1
EXHIBIT 2(a)
================================================================================
AGREEMENT OF PURCHASE AND SALE
By and Among
MT ASSOCIATES,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S,
▇▇▇▇▇ ▇. ▇▇▇▇▇, D.M.D.
and
VALLEY FORGE DENTAL ASSOCIATES, INC.
================================================================================
2
TABLE OF CONTENTS
-----------------
SECTION PAGE
------- ----
Recitals ...................................... 1
I Purchase and Sale of the Assets and the Shares........ 2
II Representations, Warranties, Covenants
and Agreements of the Partnership,
Talus and ▇▇▇▇▇▇▇................................... 9
III Representations, Warranties, Covenants
and Agreements of Talus and ▇▇▇▇▇▇▇................. 28
IV Representations, Warranties, Covenants
and Agreements of the Purchaser..................... 31
V [Intentionally Omitted]............................... 32
VI Additional Covenants of the
Partnership, Talus and ▇▇▇▇▇▇▇...................... 32
VII Closing ...................................... 36
VIII Conditions to the Partnership's
Obligation to Close................................. 37
IX Conditions to the Purchaser's
Obligation to Close................................. 39
X Indemnification....................................... 42
XI Non-Competition Agreement............................. 46
XII Brokers and Finders................................... 49
XIII Transfer of Name...................................... 49
XIV Miscellaneous......................................... 49
Signatures............................................ 55
SCHEDULES
I. EXCLUDED ASSETS
II. ASSUMED LIABILITIES
III. CONTINGENT PAYMENTS
IV. CONTINGENT PAYMENT MATRIX
V. ALLOCATION OF PURCHASE PRICE
EXHIBITS
A-1 FORM OF CONVERTIBLE SUBORDINATED NOTE
A-2 FORM OF CLOSING SUBORDINATED NOTE
A-3 FORM OF CONTINGENT PAYMENT SUBORDINATED NOTE
B. [INTENTIONALLY OMITTED]
C. CERTAIN CONSENTS, LIENS, CONTRACTS, PERMITS
AND OTHER MATTERS
D. FINANCIAL STATEMENTS
E. CERTAIN EMPLOYEES OF THE BUSINESS
F. EMPLOYEE BENEFIT PLANS
G. INTELLECTUAL PROPERTY RIGHTS
H. BANK ACCOUNTS
I-1 FORM OF EMPLOYMENT AGREEMENT - ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
I-2 FORM OF EMPLOYMENT AGREEMENT - ▇▇▇▇▇ ▇. ▇▇▇▇▇, D.M.D.
(i)
3
J-1 FORM OF STOCKHOLDERS AGREEMENT
J-2 FORM OF STOCKHOLDERS AGREEMENT
K. FORM OF MANAGEMENT AGREEMENT
L. FORM OF ESCROW AGREEMENT
M. FORM OF OPTION AGREEMENT
(ii)
4
AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT made as of the 1st day of September, 1995 by
and among MT Associates, a Pennsylvania general partnership (the "Partnership"),
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S. ("▇▇▇▇▇▇▇"), ▇▇▇▇▇ ▇. ▇▇▇▇▇, D.M.D. ("Talus"), and
Valley Forge Dental Associates, Inc., a Delaware corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Partnership is engaged in the business of
providing dental services and related activities (i) through its wholly owned
subsidiary Penn Dental Associates, P.C., a Pennsylvania professional corporation
("Penn Dental"), at one facility in the Commonwealth of Pennsylvania, (such
activities being hereinafter referred to as the "Pennsylvania Business") and
(ii) at four locations in the Commonwealth of Virginia under the business names
"Hallmark Dental Group", "▇▇▇▇▇▇▇▇ Dental Associates", "Gallows Dental Group",
and "Alexandria Dental Centre" (such activities being hereinafter referred to as
the "Virginia Business", and together with the Pennsylvania Business, the
"Business");
WHEREAS, each of ▇▇▇▇▇▇▇ and Talus is the holder of a general
partnership interest in the Partnership together equaling an aggregate of one
hundred percent (100%) of the partnership interests (such partnership interests
are hereinafter referred to as the "Interests");
WHEREAS, the Partnership is the holder of 100 shares of common
stock, $1.00 par value (the "Penn Common Stock"), of Penn Dental, which shares
constitute all of the issued and outstanding shares of capital stock of Penn
Dental (the "Shares");
WHEREAS, the Purchaser (or its designee) desires to acquire
from the Partnership all of the Shares, and the Partnership desires to sell all
of the Shares to the Purchaser, on the terms and subject to the conditions
hereafter set forth; and
WHEREAS, the Purchaser (or its designee) desires to acquire
from the Partnership certain assets of the Virginia Business described in
Section I(C)(i) hereof (the "Assets") and to assume certain liabilities and
contractual obligations of the Business as described in Section I(C)(ii) hereof
(the "Assumed Liabilities"), and the Partnership
5
2
desires to sell or assign the Assets and to assign the Assumed Liabilities to
the Purchaser (or its designee), on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, and intending to be
legally bound, the parties hereto hereby agree as follows:
SECTION I
PURCHASE AND SALE OF
THE ASSETS AND THE SHARES
A. Purchase and Sale of the Assets and the Shares. Subject to
the terms and conditions of this Agreement and on the basis of the
representations, warranties, covenants and agreements herein contained, at the
Closing (as hereinafter defined):
(i) The Partnership agrees to sell, assign and convey to the
Purchaser (or its designee), and the Purchaser (or its designee) agrees to
purchase, acquire and accept from the Partnership, the Assets.
(ii) The Partnership agrees to assign to the Purchaser (or its
designee) and the Purchaser (or its designee) agrees to accept and assume from
the Partnership, the Assumed Liabilities. The Purchaser (and its designee) shall
not assume and shall have no responsibility with respect to, and shall be
indemnified by each of the Partnership, ▇▇▇▇▇▇▇ and Talus, jointly and
severally, against, any and all liabilities or obligations of the Partnership,
Penn Dental, the Virginia Business, Talus and ▇▇▇▇▇▇▇, except for the Assumed
Liabilities.
(iii) The Partnership agrees to sell, assign and convey to the
Purchaser, and the Purchaser agrees to purchase, acquire and accept from the
Partnership, the Shares. It is understood and agreed that after the date of the
Closing the Purchaser (or its designee) shall not be responsible for any
liability or obligation of Penn Dental accruing prior to the date of the Closing
except for those liabilities specifically set forth in the list of Assumed
Liabilities on Schedule II hereto.
B. Purchase Price. The aggregate purchase price (the "Purchase
Price") for the Assets and the Shares is (i) $2,535,000, and (ii) the contingent
payments, if earned
6
3
(the "Contingent Payments"), provided for in Section I(D) hereof. The Purchase
Price payable at the Closing shall be made by delivery to (i) the Partnership of
(a) $1,600,000, in cash, by means of wire transfer to an account designated by
the Partnership, (b) a three-year 6% convertible subordinated promissory note of
the Purchaser in the form of Exhibit A-1 attached hereto, payable to the order
of the Partnership in the principal amount of $800,000 (the "Convertible Note"),
and (c) a three-year 6% subordinated promissory note of the Purchaser in the
form of Exhibit A-2 attached hereto payable to the order of the Partnership in
the principal amount of $135,000 (the "Subordinated Note"; and together with the
Convertible Note, the "Closing Notes").
C. Assets; Assumed Liabilities.
(i) The Assets shall consist of all assets, business, contract
rights, patient records, financial books and financial records, other books and
records and good will, of every kind and nature, real, personal, and mixed,
tangible and intangible, wherever located, of the Partnership, Talus and ▇▇▇▇▇▇▇
used in or in any way related to the Virginia Business as conducted by the
Partnership, Talus and ▇▇▇▇▇▇▇, including, but not limited to, accounts
receivable, inventory and supplies, furniture and equipment, prepaid expenses,
deposits, tradenames, trademarks, patents, copyrights, inventions, books and
records, patient files, operating and management systems, and all other
agreements and arrangements necessary for the uninterrupted and continuing
operation of the Virginia Business, except for the assets listed in Schedule I
hereto (the "Excluded Assets").
(ii) The Assumed Liabilities shall consist of and shall be
limited solely to the obligations and liabilities of the Company, Penn Dental,
Talus, ▇▇▇▇▇▇▇ and the Virginia Business listed in Schedule II hereto. The
Purchaser (and its designee) shall not assume, shall have no responsibility with
respect to, and shall be indemnified, by each of the Partnership, Talus and
▇▇▇▇▇▇▇, jointly and severally, against, any liabilities or obligations of the
Partnership, Penn Dental, the Virginia Business, Talus and ▇▇▇▇▇▇▇, except for
the Assumed Liabilities set forth in Schedule II hereto. Each of the
Partnership, Talus and ▇▇▇▇▇▇▇, jointly and severally, shall remain liable for,
and shall pay when due, any and all obligations and liabilities of the
Partnership, Penn Dental, the Virginia Business, Talus and ▇▇▇▇▇▇▇ other than
the Assumed Liabilities.
7
4
(iii) It is specifically understood and agreed that the
Assumed Liabilities shall not include (a) liabilities of the Partnership, Penn
Dental, the Virginia Business, Talus and ▇▇▇▇▇▇▇ for expenses incurred or
accrued, at any time, in connection with the transactions contemplated by this
Agreement or in any other connection not in the ordinary course of business, (b)
except as specifically set forth in Schedule II hereto, liabilities of the
Company, Penn Dental, the Virginia Business, Talus and ▇▇▇▇▇▇▇ for federal,
state and municipal income, sales, franchise and other taxes, including any
interest, penalties and assessments thereon, and (c) liabilities of the
Partnership, Penn Dental, the Virginia Business, Talus and ▇▇▇▇▇▇▇ arising out
of or relating to any governmental or private payor claims, returns, invoices,
cost reports, late filings or billing practices which relate to any period prior
to the date of Closing. Neither the Purchaser nor any designee of the Purchaser
assuming the Assumed Liabilities shall assume any liabilities of the
Partnership, Penn Dental, the Virginia Business, Talus or ▇▇▇▇▇▇▇ in connection
with any understanding or agreement, whether written or oral, with respect to
any retirement plan, including, but not limited to, any profit sharing, 401(k)
or defined benefit plan (as defined in Section 414(j) of the Internal Revenue
Code of 1986, as amended (the "Code").
D. Contingent Payments. Each of the Partnership, ▇▇▇▇▇▇▇,
Talus and the Purchaser acknowledges and agrees that because many of the
locations of the Business have short operating histories, the full value of the
Shares and the Virginia Business on the date of the Closing is difficult to
ascertain with any degree of certainty on the date of Closing. Accordingly, the
parties to this Agreement agree that it is appropriate to provide for the
Contingent Payments set forth in this Section I(D) to reflect more accurately
the full value of the Shares and the Virginia Business on the date of Closing.
Subject to the conditions set forth herein and in Schedule IV hereto, within
ninety (90) days after September 30, 1996, September 30, 1997 and September 30,
1998, the Purchaser shall deliver to the Partnership, the Contingent Payments,
if any, payable with respect to the twelve-month periods ending September 30,
1996, September 30, 1997 and September 30, 1998, respectively. The amount of the
Contingent Payments payable to the Partnership with respect to each such
twelve-month period (each, a "Contingent Period") (i) shall be based upon the
achievement by the Business of targeted "net revenues" (as hereinafter defined)
during such Contingent Period and the achievement by the Business of targeted
"pre-tax earnings" (as hereinafter defined) as a percentage of net revenues of
the Business
8
5
during such Contingent Period and (ii) shall be determined in accordance with
the provisions hereof, Schedule III hereto and the terms of the contingent
payment matrix set forth in Schedule IV hereto (the "Contingent Payment
Matrix"). Each of the Contingent Payments, if earned, shall be made by delivery
to the Partnership of (i) certified or official bank checks payable to the order
of the Partnership and (ii) three-year convertible subordinated promissory notes
of the Purchaser in the form of Exhibit A-3 hereto (the "Contingent Notes"; and
together with the Closing Notes, the "Notes"), in each case, in such amounts of
cash and such principal amounts as are determined in accordance with Schedule
III hereto and Schedule IV hereto. The Purchaser agrees to pay the Partnership
interest at the rate of eleven percent (11%) per annum on any undisputed cash
Contingent Payments which are not paid within ninety (90) days of September 30,
1996, September 30, 1997 and September 30, 1998, as the case may be. Such
interest shall accrue from the date which is ninety (90) days after the
applicable September 30 until the date payment is received.
E. Computation of Net Revenues and Pre-Tax Earnings; Certain
Adjustments. The Purchaser shall, within ninety (90) days after the end of each
Contingent Period, compute the amount of the net revenues and pre-tax earnings
of the Business for such Contingent Period. For purposes of calculating net
revenues and pre-tax earnings, the Business (which shall consist of the current
Philadelphia, Pennsylvania facility and the four facilities in Virginia) shall
be accounted for as a separate business enterprise with separate financial books
and accounting records, notwithstanding that the Business is owned or operated
by one or more legal entities. The amount so computed shall be the net revenues
and pre-tax earnings for purposes of determining whether or not Contingent
Payments shall be due and payable. Notwithstanding the determination of net
revenues and pre-tax earnings for any applicable period by the Purchaser, the
Partnership shall receive within each such ninety (90) day period the
information upon which such determination was made, and shall, in the event of a
dispute as to the amount or method of calculation of such net revenues and
pre-tax earnings have the right, together with its representatives, to review
and make appropriate copies of all applicable books, records and work papers
relating to the determination of net revenues and pre-tax earnings. For purposes
of this Agreement, (i) "net revenues" of the Business shall mean gross charges
billed for all services provided by the Business (or, in the event that all or
substantially all of the assets and business of the Business shall have been
transferred to another entity or entities, the allocable portion of the gross
charges of such other
9
6
entity or entities attributable to the Business) during the applicable
Contingent Period less any necessary adjustments to reflect patient refunds and
amounts which are determined to be uncollectible at the time of billing
(contractual allowances) or in the future (billing errors) as determined in
accordance with generally accepted accounting principles consistent with the
Purchaser's accounting practices; and (ii) "pre-tax earnings" shall mean the
earnings before income taxes of the Business (or, in the event that all or
substantially all the assets and business of the Business shall have been
transferred to another entity or entities, the allocable portion of the pre-tax
earnings of such other entity or entities) for the applicable Contingent Period
as determined in accordance with generally accepted accounting principles
consistent with the Purchaser's accounting practices; provided, however, that
all revenues and earnings of the Business received from the Medicare or Medicaid
programs or from the Office of Civilian Health and Medical Program of the
Uniformed Services ("CHAMPUS") programs shall be excluded from "net revenues"
and "pre-tax earnings" for the purposes of this Agreement. The Purchaser agrees
that the Purchaser will provide the Business with working capital at a level and
take such other actions which, in the Purchaser's reasonable judgment, will
permit the Business to maximize its net revenues and pre-tax earnings, subject
at all times to the Purchaser's obligations to its shareholders and any
applicable statutory or regulatory requirements. Operating expenses will include
all charges directly related to the daily operations of the Business and will
include the following:
- Clinical salaries and benefits.
