EXHIBIT 99(b)
EXECUTION COPY
STOCK PURCHASE AGREEMENT
by and among
SAFEGUARD HEALTH ENTERPRISES, INC.
(as Buyer)
and
ADVANTAGE DENTAL HEALTHPLANS, INC., a Missouri corporation
ADVANTAGE DENTAL HEALTHPLANS, INC., a Florida corporation
ADVANTAGE DENTAL HEALTHPLANS, INC., a Delaware corporation,
ADVANTAGE DENTAL PLANS, INC., a Delaware corporation,
ADH PLANS, INC., a Delaware corporation, and
ADH MARKETING, INC., a Florida corporation
(Collectively, "Advantage")
and
▇▇▇ ▇▇▇▇▇▇
(as Selling Shareholder)
Dated as of November 25, 1996
Stock Purchase Agreement
Advantage Health Plans
OA962970.147
TABLE OF CONTENTS
ARTICLE I TRANSFER OF SHARES............................................... 1
1.1 Sale of Shares....................................................... 1
1.2 Purchase Price and Supplemental Consideration........................ 1
(a) Purchase Price................................................... 1
(b) Payment for Non-Competition Agreement............................ 2
(c) Retained Assets; Loan Forgiveness................................ 2
1.3 Payment of Purchase Price............................................ 2
1.4 Shareholder to Deliver Title and Possession.......................... 3
1.5 Closing.............................................................. 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF ADVANTAGE AND THE SHAREHOLDER 3
2.1 Organization and Qualification....................................... 3
2.2 Capitalization....................................................... 4
2.3 Voting Agreements.................................................... 4
2.4 Authority Relative to this Agreement................................. 4
2.5 No Subsidiaries...................................................... 5
2.6 Absence of Certain Changes........................................... 5
2.7 Financial Statements................................................. 5
2.8 Absence of Undisclosed Liabilities................................... 5
2.9 Consents and Approvals; No Violation................................. 6
2.10 Broker's Commissions or Finder's Fees............................... 6
2.11 Employment and Similar Agreements................................... 7
2.12 Litigation.......................................................... 7
2.13 Taxes............................................................... 8
2.14 ERISA Plans......................................................... 11
2.15 Contracts........................................................... 12
2.16 Customers and Sales................................................. 12
2.17 Customer List....................................................... 12
2.18 Interests in Competitors............................................ 12
2.19 Properties, Liens................................................... 13
2.20 Real Property....................................................... 13
2.21 Permits; Compliance with Laws....................................... 13
2.22 Insurance Policies.................................................. 13
2.23 Environmental Liability............................................. 14
2.24 Banking Facilities.................................................. 14
2.25 Minute Books and Stock Records...................................... 14
2.26 Consents of Non-Governmental Third Parties.......................... 14
2.27 Accounts Receivable................................................. 14
2.28 Inventory........................................................... 15
2.29 Trademarks; Tradenames.............................................. 15
2.30 Transactions with Related Parties................................... 15
2.31 Compliance with Insurance Laws...................................... 15
2.32 Full Disclosure..................................................... 16
2.33 Representations and Warranties True................................. 16
Stock Purchase Agreement
Advantage Health Plans
OA962970.147
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER........................ 16
3.1 Organization......................................................... 16
3.2 Authority Relative to this Agreement................................. 17
3.3 Consent and Approvals; No Violation.................................. 17
3.4 Broker's Commissions or Finder's Fees................................ 17
3.5 Investment Intent.................................................... 17
3.6 Legal Proceedings.................................................... 18
ARTICLE IV CONDUCT OF BUSINESS BY ADVANTAGE PRIOR TO CLOSING............... 18
4.1 Ordinary Course...................................................... 18
4.2 Dividends; Changes in Stock.......................................... 18
4.3 Issuance or Repurchase of Securities................................. 18
4.4 Governing Documents.................................................. 18
4.5 No Solicitation...................................................... 18
4.6 No Acquisitions...................................................... 19
4.7 No Dispositions...................................................... 19
4.8 Indebtedness......................................................... 19
4.9 Employees............................................................ 19
4.10 Benefit Plans....................................................... 20
4.11 Additional Matters.................................................. 20
ARTICLE V ADDITIONAL COVENANTS............................................. 21
5.1 Noncompetition Agreement............................................. 21
(a) Non-Competition Agreements....................................... 21
(b) Default.......................................................... 21
5.2 Consents and Approvals............................................... 21
5.3 Confidential Information............................................. 22
(a) Nondisclosure by Shareholder after Closing....................... 22
(b) Remedies......................................................... 22
(c) Non-Disclosure Pre-Closing....................................... 23
(d) Return of Information............................................ 23
5.4 Governmental Filings................................................. 23
5.5 Legal Conditions..................................................... 24
5.6 Certain Defaults..................................................... 24
5.7 Expenses............................................................. 24
5.8 Access to Information and Diligence Review........................... 24
5.9 Additional Actions................................................... 25
5.10 Tax Matters......................................................... 25
5.11 Consulting Agreement................................................ 28
5.12 Further Conveyances, Assurances and Cooperation..................... 29
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES.............. 29
6.1 Conditions to the Obligations of Buyer, Advantage and the Shareholder 29
(a) Governmental Approvals........................................... 29
(b) Legal Action..................................................... 29
(c) Statutes......................................................... 30
(d) Financing........................................................ 30
(e) Board and Shareholder Approval................................... 30
6.2 Further Conditions to the Obligations of Buyer....................... 30
(a) Representations and Warranties................................... 30
(b) Performance of Obligations of Other Parties...................... 30
ii
(c) No Litigation.................................................... 30
(d) No Adverse Change................................................ 30
(e) Spousal Consent.................................................. 31
(f) Third-Party Approvals............................................ 31
(g) Resignations..................................................... 31
(h) Shareholder Agreements........................................... 31
(i) Financial Statements Audit....................................... 31
(j) Financial Results................................................ 31
(k) Employees........................................................ 31
(l) Opinion of Counsel............................................... 32
(m) Agreement Termination............................................ 32
(n) Retention of Revenues............................................ 32
(o) Employment Arrangements.......................................... 32
(p) Payment and Release of Liens..................................... 32
(q) Due Diligence Review............................................. 32
6.3 Further Conditions to the Obligations of Advantage and the
Shareholder.......................................................... 32
(a) Representations and Warranties................................... 32
(b) Performance of Obligations of Other Parties...................... 33
(c) Third-Party Approvals............................................ 33
ARTICLE VII TERMINATION, EXTENSION AND WAIVER.............................. 33
7.1 Termination.......................................................... 33
(a) By Mutual Consent................................................ 33
(b) By Any Party..................................................... 33
(c) By Buyer......................................................... 34
(d) By Advantage..................................................... 34
7.2 Effect of Termination................................................ 34
7.3 Extension; Waiver.................................................... 34
ARTICLE VIII INDEMNIFICATION............................................... 35
8.1 Indemnification...................................................... 35
(a) Indemnification by Shareholder................................... 35
(b) Indemnification by Buyer......................................... 36
(c) Definition of Losses............................................. 36
8.2 Third Party Claims Notice and Opportunity to Settle.................. 36
8.3 Right to Offset...................................................... 38
8.4 Non-Third Party Claims............................................... 38
8.5 Payments............................................................. 38
ARTICLE IX DISPUTE RESOLUTION.............................................. 39
9.1 Notice............................................................... 39
9.2 Arbitrator........................................................... 39
9.3 Pre-Hearing Conference............................................... 39
9.4 Discovery............................................................ 39
9.5 Briefs and Hearing................................................... 40
9.6 Decision............................................................. 40
9.7 Costs................................................................ 40
ARTICLE X GENERAL PROVISIONS............................................... 40
10.1 Survival of Representations and Warranties.......................... 40
10.2 Notices............................................................. 40
iii
10.3 Interpretation...................................................... 41
10.4 Counterparts........................................................ 41
10.5 Integration......................................................... 41
10.6 Governing Law....................................................... 41
10.7 Amendment........................................................... 42
10.8 Assignment.......................................................... 42
10.9 Severability........................................................ 42
10.10 Fees............................................................... 42
10.11 Transfer Taxes..................................................... 42
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
November 25, 1996, by and among SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware
corporation ("Buyer"); the following Advantage Dental Health entities
(collectively, "Advantage"): ADVANTAGE DENTAL HEALTHPLANS, INC., a Missouri
corporation, ADVANTAGE DENTAL HEALTHPLANS, INC., a Florida corporation,
ADVANTAGE DENTAL HEALTHPLANS, INC., a Delaware corporation, ADVANTAGE DENTAL
PLANS, INC., a Delaware corporation, ADH PLANS, INC., a Delaware corporation,
and ADH MARKETING, INC., a Florida corporation; and ▇▇▇ ▇▇▇▇▇▇, the beneficial
and record owner of all of the outstanding capital stock of Advantage (the
"Shareholder").
RECITALS
WHEREAS, the Shareholder owns all of the issued and outstanding shares
of capital stock (the "Shares") of Advantage; and
WHEREAS, the Shareholder desires to sell to Buyer, and Buyer desires
to purchase from the Shareholder, the Shares of Advantage on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
TRANSFER OF SHARES
1.1 Sale of Shares. Subject to the terms and conditions set forth
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herein, at the Closing (as defined herein), the Shareholder shall sell, transfer
and deliver to Buyer, and Buyer shall purchase and acquire from the Shareholder,
all of the Shares of Advantage, free and clear of any claims, liens, pledges,
options, encumbrances, security interests, trusts or other rights or interests
of any person.
1.2 Purchase Price and Supplemental Consideration.
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(a) Purchase Price for Shares. The aggregate purchase price to
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be paid by Buyer for the Shares of Advantage, in the manner provided in
Section 1.3, will equal Nine Million Dollars ($9,000,000) (the "Purchase
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Price").
Stock Purchase Agreement
Advantage Health Plans
OA962970.147
(b) Payment for Non-Competition Agreement. Buyer hereby
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promises to pay to the Shareholder the aggregate sum of One Million Dollars
($1,000,000) payable over two years (the "Payout Period") ($500,000 per
year), subject to applicable withholding, as consideration for the five-
year Non-Competition Agreement to be entered among by Buyer and the
Shareholder (the "Non-Competition Agreement"). Each payment shall include
a 12% premium to compensate for the loss of the capital gains tax rate
treatment. Principal and premium shall be payable annually in arrears on
the first and second anniversary of the Closing Date (as hereinafter
defined) and shall be sent by wire transfer in accordance with the written
directions of the Shareholder.
(c) Retained Assets; Loan Forgiveness. The parties agree that
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the following assets shall not be included in the sale and acknowledge that
such items were not considered in calculating the purchase price hereunder:
1995 Range Rover, 1995 Mercedes Benz SL 500, all artwork, desk, credenza
and chairs in the Shareholder's office. Such assets shall remain the
assets of Shareholder or be transferred by Advantage to Shareholder prior
to the Closing Date (as hereinafter defined). All other assets, including
cash not used in the ordinary course of business or as provided herein,
shall remain for use in the business after the Closing Date. As additional
consideration, on the date of the Closing, Buyer shall cause Advantage to
forgive all loans from Advantage Dental HealthPlans to the Shareholder,
Business Healthcare Coalition and/or ▇▇▇▇▇▇ Gruppe Companies as of the
Closing Date, such amounts not to exceed $365,000 in the aggregate.
1.3 Payment of Purchase Price. The Purchase Price shall be paid by
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Buyer to Shareholder as follows:
(a) At the Closing, Buyer shall pay to Shareholder the sum of
Eight Million Five Hundred Thousand Dollars ($8,500,000) for the Shares of
Advantage by a wire transfer(s) of immediately available funds in
accordance with the written directions of the Shareholder.
(b) At the Closing, Buyer shall deliver to the Escrow Agent the
principal amount of Five Hundred Thousand Dollars ($500,000) (the
"Holdback") to be held in escrow in accordance with the terms of an Escrow
Agreement in form and substance acceptable to the parties. The Holdback,
plus accrued interest thereon, less any offsets, paid claims or reserves
for outstanding or disputed claims, relating to this Agreement or any other
agreements between the Buyer and the Shareholder, shall be paid to the
Shareholder on the first anniversary of the date hereof, sent by wire
transfer in accordance with the written directions of the Shareholder. The
Holdback, less offsets, paid claims or reserves for outstanding claims in
an amount to be agreed to by the parties, shall bear interest at a per
annum rate equal to the base rate in effect from time to time of Bank of
America NT & SA compounded monthly (the "Prime Rate"). Any claims against
the Holdback shall be made in accordance with Section 8.3 of this
Agreement. Notwithstanding the foregoing, the existence of the Holdback and
any offsets against the
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Holdback by Buyer will not relieve the Shareholder from liability or limit
his liability to Buyer for any breaches hereunder.
(c) Any increase in the Shareholder's equity between August 30,
1996, and the Closing Date, shall be added to the final Purchase Price on
the Closing Date, or as soon thereafter as that figure can be calculated,
and payment, if undisputed, will be paid within 15 business days of such
determination. Payment shall be made by wire transfer in accordance with
the written instructions of the Shareholder.
1.4 Shareholder to Deliver Title and Possession. At the Closing,
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the Shareholder shall deliver to Buyer endorsed share certificates or executed
stock powers and other good and sufficient instruments of transfer as Buyer may
reasonably require to vest effectively in Buyer good and valid title to the
Shares of Advantage, free and clear of any claims, liens, pledges, options,
security interests, trusts, encumbrances or other rights or interests of any
person, in accordance with the terms hereof.
1.5 Closing. The consummation of the transactions contemplated by
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this Agreement (the "Closing") shall take place after January 2, 1997, but not
after the later of (i) March 31, 1997 or (ii) five business days after
regulatory approval of the transaction has been received and all conditions
precedent to the obligations of the parties hereunder have been satisfied or
waived (the "Closing Date"), at the offices of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP,
Jamboree Center, ▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ or at such
other date, time and place as may be mutually agreed upon in writing by the
parties. All proceedings to take place at the Closing shall take place
simultaneously, and no delivery shall be considered to have been made until all
such proceedings have been completed.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
ADVANTAGE AND THE SHAREHOLDER
Advantage and the Shareholder jointly and severally represent and
warrant to Buyer as follows:
2.1 Organization and Qualification. Each Advantage entity is a
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corporation duly organized, validly existing and in good standing in each of its
respective states of incorporation, is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
character of its properties or the nature of its business makes such
qualification necessary. Advantage has the requisite corporate power and
authority to own, use or lease its properties and to carry on its business as it
is now being conducted and as it is now proposed to be conducted. Advantage has
made available to Buyer a complete and correct copy of its Articles of
Incorporation and Bylaws, each as amended to date, and such Articles of
Incorporation and Bylaws as so delivered are in full force and effect.
Advantage is not in default in any material respect in the performance,
observation or fulfillment of any provision of its Articles of Incorporation or
Bylaws. For purposes of this Agreement, a "Material Adverse Change" shall mean
any event, circumstance, condition, development or occurrence causing,
3
resulting in or having a material adverse effect on the financial condition,
business, properties, prospects or results of operations of Advantage.
