.
(a) Each of the Sellers previously has delivered to Purchaser an
unaudited balance sheet (the "Base Date Balance Sheet") as of March 31, 1996
(the "Balance Sheet Date"), (the book value of the Assets included in such
balance sheet less the book value of the Assumed Obligations included in such
balance sheet is hereinafter referred to as the "Base Date Net Asset Value").
(b) Within 45 days following the Transfer Date, each of the
Sellers shall prepare and deliver to Purchaser a balance sheet as of the
Transfer Date (the "Closing Date Balance Sheet"), together with a calculation of
the book value of the Assets and Assumed Obligations determined on the same
basis as the March 31, 1996, balance sheet (such book value of such Assets less
such book
-8-
value of such Assumed Obligations is hereinafter referred to as the "Closing
Date Net Asset Value"). Purchaser and its representatives shall have the right
to review all work papers and procedures used to prepare the Base Date Balance
Sheet and the Closing Date Balance Sheet and the calculation of the Base Date
Net Asset Value and the Closing Date Net Asset Value, and shall have the right
to perform any other reasonable procedures necessary to verify the accuracy
thereof. Unless Purchaser, within 20 days after delivery to Purchaser of the
Closing Date Balance Sheet, notifies Sellers in writing that it objects to the
Base Date Balance Sheet or the Closing Date Balance Sheet or the calculation of
the Base Date Net Asset Value or the Closing Date Net Asset Value, and specifies
the basis for such objection, the Base Date Balance Sheet and the Closing Date
Balance Sheet and the calculation of the Base Date Net Asset Value and the
Closing Date Net Asset Value shall become final and binding upon the parties for
purposes of this Agreement. If Purchaser and Sellers are unable to resolve any
objections within 10 days after any such notification has been given, the
dispute shall be submitted to Coopers & ▇▇▇▇▇▇▇, L.L.P. (or another nationally
recognized public accounting firm mutually agreed upon by Purchaser and
Sellers). Such accounting firm shall make a final and binding determination as
to the matter or matters in dispute. Purchaser and Sellers agree to cooperate
with each other and with each other's authorized representatives in order to
resolve any and all matters in dispute as soon as practicable.
(c) Within 10 days after the Closing Date Net Asset Value has
been finally determined, the difference, if any, between the Base Date Net Asset
Value and the Closing Date Net Asset Value shall be calculated. If the Closing
Date Net Asset Value exceeds the Base Date Net Asset Value, then Purchaser shall
promptly pay to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (for the account of the Sellers) the amount by
which the Closing Date Net Asset Value exceeds the Base Date Net Asset Value. If
the Base Date Net Asset Value exceeds the Closing Date Net Asset Value, then the
Sellers shall promptly join with Purchaser in joint written instructions to the
Escrow Agent (as defined below) to disburse to Purchaser from the Escrowed
Shares (as defined below) the number of shares of Common Stock equal to the
amount by which the Base Date Net Asset Value exceeds the Closing Date Net Asset
Value. For this purpose, the Escrowed Shares will be valued at $9.00 per share.
If the number of Escrowed Shares is not sufficient for Sellers to satisfy its
obligations to Purchaser pursuant to the foregoing sentence, Sellers shall
promptly pay any shortfall to Purchaser in cash.
(d) Purchaser and Sellers, in the aggregate, each shall bear
one-half of the fees, costs and expenses of the accounting firm retained under
subsection (b) to resolve any dispute.
3.3 AGENCY RELATIONSHIP. In the event that, following the Closing Date,
Sellers or the Shareholders receive any funds, documents or instruments which
constitute or are delivered in respect of Assets transferred to Purchaser
pursuant to this Agreement, Sellers and the Shareholders agree to hold such
funds, documents or instruments in trust for Purchaser and as Purchaser's agent
therefor.
-9-
3.4 ESCROW ARRANGEMENT.
(a) At Closing, the Escrowed Shares will be placed in escrow with
NationsBank of Texas, N.A., as escrow agent (the "Escrow Agent") pursuant to an
escrow agreement in the form attached hereto as Exhibit A (the "Escrow
Agreement"). At the end of the first 12 months following the Closing Date,
Purchaser shall calculate (and deliver such calculation to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇) the
aggregate pretax income of the practices formerly conducted by EFW Dental
Services, P.C., NEFW Dental Services, P.C., HDC Dental Services, P.C., Midcities
Dental Services, P.C., and West Ft. Worth Dental Services, P.C. (the "Metroplex
Centers"), which shall be computed without general overhead allocation or charge
with respect to the general and administrative expenses of Castle Dental, but
taking into account direct costs incurred by Castle Dental on behalf of the
Metroplex Centers and including a deduction equal to the cost of capital
invested (exclusive of initial acquisition costs) in the Metroplex Centers by
Castle. If the aggregate pretax income as calculated aforesaid equals or exceeds
$520,000, all of the Escrowed Shares shall be released from escrow and delivered
to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇. For purposes of calculating "pretax income" pursuant to
this Section 3.4(a), pretax income shall equal gross collections (excluding
collections relating to orthodontics) LESS operating costs (which shall in no
event exceed 76.5% of such gross collection figure). Castle Dental's cost of
capital shall be deemed to be the prime rate established from time to time by
NationsBank of Texas, N.A. plus 4%, but in no event to be, less than 10%. If the
aggregate pretax income of the Metroplex Centers for such period is less than
$320,000, all of the Escrowed Shares shall be returned to Castle Dental for
cancellation. If the aggregate pretax income for such period is between $320,000
and $520,000, the percentage of the Escrowed Shares to be released from escrow
and delivered to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall be determined by dividing (i) the amount
by which the aggregate pretax income exceeds $320,000, by (ii) $200,000, and
multiplying the result by 75,000, with the balance of said 75,000 shares
returned to Castle Dental for cancellation.
(b) Unless ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, within 10 days after delivery to him
of the calculation of aggregate pretax income, notifies Purchaser in writing
that he objects to such calculation, and specifies the basis for such objection,
the calculation shall become final and binding upon the parties for purposes of
this Agreement. If Purchaser and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ are unable to resolve any
objections within 10 days after any such notification has been given, the
dispute shall be submitted to Coopers & ▇▇▇▇▇▇▇, L.L.P. (or another nationally
recognized public accounting firm mutually agreed upon by Purchaser and ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇). Such accounting firm shall make a final and binding determination as
to the matters in dispute. Purchaser and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ agree to cooperate
with each other and with each other's authorized representatives in order to
resolve any and all matters in dispute as soon as practicable. Purchaser and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ each shall bear one-half of the costs of the fees, costs and
expenses of the accounting firm retained pursuant to this subsection (b) to
resolve any dispute.
-10-
(c) If Castle shall effect a split of its outstanding Common
Stock or effect a reclassification or combination of its outstanding Common
Stock by way of recapitalization, merger, consolidation or otherwise, or declare
a stock dividend payable to its stockholders of record with respect to its
Common Stock on the date or dates prior to the Escrowed Shares being released
from escrow, the number of shares of Common Stock shall, in the case of a stock
dividend, be increased by the number of shares or, in the case of a stock split,
combination or reclassification, be changed into such number of shares of Common
Stock or other voting stock as Sellers would have been entitled to receive on
account of such dividend, stock split, reclassification or combination.
