AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG
AMERICAN DENTAL PARTNERS, INC.,
AMERICAN DENTAL PARTNERS WISCONSIN, INC.,
SMILEAGE DENTAL CARE, INC.
AND
THE SHAREHOLDERS OF SMILEAGE DENTAL CARE, INC.
DECEMBER 23, 1996
TABLE OF CONTENTS
PAGE
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION............................. 1
BACKGROUND INFORMATION...................................................... 1
ARTICLE I THE MERGER............................... 1
(S)1.1 The Merger..................................................... 1
(S)1.2 Closing; Effective Time........................................ 2
(S)1.3 Effects of the Merger.......................................... 2
(S)1.4 Certificate of Incorporation and Bylaws........................ 2
(S)1.5 Directors and Officers......................................... 2
(S)1.6 Tax Effect of the Merger....................................... 2
ARTICLE II CAPITAL STOCK............................. 2
(S)2.1 Capital Stock.................................................. 2
(a) Outstanding American Shares............................... 2
(b) Outstanding Smileage Shares............................... 3
(c) Smileage Treasury Shares.................................. 3
(S)2.2 Exchange of Certificates; Issuance of Shares................... 3
(a) Surrender of Smileage Share Certificates.................. 3
(b) Issuance of ADP Shares.................................... 3
(c) Distributions with Respect to Unexchanged Shares.......... 4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ADP........................ 4
(S)3.1 Organization and Standing...................................... 4
(S)3.2 Corporate Power and Authority.................................. 4
(S)3.3 Capitalization of ADP.......................................... 4
(a) ADP Shares................................................ 5
(b) Stock Ownership........................................... 5
(c) Due Authorization and Issuance............................ 5
(e) Compliance with Laws; No Liens............................ 5
(S)3.5 Litigation..................................................... 6
(S)3.6 Brokerage and Finder's Fees.................................... 6
(S)3.7 Subsidiaries................................................... 7
(S)3.8 Financial Statements........................................... 7
(S)3.9 Undisclosed Liabilities........................................ 7
(S)3.10 Absence of Certain Changes..................................... 8
(S)3.11 Complete Disclosure............................................ 8
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
SMILEAGE SHAREHOLDERS..................................... 8
(S)4.1 Organization and Standing...................................... 8
(S)4.2 Capitalization and Security Holders............................ 9
(a) Smileage Shares........................................... 9
(b) Stock Ownership........................................... 9
(c) Due Authorization and Issuance............................ 9
(d) No Other Commitment....................................... 9
(e) Compliance with Laws; No Liens............................ 9
(S)4.3 Subsidiaries................................................... 10
(S)4.4 Business of Smileage........................................... 10
(S)4.5 Corporate Power and Authority.................................. 10
(S)4.6 Consents and Approvals......................................... 10
(S)4.7 Financial Statements........................................... 10
(S)4.8 Undisclosed Liabilities........................................ 11
(S)4.9 Absence of Certain Changes..................................... 12
(S)4.10 Taxes.......................................................... 13
(S)4.11 Compliance with Law............................................ 14
(S)4.12 Proprietary Rights............................................. 16
(S)4.13 Restrictive Documents or Laws.................................. 17
(S)4.14 Insurance...................................................... 17
(S)4.15 Bank Accounts, Depositories; Powers of Attorney................ 18
(S)4.16 Title to and Condition of Properties........................... 18
(S)4.17 Brokers, Finders............................................... 19
(S)4.18 Legal Proceedings, etc......................................... 19
(S)4.19 ERISA.......................................................... 20
(S)4.20 Contracts...................................................... 22
(S)4.21 Accounts Receivable............................................ 23
(S)4.22 No Conflict or Default......................................... 24
(S)4.23 Books of Account; Records...................................... 24
(S)4.24 Officers, Employees and Compensation........................... 25
(S)4.25 Labor Relations................................................ 25
(S)4.26 Suppliers and Third Party Payors............................... 26
(S)4.27 Medicare and Medicaid.......................................... 26
(S)4.28 Investment Intent.............................................. 26
(S)4.29 Disciplinary Actions........................................... 27
(S)4.30 Complete Disclosure............................................ 28
ARTICLE V COVENANTS OF THE PARTIES......................... 28
(S)5.1 Mutual Covenants............................................... 28
(a) General................................................... 28
(b) Governmental Matters...................................... 28
(c) Securities Law Compliance................................. 28
(d) Subordination Agreement................................... 28
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(S)5.2 Covenants of Smileage and the Smileage Shareholders............ 28
(a) Delivery of Smileage Interim Statements................... 29
(b) Conduct of Business....................................... 29
(c) Exclusive Rights.......................................... 30
(d) Access to Records and Other Due Diligence................. 31
(e) Disclosures............................................... 31
(f) Employee Retention........................................ 31
(g) Affiliate Indebtedness.................................... 32
(h) Dividends and Distributions............................... 32
(i) Agreements with Shareholders.............................. 32
(j) Restructuring of WDG...................................... 32
(k) Notices of Certain Events................................. 32
(l) Representations and Warranties............................ 33
(m) Noncompetition............................................ 33
(n) Injunctive Relief......................................... 34
(S)5.3 Covenants of ADP............................................... 34
(a) Representations and Warranties............................ 34
(b) Delivery of Interim Statements............................ 34
ARTICLE VI CONDITIONS..................................... 34
(S)6.1 Mutual Conditions.............................................. 34
(a) Legal Prohibition......................................... 34
(b) Service Agreement......................................... 35
(c) Governmental Approvals.................................... 35
(d) Xxxxx Option.............................................. 35
(S)6.2 Conditions to Obligations of Smileage and the Smileage
Shareholders................................................. 35
(a) Representations and Warranties 35
(b) Performance of Agreement.................................. 35
(c) Certificate............................................... 35
(d) Opinion of Counsel........................................ 35
(e) Authority................................................. 35
(f) Restrictive Conditions.................................... 36
(g) Due Diligence............................................. 36
(h) Financial Statements...................................... 36
(i) Material Adverse Changes.................................. 36
(S)6.3 Conditions to Obligations of ADP and American.................. 36
(a) Representations and Warranties............................ 36
(b) Performance of Agreement.................................. 36
(c) Certificate............................................... 36
(d) Reorganization............................................ 36
(e) Restructure of WDG........................................ 36
(f) Authority................................................. 37
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(g) Professional Personnel.................................... 37
(h) Financial Statements...................................... 37
(i) Opinion of Counsel........................................ 37
(j) Existing Employment and Deferred Compensation Agreements.. 37
(k) Employment and Noncompetition Agreement with ADP.......... 37
(l) Employment and Noncompetition Agreements of WDG........... 37
(m) Third Party Consents...................................... 37
(n) Termination of Options.................................... 38
(o) Restrictive Conditions.................................... 38
(p) Defaults.................................................. 38
(q) Material Adverse Changes.................................. 38
(r) Books and Records......................................... 38
(s) Shareholders' Equity...................................... 38
(t) Capital Expenditures...................................... 39
(u) Agreement Between Smileage and GDP........................ 39
(v) Compliance with Laws...................................... 39
(w) Related Party Transactions................................ 39
(x) Contract with First Commonwealth.......................... 39
(y) Due Diligence............................................. 39
ARTICLE VII TERMINATION AND AMENDMENT....................... 40
(S)7.1 Termination.................................................... 40
(a) Termination by Smileage and the Smileage Shareholders..... 40
(b) Termination by ADP........................................ 40
(S)7.2 Amendment...................................................... 40
(S)7.3 Extension; Waiver.............................................. 41
ARTICLE VIII INDEMNIFICATION........................... 41
(S)8.1 Survival of Representations, Warranties and Agreements......... 41
(S)8.2 Indemnification................................................ 41
(S)8.3 Limitations on Indemnification................................. 42
(S)8.4 Procedure for Indemnification with Respect to Third Party
Claims........................................................ 44
(S)8.5 Procedure For Indemnification with Respect to Non-Third Party
Claims........................................................ 45
(S)8.6 Right of Setoff................................................ 45
ARTICLE IX MISCELLANEOUS............................. 46
(S)9.1 Attorney In Fact............................................... 46
(S)9.2 Notices........................................................ 46
(S)9.3 Non-Waiver..................................................... 47
(S)9.4 Genders and Numbers............................................ 47
(S)9.5 Headings....................................................... 48
(S)9.6 Counterparts................................................... 48
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(S)9.7 Entire Agreement............................................... 48
(S)9.8 No Third Party Beneficiaries................................... 48
(S)9.9 Governing Law.................................................. 48
(S)9.10 Binding Effect; Assignment..................................... 48
(S)9.11 Remedies....................................................... 48
(S)9.12 Expenses....................................................... 48
(S)9.13 Public Announcements........................................... 49
(S)9.14 Severability................................................... 49
INDEX OF ADP SCHEDULES...................................................... 51
INDEX OF SMILEAGE SCHEDULES................................................. 52
INDEX OF EXHIBITS........................................................... 53
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
-----------------------------------------------
This Agreement and Plan of Merger and Reorganization (this "Agreement") is
made effective December 23, 1996, among American Dental Partners, Inc., a
Delaware corporation ("ADP"), American Dental Partners Wisconsin, Inc., a
Wisconsin corporation which is a wholly-owned subsidiary of ADP ("American"),
Smileage Dental Care, Inc., a Wisconsin corporation ("Smileage"), and the
shareholders of Smileage, as identified on Exhibit A attached to this Agreement
(the "Smileage Shareholders").