2.2 Capitalization. The authorized and outstanding capital stock
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of each Advantage entity is set forth on Schedule 2.2 hereto. All of the Shares
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of Advantage as set forth on Schedule 2.2 are owned beneficially and of record
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by the Shareholder, free and clear of any claims, liens, pledges, options,
security interests, trusts, encumbrances or other rights or interests of any
person. No agreement or other document grants or imposes on any of the Shares
of Advantage any right, preference, privilege or restriction with respect to the
transaction contemplated hereby (including, without limitation, any rights of
first refusal). All of the Shares of Advantage have been duly authorized and
validly issued and are fully paid, nonassessable and free of preemptive rights
created by any agreement to which Advantage is bound. The Shares have been
issued in full compliance with all federal and state securities laws. There are
no options, warrants or other rights, commitments or agreements of any character
that call for the issuance of shares of capital stock or other securities of
Advantage or any securities, instruments or rights convertible into or
exchangeable for shares of capital stock or other securities of Advantage. The
Shareholder has the absolute and unrestricted right, power, authority and
capacity to transfer the Shares of Advantage to Buyer and upon the Closing,
without exception, Buyer will acquire from the Shareholder legal and beneficial
ownership of, good and valid title to, and all rights to vote, the Shares of
Advantage, free from any charge, lien, encumbrance or adverse claim of any kind
whatsoever other than those that may arise by virtue of any actions (other than
the purchase of shares contemplated hereby), taken by or on behalf of Buyer or
its affiliates.
2.3 Voting Agreements. Neither Advantage nor the Shareholder is a
-----------------
party to or subject to any proxy, agreement or understanding, nor is there, to
the knowledge of Advantage and the Shareholder, any agreement or understanding
between any other persons, that affects or relates to the voting or giving of
written consents with respect to any security of Advantage or the voting by a
director of Advantage.
2.4 Authority Relative to this Agreement. Advantage has all
------------------------------------
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby on the part of Advantage have been duly and validly authorized by its
Board of Directors and the Shareholder, and no other corporate proceedings on
the part of Advantage is necessary, as a matter of law or otherwise, to
authorize this Agreement or to consummate the transactions so contemplated.
This Agreement has been duly and validly executed and delivered by Advantage and
the Shareholder and, assuming this Agreement constitutes a valid and binding
obligation of Buyer, this Agreement constitutes a valid and binding agreement of
such persons or entities, enforceable against them in accordance with its terms,
except (a) as such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights, and (b) as the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
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2.5 No Subsidiaries. None of the Advantage entities control,
---------------
directly or indirectly, nor does any have any direct or indirect equity
participation or other interest in, any corporation, partnership, trust or other
business entity.
2.6 Absence of Certain Changes. Except as set forth on Schedule
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2.6, since August 30, 1996, Advantage has conducted its business only in, and
---
has not engaged in any transaction other than according to, the ordinary and
usual course of its business and, since such date, there has not been (a) any
Material Adverse Change; (b) any declaration, setting aside or payment of any
dividend or other distribution with respect to the capital stock of Advantage;
Buyer specifically acknowledges that Shareholder shall be entitled, between
August 30, 1996 and the Closing Date, to take the Shareholder's normal monthly
distribution, prorated in the event the Closing Date occurs on a date other than
the end of the month; (c) any material change by Advantage in accounting
principles, practices or methods; (d) any labor dispute or difficulty which is
reasonably likely to result in any Material Adverse Change, and to the knowledge
of each of Advantage and the Shareholder, no such dispute or difficulty is now
threatened; (e) any material asset sold or disposed of (except inventory sold in
the ordinary course of business), any material asset mortgaged, pledged or
subjected to any lien, charge or other encumbrance; (f) any increase in excess
of $5,000 in the compensation payable or which could become payable by Advantage
to its directors, officers, employees, agents, distributors, dealers or sales
representatives; (g) any amendment by Advantage of any employee benefit plan;
(h) any issuance, transfer, sale or pledge by Advantage of any shares of stock
or other securities or of any commitments, options, rights or privileges under
which Advantage is or may become obligated to issue any shares of stock or other
securities; (i) any indebtedness incurred by Advantage, except such as may have
been incurred in the ordinary course of business and consistent with past
practice; (j) any loan made or agreed to be made by Advantage, nor has Advantage
become liable or agreed to become liable as a guarantor with respect to any
loan; (k) any waiver or release by Advantage of any right of material value or
any payment, direct or indirect, of any material debt, liability or other
obligation; (l) any change in or amendment to the Articles of Incorporation or
Bylaws of Advantage; or (m) any other event or condition that has or might
reasonably result in a Material Adverse Change.
2.7 Financial Statements. The audited balance sheets of Advantage
--------------------
as of December 31, 1995 and December 31, 1996 and the related statements of
income and cash flow for the twelve month periods then ended (collectively, the
"Financial Statements") are attached hereto as Schedule 2.7. The Financial
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Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the period indicated (except
as may be noted therein) ("GAAP"), and present fairly the financial position of
Advantage as of the end of such fiscal year and the results of operations and
cash flows for such fiscal year in conformity with GAAP.
2.8 Absence of Undisclosed Liabilities.
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(a) Except to the extent reserved against or reflected in the
balance sheet of Advantage included in the Financial Statements, Advantage
does not have any material liabilities or obligations (contingent or
otherwise) that are required by GAAP to
5
be reflected therein, and since that date Advantage has not incurred any
material liabilities or obligations that, had they been incurred prior to
December 31, 1996, would have been required by GAAP to have been reflected
in such balance sheets (except as may be noted therein), except such
liabilities or obligations incurred in the ordinary and usual course of
business and consistent with past practice.
(b) Advantage will not be liable for prepayment or other
penalties in connection with the early retirement of any indebtedness for
borrowed money.
2.9 Consents and Approvals; No Violation. The execution and
------------------------------------
delivery of this Agreement by Advantage and the Shareholder, the consummation of
the transactions contemplated hereby and the performance by Advantage and the
Shareholder of their obligations hereunder will not:
(a) conflict with any provision of the Articles of Incorporation
or Bylaws (or other similar charter documents) of Advantage;
(b) require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority,
except (i) the Governmental Filings (as defined in Section 5.4) (ii)
-----------
compliance with any applicable requirements of the Securities Act of 1933;
(iii) compliance with any applicable requirements of the Securities
Exchange Act of 1934; (iv) compliance with any applicable state securities
laws; (v) the approval of the applicable Department of Insurance; and (vi)
where the failure to obtain such consents, approvals, authorizations or
permits or the failure to make such filings or notifications would not
result in a Material Adverse Change;
(c) conflict with, result in the breach of or constitute a
default (or give rise to any right of termination, cancellation or
acceleration or guaranteed payments) under any of the terms, conditions or
provisions of any note, lease, mortgage, license, agreement or other
instrument or obligation to which Advantage or the Shareholder is a party
or by which Advantage or its Shareholder or any of its assets may be bound,
except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained
or which, in the aggregate, would not result in a Material Adverse Change;
(d) conflict with or violate the provisions of any order, writ,
injunction, judgment, decree, statute, rule or regulation applicable to
Advantage or the Shareholder; or
(e) result in the creation of any lien, charge or encumbrance
upon any shares of capital stock or assets of Advantage under any agreement
or instrument to which Advantage is a party or by which Advantage is bound.
2.10 Broker's Commissions or Finder's Fees. No person or entity
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has acted for Advantage or the Shareholder in connection with the transactions
provided for in this
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Agreement in any way that would entitle such person to, and no person or entity
is entitled to, receive from Advantage or the Shareholder any broker's
commissions or finder's fees (or other similar fees or commissions) in
connection with this Agreement.
2.11 Employment and Similar Agreements. Except as set forth on
---------------------------------
Schedule 2.11, (a) there are no employment, severance, bonus or indemnification
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arrangements, agreements, understandings or plans between Advantage and any
director, officer or employee thereof except those indemnification provisions
set forth in the Articles of Incorporation and Bylaws of Advantage; (b) there
are no agreements of the type described in (a) above (i) the benefits of which
are contingent, or the terms of which are altered, upon the occurrence of a
transaction involving Advantage of the nature of any of the transactions
contemplated by this Agreement, (ii) providing any term of employment or
compensation guaranty not terminable at any time upon notice of thirty (30) days
or less or (iii) providing severance benefits or other benefits (which are
conditioned upon a change in control) after the termination of employment of
such employee, regardless of the reason for such termination of employment; (c)
there are no agreements or plans, any of the benefits of which will be
materially increased, or the vesting of benefits of which will be materially
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement; (d) subject to
general principles related to wrongful termination of employees, there are no
officers or employees of Advantage whose employment is not terminable at the
will of Advantage; (e) Advantage is not obligated to compensate any consultants
pursuant to any agreement or arrangement which is material to Advantage; and (f)
Advantage is not a party to, nor is it bound by, any collective bargaining
agreement or other labor agreement, nor is Advantage involved in any labor
discussion with any unit or group seeking to become the bargaining unit for any
of its employees, nor has any such unit or group notified Advantage of an
intention to commence any organizational activities among the employees of
Advantage. True and complete copies of any agreements disclosed in Schedule
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2.11 have been delivered or made available to Buyer.
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2.12 Litigation. Except as set forth on Schedule 2.12, there is no
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claim, action or proceeding pending or, to the knowledge of Advantage or the
Shareholder, threatened against or relating to Advantage before any court or
other competent governmental or regulatory authority or body acting in an
adjudicative capacity. To the knowledge of Advantage and the Shareholder, there
is no reasonable basis for a claim, action or proceeding against or relating to
Advantage which, if adversely determined, could, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Change with
respect to Advantage. Neither Advantage nor any of its respective officers,
directors or employees, has been permanently or temporarily enjoined by any
order, judgment or decree of any court or any other governmental or regulatory
authority from engaging in or continuing any conduct or practice in connection
with the business, assets or properties of Advantage nor, to the knowledge of
Advantage or the Shareholder, is any officer, director or employee of Advantage
under investigation by any governmental or regulatory authority. Except as set
forth on Schedule 2.12, there is not in existence any order, judgment or decree
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of any court or other tribunal or other agency enjoining or requiring Advantage
to take any action of any kind with respect to its business, assets or
properties.
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2.13 Taxes.
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(a) Definitions. For purposes of this Agreement, the following
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definitions shall apply:
(i) For purposes of this Section 2.13 and Sections 5.10 and
8.1(a)(iii), the term "Advantage" shall mean, collectively, Advantage and
any corporation, partnership or other entity as to which Advantage is
liable for Taxes incurred by such entity as a transferee, or pursuant to
Treasury Regulations Sections 1.1502-6, or pursuant to any other provision
of federal, state, local or foreign law or regulations.
(ii) The term "Tax" or "Taxes" shall mean all taxes, however,
denominated, including any interest, penalties or other additions to tax
that may become payable in respect thereof, imposed by any federal, state,
local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality
of the foregoing, all income or profits taxes (including, but not limited
to, federal income taxes and state income taxes), real property gains
taxes, payroll and employee withholding taxes, unemployment insurance
taxes, social security taxes, sales and use taxes, ad valorem taxes,
occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation and any and all
other governmental charges, and any and all other obligations of the same
or of a similar nature to any of the foregoing, which Advantage is required
to pay, withhold or collect.
(iii) The term "Tax Proceeding" shall mean any audit,
examination or other administrative or judicial action or proceeding
related to the determination, imposition, assessment and/or collection of
any and all Tax.
(iv) The term "Tax Returns" shall mean any and all reports,
estimates, declarations of estimated tax, information statements and
returns, including any and all schedules or attachments thereto, relating
to, or required to be filed in connection with, any Taxes, including
information returns or reports with respect to backup withholding and other
payments to third parties. The term "Tax Return" shall mean any one of the
foregoing Tax Returns.
(b) Tax Returns Filed and Taxes Paid. Except as disclosed on
--------------------------------
Schedule 2.13, (i) all Tax Returns required to be filed by or on behalf of
-------------
Advantage have been duly filed on a timely basis and such Tax Returns
correctly, accurately and completely reflected the facts regarding the
income, business, assets, operations, activities, status or other matters
of Advantage or any other information required to be shown thereon; (ii)
all Taxes shown to be payable on such Tax Returns or on subsequent
assessments with respect thereto have been paid in full on a timely basis
and no other Taxes are payable by Advantage with respect to items or
periods covered by such Tax Returns (whether or not shown on or reportable
on such Tax Returns); (iii) all other Taxes required to be paid by
Advantage on or before the date hereof have been paid prior to the
delinquency thereof; (iv) Advantage has withheld and paid over all Taxes
required
8
to have been withheld and paid over, and complied with all information
reporting and backup withholding requirements, including maintenance of
required records with respect thereto, in connection with amounts paid or
owing to any employee, creditor, independent contractor, or other third
party; (v) there are no liens on any of the assets of Advantage with
respect to Taxes, other than liens for Taxes not yet due and payable or for
Taxes that Advantage is contesting in good faith through appropriate
proceedings and for which appropriate reserves have been established and
are fully reflected in the Financial Statements; and (vi) Advantage has not
requested or been granted any extension of the time within which it is
required to file any Tax Return that has not been filed.
(c) S Corporation Status.
--------------------
(i) S Corporation Defined. As used herein the term "S
---------------------
corporation" means, with respect to any specified period, a corporation (A)
that has in effect throughout such period a valid election under Section
1362(a) of the Internal Revenue Code of 1986, as amended (the "Code"), to
be an S corporation which is, and whose shareholders are, subject to the
tax treatment provided for under the provisions of Sections 1361 et seq. of
the Code, and (B) that throughout such period remains qualified to be, and
is treated throughout such period as, an S corporation which is, and whose
shareholders are, subject to the tax treatment provided for under Sections
1361 et seq. of the Code.
(ii) S Corporation Status. The taxable year of Advantage for
--------------------
federal and state income tax purposes is the calendar year ending each
December 31. Except with respect to Advantage Dental HealthPlans, Inc., a
Missouri corporation having federal identification number ▇▇-▇▇▇▇▇▇▇
("ADH"), for all taxable periods of Advantage, including in each case the
initial year of operations and any short period resulting from the
transactions contemplated herein, for federal tax purposes Advantage was
and is an S corporation. For all periods of ADH commencing on and after
January 1, 1987, including any short period resulting from the transactions
contemplated herein, for federal tax purposes ADH was and is an S
corporation. For all periods with respect to which Advantage has been an S
corporation, for federal tax purposes Advantage's Tax Returns have been
prepared and filed on a basis consistent with its status as an S
corporation.
(iii) Built-In Gains Tax. Advantage is not subject to the
------------------
tax imposed, pursuant to Code Section 1374, on certain built-in gains upon
a sale or other disposition of any of its assets or upon a deemed sale of
such assets resulting from an election under Section 338(h)(10) of the Code
with respect to Advantage.
(d) Tax Returns Furnished. Buyer has been furnished by Advantage
---------------------
true, accurate and complete copies of (i) all federal and state income or
franchise tax returns (and all amendments thereto) as filed by or for
Advantage for all periods ending on and after January 1, 1991, and (ii) all
examination and audit reports, statements of deficiencies, notices of
assessments, and closing or other agreements received by or on
9
behalf of Advantage relating to Taxes with respect to any period(s)
commencing on or after January 1, 1991. Advantage has not conducted
business in nor has it derived income from any state, local or foreign
taxing jurisdiction other than those for which all Tax Returns have been
furnished to Buyer.
(e) Audit History.
-------------
(i) Except as specified in Schedule 2.13, no issues have
-------------
been raised and are currently pending by any taxing authority in connection
with any Tax Returns heretofore filed by Advantage, Advantage has not
received notice nor expects to receive notice that it has not filed a Tax
Return or paid Taxes required to be filed or paid by it, Advantage is
neither a party to any current Tax Proceeding nor has Advantage been
notified of the commencement of a Tax Proceeding involving Advantage, and
no waivers of statutes of limitation with respect to the imposition or
assessment of Taxes have been given by or requested from Advantage. Except
to the extent shown on Schedule 2.13, all deficiencies asserted or
-------------
assessments made or threatened as a result of any Tax Proceedings have been
fully paid, or are fully reflected as a liability in the Financial
Statements, or are being contested and an adequate reserve therefor has
been established and is fully reflected in the Financial Statements.