3.5 NO ACTION TO VIOLATE TAX-FREE REORGANIZATION. Castle Dental and its
Affiliates will not take any action at any time after the Closing Date which
would cause the transactions described herein not to qualify as reorganizations
within the meaning of Section 368 of the Code for failure to satisfy the
"continuity of business enterprise" requirement of Section 1.368-1(d) of the
Income Tax Regulations, the "substantially all the properties" requirement of
Section 368(a)(2)(D) of the Code, both as presently constituted, or if amended
so as to apply to the transactions, as amended at the time any such action might
be taken, or for any other reason. Castle Dental and its Affiliates will file
their federal income tax returns for all periods beginning after or including
the Closing Date on a basis consistent with the treatment of the transactions as
reorganizations within the meaning of Section 368 of the Code.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
AND THE SHAREHOLDERS
4.1 REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE SHAREHOLDERS. As
an inducement to the Purchaser to enter into and perform this Agreement, Sellers
and the Shareholders, jointly and severally, hereby represent and warrant to
Purchaser as follows:
4.2 EXISTENCE AND GOOD STANDING. Each of the Sellers are a corporation
duly organized and validly existing under the laws of the State of Texas. Each
of the Sellers have the full corporate power and authority to own, lease and
operate its property and to carry on the Business as now being conducted and to
own or lease the Assets owned or leased by it. Each of the Sellers are duly
qualified or licensed to do business in each jurisdiction in which the character
or location of the properties owned or leased by it or the nature of the
business conducted by it makes such qualification necessary and the absence of
which would have a Material Adverse Effect.
4.3 AUTHORIZATION AND VALIDITY OF AGREEMENT. Sellers have full corporate
power and authority, and the Shareholders have full power and authority to
execute and deliver this Agreement, to perform their respective obligations
hereunder and to consummate the transactions contemplated
-11-
hereby. The execution, delivery and performance of this Agreement by Sellers and
the consummation by them of the transactions contemplated hereby, have been duly
authorized and approved by the Board of Directors and the shareholders of
Sellers, and no other action on the part of Sellers or their shareholders is
necessary to authorize the execution, delivery and performance of this Agreement
by Sellers and the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Sellers and the Shareholders
and is a valid and binding obligation of Sellers and the Shareholders
enforceable against each in accordance with its terms, except to the extent that
its enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
4.4 CAPITAL STOCK. Except for Midcities Dental Services, P.C., the
authorized capital stock of each of the Dental Centers consists solely of
1,000,000 shares of Common Stock, $.01 par value per share, of which 100,000
shares have been issued, and are outstanding, all of which are owned by ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇. The authorized capital stock of Midcities Dental Services, P.C.
consists solely of 1,000,000 shares of Common Stock, $.01 par value per share,
of which 100,000 shares have been issued, and are outstanding, all of which are
owned by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇. All of the shares of Common
Stock of Sellers have been duly and validly authorized and issued, and are fully
paid and nonassessable and free of any liens or encumbrances.
4.5 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set forth on
Schedule 4.5, the execution, delivery and performance of this Agreement by
Sellers and the Shareholders and the consummation by Sellers and the
Shareholders of the transactions contemplated hereby will not, with or without
the giving of notice or the lapse of time or both: (a) violate, conflict with,
or result in a breach or default under any provision of the organizational
documents of Sellers; (b) to the knowledge of Sellers and the Shareholders,
violate any statute, ordinance, rule, regulation, order, judgment or decree of
any court or of any governmental or regulatory body, agency or authority
applicable to Sellers or the Shareholders or by which any of Sellers' properties
or assets may be bound; (c) to the knowledge of Sellers and the Shareholders,
require any filing by Sellers or the Shareholders with, or require Sellers or
the Shareholders to obtain any permit, consent or approval of, or require
Sellers or the Shareholders to give any notice to, any governmental or
regulatory body, agency or authority other than as set forth in Schedule 4.5
attached hereto; or (d) result in a violation or breach by Sellers or the
Shareholders of, conflict with, constitute (with or without due notice or lapse
of time or both) a default by Sellers or the Shareholders (or give rise to any
right of termination, cancellation, payment or acceleration) under or result in
the creation of any Encumbrance upon any of the properties or assets of Sellers
or the Shareholders pursuant to, any of the terms, conditions, or provisions of
any note, bond, mortgage, indenture, license, franchise, permit, agreement,
lease franchise agreement or other instrument or obligation to which Sellers or
the Shareholders are a party, or by which Sellers or any of their properties or
assets may be bound,
-12-
except in the case of Subsections 4.5(b), (c) and (d), for such violations,
consents, breaches, defaults, terminations and accelerations which in the
aggregate would not have a Material Adverse Effect.
4.6 SUBSIDIARIES AND AFFILIATES. Sellers have no subsidiaries. Except as
set forth on Schedule 4.6, all of the Assets used in the Business are owned by
Sellers, and on consummation of the transactions contemplated hereby Purchaser
will have acquired all of the Assets used in the Business.
4.7 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. Each of the
Sellers have heretofore furnished Purchaser with its unaudited balance sheet as
of the Balance Sheet Date and the unaudited statements of operations and cash
flows for the year then ended (the "Financial Statements"). The Financial
Statements fairly present in all material respects the financial position of
Sellers at the date thereof and the results of operations of Sellers and their
respective cash flows for the period indicated. Except as set forth in Schedule
4.7 attached hereto, since the Balance Sheet Date there has been no material
adverse change in the assets or liabilities, or in the business or condition,
financial or otherwise, or in the results of operations of Sellers.
Other than as (a) disclosed on the Financial Statements, (b) incurred
since the Balance Sheet Date in the ordinary course of business or (c) disclosed
on Schedule 4.7 or another Schedule hereto, Sellers have no direct or indirect
indebtedness, liability, claim, deficiency, obligation or responsibility, known
or unknown, fixed or contingent, liquidated or unliquidated, accrued, absolute
or otherwise.
4.8 BOOKS AND RECORDS. Sellers have previously made available to
Purchaser true, correct and complete copies of their respective articles of
incorporation and bylaws, and all amendments to each. The minute books of
Sellers, as previously made available to Purchaser and its representatives,
contain accurate records in all material respects of the meetings of, the
shareholders and Board of Directors of Sellers.
4.9 TITLE TO PROPERTIES; ENCUMBRANCES; CONDITION. Except as set forth in
Schedules 4.9 or 4.10, and except for properties and assets reflected in the
Financial Statements or acquired since the Balance Sheet Date which have been
sold or otherwise disposed of in the ordinary course of business, Sellers have
good and valid title to the Assets, in each case subject to no Encumbrances
except for (a) Encumbrances consisting of easements, permits and other
restrictions or limitations on the use of real property or irregularities in
title thereto that do not materially detract from the value of, or materially
impair the use of, such property by Sellers in the operation of the Business,
(b) Encumbrances for current taxes, assessments or governmental charges or
levies on property not yet due or delinquent, (c) Encumbrances created by
Purchaser, and (d) Encumbrances relating to Assumed Obligations (liens of the
type described in clauses (a), (b), (c) and (d) above are hereinafter sometimes
referred to as "Permitted Encumbrances"). Sellers have heretofore furnished
Purchaser
-13-
with a fixed asset ledger, which sets forth all fixed assets owned by Sellers as
of the Balance Sheet Date. Sellers and the Shareholders are not aware of any
defects in such assets that would have a Material Adverse Effect on the ability
of Purchaser to use such assets in the Business, ordinary wear and tear
excepted.
4.10 REAL PROPERTY. Schedule 4.10 identifies all interests in real
property used by Sellers in the Business, including leases, and includes the
name of the record title holder thereof. All of the buildings, structures and
appurtenances situated on the real property owned or leased by Sellers are in
good operating condition, and in a state of good maintenance and repair, subject
to ordinary wear and tear. The real property has adequate rights of ingress and
egress for operation of the Business in the ordinary course. No condemnation or
similar proceeding is pending or, to the best knowledge of Sellers and the
Shareholders, threatened, which would preclude or impair the use of any such
property, except where such proceeding would not have a Material Adverse Effect.