BACKGROUND INFORMATION
----------------------
A. ADP desires to acquire Smileage through the merger of Smileage with
American (the "Merger"), pursuant to which all of the Smileage Shares (defined
in (S)4.2, below) outstanding at the Effective Time (defined in (S)1.2, below)
will be converted into the right to receive, in the aggregate, the following:
(i) cash in the amount of $546,250 (the "Cash Consideration"), subject to
adjustment under (S)6.3(s); (ii) subordinated promissory notes in the form
attached to this Agreement as Exhibit B in the aggregate original principal
amount of $247,500 (the "Notes"); and (iii) 50,700 shares of common stock, $.01
par value, of ADP ("ADP Shares"), subject to adjustment under (S)6.3(s).
Smileage will be the surviving entity resulting from the Merger and will be a
wholly-owned subsidiary of ADP.
B. The respective boards of directors of ADP, American, and Smileage have
determined that the Merger and the other transactions described in this
Agreement are desirable and in the best interests of their respective
shareholders and have duly approved and adopted this Agreement. The
shareholders of Smileage and American also have duly approved and adopted this
Agreement.
STATEMENT OF AGREEMENT
----------------------
The parties to this Agreement (the "Parties") hereby acknowledge the above
Background Information and agree as follows:
ARTICLE I
THE MERGER
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(S)1.1 The Merger. Upon the terms and subject to the conditions described
----------
in this Agreement, and in accordance with the provisions of Section 180.1101,
Wisconsin Statutes (the "Wisconsin Statute"), Smileage shall be merged with
American. The Merger shall be consummated by filing with the Secretary of State
of Wisconsin (the "Secretary of State") a Certificate of Merger substantially in
the form attached to this Agreement as Exhibit C (the "Certificate of Merger").
Following the Merger, the separate corporate existence of American shall cease
and Smileage shall continue as the surviving corporation and shall continue its
existence under the laws of the State of Wisconsin. Smileage, in
its capacity as the corporation surviving the Merger, is sometimes referred to
in this Agreement hereafter as the "Surviving Corporation."
(S)1.2 Closing; Effective Time. The closing of the transactions
-----------------------
contemplated by this Agreement (the "Closing") shall be held at the offices of
Xxxxxxx & Xxxxx, X.X., Xxxxx 000, 000 Xxxxx Xxxxxxxxxx Xxxx, Xxxxxxxxxx,
Xxxxxxxxx, 00000, commencing at 10:00 a.m. Eastern time on such date (the
"Closing Date") as may be reasonably designated by ADP; provided that the
Closing shall be held not later than 15 business days after satisfaction or
waiver of all conditions set forth in Article VI of this Agreement. Promptly
following the Closing, Smileage and American shall cause the Certificate of
Merger to be filed with the Secretary of State, and the Merger shall become
effective at the time specified in the Certificate of Merger (the "Effective
Time").
(S)1.3 Effects of the Merger. The Merger shall have the effects set forth
---------------------
in the Wisconsin Statute.
(S)1.4 Certificate of Incorporation and Bylaws. As provided in the
---------------------------------------
Certificate of Merger, the certificate of incorporation of American in effect
immediately prior to the Effective Time shall be amended by the filing of the
Certificate of Merger to adopt the name of Smileage Dental Care, Inc., and as so
amended shall be the certificate of incorporation of the Surviving Corporation
after the Merger. The bylaws of American in effect immediately prior to the
Effective Time shall be the bylaws of the Surviving Corporation after the
Merger.
(S)1.5 Directors and Officers. After the Effective Time, the directors
----------------------
and officers of American shall be the directors and officers of the Surviving
Corporation until their respective successors are duly elected and qualified.
(S)1.6 Tax Effect of the Merger. The Parties intend that the Merger
------------------------
constitute a "reorganization" within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code"), and
the regulations thereunder; provided that the Parties acknowledge and agree that
the receipt by the Smileage Shareholders of the Cash Consideration and Notes
will be a taxable event.
ARTICLE II
CAPITAL STOCK
-------------
(S)2.1 Capital Stock. At the Effective Time, by virtue of the Merger and
-------------
without any further action on the part of ADP, American, or the Smileage
Shareholders:
(a) Outstanding American Shares. Each common share, $.01 par
---------------------------
value, of American which is issued and outstanding
2
immediately prior to the Effective Time shall be unchanged and shall remain
issued and outstanding after the Effective Time, constituting one issued
and outstanding common share, $.01 par value, of the Surviving Corporation.
(b) Outstanding Smileage Shares. Each Smileage Share which is
---------------------------
issued and outstanding immediately prior to the Effective Time shall be
converted into the right to receive, subject to the provisions of (S)2.2,
below, (i) that number of ADP Shares which is equal to the result obtained
when the total number of ADP Shares to be issued as a result of the Merger
(as adjusted under (S)6.3(s), if applicable) is multiplied by a fraction
having one as its numerator and having as its denominator the total number
of Smileage Shares issued and outstanding immediately prior to the
Effective Time (the "Conversion Fraction"), (ii) a Note in a principal
amount equal to the result obtained when $247,500 is multiplied by the
Conversion Fraction, and (iii) cash in an amount equal to the result
obtained when the total Cash Consideration to be paid as a result of the
Merger (as adjusted under (S)6.3(s), if applicable) is multiplied by the
Conversion Fraction. For purposes of this Agreement, the 1,063 shares of
Smileage stock which are subject to the Xxxxx Option (as defined in
(S)4.2(a), below) shall be deemed to be stock of Smileage which is issued
and outstanding, and prior to the Closing Date, the Xxxxx Option shall be
exchanged for and converted into the Smileage Shares then subject to the
Xxxxx Option.
(c) Smileage Treasury Shares. All Smileage Shares, if any, which
------------------------
are held in the treasury of Smileage shall be cancelled and retired, and no
payment shall be made in respect of such Smileage Shares.
(S)2.2 Exchange of Certificates; Issuance of Shares.
--------------------------------------------
(a) Surrender of Smileage Share Certificates. After the Effective
----------------------------------------
Time, the certificates representing the Smileage Shares (the "Smileage
Share Certificates") shall represent for all purposes only the right to
receive ADP Shares, Notes, and Cash Consideration pursuant to the
provisions of (S)2.1, above, and this (S)2.2. Promptly after the Effective
Time, each Smileage Shareholder shall surrender to ADP the Smileage Share
Certificates evidencing all of the Smileage Shares owned by that Smileage
Shareholder immediately prior to the Effective Time.
(b) Issuance of ADP Shares. In consideration of the surrender of
----------------------
the Smileage Share Certificates evidencing the Smileage Shares owned by the
Smileage Shareholders pursuant to (S)2.2(a), above, ADP shall, after the
Effective Time and upon surrender by a Smileage Shareholder of such
Shareholder's Smileage Share Certificates, issue to that Smileage
3
Shareholder that number of ADP Shares, deliver to that Smileage Shareholder
a Note having the principal amount, and pay to that Smileage Shareholder
Cash Consideration in the amount to which that Smileage Shareholder is
entitled following the conversion described in (S)2.1(b), above. For
purposes of applying the provisions of this Article, the number of ADP
Shares issuable to each Smileage Shareholder shall be rounded to the
nearest 1/10, and the principal amount of Note and the amount of the Cash
Consideration payable to each Smileage Shareholder shall be rounded to the
nearest cent.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
------------------------------------------------
other distributions, if any, with respect to ADP Shares having a record
date after the Effective Time shall be paid or become payable to the holder
of any unsurrendered certificate for Smileage Shares until such holder
surrenders such certificate.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ADP
-------------------------------------
In order to induce Smileage and the Smileage Shareholders to enter into
this Agreement, ADP hereby represents and warrants to Smileage and the Smileage
Shareholders that the statements contained in this Article are true, correct and
complete, except as disclosed in the Schedules specifically referred to in this
Article and delivered by ADP to Smileage on or prior to the date of this
Agreement (collectively, the "ADP Schedules"):
(S)3.1 Organization and Standing. Each of American and ADP is a
-------------------------
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation with full corporate power and authority to own,
lease, use and operate its properties and to conduct its business as and where
now owned, leased, used, operated and conducted. Copies of ADP's Articles of
Incorporation and Bylaws which have been provided to Smileage and the Smileage
Shareholders are true and correct copies thereof as of the date of this
Agreement.