(ii) Schedule 2.13 sets forth (A) the taxable years or other
-------------
periods of Advantage as to which the respective statutes of limitations
with respect to federal and state income, franchise, employment and payroll
Taxes (herein collectively "Specified Taxes") have not expired, and (B)
with respect to such taxable years or other periods, those years or periods
for which Specified Tax audits or examinations have been completed, those
years or periods for which Specified Tax audits or examinations are
presently being conducted, those years or periods for which Specified Tax
audits or examinations have not yet been initiated, and those years or
periods for which required Tax Returns covering Specified Taxes have not
yet been filed.
(f) Tax Sharing Agreements. Advantage is not (nor has it ever
----------------------
been) a party to any tax-sharing, tax-indemnity or tax-allocation agreement
and has not otherwise assumed the Tax liability of any other person under
contract.
(g) Tax Basis and Tax Attributes. The disclosure schedules and
----------------------------
other books and records of Advantage furnished to Buyer contain true,
accurate and complete descriptions of Advantage's basis in its assets,
current and accumulated earnings and profits, tax carryovers, and tax
elections. Advantage has no net operating losses or other tax attributes
presently subject to limitation under Code Sections 382, 383, or 384.
(h) Tax Elections; Affiliated Groups. All material elections
--------------------------------
with respect to Taxes affecting Advantage as of the date hereof are set
forth in Schedule 2.13. Advantage is not now and has never been a member
of an affiliated group of corporations within the meaning of Section 1504
of the Code.
10
(i) Section 481 Adjustments. Advantage has not agreed, nor is it
-----------------------
required to make, any adjustment under Code Section 481(a) by reason of a
change in accounting method or otherwise.
(j) Parachute Payments. Advantage is not a party to any
------------------
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
(k) U.S. Real Property Holding Corporation. Advantage is not
--------------------------------------
and has never been a United States real property holding corporation as
defined in Section 897(c)(2) of the Code.
(l) Shareholder Status. Shareholder is presently, and for all
------------------
relevant periods has been, a United States person within the meaning of the
Code.
(m) No Withholding. None of the transactions contemplated herein
--------------
are subject to the tax withholding provisions of Section 3406 of the Code,
or of Subchapter A of Chapter 3 of the Code, or of any other provision of
law.
(n) Section 341(f). Advantage has not filed a consent pursuant
--------------
to the collapsible corporation provisions of Section 341(f) of the Code (or
any corresponding provision of state, local, or foreign income tax law) or
agreed to have Section 341(f)(2) of the Code (or any corresponding
provision of state, local, or foreign income tax law) apply to any
disposition of any asset owned by it.
(o) Unpaid Taxes. The unpaid Taxes of Advantage do not exceed
------------
the reserve for tax liability (excluding any reserve for deferred Taxes
established to reflect timing differences between book and tax income) set
forth or included in the Financial Statements.
(p) Existing Partnerships. Except as set forth in Schedule 2.13,
---------------------
Advantage is not a party to any joint venture, partnership, or other
arrangement or contract that could be treated as a partnership for federal
income tax purposes.
2.14 ERISA Plans. Set forth on Schedule 2.14 is a true, accurate
----------- -------------
and complete list of each employee pension benefit plan, program, agreement or
arrangement ("Plan") maintained or contributed to by Advantage which is subject
to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), if
any. The Plans conform in all material respects to, and their administration is
in conformity in all material respects with, all applicable federal laws. There
are no threatened or pending claims by or on behalf of any Plan, by or on behalf
of any employees covered under any Plan, or otherwise involving any Plan, that
allege a breach of fiduciary duties or violation of other applicable state or
federal law, nor is there, to the knowledge of Advantage and the Shareholder,
any basis for such a claim.
11
2.15 Contracts. Set forth on Schedule 2.15 is a true, accurate and
--------- -------------
complete list of (a) each customer contract, whether written or oral, between
each of Advantage and any party to whom Advantage provides goods or services;
and (b) each contract, whether written or oral, between each of Advantage and
any party to whom Advantage is obligated to make any payments. The contracts
and agreements that are required to be identified in Schedule 2.15 are
-------------
hereinafter referred to as the "Contracts." Advantage has delivered to Buyer
(i) with respect to the provider and group contracts of Advantage, a standard
form of each; and (ii) true, accurate and complete written summaries of each
oral Contract. Advantage has made available to Buyer true and complete copies
of each written Contract. Except as set forth on Schedule 2.15:
-------------
(i) Each of the Contracts is a valid, binding and enforceable
agreement of Advantage and, to the knowledge of Advantage and the
Shareholder, will, subject to the satisfaction of the conditions in Article
-------
VI, continue to be valid, binding and enforceable immediately after the
--
Closing;
(ii) As of the date hereof, Advantage and the Shareholder have no
reason to believe that Advantage will not be able to fulfill in all
material respects all of its obligations under the Contracts that remain to
be performed after the date hereof;
(iii) To the knowledge of Advantage and the Shareholder, there
has not occurred any material default (or event which upon provision of
notice or lapse of time or both would become such a default) under any of
the material Contracts on the part of Advantage; and
(iv) The Contracts are all of the agreements, promissory notes,
contracts and instruments (except employment agreements, which are set
forth on Schedule 2.11) that are material to Advantage or its business.
-------------
2.16 Customers and Sales. Set forth on Schedule 2.16 is a true,
------------------- -------------
accurate and complete list of the customers of Advantage, identified by entity,
together with summaries of the revenues received from such customers during the
past three (3) most recent calendar years. Individual members may be aggregated
into one group for purposes of this section. None of such customers has given
notice to Advantage of an intention to cancel, fail to renew or otherwise
terminate or materially impair its business relationship with Advantage and
neither Advantage nor its Shareholder have any knowledge of any event that would
precipitate the impairment, cancellation or termination of, or the failure to
renew, or entitle any such customer to terminate, such business relationship.
2.17 Customer List. Advantage has taken such reasonable security
-------------
measures to protect the secrecy, confidentiality and value of its customer
lists. Employees and any other person who, either alone or in concert with
others, have knowledge of or access to the customer list, have been put on
notice and, if appropriate, have entered into agreements that the customer list
is proprietary and not to be divulged or misused.
2.18 Interests in Competitors. Except as identified in Schedule
------------------------ --------
2.18, to the knowledge of Advantage and the Shareholder, neither the Shareholder
----
nor his spouse or children,
12
has any direct or indirect interest in any competitor, supplier or customer of
Advantage or in any person or firm from whom or to whom Advantage leases any
real or personal property, or in any other person with whom Advantage is doing
business.
2.19 Properties and Liens. Except for statutory liens (including
--------------------
mechanics and materialmen's liens) and liens for current taxes not yet
delinquent, Advantage owns, free and clear of any liens, claims, charges,
options or other encumbrances, all of its tangible and intangible property, real
and personal, whether or not reflected in the Financial Statements (except
property sold or disposed of in the ordinary course of business since December
31, 1995) and all such property acquired since such date that is necessary to
conduct its business as it is now being conducted, and to the knowledge of
Advantage and the Shareholder, there has not been any violation of any law,
regulation or ordinance relating to its properties or its business that may
reasonably be expected to result in a Material Adverse Change. All plants,
structures, equipment, furniture and automobiles owned or leased by Advantage
and material to the operation of its business are in satisfactory condition
(ordinary wear and tear excepted) and repair for the requirements of its
business as now being conducted. There are no proceedings affecting any of such
properties pending or, to the knowledge of Advantage or the Shareholder,
threatened which may reasonably be expected to curtail, materially and
adversely, the use of such property for the purpose for which it was acquired or
the purpose for which it is now used.
2.20 Real Property. Set forth on Schedule 2.20 is a complete list
------------- -------------
of all real property owned and/or leased by Advantage, as so designated therein
(the "Real Property"). Except as indicated in Schedule 2.20, all leases,
-------------
easements and other real property interests held by Advantage are valid and
subsisting and there does not exist any default thereunder or event that with
notice or lapse of time, or both, would constitute a default under any of such
leases.
2.21 Permits; Compliance with Laws. Except as shown in Schedule
----------------------------- --------
2.21, Advantage has all necessary franchises, authorizations, approvals, orders,
----
consents, licenses, certificates, permits, registrations, qualifications or
other rights and privileges, including without limitation certificates of
authority from the applicable Department of Insurance ("Certificates of
Authority") (collectively "Permits"), necessary to permit it to own its
properties and to conduct its business as the same are presently conducted and
all such Permits are in full force and effect and valid. Except as shown in
Schedule 2.21, no Permit is subject to termination as a result of the execution
-------------
of this Agreement or consummation of the transaction contemplated hereby.
Except as shown in such Schedule, Advantage is in compliance with all applicable
statutes, ordinances, orders, rules and regulations promulgated by any federal,
state, municipal or other governmental authority which apply to the conduct of
its business. Except as disclosed on Schedule 2.21, Advantage has not ever
-------------
entered into or been subject to any judgment, consent decree, compliance order
or administrative order with respect to any environmental or health and safety
law or received any request for information, notice, demand letter,
administrative letter, administrative inquiry or formal or informal complaint or
claim with respect to any environmental or health and safety matter or the
enforcement of any such law.
2.22 Insurance Policies. Set forth on Schedule 2.22 is a true,
------------------ -------------
accurate and correct list of all insurance policies of any nature whatsoever
maintained by Advantage. Except
13
as otherwise set forth on Schedule 2.22, such policies are in full force
-------------
and effect through the Closing Date and, except as otherwise set forth on
Schedule 2.22, such policies, or other policies covering the same risks, have
-------------
been in full force and effect, without gaps, continuously for the past five (5)
years. Except as disclosed on Schedule 2.22, there are no claims pending under
-------------
any of such policies. Copies of all such policies have been made available to
Buyer for its inspection.
2.23 Environmental Liability. The business of Advantage has been
-----------------------
and is now operated in material compliance with all federal, state and local
environmental protection, occupational, health and safety or similar laws,
ordinances, restrictions, licenses, rules, regulations and permit conditions,
including, but not limited to, the Federal Water Pollution Control Act, Resource
Conservation & Recovery Act, Clean Air Act, Comprehensive Environmental
Response, Compensation and Liability Act, Emergency Planning and Community Right
to Know, and Occupational Safety and Health Act, each as amended ("Environmental
Laws").
2.24 Banking Facilities. Set forth on Schedule 2.24 is a true,
------------------ -------------
accurate and complete list of:
(a) Each bank, savings and loan or other institution in which
Advantage has a deposit, custodial, trust or similar account or safety
deposit or lock box account and the numbers and types of the accounts or
safety deposit boxes maintained by Advantage at such financial
institutions; and
(b) The names of all persons authorized to draw on each such
account or to have access to any such safety deposit or lock box facility,
together with a description of the authority (and conditions thereof, if
any) of each such person with respect thereto.
2.25 Minute Books and Stock Records. Advantage has delivered or
-------------------------------
made available to Buyer true, correct and complete copies of (a) the minute
books of Advantage containing all records required to be set forth of all
proceedings, consents, actions, and meetings of the Shareholder and Board of
Directors of Advantage, including minutes of meetings for committees of the
Board; and (b) all stock record books of Advantage setting forth all transfers
of capital stock.
2.26 Consents of Non-Governmental Third Parties. No material
------------------------------------------
consent, waiver or approval of any non-governmental third party is necessary for
the consummation by Advantage or the Shareholder of the transactions
contemplated hereby.
2.27 Accounts Receivable. To the best knowledge of Advantage and
-------------------
the Shareholder, all accounts receivable of Advantage shown on the Financial
Statements and all accounts receivable of Advantage created after August 30,
1996 up to the date hereof or the Closing Date, as the case may be, arose from
valid transactions in the ordinary course of business and such accounts
receivable are (except to the extent of the reserves thereon) collectible in the
ordinary course of business.
14
2.28 Inventory. The inventory of Advantage consists of supplies
---------
that are merchantable and fit for the purpose for which they were procured, and
none are damaged or defective in any manner. No inventory of Advantage has been
pledged as collateral.
2.29 Trademarks and Tradenames. Except for the name of Advantage
-------------------------
and the name "ADVANTAGE DENTAL HEALTHPLANS" and as set forth on Schedule 2.29
-------------
hereof, there are no trademarks, trade names, service marks or copyrights owned
by Advantage. To the best knowledge of Advantage and the Shareholder, Advantage
has not infringed, nor is it now infringing, on any trade name, trademark,
service ▇▇▇▇, or copyright belonging to any other person, firm or business.
Except as set forth in the Contracts, Advantage is not a party to any license,
agreement or arrangement, with respect to any trademarks, servicemarks, trade
names, or applications for them, or any copyrights. The Shareholder hereby
grants to Buyer the exclusive right in perpetuity to use the name of Advantage
and "Advantage Dental HealthPlans" and all derivations thereof. The Shareholder
and Advantage covenant that they have not granted and will not grant to any
other person, firm or corporation the right to use, and that the Shareholder
will not after the Closing use, such names as part of the corporate or firm name
of any other firm, entity, corporation or business.
2.30 Transactions with Related Parties. Except as set forth in
---------------------------------
Schedule 2.30 hereto, there are no loans, leases or other continuing
-------------
transactions between Advantage and any present or former stockholder, director
or officer of Advantage, or any member of such officer's, director's or
stockholder's immediate family, or any business organization controlled by such
officer, director or stockholder or his or her immediate family. Except as set
forth in Schedule 2.30, no stockholder, director or officer of Advantage, or any
-------------
of the respective spouses or immediate family members, owns directly or
indirectly on an individual or joint basis any material interest in, or serves
as an officer or director or in another similar capacity of, any competitor or
supplier of Advantage.
2.31 Compliance with Insurance Laws. Without limiting the
------------------------------
representations and warranties contained elsewhere in this Agreement, except as
set forth in Schedule 2.31:
-------------
(a) Advantage has since January 1, 1991, made all reports
required under applicable insurance statutes. Schedule 2.31 sets forth the
-------------
licenses held by Advantage under all applicable insurance or other similar
laws. Other than the licenses listed in Schedule 2.31, Advantage is not
-------------
required to hold any other license, permit or authorization under the
insurance laws of any state other than the applicable state of
incorporation to conduct its business as presently conducted. Advantage
has all other necessary Permits of and from all insurance regulatory
authorities to conduct its business as presently conducted.
(b) Except as disclosed on Schedule 2.31, the dental plan
-------------
products offered and sold by Advantage have been and are offered and sold
in compliance with the requirements of all relevant laws and regulations,
in each case, and Advantage has not received any notification from any
insurance regulatory authority to the effect that any additional Permit is
needed to be obtained by it. Except as disclosed on Schedule 2.31,
-------------
15
Advantage has not since January 1, 1992, ever, entered into or been subject
to any judgment, consent decree, compliance order or administrative order
other than any issued in the ordinary course of business with respect to
any insurance or other similar law or, other than in the ordinary course of
business, received any request for information, notice, demand letter,
administrative inquiry or formal or informal complaint or claim with
respect to any insurance or other similar law or the enforcement of any
such law.