4.11 LEASES. Schedule 4.11 contains an accurate and complete list of all
personal property leases to which Sellers are a party (as lessee or lessor) and
a description of all such leases to which Sellers are a party as lessee. Each
lease set forth in Schedule 4.11 is in full force and effect, and no event has
occurred that with the giving of notice, the passage of time or both would
constitute a default thereunder.
4.12 MATERIAL CONTRACTS. Except as set forth in Schedule 4.12, the
Assigned Contracts do not include (a) any agreement, contract or commitment
relating to the employment of any person by Sellers, (b) any agreement,
indenture or other instrument which contains restrictions with respect to
payment of profits, dividends or any other distributions, (c) any agreement,
contract or commitment relating to capital expenditures in excess of $5,000, (d)
any loan or advance to, or investment in, any Person or any agreement, contract
or commitment relating to the making of any such loan, advance or investment,
(e) any guarantee or other contingent liability in respect of any indebtedness
or obligation of any Person, (f) any management service, consulting or any other
similar type contract, (g) any agreement, contract or commitment limiting the
freedom of Sellers to engage in any line of business or to compete with any
Person, (h) any agreement, contract or commitment that involves $5,000 or more
and is not cancelable without penalty within 30 days, or (i) any other
agreement, contract or commitment which would have a Material Adverse Effect.
Also set forth in Schedule 4.12 is a list of all proposals submitted by Sellers
to any third party that, if accepted by such third party, would require
disclosure on Schedule 4.12. Except where it would not have a Material Adverse
Effect, each contract or agreement set forth in Schedule 4.12 is in full force
and effect and there exists no default or event of default or event, occurrence,
condition or act (including the purchase of the Assets hereunder) which, with
the giving of notice, the lapse of time or the happening of any other event or
condition, would become a default or event of default thereunder.
-14-
4.13 PERMITS. Schedule 4.13 attached hereto lists all of the
governmental and other third party permits (including occupancy permits),
licenses, consents and authorizations ("Permits") required, to the knowledge of
Sellers and the Shareholders, in connection with the use, operation or ownership
of the Assets and the conduct of the Business as currently conducted. Sellers
hold all of the Permits listed on Schedule 4.13, and none is presently subject
to revocation or challenge. Except as set forth on Schedule, all such Permits
will be assigned to Purchaser, and none of such Permits will be subject to
revocation or termination as a result thereof.
4.14 LITIGATION. Except as set forth in Schedule 4.14, there is no
action, suit, proceeding at law or in equity, arbitration or administrative or
other proceeding by or before (or any investigation by) any governmental or
other instrumentality or agency, pending, or, to the knowledge of Sellers and
the Shareholders, threatened, against or affecting the properties, rights or
goodwill of Sellers, the Shareholders, or employees of Sellers, and Sellers and
the Shareholders do not know of any valid basis for any such action, proceeding
or investigation. There are no such suits, actions, claims, proceedings or
investigations pending or to the knowledge of Sellers and the Shareholders
threatened, seeking to prevent or challenge the transactions contemplated by
this Agreement. Purchaser will assume no liability whatsoever with respect to
any matter described on Schedule 4.14. Schedule 4.14 also describes any actions,
suits, disciplinary proceedings and investigations undertaken by the Dental
Board of the State of Texas, or other body regulating the activities of
dentists.
4.15 TAXES.
(a) All returns and reports for Taxes for all taxable years or
periods that end on or before the Closing Date and, with respect to any taxable
year or period beginning before and ending after the Closing Date the portion of
such taxable year or period ending on and including the Closing Date
("Pre-Closing Periods"), which are required to be filed by or with respect to
Sellers (collectively, the "Returns") have been or will be filed when due in a
timely fashion and such Returns as filed are or will be accurate in all material
respects, and all such Taxes showed to be due and owing have been paid.
(b) Except as provided in Schedule 4.15 there is no material
action, suit, proceeding, investigation, audit, or claim now pending or, to the
knowledge of Sellers or the Shareholders, threatened by any authority regarding
any Taxes relating to Sellers for any Pre-Closing Period.
(c) There are no liens or security interests on any of the assets
of Sellers that arose in connection with any failure (or alleged failure) to pay
any Taxes.
-15-
(d) Except as provided in Schedule 4.15, there are no agreements
for the extension or waiver of the time for assessment of any Taxes relating to
Sellers for any Pre-Closing Period and Sellers have not been requested to enter
into any such agreement or waiver.
(e) All Taxes relating to Sellers which Sellers are required by
law to withhold or collect have been duly withheld or collected, and have been
timely paid over to the proper authorities to the extent due and payable.
(f) Sellers are not now nor have ever been a party to any Tax
allocation or sharing agreement that could result in any liability to Purchaser.
4.16 INSURANCE. Set forth in Schedule 4.16 is a complete list of
insurance policies that Sellers maintain with respect to their Business and
properties that are included in the Assets or on their employees. Such policies
are in full force and effect and are free from any right of termination on the
part of the insurance carriers. In the judgment of Sellers, such policies, with
respect to their amounts and types of coverage, are adequate to insure against
risks to which Sellers and their property and assets are normally exposed in the
operation of the Business, subject to customary deductibles and policy limits.
4.17 INTELLECTUAL PROPERTIES. Schedule 4.17 sets forth all Intellectual
Property used in the Business and the owner of such Intellectual Property. The
operation of the Business as conducted by Sellers as of the Closing Date
requires no rights under Intellectual Property other than rights under
Intellectual Property listed on Schedule 4.17 and rights granted to Sellers
pursuant to agreements listed on Schedule 4.17. Except as otherwise set forth in
Schedule 4.17, Sellers own all right, title and interest in the Intellectual
Property listed in Schedule 4.17. No litigation is pending or, to the knowledge
of Sellers or the Shareholders, threatened wherein Sellers are accused of
infringing or otherwise violating the Intellectual Property rights of another,
or of breaching a contract conveying rights under Intellectual Property.
4.18 COMPLIANCE WITH LAWS. To the knowledge of Sellers and the
Shareholders, Sellers are in compliance with all applicable laws, regulations,
orders, judgments and decrees applicable to their respective business, except
where any noncompliance would not have a Material Adverse Effect on the assets,
liabilities, business, condition (financial or otherwise), results of operation
or prospects of Sellers.
4.19 EMPLOYMENT RELATIONS. (a) Sellers are not and have not engaged in
any unfair labor practice; (b) to the knowledge of Sellers and the Shareholders,
no representation question exists respecting the employees of Sellers; (c)
Sellers have not been notified of any grievance that might have a Material
Adverse Effect and no arbitration proceeding arising out of or under any
collective
-16-
bargaining agreement is pending; and (d) no collective bargaining agreement is
currently being negotiated by Sellers.
4.20 EMPLOYEE BENEFIT PLANS. Sellers have delivered to Purchaser true
and complete copies of all employee benefit plans, policies, programs and
arrangements and all related contracts, agreements and other descriptions
thereof with respect to the employee benefits provided to the employees of the
Business prior to the Closing Date (the "Plans"). Each of the Plans has, to the
knowledge of Sellers and the Shareholders, been maintained in compliance with
its terms and the requirements of all applicable laws. None of the Plans are
subject to Title IV of ERISA or the minimum funding obligations of Section 412
of the Code, and Sellers and any entity required to be aggregated therewith
pursuant to Section 414(b) or (c) of the Code have no liability under Title IV
of ERISA or under Section 412(f) or 412(n) of the Code.