- Administrative salaries and benefits.
- Amounts paid to independent contractors.
- Expenses for office supplies consumed.
- Telephone expenses.
- Depreciation costs related to specific assets used in
connection with the operation of the Business.
- Insurance costs directly related to the worker's
compensation, professional and general liability or
property insurance associated with the Business.
10
7
- Testing supplies consumed by the Business.
- Travel and entertainment expenses incurred, except
for those expenses required to attend any of the
Purchaser's corporate or regional meetings.
- Expenses for the lease or rental of any equipment
used in the office or directly by employees or
independent contractors.
- Rents and other charges for facilities used in the
operation of the Business.
- Charges incurred for the processing of payroll.
- Advertising expenses in local newspapers and
publications.
- Amounts related to the write-off or reserving of bad
debts.
- Expenses related to the collection of bad debts and
the income therefrom.
- Expenses relating to clinical supervision.
- Talus's salary and bonus up to $150,000.
For purposes of calculating pre-tax earnings, operating expenses will not
include the following charges:
- Corporate overhead allocations.
- Acquisition-related interest expense.
- Legal and accounting fees.
- Amortization of goodwill or other intangibles arising
in connection with the transactions contemplated by
this Agreement.
- Mehlman's salary, bonus and expenses.
11
8
- Talus's expenses and his salary and bonus in excess
of aggregate of $150,000.
- Management fees.
- Any expenses incurred in connection with the
operations of the Start-Up Business (as hereinafter
defined).
For purposes of determining the net revenues and pre-tax
earnings of the Business pursuant to this Section I(E), the Business shall not
include any net revenues, pre-tax earnings or expenses in connection with the
operation of the two (2) facilities in Sterling and Fredricksburg, Virginia and
the one (1) facility in ▇▇▇▇▇▇▇▇, Maryland by Mid Atlantic MSO, LLC
(collectively, the "Start-Up Business").
F. Allocation. The Purchase Price attributable to the Assets
(including the Assumed Liabilities) shall be allocated as set forth in Schedule
V hereto. The parties hereto agree that the allocation of the Purchase Price is
intended to comply with the allocation method required by Section 1060 of the
Code. The parties shall cooperate to comply with all substantive and procedural
requirements of Section 1060 of the Code and any regulations thereunder, and the
allocation shall be adjusted if, and to the extent, necessary to comply with the
requirements of Section 1060 of the Code. The Purchaser, the Partnership, Talus
and ▇▇▇▇▇▇▇ will not take or permit any affiliated person to take, for federal,
state or local income tax purposes, any position inconsistent with the
allocation set forth in Schedule V hereto, or, if applicable, such adjusted
allocation, except as otherwise may be required by law. Each of the Purchaser
and the Partnership agrees that each of them shall attach to its tax returns for
the tax year in which the Closing shall occur an information statement on Form
8594, which shall be completed in accordance with allocations set forth in
Schedule V hereto and with respect to subsequent years in which any Contingent
Payments are made shall file supplementary statements as required under Section
1060 of the Code.
G. Assignment. The parties hereto agree that the Purchaser may
designate one or more direct or indirect wholly owned subsidiaries of the
Purchaser to acquire the Assets and the Shares and to assume the Assumed
Liabilities; provided, however, that the Purchaser's payment obligations
hereunder shall not be affected by any such designations by the Purchaser.
12
9
SECTION II
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE PARTNERSHIP, TALUS AND ▇▇▇▇▇▇▇
Each of the Partnership, Talus and ▇▇▇▇▇▇▇, jointly and
severally, hereby represents and warrants to, and covenants and agrees with, the
Purchaser, as of the date hereof and as of the date of the Closing, that:
A. Organization and Qualification. (i) The Partnership is duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has full partnership power and authority to own
its properties and to conduct the businesses in which it is now engaged. The
Partnership is in good standing in each other jurisdiction where it is presently
conducting business wherein the failure so to qualify would have a material
adverse effect on its businesses or properties. Other than Penn Dental, the
Partnership does not have any subsidiaries, or own any capital stock or other
proprietary interest, directly or indirectly, in any other corporation,
association, trust, partnership, joint venture or other entity, nor does the
Partnership have any agreement with any person, firm or corporation to acquire
any such capital stock or other proprietary interest. The Partnership has full
power, authority and legal right and all necessary approvals, permits, licenses
and authorizations to own its properties and to conduct its businesses and to
enter into and consummate the transactions contemplated under this Agreement.
The copies of the agreement of general partnership of the Partnership which has
been delivered to the Purchaser are complete and correct.
(ii) Penn Dental is duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania and has full
corporate power and authority to own its properties and to conduct the
businesses in which it is now engaged. Penn Dental is in good standing in each
other jurisdiction wherein the failure so to qualify would have a material
adverse effect on its businesses or properties. Penn Dental owns no
subsidiaries, owns no capital stock or other proprietary interest, directly or
indirectly, in any other corporation, association, trust, partnership, joint
venture or other entity and does not have any agreement with any person, firm or
corporation to acquire any such capital stock or other proprietary interest.
Penn Dental has full power, authority and legal right and all necessary
approvals, permits, licenses and authorizations to own its properties and to
conduct the Pennsylvania Business and to enter into and
13
10
consummate the transactions contemplated under this Agreement. The copies of the
certificate of incorporation and by-laws of Penn Dental which have been
delivered to the Purchaser are complete and correct.
B. Authority. The execution and delivery of this Agreement by
the Partnership, the performance by the Partnership of its covenants and
agreements hereunder and the consummation by the Partnership of the transactions
contemplated hereby have been duly authorized by all necessary partnership
action. This Agreement constitutes a valid and legally binding obligation of the
Partnership, enforceable against the Partnership in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors rights generally or by
general principles of equity.
C. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement by the Partnership, ▇▇▇▇▇▇▇ and Talus, nor the consummation of
the transactions contemplated hereby by the Partnership, ▇▇▇▇▇▇▇ and Talus,
violates any provision of the certificate of incorporation or by-laws of Penn
Dental or the governing documents of the Partnership or any statute, ordinance,
regulation, order, judgment or decree of any court or governmental agency or
board applicable to the Partnership, Penn Dental, ▇▇▇▇▇▇▇ and Talus, or
conflicts with or will result in any breach of any of the terms of or constitute
a default under or result in the termination of or the creation of any lien
pursuant to the terms of any contract or agreement to which the Partnership,
Penn Dental, Talus or ▇▇▇▇▇▇▇ is a party or by which the Partnership, Penn
Dental, Talus, ▇▇▇▇▇▇▇ or any of the Assets or any of the assets and properties
of the Partnership, Penn Dental or the Business is bound. No consents, approvals
or authorizations of, or filings with, any governmental authority or any other
person or entity are required in connection with the execution and delivery by
the Partnership, ▇▇▇▇▇▇▇ or Talus of this Agreement, the consummation of the
transactions by the Partnership, ▇▇▇▇▇▇▇ or Talus contemplated hereby and the
operation of the Business by the Purchaser (or its designee) subsequent to the
Closing, except for required consents, if any, to assignment of contracts,
leases and other agreements as set forth in Exhibit C.
D. Capitalization. (i) The Interests constitute all of the
issued and outstanding partnership interests of the Partnership. All of the
outstanding Interests have been validly issued and are fully paid and are owned
by Talus and ▇▇▇▇▇▇▇. There are no issued and
14
11
outstanding subscriptions, warrants, options, calls, commitments or other rights
or agreements to which the Partnership, Talus or ▇▇▇▇▇▇▇ is bound relating to
the issuance or sale of interests in the Partnership and no persons other than
Talus and ▇▇▇▇▇▇▇ have any interest in the Partnership or the Interests.
(ii) The authorized capital stock of Penn Dental consists of
1,000 shares of Penn Common Stock, of which 100 shares are issued and
outstanding. All of the issued and outstanding shares of Penn Common Stock have
been duly and validly authorized and issued and are fully paid and
non-assessable and are owned beneficially and of record by the Partnership, free
and clear of any lien, encumbrance, charge, security interest or claim
whatsoever. There are no outstanding subscriptions, warrants, options, calls,
commitments or other rights or agreements to which the Partnership or Penn
Dental is bound relating to the issuance, sale or redemption of shares of Penn
Common Stock or other securities of Penn Dental and no person other than the
Partnership has any interest in the Shares. No shares of capital stock or other
securities of Penn Dental are reserved for any purpose.
E. Financial Statements; No Undisclosed Liabilities. The
Partnership, Talus and ▇▇▇▇▇▇▇ have delivered to the Purchaser (i) the balance
sheet of Penn Dental as of July 31, 1995, together with the related statement of
income and expenses, if any, for the period then ended, which financial
statements (the "Penn Dental Financial Statements") have been prepared by Penn
Dental and (ii) the balance sheets of the offices of the Virginia Business as of
June 30, 1995, together with the related statements of earnings-cash basis for
the period then ended, which financial statements (the "Virginia Financial
Statements"; and together with the Penn Dental Financial Statements, the
"Financial Statements") have been prepared by ▇▇▇▇▇▇▇. The Financial Statements
are true and correct in all material respects and have been prepared in
accordance with a cash basis method of accounting applied consistently
throughout the periods involved. The Financial Statements fully and fairly
present the financial condition of Penn Dental and the Virginia Business as at
the dates thereof and the results of the operations of Penn Dental and the
Virginia Business for the periods indicated. The balance sheets contained in the
Financial Statements fairly reflect all liabilities of the Business of the types
normally reflected in cash basis balance sheets at the dates thereof and except
to the extent set forth in or provided for in the balance sheet of Penn Dental
as of July 31, 1995 and the balance sheets of the offices of the Virginia
15
12
Business as of June 30, 1995 (collectively, the "1995 Balance Sheet") included
in the Financial Statements or as identified in Exhibit C, and except for
current liabilities incurred in the ordinary course of business consistent with
past practices (and not materially different in type or amount), none of the
Partnership, the Virginia Business or Penn Dental has any material liabilities
or obligations of any nature, whether absolute, contingent or otherwise, whether
due or to become due, whether properly reflected under generally accepted
accounting principles as a liability or a charge or reserve against an asset or
equity account, and whether the amount thereof is readily ascertainable or not;
provided, however, that no obligations of either the Virginia Business or Penn
Dental are reflected in the Financial Statements, which would be reflected on
accrual basis financial statements but not cash basis financial statements. The
Partnership, Talus and ▇▇▇▇▇▇▇ are not aware of any material omissions in the
Financial Statements. The books and records of Penn Dental are auditable by
Schotz, Miller, Footer & Magarick and the books and records of the Virginia
Business are auditable by ▇▇▇▇, ▇▇▇▇▇▇ & Company. A true and correct copy of the
Financial Statements is attached hereto as Exhibit D.
F. Absence of Certain Changes. Except as set forth in Exhibit
C, subsequent to June 30, 1995, there has not been any (i) material adverse or
prospective change in the condition of the Business, financial or otherwise, or
in the results of the operations of the Business; (ii) damage or destruction
(whether or not insured) affecting the properties or business operations of the
Business or the Assets exceeding $25,000 in the aggregate; (iii) labor dispute
or, threatened labor dispute involving the employees of the Business or any
resignations or threatened resignations of dentists, orthodontists, or other
professional employees, or notice that dentists, orthodontists, or other
professional employees intend to take leaves of absence, with or without pay;
(iv) actual or threatened disputes pertaining to the Business with any major
accounts or referral sources of the Business, or actual or threatened loss of
business from any of the major accounts or referral sources of the Business
which disputes or threatened losses would have a material adverse effect on the
Business or the properties and assets of the Business; or (v) changes in the
methods or procedures for billing or collection of customer accounts or
recording of customer accounts receivable or reserves for doubtful accounts with
respect to the Business.
G. No Dividends, Loans, Etc. Except as set forth in Exhibit C,
subsequent to June 30, 1995, Penn Dental
16
13
has not declared or paid any dividend or made any other distribution in respect
of its capital stock, or obligated itself to pay dividends or make
distributions, or purchased, redeemed or otherwise acquired or disposed of any
shares of capital stock and the Partnership has not made any distribution of any
kind or obligated itself to make any distribution of any kind, to Talus or
▇▇▇▇▇▇▇; and the Partnership, Penn Dental, Talus and ▇▇▇▇▇▇▇ have not, except in
the normal course of business, paid or discharged any outstanding indebtedness.
Subsequent to June 30, 1995, the Partnership, Penn Dental, Talus and ▇▇▇▇▇▇▇, in
the conduct of the Business, have paid all normal and recurring installments (i)
of bank indebtedness, (ii) under leases and contractual obligations and (iii) of
other amounts due and payable to any persons. Subsequent to June 30, 1995, none
of the Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇, in the conduct of the
Business, has incurred any bank indebtedness, entered into any leases, loan
agreements or contracts, obligations or arrangements for the payment of money or
property to any person, or permitted any liens or encumbrances to attach to any
of its assets. Subsequent to June 30, 1995, neither the Partnership nor Penn
Dental has (i) made any loans or advances to Talus or ▇▇▇▇▇▇▇ or members of the
families of either of Talus or ▇▇▇▇▇▇▇, (ii) repaid the principal of or interest
on any indebtedness of the Partnership or Penn Dental to either of Talus or
▇▇▇▇▇▇▇ or members of the families of either of Talus or ▇▇▇▇▇▇▇, or (iii)
forgiven any principal of or interest on any indebtedness of either of Talus or
▇▇▇▇▇▇▇ or members of the families of either of Talus or ▇▇▇▇▇▇▇ to the
Partnership or Penn Dental.