(S)3.2 Corporate Power and Authority. Each of American and ADP has all
-----------------------------
requisite corporate power and authority to enter into this Agreement and to
perform its obligations under this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action on the part of each of American and
ADP. This Agreement has been duly executed and delivered by each of American
and ADP and constitutes the legal, valid and binding obligation of each of
American and ADP, enforceable against American and ADP in accordance with its
terms.
(S)3.3 Capitalization of ADP.
---------------------
4
(a) ADP Shares. ADP's authorized capital stock consists solely of (i)
----------
1,000,000 shares of common stock, $.01 par value, of which __________ are issued
and outstanding; (ii) 400,000, $.01 par value, Series A Convertible Preferred
Shares, of which _____________ are issued and outstanding; and (iii) 70,000,
$.01 par value, Series B Redeemable Preferred Shares, of which ___________ are
issued and outstanding.
(b) Stock Ownership. ADP has made available to Smileage a correct and
---------------
complete list of the names of the ADP shareholders, and the number, class and
series of shares of ADP capital stock held beneficially and of record by, the
ADP shareholders, including the holders of any options or warrants for any
capital stock of ADP.
(c) Due Authorization and Issuance. Each outstanding share of capital
------------------------------
stock of ADP is, and all ADP Shares to be issued in connection with the Merger
will be, duly authorized, validly issued, fully paid and nonassessable, and have
not been and will not be issued in violation of any preemptive or similar
rights. American is a wholly-owned subsidiary of ADP.
(d) No Other Commitment. Except as set forth in Schedule 3.3 or as
-------------------
may be the subject of pending negotiations in connection with ADP's efforts to
acquire other dental clinics and related services (an "Acquisition") or as
otherwise contemplated by the Merger and the terms of this Agreement, there are
no outstanding subscriptions, options, warrants, puts, calls, agreements,
understandings, claims or other commitments or rights of any type relating to
the issuance, sale or transfer by either ADP or any of its shareholders who
either alone or a part of a group beneficially own 5% or more of the outstanding
voting stock of ADP, nor are there outstanding any securities which are
convertible into or exchangeable for any shares of capital stock of ADP and ADP
has no obligations of any kind to issue any additional securities of ADP, or any
predecessor.
(e) Compliance with Laws; No Liens. Each outstanding share of capital
------------------------------
stock of ADP has been, and all ADP Shares to be issued in connection with the
Merger will be, issued in full compliance with all applicable federal and state
securities laws and other laws. Except as set forth in Schedule 3.3, all such
ADP Shares are free and clear of all liens, security interests, encumbrances,
pledges, charges, claims, voting trusts, and restrictions on transfer of any
nature whatsoever, except restrictions on transfer imposed by or pursuant
federal and state securities laws. Except as set forth in Schedule 3.3 or in
connection with a pending or recently-completed Acquisition, ADP has not agreed
to register any securities under the Securities Act of 1933, as amended
5
(the "Securities Act"), and the rules and regulations thereunder or under
any state securities law.
(S)3.4 Conflicts; Consents and Approvals. Neither the execution and
---------------------------------
delivery of this Agreement by ADP nor the consummation of the transactions
contemplated in this Agreement will:
(a) Violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with the giving
of notice, the passage of time or otherwise, would constitute a default)
under, or entitle any third party (with the giving of notice, the passage
of time or otherwise) to terminate, accelerate or call a default under, or
result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of ADP under any of the
terms, conditions or provisions of the certificate of incorporation or
bylaws, each as amended to date, of ADP, or any note, bond, mortgage,
indenture, deed of trust, license, contract, undertaking, agreement, lease
or other instrument or obligation to which ADP is a party and which is
material to ADP and its subsidiaries, taken as a whole;
(b) Violate any order, writ, injunction, decree, statute, rule or
regulation, applicable to ADP or its properties or assets; or
(c) Require any action or consent or approval of, or review by, or
registration with any third party, court or governmental body or other
agency, instrumentality or authority, other than (i) such actions taken in
respect of federal and state securities laws as are contemplated by this
Agreement; and (ii) the filing of the Certificate of Merger with the
Secretary of State.
(S)3.5 Litigation. There is no suit, claim, action, proceeding or
----------
investigation pending or, to the best knowledge of ADP, threatened against ADP
which, individually or in the aggregate, is reasonably likely to have a material
adverse effect on ADP and its subsidiaries, taken as a whole, or a material
adverse effect on the ability of ADP to consummate the transactions contemplated
in this Agreement. ADP is not subject to any outstanding order, writ,
injunction or decree which, insofar as can be reasonably foreseen, individually
or in the aggregate, would have a material adverse effect on it or a material
adverse effect on the ability of ADP to consummate the transactions contemplated
by this Agreement.
(S)3.6 Brokerage and Finder's Fees. Neither ADP nor any of its
---------------------------
stockholders, directors, officers or employees has incurred, or will incur on
behalf of ADP, any brokerage, finder's or similar fee in connection with the
transactions contemplated by this Agreement.
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(S)3.7 Subsidiaries. Set forth on Schedule 3.7 is a current and complete
------------
list of all subsidiary corporations of ADP, and the number and class of shares
of capital stock of each such subsidiary, and the percentage of all capital
stock of that subsidiary which is represented by the shares owned by ADP.
Except as set forth in Schedule 3.7, ADP does not own, directly or indirectly,
any equity or other ownership interest in any corporation, partnership, joint
venture, or other entity or enterprise (hereinafter, simply "entity"). Except
in connection with a pending Acquisition, ADP is not subject to any obligation
or requirement to provide funds to or make any investment (in the form of a
loan, capital contribution or otherwise) in any entity not a subsidiary of ADP.
(S)3.8 Financial Statements.
---------------------
(a) ADP has furnished to Smileage and the Smileage Shareholders
the balance sheet for ADP for the nine months ended September 30, 1996, and
the related statement of income and retained earnings for the period then
ended, all of which have been internally prepared by ADP's management
(collectively, the "ADP Financial Statements"). The ADP Financial
Statements have been prepared from and in accordance with the books and
records of ADP on a consistent basis, shall be initialed for identification
by the chief executive officer of ADP, and fairly present the financial
condition of ADP as of the date stated and the results of operations of ADP
for the period then ended in accordance with such practices.
(b) When delivered in accordance with Section 5.3(b) of this
Agreement, the balance sheet of ADP as of October 31, 1996, and the related
statements of income and retained earnings for the period beginning on the
first day of ADP's current fiscal year through October 31, 1996
(collectively, the "ADP Interim Statements"), shall have been internally
prepared on a basis consistent with that used in the ADP Financial
Statements, and shall fairly present the financial condition of ADP as of
such date and the results of operations of ADP for such period then ended
in accordance with such practices.
(S)3.9 Undisclosed Liabilities. Except as disclosed in Schedule 3.9, ADP
-----------------------
does not have any liability or obligation of any nature (whether liquidated,
unliquidated, accrued, absolute, contingent or otherwise and whether due or to
become due) except:
(a) Those set forth in the ADP Financial Statements which have not
been paid or discharged since the date thereof; and
(b) Current liabilities (determined in accordance with generally
accepted accounting principles) incurred since the beginning of ADP's current
fiscal year in transactions in the
7
ordinary course of business consistent with past practices which are properly
reflected on its books, are or will be properly reflected in the ADP Interim
Statements, and are not inconsistent with the other representations, warranties
and agreements of ADP set forth in this Agreement.
(S)3.10 Absence of Certain Changes. Except as set forth in Schedule 3.10,
--------------------------
since the beginning of ADP's current fiscal year, there has not been any
material adverse change in the business, operations, assets, properties,
prospects, rights or condition (financial or otherwise) of ADP, or any
occurrence, circumstance, or combination thereof which reasonably could be
expected to result in any such material adverse change.
(S)3.11 Complete Disclosure. No representation or warranty by ADP in
-------------------
this Agreement or the ADP Schedules contains, or will contain as of the Closing,
any untrue statement of a material fact or omits, or will omit as of the
Closing, a material fact necessary to make the statements contained herein or
therein not misleading.
The representations and warranties contained in this Article shall expire
automatically on the third anniversary of the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF SMILEAGE SHAREHOLDERS
------------------------
In order to induce ADP to enter into this Agreement, the Smileage
Shareholders hereby jointly and severally (except for those specific
representations and warranties which are made severally as expressly set forth
herein) represent and warrant to ADP that the statements contained in this
Article are true, correct and complete, except as disclosed in the Schedules
specifically referred to in this Article and delivered by Smileage to ADP on or
prior to the date of this Agreement (collectively, the "Smileage Schedules").
(S)4.1 Organization and Standing. Smileage is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of its state of
incorporation with full corporate power and authority to own, lease, use and
operate its properties and to conduct its business as and where now owned,
leased, used, operated and conducted. Smileage is duly qualified to do business
and is in good standing in each jurisdiction listed in Schedule 4.1, is not
qualified to do business in any other jurisdiction, and neither the nature of
the business conducted by Smileage nor the properties it owns, leases or
operates requires it to qualify to do business as a foreign corporation in any
other jurisdiction. Smileage has not received any written notice or assertion
within the last three years from any governmental official in any jurisdiction
to the effect that it is required to be qualified or authorized to do
8
business in such jurisdiction, in which Smileage is not so qualified or has not
obtained such authorization. Smileage is not in default in the performance,
observation or fulfillment of any provision of its certificate or articles of
incorporation, bylaws, or other organizational documents, as applicable, each as
amended to date.