4.21 ENVIRONMENTAL LAWS AND REGULATIONS. Except as set forth in Schedule
4.21, and except where it would not have a Material Adverse Effect (a) Hazardous
Materials have not been generated, used, treated or stored on, or transported to
or from, any Sellers Property by Sellers, its authorized agents or its
independent contractors (including suppliers) or any property adjoining any
Sellers Property, (b) Hazardous Materials have not been Released or disposed of
by Sellers, its authorized agents or its independent contractors (including
suppliers) on any Sellers Property or any property adjoining any Sellers
Property except such Releases which do not violate any Environmental Laws, (c)
Sellers are, to its and the Shareholders's knowledge, in compliance with all
applicable Environmental Laws and the requirements of any Permits issued under
such Environmental Laws with respect to any Sellers Property, (d) there are no
pending or, to the knowledge of Sellers and the Shareholders, threatened
Environmental Claims against Sellers or any Sellers Property, (e) there are no
facts or circumstances, conditions, pre-existing conditions or occurrences on
any Sellers Property known to Sellers or the Shareholders that could reasonably
be anticipated (A) to form the basis of an Environmental Claim against Sellers
or any Sellers Property, or (B) to cause such Sellers Property to be subject to
any restrictions on the ownership, occupancy use or transferability of such
Sellers Property under any Environmental Law, (f) there are not now and there
never have been any underground storage tanks located on any Sellers Property,
and (g) Sellers have not in the ordinary course of business transported or
stored Hazardous Materials.
4.22 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except for relationships
with Affiliates, Sellers do not possess, directly or indirectly, any financial
interest in, and no Shareholder serves as a director, officer or employee of,
any corporation, firm, association or business organization which is a supplier,
customer, lessor, lessee, or competitor of Sellers.
4.23 COMPENSATION OF EMPLOYEES. Set forth in Schedule 4.23 is an
accurate and complete list showing the names of all persons whose compensation
from Sellers collectively for the fiscal year ended on the Balance Sheet Date
exceeded an annualized rate of $20,000, together with a
-17-
statement of the full amount paid or payable to each such person for services
rendered during the current fiscal year to date.
4.24 PAYORS. No significant payor has canceled or otherwise terminated
or, to the knowledge of Sellers or the Shareholders threatened to cancel or
otherwise terminate its relationship with Sellers within the last three years.
4.25 ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE. Except as set forth on
Schedule 4.25, the Accounts Receivable on the Closing Date Balance Sheet are
collectible in the ordinary course of business, net of the reserves established
with respect thereto. Except as set forth on Schedule 4.25, there has been no
change since the Balance Sheet Date (other than in the ordinary course of
business) in the amount of the Accounts Receivable or other fees or debts due to
Sellers or the allowances with respect thereto, or Accounts Payable by Sellers,
from that reflected in the Base Date Balance Sheet.
4.26 SOLVENCY. Sellers are not entering into this Agreement with actual
intent to hinder, delay or defraud creditors. Immediately prior to and
immediately subsequent to the Closing Date:
(a) the present fair salable value of the Assets of Sellers (on a
going concern basis) will exceed the liability of Sellers on its debts
(including its contingent obligations);
(b) Sellers have not incurred, nor does it intend to or believe
that it will incur, debts (including contingent obligations) beyond its ability
to pay such debts as such debts mature (taking into account the timing and
amounts of cash to be received from any source, and of amounts to be payable on
or in respect of debts); and the amount of cash available to Sellers after
taking into account all other anticipated uses of funds is anticipated to be
sufficient to pay all such amounts on or in respect of debts, when such amounts
are required to be paid; and
(c) Sellers will have sufficient capital with which to conduct
its business, and the property of Sellers do not constitute unreasonably small
capital with which to conduct its business.
For purposes of this Section 4.26 "debt" means any liability or a (i)
right to payment whether or not such a right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable secured, or unsecured; or (ii) right to an equitable remedy for
breach of performance if such breach gives rise to a payment, whether or not
such a right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.
4.27 DISCLOSURE. None of this Agreement, the Financial Statements, any
Schedule, Exhibit or certificate attached hereto or delivered in accordance with
the terms hereof contains any untrue statement of a material fact, or omits any
statement of a material fact necessary in order to make the
-18-
statements contained herein or therein not misleading in light of the
circumstances under which they were made.
4.28 INVESTMENTS. The Assets do not include any capital stock or other
equity ownership or proprietary interest in any other corporation, partnership,
association, trust, joint venture or other entity.
4.29 BROKER'S OR FINDER'S FEES. No agent, broker, Person or firm acting
on behalf of Sellers is, or will be, entitled to any fee, commission or broker's
or finder's fees in connection with this Agreement or any of the transactions
contemplated hereby.
4.30 COPIES OF DOCUMENTS. Sellers have caused to be made available for
inspection and copying by Purchaser and its advisers, true, complete and correct
copies of all documents referred to in this Article IV or in any Schedule
attached hereto.
4.31 INVESTMENT REPRESENTATIONS.
(a) Sellers understand that the Common Stock has not been
registered under the Securities Act of 1933, as amended (the "Securities Act").
Sellers also understands that the Common Stock is being offered and sold
pursuant to an exemption from registration contained in the Securities Act based
in part upon his representations contained in this Agreement.
(b) Sellers, in consultation with their accountants, attorneys
and financial advisers, have the requisite experience in evaluating and
investing in private placement transactions of securities so that they are
capable of evaluating the merits and risks of their investment in Castle Dental
and have the capacity to protect their own interests. Sellers understand that
they must bear the economic risk of this investment indefinitely unless the
Common Stock is registered pursuant to the Securities Act, or an exemption from
registration is available. Sellers also understand that there is no assurance
that any exemption from registration under the Securities Act will be available
and that, even if available, such exemption may not allow them to transfer all
or any portion of the Common Stock under the circumstances, in the amounts or at
the times they might propose.
(c) Sellers are acquiring the Common Stock for their own account
for investment only, and not with a view towards distribution.
(d) Sellers represent that by reason of their business or
financial experience, they have the capacity to protect their own interests in
connection with the transactions contemplated in this Agreement.
-19-
(e) Sellers represent that they are each an accredited investor
within the meaning of Regulation D under the Securities Act.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND CASTLE DENTAL
Purchaser represents and warrants to Sellers and Shareholders as
follows:
5.1 EXISTENCE AND GOOD STANDING OF PURCHASER; POWER AND AUTHORITY.
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Texas. Purchaser has full corporate power and
authority to make, execute, deliver and perform this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
This Agreement has been duly authorized and approved by all required corporate
action of Purchaser. This Agreement has been duly executed and delivered by
Purchaser and is a valid and binding obligation of Purchaser enforceable against
Purchaser in accordance with its terms, except to the extent that its
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
5.2 NO VIOLATIONS. The execution, delivery and performance of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby will not, with or without the giving of notice or the lapse
of time or both; (a) violate, conflict with, or result in a breach or default
under any provision of the certificate of incorporation or by-laws of Purchaser;
(b) to the knowledge of Purchaser, violate any statute, ordinance, rule,
regulation, order, judgment or decree of any court or of any governmental or
regulatory body, agency or authority applicable to Purchaser or by which any of
its properties or assets may be bound; (c) to the knowledge of Purchaser,
require any filing by Purchaser with, or require Purchaser to obtain any permit,
consent or approval of, or require Purchaser to give any notice to, any
governmental or regulatory body, agency or authority or any third party; or (d)
result in a violation or breach by Purchaser of, conflict with, constitute (with
or without due notice or lapse of time or both) a default by Purchaser (or give
rise to any right of termination, cancellation, payment or acceleration) under,
or result in the creation of any Encumbrance upon any of the properties or
assets of Purchaser pursuant to, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, license, franchise, permit, agreement,
lease, franchise agreement or other instrument or obligation to which Purchaser
is a party, or by which it or any of its properties or assets may be bound,
except in the case of Subsections 5.2(b), (c), and (d), for such violations,
consents, breaches, defaults, terminations and accelerations which in the
aggregate would not have a Material Adverse Effect.