(c) Except as disclosed on Schedule 2.31, since January 1, 1992,
-------------
Advantage has not failed to comply with any applicable material statute,
ordinance, order, rule or regulation, or failed to obtain any material
Permit in the applicable state of incorporation, or, to the best knowledge
of Advantage, in any jurisdiction other than the applicable state of
incorporation in which Advantage is conducting or has prior to the date
hereof conducted any activities including without limitation activities
relating to the offer and sale of dental care products, plans or services,
the recruitment of dentists or dental offices in connection with the offer
and sale of such products, plans or services, the marketing of any such
products plans or services to potential purchasers thereof or subscribers
thereto, lobbying efforts or similar activities, or any joint venture with
any other party relating to the foregoing, except in each case where the
failure to comply or obtain any Permit (individually or in the aggregate)
could not reasonably be expected to result in a Material Adverse Change.
2.32 Full Disclosure. None of the representations and warranties
---------------
made by Advantage or the Shareholder, or made in any certificate or memorandum
furnished or to be furnished by any of them or on their behalf, contains or will
contain any untrue statement of a material fact, or omits to state any material
fact necessary to make the statements made, in the light of the circumstances
under which they were made, not misleading.
2.33 Representations and Warranties True. All representations and
-----------------------------------
warranties of Advantage and the Shareholder set forth in this Agreement and in
any written statements delivered to Buyer by Advantage or the Shareholder will
also be true and correct as of the Closing Date as if made on that date (except
to the extent such representations or warranties speak to a particular date).
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF BUYER
Buyer represents and warrants to Advantage and the Shareholder as
follows:
3.1 Organization. Buyer is a corporation duly organized, validly
------------
existing and in good standing in the State of Delaware, is duly qualified to do
business as a foreign corporation and is in good standing in the State of
California. Buyer has the requisite corporate power to own, use or lease its
properties and to carry on its business as it is now being conducted. Buyer has
made available to Advantage a complete and correct copy of its Certificate of
Incorporation and Bylaws, each as amended to date, and Buyer's Certificate of
Incorporation and Bylaws as so delivered are in full force and effect. Buyer is
not in default in any material
16
respect in the performance, observation or fulfillment of any provision of its
Certificate of Incorporation or Bylaws.
3.2 Authority Relative to this Agreement. Buyer has all requisite
------------------------------------
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby on
the part of Buyer have been duly and validly authorized by the Board of
Directors of Buyer, and no other corporate proceedings on the part of Buyer are
necessary, as a matter of law or otherwise, to authorize this agreement or to
consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by Buyer and, assuming this Agreement constitutes
a valid and binding obligation of Advantage and the Shareholder, this Agreement
constitutes a valid and binding agreement of Buyer, enforceable against it in
accordance with its terms, except (a) as such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights, and (b) as the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
3.3 Consent and Approvals; No Violation. The execution and
-----------------------------------
delivery of this Agreement by Buyer, the consummation of the transactions
contemplated hereby and the performance by Buyer of its obligations hereunder,
will not:
(a) conflict with any provision of the Certificate of
Incorporation or Bylaws of Buyer;
(b) require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority,
except (i) the filing of the Governmental Filings (as defined in Section
-------
5.4) and (ii) where the failure to obtain such consents, approvals,
---
authorizations or permits or the failure to make such filings or
notifications would not have a material adverse effect on the financial
condition, business, properties or results of operations of Buyer; or
(c) conflict with or violate the provisions of any order, writ,
injunction, judgment, decree, statute, rule or regulation applicable to
Buyer, in such a manner as to result in a material adverse effect on the
financial condition, business, properties or results of operations of
Buyer.
3.4 Broker's Commissions or Finder's Fees. The parties acknowledge
-------------------------------------
that Buyer enlisted the services of ▇▇ ▇▇▇▇▇ ("Finder") to act for Buyer in
connection with the transactions provided for in this Agreement. Buyer shall be
solely responsible for the payment of all finder's fees or other similar fees or
commissions due to Finder in connection with this Agreement.
3.5 Investment Intent. Buyer is acquiring the Shares for its own
-----------------
account for investment and not with a view to, or for sale or other disposition
in connection with, any
17
distribution of all or any part thereof, except in compliance with applicable
federal and state securities laws.
3.6 Legal Proceedings. There are no legal proceedings pending or,
-----------------
to the best knowledge of Buyer, threatened seeking to restrain, prohibit, or
obtain damages or other relief in connection with this Agreement or the
transactions contemplated hereby.
ARTICLE IV
CONDUCT OF BUSINESS
BY ADVANTAGE PRIOR TO CLOSING
From the date of this Agreement and until the Closing Date or the
earlier termination of this Agreement, Advantage and Shareholder agree (except
as expressly contemplated by this Agreement or to the extent that Buyer shall
otherwise consent in writing) as follows:
4.1 Ordinary Course. Advantage shall carry on its business in the
---------------
usual, regular and ordinary course, in substantially the same manner as
heretofore conducted, and shall use all reasonable efforts consistent with past
practice and policies to preserve intact its present business organization, keep
available the services of its present officers and key employees (other than
employees terminated for cause) and preserve its relationships with customers,
suppliers, lessors, lessees and others having business dealings with it to the
end that its goodwill and ongoing business shall be unimpaired at the Closing
Date. Advantage will not adopt any method of accounting that is inconsistent
with generally accepted accounting principles.
4.2 Dividends; Changes in Stock. Advantage shall not (a) declare or
---------------------------
pay any dividends on or make other distributions in respect of any Shares, or
(b) split, combine or reclassify any Shares or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for any
Shares.
4.3 Issuance or Repurchase of Securities. Except as otherwise
------------------------------------
expressly contemplated by this Agreement, Advantage shall not issue, pledge,
deliver, sell, or repurchase any shares of its capital stock of any class, or
any options, warrants or other rights exercisable for or securities convertible
into or exchangeable for, any such shares.
4.4 Governing Documents. Advantage shall not adopt any amendment to
-------------------
its Articles of Incorporation (or charter documents) or Bylaws.
4.5 No Solicitation.
---------------
(a) Until the closing of the transaction contemplated hereby or
until this Agreement is terminated, neither Advantage nor the Shareholder
shall directly or indirectly, nor shall any such party authorize or permit
any director, officer, employee, stockholder, investment banker, finder,
attorney, accountant or other agent or representative to, solicit or
encourage submission of any proposal or offer, or participate or cooperate
in any discussions or negotiations, or enter into any letter of intent,
18
agreement in principle or other agreement, oral or written, concerning any
merger, sale of substantial assets, business combination, joint venture,
sale or purchase of shares of capital stock or similar transaction
involving Advantage (any such proposal or offer being hereinafter referred
to as an "Acquisition Proposal").
(b) Advantage and the Shareholder shall promptly notify Buyer in
writing if any such Acquisition Proposal is made, and shall in any such
notice, set forth in reasonable detail the identity of the third party, the
terms and conditions of any such Proposal and any other information
requested of it by the third party or in connection therewith.
(c) If (i) Section 4.5(a) of this Agreement is breached, and (ii)
on or before November 15, 1997, either Advantage and/or the Shareholder
consummate an Acquisition Proposal, then Advantage and its Shareholder
shall pay Buyer a break-up fee in the aggregate amount of One Hundred
Thousand Dollars ($100,000) and reimburse Buyer for any and all reasonable
expenses incurred by it in connection with the transactions contemplated
hereby. Advantage and the Shareholder shall be jointly and severally
liable for the payment of any such fee.
4.6 No Acquisitions. Advantage shall not acquire or agree to acquire
---------------
by merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to acquire any capital or other assets which are material,
individually or in the aggregate, to Advantage.
4.7 No Dispositions. Except for the sale of inventory in the
---------------
ordinary course of business and other than pursuant to the requirements of
existing Contracts, Advantage shall not sell, lease or otherwise dispose of any
assets which are material, individually or in the aggregate, to Advantage.
4.8 Indebtedness.
------------
(a) Advantage shall not incur, become subject to, or agree to
incur or become subject to, any obligation or liability (absolute or
contingent), except current liabilities incurred, and obligations under
contracts entered into, in the ordinary course of business consistent with
prior practice, and provided specifically that Advantage shall not enter
into any material lease or extension of any material lease with respect to
any real or personal property or issue or sell, or guaranty the repayment
of; any debt securities.
(b) Advantage shall not pay or be liable for prepayment or other
penalties in connection with the early retirement of any of Advantage's
indebtedness for borrowed money.
4.9 Employees. Except as expressly contemplated by this Agreement,
---------
Advantage shall not make any change in the compensation payable, or to become
payable, to any of its officers, directors, employees, agents or consultants,
enter into or amend any employment,
19
severance, termination or other agreement; make any loans to any of its
officers, directors, employees agents or consultants; or make any change in its
existing borrowing or lending arrangements for or on behalf of any of such
persons, whether contingent on consummation of the transactions contemplated by
this Agreement or otherwise.
4.10 Benefit Plans. Advantage shall not (a) pay, agree to pay or
-------------
make any accrual or arrangement for payment of any pension, retirement allowance
or other employee benefit pursuant to any existing plan, agreement or
arrangement to any officer, director or employee except in the ordinary course
of business and consistent with past practice or as permitted by this Agreement;
(b) pay or agree to pay or make any accrual or arrangement for payment to any
employees of Advantage of any amount relating to unused vacation days; (c)
commit itself to adopt or pay, grant, issue or accrue salary or benefits
pursuant to any additional pension, profit-sharing, bonus, extra compensation,
incentive, deferred compensation, stock purchase, stock option, stock
appreciation right, group insurance, severance pay, retirement or other employee
benefit plan, agreement or arrangement, or any employment or consulting
agreement with or for the benefit of any director, officer, employee, agent or
consultant, whether past or present; or (d) amend in any material respect any
such existing plan, agreement or arrangement.
4.11 Additional Matters. Advantage shall not:
------------------
(a) enter into, amend or terminate any agreements, commitments or
contracts which, individually or in the aggregate, are material to the
financial condition or results of operations of Advantage;
(b) discharge or satisfy any lien or encumbrance or payment of
any obligation or liability (absolute or contingent) other than current
liabilities in the ordinary course of business;
(c) cancel or agree to cancel any material debts or claims,
except in each case in the ordinary course of business;
(d) waive any rights of substantial value;
(e) otherwise make any material change in the conduct of the
business or operations of Advantage;
(f) settle any tax assessment, litigation or other claims,
relinquish any material contract right or make any equity investments in
third parties; or
(g) agree in writing or otherwise to take any of the foregoing
actions or any action which would constitute a Material Adverse Change or
make any of the representations and warranties of Advantage set forth in
this Agreement untrue or incorrect in any material respect.
20
ARTICLE V
ADDITIONAL COVENANTS
5.1 Non-Competition Agreement.
-------------------------
(a) Non-Competition Agreement. Simultaneously with the Closing,
-------------------------
Buyer and the Shareholder shall enter into the Non-Competition Agreement in
the form attached hereto as Exhibit B.
(b) Default. In the event of a default by Buyer for nonpayment
-------
under the Non-Competition Agreement, uncured for a period of twenty (20)
days after notice is given in accordance with the provisions of Section
10.2 hereof, such Non-Competition Agreement shall automatically terminate
and be of no further force or effect and all remaining Noncompete Payments
thereunder shall automatically accelerate and be due and payable in full
without any further notice of any kind whatsoever (unless the nonpayment
occurs due to a violation by the Shareholder under the following
sentences). In the event of a material violation by the Shareholder of the
provisions of such Non-Competition Agreement during the Payout Period, any
amounts due the Shareholder under the Non-Competition Agreement would be
forfeited by such Shareholder. In the event of a material violation of such
Non-Competition Agreement after the Payout Period but prior to the end of
the five-year non-compete period, the Shareholder would pay Buyer Five
Hundred Thousand Dollars ($500,000) in the aggregate as liquidated damages.
Buyer shall first give Shareholder notice of breach in accordance with the
provisions of Section 10.2 hereof with the opportunity to cure within
twenty (20) days of such notice.
5.2 Consents and Approvals.
----------------------
(a) Department of Insurance Approval. Not later than fifteen
--------------------------------
(15) business days after the date hereof, Buyer shall file its completed
application for transfer of control of Advantage with the applicable
Departments of Insurance, together with all documents and information of or
concerning itself or any of its affiliates as may be required to be filed
in connection therewith under such form or applicable statutes and
regulations, and shall thereafter promptly provide such additional
information such Department shall request from time to time, and otherwise
shall prosecute such application diligently and use commercially reasonable
efforts to obtain such approval as promptly as reasonably practicable.
Advantage and the Shareholder will use commercially reasonable efforts to
cause all conditions to the obligations of Buyer set forth in this Section
5.2(a) to be satisfied.
(b) Other Consents and Approvals. Advantage and the Shareholder
----------------------------
will obtain or cause to be obtained prior to the Closing Date the consents
and approvals described in Schedule 5.2(b)(i) attached hereto and will
------------------
furnish to Buyer executed copies of those consents. The Buyer will obtain
or cause to be obtained prior to the Closing Date the consents and
approvals described in Schedule 5.2(b)(ii) attached hereto and will furnish
-------------------
to the Shareholder executed copies of those consents. The parties will
cooperate
21
in all respects with each other with a view toward obtaining timely
satisfaction of conditions to the Closing contained in this Section and in
this Agreement, it being understood that all fees and expenses associated
with obtaining required consents and approvals shall be paid in accordance
with Section 5.7 hereof.
(c) Information. The parties shall, unless prohibited by law,
-----------
(i) furnish to other party copies of all filings and such necessary
information as may be requested by either in connection with any party's
preparation of any required filings or submissions to any governmental
agency, and (ii) will keep the other party informed of the status of any
inquiries made with respect to this transaction by any federal, state or
local governmental agency or authority with respect to this Agreement or
the transaction contemplated hereby. The parties shall furnish to the
other, if applicable, a list of any materials that it is prohibited by law
from providing to the other, together with a reference to the source of the
prohibition and, if permitted, a brief summary of the content of such
materials and the parties thereto.
5.3 Confidential Information.
------------------------
(a) Nondisclosure by Shareholder after Closing. The Shareholder
------------------------------------------
recognizes and acknowledges that he has in the past, currently has, and in
the future may possibly have, access to certain confidential information of
Advantage, such as customer lists, specific information relating to the
special needs of particular customers (including knowledge of what products
they are using and are likely to use in the future), sales and financial
records and related data (including pricing information), information and
specifications relating to products proposed by Advantage, knowledge of
Advantage's sales and marketing techniques, and information regarding
vendors and suppliers of Advantage. The Shareholder agrees that from and
after the Closing Date it will not use such confidential information or
disclose such confidential information to any person or entity for any
purpose or reason whatsoever, except to authorized representatives of
Buyer, unless such information becomes known to the public generally
through no fault of Advantage or the Shareholder, or unless the Shareholder
is required by law to disclose such information. If the Shareholder is
requested to provide such information pursuant to requirements of
applicable law, he shall notify Buyer as promptly as possible and shall
allow Buyer the opportunity to oppose such request. In the event of a
breach or threatened breach by Advantage or the Shareholder of the
provisions of this Section, Buyer shall be entitled to an injunction
restraining Advantage or the Shareholder from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting Buyer from pursuing any other available remedy for such breach
or threatened breach, including the recovery of damages.
(b) Remedies. The Shareholder acknowledges and agrees that,
--------
because the legal remedies of Buyer may be inadequate in the event of a
breach of any of the covenants set forth in this Section, Buyer may, in its
discretion and in addition to obtaining any other remedy or relief
available to it (including, without limitation,
22
damages at law), enforce the provisions of this Section by injunction and
any and all other equitable relief.