H. Real Property Owned or Leased. A list and brief description
of all real property owned by or leased to or by the Business or in which the
Partnership, Penn Dental or Talus or ▇▇▇▇▇▇▇, in the conduct of Business, has
any interest is set forth in Exhibit C. All such leased real property is held
subject to written leases or other agreements (a description of which, including
the expiration date of all leases, is set forth in Exhibit C) which are valid
and effective in accordance with their respective terms, and there are no
existing defaults or events of default, or events which with notice or lapse of
time or both would constitute defaults, thereunder on the part of the
Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇, in the conduct of the Business,
except for defaults, if any, as are not material in character, amount or extent
and do not, severally or in the aggregate, materially detract from the value or
interfere with the present use of the property subject to such lease or affect
the validity, enforceability or assignability of such lease or otherwise
materially
17
14
impair the Business or its operations. None of the Partnership, Penn Dental,
Talus or ▇▇▇▇▇▇▇ has any knowledge of any default or claimed or purported or
alleged default or state of facts which with notice or lapse of time or both
would constitute a material default on the part of any other party in the
performance of any obligation to be performed or paid by such other party under
any lease referred to in Exhibit C. None of the Partnership, Penn Dental, Talus
or ▇▇▇▇▇▇▇ has received any written or oral notice to the effect that any lease
will not be renewed at the termination of the term thereof or that any such
lease will be renewed only at a substantially higher rent.
I. Title to Assets; Condition of Property.
(i) Each of the Partnership and Penn Dental has good and valid
title to all the assets and properties owned by it, including, without
limitation, the properties and assets reflected in the 1995 Balance Sheet
(except for assets leased under leases set forth in Exhibit C, inventory and
other assets sold or retired and accounts receivable collected upon, since the
dates of the balance sheets constituting the 1995 Balance Sheet in the ordinary
course of business consistent with past practices), free and clear of all liens,
charges, encumbrances, security interests or claims whatsoever, except as set
forth in Exhibit C. The Partnership has the right, power and authority to sell
and transfer the Assets and the Shares to the Purchaser (or its designee), and
upon such transfer the Purchaser (or its designee) will acquire good and
marketable title to the Assets and the Shares, free and clear of all liens,
charges, encumbrances, security interests or claims whatsoever, except for any
claims arising from the Partnership's failure to obtain required consents to
assignment as set forth in Exhibit C.
(ii) The properties and assets of the Partnership and Penn
Dental and those leased by them include all properties and assets used in the
operations of the Business as currently conducted. All such properties and
assets of the Business are in operating condition and repair, consistent with
their respective ages, and have been maintained and serviced in accordance with
the normal practices of the Business. None of such properties or assets is
subject to any liens, charges, encumbrances or security interests, except as set
forth in Exhibit C. None of such properties or assets (including the Assets) (or
uses to which they are put) fails to conform with any applicable agreement, law,
ordinance or regulation in a manner which is likely to be material to the
operation of the Business. The Partnership and Penn Dental own or lease all the
18
15
properties and assets which have been located at or on any of the leased
premises of the Business at any time since July 1, 1995.
J. Taxes. The Partnership, Penn Dental and Talus and ▇▇▇▇▇▇▇,
in connection with the Business, have filed or caused to be filed on a timely
basis, all federal, state, local, foreign and other tax returns, reports and
declarations (collectively, "Tax Returns") required to be filed by the
Partnership, Penn Dental and the Business where the failure to file would have a
material adverse effect on the Business. All Tax Returns filed by the
Partnership, Penn Dental and ▇▇▇▇▇▇▇ and Talus in connection with the Business
are true, complete and correct in all material respects. The Partnership, Penn
Dental and Talus and ▇▇▇▇▇▇▇, in the conduct of the Business, have paid all
income, estimated, excise, franchise, gross receipts, capital stock, profits,
stamp, occupation, sales, use, transfer, value added, property (whether real,
personal or mixed), employment, unemployment, disability, withholding, social
security, workers' compensation and other taxes, and interest, penalties, fines,
costs and assessments (collectively, "Taxes"), due and payable with respect to
the periods covered by such Tax Returns (whether or not reflected thereon).
Except as to those which arise in the ordinary course of business in respect of
Taxes not yet due and payable, there are no tax liens on any of the properties
or assets, real, personal or mixed, tangible or intangible, of the Business.
Since July 1, 1995, none of the Partnership, Penn Dental and ▇▇▇▇▇▇▇ or Talus,
in connection with the Business, has incurred any tax liability other than in
the ordinary course of business. Except as set forth in Exhibit C, no Tax Return
of the Partnership, Penn Dental or Talus and ▇▇▇▇▇▇▇, in connection with the
Business, has ever been audited. No deficiency in Taxes for any period has been
asserted by any taxing authority which remains unpaid at the date hereof (the
results of any settlement being set forth on Exhibit C hereto), no written
inquiries or notices have been received by the Partnership, Penn Dental, Talus
or ▇▇▇▇▇▇▇ from any taxing authority with respect to possible claims for Taxes
and none of the Partnership, Penn Dental or Talus and ▇▇▇▇▇▇▇ has any reason to
believe that such an inquiry or notice is pending or threatened, and, to the
best of the knowledge of the Partnership, Penn Dental, Talus and ▇▇▇▇▇▇▇, there
is no basis for any additional claims or assessments for Taxes. None of the
Partnership, Penn Dental or Talus and ▇▇▇▇▇▇▇, in connection with the Business,
has agreed to the extension of the statute of limitations with respect to any
Tax Return or tax period. The Partnership, Penn Dental, Talus and ▇▇▇▇▇▇▇ have
delivered to the Purchaser copies of the federal and state income or
19
16
franchise or other type of Tax Returns filed by the Partnership, Penn Dental and
Talus and ▇▇▇▇▇▇▇, in connection with the Business, for the past three years
and, to the best knowledge of the Partnership, Penn Dental, Talus and ▇▇▇▇▇▇▇,
for all other past periods as to which the appropriate statute of limitations
has not lapsed.
The Partnership at its own expense, shall be responsible for
preparing and filing when due, any and all federal, state, municipal and other
Tax Returns of Penn Dental required to be filed by Penn Dental in respect of any
and all periods which end prior to or with the date of the Closing (including,
without limitation, Penn Dental's federal income Tax Returns for the short
taxable year ending with the date of the Closing) to the extent not already
filed, whether or not required to be filed on or before the date of the Closing,
and shall pay all Taxes (and interest, penalties, fines or assessments thereon)
due and payable by Penn Dental for all periods up to and including the Closing
to the extent not already paid (including, without limitation, the federal
income Taxes due and payable with respect to the short taxable year ending with
the date of the Closing). For its taxable year which ends with the date of the
Closing, Penn Dental's and the Purchaser's Tax Returns shall be based on the
closing of Penn Dental's books at the close of business on the date of the
Closing and without any ratable allocation of items. The Partnership shall
review all such Tax Returns with the Purchaser prior to filing and shall submit
such proof of payment of the Taxes due as the Purchaser shall reasonably request
and, if requested by the Partnership, the Purchaser shall review its Tax Returns
which include the day after the date of the Closing with the Partnership prior
to the filing and shall submit proof of filing such Tax Returns consistently
with the Tax Returns filed by Penn Dental and referred to in the prior sentence.
K. Permits; Compliance with Applicable Law.
(i) General. None of the Partnership, Penn Dental or Talus or
▇▇▇▇▇▇▇, in the conduct of the Business, is in default under any, and each has
complied with all, statutes, ordinances, regulations, orders, judgments and
decrees of any court or governmental entity or agency, relating to the
Partnership, Penn Dental, the Business, the Assets or the assets or properties
of Penn Dental as to which a default or failure to comply might result in a
material adverse effect on the Partnership, Penn Dental, the Business, the
Assets or the assets or properties of Penn Dental. None of the Partnership, Penn
Dental, Talus or ▇▇▇▇▇▇▇ has any knowledge of any basis for assertion of any
20
17
violation of the foregoing or for any claim for compensation or damages or
otherwise arising out of any violation of the foregoing. None of the
Partnership, Penn Dental, Talus nor ▇▇▇▇▇▇▇ has received any notification of any
asserted present or past failure to comply with any of the foregoing which has
not been satisfactorily responded to in the time period required thereunder.
(ii) Permits. Set forth in Exhibit C is a complete and
accurate list of all permits, licenses, approvals, franchises and authorizations
issued by governmental entities or other regulatory authorities, federal, state
or local (collectively the "Permits"), held by the Partnership, Penn Dental,
Talus or ▇▇▇▇▇▇▇ and material to the conduct of the Business. The Permits set
forth in Exhibit C are all the Permits required for the conduct of the Business.
All the Permits set forth in Exhibit C are in full force and effect, and none of
the Partnership, Penn Dental Talus or ▇▇▇▇▇▇▇ has engaged in any activity which
would cause or permit revocation or suspension of any such Permit, and no action
or proceeding looking to or, contemplating the revocation or suspension of any
such Permit is pending or threatened. There are no existing defaults or events
of default or events or state of facts which with notice or lapse of time or
both would constitute a default by the Partnership, Penn Dental, Talus or
▇▇▇▇▇▇▇ under any such Permit. None of the Partnership, Penn Dental, Talus or
▇▇▇▇▇▇▇ has any knowledge of any default or claimed or purported or alleged
default or state of facts which with notice or lapse of time or both would
constitute a default on the part of any party in the performance of any
obligation to be performed or paid by any party under any Permit set forth in
Exhibit C. Except as set forth in Exhibit C, the consummation of the
transactions contemplated hereby will in no way affect the continuation,
validity or effectiveness of the Permits set forth in Exhibit C or require the
consent of any person.
(iii) Environmental. (a) To the best of the knowledge of the
Partnership, Penn Dental, Talus and ▇▇▇▇▇▇▇, the Partnership, Penn Dental, Talus
and ▇▇▇▇▇▇▇, in the conduct of the Business, in all material respects, have duly
complied with all federal, state and local environmental, health and safety
laws, codes and ordinances and all rules and regulations promulgated thereunder.
(b) To the best of the knowledge of the Partnership,
Penn Dental, Talus and ▇▇▇▇▇▇▇, the Partnership, Penn Dental and Talus and
▇▇▇▇▇▇▇, in the conduct of the Business, have been issued, and will maintain
until the date of the Closing, all required federal, state
21
18
and local permits, licenses, certificates and approvals relating to (i) air
emissions, (ii) discharges to surface water or ground water, (iii) noise
emissions, (iv) solid or liquid waste disposal, (v) the use, generation,
storage, transportation or disposal of toxic or hazardous substances or wastes
(intended hereby and hereafter to include any and all such materials listed in
any federal, state or local law, code or ordinance and all rules and regulations
promulgated thereunder, as hazardous or potentially hazardous), or (vi) other
environmental, health and safety matters.
(c) To the best of the knowledge of the Partnership,
Penn Dental, Talus and ▇▇▇▇▇▇▇, none of the Partnership, Penn Dental, Talus or
▇▇▇▇▇▇▇ has received any notice of, and none of the Partnership, Penn Dental,
Talus or ▇▇▇▇▇▇▇ knows of any facts which might constitute violations of, any
federal, state or local environmental, health or safety laws, codes or
ordinances, and any rules or regulations promulgated thereunder, which relate to
the use, ownership or occupancy of any of the Premises owned, leased or occupied
by the Partnership, Penn Dental or Talus and ▇▇▇▇▇▇▇, in the conduct of the
Business. None of the Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇, in the conduct
of the Business, is in violation of any rights-of-way or restrictions affecting
any of the Premises or any rights appurtenant thereto the violation of which
would have a material adverse effect on the Business.
(iv) Medicare, Medicaid and CHAMPUS. Each of the Partnership,
Penn Dental, Talus and ▇▇▇▇▇▇▇, in the conduct of the Business, has complied in
all material respects with all applicable laws, rules and regulations of the
Medicare, Medicaid, CHAMPUS and other governmental healthcare programs, and has
filed all required claims, invoices, returns, cost reports and other forms in
the manner prescribed and all such claims, returns, invoices, cost reports and
other forms made or filed are in all material respects true, complete, correct
and accurate. No material deficiency (either individually or in the aggregate)
in any such claims, returns, invoices, cost reports and other filings, including
claims for over-payments or deficiencies for late filings, has been asserted or
threatened by any federal or state agency or instrumentality or other provider
reimbursement entities relating to Medicare, Medicaid or CHAMPUS claims or any
other third party payor and there is no basis for any claims or requests for
reimbursement. None of the Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇, in the
conduct of the Business, has been subject to any audit relating to fraudulent
Medicare, Medicaid or CHAMPUS procedures or
22
19
practices. There is no basis for any claim or request for recoupment or payment
by or on behalf of any state or federal agency or other instrumentality or other
provider reimbursement entities relating to Medicare, Medicaid or CHAMPUS claims
filed or made by the Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇, in the conduct
of the Business and no such claim has been asserted. Net revenues for the
CHAMPUS program represented less than 1% of the net revenues of the Business
during the calendar years 1991, 1992, 1993 and 1994 and the first eight (8)
months of 1995. The Business has not received directly any net revenues from the
Medicare and Medicaid programs during the calendar years 1991, 1992, 1993 and
1994 and the first eight (8) months of 1995.
L. Licenses. None of the Partnership, Penn Dental, Talus or
▇▇▇▇▇▇▇ produces or distributes any product nor do they perform any service
under a proprietary license granted by another entity and none of them has
licensed its or his rights in any current or planned products, designs or
services to any other entities. Each of the Partnership, Penn Dental, Talus and
▇▇▇▇▇▇▇, in the conduct of the Business, has the right to use all computer
software, including all property rights constituting part of that computer
software, used in connection with the Business (the "Computer Software"). A list
of all written licenses pertaining to the Computer Software is set forth in
Exhibit C (the "Licenses"). None of the Partnership, Penn Dental, Talus or
▇▇▇▇▇▇▇ has any knowledge that any of the Licenses may not be valid or
enforceable by the Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇ or that the use of
the Computer Software or any of the Licenses may infringe upon or conflict with
the rights of any third party. None of the Partnership, Penn Dental, Talus or
▇▇▇▇▇▇▇, in the conduct of the Business, has granted any licenses to use the
Computer Software or any sub-licenses with respect to any of the Licenses.
M. Accounts Receivable; Inventories. The accounts receivable
of the Business are in their entirety valid accounts receivable, arising in the
ordinary course of business, subject to reserves for bad debts, if any, shown in
the Financial Statements. The inventories and equipment of the Business are
fully usable in the ordinary course of business. The Business shall have
unrestricted cash and cash equivalents available to the Purchaser at the date of
the Closing of at least $70,000.