-20-
5.3 LITIGATION. There is no action, suit, proceeding at law or in
equity, arbitration or administrative or other proceeding by or before (or any
investigation by) any governmental or other instrumentality or agency, pending,
or, to the knowledge of Purchaser, threatened, against or affecting the
properties, rights or goodwill of Purchaser or their employees, except where
such Proceeding would not have a material adverse effect on the assets,
liabilities, business, condition (financial or otherwise), results of operations
or prospects of Purchaser, and Purchaser does not know of any valid basis for
any such action, proceeding or investigation. There are no such Proceedings
pending or, to the knowledge of Purchaser, threatened, seeking to prevent or
challenge the transactions contemplated by this Agreement.
5.4 COMPLIANCE WITH LAWS. To the knowledge of Purchaser, Purchaser is in
compliance with all applicable laws, regulations, orders, judgments and decrees
applicable to their respective business, except where any noncompliance would
not have a Material Adverse Effect on the assets, liabilities, business,
condition (financial or otherwise), results of operations or prospects of
Purchaser.
5.5 BROKER'S OR FINDER'S FEES. Except for a fee payable by or on behalf
of Purchaser to The GulfStar Group, no agent, broker, Person or firm acting on
behalf of Purchaser is, or will be, entitled to any fee, commission or broker's
or finder's fee in connection with this Agreement or any of the transactions
contemplated hereby.
Castle Dental represents and warrants to Sellers and Shareholders as
follows:
5.6 EXISTENCE AND GOOD STANDING OF CASTLE DENTAL; POWER AND AUTHORITY.
Castle Dental is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Castle Dental has full
corporate power and authority to make, execute, deliver and perform this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly authorized and
approved by all required corporate action of Castle Dental. This Agreement has
been duly executed and delivered by Castle Dental and is a valid and binding
obligation of Castle Dental enforceable against Castle Dental in accordance with
its terms, except to the extent that its enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles.
5.7 FINANCIAL STATEMENTS. The audited financial statements of Castle
Dental as of December 31, 1995, attached hereto as Schedule 5.7, are complete
and correct in all material respects and present fairly in accordance with
generally accepted accounting principles consistently applied, the financial
condition of Castle Dental and the results of operations of Castle Dental as of
the dates thereof and for the periods indicated. Since December 31, 1995, there
has been no material adverse
-21-
change in the assets or liabilities, or in the business or condition, financial
or otherwise, or in the results of operations of Castle Dental.
5.8 CAPITAL STOCK. Immediately prior to Closing, the authorized capital
stock of Castle Dental consists solely of 18,755,263 shares of Common Stock of
which 4,275,243 shares have been issued, and 1,244,737 shares of Preferred
Stock, $.001 par value per share. all of which shares have been issued. All of
the shares of Common Stock of Castle Dental delivered pursuant to Section 3.1
hereof shall be duly and validly authorized, and, following the Closing, will be
validly issued, fully paid, nonassessable and free of any liens or encumbrances.
5.9 LITIGATION. There is no action, suit, proceeding at law or in
equity, arbitration or administrative or other proceeding by or before (or any
investigation by) any governmental or other instrumentality or agency, pending,
or, to the knowledge of Castle Dental, threatened, against or affecting the
properties, rights or goodwill of Castle Dental, Castle Dental or their
employees, except where such Proceeding would not have a material adverse effect
on the assets, liabilities, business, condition (financial or otherwise),
results of operations or prospects of Castle Dental, and Castle Dental does not
know of any valid basis for any such action, proceeding or investigation. There
are no such Proceedings pending or, to the knowledge of Castle Dental,
threatened, seeking to prevent or challenge the transactions contemplated by
this Agreement.
ARTICLE VI
CONDITIONS TO SELLERS' AND THE SHAREHOLDERS' OBLIGATIONS
The obligations of Sellers and the Shareholders under this Agreement to
sell, or cause to be sold, the Assets and to consummate the other transactions
contemplated hereby shall be subject to the satisfaction (or waiver by the party
entitled to performance) on or prior to the Closing Date of all of the following
conditions:
6.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of the
Closing Date, and Purchaser shall have delivered to Sellers on the Closing Date
a certificate of an authorized officer of Purchaser, dated the Closing Date, to
such effect.
6.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of Purchaser to be performed on or before the Closing Date pursuant to
the terms hereof shall have been duly performed in all material respects, and
Purchaser shall have delivered to Sellers a certificate of an authorized officer
of Purchaser, dated the Closing Date, to such effect.
-22-
6.3 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before a court or other governmental body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and
Purchaser shall have delivered to Sellers a certificate of an authorized officer
of Purchaser, dated the Closing Date, to such effect to the best knowledge of
such officer.
6.4 CONSIDERATION. Purchaser shall have delivered the Purchase Price in
the manner described in Section 3.1.
6.5 GOVERNMENTAL APPROVALS. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
6.6 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Sellers and the
Shareholders and their counsel, and Sellers and the Shareholders shall have
received copies of all such documents and other evidence as its or their counsel
may reasonably request in order to establish the consummation of such
transactions and the taking of all proceedings in connection therewith.
6.7 GOOD STANDING CERTIFICATES. Sellers shall have received good
standing and corporate existence certificates respecting Purchaser and Castle
Dental.
6.8 REGISTRATION RIGHTS AGREEMENT. Sellers shall have received a
Registration Rights Agreement, substantially in the form of Exhibit D hereto,
executed by Castle Dental.
6.9 STOCKHOLDERS AGREEMENT. Sellers shall have received a Stockholders
Agreement, substantially in the form of Exhibit C, executed by the Purchaser and
the other parties thereto.
6.10 DUE DILIGENCE. Sellers shall have satisfactorily completed his due
diligence review of Castle Dental and Purchaser and shall not have determined,
in the exercise of his reasonable discretion, that the information obtained from
such review materially and adversely affects his appraisal of the business,
prospects and financial condition of Castle Dental.
ARTICLE VII
CONDITIONS TO PURCHASER'S OBLIGATIONS
-23-
The obligations of Purchaser under this Agreement to purchase the Assets
and to consummate the other transactions contemplated hereby shall be subject to
the satisfaction (or waiver by Purchaser) on or prior to the Closing Date of all
of the following conditions:
7.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Sellers and the Shareholders contained herein shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
the Closing Date; and Sellers and the Shareholders shall have delivered to
Purchaser on the Closing Date a certificate of an authorized representative of
Sellers and the Shareholders, dated the Closing Date, to such effect.
7.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of Sellers to be performed on or before the Closing Date pursuant to
the terms hereof shall have been duly performed in all material respects, and
Sellers shall have delivered to Purchaser a certificate of an authorized
representative of Sellers, dated the Closing Date, to such effect.
7.3 DOCUMENTS OF CONVEYANCE. Purchaser shall have received from Sellers
fully executed documents of conveyance, in form and substance satisfactory to
Purchaser and its counsel, vesting in Purchaser good and valid title to the
Assets, free and clear of any Encumbrances except Permitted Encumbrances.
7.4 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before a court or other governmental body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and Sellers
shall have delivered to Purchaser a certificate of an authorized representative
of Sellers, dated the Closing Date, to such effect to the best knowledge of such
officer.
7.5 GOVERNMENTAL APPROVALS. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
7.6 CONSENTS. Each of the consents referred to in Schedule 4.5 attached
hereto shall have been obtained, and Purchaser shall have also received the
consent of all other parties, including its senior lender, whose consent is
required to permit Purchaser to perform its obligations hereunder.