(S)4.2 Capitalization and Security Holders.
-----------------------------------
(a) Smileage Shares. The authorized capital stock of Smileage
---------------
(the "Smileage Shares") consists solely of 56,000 shares of common stock,
par value $.01 a share (the "Common Shares"), of which 34,350 are issued
and outstanding and 1,063 are subject to an option in favor of Xxx X. Xxxxx
(the "Xxxxx Option"). The Smileage Shareholders hold beneficially and of
record all of the outstanding Smileage Shares. All of the outstanding
Smileage Shares are entitled to vote with respect to the Merger.
(b) Stock Ownership. Schedule 4.2 sets forth a correct and
---------------
complete list of the name and address of, and the number of Smileage Shares
held beneficially and of record by, the Smileage Shareholders,
respectively.
(c) Due Authorization and Issuance. Each outstanding Smileage
------------------------------
Share has been duly authorized and validly issued and is fully paid and
non-assessable (except to the extent provided in Wisconsin Statutes
(S)180.0622(2)(b)) and has not been issued in violation of any preemptive
or similar rights.
(d) No Other Commitment. Except as set forth in Schedule 4.2,
-------------------
there are no outstanding subscriptions, options, warrants, puts, calls,
agreements, understandings, claims or other commitments or rights of any
type relating to the issuance, sale or transfer by either Smileage or the
Smileage Shareholders of any Smileage Shares, nor are there outstanding any
securities which are convertible into or exchangeable for any shares of
capital stock of Smileage and Smileage has no obligation of any kind to
issue any additional securities of Smileage, or any predecessor.
(e) Compliance with Laws; No Liens. The issuance and sale of all
------------------------------
of the Smileage Shares have been in full compliance with all applicable
federal and state securities laws and other laws. Except as set forth in
Schedule 4.2, each Smileage Shareholder severally represents and warrants
that the Smileage Shares owned by such Smileage Shareholder are free and
clear of all liens, security interests, encumbrances, pledges, charges,
claims, voting trusts and restrictions on transfer of any nature
whatsoever, except restrictions on transfer imposed by or pursuant to
federal and state securities laws. Except as set forth in Schedule 4.2,
9
Smileage has not agreed to register any securities under the Securities
Act, and the rules and regulations thereunder or under any state securities
law.
(S)4.3 Subsidiaries. Set forth on Schedule 4.3 is a correct and complete
------------
list of all subsidiary corporations of Smileage, the number and class of shares
of capital stock of each such subsidiary, and the percentage of all capital
stock of that subsidiary which is represented by the shares owned by Smileage.
Except as set forth on Schedule 4.3, Smileage does not own, directly or
indirectly, any equity or other ownership interest in any entity. Smileage is
not subject to any obligation or requirement to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
entity.
(S)4.4 Business of Smileage. Smileage is and has been engaged in the
--------------------
business of providing dental services to its patients and is engaged in no other
business whatsoever except as may be incidental to the foregoing and except as
to providing administrative services to Georgia Dental Plan, Inc. and to [First
Commonwealth/SDS].
(S)4.5 Corporate Power and Authority. Smileage has all requisite
-----------------------------
corporate power and authority to enter into and perform this Agreement and to
carry out its obligations under this Agreement. This Agreement and the
transactions contemplated by this Agreement have been duly and validly
authorized by the board of directors and the shareholders of Smileage. This
Agreement has been duly executed and delivered by Smileage and constitutes the
legal, valid and binding obligation of Smileage enforceable against Smileage in
accordance with its terms. No other corporate action or proceeding by or in
respect of Smileage is or was necessary to authorize this Agreement or the
consummation of the transactions contemplated by this Agreement.
(S)4.6 Consents and Approvals. Except for the consents described in
----------------------
Schedule 4.6, all of which shall be obtained prior to the Closing (unless
otherwise expressly agreed by ADP in writing), neither the execution and
delivery of this Agreement by Smileage or the Smileage Shareholders nor the
consummation of the transactions contemplated by this Agreement require or will
require any action, consent, or approval of, or review by, or registration with,
any third party, court or governmental body or other agency, instrumentality or
authority, other than the filing of the Certificate of Merger with the Secretary
of State.
(S)4.7 Financial Statements.
--------------------
(a) Smileage shall furnish to ADP the following (collectively, the
"Smileage Financial Statements"): (i) the balance sheets for Smileage as
at December 31, 1995, and the related statements of income and retained
earnings and cash flows for the fiscal year then ended, including, in each
case,
10
the related notes, all of which shall be prepared, examined and accompanied
by the unqualified audit report of BDO Xxxxxxx, LLP ("BDO Xxxxxxx"); and
(ii) the consolidated balance sheets for Smileage Dental Services, Inc.
(with which SDC was then consolidated) as at December 31, 1994, and
December 31, 1993, and the related statements of income and retained
earnings and cash flows for the fiscal years then ended, including, in each
case, the related notes, all of which have been prepared, examined and
accompanied by the unqualified audit report of BDO Xxxxxxx. The Smileage
Financial Statements as at and for the fiscal year ended December 31, 1995,
are sometimes hereinafter referred to separately as the "1995 Smileage
Financial Statements". The Smileage Financial Statements shall be prepared
from and be in accordance with the books and records of Smileage and in
conformity with generally accepted accounting principles applied on a
consistent basis, shall be initialed for identification by the chief
executive officer of Smileage, and shall fairly present the financial
condition of Smileage as of the dates stated and the results of operations
of Smileage for the periods then ended in accordance with such practices.
(b) When delivered in accordance with Section 5.2(a) of this
Agreement, the balance sheet of Smileage as of the most recent month-end
prior to the Closing Date, and the related statements of income and
retained earnings and cash flows for the period beginning on the first day
of Smileage's current fiscal year through the most recent month-end prior
to the Closing (collectively, the "Smileage Interim Statements"), shall
have been prepared in conformity with generally accepted accounting
principles applied on a basis consistent with that used in the Smileage
Financial Statements, and shall fairly present the financial condition of
Smileage as of such date and the results of operations of Smileage for such
period then ended in accordance with such practices.
(S)4.8 Undisclosed Liabilities. Except as disclosed in Schedule 4.8,
-----------------------
Smileage does not have any liability or obligation of any nature (whether
liquidated, unliquidated, accrued, absolute, contingent or otherwise and whether
due or to become due) except:
(a) Those set forth in the 1995 Smileage Financial Statements which
have not been paid or discharged since the date thereof;
(b) Those arising from and after the date of this Agreement under
agreements or other commitments specifically identified in Schedule 4.20;
and
(c) Current liabilities (determined in accordance with generally
accepted accounting principles) incurred since January 1, 1996, in
transactions in the ordinary course of
11
business consistent with past practices which are properly reflected on its
books, are or will be properly reflected in the Smileage Interim
Statements, and are not inconsistent with the other representations,
warranties and agreements of the Smileage Shareholders set forth in this
Agreement.