N. Contractual and Other Obligations. Set forth in Exhibit C
is a list and brief description of all (i) material (material shall mean that
the remaining obligations
23
20
of any party thereto are in excess of $2,500) contracts, agreements, licenses,
leases, arrangements (written or oral) and other documents to which the
Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇, in the conduct of the Business, is a
party or by which the Partnership, Penn Dental, Talus and ▇▇▇▇▇▇▇, in the
conduct of the Business, are bound (including, in the case of loan agreements, a
description of the amounts of any outstanding borrowings thereunder and the
collateral, if any, for such borrowings); (ii) obligations and liabilities of
the Business pursuant to uncompleted orders for the purchase of materials,
supplies, equipment and services for the requirements of the Business with
respect to which the remaining obligation of the Business is in excess of
$2,500; and (iii) material contingent obligations and liabilities of the
Partnership, Penn Dental, Talus and ▇▇▇▇▇▇▇, in the conduct of the Business; all
of the foregoing being hereinafter referred to as the "Contracts." None of the
Partnership, Penn Dental, the Business, Talus or ▇▇▇▇▇▇▇, nor, to the best of
the knowledge of the Company, Penn Dental, Talus or ▇▇▇▇▇▇▇, any other party is
in default in the performance of any covenant or condition under any Contract
and no claim of such a default has been made and no event has occurred which
with the giving of notice or the lapse of time would constitute a material
default under any covenant or condition under any Contract. None of the
Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇, in the conduct of the Business, is a
party to any Contract which would terminate or be materially adversely affected
by the consummation of the transactions contemplated by this Agreement, except
for the failure to obtain the necessary consents to assignment set forth in
Exhibit C. None of the Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇, in the
conduct of the Business, is a party to any Contract expected to be performed at
a material loss. Originals or true, correct and complete copies of all written
Contracts have been provided to the Purchaser.
O. Compensation. Set forth in Exhibit E attached hereto is a
list of all written or oral agreements between the Partnership, Penn Dental,
Talus or ▇▇▇▇▇▇▇, in the conduct of the Business, and each person employed by or
independently contracting with the Partnership, Penn Dental or the Business with
regard to compensation, whether individually or collectively, and set forth in
Exhibit E is a list of all employees or independent contractors of the Business
entitled to receive annual compensation in excess of $20,000 and their
respective positions, job categories and salaries. The transactions contemplated
by this Agreement will not result in any liability for severance pay to any
employee or independent contractor of the Partnership, Penn Dental or the
Business. None of the
24
21
Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇ has informed any employee or
independent contractor providing services to the Partnership, Penn Dental or the
Business that such person will receive any increase in compensation or benefits
or any ownership interest in the Partnership, Penn Dental or the Business.
P. Employee Benefit Plans. Except as set forth in Exhibit F
attached hereto, none of the Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇, in the
conduct of the Business, maintains or sponsors, or contributes to, any pension,
profit-sharing, savings, bonus, incentive or deferred compensation, severance
pay, medical, life insurance, welfare or other employee benefit plan. All
pension, profit-sharing, savings, bonus, incentive or deferred compensation,
severance pay, medical, life insurance, welfare or other employee benefit plans
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended (hereinafter referred to as "ERISA"), in which the
employees participate (such plans and related trusts, insurance and annuity
contracts, funding media and related agreements and arrangements being
hereinafter referred to as the "Benefit Plans") comply in all material respects
with all requirements of the Department of Labor and the Internal Revenue
Service, and with all other applicable laws, and none of the Partnership, Penn
Dental, Talus or ▇▇▇▇▇▇▇, in the conduct of the Business, has taken or failed to
take any action with respect to the Benefit Plans which might create any
liability on the part of the business or the Purchaser. Each "fiduciary" (within
the meaning of Section 3(21)(A) of ERISA) as to each Benefit Plan has complied
with all requirements of ERISA and all other applicable laws in respect of each
such Benefit Plan. The Partnership, Penn Dental, Talus and ▇▇▇▇▇▇▇ have
furnished to the Purchaser copies of all Benefit Plans and all financial
statements, actuarial reports and annual reports and returns filed with the
Internal Revenue Service with respect to such Benefit Plans for a period of
three years prior to the date hereof. Such financial statements and actuarial
reports and annual reports and returns are true and correct in all material
respects, and none of the actuarial assumptions underlying such documents have
changed since the respective dates thereof. In addition:
(i) Each Benefit Plan intended to qualify under Section 401(a)
of the Code has received a favorable determination letter from the
Internal Revenue Service as to its qualification;
25
22
(ii) None of the Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇,
in the conduct of the Business, maintains sponsors or contributes to,
and has never maintained, sponsored or contributed to a "defined
benefit plan" (within the meaning of Section 3(35) of ERISA) or a
Multiemployer Plan (within the meaning of Section 3(37) of ERISA);
(iii) No "prohibited transaction" (within the meaning of
Section 406 of ERISA or Section 4975(c) of the Code) has occurred with
respect to any Benefit Plan;
(iv) No provision of any Benefit Plan or of any agreement, and
no act or omission of the Partnership or ▇▇▇▇▇▇▇, in the conduct of the
Business, in any way limits, impairs, modifies or otherwise affects the
right of the Partnership, Penn Dental, Talus, ▇▇▇▇▇▇▇ or the Purchaser
unilaterally to amend or terminate any Benefit Plan after the Closing,
subject to the requirements of applicable law;
(v) There are no contributions which are or hereafter will be
required to have been made to trusts in connection with any Benefit
Plan that would constitute a "defined contribution plan" (within the
meaning of Section 3(34) of ERISA);
(vi) Other than claims in the ordinary course for benefits
with respect to the Benefit Plans, there are no actions, suits or
claims (including claims for income taxes, interest, penalties, fines
or excise taxes with respect thereto) pending with respect to any
Benefit Plan, or any circumstances which might give rise to any such
action, suit or claim (including claims for income taxes, interest,
penalties, fines or excise taxes with respect thereto);
(vii) All reports, returns and similar documents with respect
to the Benefit Plans required to be filed with any governmental agency
have been so filed on or before their due date; and
(viii) None of the Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇,
in the conduct of the Business, has any obligation to provide health or
other welfare benefits to former, retired or terminated employees,
except as specifically required under Section 4980B of the Code or
Section 601 of ERISA. Each of the Partnership, Penn Dental and Talus
and ▇▇▇▇▇▇▇, in the conduct of the Business, has complied with the
notice and continuation
26
23
requirements of Section 4980B of the Code or Section 601 of ERISA and
the regulations thereunder.
Each of Talus and the Partnership hereby agrees that he or it
will take any and all steps necessary to terminate and effectuate promptly the
termination of Penn Dental's Profit Sharing Plan (the "Plan") in accordance with
all requirements of the Code, ERISA and the Department of Labor ("DOL") and any
rules or regulations applicable to the termination of the Plan, including, but
not limited to, the filing of an Application for Determination Upon Termination
(Form 5310), and will file all applicable or required forms with the Internal
Revenue Service and the DOL, and will timely distribute, in the required manner,
any and all notices required to be delivered to employees, and will continue to
file any and all information reports, including but not limited to, annual
returns required with respect to the Plan, until the completion of the
termination of the Plan and the distribution of all participants' accounts
thereunder.
As soon as practicable following the receipt of a favorable
determination letter upon termination from the Internal Revenue Service with
respect to the Plan, and in accordance with the time periods set forth in ERISA
or the Code or any rules or regulations applicable to the termination of the
Plan, the trustees will promptly distribute all participants' accounts in
accordance with the terms of the Plan and any applicable laws, rules and
regulations, and will file all notices required by the Internal Revenue Service
and the DOL, and will close out the Plan. Following the Closing, the Purchaser
will cooperate and will cause Penn Dental to cooperate in terminating the Plan.
Each of Talus and the Partnership agrees that any
contributions now due or that may become due to the Plan shall be the sole
responsibility of Talus and the Partnership and shall be immediately paid, when
due, by Talus and the Partnership. Talus agrees that all costs of terminating
the Plan, including the cost of filing all notices, amendments, returns, reports
and determination letter requests, shall be borne by Talus and the Partnership.
None of the expenses of terminating the Plan will be paid by Penn Dental.
Q. Labor Relations. There have been no violations of any
federal, state or local statutes, laws, ordinances, rules, regulations, orders
or directives with respect to the employment of individuals by, or the
employment practices or work conditions of the Partnership,
27
24
Penn Dental, Talus or ▇▇▇▇▇▇▇, in the conduct of the Business, or the terms and
conditions of employment, wages and hours, which violations would have either,
individually or in the aggregate, a material adverse effect on the condition,
financial or otherwise, or operations of the Partnership, Penn Dental or the
Business. None of the Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇, in the conduct
of the Business, is engaged in any unfair labor practice or other unlawful
employment practice and there are no charges of unfair labor practices or other
employee-related complaints pending or, threatened against the Partnership, Penn
Dental, Talus or ▇▇▇▇▇▇▇, in the conduct of the Business, before the National
Labor Relations Board, the Equal Employment Opportunity Commission, the
Occupational Safety and Health Review Commission, the Department of Labor or any
other federal, state, local or other governmental authority. There is no strike,
picketing, slowdown or work stoppage or organizational attempt pending or
threatened against or involving the Partnership, Penn Dental or the Business. No
issue with respect to union representation is pending or threatened with respect
to the employees of the Partnership, Penn Dental or the Business. No union or
collective bargaining unit or other labor organization has ever been certified
or recognized by the Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇, in the conduct
of the Business, as the representative of any of the employees of the
Partnership, Penn Dental or the Business.
R. Increases in Compensation or Benefits. Except as set forth
in Exhibit E, subsequent to June 30, 1995, except in the ordinary course of
business consistent with past practice, there have been no increases in the
compensation payable or to become payable to any of the employees of the
Partnership, Penn Dental or the Business and there have been no payments or
provisions for any awards, bonuses, stock options, loans, profit sharing,
pension, retirement or welfare plans or similar or other disbursements or
arrangements for or on behalf of such employees (or related parties thereof), in
each case, other than pursuant to currently existing plans or arrangements, if
any, set forth in Exhibit F; provided, however, that in no event was any such
increase in compensation or any such payment or provision made with respect to
(i) either of Talus or ▇▇▇▇▇▇▇ (or any members of the families of either of
Talus or ▇▇▇▇▇▇▇ except for an increase in the salary of ▇▇▇▇ ▇▇▇▇▇ to no more
than $25,000 and of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ to no more than $50,000) or (ii) any
employees earning in excess of $20,000 per annum. All bonuses heretofore granted
to employees of the Business have been paid in full to such employees. The
vacation policy of the Business is set forth in Exhibit E. Except as set forth
in Exhibit E, no employee
28
25
of the Business is entitled to vacation time in excess of three weeks during the
current calendar year and no employee of the Business has any accrued vacation
or sick time with respect to any prior period.
S. Insurance. A complete list of the insurance policies
maintained by the Business is set forth in Exhibit C. Such policies are in full
force and effect and all premiums due thereon prior to or on the date of the
Closing have been paid in full. Each of the Partnership, Penn Dental, Talus and
▇▇▇▇▇▇▇, in the conduct of the Business, have complied in all respects with all
the provisions of such policies. There are no notices of any pending or
threatened termination or premium increases with respect to any of such
policies. The Business has not had any casualty loss or occurrence which may
give rise to any claim of any kind not covered by insurance and none of the
Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇ is aware of any occurrence which may
give rise to any claim of any kind not covered by insurance. No third party has
filed any claim against the Business for personal injury or property damage of a
kind for which liability insurance is generally available which is not fully
insured, subject only to the standard deductible. All claims against the
Business covered by insurance have been reported to the insurance carrier on a
timely basis.
T. Conduct of Business. None of the Partnership, Penn Dental,
Talus or ▇▇▇▇▇▇▇, in the conduct of the Business, is restricted from conducting
the Business in any location by agreement or court decree.
U. Allowances. None of the Partnership, Penn Dental, Talus or
▇▇▇▇▇▇▇, in the conduct of the Business, has any obligation to make allowances
to any of its customers or patients, except allowances which are consistent with
its past practices.
V. Patents, Trademarks, etc. Set forth in Exhibit G attached
hereto is a list and brief description of all of the patents, registered and
common law trademarks, service marks, tradenames, copyrights, licenses and other
similar rights of the Business and applications for each of the foregoing.
Either the Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇, owns all right, title and
interest in and to all such proprietary rights. The proprietary rights listed
are all such rights necessary to the conduct of the Business as currently
conducted by the Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇; no adverse claims
have been made and, except as set forth in Exhibit C, no dispute has arisen with
respect to any of the said proprietary rights; and the operations of
29
26
the Business and the use by the Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇ of
such proprietary rights do not involve infringement or claimed infringement of
any patent, trademark, service ▇▇▇▇, tradename, copyright, license or similar
right.
W. Power of Attorney. None of the Partnership, Penn Dental,
Talus or ▇▇▇▇▇▇▇, in the conduct of the Business, has granted any power of
attorney (revocable or irrevocable) to any person, firm or corporation for any
purpose whatsoever.
X. Use of Names. All names under which the Business is
currently conducted are listed in Exhibit G. Except as set forth in Exhibit C,
to the best of the knowledge of the Partnership, Penn Dental, Talus and ▇▇▇▇▇▇▇,
there are no other persons or businesses conducting businesses similar to those
of the Business in the Commonwealths of Pennsylvania and Virginia or the State
of Maryland having the right to use or using any of the names set forth in
Exhibit G or any variants of such names; and no other person or business has
ever attempted to restrain the Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇ from
using such names or any variants thereof.
Y. Accounts Payable, Indebtedness, Etc. The accounts and notes
payable and accrued expenses reflected in the Financial Statements, and the
accounts and notes payable and accrued expenses incurred by the Business
subsequent to the date of the Financial Statements, are in all respects valid
claims that arose in the ordinary course of business. Since June 30, 1995, the
accounts and notes payable, accrued expenses and debt of the Business has been
paid in a manner consistent with past practice. The aggregate amount of the
accounts payable and accrued expenses of Penn Dental and the Virginia Business
as of the date of the Closing shall not exceed $100,000.
Z. No Foreign Person. Neither of Talus or ▇▇▇▇▇▇▇ is a foreign
person within the meaning of Section 1445(b)(2) of the Code.
AA. Licensure, etc. Each individual employed or contracted
with by the Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇, in the conduct of the
Business, to provide professional services is duly licensed to provide such
services and, to the best knowledge of the Partnership, Penn Dental, Talus and
▇▇▇▇▇▇▇, is otherwise in compliance with all federal, state and local laws,
rules and regulations relating to such professional licensure. To the best of
the knowledge of the Partnership, Penn Dental, Talus and
30
27
▇▇▇▇▇▇▇, each individual now or formerly employed or contracted with by the
Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇, in the conduct of the Business, to
provide professional services was duly licensed to provide such services during
all periods prior to the Closing when such employee or independent contractor
provided such services on behalf of the Partnership or the Business. Each of the
Partnership, Penn Dental, Talus and ▇▇▇▇▇▇▇, in the conduct of the Business, is
in compliance in all material respects with all relevant state laws and
precedents relating to the corporate practice of the learned or licensed
professions, and there are no material claims, disputes, actions, suits,
proceedings or investigations currently pending, threatened or filed or
commenced against or affecting the Partnership, Penn Dental or the Business
relating to such laws and precedents, and no such material claim, dispute,
action, suit, proceeding or investigation has been filed or commenced during the
five-year period preceding the date of this Agreement, and none of the
Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇ is aware of any basis for such a
valid claim. The acquisition of the Assets and the Shares by the Purchaser (or
its designee) as contemplated by this Agreement will not affect the ability of
the Purchaser to operate the Business as heretofore operated in compliance with
all applicable laws.