7.7 LEGAL OPINION. Sellers shall have delivered to Purchaser the opinion
of their counsel, substantially in the form of Exhibit B attached hereto.
7.8 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory
-24-
in form and substance to Purchaser and its counsel, and Purchaser shall have
received copies of all such documents and other evidence as it or its counsel
may reasonably request in order to establish the consummation of such
transactions and the taking of all proceedings in connection therewith.
7.9 JHC. Contemporaneous with the Closing, (a) JHC shall have entered
into employment agreements with Drs. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇, (b) the
employment agreements between the other dentists presently employed by the
Dental Centers shall have been duly and validly assigned to JHC, (c) all
reimbursement contracts with third-party insurance companies, managed care
companies and other reimbursement sources shall have been duly and validly
assigned to JHC, (d) all patient records shall have been delivered to JHC and
(e) all permits and other Assets as are required for JHC to perform its
obligations under the Management Services Agreement by and between Purchaser and
JHC shall have been duly and validly assigned to JHC.
7.10 STOCKHOLDERS AGREEMENT. Sellers shall have entered into a
Stockholders Agreement with Castle Dental and certain of its other shareholders,
substantially in the form of Exhibit C attached hereto.
7.11 DUE DILIGENCE. Purchaser shall have satisfactorily completed a due
diligence review of Sellers and the Business and shall not have determined, in
the exercise of its reasonable discretion, that the information obtained from
such review materially and adversely affects their appraisal of the business,
prospects and financial condition of Sellers or the Business.
7.12 SELLERS NAME CHANGE. Sellers shall have changed their corporate
name and/or any assumed names currently being used by them in connection with
the Business to a name not including the words "Horizon Dental Center."
7.13 TERMINATION OF AGREEMENTS. All agreements, contracts, commitments
and understandings between (a) the Dental Centers and the entities and persons
listed on Schedule 7.13 and (b) Consolidated and the entities and persons listed
on Schedule 7.13 shall be terminated on or before the Closing Date.
7.14 GOOD STANDING CERTIFICATES. Purchaser shall have received good
standing and corporate existence certificates respecting Sellers.
7.15 RELEASES OF LIENS. Purchaser shall have received evidence
satisfactory to Purchaser and its counsel to the effect that all liens and other
encumbrances on the Assets being transferred to Purchaser (other than Permitted
Encumbrances) have been released.
7.16 NONCOMPETITION AGREEMENT. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall have entered into
a Noncompetition Agreement with Purchaser, substantially in the form of Exhibit
E attached hereto.
-25-
7.17 LICENSE AGREEMENT. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall have entered into a
License Agreement with Purchaser, whereby ▇▇. ▇▇▇▇▇▇ grants the Purchaser the
right to use the name "Horizon Dental Center," substantially in the form of
Exhibit F attached hereto.
ARTICLE VIII
COVENANTS OF SELLERS AND THE SHAREHOLDERS
Sellers and the Shareholders hereby covenant and agree with Purchaser as
follows:
8.1 COOPERATION BY SELLERS. Sellers and the Shareholders shall use their
reasonable best efforts to cooperate with Purchaser to secure all necessary
consents, approvals, authorizations, exemptions and waivers from third parties
as shall be required in order to enable Sellers and the Shareholders to effect
the transactions contemplated on its or his part hereby, and Sellers and the
Shareholders shall otherwise use their reasonable best efforts to cause the
consummation of such transactions in accordance with the terms and conditions
hereof and to cause all conditions contained in this Agreement over which it has
control to be satisfied. Sellers and the Shareholders further agree to deliver
to Purchaser prompt written notice of any event or condition which if it existed
on the date of this Agreement, would result in any of the representations and
warranties of Sellers or the Shareholders contained herein being untrue in any
material respect.
8.2 CONDUCT OF BUSINESS. Except as Purchaser may otherwise consent to in
writing, between the date hereof and the Closing Date, Sellers shall, (a)
conduct the Business only in the ordinary course, (b) use its reasonable efforts
to keep available the services of its employees and maintain satisfactory
relationships with licensors, suppliers, lessors, distributors, customers,
clients and others, (c) maintain, consistent with past practice and good
business judgment, all the Assets in customary repair, order and condition,
ordinary wear and tear excepted, and insurance upon all the Assets used in the
conduct of the Business in such amounts and of such kinds comparable to that in
effect on the date hereof, to the extent available at current premiums, and (d)
maintain the Books and Records in the usual, regular and ordinary manner, on a
basis consistent with past practice.
8.3 EXCLUSIVE DEALING. During the period from the date of this Agreement
to the earlier of the Closing Date or the termination of this Agreement, neither
Sellers nor the Shareholders shall take any action to, directly or indirectly,
encourage, initiate or engage in discussions or negotiations with, or provide
any information to, any Person other than Purchaser, concerning any sale of the
Assets or any material part thereof or a similar transaction involving Sellers
or the Shareholders.
8.4 REVIEW OF THE ASSETS. Purchaser may, prior to the Closing Date,
through its representatives, review (a) the Assets, (b) the complete working
papers of Sellers' certified public accountants used in their preparation of
financial statements for Seller and (c) the Books and Records
-26-
of Sellers and to otherwise review the financial and legal condition of Sellers
as Purchaser deems necessary or advisable to familiarize itself with the
Business and related matters; such review shall not, however, affect the
representations and warranties made by Sellers and the Shareholders hereunder or
the remedies of Purchaser for breaches of those representations and warranties.
Such review shall occur only during normal business hours upon reasonable notice
by Purchaser. Sellers and the Shareholders shall permit Purchaser and its
representatives to have, after the execution of this Agreement, full access to
employees of any Sellers who can furnish Purchaser with financial and operating
data and other information with respect to the Business as Purchaser shall from
time to time reasonably request.
8.5 FURTHER ASSURANCES. At any time or from time to time after the
Closing Date, Sellers and the Shareholders shall, at the reasonable request of
Purchaser and at Purchaser's expense, execute and deliver any further
instruments or documents and take all such further action as Purchaser may
reasonably request in order to consummate and make effective the sale of the
Assets and the assumption of the Assumed Obligations pursuant to this Agreement.
8.6 ACCOUNTS PAYABLE; ACCOUNTS RECEIVABLE. The parties agree as follows:
(a) From and after the Closing until July 31, 1996, the Dental
Centers shall continue to collect for their account any amounts received by them
in payment of accounts receivable of the Business. Following July 31, 1996, the
Dental Centers shall remit to Purchaser any amounts received by them in payment
of any accounts receivable of the Business.
(b) Purchaser shall assume all Accounts Payable as of August 1,
1996. From and after the Closing until July 31, 1996, Sellers agree to pay all
bills in the normal course of business. In addition, Sellers agree that payroll
respecting any periods in July will be paid by Sellers. With respect to payroll
for the dentists, the Dental Centers agree to pay the dentists' payroll due on
August 5, 1996, and Purchaser agrees to pay the dentists' payroll due on August
20, 1996.
ARTICLE IX
COVENANTS OF PURCHASER
Purchaser hereby covenants and agrees with Sellers and the Shareholders
as follows:
9.1 COOPERATION BY PURCHASER. Purchaser will use its reasonable best
efforts, and will cooperate with Sellers and the Shareholders, to secure all
necessary consents, approvals, authorizations, exemptions and waivers from third
parties as shall be required in order to enable Purchaser to effect the
transactions contemplated on its part hereby, and Purchaser will otherwise use
its reasonable best efforts to cause the consummation of such transactions in
accordance with
-27-
the terms and conditions hereof and to cause all conditions contained in this
Agreement over which it has control to be satisfied. Purchaser further agrees to
deliver to Sellers and the Shareholders prompt written notice of any event or
condition, which if it existed on the date of this Agreement, would result in
any of the representations and warranties of Purchaser contained herein being
untrue in any material respect.