(S)4.9 Absence of Certain Changes. Except as set forth in Schedule 4.9 or
--------------------------
reflected in the Smileage Interim Statements, since January 1, 1996, there has
not been:
(a) Any material adverse change in the business, operations,
assets, properties, prospects, rights or condition (financial or otherwise)
of Smileage, or any occurrence, circumstance, or combination thereof which
reasonably could be expected to result in any such material adverse change
(a "Material Adverse Effect");
(b) Any declaration, setting aside or payment of any dividend or
any distribution (in cash or in kind) to any shareholder of Smileage or any
direct or indirect redemption, purchase or other acquisition by Smileage of
any of its capital stock or any options, warrants, rights or agreements to
purchase or acquire such stock;
(c) Any increase in amounts payable by Smileage to or for the
benefit of, or committed to be paid by Smileage to or for the benefit of
any stockholder, director, or officer of Smileage, or any other consultant,
agent or employee of Smileage, or any relatives of any such person, or any
increase in any benefits granted under any bonus, stock option, profit-
sharing, pension, retirement, deferred compensation, insurance, or other
direct or indirect benefit plan, payment or arrangement made to, with or
for the benefit of any such person, excepting only reimbursement in the
ordinary course of business, in a manner consistent with past practices, of
out-of-pocket expenses incurred by employees of Smileage directly in
connection with Smileage's business;
(d) Any transaction entered into or carried out by Smileage other
than in the ordinary course of its business;
(e) Any borrowing or agreement to borrow funds by Smileage, any
incurring by Smileage of any other obligation or liability (contingent or
otherwise), except current liabilities incurred in the ordinary course of
business (consistent with past practices), or any endorsement, assumption
or guarantee of payment or performance of any loan or obligation of any
other individual, firm, corporation or other entity by Smileage;
(f) Any material change in Smileage's method of doing business or
any change in its accounting principles or
12
practices or its method of application of such principles or practices;
(g) Any mortgage, pledge, lien, security interest, hypothecation,
charge or other encumbrance imposed or agreed to be imposed on or with
respect to the property or assets of Smileage;
(h) Any sale, lease or other disposition of, or any agreement to
sell, lease or otherwise dispose of any of the properties or assets of
Smileage, other than in the usual and ordinary course of business;
(i) Any purchase of or any agreement to purchase assets (other than
inventory purchased in the ordinary course of business consistent with past
practices) for an amount in excess of $10,000 for any one purchase or
$25,000 for all such purchases made by Smileage or any lease or any
agreement to lease, as lessee, any capital assets with payments over the
term thereof to be made by Smileage exceeding an aggregate of $10,000;
(j) Any loan or advance made by Smileage to any individual, firm,
corporation or other entity;
(k) Any modification, waiver, change, amendment, release,
rescission or termination of, or accord and satisfaction with respect to,
any material term, condition or provision of any contract, agreement,
license or other instrument to which Smileage is a party, other than any
satisfaction by performance in accordance with the terms thereof in the
usual and ordinary course of business;
(l) Any labor dispute or disturbance adversely affecting the
business operations or condition (financial or otherwise) of Smileage,
including without limitation the filing of any petition or charge of unfair
labor practice with any governmental or regulatory authority, efforts to
effect a union representation election, actual or threatened employee
strike, work stoppage or slow down; or
(m) Any disciplinary or other similar action, proceeding, or
investigation taken by the Wisconsin Board of Dentistry or other
governmental or accrediting board, agency, or authority against or with
respect to Smileage, any Smileage Shareholder, or any employee of Smileage
or any of its affiliates.
(S)4.10 Taxes.
-----
(a) Smileage has duly, properly, and timely filed all federal,
state, local and foreign tax returns and tax reports
13
required to be filed by it, all such returns and reports are true, correct
and complete, none of such returns and reports have been amended, and all
taxes, assessments, fees and other governmental charges due from Smileage,
including without limitation those arising under such returns and reports,
have been fully paid or are fully accrued as liabilities in the 1995
Smileage Financial Statements or the Smileage Interim Statements and will
be timely paid. No claim has been made by authorities in any jurisdiction
where Smileage did not file tax returns that it is or may be subject to
taxation therein.
(b) Smileage has delivered to ADP copies of all federal, state,
local, and foreign income tax returns filed with respect to Smileage for
taxable periods ended on or after December 31, 1991. Schedule 4.10 sets
forth the dates and results of any and all audits conducted by taxing
authorities within the last five years or otherwise with respect to any tax
year for which assessment is not barred by any applicable statute of
limitations. No waivers of any applicable statute of limitations for the
filing of any tax returns or payment of any taxes or assessments of any
deficient or unpaid taxes are outstanding. Except as set forth in Schedule
4.10, all deficiencies proposed as a result of any audits have been paid or
settled. There are no pending or, to the knowledge of the Smileage
Shareholders, threatened federal, state, local or foreign tax audits or
assessments of Smileage and no agreement with any federal, state, local or
foreign taxing authority that may affect the subsequent tax liabilities of
Smileage.
(c) Smileage is not on the date of this Agreement, nor will it be
as of the Closing, liable for taxes, assessments, fees or governmental
charges for which Smileage has not made adequate provision, including
setting aside a sufficient reserve to cover that potential liability in
full in the 1995 Smileage Financial Statements or the Smileage Interim
Statements.
(d) There exists no tax-sharing agreement or arrangement pursuant
to which Smileage is obligated to pay the tax liability of any other person
or entity, or to indemnify any other person or entity with respect to any
tax.
(e) Schedule 4.10 includes a list of all states, territories and
jurisdictions to which any tax is properly payable by Smileage.
(S)4.11 Compliance with Law. Smileage has complied and is in compliance in
-------------------
all material respects with all applicable laws, statutes, orders, rules,
regulations, policies and guidelines promulgated, and all judgments, decisions
and orders entered, by any federal, state, local or foreign court or
governmental authority, agency, or instrumentality relating to Smileage, or its
14
business or properties, including without limitation all zoning, fire, safety,
building, asbestos laws, ordinances, regulations and requirements, Environmental
Laws (defined below), Governmental Reimbursement Laws (defined in (S)3.27),
Title VII of the Civil Rights Act of 1964, as amended, the Fair Labor Standards
Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the
Americans with Disabilities Act of 1990, all applicable federal, state and local
laws, rules and regulations relating to employment, and all applicable laws,
rules and regulations governing payment of minimum wages and overtime rates, and
the withholding and payment of taxes from compensation of employees; federal and
state antitrust and trade regulation laws applicable to competition generally,
establishing or complying with minimum fee schedules, or to agreements
restricting, allocating or otherwise affecting geographic or product markets;
all laws, rules, and regulations relating to the licensing or credentialing of
dentists, endodontists, periodontists, prosthodontists, pediatric dentists,
orthodontists, oral surgeons, certified registered dental assistants,
hygienists, and other dental care professionals involved with the business of
Smileage; all federal or state laws and regulations relating to fraud and abuse;
and all related laws, ordinances, regulations and requirements (all of the
foregoing, collectively, the "Applicable Laws"). Schedule 4.11 includes a list
of all franchises, licenses, permits, consents, authorizations, approvals and
certificates necessary for Smileage to carry on its business as presently
conducted (collectively, the "Permits"), each of which currently is owned by
Smileage and is valid and in full force and effect. Except as set forth in
Schedule 4.11, Smileage is not in violation of any of the Permits, and there are
no pending or, to the knowledge of the Smileage Shareholders, threatened
proceedings which could result in the revocation, cancellation or inability of
Smileage to renew any Permit. Except as set forth in Schedule 4.11, Smileage
has not been charged in writing with or given written notice of any violation of
any of the Applicable Laws which violation has not been remedied in full
(without any remaining liability of Smileage). Except as set forth on Schedule
4.11, Smileage has never disposed of, or contracted for the disposal of,
hazardous wastes or hazardous substances in violation of any of the Applicable
Laws.
For purposes of this Agreement, "Environmental Laws" shall mean all
federal, state, and local environmental laws, statutes, ordinances, and codes
relating to the protection of public health or the environment (including
without limitation any water, water vapor, land, subsurface, air, fish,
wildlife, biota, and other natural resources) and/or governing the use, storage,
treatment, generation, transportation, processing, handling, management,
production, or disposal of solid wastes, medical wastes, toxic substances,
hazardous wastes, hazardous substances, petroleum, petroleum based products,
radio-nuclides, or other radioactive materials and the rules, regulations,
policies, guidelines,
15
interpretations, decisions, orders, and directives of federal, state, and local
government agencies and authorities with respect thereto.
(S)4.12 Proprietary Rights. Schedule 4.12 sets forth:
------------------
(a) All material patents, inventions, trade secrets, proprietary
rights, computer software, trademarks, trade names, service marks, logos,
copyrights and franchises and all applications therefor, registrations
thereof and licenses, sublicenses or agreements in respect thereof which
Smileage owns or has the right to use or to which Smileage is a party; and
(b) All filings, registrations or issuances of any of the foregoing
with or by any federal, state, local or foreign regulatory, administrative
or governmental office or offices (all items in (a) and (b) of this
section, together with the customer lists described below, being sometimes
hereinafter referred to collectively as the "Proprietary Rights").
Except as set forth in Schedule 4.12, Smileage is the sole and exclusive
owner of all right, title and interest in and to all Proprietary Rights free and
clear of all liens, claims, charges, equities, rights of use, encumbrances and
restrictions whatsoever, and there is no pending or, to the knowledge of the
Smileage Shareholders, threatened investigation, proceeding, inquiry or other
review by any federal, state, local or foreign regulatory, administrative or
governmental office or offices with respect to Smileage's right, title or
interest in any Proprietary Right.
Other than those Proprietary Rights listed in Schedule 4.12, no name,
patent, invention, trade secret, patient list, customer list, proprietary right,
computer software, trademark, trade name, service xxxx, logo, copyright,
franchise, license, sublicense, or other such right is necessary for the
operation of the business of Smileage in substantially the same manner as such
business is presently conducted. No business of Smileage has been or is now
being conducted in contravention of any trademark, copyright or other
proprietary right of any third party.
Except as set forth in Schedule 4.12, none of the Proprietary Rights: has
been hypothecated, sold, assigned or licensed by Smileage, or any other person,
corporation, firm or other legal entity; infringes upon or violates the rights
of any person, firm, corporation, or other legal entity; is subject to
challenge, claims of infringement, unfair competition or other claims; or is
being infringed upon or violated by any person, firm, corporation or other legal
entity. Except as set forth in Schedule 4.12: Smileage has not given, directly
or indirectly, any indemnification against patent, trademark or copyright
infringement as to any equipment, materials, products, services or supplies
which Smileage
16
uses, licenses or sells; no product, process, method or operation presently
sold, engaged in or employed by Smileage infringes upon any rights owned by any
other person, firm, corporation or other legal entity; and there is no pending
or threatened claim or litigation against Smileage contesting the right of
Smileage to sell, engage in or employ any such product, process, method, or
operation.