BB. Books and Records. The books and records of the
Partnership, Penn Dental and the Business are in all material respects complete
and correct, have been maintained in accordance with good business practices and
accurately reflect the basis for the financial position and results of
operations of the and the Business set forth in the Financial Statements. All of
such books and records, including true and complete copies of all written
Contracts, have been made available for inspection by the Purchaser and its
representatives.
CC. Litigation; Disputes. Except as set forth in Exhibit C,
there are no claims, disputes, actions, suits, proceedings or governmental
investigations pending or, to the best of the knowledge of the Partnership, Penn
Dental, Talus and ▇▇▇▇▇▇▇, threatened against or affecting the Partnership, Penn
Dental, the properties or assets of the Business, or either of Talus or ▇▇▇▇▇▇▇.
No such claim, dispute, action, suit, proceeding or investigation has been
pending or threatened during the five-year period preceding the date of this
Agreement. To the best of the knowledge of the Partnership, Penn Dental, Talus
and ▇▇▇▇▇▇▇, there is no basis for any such claim, dispute, action, suit,
investigation or proceeding which would result in a material adverse effect on
the Partnership, Penn Dental, the Business
31
28
or the properties and assets of the Business. None of the Partnership, Penn
Dental, Talus or ▇▇▇▇▇▇▇ in the conduct of the Business, is in default in
respect of any judgment, order, writ, injunction or decree of any court or of
any federal, state, municipal or other government department, commission,
bureau, agency or instrumentality or any arbitrator.
DD. Location of Business and Assets. Set forth in Exhibit C is
each location (specifying state, county and city) where the Business (i) has a
place of business, (ii) owns or leases real property and (iii) owns or leases
any other property, including inventory, equipment and furniture.
EE. Bank Accounts. Set forth in Exhibit H attached hereto is a
list of all bank accounts maintained in the name of the Business, and a brief
description of the persons having power to sign with respect to each such
account.
FF. Disclosure. No representation or warranty made under any
Section hereof and none of the information furnished by the Partnership, Penn
Dental, Talus or ▇▇▇▇▇▇▇ set forth herein, in the exhibits hereto or in any
document delivered by the Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇ to the
Purchaser, or any authorized representative of the Purchaser, pursuant to this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading.
SECTION III
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF TALUS AND ▇▇▇▇▇▇▇
Each of Talus and ▇▇▇▇▇▇▇, jointly and severally, hereby
represents and warrants to, and covenants and agrees with, the Purchaser, as of
the date hereof and as of the date of the Closing, that:
A. Authority. Each of Talus and ▇▇▇▇▇▇▇ is fully able to
execute and deliver this Agreement and to perform his covenants and agreements
hereunder, and this Agreement constitutes a valid and legally binding obligation
of each of Talus or ▇▇▇▇▇▇▇, enforceable against him in accordance with its
terms.
32
29
B. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement by ▇▇▇▇▇▇▇ or Talus, nor the consummation by ▇▇▇▇▇▇▇ or Talus
of the transactions contemplated hereby, violates any statute, ordinance,
regulation, order, judgment or decree of any court or governmental agency
applicable to Talus and ▇▇▇▇▇▇▇, or conflicts with or will result in any breach
of any of the terms of or constitute a default under or result in the
termination of or the creation of any lien pursuant to the terms of any contract
or agreement to which either of Talus or ▇▇▇▇▇▇▇ is a party or by which either
of Talus or ▇▇▇▇▇▇▇ or the assets of either of them is bound, except for the
failure to obtain the necessary consents to assignment set forth in Exhibit C.
C. Other Interests. Neither Talus nor ▇▇▇▇▇▇▇ has any
ownership interests in any dental businesses other than the Partnership, Penn
Dental or the Virginia Business, and, neither Talus nor ▇▇▇▇▇▇▇ performs any
employment, consulting or other services, paid or unpaid, for any for-profit or
not-for-profit dental enterprise.
D. Ownership of Interests, Shares, etc. (i) The Partnership
owns the Shares, and the Shares represent all of the issued and outstanding
shares of Penn Common Stock, free and clear of any lien, encumbrance, charge,
security interest or claim whatsoever (including any restriction on the right to
vote, sell or otherwise dispose of the Shares), and the Partnership has the
right to transfer the Shares to the Purchaser and, upon transfer of the Shares
to the Purchaser hereunder, the Purchaser will acquire good and marketable title
to the Shares, free and clear of any lien, encumbrance, charge, security
interest or claim whatsoever.
(ii) Each of Talus and ▇▇▇▇▇▇▇ owns all the Interests, free
and clear of any lien, encumbrance, charge, security interest or claim
whatsoever.
E. Investment. (i) Each of the Partnership, Talus and ▇▇▇▇▇▇▇
has had access to such information relating to the business and affairs of the
Purchaser which each of them has reasonably requested, and all additional
information which each of them has considered necessary to verify the accuracy
of the information so received. Each of Talus and ▇▇▇▇▇▇▇ has had the
opportunity to ask questions of and receive answers from the Purchaser
concerning the terms and conditions of the transactions contemplated by this
Agreement. On the basis of the foregoing, each of the Partnership, Talus and
▇▇▇▇▇▇▇ is familiar with the operations, business plans and financial condition
of the Purchaser.
33
30
(ii) Each of the Partnership, Talus and ▇▇▇▇▇▇▇ understands
that the Purchaser may issue and deliver to the Partnership, shares of common
stock, $.01 par value ("Purchaser Common Stock"), of the Purchaser upon the
conversion of the Convertible Notes pursuant to this Agreement, without
compliance with the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"); that for such purpose the Purchaser will rely
upon the representations, warranties, covenants and agreements contained herein;
and that such non-compliance with registration is not permissible unless such
representations and warranties are correct and such covenants and agreements
performed. Each of the Partnership, Talus and ▇▇▇▇▇▇▇ is an "accredited
investor" as such term is defined in Rule 501 under the Securities Act.
(iii) Each of the Partnership, Talus and ▇▇▇▇▇▇▇ understands
that, under existing rules of the Securities and Exchange Commission (the "SEC")
the Partnership may be unable to sell its shares of Purchaser Common Stock
except to the extent that its shares of Purchaser Common Stock may be sold (i)
pursuant to an effective registration statement covering such shares pursuant to
the Securities Act or (ii) in a bona fide private placement to a purchaser who
shall be subject to the same restrictions on any resale or (iii) subject to the
restrictions contained in Rule 144 under the Securities Act ("Rule 144"). Each
of the Partnership, Talus and ▇▇▇▇▇▇▇ understands that the Purchaser is under no
obligation to effect a registration of their shares of Purchaser Common Stock
under the Securities Act.
(iv) Each of the Partnership, Talus and ▇▇▇▇▇▇▇ is familiar
with the provisions of Rule 144 and the limitations upon the availability and
applicability of such rule.
(v) Each of the Partnership, Talus and ▇▇▇▇▇▇▇ is a
sophisticated investor familiar with the type of risks inherent in the
acquisition of restricted securities such as the shares of Purchaser Common
Stock and their financial position is such that the Partnership can afford to
retain its shares of Purchaser Common Stock for an indefinite period of time
without realizing any direct or indirect cash return on their investment.
(vi) The Partnership is acquiring the shares of Purchaser
Common Stock for its account and not with a view to, or for sale in connection
with, the distribution thereof within the meaning of the Securities Act.
34
31
SECTION IV
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE PURCHASER
The Purchaser hereby represents and warrants to, and covenants
and agrees with, the Partnership and each of Talus and ▇▇▇▇▇▇▇, as of the date
hereof and as of the date of the Closing, that:
A. Organization and Qualification. The Purchaser is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to purchase the Assets and
the Shares.
B. Authority. The execution and delivery of this Agreement by
the Purchaser, the performance by the Purchaser of its covenants and agreements
hereunder and the consummation by the Purchaser of the transactions contemplated
hereby have been duly authorized by all necessary corporate action. This
Agreement constitutes a valid and legally binding obligation of the Purchaser,
enforceable against it in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization or other similar laws
affecting creditors rights generally or by general principles of equity.
C. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement by the Purchaser, nor the consummation by the Purchaser of the
transactions contemplated hereby, violates any provision of the certificate of
incorporation or by-laws of the Purchaser or any statute, ordinance, regulation,
order, judgment or decree of any court or governmental agency or board
applicable to it, or conflicts with or will result in any breach of any of the
terms of or constitute a default under or result in the termination of or the
creation of any lien pursuant to the terms of any contract or agreement to which
the Purchaser is a party or by which the Purchaser or any of its assets is
bound.
D. Ownership. As of the date of the Closing, the Purchaser
will have outstanding 8,000 shares of 8% cumulative preferred stock, $.01 par
value, of which 400 shares will be owned by Business Development Capital Limited
Partnership-III, a Massachusetts limited partnership ("BDC-III"), 1,080 shares
will be owned by Abbingdon Venture Partners Limited Partnership, a Connecticut
limited partnership ("Abbingdon-I"), 3,960 shares will be owned by Abbingdon
Venture Partners Limited Partnership-II, a
35
32
Delaware limited partnership ("Abbingdon-II), and 2,560 shares will be owned by
Abbingdon Venture Partners Limited Partnership-III, a Delaware limited
partnership (Abbingdon-III") and 3,600,000 shares of common stock, $.01 par
value, of which 175,000 shares will be owned by BDC-III, 472,500 shares will be
owned by Abbingdon-I, 1,732,500 shares will be owned by Abbingdon-II, 1,120,000
shares will be owned by Abbingdon-III, 50,000 shares will be owned by Talus and
50,000 shares will be owned by ▇▇▇▇▇▇▇. ▇▇▇▇▇▇ Management Company or an
affiliate thereof is the manager of BDC-III, Abbingdon, Abbingdon-II and
Abbingdon-III. The Purchaser owns all of the issued and outstanding capital
stock of VFD of Pennsylvania, Inc., a Delaware corporation ("VFDP").
SECTION V
[Intentionally Omitted.]
SECTION VI
ADDITIONAL COVENANTS OF THE PARTNERSHIP,
TALUS AND ▇▇▇▇▇▇▇ AND THE PURCHASER
A. Partnership Acquisition Proposal. Each of the Partnership
and each of Talus and ▇▇▇▇▇▇▇ covenants and agrees that, from and after the date
of this Agreement and until the Closing, it or he shall not directly or
indirectly (i) take any action to solicit, initiate or encourage any Partnership
Acquisition Proposal (as hereinafter defined) or (ii) engage in negotiations
with, or disclose any nonpublic information relating to the Partnership, Penn
Dental or the Business or afford access to the properties, books or records of
the Partnership, Penn Dental or the Business to, any person or entity that may
be considering making, or has made, a Partnership Acquisition Proposal. Each of
the Partnership and each of Talus and ▇▇▇▇▇▇▇ shall promptly notify the
Purchaser after receipt of any Partnership Acquisition Proposal or any
indication that any person or entity is considering making a Partnership
Acquisition Proposal or any request for nonpublic information relating to the
Partnership, Penn Dental or the Business or for access to the properties, books
or records of the Partnership, Penn Dental or the Business by any person or
entity that may be considering making, or has made, a Partnership Acquisition
Proposal. For purposes of this Agreement, "Partnership Acquisition Proposal"
means any
36
33
offer or proposal for, or any indication of interest in, the acquisition of any
interest in, a merger or other business combination involving the Partnership,
Penn Dental or the acquisition of any equity interest in, or a substantial
portion of the assets of, the Partnership or Penn Dental, other than the
transactions contemplated by this Agreement.
B. Goodwill; Publicity. Each of the Partnership and each of
Talus and ▇▇▇▇▇▇▇ also covenants and agrees that it or he will not take or omit
to take any action, after the Closing and also represents that it or he has not
taken or omitted to take any action prior to the date hereof, which is
reasonably likely to, directly or indirectly, materially impair the goodwill of
the Partnership or the Business or the business reputation or good name of the
Partnership or the Business, except in connection with the enforcement by the
Partnership, Talus or ▇▇▇▇▇▇▇ of rights under this Agreement or under any
related documents, and that any and all publicity (whether written or oral) and
notices to third parties (other than employees of the Business) concerning the
sale of the Assets and the Shares and other transactions contemplated by this
Agreement shall be subject to the prior written approval of the Purchaser, which
approval be withheld at the sole discretion of the Purchaser.
C. Correspondence, Etc. Each of the Partnership and each of
Talus and ▇▇▇▇▇▇▇ covenants and agrees that, subsequent to the Closing it or he
will deliver to the Purchaser, promptly after the receipt thereof, all
inquiries, correspondence and other materials received by it or him from any
person or entity relating to the Partnership or the Business.
D. Books and Records. (i) Each of the Partnership, Talus and
▇▇▇▇▇▇▇ covenants and agrees that, subsequent to the Closing, it or he shall
give the Purchaser, reasonable access to the historical financial books and
records and patient files of the Virginia Business, to the extent such books and
records and files are not included in the Assets, for a period of five years
from the date of the Closing. Each of Talus and ▇▇▇▇▇▇▇ shall retain all such
books and records and files in substantially their condition at the time of the
Closing. None of such books and records and files shall be destroyed during such
five-year period without the prior written approval of the Purchaser or without
first offering such books and records and files to the Purchaser.
(ii) The Purchaser covenants and agrees that, subsequent to
the Closing, it shall maintain the books and records and patient files of the
Business in a manner
37
34
substantially consistent with the past practices of the Business and applicable
law and, subject to applicable laws governing patient confidentiality, shall
give Talus and ▇▇▇▇▇▇▇ reasonable access to, and the right to make copies of,
such books, records and patient files and shall inform Talus and ▇▇▇▇▇▇▇ of any
change in the location of such books, records and patient files.