9.2 BOOKS AND RECORDS; PERSONNEL. At all times after the Closing Date,
Purchaser shall allow Sellers and any agents of any Sellers, upon reasonable
advance notice to Purchaser, access to all Books and Records of Sellers which
are transferred to Purchaser in connection herewith, to the extent necessary or
desirable in anticipation of, or preparation for, existing or future litigation,
employment matters, tax returns or audits, or reports to or filings with
governmental agencies, during normal working hours at Purchaser's principal
places of business or at any location where such Books and Records are stored,
and Sellers shall have the right, at Sellers' sole cost, to make copies of any
such Books and Records.
9.3 FURTHER ASSURANCES. At any time or from time to time after the
Closing Date, Purchaser shall, at the request of Sellers or the Shareholders and
at such Sellers' expense, execute and deliver any further instruments or
documents and take all such further action as Sellers may reasonably request in
order to consummate and make effective the sale of the Assets and the assumption
of the Assumed Obligations pursuant to this Agreement.
9.4 DUE DILIGENCE INVESTIGATION. Prior to the Closing Date, Purchaser
and Castle Dental will make available to Sellers and the Shareholders and their
respective attorneys, accountants, consultants and agents, any and all
information regarding Purchaser and Castle Dental and their respective
businesses, operations, financial affairs and management, to the extent such
information is in the possession of Purchaser or Castle Dental or can be
obtained without unreasonable burden or expense, to permit Sellers and the
Shareholders to familiarize themselves with the business of the Purchaser and
Castle Dental and to make an informed investment judgment with respect to the
Common Stock of Castle Dental referred to in Section 3.1(c). The Purchaser and
Castle Dental agree to make available to Sellers and the Shareholders and their
respective attorneys, accountants, consultants and agents management members and
representatives of Purchaser and Castle Dental to respond to any questions or
inquiries from such parties regarding the Purchaser, Castle Dental and their
respective businesses, operations, financial affairs and management.
The due diligence investigation shall be conducted at the principal
offices of Castle Dental in Houston, Texas, at such time or times during normal
business hours as are reasonably requested by Sellers and the Shareholders.
Sellers and the Shareholders agree to complete such investigation on or before
July __, 1996.
-28-
All parties participating in the due diligence review shall be bound by
confidentiality agreements in form and substance satisfactory to the Purchaser
and Castle Dental.
ARTICLE X
TERMINATION
10.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date:
(a) by the mutual written consent of Purchaser, the Shareholders
and Sellers; or
(b) by Purchaser, the Shareholders, or Sellers in writing without
liability on the part of the terminating party on account of such termination
(provided the terminating party is not otherwise in default or in breach of this
Agreement), if the Closing Date shall not have occurred on or before July 31,
1996; or
(c) by either Purchaser, on the one hand, or the Shareholders and
Sellers, on the other hand, in writing, without liability on the part of the
terminating party on account of such termination (provided the terminating party
is not otherwise in default or breach of this Agreement), if the other party
shall (i) fail to perform its or their covenants or agreements contained herein
required to be performed prior to the Closing Date, or (ii) breach or have
breached any of its representations or warranties contained herein.
10.2 EFFECT ON OBLIGATIONS. Termination of this Agreement pursuant to
this Article shall terminate all obligations of the parties hereunder, except
for the obligations under Sections 12.8 and 12.11 hereof and the obligations set
forth in the next succeeding sentence of this Section 10.2. Upon any termination
of this Agreement each party hereto will redeliver all documents, work papers
and other material of any other party relating to the transactions contemplated
hereby, and all copies of such materials, whether so obtained before or after
the execution hereof, to the party furnishing the same.
ARTICLE XI
SURVIVAL AND INDEMNIFICATION
11.1 INDEMNIFICATION OF SELLERS. The Purchaser, from and after the
Closing Date, shall indemnify and hold Sellers and the Shareholders and their
respective Affiliates (the "Sellers Indemnitees") harmless from and against any
and all damages, including exemplary damages and penalties, losses,
deficiencies, costs, expenses, obligations, fines, expenditures, claims and
liabilities,
-29-
including reasonable counsel fees and reasonable expenses of investigation,
defending and prosecuting litigation (collectively, the "Damages"), suffered by
any Sellers Indemnitee as a result of, caused by, arising out of, or in any way
relating to (a) any misrepresentation, breach of warranty, or nonfulfillment of
any agreement or covenant on the part of the Purchaser under this Agreement or
any misrepresentation in or omission from any list, schedule, certificate, or
other instrument furnished or to be furnished to Sellers by the Purchaser
pursuant to the terms of this Agreement or (b) any liability or obligation
(other than those for which Purchaser are being indemnified by Sellers and the
Shareholders hereunder) which pertains to the ownership, operation or conduct of
the Business or Assets arising from any acts, omissions, events, conditions or
circumstances occurring on or after the Closing Date. Castle Dental, from and
after the Closing Date, shall indemnify and hold the Sellers Indemnitees
harmless from and against any and all Damages suffered by any Sellers Indemnitee
as a result of, caused by, arising out of, or in any way relating to any breach
of warranty of Sections 5.6, 5.7, 5.8 or 5.9 of this Agreement.
11.2 INDEMNIFICATION OF THE PURCHASER. Sellers and the Shareholders,
jointly and severally, shall indemnify and hold Purchaser and its Affiliates
(the "Purchaser Indemnitees") harmless from and against any and all Damages
suffered by any Purchaser Indemnitee as a result of, caused by, arising out of,
or in any way relating to (a) any misrepresentation, breach of warranty, or
nonfulfillment of any agreement or covenant on the part of Sellers or the
Shareholders under this Agreement or any misrepresentation in or omission from
any list, schedule, certificate, or other instrument furnished or to be
furnished to the Purchaser by Sellers pursuant to the terms of this Agreement,
(b) any liability or obligation (other than those for which Sellers and the
Shareholders are being indemnified by Purchaser hereunder and other than those
relating to or arising from the Assumed Obligations) which pertains to the
ownership, operation or conduct of the Business or Assets arising from any acts,
omissions, events, conditions or circumstances occurring before the Closing
Date, or (c) the uncollectibility of any Account Receivable (net of applicable
reserve), after six months.
11.3 DEMANDS. Each indemnified party hereunder agrees that promptly upon
its discovery of facts giving rise to a claim for indemnity under the provisions
of this Agreement, including receipt by it of notice of any demand, assertion,
claim, action or proceeding, judicial or otherwise, by any third party (such
third-party actions being collectively referred to herein as the "Claim"), with
respect to any matter as to which it claims to be entitled to indemnity under
the provisions of this Agreement, it will give prompt notice thereof in writing
to the indemnifying party, together with a statement of such information
respecting any of the foregoing as it shall have. Such notice shall include a
formal demand for indemnification under this Agreement. The indemnifying party
shall not be obligated to indemnify the indemnified party with respect to any
Claim if the indemnified party knowingly failed to notify the indemnifying party
thereof in accordance with the provisions of this Agreement in sufficient time
to permit the indemnifying party or its counsel to defend against such matter
and to make a timely response thereto including, without limitation, any
responsive
-30-
motion or answer to a complaint, petition, notice or other legal, equitable or
administrative process relating to the Claim, only insofar as such knowing
failure to notify the indemnifying party has actually resulted in prejudice or
damage to the indemnifying party.