Except as set forth in Schedule 4.12, Smileage has exclusive rights to own,
use and license others to use the computer software used by Smileage (the
"Software"). Schedule 4.12 lists and briefly describes, and Smileage has
provided to ADP true, correct and complete copies of, all material licenses,
agreements, documents and other materials relating to the Software and to the
rights of Smileage herein. Smileage has not licensed or otherwise authorized
any other person to use or make use of all or any part of the Software, nor has
Smileage granted, assigned or otherwise conveyed any right in or to the
Software.
Schedule 4.20 sets forth an accurate and complete list of the 10 largest
third party payors, as of the date of this agreement, in terms of revenue
generation for Smileage who currently contract with Smileage for the performance
of, and reimbursement for, dental services. Smileage has made available to ADP
a listing of all individuals enrolled as patients with Smileage as at December
31, 1995 and November 30, 1996, pursuant to any such contract.
(S)4.13 Restrictive Documents or Laws. With the exception of the matters
-----------------------------
listed in Schedule 4.13, Smileage is not a party to or bound under any mortgage,
lien, lease, agreement, contract, instrument, law, order, judgment or decree, or
any similar restriction not of general application which materially and
adversely affects, or reasonably could be expected to so affect (a) the
condition of Smileage (financial or otherwise); (b) the continued operation by
ADP of Smileage's assets after the Closing on substantially the same basis as
such assets are currently operated; or (c) the consummation of the transactions
contemplated by this Agreement.
(S)4.14 Insurance. Set forth in Schedule 4.14 is a true, correct and
---------
complete list of all insurance policies and bonds, if any, in force which are
owned by Smileage or in which, to the knowledge of the Smileage Shareholders,
Smileage is named as an insured party, or for which Smileage has paid any
premiums, and such lists correctly state the name of the insurer, the name of
each insured party, the type and amount of coverage, deductible amounts, if any,
the expiration date and the premium amount of each such policy or bond. Except
as disclosed in Schedule 4.14, all such policies or bonds are currently in full
force and effect and no written notice of cancellation or termination has been
received by Smileage with respect to any such policy or bond. Smileage will
continue all such policies and bonds in full force and effect
17
through the Closing. All premiums due and payable on such policies and bonds
have been paid. Except as disclosed in Schedule 4.14, Smileage is not a co-
insurer under any term of any insurance policy.
(S)4.15 Bank Accounts, Depositories; Powers of Attorney. Set forth in
-----------------------------------------------
Schedule 4.15 is a true, correct and complete list of the names and locations of
all banks or other depositories in which Smileage has accounts or safe deposit
boxes, and the names of the persons authorized to draw thereon, borrow therefrom
or have access thereto. Except as set forth in such Schedule 4.15, no person or
entity has a power of attorney from Smileage.
(S)4.16 Title to and Condition of Properties. Except as set forth in
------------------------------------
Schedule 4.16, Smileage has good, valid and marketable title to all of its
assets and properties of every kind, nature and description, tangible or
intangible, wherever located, which constitute all of the property now used in
and necessary for the conduct of its business as presently conducted (including
without limitation all property and assets shown or reflected on the 1995
Financial Statements). Except as set forth in Schedule 4.16, all such
properties are owned free and clear of all mortgages, pledges, liens, security
interests, encumbrances and restrictions of any nature whatsoever, including
without limitation (a) rights or claims of parties in possession; (b) easements
or claims of easements; (c) encroachments, overlaps, boundary line or water
drainage disputes or any other matters; (d) any lien or right to a lien for
services, labor or material furnished; (e) special tax or other assessments; (f)
options to purchase, leases, tenancies, or land contracts; (g) contracts,
covenants, or reservations which restrict the use of such properties and (h)
violations of Environmental Laws and zoning, fire safety, building, and other
laws, ordinances and regulations applicable to such properties. The current
uses of all such properties are in compliance with all federal, state, local or
other governmental building, zoning, health, safety, platting, subdivision or
other law, ordinance or regulation, or any applicable private restriction, and
such uses are legal conforming uses. Except as set forth in Schedule 4.16, no
financing statement under the Uniform Commercial Code or similar law naming
Smileage as debtor has been filed in any jurisdiction, and Smileage is not a
party to or bound under any agreement or legal obligation authorizing any party
to file any such financing statement. Schedule 4.16 contains a complete and
accurate legal description of all of the real property owned or leased by
Smileage (organized by category). Smileage does not own or lease any other real
property.
Except as set forth in Schedule 4.16, all real property and structures, to
the extent occupied by Smileage, and all machinery, equipment, and other
tangible personal property owned, leased or used by Smileage which are material
to the operation of its business, are suitable for the purpose or purposes for
which they
18
are being used, and, to the knowledge of the Smileage Shareholders, are in good
condition and repair. To the knowledge of the Smileage Shareholders, there are
no material structural defects in the exterior walls or the interior bearing
walls, the foundation or the roof of any building or other such structure owned
or used by Smileage, and the electrical, plumbing, heating systems, and air
conditioning systems of all such structures are in good operating condition. To
the knowledge of the Smileage Shareholders, no hazardous waste or toxic material
has been disposed of or discharged on, leaked from, or has otherwise
contaminated any real property owned, leased or used by Smileage. To the
knowledge of the Smileage Shareholders, no hazardous waste or toxic material is
stored upon or in any real property owned, leased, or used by Smileage
(including without limitation any underground storage tanks). Smileage has not
received any written notice of non-compliance or violations or threatened non-
compliance or violations of any applicable Environmental Laws relating to any
real property owned, leased or used by Smileage. The utilities servicing the
real properties owned or used by Smileage are, to the knowledge of the Smileage
Shareholders, adequate to permit the continued operation of the business of
Smileage, and there are no pending or, to the knowledge of the Smileage
Shareholders, threatened zoning, condemnation or eminent domain proceedings,
building, utility or other moratoria, or injunctions or court orders which would
materially affect such continued operation.
(S)4.17 Brokers, Finders. The transactions contemplated by this Agreement
----------------
were not submitted to either Smileage or the Smileage Shareholders by any broker
or other person entitled to a commission, finder's fee or like payment thereon,
and were not, with the consent of either Smileage or the Smileage Shareholders,
submitted to ADP by any broker or other person, and none of the actions of
either Smileage or the Smileage Shareholders have given rise to any claim by any
person for a commission, finder's fee or like payment against any of the
Parties.
(S)4.18 Legal Proceedings, etc. Except as listed and described in Schedule
-----------------------
4.18, there are no (and over the last five years there have been no) claims,
proceedings, suits or investigations pending or, to the knowledge of the
Smileage Shareholders, overtly threatened against or relating to Smileage (or
any of its officers, directors, or shareholders in connection with the business
or affairs of Smileage), by or before any federal, state, local or foreign court
or governmental body, agency, or authority. There are no such claims,
proceedings, suits or investigations pending or, to the knowledge of the
Smileage Shareholders, threatened for the purpose of enjoining or preventing the
consummation of the Merger or any other transaction contemplated by this
Agreement or otherwise challenging the validity or propriety of the transactions
contemplated by this Agreement. Except as disclosed in Schedule 4.18, neither
Smileage nor any of its officers, directors, or shareholders are subject to any
judgment, order or decree, or any
19
governmental restriction applicable to Smileage, which has a reasonable
probability of having a Material Adverse Effect, or which may materially
adversely affect the ability of Smileage to acquire any property or conduct
business as is currently being conducted.
(S)4.19 ERISA.
-----
(a) Schedule 4.19 identifies each "employee benefit plan," as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA")
which (i) is subject to any provision of ERISA and (ii) is or was at any time
during the last five years maintained, administered or contributed to by
Smileage or any affiliate (as defined below) and covers any employee or former
employee of Smileage or any affiliate or under which Smileage or any affiliate
has any liability. Copies of such plans (and, if applicable, related trust
agreements) and all amendments thereto and written interpretations thereof have
been furnished to ADP together with the three most recent annual reports (Form
5500) prepared in connection with any such plan. Such plans are referred to
collectively herein as the "Employee Plans." For purposes of this section,
"affiliate" of any person or entity means any other person or entity which,
together with such person or entity, would be treated as a single employer under
Section 414 of the Code or is an "affiliate," whether or not incorporated, as
defined in Section 407(d)(7) of ERISA of such person or entity. The only
Employee Plans which individually or collectively would constitute an "employee
pension benefit plan" as defined in Section 3(2) of ERISA (the "Pension Plans")
are identified as such on Schedule 4.19.