(c) Non-Disclosure Pre-Closing. Each party agrees that, unless
--------------------------
and until the Closing has been consummated, all Confidential Information
(as defined below) shall be kept confidential by such party as required by
this subsection (c); provided, however, that (i) any of such Confidential
Information may be disclosed to such directors, officers, employees, and
authorized representatives of such party, including the Shareholder's
spouse (collectively, for purposes of this Section, "Representatives") as
need to know such information for the purpose of evaluating the
transactions contemplated hereby (it being understood that such party's
Representatives shall be informed by such party of the confidential nature
of such information and shall be required to treat such information
confidentially), (ii) any disclosure of Confidential Information may be
made to the extent to which the non-disclosing party consents in writing,
(iii) Confidential Information may be disclosed by a party or its
Representative, to the extent that, in the opinion of counsel, such party
or its Representative is legally compelled to do so, provided that, prior
to making such disclosure and if there is time to do so, the disclosing
party advises and consults with the non-disclosing party regarding such
disclosure and provided further that the disclosing party discloses only
that portion of the Confidential Information as is legally required, and
(iv) any of such Confidential Information may be disclosed to any banks or
financial institutions or other prospective investors who agree in writing
to comply with the provisions of this Section. Each party agrees that none
of the Confidential Information will be used for any purpose other than in
connection with the transactions contemplated hereby. The term
"Confidential Information", as used herein, means all information obtained
by or on behalf of Buyer from the Shareholder or Advantage pursuant to this
Section and all similar information obtained from Advantage or the
Shareholder by or on behalf of Buyer in connection with the transactions
contemplated hereby, other than information which (i) was or becomes
generally available to the public other than as a result of disclosure by
the disclosing party, (ii) was or becomes available to a party on a
nonconfidential basis prior to disclosure to the party by the other party
hereto or its respective representatives, or (iii) was or becomes available
to a party from a source other than the other party and its respective
representatives, provided that such source is not known by the party to be
bound by a confidentiality agreement with respect to such information. The
agreement contained in this Section 5.3(c) shall terminate upon the
Closing.
(d) Return of Information. If this Agreement is terminated,
---------------------
Buyer shall promptly return or destroy, and shall use its reasonable best
efforts to cause all Buyer Representatives to promptly return or destroy,
all Confidential Information to Advantage without retaining any copies
thereof, provided that such portion of the Confidential Information as
consists of notes, compilations, analyses, reports, or other documents
prepared by Buyer or Buyer Representatives shall be destroyed.
5.4 Governmental Filings. Each of Buyer, Advantage and the
--------------------
Shareholder agrees to make as promptly as practicable all filings necessary
under any applicable federal,
23
state, local and foreign laws and to obtain any required regulatory approvals,
clearances or expirations of waiting periods in connection with the transactions
contemplated by this Agreement (all such filings required to be made as provided
herein are referred to herein collectively as the "Governmental Filings"). Each
party shall use its best efforts, and cause its counsel to use their best
efforts, to cooperate with the other parties in preparing their respective
Governmental Filings and in obtaining all required regulatory approvals,
clearances and expirations of waiting periods.
5.5 Legal Conditions. Each of Buyer, Advantage and the Shareholder
----------------
will take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on such party with respect to the consummation
of the transactions contemplated by this Agreement and will promptly cooperate
with and furnish information to such other party or parties in connection with
any such requirements as may be imposed upon such other party or parties in
connection with the consummation of the transactions contemplated by this
Agreement.
5.6 Certain Defaults. Advantage and/or Shareholder will give
----------------
prompt notice to Buyer of (a) any notice of default received by it subsequent to
the date of this Agreement and prior to the Closing Date under any material
instrument or material agreement to which it is a party or by which it is bound,
which default would, if not remedied, result in a Material Adverse Change or
which would render materially incomplete or untrue any representation made
herein, and (b) any suit, action or proceeding instituted or, to the knowledge
of it, threatened against or affecting it subsequent to the date of this
Agreement and prior to the Closing Date which, if adversely determined, would
result in a Material Adverse Change or which would render materially incorrect
any representation made herein.
5.7 Expenses. Except as provided in Section 10.10 and Section 4.5
--------
hereof or as otherwise contemplated herein, whether or not the transactions
contemplated by this Agreement are consummated, all costs and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expense. Notwithstanding the foregoing, if
Buyer does not complete this transaction after the conducting of a mid-year
audit, then Buyer would reimburse Advantage for the reasonable costs of any mid-
year audit(s).
5.8 Access to Information and Diligence Review. Between the date
------------------------------------------
of this Agreement and the Closing Date, Advantage shall (i) give Buyer and its
authorized representatives reasonable access during normal business hours to all
plants, offices, warehouses and other facilities and to all contracts, internal
reports, data processing files and records, federal, state, local and foreign
tax returns and records, commitments, books, records and affairs of Advantage,
whether located on the premises of the office facilities for Advantage or at
another location, including, without limitation, the relationship of Advantage
to its related employee leasing company; (ii) permit Buyer to make such
inspections as it may require, (iii) cause its officers to furnish to Buyer such
financial, operating, technical and product data and other information with
respect to the business and properties of Advantage as Buyer from time to time
may request, including without limitation financial statements and schedules,
and (iv) assist and
24
cooperate with Buyer in the development of integration plans for implementation
by Buyer following the Closing Date; provided, however, that no investigation
pursuant to this Section shall affect or be deemed to modify any representation
or warranty made by Advantage or the Shareholder herein and provided further
that Advantage shall have the right to have a representative present at all
times.
5.9 Additional Actions. Subject to the terms and conditions of
------------------
this Agreement, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all reasonable action and to do, or cause to be
done, all things reasonably necessary, proper or advisable under applicable laws
and regulations to consummate and make effective the transactions contemplated
by this Agreement as promptly as reasonably practicable. Advantage and the
Shareholder shall give prompt notice to Buyer of any material breach of any of
their respective covenants hereunder or the occurrence of any event that is
reasonably likely to cause any of their respective representations and
warranties hereunder to become incomplete or untrue in any material respect.
5.10 Tax Matters.
-----------
(a) Preparation of Tax Returns Due Prior to Closing and Payment
-----------------------------------------------------------
of Taxes. Shareholder and Advantage shall take all actions required to
--------
maintain, and shall refrain from taking any actions that would terminate,
Advantage's qualification as an S corporation for federal tax purposes for
the period through and including the day immediately preceding the Closing
Date. Shareholder shall cause Advantage to, and Advantage shall, prepare
and timely file all Tax Returns and amendments thereto having a due date
(not including extensions) on or before the Closing Date, and all such Tax
Returns shall be true, complete and accurate. Any Tax Return having a due
date which has been extended to a date following the Closing Date shall be
subject to the foregoing covenant. All Taxes shown to be payable by
Advantage on such Tax Returns shall be paid in full by Advantage and/or
Shareholder prior to the Closing Date and no additional Taxes shall be
payable by Advantage with respect to items or periods covered by such Tax
Returns (whether or not shown or reported on such Tax Returns).
(b) Preparation of 1996 Tax Returns Due Following Closing and
---------------------------------------------------------
Payment of Taxes. Prior to the due date applicable thereto, Shareholder
----------------
shall cause to be prepared and shall submit to Buyer all Tax Returns
required to be filed by Advantage with respect to the 1996 calendar year
and having a due date (not including extensions) following the Closing Date
(the "1996 Tax Returns"). Such 1996 Tax Returns shall be true, accurate
and complete and shall be submitted by Shareholder to Buyer in sufficient
time to allow Buyer to cause Advantage to timely file such 1996 Tax
Returns. Buyer shall cause Advantage to file such 1996 Tax Returns as
prepared by Shareholder. If Shareholder shall fail to timely submit to
Buyer any such 1996 Tax Returns, Buyer shall cause such 1996 Tax Returns to
be prepared and timely filed, and any expense incurred by Buyer in
preparing and filing such 1996 Tax Returns shall be paid by Shareholder.
Shareholder shall pay and discharge on a timely basis all Taxes payable by
Advantage as shown or reported on such 1996 Tax Returns, and no Taxes shall
be payable by Buyer or
25
Advantage with respect to items or periods covered by such 1996 Tax Returns
(whether or not shown or reported on such 1996 Tax Returns as filed). Any
refunds of such 1996 Taxes paid or discharged by Shareholder, whether
pursuant to an amended return or any Tax Proceeding, shall be paid to or
for the benefit of Shareholder. Any additional 1996 Taxes (including
interest, penalties and other additions to tax) in excess of the Taxes
reflected on the 1996 Tax Returns which at any time are assessed or imposed
upon or against or otherwise become payable by Advantage, whether pursuant
to an amended return or any Tax Proceeding or otherwise, shall be paid by
Shareholder promptly upon demand therefor by Buyer.
(c) Preparation of 1997 Tax Returns Due Following Closing and
---------------------------------------------------------
Payment of Taxes.
----------------
(i) Short Period S Corporation Return. The parties
---------------------------------
acknowledge and agree that Advantage shall be required to file a short
period return as an S corporation for the period commencing January 1,
1997, and ending as of the Closing Date. As used herein the term "Short
Period Return" shall refer collectively to such short period S corporation
return and any other short period return (covering Taxes other than the
federal Taxes covered by the S corporation short period return) which
Advantage is eligible (at its election) or required to file with any taxing
authority with respect to the period commencing on January 1, 1997, and
ending on the Closing Date, and any final return Advantage is required to
file as a result of the parties making an election under Code Section
338(h)(10) in accordance with the provisions of Section 5.10(i) hereof.
Prior to the due date (including extensions) for each such Short Period
Return, Shareholder shall cause to be prepared and shall submit to Buyer
such Short Period Return. Each such Short Period Return (A) shall be true,
accurate and complete, (B) shall be prepared based on a closing of
Advantage's books as of the Closing Date based on Advantage's normal tax
accounting methods, and (C) shall be submitted by Shareholder to Buyer in
sufficient time to allow Buyer to cause Advantage to timely file such Short
Period Return. Buyer shall cause Advantage to file each such Short Period
Return as prepared by Shareholder. If Shareholder shall fail to timely
submit to Buyer any such Short Period Return, Buyer shall cause such Short
Period Return to be prepared and timely filed, and any expense incurred by
Buyer in preparing and filing such Short Period Return shall be paid by
Shareholder. Shareholder shall pay and discharge on a timely basis all
Taxes payable by Advantage as shown or reported on such Short Period
Returns, and no Taxes with respect to items or periods covered by such
Short Period Returns ("Short Period Taxes") shall be payable by Buyer or
Advantage (whether or not shown or reported on such Short Period Returns as
filed). Any refunds of such Short Period Taxes paid or discharged by
Shareholder, whether pursuant to an amended return or any Tax Proceeding,
shall be paid to or for the benefit of Shareholder. Any additional Short
Period Taxes (including interest, penalties and other additions to tax) in
excess of the Taxes reflected on the Short Period Returns which at any time
are assessed or imposed upon or against or otherwise become payable by
Advantage, whether pursuant to an amended return or any Tax Proceeding or
otherwise, shall be paid by Shareholder promptly upon demand therefor by
Buyer.
26
(ii) Full Year Returns. The parties acknowledge and agree
-----------------
that Advantage may be required, with respect to state franchise or income
Taxes or other applicable Taxes for the 1997 year, to file a full year
return (herein a "Full Year Return") reporting and accounting for such
Taxes on an aggregate basis covering both the 1997 period ending on the
Closing Date (the "Pre-Closing Period") and the 1997 period following the
Closing Date (the "Post-Closing Period"). Prior to the due date (including
extensions) for any such Full Year Return, Buyer shall cause Advantage to
prepare and timely file such Full Year Return. At any time following the
Closing Date and prior to the filing of such Full Year Return, Buyer shall
notify Shareholder of Shareholder's liability for Taxes reportable on such
Full Year Return (herein "FY Taxes") attributable to the Pre-Closing
Period, with such Pre-Closing Period FY Tax liability to be determined as
if the Pre-Closing Period constituted a short period as to which a short
period return were to be filed based on a closing of Advantage's books as
of the Closing Date in a manner comparable to that described in Section
5.10(c)(i). Promptly upon receipt of such notice from Buyer, Shareholder
shall pay to Buyer the full amount of such FY Tax liability attributable to
the Pre-Closing Period. Any refunds of such FY Taxes attributable to the
Pre-Closing Period, whether pursuant to an amended return or any Tax
Proceeding, shall be paid to or for the benefit of Shareholder. Any
additional FY Taxes (including interest, penalties and other additions to
tax) attributable to the Pre-Closing Period which at any time are assessed
or imposed upon or against or otherwise become payable by Advantage,
whether pursuant to an amended return or any Tax Proceeding or otherwise,
shall be paid by Shareholder promptly upon demand therefor by Buyer.
(iii) Partnerships. For purposes of the Section 5.10, if as
------------
of the Closing Date Advantage is a partner in any partnership which has a
tax year that does not end as of the Closing Date, any Tax liability
attributable to such partnership's activities shall be allocated among the
Pre-Closing Period and the Post-Closing Period on a fair and reasonable
basis consistent with the allocation principles underlying this Section
5.10.
(d) Transfer Taxes. As used herein the term "Transfer Taxes"
--------------
shall mean any Taxes imposed on or with respect to the sale of stock as
contemplated by this Agreement. Shareholder shall pay all such Transfer
Taxes.
(e) Cooperation and Records Retention. Shareholder and Buyer
---------------------------------
shall (i) each provide the other, and Buyer shall cause Advantage to
provide Shareholder, with such assistance as may reasonably be requested by
any of them in connection with the preparation of any Tax Return or the
conduct of any Tax Proceeding, (ii) each retain and provide the other, and
Buyer shall cause Advantage to retain and provide Shareholder, with any
records or other information that may be relevant to any such Tax Return or
Tax Proceeding, and (iii) each provide the other with any final
determination of any such Tax Proceeding that affects any amount required
to be shown on any Tax Return of the other for any period. Without
limiting the generality of the foregoing, Buyer shall retain, and shall
cause Advantage to retain, and Shareholder shall retain, until the
applicable statutes of limitations (including any extensions) have expired,
copies of all Tax Returns, supporting work schedules, and other records or
---------
information that may be
27
relevant to such returns for all tax periods or portions thereof ending
before or including the Closing Date and shall not destroy or otherwise
dispose of any such records without first providing the other party with a
reasonable opportunity to review and copy the same.
(f) Tax Elections. No new elections with respect to Taxes or any
-------------
changes in current elections with respect to Taxes affecting Advantage
shall be made after the date of this Agreement without prior written
consent of Buyer.
(g) Clearance Certificates. As a condition precedent to the
----------------------
consummation of the transactions contemplated by this Agreement,
Shareholder shall provide Buyer with any clearance certificate(s) or
similar document(s) that may be required by any state taxing authority in
order to relieve Buyer of any obligation to withhold any portion of the
Purchase Price.
(h) Nonforeign Affidavit. Shareholder shall furnish Buyer an
--------------------
affidavit stating, under penalty of perjury, that the number specified
therein is the transferor's United States taxpayer identification number
and that the transferor is not a foreign person within the meaning of
Section 1445(b)(2) of the Code.
