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EXHIBIT 2(c)
AMENDMENT NO. 2 TO PURCHASE AGREEMENT
AMENDMENT AGREEMENT effective as of September 1, 1995 by and among
MT ASSOCIATES, a Pennsylvania general partnership (the "Partnership"), Xxxxxx X.
Xxxxxxx, D.D.S. ("Xxxxxxx"), Xxxxx X. Xxxxx, D.M.D. ("Talus"), and Valley Forge
Dental Associates, Inc., a Delaware corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Partnership, Xxxxxxx, Talus and the Purchaser entered
into an Agreement of Purchase and Sale (the "Original Purchase Agreement") dated
as of September 1, 1995, which provided, among other things, for the purchase by
the Purchaser of certain of the assets of the Partnership;
WHEREAS, the parties amended the Original Purchase Agreement by an
amendment dated as of October 1, 1996 (the "First amendment" and together with
the Original Purchase Agreement, the "Purchase Agreement"; and
WHEREAS, the parties hereto desire to further amend the Purchase
Agreement to accurately reflect the original intention of the parties, as
hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties
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hereto, intending to be legally bound, hereby agree as follows:
1. Defined Terms. All capitalized terms used but not otherwise
defined herein shall have the respective meanings ascribed thereto in the
Purchase Agreement.
2. Amendments to Purchase Agreement.
(a) Section I(D) and Section I(E) of the Purchase Agreement are
hereby amended by deleting Section I(D) and Section I(E) in their entirety and
substituting therefor the following new Section I(D) and Section I(E):
"D. Contingent Payments. Each of the Partnership, Xxxxxxx,
Talus and the Purchaser acknowledges and agrees that because many of the
locations of the Business have short operating histories, the full value
of the Shares and the Virginia Business on the date of the Closing is
difficult to ascertain with any degree of certainty on the date of
Closing. Accordingly, the parties to this Agreement agree that it is
appropriate to provide for the Contingent Payments set forth in this
Section I(D) to reflect more accurately the full value of the Shares and
the Virginia Business on the date of Closing. Subject to the conditions
set forth herein and in Schedule III hereto, within ninety (90) days after
September 30, 1996, September 30, 1997 and September 30, 1998, the
Purchaser shall deliver to the Partnership, the Contingent Payments, if
any, payable with respect to the twelve-month periods ending September 30,
1996, September 30, 1997 and September 30, 1998, respectively. The amount
of the Contingent Payments payable to the Partnership with respect to
twelve-month period ending September 30, 1996 (the "1996 Contingent
Period") (i) shall be based upon the achievement by the Business of
targeted "net revenues" (as hereinafter defined) during such Contingent
Period and the achievement by the Business of targeted "pre-tax earnings"
(as hereinafter defined) as a percentage of net revenues of the Business
during such Contingent Period and (ii) shall be determined in accordance
with the provisions hereof, Schedule III hereto and the terms of the
contingent payment matrix
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set forth in Schedule IV hereto (the "1996 Contingent Payment Matrix").
The amount of the Contingent Payments payable to the Partnership with
respect to each of the twelve-month periods ending September 30, 1997 (the
"1997 Contingent Period") and September 30, 1998 (the "1998 Contingent
Period", and together with the 1997 Contingent Period and the 1996
Contingent Period, the "Contingent Periods") (i) shall be based upon the
achievement by the Business of targeted "net revenues" during such
Contingent Period and the achievement by the Business of targeted "pre-tax
earnings" as a percentage of net revenues of the Business during such
Contingent Period and (ii) shall be determined in accordance with the
provisions hereof and Schedule III hereto. Each of the Contingent
Payments, if earned, shall be made by delivery to the Partnership of (i)
certified or official bank checks payable to the order of the Partnership
or by means of a wire transfer in immediately available funds to an
account designated by the Partnership and (ii) three-year convertible
subordinated promissory notes of the Purchaser in the form of Exhibit A-3
hereto (the "Contingent Notes"; and together with the Closing Notes, the
"Notes"), in each case, in such amounts of cash and such principal amounts
as are determined in accordance with Schedule III hereto and Schedule IV
hereto, as applicable. The Purchaser agrees to pay the Partnership
interest at the rate of eleven percent (11%) per annum on any undisputed
cash Contingent Payments which are not paid within ninety (90) days of
September 30, 1996, September 30, 1997 and September 30, 1998, as the case
may be. Such interest shall accrue from the date which is ninety (90) days
after the applicable September 30 until the date payment is received.