E. Discharge of Obligations. Each of the Partnership, Talus
and ▇▇▇▇▇▇▇ covenants and agrees, subsequent to the Closing, to pay promptly and
to otherwise fulfill and discharge all obligations and liabilities of the
Business which are not Assumed Liabilities hereunder when due and payable and
otherwise prior to the time at which any of such obligations or liabilities
could in any way result in or give rise to a claim against the Assets, or the
assets and properties of Penn Dental or the Business, the Business or the
Purchaser, result in the imposition of any lien, charge or encumbrance on any of
the Assets, or the assets and properties of Penn Dental or the Business or
adversely affect the Purchaser's title to or use of any of the Assets, or the
assets and properties of Penn Dental or the Business. The Purchaser covenants
and agrees, subsequent to the Closing, to pay promptly and to otherwise fulfill
and discharge all obligations and liabilities of the Business which are Assumed
Liabilities prior to the time at which any of such obligations or liabilities
could in any way result in a claim against Talus and ▇▇▇▇▇▇▇.
F. Delivery of Funds. Subsequent to the Closing, each of Talus
and ▇▇▇▇▇▇▇ shall deliver on a daily basis any funds and any checks, notes,
drafts and other instruments for the payment of money, duly endorsed to the
Purchaser, received by any of them comprising payment of any amounts due from
customers of the Virginia Business or others for services rendered by the
Virginia Business, including pursuant to any provider agreements constituting
part of the Assets.
G. Employees. The Purchaser covenants and agrees to offer or
cause one of its subsidiaries or managed entities to offer employment to all
employees of the Business at a base salary rate comparable to the base salary
rate such employees currently receive from the Business.
Nothing herein shall be deemed either to affect or to limit in
any way the management prerogatives of the Purchaser (or its designee) with
respect to employees of the Business who accept an offer of employment
(including, without limitation, the right of the Purchaser to terminate the
employment of any such employee), or to create or to
38
35
grant to such employees any third-party beneficiary rights or claims or causes
of action of any kind or nature against the Purchaser, its designee or any of
its other affiliates. Nothing herein shall prevent the Purchaser from
terminating any such employee at any time as determined by the Purchaser in its
sole discretion.
H. Pass Through of Rights and Obligations. In the event that
the Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇ is unable to obtain the necessary
consents set forth in Exhibit C prior to the Closing, each of Talus and ▇▇▇▇▇▇▇
agrees to use his best efforts subsequent to the Closing to obtain such
consents. Talus and ▇▇▇▇▇▇▇ agree that until such time as such consents are
obtained or in the event that either Talus or ▇▇▇▇▇▇▇ is unable to obtain such
consents, the Talus and ▇▇▇▇▇▇▇ shall pass through to the Purchaser (or its
designee) the benefits and the obligations arising under the agreements listed
under "Contracts" in Exhibit C as if such agreements were assigned to the
Purchaser (or its designee) pursuant to this Agreement. ▇▇▇▇▇▇▇ agrees that he
will, if required by any lessor under any of the real property leases set forth
in Exhibit C, personally guaranty the obligations of the Purchaser (or its
designee) as tenant under any such lease in order to obtain the lessor's consent
to the assignment of the lease to the Purchaser (or its designee) at or
subsequent to the Closing.
I. Working Capital. On or before 270 days from the date of the
Closing (the "Reconciliation Date"), the Purchaser shall calculate the amount of
the actual collections by the Purchaser after the date of the Closing and prior
to 180 days from the date of Closing (the "Collection Period") of the accounts
receivable of the Business which were outstanding on the date of the Closing
(the "Pre-Closing Receivables"). In the event that the sum of the collections of
Pre-Closing Receivables during the Collection Period plus the amount of cash of
the Business on the date of the Closing available to the Purchaser (the "Closing
Cash") exceeds the sum of $190,000 plus the aggregate amount of the cost of the
currently planned ▇▇▇▇▇▇▇▇ fit-out and the accounts payable and accrued expenses
of Penn Dental and the Virginia Business included in the Assumed Liabilities as
of the date of the Closing (such sum is herein after referred to as the "Target
Amount"), the Purchaser shall pay to the Partnership the amount of such excess
on or before the Reconciliation Date. In the event that the sum of the amount
collected plus the Closing Cash shall be less than the Target Amount, the
Partnership, Talus and ▇▇▇▇▇▇▇, jointly and severally, shall be obligated to pay
on or before the Reconciliation Date to the Purchaser the amount by which the
sum of the amounts of
39
36
such collections and of Closing Cash are less than the Target Amount. The
Purchaser shall permit the Partnership, Talus and ▇▇▇▇▇▇▇ to review the
Purchaser's calculations of collections of Pre-Closing Receivables and the
amounts of the Closing Cash, the accounts payable and accrued expenses of Penn
Dental and the Virginia Business and the parties agree to negotiate in good
faith to resolve any controversies relating to such calculations.
Notwithstanding the foregoing, the parties agree that for a period of 180 days
after the Collection Period, the Purchaser shall be able to monitor and adjust
the amounts of the accounts payable and accrued expenses of Penn Dental and the
Virginia Business outstanding on the date of Closing and the parties agree that
the working capital calculation contained herein may be adjusted accordingly if
there are any adjustments to accounts payable and accrued expenses subject to
the provisions of this Section VI(I). The parties agree to reimburse each other
as applicable if the working capital calculation should change.
J. Security Deposits. The parties understand and agree that
the Partnership and ▇▇▇▇▇▇▇ shall be entitled to any security deposits provided
for in any lease in connection with the Virginia Business for which the
Purchaser (or its designee) has received the necessary consents to assignment of
any such lease from the lessor under any such lease, and any other security
deposits shall, upon the return thereof, remain the property of ▇▇▇▇▇▇▇ or the
Partnership and shall not be transferred to the Purchaser.
SECTION VII
CLOSING
A. Time and Place of Closing. The closing of the purchase and
sale of the Assets and the Shares as set forth herein (the "Closing") shall be
held at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, at
10:00 A.M. local time on September 19, 1995.
B. Delivery of Assets. Delivery of the Assets shall be made by
the Partnership to the Purchaser (or its designee) at the Closing by delivering
such deeds, bills of sale, assignments and other instruments of conveyance and
transfer, and such powers of attorney, as shall be effective to vest in the
Purchaser (or its designee) title to or other interest in, and the right to full
custody and control of, the Assets, free and clear of all liens, charges,
encumbrances and security interests whatsoever.
40
37
C. Delivery of the Shares. Delivery of the Shares shall be
made by the Partnership to the Purchaser (or its designee) at the Closing by
delivering one or more certificates in negotiable form representing all of the
Shares, each such certificate to be accompanied by any requisite documentary or
stock transfer taxes.
D. Tax Matters. All sales and use taxes incurred in connection
with this Agreement shall be borne and paid by the Purchaser when due.
E. Assumption of Liabilities. At the Closing, the Purchaser
(or its designee) shall deliver to the Partnership such instruments as shall be
sufficient to effect the assumption by the Purchaser (or its designee) of the
Assumed Liabilities.
F. Contracts and Books. At the Closing, each of the
Partnership, Talus and ▇▇▇▇▇▇▇ shall make available to the Purchaser the
Contracts and the books and records of the Business constituting a part of the
Assets.
G. Additional Steps. At the Closing, each of the Partnership,
Talus and ▇▇▇▇▇▇▇ shall take all steps required to put the Purchaser (or its
designee) in actual possession and control of the Assets.
SECTION VIII
CONDITIONS TO THE
PARTNERSHIP'S OBLIGATION TO CLOSE
The obligations of the Partnership to sell the Assets and the
Shares and otherwise consummate the transactions contemplated by this Agreement
at the Closing are subject to the following conditions precedent, any or all of
which may be waived by the Partnership in its sole discretion, and each of which
the Purchaser hereby agrees to use its best efforts to satisfy at or prior to
the Closing:
A. No Litigation. No action, suit or proceeding against the
Partnership, Penn Dental, either of Talus and ▇▇▇▇▇▇▇ or the Purchaser relating
to the consummation of any of the transactions contemplated by this Agreement or
any governmental action seeking to delay or enjoin any such transactions shall
be pending or threatened.
B. Representations and Warranties. The representations and
warranties made by the Purchaser herein shall be correct as of the date of the
Closing in all
41
38
material respects with the same force and effect as though such representations
and warranties had been made as of the date of the Closing, and on the date of
the Closing, the Purchaser shall deliver to the Partnership a certificate dated
the date of the Closing to such effect. All the terms, covenants and conditions
of this Agreement to be complied with and performed by the Purchaser on or
before the date of the Closing shall have been duly complied with and performed
in all respects, and, on the date of the Closing, the Purchaser shall deliver to
the Partnership a certificate dated the date of the Closing to such effect.
C. Opinion of the Purchaser's Counsel. The Partnership, Talus
and ▇▇▇▇▇▇▇ shall have received an opinion of Messrs. ▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel
for the Purchaser, dated the date of the Closing, in form and substance
satisfactory to the Partnership, Talus and ▇▇▇▇▇▇▇ and their counsel, Messrs.
Wolf, Block, ▇▇▇▇▇▇ and ▇▇▇▇▇-▇▇▇▇▇, to the effect that:
(i) The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware
and has full power and authority to own its properties and to conduct
the businesses in which it is now engaged.
(ii) This Agreement and the Closing Notes have been duly
authorized, executed and delivered by the Purchaser, and constitutes
the valid and legally binding obligation of the Purchaser, enforceable
against the Purchaser in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar laws affecting creditors' rights
generally or by general principles of equity.
(iii) Neither the execution and delivery of this Agreement and
the Closing Notes, nor the consummation of the transactions
contemplated hereby, violates any provision of the certificate of
incorporation or by-laws of the Purchaser or any statute, ordinance or
regulation.
D. Other Certificates. The Partnership, Talus and ▇▇▇▇▇▇▇
shall have received such additional certificates, instruments and other
documents, in form and substance satisfactory to them and their counsel, as it
shall have reasonably requested in connection with the transactions contemplated
hereby.
42
39
E. Employment Agreements. The Purchaser (or its designee) and
Talus and the Purchaser and ▇▇▇▇▇▇▇ shall have entered into an employment
agreement in the form of Exhibits I-1 and I-2 attached hereto (the "Employment
Agreements").
F. Stockholders Agreements. The Purchaser, Talus and ▇▇▇▇▇▇▇
shall have entered into a stockholders agreement in the form of Exhibits J-1 and
J-2 attached hereto (the "Stockholders Agreements").
G. Option Agreement. The Purchaser, Talus, Mehlman, and Mid
Atlantic MSO, L.L.C., a Pennsylvania limited liability company (the "LLC") shall
have entered into an option agreement in the form of Exhibit M attached hereto.
SECTION IX
CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE
The obligation of the Purchaser to purchase the Assets and the
Shares and otherwise consummate the transactions contemplated by this Agreement
at the Closing is subject to the following conditions precedent, any or all of
which may be waived by the Purchaser in its sole discretion, and each of which
each of the Partnership, Talus and ▇▇▇▇▇▇▇ hereby agrees to use its or his best
efforts to satisfy at or prior to the Closing:
A. Opinion of Counsel. The Purchaser shall have received an
opinion of Messrs. Wolf, Block, ▇▇▇▇▇▇ and ▇▇▇▇▇-▇▇▇▇▇, counsel for the
Partnership, Talus and ▇▇▇▇▇▇▇, delivered to the Purchaser pursuant to the
instructions of the Partnership, Talus and ▇▇▇▇▇▇▇, dated the date of the
Closing, in form and substance satisfactory to the Purchaser and its counsel,
Messrs. ▇▇▇▇▇▇ & ▇▇▇▇▇▇, to the effect that:
(i) The Partnership is a general partnership duly organized
and validly existing under the laws of the Commonwealth of Pennsylvania
and has full partnership power and authority to own its properties and
to conduct the Business in which it is now engaged.
(ii) Penn Dental is a corporation duly organized and validly
existing under the laws of the Commonwealth of Pennsylvania and has
full corporate power and authority to own its properties and to conduct
the businesses in which it is now engaged.
43
40
(iii) Based solely upon a review of Penn Dental's stock
records, the authorized capital stock of Penn Dental consists of 1,000
shares of Penn Common Stock, of which 100 shares are issued and
outstanding. All of the issued and outstanding shares of Penn Common
Stock have been validly issued and are fully paid and non-assessable
and are owned by the Partnership.
(iv) This Agreement has been duly authorized, executed and
delivered by the Partnership and duly executed and delivered by each of
Talus and ▇▇▇▇▇▇▇ and constitutes the valid and legally binding
obligation of the Partnership and each of Talus and ▇▇▇▇▇▇▇,
enforceable against the Partnership and each of Talus and ▇▇▇▇▇▇▇ in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, or other similar laws affecting
creditors' rights generally or by general principles of equity.
(v) Neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, violates any
provision of the certificate of incorporation or by-laws of Penn Dental
or the governing instruments of the Partnership or any statute,
ordinance or regulation or, to such counsel's knowledge, any order,
judgment or decree of any court or governmental agency, or conflicts
with or will result in any breach of any of the terms of or constitute
a default under or result in the termination of or the creation of any
lien pursuant to the terms of any contract or agreement to which the
Partnership, Penn Dental or either of Talus and ▇▇▇▇▇▇▇ is a party or
by which the Partnership, Penn Dental or either of Talus and ▇▇▇▇▇▇▇ or
the assets of the Partnership, Penn Dental, the Business, Talus or
▇▇▇▇▇▇▇ are bound.
(vi) The deeds, bills of sale, assignments and other
instruments of transfer of ownership delivered by Talus and ▇▇▇▇▇▇▇ to
the Partnership and then delivered by the Partnership have been duly
executed and delivered, are valid and binding in accordance with their
terms, and are sufficient to convey to the Purchaser (or its designee)
all the right, title and interest of the Partnership in and to the
Shares and the Assets.
(vii) To the best of the knowledge of such counsel, there are
no claims, disputes, actions, suits or proceedings pending or
threatened against the Partnership, Penn Dental, either of Talus or
▇▇▇▇▇▇▇ or
44
41
the assets or properties of the Partnership or the Business.
B. No Litigation. No action, suit or proceeding against the
Partnership, Penn Dental, either of Talus and ▇▇▇▇▇▇▇ or the Purchaser relating
to the consummation of any of the transactions contemplated by this Agreement
nor any governmental action seeking to delay or enjoin any such transactions
shall be pending or threatened.
C. Representations and Warranties. The representations and
warranties made by the Partnership and each of Talus and ▇▇▇▇▇▇▇ herein shall be
correct as of the date of the Closing in all material respects with the same
force and effect as though such representations and warranties had been made as
of the date of the Closing, and on the date of the Closing, the Partnership and
each of Talus and ▇▇▇▇▇▇▇ shall deliver to the Purchaser a certificate dated the
date of the Closing to such effect. All the terms, covenants and conditions of
this Agreement to be complied with and performed by the Partnership and each of
Talus and ▇▇▇▇▇▇▇ on or before the date of the Closing shall have been duly
complied with and performed in all respects, and on the date of the Closing, the
Partnership and each of Talus and ▇▇▇▇▇▇▇ shall deliver to the Purchaser a
certificate dated the date of the Closing to such effect.