11.4 RIGHT TO CONTEST AND DEFEND. The indemnifying party shall be
entitled at its cost and expense to contest and defend by all appropriate legal
proceedings any Claim with respect to which it is called upon to indemnify the
indemnified party under the provisions of this Agreement; provided, that notice
of the intention so to contest shall be delivered by the indemnifying party to
the indemnified party within 20 days from the date of receipt by the
indemnifying party of notice by the indemnified party of the assertion of the
Claim. Any such contest may be conducted in the name and on behalf of the
indemnifying party or the indemnified party as may be appropriate. Such contest
shall be conducted by reputable counsel employed by the indemnifying party, but
the indemnified party shall have the right but not the obligation to participate
in such proceedings and to be represented by counsel of its own choosing at its
sole cost and expense. The indemnifying party shall have full authority to
determine all action to be taken with respect thereto; provided, however, that
the indemnifying party will not have the authority to subject the indemnified
party to any obligation whatsoever, other than the performance of purely
ministerial tasks or obligations not involving material expense. If the
indemnifying party does not elect to contest any such Claim, the indemnifying
party shall be bound by the result obtained with respect thereto by the
indemnified party. At any time after the commencement of the defense of any
Claim, the indemnifying party may request the indemnified party to agree in
writing to the abandonment of such contest or to the payment or compromise by
the indemnified party of the asserted Claim, whereupon such action shall be
taken unless the indemnified party determines that the contest should be
continued, and so notifies the indemnifying party in writing within 15 days of
such request from the indemnifying party. If the indemnified party determines
that the contest should be continued, the indemnifying party shall be liable
hereunder only to the extent of the amount that the other party to the contested
Claim had agreed unconditionally to accept in payment or compromise as of the
time the indemnifying party made its request therefor to the indemnified party.
11.5 COOPERATION. If requested by the indemnifying party, the
indemnified party agrees to cooperate with the indemnifying party and its
counsel in contesting any Claim that the indemnifying party elects to contest
or, if appropriate, in making any counterclaim against the person asserting the
Claim, or any cross-complaint against any person, and the indemnifying party
will reimburse the indemnified party for any expenses incurred by it in so
cooperating. At no cost or expense to the indemnified party, the indemnifying
party shall cooperate with the indemnified party and its counsel in contesting
any Claim.
11.6 RIGHT TO PARTICIPATE. The indemnified party agrees to afford the
indemnifying party and its counsel the opportunity to be present at, and to
participate in, conferences with all persons,
-31-
including governmental authorities, asserting any Claim against the indemnified
party or conferences with representatives of or counsel for such persons.
11.7 PAYMENT OF DAMAGES. The indemnifying party shall pay to the
indemnified party in immediately available funds any amounts to which the
indemnified party may become entitled by reason of the provisions of this
Agreement, such payment to be made within five days after any such amounts are
finally determined either by mutual agreement of the parties hereto or pursuant
to the final unappealable judgment of a court of competent jurisdiction.
ARTICLE XII
MISCELLANEOUS
12.1 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules) set forth the entire understanding of the parties with respect to the
subject matter hereof. Any previous agreements or understandings (whether oral
or written) between the parties regarding the subject matter hereof are merged
into and superseded by this Agreement.
12.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors of
the parties hereto; provided that this Agreement, including the representations
and warranties herein, may not be assigned by Sellers or the Shareholders
without the prior written consent of Purchaser or by Purchaser to any Person
without the prior written consent of Sellers.
12.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
12.4 HEADINGS. The headings of the Articles, Sections and paragraphs of
this Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
12.5 MODIFICATION AND WAIVER. No amendment, modification or alteration
of the terms or provisions of this Agreement shall be binding unless the same
shall be in writing and duly executed by the parties hereto, except that any of
the terms or provisions of this Agreement may be waived in writing at any time
by the party which is entitled to the benefits of such waived terms or
provisions. No waiver of any of the provisions of this Agreement shall be deemed
to or shall constitute a waiver of any other provision hereof (whether or not
similar). No delay on the part of either party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof.
-32-
12.6 NO THIRD-PARTY BENEFICIARY RIGHTS. Except as otherwise provided in
Section 11.1, this Agreement is not intended to and shall not be construed to
give any Person (other than the parties signatory hereto any interest or rights
(including, without limitation, any third-party beneficiary rights) with respect
to or in connection with any agreement or provision contained herein or
contemplated hereby.
12.7 SALES AND TRANSFER TAXES. Purchaser shall be responsible for and
pay all applicable sales, stamp, transfer, documentary, use, registration,
filing and other taxes and fees (including any penalties and interest) that may
become due or payable in connection with this Agreement and the transactions
contemplated hereby.
12.8 EXPENSES. Except as otherwise provided in this Agreement, Sellers,
the Shareholders and Purchaser shall each pay all costs and expenses incurred by
them or on their behalf in connection with this Agreement and the transactions
contemplated hereby.
12.9 NOTICE. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party shall be sufficiently
given if delivered in person or sent by telecopier or registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
if to Purchaser, to:
Castle Dental Centers of Texas, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
with a copy to:
▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Bracewell & ▇▇▇▇▇▇▇▇▇, L.L.P.
South Tower Pennzoil Place
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
-33-
if to Sellers or the Shareholders to:
▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
with a copy to:
Mr. ▇▇▇▇▇ ▇▇▇▇▇▇
Heard & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇. ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
or at such other address for a party as shall be specified by like notice, and
such notice or communication shall be deemed to have been duly given as of the
date so delivered, mailed or sent by telecopier.
12.10 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas without regards to conflict of
law rules thereof.
12.11 CONFIDENTIALITY; PUBLICITY. The terms and conditions of this
Agreement shall not be disclosed by any party hereto without the prior written
consent of the other parties; provided, however, that Purchaser may disclose
such information as is required to comply with the requirements of its lenders
and investors and to comply with applicable securities laws. No party hereto
shall issue any press release or make any other public statement, in each case
relating to or connected with or arising out of this Agreement or the matters
contained herein, without obtaining the prior approval of the other party hereto
to the contents and the manner of presentation and publication thereof.
12.12 CONSENT TO JURISDICTION. Any judicial proceeding brought against
any of the parties to this Agreement on any dispute arising out of this
Agreement or any matter related hereto shall be brought in any federal or state
court located in Houston, Texas, and, by execution and delivery of this
Agreement, each of the parties to this Agreement accepts for itself the
exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement.
12.13 SEVERABILITY. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party.
-34-
Upon such determination that any provision is invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled.
12.14 ENFORCEMENT. The parties hereto agree that the remedy at law for
any breach of this Agreement is inadequate and that should any dispute arise
concerning the sale of the Assets or any other matter hereunder, this Agreement
shall be enforceable in a court of equity by an injunction or a decree of
specific performance. Such remedies shall, however, be cumulative and
nonexclusive, and shall be in addition to any other remedies which the parties
hereto may have.
[The remainder of this page has been intentionally left blank.]
-35-
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on its behalf as of the date first above written.
CASTLE DENTAL CENTERS, INC.
By:
Name:
Title:
CASTLE DENTAL CENTERS OF TEXAS, INC.
By:
Name:
Title:
N.A. DENTAL SERVICES, P.C.
By:
Name:
Title:
EFW DENTAL SERVICES, P.C.
By:
Name:
Title:
-36-
HDC DENTAL SERVICES, P.C.
By:
Name:
Title:
MIDCITIES DENTAL SERVICES, P.C.
By:
Name:
Title:
NEFW DENTAL SERVICES, P.C.
By:
Name:
Title:
WEST FT. WORTH DENTAL SERVICES, P.C.
By:
Name:
Title:
-37-
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, D.D.S.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-38-