E. Computation of Net Revenues and Pre-Tax Earnings; Certain
Adjustments. The Purchaser shall, within ninety (90) days after the end of
each of the Contingent Periods, compute the amount of the net revenues and
pre-tax earnings of the Business for such Contingent Period. For purposes
of calculating net revenues and pre-tax earnings, the Business shall be
accounted for as a separate business enterprise with separate financial
books and accounting records, notwithstanding that the Business is owned
or operated by one or more legal entities. The amount so computed shall be
the net revenues and pre-tax earnings for purposes of determining whether
or not Contingent Payments for a Contingent Period shall be due and
payable. Notwithstanding the determination of net
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revenues and pre-tax earnings for any applicable period by the Purchaser,
the Partnership shall receive within each such ninety (90) day period the
information upon which such determination was made, and shall, in the
event of a dispute as to the amount or method of calculation of such net
revenues and pre-tax earnings have the right, together with its
representatives, to review and make appropriate copies of all applicable
books, records and work papers relating to the determination of net
revenues and pre-tax earnings. For purposes of this Agreement, (i) "net
revenues" of the Business shall mean gross charges billed for all services
provided by the Business (or, in the event that all or substantially all
of the assets and business of the Business shall have been transferred to
another entity or entities, the allocable portion of the gross charges of
such other entity or entities attributable to the Business) during a
Contingent Period less any necessary adjustments to reflect patient
refunds and amounts which are determined to be uncollectible at the time
of billing (contractual allowances) or in the future (billing errors) as
determined in accordance with generally accepted accounting principles
consistent with the Purchaser's accounting practices; and (ii) "pre-tax
earnings" shall mean the earnings before income taxes of the Business (or,
in the event that all or substantially all the assets and business of the
Business shall have been transferred to another entity or entities, the
allocable portion of the pre-tax earnings of such other entity or
entities) for a Contingent Period as determined in accordance with
generally accepted accounting principles consistent with the Purchaser's
accounting practices; provided, however, that all revenues and earnings of
the Business received from the Medicare or Medicaid programs or from the
Office of Civilian Health and Medical Program of the Uniformed Services
("CHAMPUS") programs shall be excluded from "net revenues" and "pre-tax
earnings" for the purposes of this Agreement. The Purchaser agrees that
the Purchaser will provide the Business with working capital at a level
and take such other actions which, in the Purchaser's reasonable judgment,
will permit the Business to maximize its net revenues and pre-tax
earnings, subject at all times to the Purchaser's obligations to its
shareholders and any applicable statutory or regulatory requirements.
Operating expenses will include all charges directly related to the daily
operations of the Business and will include the following:
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- Clinical salaries and benefits.
- Administrative salaries and benefits.
- Amounts paid to independent contractors.
- Expenses for office supplies consumed.
- Telephone expenses.
- Depreciation costs related to specific assets used in
connection with the operation of the Business.
- Insurance costs directly related to the worker's
compensation, professional and general liability or
property insurance associated with the Business.
- Testing supplies consumed by the Business.
- Travel and entertainment expenses incurred, except for
those expenses required to attend any of the Purchaser's
corporate or regional meetings.
- Expenses for the lease or rental of any equipment used
in the office or directly by employees or independent
contractors.
- Rents and other charges for facilities used in the
operation of the Business.
- Charges incurred for the processing of payroll.
- Advertising expenses in local newspapers and
publications.
- Amounts related to the write-off or reserving of bad
debts.
- Expenses related to the collection of bad debts and the
income therefrom.
- Expenses relating to clinical supervision.
- Talus's salary and bonus up to $85,000.
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- All principal and interest payments on the Talus Note.
For purposes of calculating pre-tax earnings, operating expenses will not
include the following charges:
- Corporate overhead allocations.
- Acquisition-related interest expense.
- Legal and accounting fees.
- Amortization of goodwill or other intangibles arising in
connection with the transactions contemplated by this
Agreement.
- Mehlman's salary, bonus and expenses.
- Talus's expenses and his salary and bonus in excess of
the aggregate of $85,000.
- Management fees.
- Any expenses incurred in connection with the operations
of the Start-Up Business (as hereinafter defined).
- All principal and interest payments on the Xxxxxxx Note.
For purposes of determining the net revenues and pre-tax earnings of
the Business for any Contingent Period pursuant to this Section I(E), the
Business shall not include any net revenues, pre-tax earnings or expenses
in connection with the operation of the two (2) facilities in Sterling and
Fredricksburg, Virginia and the one (1) facility in Xxxxxxxx, Maryland by
Mid Atlantic MSO, LLC (collectively, the "Start-Up Business")."
(b) The Purchase Agreement is hereby further amended by substituting
Schedule III and Schedule IV in their entirety and replacing them with a new
Schedule III and Schedule IV in the form of Schedule III and Schedule IV
attached to this Amendment Agreement.