(i) Election Under Section 338(h)(10). If Buyer, at its sole
---------------------------------
discretion, shall notify Shareholder that Buyer desires to make an election
under Section 338(g) of the Code (and/or any comparable election under
applicable state tax law) with respect to Advantage, Shareholder shall join
with Buyer in making an election under Section 338(h)(10) of the Code
(and/or any comparable election under applicable state tax law) with
respect to the acquisition of Advantage by Buyer. Shareholder shall
cooperate fully with Buyer in the making of such election, including but
not limited to executing and delivering such written consents and providing
such documents and information as may be requested by Buyer for purposes of
making an effective election under Code Section 338(h)(10). In particular,
and not by way of limitation, at such time as Buyer shall determine
Shareholder shall join with Buyer in completing, executing and timely
filing all necessary copies of Internal Revenue Service Form 8023-A and all
attachments required to be filed therewith pursuant to applicable Treasury
relations and the instructions to such Form.
(j) Survival. Notwithstanding any other provision of this
--------
Agreement, the covenants set forth in this Section shall survive until the
expiration of the respective statutes of limitations applicable to the
periods to which the Taxes relate.
5.11 Consulting Agreement. The Shareholder shall have executed and
--------------------
delivered a five-year consulting agreement (the "Consulting Agreement"), in the
form attached hereto as Exhibit C, for the Shareholder to participate as a
---------
member of the management team of Advantage, act as a spokesperson for Buyer
within the dental managed care industry and to act as a finder for Buyer for
acquisition opportunities in the dental managed care industry. Buyer shall pay
the Shareholder one hundred thousand dollars ($100,000) a year for such
activities. In addition, if the Shareholder refers a potential acquisition
target to Buyer and such target is
28
acquired by Buyer based on such referral, Buyer shall pay the Shareholder one
hundred thousand dollars ($100,000) upon the closing of such acquisition.
5.12 Further Conveyances, Assurances and Cooperation. After the
-----------------------------------------------
Closing, the Shareholder will, without further consideration of any nature from
Buyer, other than reimbursement of expenses reasonably incurred at the request
of Buyer, execute and deliver, or cause to be executed and delivered, to Buyer,
such additional documentation and instruments as Buyer may reasonably request,
to (i) sell, transfer and assign to and fully vest in Buyer ownership of the
Shares (ii) allow Buyer to operate the business of Advantage, (iii) obtain any
consent or approval which was not obtained on or prior to the Closing, (iv)
comply with any Tax investigation, audit or inquiry, (v) allow Buyer to use the
name of "Advantage" and the name "Advantage Dental HealthPlans" for business in
all states of the United States, whether through a consent to use such names or
otherwise, or (vi) otherwise provide information, books, records, evidence,
testimony and other reasonable assistance to Buyer in connection with its
ownership of the business of Advantage.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE PARTIES
6.1 Conditions to the Obligations of Buyer, Advantage and the
---------------------------------------------------------
Shareholder. The respective obligations of Buyer, Advantage and the
-----------
Shareholder set forth in this Agreement shall be subject to the satisfaction on
or prior to the Closing Date of the following conditions, unless waived by each
such party:
(a) Governmental Approvals. All material authorizations,
----------------------
consents, orders or approvals of, or declarations or filings with, or
expiration of waiting periods imposed by, any federal, state, local or
foreign governmental or regulatory authority (including, without
limitation, the applicable Department of Insurance) necessary for the
consummation of the transactions contemplated by this Agreement shall have
been filed, occurred or been obtained, including any and all necessary
permits, licenses and certificates.
(b) Legal Action. No temporary restraining order, preliminary
------------
injunction or permanent injunction or other order preventing the
consummation of the transactions contemplated by this Agreement shall have
been issued by any federal, state or foreign court or other governmental or
regulatory authority and remain in effect, and no litigation seeking the
issuance of such an order or injunction, or seeking substantial damages
against Buyer or Advantage if the transactions contemplated by this
Agreement are consummated, shall be pending which, in the good faith
judgment of the Boards of Directors of Buyer or Advantage (acting upon
advice of their respective counsel) has a reasonable probability of
resulting in such order, injunction or substantial damages. In the event
any such order or injunction shall have been issued, each party agrees to
use its reasonable efforts to have any such injunction lifted.
29
(c) Statutes. No federal, state, local or foreign statute,
--------
rule or regulation shall have been enacted which would make the
consummation of the transactions contemplated by this Agreement illegal.
(d) Financing. Buyer shall have obtained financing in a form
---------
and amount reasonably satisfactory to enable Buyer to fulfill its
obligations under this Agreement.
(e) Board and Shareholder Approval. The Board of Directors and
------------------------------
the Shareholder of Advantage shall have approved the form of the definitive
purchase agreement and all related agreements and documents and the
Shareholder shall provide Buyer with a copy of such resolutions at the
Closing.
6.2 Further Conditions to the Obligations of Buyer. The obligations
----------------------------------------------
of Buyer set forth in this Agreement are subject to the satisfaction on or prior
to the Closing Date of the following conditions, unless waived by Buyer:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Advantage and the Shareholder set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date as though made at and as of the
Closing Date (except to the extent such representations or warranties speak
to a particular date), and Buyer shall have received a certificate signed
by the Shareholder and authorized officers of Advantage to such effect.
(b) Performance of Obligations of Other Parties. Advantage and
-------------------------------------------
the Shareholder shall have performed in all material respects all
obligations required to be performed by them under this Agreement prior to
the Closing Date and Buyer shall have received a certificate signed by the
Shareholder and authorized officers of Advantage to such effect.
(c) No Litigation. Since the date hereof, there shall not have
-------------
been instituted and be continuing or threatened against Advantage any
claim, action or proceeding the result of which could reasonably be
expected to result in a Material Adverse Change in the financial condition,
operations or prospects.
(d) No Adverse Change. No Material Adverse Change shall have
-----------------
occurred in the business, operations or prospects of Advantage. "Material
Adverse Change" shall include, without limitation, (i) the loss of any of
the 10 leading revenue clients of Advantage (including the failure of any
such client to consent to the change of control contemplated by these
transactions); (ii) a decrease in revenues exceeding 10% as determined by
comparing the average revenues for the two months ended August 30, 1996 and
September 30, 1996 against the average for the two months ended prior to
the Closing Date; (iii) a decrease in provider payments exceeding 10% as
determined by comparing the average revenues for the two months ended
August 30, 1996 and September 30, 1996 against the average for the two
months ended prior to the Closing Date; (iv) a drop in total membership to
less than 50,000 members as of the Closing Date;
30
or (v) any adverse change in legislation or regulations applicable to the
business of Advantage, if such change could reasonably be foreseen to have
a material adverse effect on the financial condition, operations or
prospects of Advantage.
(e) Spousal Consent. A spousal consent to the transactions
---------------
contemplated by this Agreement, substantially in the form of Exhibit A
---------
hereto, shall have been executed and delivered by the spouse of the
Shareholder, if applicable.
(f) Third-Party Approvals. Any and all consents required from
---------------------
third parties relating to contracts, licenses, leases and other agreements
and instruments material to the financial condition or results of
operations of Advantage shall have been obtained by Advantage and provided
to Buyer.
(g) Resignations. Advantage shall have delivered to Buyer all
------------
resignations of the officers and directors of Advantage and committee
members serving under the Board as requested by Buyer, effective as of the
Closing Date.
(h) Shareholder Agreements. The Shareholder shall have executed
----------------------
and delivered to Buyer the Non-Competition Agreement and the Consulting
Agreement.
(i) Financial Statements Audit. At Advantage's expense,
--------------------------
Advantage shall cause its certified independent accountants (the
"Advantage's Accountant") to conduct and complete an independent audit of
the Financial Statements (the "Audit") pursuant to generally accepted
accounting principles. Advantage shall have delivered to Buyer an
unqualified opinion of Advantage's Accountant, in a form and substance
reasonably satisfactory to Buyer, certifying the Audit.
(j) Financial Results. The results of operations (net income)
-----------------
of Advantage determined in accordance with generally accepted accounting
principles for the period January 1, 1996 through the Closing shall be no
worse than break even. The Shareholder shall have delivered to Buyer
audited balance sheets of Advantage as of December 31, 1996 and quarterly
thereafter until the Closing, and related statements of income and cash
flow for the periods then ended, complied in accordance with generally
accepted accounting principles applied on a consistent basis with prior
periods, and, if requested by Safeguard, independently audited by
Safeguard's accountants. Such interim audited financial statements shall be
prepared in accordance with GAAP consistent with the Financial Statements,
and shall present fairly the financial position of Advantage as of the end
of such period and the results of operations and cash flows for such period
in conformity with GAAP, except that such interim financial statements may
not contain all footnotes or other textual disclosure required by GAAP and
are subject to normal recurring year-end audit adjustments.
(k) Employees. Each Advantage entity shall retain the
---------
employment of each such entity's respective employees at the Closing.
31
(l) Opinion of Counsel. Buyer shall have received an opinion
------------------
dated the Closing Date of counsel to Advantage, in form and substance
acceptable to Buyer.
(m) Agreement Termination. The Shareholder shall cause any
---------------------
related party agreements, except the lease between Advantage and ▇▇▇▇▇▇
Gruppe Companies for office space, by and among Advantage and the
Shareholder or his affiliates or family to be terminated and to be of no
further force and effect on or prior to the Closing Date with no further
obligation of Advantage to make payments thereunder.
(n) Retention of Revenues. The Shareholder shall cause all
---------------------
premiums received in the month prior to the Closing to be retained in
Advantage against payment of the related capitation and commissions due for
such contracts, less the calculated net profits on such contracts which
shall be paid to Shareholder in accordance with the provisions of Section
1.3(c) hereof.
(o) Employment Arrangements. Other than payment to employees in
-----------------------
the ordinary course of business, there will be no obligation on the part of
Advantage for any amounts due for salary or accrued vacation to any
terminating employees of Advantage or for salary or accrued vacation to ▇▇.
▇▇▇▇▇▇ after the Closing Date.
(p) Payment and Release of Liens. All amounts owing under any
----------------------------
bank loans, lines of credit or other indebtedness (other than the line of
credit extended through Shareholder to ADH Marketing Inc. or internal loans
from Advantage Dental HealthPlans to the Shareholder, Business Healthcare
Coalition and/or ▇▇▇▇▇▇ Gruppe Companies existing on the Closing Date, such
amounts not to exceed $365,000 in the aggregate) shall be paid off in full
as of the Closing Date and the Shareholder shall provide Buyer either
evidence that such liens have been terminated or shall deliver to Buyer a
termination statement signed by any such banks on the Closing Date
terminating the lien on the property of Advantage.
(q) Due Diligence Review. Safeguard shall have completed a
--------------------
thorough due diligence investigation of Advantage, its businesses and
facilities, financial condition and prospects, and any other matters it
deems necessary and shall have performed, without limitation, all necessary
audits and reviews, with the results of such due diligence investigation
being satisfactory to Safeguard in its sole discretion. Buyer shall not
assert any claims nor take any action against Shareholder for any issues
disclosed in the various Schedules attached hereto.
6.3 Further Conditions to the Obligations of Advantage and the
----------------------------------------------------------
Shareholder. The obligations of Advantage and the Shareholder set forth in this
-----------
Agreement are subject to the satisfaction on or prior to the Closing Date of the
following conditions, unless waived by Advantage and the Shareholder:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Buyer set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the
Closing Date as though made at
32
and as of the Closing Date (except to the extent such representations or
warranties speak to a particular date), and Advantage and the Shareholder
shall have received a certificate signed by authorized officers of Buyer to
such effect.
(b) Performance of Obligations of Other Parties. Buyer shall
-------------------------------------------
have performed in all material respects all obligations required to be
performed by it under this Agreement prior to the Closing Date, and
Advantage and the Shareholder shall have received a certificate signed by
authorized officers of Buyer to such effect.
(c) Third-Party Approvals. Any and all consents required by
---------------------
Buyer from third parties in order to consummate the transactions
contemplated hereby shall have been obtained.
ARTICLE VII
TERMINATION, EXTENSION AND WAIVER
7.1 Termination This Agreement may be terminated at any time prior
-----------
to the Closing Date as follows:
(a) By Mutual Consent By mutual written consent of Advantage
-----------------
and Buyer.
(b) By Any Party By any party to this Agreement if:
------------
(i) the transactions contemplated by this Agreement shall
not have been consummated on or before March 31, 1997; provided that
the failure of the transactions to be consummated by such date is not
caused by any breach of this Agreement by the party seeking such
termination;
(ii) a court of competent jurisdiction or other governmental
or regulatory authority shall have issued an order, decree or ruling
or taken any other action, in each case permanently restraining,
enjoining or otherwise prohibiting the consummation of the
transactions contemplated by this Agreement and such order, decree,
ruling or other action shall have become final and not appealable;
(iii) any statute, rule or regulation is enacted,
promulgated or deemed applicable to the transactions contemplated by
this Agreement by any competent governmental or regulatory authority
which makes the consummation of the transactions illegal; or
(iv) any applicable Department of Insurance disapproves in
writing the application for transfer of control of Advantage and the
Department has not withdrawn such disapproval within 20 days after the
date on which Advantage and/or Buyer receive notice of such written
disapproval.
33
(c) By Buyer. By Buyer if a material default under or a
--------
material breach of this Agreement by Advantage or the Shareholder, as the
case may be, shall have occurred and be continuing ten (10) business days
after receipt of written notice thereof from Buyer.
(d) By Advantage. By Advantage if a material default under or a
------------
material breach of this Agreement by Buyer shall have occurred and be
continuing ten (10) business days after receipt of written notice thereof
from Advantage.
Any action taken to terminate this Agreement pursuant to this Section
shall become effective when notice of such termination is delivered by the
terminating party to the other party in accordance with the provisions of
Section 10.2 below.
------------
7.2 Effect of Termination. In the event of the termination of this
---------------------
Agreement pursuant to Section 7.1 by the Shareholder or Advantage, on the one
hand, or Buyer, on the other, written notice thereof shall be given promptly to
the other party specifying the provision hereof pursuant to which such
termination is made, and this Agreement shall become void and shall have no
effect, except that the agreements contained in this Section and in Sections 3.4
(Broker's Commissions or Finder's Fees), 5.3 (Confidentiality), 5.7 (Expenses),
Article IX (Arbitration), or 10.10 (Attorney's Fees), shall survive the
termination hereof for a period of one year, unless a specific claim in writing
with respect to these matters shall have been made before such date. Nothing
contained in this Section shall relieve any party from liability for damages
actually incurred as a result of any breach of this Agreement.
7.3 Extension; Waiver. At any time prior to the Closing Date, to
-----------------
the extent legally allowed, any party hereto (a) may extend the time for the
performance of any of the obligations owed to such party by the other parties
hereto, (b) may waive any inaccuracies in the representations and warranties
made to such party contained herein or in any document delivered pursuant
hereto, and/or (c) may waive compliance with any of the agreements or conditions
for the benefit of such party contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party and shall be effective only
to the extent set forth in such instrument. No extension or waiver of any
single condition, covenant, agreement, representation, warranty, breach, default
or other matter hereunder shall be deemed an extension or waiver of such or any
other condition, covenant, agreement, representation, warranty, breach, default
or other matter theretofore or thereafter occurring. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law. The failure of any
party to insist upon a strict performance of any of the terms or provisions of
this Agreement, or to exercise any option, right or remedy herein contained,
shall not be construed as a waiver or as a relinquishment for the future of such
term, provision, option, right or remedy, but the same shall continue and remain
in full force and effect.
34
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification.