(b) No Employee Plan constitutes a "multiemployer plan," as defined in
Section 3(37) of ERISA, or a "defined benefit plan," as defined in Section 3(35)
and subject to Title IV of ERISA, and no Employee Plan is maintained in
connection with any trust described in Section 501(c)(9) of the Code. No
"accumulated funding deficiency," as defined in Section 412 of the Code, has
been incurred with respect to any Pension Plan, whether or not waived. Full
payment has been made of all amounts which Smileage or any affiliate is required
to have paid as contributions to or benefits under any Employee Plan as of the
end of the most recent fiscal year thereof and there are no unfunded obligations
under any Employee Plan that have not been disclosed to ADP in writing prior to
the Closing. Neither Smileage nor the Smileage Shareholders know of any
"reportable event," within the meaning of Section 4043 of ERISA, and no event
described in Section 4041, 4042, 4062 or 4063 of ERISA has occurred in
connection with any Employee Plan. To the knowledge of the Smileage
Shareholders, no condition exists and no event has occurred that could
constitute grounds for termination of any Employee Plan. Neither Smileage nor
any of its affiliates has incurred any material liability under Title IV of
ERISA arising in connection with the termination of, or complete or partial
withdrawal from, any plan covered or previously covered by
20
Title IV of ERISA. Nothing done or omitted to be done and no transaction or
holding of any asset under or in connection with any Employee Plan has or will
make either Smileage or any officer or director of Smileage, subject to any
liability under Title I of ERISA or liable for any tax pursuant to Section 4975
of the Code. There is no pending or, to the knowledge of the Smileage
Shareholders, threatened litigation, arbitration, disputed claim, adjudication,
audit, examination or other proceeding with respect to any Employee Plan or any
fiduciary or administrator thereof in their capacities as such.
(c) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified, and each trust
forming a part thereof is exempt from tax pursuant to Section 501(a) of the
Code. Smileage has furnished to ADP copies of the most recent Internal Revenue
Service determination letters with respect to each such Employee Plan. Each
Employee Plan has been maintained, from the time of such Plan's inception up to
and including the performance of any or all transactions contemplated in this
Agreement, in material compliance with its terms and the requirements and
fiduciary standards prescribed by any and all statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, which are
applicable to such Employee Plan.
(d) There is no contract, agreement, plan or arrangement covering any
employee or former employee of Smileage or any affiliate that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to the terms of the Code.
(e) Schedule 4.19 identifies each employment, severance or other
similar contract, arrangement or policy and each plan or arrangement (written or
oral) providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits or for deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation or
other forms of incentive compensation or post-retirement insurance, compensation
or benefits which (i) is not an Employee Plan, (ii) is entered into, maintained
or contributed to, as the case may be, by Smileage or any of its affiliates, and
(iii) covers any employee or former employee of Smileage or any of its
affiliates. Such contracts, plans and arrangements as are described above,
copies or descriptions of all of which have been furnished previously to ADP,
are referred to collectively herein as the "Benefit Arrangements." Each Benefit
Arrangement has been maintained in material compliance with its terms and in
material compliance with requirements prescribed by any and all statutes,
orders, rules and regulations that are applicable to such Benefit Arrangement.
21
(f) Except as set forth in Schedule 4.19, there is no liability in
respect of post-retirement health and medical benefits for retired employees of
Smileage or any of its affiliates, determined using assumptions that are
reasonable in the aggregate, over the fair market value of any fund, reserve or
other assets segregated for the purpose of satisfying such liability (including
for such purposes any fund established pursuant to Section 401(h) of the Code).
Smileage has reserved its right to amend or terminate any Employee Plan or
Benefit Arrangement providing health or medical benefits in respect of any
active employee of Smileage under the terms of any such plan and descriptions
thereof given to employees. With respect to any of Smileage's Employee Plans
which are "group health plans" under Section 4980B of the Code and Section
607(1) of ERISA, to the knowledge of the Smileage Shareholders, there has been
timely compliance in all material respects with all requirements imposed
thereunder.
(g) Except as set forth in Schedule 4.19, there has been no amendment
to, written interpretation or announcement (whether or not written) by Smileage
or any of its affiliates relating to, or change in employee participation or
coverage under, any Employee Plan or Benefit Arrangement which would increase
the expense of maintaining such Employee Plan or Benefit Arrangement above the
level of the expense incurred in respect thereof for the fiscal year ended
immediately prior to the Closing.
(h) Except as set forth in Schedule 4.19, Smileage is not a party or
subject to any union contract or any employment contract or arrangement
providing for annual future compensation to any officer, consultant, director or
employee.
(i) The execution and consummation of the transactions contemplated by
this Agreement will not constitute a triggering event under any Employee Plan,
whether or not legally enforceable, which will result in any payment,
acceleration, increase in vesting, or increase in benefits to any current or
former participant, employee or director of Smileage that has not been
specifically disclosed on Schedule 4.19 or which is not material to the
financial condition or business of Smileage.
(j) Any reference to ERISA or the Code or any section thereof shall be
construed to include all amendments thereto and applicable regulations and
administrative rulings issued thereunder prior to the date of this Agreement.
(S)4.20 Contracts. Schedule 4.20 lists and briefly describes all
---------
contracts, purchase orders, agreements, leases, executory commitments,
arrangements and understandings (written or oral) to which Smileage is a party
(a) which, including all amendments and supplements thereto, are material to the
condition, operations, assets or business of Smileage, (b) which (i) involve
payments or commitments in excess of $25,000 for any purchase order or $25,000
22
for any other contract, agreement, lease, commitment, arrangement, or
understanding, or (ii) extend beyond one year (or both), unless cancelable on 60
or fewer days' notice without any liability, penalty or premium, (c) with any
present or former stockholder, director or officer of Smileage, or any person
related by blood or marriage to any such person or any person or entity
controlling, controlled by or under common control with any such person, or with
any employee, agent or consultant of Smileage not terminable at will, (d) which
provide for a discount from Smileage's standard fee schedules, (e) which provide
for the future purchase by Smileage of any materials, equipment, services or
supplies, which continue for a period of more than 12 months (including periods
covered by any option to renew by either party) or which provide for a price
materially in excess of current market prices or is in excess of normal
operating requirements over its remaining term, or (f) which involve any of the
following: (i) any borrowings or guarantees; (ii) any contracts containing
covenants purporting to limit the freedom of Smileage to compete in any line of
business or provide any of their services in any geographic area; (iii) any
obligation or commitment which limits the freedom of Smileage to sell, lease,
license or otherwise provide its services; (iv) any contract or agreement the
performance of which can reasonably be expected to result in a loss to Smileage;
or (v) any obligation or commitment providing for indemnification or
responsibility for the obligations or losses of any person. All of such
contracts, agreements, leases, commitments, and other arrangements and
understandings are valid and binding, in full force and effect and enforceable
in accordance with their respective provisions. Smileage is not in violation of
nor in default in respect of nor has there occurred an event or condition which,
with the passage of time or giving of notice (or both) would constitute a
default of any such contract, agreement, lease, commitment, arrangement or
understanding.
Except as set forth in Schedule 4.20, Smileage has not received any written
notice or, to the knowledge of the Smileage Shareholders, any other notice from
any third party payor, patient, or supplier to the effect that such third party
payor, patient, or supplier will terminate its relationship or unilaterally
modify any terms of that relationship, where applicable, with Smileage as a
result of any transaction contemplated by this Agreement or otherwise.
Attached to Schedule 4.20 is a correct and complete copy of the fee
schedule which is currently in effect under each agreement with a third party
payor to which Smileage is a party.
Also attached to Schedule 4.20 is a correct and complete list of all
dentists employed or retained by Smileage.
(S)4.21 Accounts Receivable. Smileage has delivered to ADP a correct and
-------------------
complete schedule of its accounts receivable and notes receivable as at November
30, 1996. Except as set forth in
23
Schedule 4.21, all accounts and notes receivable of Smileage as of such date,
and any accounts and notes receivable arising between such date and the Closing
represent or will represent sales actually made or services actually provided in
the ordinary course of business consistent with past practices.
Since December 31, 1995, there have been no accounts receivable of Smileage
converted to notes receivable or otherwise extended, except as listed in
Schedule 4.21, and from the date of this Agreement through the Closing, no
accounts receivable of Smileage will be converted to notes receivable, written
off or otherwise extended without the prior written consent of ADP.
Schedule 4.21 includes a list of all amounts payable to Smileage by any
Affiliate of Smileage (the "Related Party Receivables") and all amounts payable
by Smileage to any Affiliate of Smileage (the "Related Party Payables") as of
December 31, 1995, specifying the payor, payee, and amount of each Related Party
Receivable and Related Party Payable. For purposes of this Agreement, other
than for (S)4.19, above, an "Affiliate" of Smileage shall mean any shareholder,
director, officer, employee, representative, or other agent of Smileage, any
person related by blood or marriage to any such person, or any person or entity,
which, directly or indirectly, controls, is controlled by, or is under common
control with Smileage or any such other person or entity.