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3. Miscellaneous.
(a) The parties hereto further agree that all notices, requests or
instructions under this Amendment Agreement or any other agreement made between
the parties hereto in connection with the Purchase Agreement shall be in writing
and delivered personally, sent by telecopy or sent by registered or certified
mail, postage prepaid, to the addresses set forth in Section XIV(A) of the
Purchase Agreement.
(b) Except as specifically amended herein, the Purchase Agreement
shall remain in full force and effect in accordance with its terms.
(c) The provisions of this Amendment Agreement are severable, and if
any clause or provision shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction and shall
not in any manner affect such clause or provision in this Amendment Agreement in
any jurisdiction.
(d) This Amendment Agreement shall be binding upon the parties
hereto and their respective heirs, executors, administrators, successors and
assigns.
(e) This Amendment Agreement may be executed in counterparts, each
of which shall be deemed an original, but
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all of which taken together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed on the date first above written.
MT ASSOCIATES
By /s/ Xxxxxx X Xxxxxxx, D.D.S
----------------------------
General Partner
/s/ Xxxxxx X. Xxxxxxx, D.D.S
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Xxxxxx X. Xxxxxxx, D.D.S.
/s/ Xxxxx X. Xxxxx, D.M.D
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Xxxxx X. Xxxxx, D.M.D.
VALLEY FORGE DENTAL ASSOCIATES, INC.
By /s/ W. Xxxx Xxxxxxx
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W. Xxxx Xxxxxxx
Vice President
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"Schedule III
CONTINGENT PAYMENTS
(1) Contingent Period Ending September 30, 1996:
The Target 100% net revenues and pre-tax earnings percentages set
forth below for the 1996 Contingent Period correspond to the Target 100%
headings for net revenues and pre-tax earnings in the Contingent Matrix.
The Target 100% net revenues, pre-tax earnings percentages and
Contingent Payments for the 1996 Contingent Period is as follows:
Target 100% net revenues $3,365,000
Target 100% pre-tax earnings
(as a percentage of net 21.6%
revenues)
Target 100% Contingent Payments $ 300,000 and a Convertible
subordinated promissory note in
the principal amount of $500,000.
In order to calculate the Contingent Payments for the 1996
Contingent Period, the net revenues and pre-tax earnings of the Business shall
be computed in accordance with Section I(E) and a contingent payment multiplier
for such period which shall be determined by reference to the Contingent Matrix.
The percentages set forth in the headings of the Contingent Matrix are
benchmarks only. The aggregate amount of the cash and the principal amount of
the Contingent Notes which comprise the Contingent Payments payable to the
Partnership and Xxxxxxx shall be determined by multiplying the Target 100% cash
and the Target 100% aggregate principal amount of the Contingent Notes for the
1996 Contingent Period by the applicable contingent multiplier.
The maximum Contingent Payments for the 1996 Contingent Period shall
be 144% of the Target 100% Contingent Payments for the 1996 Contingent Period.
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(2) Contingent Period Ending September 30, 1997:
If during the 1997 Contingent Period the Business achieves net
revenues of $3,500,000 and pre-tax earning (as a percentage of net revenues) of
22.0% the Contingent Payments shall be:
$414,000 and a Convertible
subordinated promissory note in the
principal amount of $2,677,200.
(3) Contingent Period Ending September 30, 1998:
If during the 1998 Contingent Period the Business achieves net
revenues of $3,700,000 and pre-tax earnings (as a percentage of net revenues) of
22.5% the Contingent Payments shall be:
$660,000 and a Convertible
subordinated promissory note in the
principal amount of $1,980,000.
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Schedule IV
1996 CONTINGENT PERIOD CONTINGENT PAYMENT MATRIX
REVENUES
TARGE
T
10% 20% 40% 60% 80% 100% 120%
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P E 10% 0.01 0.02 0.04 0.06 0.08 0.10 0.12
R A ---------------------------------------------------------------
E R 20% 0.02 0.04 0.08 0.12 0.16 0.20 0.24
T N ---------------------------------------------------------------
A I 40% 0.04 0.08 0.16 0.24 0.32 0.40 0.48
X N ---------------------------------------------------------------
G 60% 0.06 0.12 0.24 0.36 0.48 0.60 0.72
S ---------------------------------------------------------------
80% 0.08 0.16 0.32 0.48 0.64 0.80 0.96
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TARGET 0.10 0.20 0.40 0.60 0.80 1.00 1.20
100%
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120% 0.12 0.24 0.48 0.72 0.96 1.20 1.44
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Contingent Payments will be pro-rated for net revenues
and pre-tax earnings that are between matrix
benchmarks."