----------------
(a) Indemnification by Shareholder. Shareholder shall
------------------------------
indemnify and hold harmless Buyer and its affiliates from and against any
and all Losses (as defined in Section 8.1(c)) incurred by any of such
--------------
indemnified parties in any way relating to, arising out of or resulting
from:
(i) The breach of any of the material representations or
warranties made by Advantage or Shareholder in this Agreement;
(ii) The breach or the failure of performance by Advantage
or Shareholder of any of the material covenants, promises or agreements
that any of them is to perform under this Agreement;
(iii) Taxes (including interest, penalties and other
additions to tax that may become payable in respect thereof) which are (i)
Transfer Taxes (as defined in Section 5.10(d)) that Buyer or Advantage pays
(in whole or in part) or which result in liens or encumbrances on any
assets of Buyer or Advantage, and/or (ii) assessed or imposed on or
otherwise become payable by Advantage or Buyer in respect of Advantage's
income, business, property or operations in any period ending prior to or
on the Closing Date, including but not limited to any Taxes for which
Shareholder is liable in accordance with the provisions of Section 5.10;
(iv) The death of or injury to any person or damage to
property that occurred prior to the Closing and arose out of or in
connection with the business or operations of Advantage prior to the
Closing;
(v) Except as disclosed on Schedule 8.1, all employment-
------------
related claims, except unemployment claims, and causes of action, and all
other claims and causes of action, that have arisen or arise out of or in
connection with the business or operations of Advantage conducted prior to
the Closing; and
(vi) The existence prior to the Closing Date of any
hazardous or toxic substances, wastes or materials, defined as such or
governed by any applicable Environmental Law ("Hazardous Materials") upon,
about or beneath any property of Advantage or migrating or threatening to
migrate from any of such properties, or the existence of a violation of any
Environmental Law pertaining to such properties or the operations of
Advantage (including, but not limited to, violations of laws dealing with
the generation, transport, treatment, storage or disposal of hazardous or
other regulated material), regardless of whether the existence of such
Hazardous Materials or the violation of Environmental Law arose prior to
the present ownership or operation of such properties by Advantage or was
disclosed to Buyer by Advantage, Shareholder or otherwise.
35
(b) Indemnification by Buyer. Buyer shall indemnify and hold
------------------------
harmless Shareholder and their affiliates from and against any and all
Losses (as defined in Section 8.1(c)) incurred by such indemnified parties
--------------
in any way relating to, arising out of or resulting from:
(i) The breach of any of the material representations or
warranties made by Buyer in this Agreement;
(ii) The breach or the failure of performance by Buyer of
any of the material covenants, promises or agreements that it is to perform
under this Agreement;
(iii) Taxes (including interest, penalties and other
additions to tax that may become payable in respect thereof) which are
assessed or imposed on or otherwise become payable by Shareholder in
respect of Advantage's income, business, property or operations in any
period following the Closing Date, including but not limited to any Taxes
for which Buyer is liable in accordance with the provisions of Section
5.10(c)(ii);
(iv) The death of or injury to any person or damage to
property that occurred after the Closing and arose out of or in connection
with the business or operations of Advantage after the Closing;
(v) All employment-related claims and causes of action, and
all other claims and causes of action, that have arisen or arise out of or
in connection with the business or operations of Advantage conducted after
the Closing; and
(vi) The existence after the Closing Date of any Hazardous
Materials upon, about or beneath any property of Advantage or migrating or
threatening to migrate from any of such properties, or the existence of a
violation of any Environmental Law pertaining to such properties or the
operations of Advantage (including, but not limited to, violations of laws
dealing with the generation, transport, treatment, storage or disposal of
hazardous or other regulated material), unless the existence of such
Hazardous Materials or the violation of Environmental Law arose prior to
the ownership or operation of Advantage by the Buyer.
(c) Definition of Losses. For purposes of this Article,
--------------------
"Losses" shall mean any and all liabilities, obligations, losses, damages,
claims, deficiencies, penalties, taxes, levies, actions, judgments,
settlements, suits, costs, legal fees, accountants' fees, disbursements or
expenses. Losses shall exclude any amount which any party actually
receives under any insurance policy which provides coverage for the
liability in question.
8.2 Third Party Claims, Notice and Opportunity to Settle.
----------------------------------------------------
(a) Within 30 days after the receipt by the party entitled to
indemnity hereunder (the "Indemnified Party") of any claim or demand
(including but not limited to,
36
notice of any action, suit or proceeding) by any third party (a "Third
Party Claim") against an Indemnified Party which gives rise to a right to
indemnification for a Loss hereunder (or, in the case of the receipt of any
notice of any examination, claim, adjustment or other proceeding with
respect to Taxes for any period for which Shareholder is liable under
Section 8.1(a)(iii) or for which Buyer is liable under Section 8.1(b)(iii)
------------------- -------------------
("Tax Proceeding"), promptly after the receipt of such notice), the
Indemnified Party shall give each party who may be obligated to provide
indemnity hereunder (the "Indemnifying Party") written notice of such claim
or demand; provided, however, that the failure to give such notice shall
not relieve the Indemnifying Party of its obligations hereunder except to
the extent that such failure is materially prejudicial to the Indemnifying
Party.
(b) The Indemnifying Party shall have the right (without
prejudice to the right of any Indemnified Party to participate at its own
expense through counsel of its own choosing), to defend against such claim
or demand (for purposes of this Section, any Tax proceeding shall be
considered a "claim or demand") at its expense and through counsel of its
own choosing (the choice of such counsel to be subject to the reasonable
consent of the affected Indemnified Parties) and to control such defense if
it gives written notice of its intention to do so within 15 days of the
receipt of the notice referred to in Section 8.2(a). If the Indemnifying
--------------
Party shall decline to assume the defense of such claim or demand, the
affected Indemnified Parties shall have the right to assume control of such
defense at the expense of the Indemnifying Party. The Indemnified Parties
shall cooperate fully in the defense of such claim or demand and shall make
available to the Indemnifying Party or its counsel all pertinent
information under their control relating thereto. The Indemnifying Party
agrees to cooperate with the Indemnified Parties in order to enable their
counsel to participate in the defense and to deliver to the Indemnified
Parties copies of all pleadings and other information within the
Indemnifying Party's knowledge or possession reasonably requested by the
Indemnified Parties that is relevant to the defense of any such claim or
demand. The Indemnified Parties and their counsel shall maintain
confidentiality with respect to all such information consistent with the
conduct of a defense hereunder.
(c) The Indemnifying Party shall have the right to elect to
settle (i) any such claim or demand, other than a Tax Proceeding, for
monetary damages only and including an unconditional release, or (ii) any
Tax Proceeding, subject to the consent of the affected Indemnified Party,
provided, however, with respect to any Permissible Settlement (as defined
herein), if the affected Indemnified Parties fail to give such consent
within 20 days of being requested to do so, the affected Indemnified
Parties shall, at their expense, assume the defense of such claim or demand
and regardless of the outcome of such matter, the Indemnifying Party's
liability hereunder shall be limited to the amount of any such proposed
settlement. As used herein the term "Permissible Settlement" shall mean a
settlement as to which there is no reasonable likelihood that it will
result in the imposition on such affected Indemnified Parties of Taxes for
a taxable period for which the Indemnifying Party is not obligated
hereunder to indemnify such affected Indemnified Parties.
37
(d) In the event the Indemnifying Party assumes the defense of a
claim or demand, the Indemnified Parties shall have the right to assume
control of the defense of any claim or demand from the Indemnifying Party
at any time and to elect to settle such claim or demand; provided, however,
the Indemnifying Party shall have no indemnification obligations with
respect to such claim, demand or settlement except for the costs and
expenses of such Indemnifying Party incurred prior to the assumption of the
defense of the claim or demand by the Indemnified Parties.
8.3 Right to Offset. Buyer shall have the right to offset all or
---------------
any part of its Losses under this Agreement against the Holdback by notifying
the Shareholder and escrow agent in writing that Buyer is reducing the amount
owed to the Shareholder; provided, however, that the Shareholder shall have
thirty (30) days following receipt of such notification to rectify the cause of
any such loss to Buyer before Buyer shall be entitled to exercise its right of
offset or recoupment hereunder. If the cause of such loss is not rectified in
such thirty (30) day period and no objection to such claim shall have been sent
by the Shareholder to the Buyer and Escrow Agent within such period, the
Shareholder shall be deemed to have acknowledged the correctness of such claim
for the full amount thereof, and the Escrow Agent shall thereupon transfer to
the Buyer an aggregate amount equal to such claim. Buyer shall offset its
Losses against the Holdback until the Holdback is exhausted, at which time the
Shareholder shall be personally liable as provided in this Agreement for any
remaining and future Losses, whether undisputed or established in accordance
with Article IX hereof. Notwithstanding the foregoing, the existence of the
Holdback and any offsets thereunder shall not relieve the Shareholder from
liability or limit their liability to Buyer for any breaches hereunder.
8.4 Non-Third Party Claims. In the event any Indemnified Party
----------------------
should have a claim against any Indemnifying Party hereunder which does not
involve a Third Party Claim, the Indemnified Party shall transmit to the
Indemnifying Party a written notice (the "Indemnity Notice") describing in
reasonable detail the nature of the claim, an estimate of the amount of damages
attributable to such claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. If the Indemnifying Party does not notify
the Indemnified Party within 30 days from the Indemnifying Party's receipt of
the Indemnity Notice that the Indemnifying Party disputes such claim, the claim
specified by the Indemnified Party in the Indemnity Notice shall be deemed a
liability of the Indemnifying Party hereunder; provided, however, that, if Buyer
asserts a claim that is not a Third Party Claim and the Indemnifying Party does
not dispute such claim in a timely manner in accordance with this Section 8.4,
Buyer shall have offset and recoup its Losses as provided in Section 8.3.
-----------
8.5 Payments. Any timely, disputed non-Third Party Claim shall be
--------
submitted to arbitration in accordance with the provisions of Article IX hereof.
Payments of all amounts owing by an Indemnifying Party pursuant to this Article
relating to a Third Party Claim shall be made within 30 days after the latest of
(a) the settlement of such Third Party Claim, (b) the expiration of the period
for appeal of a final adjudication of such Third Party Claim or (c) the
expiration of the period for appeal of a final adjudication of the Indemnifying
Party's liability to the Indemnified Party under this Agreement. Subject to
Section 8.3, payments of all amounts owing by an Indemnifying Party pursuant to
-----------
Section 8.4 shall be made within 30 days
-----------
38
after the later of (i) the expiration of the 30-day Indemnity Notice period or
(ii) the expiration of the period for appeal of a final adjudication of the
Indemnifying Party's liability to the Indemnified Party under this Agreement.
ARTICLE IX
DISPUTE RESOLUTION
All controversies, claims and disputes arising under this Agreement or
the construction, interpretation, breach, termination, enforceability or
validity thereof, shall be resolved by submission to binding arbitration at the
Broward County or Dade County, Florida office of the American Arbitration
Association ("AAA") in accordance with its rules and procedures regarding
commercial disputes, except to the extent such rules or procedures vary from the
following provisions:
9.1 Notice. The party desiring to initiate arbitration can do so
------
by sending written notice of an intention to arbitrate by registered or
certified mail to the other parties and to AAA. The notice must contain a
description of the dispute, the amount of money involved, and the remedies
sought.
9.2 Arbitrator. The parties shall attempt to agree on a retired
----------
judge from the AAA panel to act as the arbitrator hereunder. If the parties are
unable to agree, AAA shall provide a list of three available judges to each
party and each party may strike one. If the parties strike the same individual,
then AAA shall be entitled to select the final arbitrator. If they strike
different individuals, the remaining judge shall serve as the arbitrator. The
parties agree the arbitration must be initiated within one year after the
claimed breach occurred and that the failure to initiate arbitration within the
one year period constitutes an absolute bar to the institution of any
arbitration or any judicial proceeding on any dispute set forth in the notice of
intent to arbitrate. It is agreed that by all parties that any legal
proceedings under this agreement shall remain sealed and not open to the public.
9.3 Pre-Hearing Conference. Once an arbitrator is assigned to hear
----------------------
the matter, the arbitrator shall schedule a pre-hearing conference to reach
agreement on procedural matters, arrange for the exchange of information, obtain
stipulations, and attempt to narrow the issues.
9.4 Discovery. It is the parties' objective to expedite the
---------
arbitration proceedings by placing the following limitations on discovery: (a)
on a date to be determined at the pre-hearing conference, each party may serve
one demand for production of documents and one set of twenty interrogatories
(without subparts) upon the other parties (the response to the document demand,
the documents to be produced, and the responses to the interrogatories shall be
exchanged thirty days later); (b) each party may depose two witnesses. Each
deposition must be concluded within eight hours and all depositions must be
taken within sixty days of the pre-hearing conference. Any party deposing an
opponent's expert must pay the expert's fee for attending the deposition. All
discovery disputes shall be decided in the sole discretion of the arbitrator.
39
9.5 Briefs and Hearing. The parties must file briefs with the
------------------
arbitrator at least three days before the arbitration hearing, specifying the
facts each intends to prove and analyzing the applicable law. The parties have
the right to representation by legal counsel throughout the arbitration
proceedings. The presentation of evidence at the arbitration hearing shall be
governed by the Florida Evidence Code. Within reasonable limitations, both
sides at the hearing may call and examine witnesses for relevant testimony,
introduce relevant exhibits or other documents, cross-examine or impeach
witnesses who shall have testified orally on any matter relevant to the issues,
and otherwise rebut evidence, as long as these rights are exercised in an
efficient and expeditious manner in the sole discretion of the arbitrator. Oral
evidence given at the arbitration hearing shall be given under oath. Any party
desiring a stenographic record may secure a court reporter to attend the
arbitration proceedings. The party requesting the court reporter must notify
the other parties and the arbitrator of the arrangement in advance of the
hearing, and must pay for the cost incurred.
9.6 Decision. The arbitrator's decision shall be based on the
--------
evidence introduced at the hearing, including all logical and reasonable
inferences therefrom. The arbitrator may grant any remedy or relief which is
just and equitable. The award must be made in writing and signed by the
arbitrator. It shall contain a concise statement of the reasons in support of
the decision. The award must be mailed promptly to the parties, but no later
than thirty days from the closing of the hearing. The award can be judicially
enforced (confirmed, corrected or vacated) pursuant to applicable Florida
statutes. The award is final and binding and there is no direct appeal from the
award on the grounds of error in the application of the law.
9.7 Costs. Each party to the arbitration must pay its own witness
-----
fees. Each party must pay its pro-rata share of the arbitrator's fees. The
arbitrator must award to the prevailing party attorneys' fees and costs actually
and reasonably incurred.
ARTICLE X
GENERAL PROVISIONS
10.1 Survival of Representations and Warranties. The representations
------------------------------------------
and warranties contained herein shall survive the Closing and will expire on the
third anniversary of the Closing Date (the "Survival Date"); unless prior to the
Survival Date, a claim specifying a breach of any of the representations or
warranties described above is submitted in writing to the indemnifying party and
identified as a claim for indemnification pursuant to this Agreement. From and
after the Survival Date, no party hereto nor any shareholder, director, officer,
employee, or affiliate of such party shall have any indemnity obligation
pursuant to Article VIII, except with respect to matters as to which notice has
been received in accordance with this Section 10.1.
10.2 Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed given upon facsimile transmission (with
written or facsimile confirmation of receipt), or delivery by a reputable
overnight commercial delivery service (delivery, postage or freight charges
prepaid), or on the fourth day following deposit in the United States mail (if
sent by registered or certified mail, return receipt requested, delivery,
40
postage or freight charges prepaid), addressed to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
If to Buyer: Safeguard Health Enterprises, Inc.
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to Advantage: Advantage Dental HealthPlans
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the
Shareholder: ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
10.3 Interpretation. The table of contents and headings contained in
--------------
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
10.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be an original and all of which together shall
be one and the same instrument.