D. Other Certificates. The Purchaser shall have received such
other certificates, instruments and other documents, in form and substance
satisfactory to the Purchaser and counsel for the Purchaser, as it shall have
reasonably requested in connection with the transactions contemplated hereby.
E. Sale of All the Assets; Sale of All the Shares. All of the
Assets of the Business, with the exception of the Excluded Assets, shall be sold
to the Purchaser (or its designee) at the Closing. All of the Shares shall be
sold to the Purchaser (or its designee) at the Closing.
F. Assignments; Third Party Consents. The Purchaser shall have
received evidence satisfactory to it of the assignment to the Purchaser (or its
designee) of the leases, contracts, agreements and other instruments of the
Business set forth in Exhibit C from the Partnership, Penn Dental, Talus,
▇▇▇▇▇▇▇ or any other party to such leases, contracts, agreements and other
instruments, including ▇▇. ▇▇▇▇▇▇. The Purchaser shall have received all
necessary consents of third parties under the contracts, agreements, leases,
insurance policies and other instruments of the
45
42
Business, which consents shall not provide for the acceleration of any
liabilities or any other detriment to the Purchaser or the Business.
G. Employment Agreements. The Purchaser (or its designee) and
each of Talus and ▇▇▇▇▇▇▇ shall have entered into the Employment Agreements.
H. Stockholders Agreements. The Purchaser, Talus and ▇▇▇▇▇▇▇
shall have entered into the Stockholders Agreements.
I. Governmental Licenses and Permits. The Purchaser (and its
designee) have obtained all required authorizations, permits and licenses
required for it to operate the Business.
J. Management Agreements; Escrow Agreements. The Purchaser and
each of Talus and Hong Cao, D.M.D. shall have entered into a Management
Agreement in the form of Exhibit K attached hereto and an Escrow Agreement in
the form of Exhibit L attached hereto.
K. Establishment of New Professional Corporations. Talus and
Hong Cao, D.M.D. shall have established one or more professional corporations in
the Commonwealths of Virginia and Pennsylvania as required to employ licensed
professional employees of the Business.
L. Amendment to Penn Dental's Certificate of Incorporation.
Penn Dental shall have amended its certificate of incorporation so as to become
a business corporation under the laws of the Commonwealth of Pennsylvania.
M. Option Agreement. The Purchaser, the LLC, Talus and ▇▇▇▇▇▇▇
shall have entered into the Option Agreement.
SECTION X
INDEMNIFICATION
A. Indemnification by each of the Partnership, Talus and
▇▇▇▇▇▇▇. Each of the Partnership, Talus and ▇▇▇▇▇▇▇, jointly and severally,
shall indemnify and hold harmless the Purchaser from and against all losses,
claims, taxes, assessments, demands, damages, liabilities, obligations, costs
and/or expenses (hereinafter referred to collectively as the "Purchaser's
Damages"), including,
46
43
without limitation, reasonable fees and disbursements of counsel, sustained or
incurred by the Purchaser (or its designee) in any action, claim or proceeding
(i) between the Purchaser and ▇▇▇▇▇▇▇ and/or Talus or (ii) between the Purchaser
and any third party or (iii) otherwise (a) arising out of or relating to the
breach of any of the obligations, covenants or provisions of, or the inaccuracy
of any of the representations or warranties made by, the Partnership or either
of Talus and ▇▇▇▇▇▇▇ herein and (b) arising out of or relating to any
liabilities or obligations of the Partnership, Penn Dental, Talus and ▇▇▇▇▇▇▇
which are not Assumed Liabilities and (c) resulting from the failure by the
Partnership, Penn Dental, Talus or ▇▇▇▇▇▇▇ to obtain the necessary consents to
assignment to the Purchaser (or VFDP) of the real estate leases set forth in
Exhibit C and (d) arising out of or relating to any claims or demands made by
▇▇▇▇▇▇ ▇▇▇▇▇▇, Scheherazad Anoushfar, or Mohsen Izadideh Kordi against the
Purchaser (or VFDP), ▇▇▇▇▇▇▇, the Partnership, the Virginia Business or the
Assets relating to the transactions contemplated by this Agreement, the transfer
of the Assets to the Purchaser (or its designee) or the dissolution of
Alexandria Dental Centre or Northern Virginia Dental Group or any other business
relationships between ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇, Scheherazad Anoushfar or Mohsen
Izadideh Kordi. In addition to the right of the Purchaser to indemnification
hereunder, the Purchaser shall have the right from time to time to set off the
amount of any of the Purchaser's Damages with respect to which there has been a
final determination (as hereinafter defined) that the Purchaser is entitled to
indemnification thereof, except for any Purchaser's Damages arising from a
breach of Section XI hereof, against any Contingent Payments (including
promissory notes delivered as part of the Contingent Payments) and the principal
and interest on the Closing Notes.
B. Indemnification by the Purchaser. Each of the Purchaser and
VFDP shall, jointly and severally, indemnify and hold harmless each of the
Partnership and Talus and ▇▇▇▇▇▇▇ from and against any and all losses, claims,
assessments, demands, damages, liabilities, obligations, costs and/or expenses
(hereinafter referred to collectively as the "Shareholder's Damages"; the
Shareholder's Damages and the Purchaser's Damages are sometimes referred to
herein as the "Damages"), including, without limitation, reasonable fees and
disbursements of counsel, sustained or incurred by any of the Partnership, Talus
and ▇▇▇▇▇▇▇ in any action or proceeding between (i) the Partnership and/or
▇▇▇▇▇▇▇ and/or Talus and the Purchaser or (ii) the Partnership and/or ▇▇▇▇▇▇▇
and/or Talus and any third party or (iii) otherwise (a) by reason
47
44
of the breach of any of the obligations, covenants or provisions of, or the
inaccuracy of any of the representations or warranties made by, the Purchaser
herein, or (b) arising out of or relating to any liabilities or obligations
which are Assumed Liabilities.
C. Procedure for Indemnification. In the event that any party
hereto shall incur (or anticipates that it may incur in the case of third party
claims) any Damages in respect of which indemnity may be sought by such party
pursuant to this Agreement, the party indemnified hereunder (the "Indemnitee")
shall notify the party or parties providing indemnification (the "Indemnitor")
promptly; in the case of third party claims, such notice shall in any event be
given within thirty (30) days of the filing or assertion of any claim against
the Indemnitee stating the nature and basis of such claim; provided, however,
that any delay or failure to notify any Indemnitor of any claim shall not
relieve it from any liability except to the extent that the Indemnitor
demonstrates that the defense of such action is materially prejudiced by such
delay or failure to notify. In the case of third party claims, the Indemnitor
shall, within ten (10) days of receipt of notice of such claim, notify the
Indemnitee of its intention to assume the defense of such claim at its own
expense. If the Indemnitor shall assume the defense of any claim or litigation,
the Indemnitor may settle such claim or litigation on such terms as it may deem
appropriate without the consent of the Indemnitee so long as the settlement
involves solely the payment of money damages for which the Indemnitor is solely
responsible. If the Indemnitor shall not assume the defense of any such claim or
litigation resulting therefrom, the Indemnitee may defend against any such claim
or litigation in such manner as it may deem appropriate and the Indemnitee may
settle such claim or litigation on such terms as it may deem appropriate. In the
event that a dispute arises concerning the obligation of the Indemnitor to
assume the defense of a claim, or a dispute arises concerning a claim hereunder
which does not involve a third party claim, or in the event that there is any
other dispute relating to indemnification, the parties shall submit any such
dispute to arbitration pursuant to Section XIV(G); provided, however, that the
parties agree to negotiate in good faith for a period of at least sixty (60)
days prior to initiating arbitration to resolve any dispute. If it shall be
finally determined that the Indemnitor failed to assume the defense of any claim
for which the Indemnitor is liable to the Indemnitee for Damages, then the
expense of defending the claim shall be borne by the Indemnitor. Payment of the
Damages shall be made within ten (10) days of a final determination of a claim.
48
45
A final determination of a claim shall be (i) a judgment of
any court determining the validity of a disputed claim, if no appeal is pending
from such judgment or if the time to appeal therefrom has elapsed, (ii) an award
of any arbitration determining the validity of such disputed claim, it there is
not pending any motion to set aside such award or if the time within which to
move to set such award aside has elapsed, (iii) a written termination of the
dispute with respect to such claim signed by all of the parties thereto or their
attorneys, (iv) a written acknowledgement of the Indemnitor that he or it no
longer disputes the validity of such claim, or (v) such other evidence of final
determination of a claim as shall be acceptable to the parties.
D. Agreements Concerning Indemnification. It is specifically
understood and agreed that:
(i) The Partnership, Talus and ▇▇▇▇▇▇▇ shall
not be obligated to indemnify the Purchaser for the Purchaser's Damages unless
and until the aggregate amount of such Damages exceeds $25,000 (the
"Deductible"); provided, however, that if such Purchaser's Damages exceed the
Deductible, then the Partnership, Talus and ▇▇▇▇▇▇▇ shall be obligated to
indemnify the Purchaser for all such Purchaser's Damages which exceed $10,000
and provided further that any Purchaser's Damages arising from any breach of any
representations and warranties contained in Section II(I)(i) or Section II(J)
shall not be subject to the Deductible; and
(ii) The Partnership, Talus and ▇▇▇▇▇▇▇ shall
not be obligated to indemnify the Purchaser for the Purchaser's Damages in
excess of the aggregate amount actually received by the Partnership in cash or
shares of Purchaser Common Stock (valued at the fair market value thereof at
time of conversion of any convertible note) as part of the Purchase Price,
including as payment of any principal of or interest on any notes issued as part
of the Purchase Price (the "Cap"); provided, however, that any such Purchaser's
Damages arising from any breach of any representations and warranties contained
in Section II(I)(i) or Section II(J) shall not be subject to the Cap.
(iii) Notwithstanding the foregoing, the
Purchaser shall be entitled to set off the amount of any increase in rent under
the current real estate leases for the four (4) facilities of the Virginia
Business resulting from the failure by ▇▇▇▇▇▇▇ or the Partnership to obtain the
required consents to assignment of such leases against any Contingent Payments
and the principal and interest on the
49
46
Closing Notes (a "Lease Consent Set-off") without the necessity of obtaining a
final determination prior to the set-off. The Purchaser shall make any Lease
Consent Set-off on an annual basis only with respect to rent increases required
to be paid to a lessor during the prior one year period as a result of the
failure to obtain any lessor's consent. The Purchaser may continue to make such
set-offs until Purchaser is fully compensated for any such rent increases
notwithstanding any limitations on the restrictions on the survival of the
representations, warranties or covenants in this Agreement set forth in Section
XIV(B) hereof, which shall not apply to any Lease Consent Set-off.
E. Contribution. The Purchaser shall not be required to make
any claim against Penn Dental or any other party in order to pursue any claim
hereunder against the Partnership, Talus or ▇▇▇▇▇▇▇ and neither the Partnership,
Talus nor ▇▇▇▇▇▇▇ shall be entitled to any indemnification or right of
contribution from Penn Dental in connection with any claim made hereunder by the
Purchaser.
SECTION XI
NON-COMPETITION AGREEMENT
Following the consummation of the transactions contemplated
hereby, and in consideration thereof, neither the Partnership nor either of
Talus and ▇▇▇▇▇▇▇ shall, (a) subsequent to the date of the Closing and until
five (5) years after the date of the Closing, directly or indirectly, (i) (x)
engage, whether as principal, agent, investor, distributor, representative,
stockholder, employee, consultant, volunteer or otherwise, with or without pay,
in any activity or business venture anywhere within a ten (10) mile radius of
any facility or business location operated by the Purchaser or by any other
member of the Purchaser Group (as hereinafter defined) of which facility or
location it or he has received notice from the Purchaser which is competitive
with the business of the Purchaser and the other members of the Purchase Group
of providing dental services and related activities or (y) engage, whether as
principal, agent, investor, distributor, representative, stockholder, employee,
consultant, volunteer or otherwise, with or without pay, in any business or
activity which has as a purpose the acquisition, start-up and development of
dental practices (not including the practice of dentistry by ▇▇▇▇▇▇▇ and Talus
after the termination of their employment by the Purchaser or any other member
of the Purchaser Group permitted by this Section XI) anywhere within any state
in
50
47
which the Purchaser or any other member of the Purchaser Group is engaged in
business or has plans evidenced in writing of which ▇▇▇▇▇▇▇, Talus or the
Partnership has received notice, to engage in business as of the date of
termination of the employment of Talus or ▇▇▇▇▇▇▇, as the case may be, (ii)
solicit or entice or endeavor to solicit or entice away from any member of the
Purchaser Group any person who was a director, officer, employee, agent or
consultant of such member of the Purchaser Group, either on the Partnership's or
either of Talus' or Mehlman's own account or for any person, firm, corporation
or other organization, whether or not such person would commit any breach of
such person's contract of employment by reason of leaving the service of such
member of the Purchaser Group, (iii) solicit or entice or endeavor to solicit or
entice away any of the clients or customers of any member of the Purchaser
Group, either on the Partnership's or either of Talus' or Mehlman's own account
or for any other person, firm, corporation or organization, or (iv) employ any
person who was a director, officer or employee of any member of the Purchaser
Group or any person who is or may be likely to be in possession of any
confidential information or trade secrets relating to the business of any member
of the Purchaser Group, or (b) except in connection with the enforcement of any
of their rights hereunder, at any time take any action or make any statement the
effect of which would be directly or indirectly, to impair the goodwill of any
member of the Purchaser Group or the business reputation or good name of any
member of the Purchaser Group, or be otherwise detrimental to the Purchaser,
including any action or statement intended, directly or indirectly, to benefit a
competitor of any member of the Purchaser Group. Because the remedy at law for
any breach of the foregoing provisions of this Section XI would be inadequate,
each of the Partnership and each of Talus and ▇▇▇▇▇▇▇ hereby consents, in case
of any such breach, to the granting by any court of competent jurisdiction of
specific enforcement, including, but not limited to pre-judgment injunctive
relief, of such provisions, as provided for in Section XIV(F) hereof.
The parties hereto agree that if, in any proceeding, the court
or other authority shall refuse to enforce the covenants herein set forth
because such covenants cover too extensive a geographic area or too long a
period of time, any such covenant shall be deemed appropriately amended and
modified in keeping with the intention of the parties to the maximum extent
permitted by law.