10.5 Integration. This Agreement and the Exhibits, Schedules,
-----------
documents, instruments and other agreements among the parties hereto that are
referred to herein, constitute the entire agreement of the parties with respect
to the subject matter set forth herein or therein and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof or thereof.
10.6 Governing Law. This Agreement and the rights of the parties
-------------
hereunder shall be governed by and construed and enforced in accordance with the
internal laws, and not
41
the laws pertaining to choice or conflicts of laws, of the State of Florida, and
venue for any litigation concerning this Agreement shall be in Broward County,
Ft. Lauderdale, Florida.
10.7 Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed on behalf of each of the parties hereto.
10.8 Assignment. No party hereto shall assign or transfer or permit
----------
the assignment or transfer of this Agreement without the prior written consent
of the other parties, except that the Buyer may assign its rights and
obligations hereunder to any wholly-owned subsidiary, however if assigned,
Safeguard must guarantee all payments to Advantage and/or its Shareholder called
for in this Agreement.
10.9 Severability. If any paragraph, section, sentence, clause or
------------
phrase contained in this Agreement will become illegal, null or void or against
public policy, for any reason, or will be held by any court of competent
jurisdiction to be incapable of being construed or limited in a manner to make
it enforceable, or is otherwise held by such court to be illegal, null or void
or against public policy, the remaining paragraphs, sections, sentences, clauses
or phrases contained in this Agreement will not be affected thereby.
10.10 Fees. If any party to this Agreement shall bring any
----
arbitration or any other action, suit, counterclaim or appeal for any relief
against any other party, declaratory or otherwise, to enforce the terms hereof
or to declare rights hereunder (collectively, an "Action"), the prevailing party
shall be entitled to recover as part of any such Action its reasonable
attorneys' fees and costs, including any fees and costs incurred in bringing and
prosecuting such Action and/or enforcing any order, judgment, ruling or award
granted as part of such Action. "Prevailing party" within the meaning of this
section includes, without limitation, a party who agrees to dismiss an Action
upon the other party's payment of all or a portion of the sums allegedly due or
performance of the covenants allegedly breached, or who obtains substantially
the relief sought.
10.11 Transfer Taxes. The Shareholder shall bear all transfer,
--------------
sales, use, income or other taxes, if any, payable in connection with the
transfer of Stock contemplated by this Agreement or as a result of the
transactions contemplated hereby, and shall be responsible for the payment of
any individual taxes levied against him personally as a result of selling the
Shares to Buyer.
42
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
ADVANTAGE: BUYER:
ADVANTAGE DENTAL HEALTHPLANS, INC., a SAFEGUARD HEALTH ENTERPRISES,
Missouri corporation, ADVANTAGE DENTAL INC., a Delaware corporation
HEALTHPLANS, INC., a Florida
corporation, ADVANTAGE DENTAL
HEALTHPLANS, INC., a Delaware By: /s/ ▇▇▇▇ ▇. ▇▇▇
corporation, ADVANTAGE DENTAL PLANS, -----------------------------
INC., a Delaware corporation, ADH ▇▇▇▇ ▇. ▇▇▇
PLANS, INC., a Delaware corporation, Executive Vice President and
and ADH MARKETING, INC., a Florida Chief Operating Officer
corporation
By: /s/ ▇▇▇ ▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------- -----------------------------
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
President Chairman of the Board, President
and Chief Executive Officer
Shareholder:
/s/ ▇▇▇ ▇▇▇▇▇▇
---------------------------------------
▇▇▇ ▇▇▇▇▇▇
43
INDEX TO
SCHEDULES AND EXHIBITS
Schedule 2.2 Shareholder Interests in Advantage
Schedule 2.6 Certain Changes
Schedule 2.7 Financial Statements
Schedule 2.11 Employment and Similar Agreements
Schedule 2.12 Litigation
Schedule 2.13 Taxes
Schedule 2.14 ERISA Plans
Schedule 2.15 Contracts
Schedule 2.16 Customers and Sales
Schedule 2.18 Interests in Competitors
Schedule 2.20 Real Property
Schedule 2.21 Permits; Compliance with Laws
Schedule 2.22 Insurance Policies
Schedule 2.24 Banking Facilities
Schedule 2.29 Trademarks & Tradenames
Schedule 2.30 Transactions with Related Parties
Schedule 2.31 Compliance with Insurance Laws
Schedule 5.2(b)(i) Consents and Approvals of Advantage and the
Shareholder
Schedule 5.2(b)(ii) Consents and Approvals of Buyer
Schedule 8.1 Employment Claims
Exhibit A Spousal Consent
Exhibit B Non-Competition Agreement
Exhibit C Consulting Agreement
Stock Purchase Agreement
Advantage Health Plans
OA962970.147
FIRST AMENDMENT
TO
STOCK PURCHASE AGREEMENT
This FIRST AMENDMENT to that certain Stock Purchase Agreement (this
"Amendment") is entered into as of this 5th day of March, 1997, by and among
SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware corporation ("Buyer"); the
following Advantage Dental Health entities (collectively, "Advantage"):
ADVANTAGE DENTAL HEALTHPLANS, INC., a Missouri corporation, ADVANTAGE DENTAL
HEALTHPLANS, INC., a Florida corporation, ADVANTAGE DENTAL HEALTHPLANS, INC., a
Delaware corporation, ADVANTAGE DENTAL PLANS, INC., a Delaware corporation, ADH
PLANS, INC., a Delaware corporation, and ADH MARKETING, INC., a Florida
corporation; and ▇▇▇ ▇▇▇▇▇▇, the beneficial and record owner of all of the
outstanding capital stock of Advantage (the "Shareholder").
RECITALS
WHEREAS, the parties hereto are parties to that certain Stock Purchase
Agreement dated as of November 25, 1996 (the "Agreement"); defined terms used
herein and not otherwise defined shall have the meaning given such terms in the
Agreement; and
WHEREAS, the parties hereto desire to enter into this Amendment in
order to amend or clarify certain provisions of the Agreement as herein set
forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
AMENDMENT OF PROVISIONS
1.1 Section 1.3 of the Agreement is hereby amended and restated to
read as follows:
"1.3 Payment of Purchase Price. The Purchase Price shall be paid
-------------------------
by Buyer to Shareholder as follows:
(a) At the Closing, Buyer shall deliver to Shareholder a note
(the "Note") in the principal amount of Eight Million Five Hundred Thousand
Dollars ($8,500,000). The Note shall bear interest at a per annum rate
equal to the base rate in effect from time to time of Bank of America NT &
SA compounded monthly (the "Prime Rate") and shall be in the form attached
hereto as Exhibit A.
---------
(b) At the Closing, in consideration for Shareholder accepting
payment in the form of a Note from Buyer, Buyer shall pay to Shareholder
the sum of Fifty
Thousand Dollars ($50,000) by a wire transfer(s) of immediately available
funds in accordance with the written directions of the Shareholder.
(c) At the Closing, Buyer shall deliver to the Escrow Agent the
principal amount of Five Hundred Thousand Dollars ($500,000) (the
"Holdback") to be held in escrow in accordance with the terms of an Escrow
Agreement in form and substance acceptable to the parties. The Holdback,
plus accrued interest thereon, less any offsets, paid claims or reserves
for outstanding or disputed claims, relating to this Agreement or any other
agreements between the Buyer and the Shareholder, shall be paid to the
Shareholder on the first anniversary of the date hereof, sent by wire
transfer in accordance with the written directions of the Shareholder. The
Holdback, less offsets, paid claims or reserves for outstanding claims in
an amount to be agreed to by the parties, shall bear interest at a per
annum rate equal to the base rate in effect from time to time of Bank of
America NT & SA compounded monthly (the "Prime Rate"). Any claims against
the Holdback shall be made in accordance with Section 8.3 of this
Agreement. Notwithstanding the foregoing, the existence of the Holdback and
any offsets against the Holdback by Buyer will not relieve the Shareholder
from liability or limit his liability to Buyer for any breaches hereunder.
(d) Any increase in the Shareholder's equity between August 30,
1996, and the Closing Date, shall be added to the final Purchase Price on
the Closing Date, or as soon thereafter as that figure can be calculated,
and payment, if undisputed, will be paid within 15 business days of such
determination. Payment shall be made by wire transfer in accordance with
the written instructions of the Shareholder."
ARTICLE II
MISCELLANEOUS
2.1 Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given upon facsimile transmission (with written
or facsimile confirmation of receipt), or delivery by a reputable overnight
commercial delivery services (delivery, postage or freight charges prepaid), or
on the fourth day following deposit in the United States mail (if sent by
registered or certified mail, return receipt requested, delivery, postage or
freight charges prepaid), addressed to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
If to Buyer: Safeguard Health Enterprises, Inc.
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to Advantage: Advantage Dental HealthPlans
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Shareholder: ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
2.2 Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which shall be an original and all of which together shall
be one and the same instrument.
2.3 Integration. This Amendment, the Agreement and the Exhibits,
-----------
Schedules, documents, instruments and other agreements among the parties hereto
that are referred to herein, constitute the entire agreement of the parties with
respect to the subject matter set forth herein or therein and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof or thereof.
2.4 Governing Law. This Amendment shall be governed by and construed
-------------
and enforced in accordance with the internal laws, and not the laws pertaining
to choice or conflicts of laws, of the State of Florida, and venue for any
litigation concerning this Letter shall be in Broward County, Ft. Lauderdale,
Florida.
2.5 Amendment. The Agreement as amended hereby may not be further
---------
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
2.6 Non-Waiver of Rights. No failure or delay of any party in the
--------------------
exercise of any right given to such party hereunder shall constitute a waiver
thereof unless the time specified herein for exercise of such right has expired,
nor shall any single or partial exercise of any right preclude other or further
exercise thereof or of any other right.
2.7 Arbitration. Any controversy or claim arising out of or relating to
-----------
this Amendment or the breach thereof shall be settled by Arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and as set forth in Section IX of the Stock Purchase Agreement, the
terms of which are herein incorporated by reference.
2.9 Severability. If any paragraph, section, sentence, clause or phrase
------------
contained in this Amendment will become illegal, null or void or against public
policy, for any reason, or will be held by any court of competent jurisdiction
to be incapable of being construed or limited in a manner to make it
enforceable, or is otherwise held by such court to be illegal, null or void or
against public policy, the remaining paragraphs, sections, sentences, clauses or
phrases contained in this Amendment will not be affected thereby.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment as of the date first written above.
ADVANTAGE: BUYER:
ADVANTAGE DENTAL HEALTHPLANS, INC., a SAFEGUARD HEALTH ENTERPRISES,
Missouri corporation, ADVANTAGE DENTAL INC., a Delaware corporation
HEALTHPLANS, INC., a Florida
corporation, ADVANTAGE DENTAL By: /s/ ▇▇▇▇ ▇. ▇▇▇
HEALTHPLANS, INC., a Delaware --------------------------------
corporation, ADVANTAGE DENTAL PLANS, ▇▇▇▇ ▇. ▇▇▇
INC., a Delaware corporation, ADH Executive Vice President and
PLANS, INC., a Delaware corporation, Chief Operating Officer
and ADH MARKETING, INC., a Florida
corporation
By: /s/ ▇▇▇ ▇▇▇▇▇▇
--------------------------------
▇▇▇ ▇▇▇▇▇▇
President
Shareholder:
/s/ ▇▇▇ ▇▇▇▇▇▇
--------------------------------
▇▇▇ ▇▇▇▇▇▇
EXHIBIT A
FORM OF
NOTE
PROMISSORY NOTE
$8,500,000
____________________, 1997
FOR VALUE RECEIVED, SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware
corporation (the "Maker"), hereby promises to pay to the order of ▇▇▇ ▇▇▇▇▇▇, an
individual (the "Payee"), at the office of the Payee at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇, or at such other place as the Payee may from time to
time designate, in lawful money of the United States, the principal sum of Eight
Million Five Hundred Thousand Dollars ($8,500,000) together with interest on the
unpaid principal balance thereof. Principal and interest on the unpaid
principal balance of this Note shall be payable as set forth in Section 1
hereof.
This Note is issued pursuant to, and entitled to benefits under the Stock
Purchase Agreement (the "Agreement") dated as of November 25, 1996, as amended
from time to time, by and among Maker, Payee and the following Advantage Dental
Health entities (collectively, "Advantage"): ADVANTAGE DENTAL HEALTHPLANS,
INC., a Missouri corporation, ADVANTAGE DENTAL HEALTHPLANS, INC., a Florida
corporation, ADVANTAGE DENTAL HEALTHPLANS, INC., a Delaware corporation,
ADVANTAGE DENTAL PLANS, INC., a Delaware corporation, ADH PLANS, INC., a
Delaware corporation, and ADH MARKETING, INC., a Florida corporation, to which
reference is hereby made for a more complete statement of the terms and
conditions under which the loan evidenced hereby is made and is to be repaid.
All terms used but not otherwise defined herein shall have the meaning set forth
in the Agreement.
1. Principal and Interest Payment. During the term of this Note, Maker
------------------------------
shall pay interest only on the principal on the last day of every month,
commencing on the last day of the month following the Closing (each, an
"Interest Payment Date"). Principal shall be due and payable in full on January
2, 1998 by a wire transfer(s) of immediately available funds in accordance with
the written directions of the Payee. If for any reason, Safeguard is unable to
deliver the full amount due under this Note in cash, it may substitute shares of
Safeguard common stock having a cash value equal to the shortfall based on the
closing trading price of such stock on such date.
2. Interest Rate. This Note shall bear interest at a per annum rate equal
-------------
to the base rate in effect from time to time of Bank of America NT & SA
compounded monthly (the "Prime Rate"). Notwithstanding any provisions or terms
of this Note to the contrary, the Interest Rate shall not exceed the maximum
permitted by law. In the event that and for as long as the Interest
Rate exceeds from time to time the maximum permitted by law, the Interest Rate
shall be the maximum permitted by law.
3. Payment on Nonbusiness Days. If any payment of principal or interest
---------------------------
on this Note shall become due on a Saturday, Sunday, or legal holiday under the
laws of the State of Florida, such payment shall be made on the next succeeding
business day.
4. Governing Law. This Amendment shall be governed by and construed and
-------------
enforced in accordance with the internal laws, and not the laws pertaining to
choice or conflicts of laws, of the State of Florida, and venue for any
litigation concerning this Letter shall be in Broward County, Ft. Lauderdale,
Florida.
5. Amendment. The terms of this Note are subject to amendment or waiver
---------
only by a writing signed by both of the parties hereto.
6. Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given upon facsimile transmission (with written or
facsimile confirmation of receipt), or delivery by a reputable overnight
commercial delivery service (delivery, postage or freight charges prepaid), or
on the fourth day following deposit in the United States mail (if sent by
registered or certified mail, return receipt requested, delivery, postage or
freight charges prepaid), addressed to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
If to Maker: Safeguard Health Enterprises, Inc.
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to Payee: ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
7. Successors. This Note shall be binding upon and inure to the benefit of
----------
the heirs, successors, and assigns of the parties.
2
8. Severability. Every provision of this Note is intended to be severable.
------------
In the event any term or portion hereof is declared to be illegal or invalid for
any reason whatsoever by a court of competent jurisdiction, such illegality or
invalidity shall not affect any other term or portion of this Note, which shall
remain binding and enforceable.
SAFEGUARD HEALTH ENTERPRISES, INC.
By:
---------------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
Title: Chairman of the Board, President
and Chief Executive Officer
3