Each of the parties hereto expressly acknowledges and agrees
that the covenants and agreements of the
51
48
Partnership and each of Talus or ▇▇▇▇▇▇▇ set forth in this Section XI are
reasonable in all respects, and necessary in order to protect, maintain and
preserve the value and goodwill of the Purchaser and the Business, as well as
the proprietary and other legitimate business interests of the members of the
Purchaser Group.
For purposes hereof, "Purchaser Group" shall mean,
collectively, the Purchaser, Penn Dental, and their subsidiaries, affiliates and
parent entities and entities managed by the Purchaser and its subsidiaries,
affiliates and parent entities operating from time to time in the same lines of
business.
Notwithstanding the foregoing, in the event that (i) the
Purchaser (or its designee) has failed to make any undisputed Contingent
Payments within thirty (30) days of receipt by the Purchaser of written notice
to the effect that such Contingent Payments are due and payable, or (ii) a
payment event of default under any of the Notes has occurred, or (iii) the
Purchaser (or its designee) fails to make salary payments to Talus or ▇▇▇▇▇▇▇
pursuant to Section 3.1 of their Employment Agreements within ten (10) days of
receipt by the Purchaser of written notice to the effect that such payments are
due and payable, Talus or ▇▇▇▇▇▇▇ shall be permitted thereafter to engage in the
private practice of dentistry at no more than 2 offices without being considered
to be in violation of the covenants contained herein. It is understood and
agreed that Talus shall not be released from the provisions of paragraphs (a)
and (b) above for any failure of the Purchaser (or its designee) to meet its
payment obligations to ▇▇▇▇▇▇▇ and it is understood and agreed that ▇▇▇▇▇▇▇
shall not be released from the provisions of paragraphs (a) and (b) above for
the failure of the Purchaser (or its designee) to meet its payment obligations
to Talus. In the event that the employment of ▇▇▇▇▇▇▇ or Talus has been
terminated by the Purchaser or any other member of the Purchaser Group pursuant
to Section 6.4 of his Employment Agreement, then Talus or ▇▇▇▇▇▇▇, as the case
may be, shall be permitted thereafter to engage in the private practice of
dentistry at no more than 2 offices anywhere outside a ten (10) mile radius of
any facility or business location operated by the Purchaser or any member of the
Purchaser Group of which facility or location he has received notice from the
Purchaser.
52
49
SECTION XII
BROKERS AND FINDERS
A. The Partnership's, Talus's and Mehlman's Obligations. The
Purchaser shall not have any obligation to pay any fee or other compensation to
any person, firm or corporation dealt with by the Partnership, Penn Dental or
either of Talus or ▇▇▇▇▇▇▇ in connection with this Agreement and the
transactions contemplated hereby and each of the Partnership, Talus and ▇▇▇▇▇▇▇,
jointly and severally, hereby agree to indemnify and save the Purchaser (or its
designee) harmless from any liability, damage, cost or expense arising from any
claim for any such fee or other compensation.
B. The Purchaser's Obligations. None of the Partnership, Talus
nor ▇▇▇▇▇▇▇ shall have any obligation to pay any fee or other compensation to
any person, firm or corporation dealt with by the Purchaser in connection with
this Agreement and the transactions contemplated hereby and the Purchaser agrees
to indemnify and save and each of Talus and ▇▇▇▇▇▇▇ harmless from any liability,
damage, cost or expense arising from any claim for any such fee or other
compensation.
SECTION XIII
TRANSFER OF NAME
At the Closing, the Partnership, ▇▇▇▇▇▇▇ and Talus shall
deliver to the Purchaser a written consent duly executed by each of the
Partnership, Talus and ▇▇▇▇▇▇▇ evidencing its or his consent to the use by the
Purchaser and any subsidiaries, affiliated companies or assigns of the Purchaser
of all names currently used in the conduct of the Virginia Business and all
variants thereof.
SECTION XIV
MISCELLANEOUS
A. Notices. All notices, requests or instructions hereunder
shall be in writing and delivered personally, sent by telecopy or sent by
registered or certified mail, postage prepaid, as follows:
53
50
(1) If to the Partnership or Penn Dental
(prior to the Closing):
to the addresses for Talus and
▇▇▇▇▇▇▇ set forth below
with a copy to:
Wolf, Block, ▇▇▇▇▇▇ and ▇▇▇▇▇-▇▇▇▇▇
Twelfth Floor, Packard Building
S.E. Corner 15th and Chestnut Streets,
Philadelphia, Pennsylvania 19102-2678
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(2) If to Talus:
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Wolf, Block, ▇▇▇▇▇▇ and ▇▇▇▇▇-▇▇▇▇▇
Twelfth Floor, Packard Building
S.E. Corner 15th and Chestnut Streets,
Philadelphia, Pennsylvania 19102-2678
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(3) If to ▇▇▇▇▇▇▇:
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
54
51
with a copy to:
Wolf, Block, ▇▇▇▇▇▇ and ▇▇▇▇▇-▇▇▇▇▇
Twelfth Floor, Packard Building
S.E. Corner 15th and Chestnut Streets,
Philadelphia, Pennsylvania 19102-2678
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(4) If to the Purchaser or Penn Dental
(subsequent to the Closing):
c/o Foster Management Company
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or telecopied, and five business days after the date of
mailing, if mailed.
B. Survival of Representations. Each representation, warranty,
covenant and agreement of the parties hereto herein contained shall survive the
Closing, notwithstanding any investigation at any time made by or on behalf of
any party hereto, for a period of two (2) years from the date of the Closing;
except (a) for covenants and agreements to be performed subsequent to the
Closing and (b) that nothing in the foregoing shall be deemed to diminish any
Indemnitor's indemnification obligations to an Indemnitee respecting (i) claims
for Damages made prior to the second anniversary of the date of the Closing or
the applicable statutes of limitations period for claims for Damages based on
the matters set forth in (ii) and (iii) below, (ii) claims for indemnification
under Section X(A)(c)
55
52
and those based on breaches of Section II(I)(i) and Section II(J) and common law
fraud, which shall survive for the duration of the applicable statutes of
limitations periods and (iii) claims based on the Purchaser's failure to pay
Assumed Liabilities and the Partnership's, Talus's and Mehlman's failure to pay
liabilities which are not Assumed Liabilities, which shall survive for the
duration of any applicable statutes of limitations governing third party claims
made with respect to such liabilities.
C. Entire Agreement. This Agreement and the documents referred
to herein contain the entire agreement among the parties hereto with respect to
the transactions contemplated hereby, and no modification hereof shall be
effective unless in writing and signed by the party against which it is sought
to be enforced.
D. Further Assurances. Each of the parties hereto shall use
such party's best efforts to take such actions as may be necessary or reasonably
requested by the other parties hereto to carry out and consummate the
transactions contemplated by this Agreement.
E. Expenses. Each of the parties hereto shall bear such
party's own expenses in connection with this Agreement and the transactions
contemplated hereby.
F. Injunctive Relief. Notwithstanding the provisions of
Section XIV(G) hereof, in the event of a breach or threatened breach by any of
the Partnership, Talus and ▇▇▇▇▇▇▇ of the provisions of Section XI of this
Agreement, each of the Partnership, Talus and ▇▇▇▇▇▇▇ hereby consents and agrees
that the Purchaser shall be entitled to an injunction or similar equitable
relief restraining any of the Partnership, Talus or ▇▇▇▇▇▇▇ from committing or
continuing any such breach or threatened breach or granting specific performance
of any act required to be performed by each of the Partnership, Talus and
▇▇▇▇▇▇▇, as the case may be, under any such provision, without the necessity of
showing any actual damage or that money damages would not afford an adequate
remedy and without the necessity of posting any bond or other security. The
parties hereto hereby consent to the jurisdiction of the federal courts for the
Eastern District of Pennsylvania and the Pennsylvania commonwealth courts
located in such district for any proceedings under this Section XIV(F). The
parties hereto agree that the availability of arbitration in Section XIV(G)
hereof shall not be used by any party as grounds for the dismissal of any
injunctive actions instituted by the Purchaser pursuant to this Section XIV(F).
Nothing herein shall be construed as prohibiting the Purchaser from
56
53
pursuing any other remedies at law or in equity which it may have.
G. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or any breach hereof, shall, except as provided in
Section XIV(F) hereof, be settled by arbitration in accordance with the rules of
the American Arbitration Association then in effect and judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitration shall be held in Philadelphia, Pennsylvania.
H. Regulatory Matters. Each of the Partnership, Talus and
▇▇▇▇▇▇▇ agrees that if as a result of a regulatory change or for any other
reason, the Purchaser shall determine that it is necessary to restructure the
manner in which the Business is conducted or the manner in which services are
provided, each of the Partnership, Talus and ▇▇▇▇▇▇▇ shall, upon thirty (30)
days' prior written notice of the Purchaser, assist the Purchaser to take
promptly all necessary steps (as set forth in such notice) to carry out such
restructuring; provided, however, that no such restructuring shall diminish any
payments or other consideration to be received by the Partnership, ▇▇▇▇▇▇▇ or
Talus and that none of the Partnership, ▇▇▇▇▇▇▇ or Talus will be required to
expend any funds or waive or give up any rights to carry out such restructuring.
The expenses related to such restructuring shall be borne by the Purchaser.
I. Invalidity. Should any provision of this Agreement be held
by a court or arbitration panel of competent jurisdiction to be enforceable only
if modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as modified by such court or arbitration panel shall
be binding upon and enforceable against each of them. In any event, should one
or more of the provisions of this Agreement be held to be
57
54
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions hereof, and if such
provision or provisions are not modified as provided above, this Agreement shall
be construed as if such invalid, illegal or unenforceable provisions had never
been set forth herein.
J. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of each of the
Partnership and the Purchaser, respectively, and the legal representatives and
heirs of each of the Shareholders.
K. Governing Law. The validity of this Agreement and of any of
its terms or provisions, as well as the rights and duties of the parties under
this Agreement, shall be construed pursuant to and in accordance with the laws
of the Commonwealth of Pennsylvania.
L. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
* * *
58
55
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the date first above written.
MT ASSOCIATES
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
--------------------------------
General Partner
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
--------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇, D.M.D.
--------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, D.M.D.
VALLEY FORGE DENTAL
ASSOCIATES, INC.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
President
The undersigned joins in this
Agreement for the purposes of
Section X only.
VFD OF PENNSYLVANIA, INC.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
-----------------------------
President
59
Schedule I
EXCLUDED ASSETS
1. Cash on hand or cash equivalents in excess of $70,000.
2. Entitlement to all tax refunds (except for refunds for
taxes included in the Assumed Liabilities).
3. Tax returns and similar business records dealing with non-Virginia
Business matters, or unrelated to the delivery of dental services by
the Virginia Business.
4. Claim for $2,000 in cash stolen from the Penn Dental
office.
5. Claims of the Virginia Business which are not related
to the Assets or the Assumed Liabilities.
6. Computer, fax machine, filing cabinets, desks and
shelving located in Talus's home.
60
Schedule II
LIABILITIES TO BE ASSUMED
1. Obligations and liabilities accruing from and after the date of the
Closing under the real estate leases, equipment leases and contracts
listed in Exhibit C.
2. Accounts payable and accrued expenses of the Business
listed on the attached schedule.
61
Schedule III
CONTINGENT PAYMENTS
The Target 100% net revenues and pre-tax earnings percentages
set forth below for each Contingent Period correspond to the Target 100%
headings for net revenues and pre-tax earnings in the Contingent Matrix.
The Target 100% net revenues, pre-tax earnings percentages and
Contingent Payments are as follows:
(1) Contingent Period Ending September 30, 1996:
Target 100% net revenues $3,365,000
Target 100% pre-tax earnings
(as a percentage of net 21.6%
revenues)
Target 100% Contingent Payments $300,000 and a
Convertible
subordinated
promissory note
in the principal
amount of
$500,000.
(2) Contingent Period Ending September 30, 1997:
Target 100% net revenues $3,900,000
Target 100% pre-tax earnings
(as a percentage of net 23.8%
revenues)
Target 100% Contingent Payments $300,000 and a
Convertible
subordinated
promissory note
in the principal
amount of
$500,000.
62
2
(3) Contingent Period Ending September 30, 1998:
Target 100% net revenues $4,400,000
Target 100% pre-tax earnings
(as a percentage of net
revenues) 25.0%
Target 100% Contingent Payments $550,000 and a
Convertible
subordinated
promissory note
in the principal
amount of
$750,000.
In order to calculate the Contingent Payments for a Contingent
Period, the net revenues and pre-tax earnings of the Business shall be computed
in accordance with Section I(E) and a contingent payment multiplier for such
period which shall be determined by reference to the Contingent Matrix. The
percentages set forth in the headings of the Contingent Matrix are benchmarks
only. The aggregate amount of the cash and the principal amount of the
Contingent Notes which comprise the Contingent Payments payable to the
Partnership and ▇▇▇▇▇▇▇ shall be determined by multiplying the Target 100% cash
and the Target 100% aggregate principal amount of the Contingent Notes for the
applicable Contingent Period by the applicable contingent multiplier.
The maximum Contingent Payments for any Contingent Period
shall be 144% of the Target 100% Contingent Payments for such Contingent Period.
63
Schedule IV
CONTINGENT PAYMENT MATRIX
REVENUES
TARGET
10% 20% 40% 60% 80% 100% 120%
--------------------------------------------------------------------------------------------------
P E 10% 0.01 0.02 0.04 0.06 0.08 0.10 0.12
R A --------------------------------------------------------------------------------------------------
E R 20% 0.02 0.04 0.08 0.12 0.16 0.20 0.24
T N --------------------------------------------------------------------------------------------------
A I 40% 0.04 0.08 0.16 0.24 0.32 0.40 0.48
X N --------------------------------------------------------------------------------------------------
G 60% 0.06 0.12 0.24 0.36 0.48 0.60 0.72
S --------------------------------------------------------------------------------------------------
80% 0.08 0.16 0.32 0.48 0.64 0.80 0.96
--------------------------------------------------------------------------------------------------
TARGET 0.10 0.20 0.40 0.60 0.80 1.00 1.20
100%
--------------------------------------------------------------------------------------------------
120% 0.12 0.24 0.48 0.72 0.96 1.20 1.44
--------------------------------------------------------------------------------------------------
Contingent Payments will be pro-rated for net revenues and pre-tax
earnings that are between matrix benchmarks.
64
Schedule V
ALLOCATION OF PURCHASE PRICE
The Purchase Price shall be allocated to the Shares and the Assets in
accordance with the following:
1. to the Shares, the sum of $1,000,000;
2. to the Assets the remainder as follows:
a. to fixed assets at their fair market value;
b. to accounts receivable at their net collectible
value;
c. to cash in an amount equal to the aggregate amount
thereof; and
d. remainder to goodwill.