(S)4.22 No Conflict or Default. Except for the consents described in
----------------------
Schedule 4.22, all of which shall be obtained prior to the Closing (unless
otherwise expressly agreed by ADP in writing), neither the execution and
delivery of this Agreement by Smileage and the Smileage Shareholders, nor
compliance by Smileage and the Smileage Shareholders with the terms and
provisions of this Agreement, including without limitation the consummation of
the transactions contemplated by this Agreement, will, to the knowledge of the
Smileage Shareholders, violate in any manner any Applicable Laws or Permits or
conflict with or result in the breach of any term, condition or provision of the
articles or certificate of incorporation or bylaws of Smileage or of any
agreement, deed, contract, undertaking, mortgage, indenture, writ, order,
decree, restriction, legal obligation or instrument to which Smileage is a party
or by which Smileage or any of its respective assets or properties are or may be
bound or affected.
(S)4.23 Books of Account; Records. Smileage's general ledgers, stock
-------------------------
record books, minute books and other corporate records relating to the material
assets, properties, contracts and outstanding legal obligations of Smileage are,
in all material respects, complete and correct, and the matters contained
therein are appropriate and accurately reflected in the 1995 Financial
Statements and the Smileage Interim Statements.
24
(S)4.24 Officers, Employees and Compensation. Smileage has made available
------------------------------------
to ADP a true and correct list of all directors and officers of Smileage, their
respective terms of office, the total salary, bonus, fringe benefits and
perquisites each received in the fiscal year ended December 31, 1995, and any
changes to the foregoing which have occurred subsequent to December 31, 1995,
and a list of the current compensation of any other employee of Smileage whose
total current salary and bonus exceeds $35,000 annually and any consultant,
advisor, or independent contractor whose compensation exceeds $5,000 annually.
No changes will be made by Smileage in the amount or kind of any compensation
being paid or provided to any individuals listed from the amounts and kinds of
compensation described therein prior to the Closing without ADP's prior written
consent. Except as disclosed to ADP in writing, there are no other forms of
compensation paid to any such director, officer or employee of Smileage. Except
as disclosed to ADP in writing, the provisions for wages and salaries accrued in
the 1995 Smileage Financial Statements are, and such provisions accrued on the
Smileage Interim Statements will be, adequate for wages and salaries and other
compensation to its employees, including without limitation vacation pay, sick
pay, accrued compensation to any dentist, and all commissions and other fees
payable to agents, salesmen and representatives of Smileage. Except as set
forth in Schedule 4.24, Smileage has not become obligated, directly or
indirectly, to any stockholder, director or officer of Smileage or any person
related to such person by blood or marriage, except for current liability for
such compensation. Except as set forth in Schedule 4.24, no stockholder,
director, officer, agent or employee of Smileage or any person related to such
person by blood or marriage holds any position or office with or has any
material financial interest, direct or indirect, in any supplier, customer or
account of, or other outside business which has material transactions with,
Smileage. Smileage has no agreement or written understanding with any of its
stockholders, directors, officers, employees or representatives which would
influence any such person not to become associated with ADP from and after the
Closing or from serving Smileage after the Closing in a capacity similar to the
capacity presently held. Except as set forth in Schedule 4.24, no employee of
Smileage, to the best knowledge of Smileage and the Smileage Shareholders, have
a present intention to leave the employ of Smileage or has taken any action
indicative of leaving the employ of Smileage.
(S)4.25 Labor Relations. Smileage has complied in all material respects
---------------
with all applicable federal, state and local laws, rules, and regulations
relating to employment, and has complied in all respects with all applicable
laws, rules and regulations governing payment of minimum wages and overtime
rates, and the withholding and payment of taxes from compensation of employees
and the payment of premiums and benefits under applicable worker compensation
laws. Except as set forth in Schedule 4.25, no employees of Smileage are
represented by any labor union or covered under any collective
25
bargaining agreement, and there is no unfair labor practice complaint against
Smileage pending before the National Labor Relations Board. There is no labor
strike, dispute, slowdown or stoppage, or any union organizing campaign,
actually pending or threatened against or involving Smileage. No labor
grievance has been filed with Smileage and no arbitration proceeding, which has
had or may have such an effect, has arisen out of or under a collective
bargaining or other labor agreement and is pending, and no claim therefor has
been asserted in writing. Except as set forth on Schedule 4.25, no collective
bargaining or other labor agreement is currently being negotiated by Smileage
and no union or collective bargaining unit represents Smileage's employees.
Smileage has not experienced any work stoppage or other material labor
difficulty during the past five years.
(S)4.26 Suppliers and Third Party Payors. Except as set forth in Schedule
--------------------------------
4.26, no supplier of products or services to Smileage has indicated that it
shall stop, or decrease the rate of, or substantially increase its fees for,
supplying products or services to Smileage either prior to, or following the
Effective Date. Schedule 4.26 sets forth (a) a list of all third party payors
who have terminated their relationships with Smileage since January 1, 1996, or
have notified Smileage or any Smileage Shareholder since January 1, 1996, that
they intend to terminate their relationships with Smileage, and (b) the gross
receipts received from such third party payors for the 12-month period ending on
December 31, 1995. Except as set forth in Schedule 4.26, Smileage and the
Smileage Shareholders do not know of any loss of a relationship with any third
party payor that alone or in the aggregate comprises more than 1% of fiscal 1995
actual revenues of Smileage as shown in the 1995 Smileage Financial Statements
that has indicated that it is considering or plans to discontinue using Smileage
as its provider of dental services as a result of the Merger or otherwise.
(S)4.27 Medicare and Medicaid. Neither Smileage nor any dentist employed
---------------------
by Smileage is a participant of Medicare, Medicaid, or any other governmental
health care reimbursement program (collectively, the "Governmental Programs"),
nor has or does Smileage or any such dentist received or expect to receive any
reimbursement under any such Governmental Programs. Neither Smileage nor any
employee or other agent of Smileage has violated any law, statute, rule,
regulation, or order under or relating to any Governmental Program, including
without limitation those relating to fraud and abuse (the "Governmental
Reimbursement Laws"), which violation would have a Material Adverse Effect.
(S)4.28 Investment Intent. Each Smileage Shareholder: (a) has received
-----------------
copies of the documents identified in the attached Exhibit D; (b) is a resident
of the State of Wisconsin; (c) is either (i) an "accredited investor," as that
term is defined in Regulation D promulgated under the Securities Act, or (ii) by
reason of his business and financial experience, and the business and financial
experience of those persons advising him with respect to his
26
investment in the ADP Shares and the Notes, he, together with such advisors, has
such knowledge, sophistication, and experience in business and financial matters
so as to be able to evaluate the merits and risks of his prospective investment
in the ADP Shares and the Notes; (d) to his satisfaction, has been provided the
opportunity to ask questions and receive answers from ADP concerning the terms
and conditions of the ADP Shares and the Notes to be received in the Merger, has
had all such questions answered, and has been supplied all additional
information deemed necessary by him to verify the accuracy of all information
provided; (e) is acquiring the ADP Shares and the Notes to be acquired by him
for his own account for investment purposes only and without any view towards
resale or other distribution; (f) except for the representations and warranties
of ADP expressly set forth in Article III of this Agreement, no representations
or warranties have been made to him by or on behalf of ADP in connection with
this transaction, and in making his investment in the ADP Shares and the Notes,
he is relying on the results of his own independent investigation; (g)
understands that an investment in the ADP Shares and the Notes are a speculative
investment and can bear the economic risks of his investment in the ADP Shares
and the Notes, can afford a complete loss of such investment, and is not relying
upon any representation or warranty made by ADP, or any officer, director,
shareholder, employee, agent, or representative of ADP regarding the value of
the ADP Shares and the Notes, except as expressly set forth in Article III
hereof; (h) understands that the issuance of the ADP Shares and the Notes as a
result of this Agreement is intended to be exempt from registration under the
Securities Act and applicable state law and that the ADP Shares and the Notes
are not and will not be registered under the Securities Act, the Securities
Exchange Act of 1934, or any state securities laws, and that there will be no
public market for the ADP Shares and the Notes; (i) agrees that any certificates
evidencing the ADP Shares acquired by him shall contain a legend to the effect
that such shares have not been registered under the Securities Act or any state
securities laws and may not be sold without registration as required by the
Securities Act and applicable state securities laws or exemptions therefrom, and
in the case of such an exemption, requiring delivery to ADP of a legal opinion
of or satisfactory to its legal counsel that such exemption is applicable; (j)
agrees that ADP can issue stop transfer instructions to its transfer agent
prohibiting transfer of the ADP Shares to be acquired by him except in
compliance with the provisions of the Securities Act, applicable state
securities laws, this Agreement, and the Shareholders Agreement (defined in
(S)5.2(i), below); and (k) understands that the ADP Shares will be subject to
additional transfer, voting, and other restrictions pursuant to the Shareholders
Agreement.
(S)4.29 Disciplinary Actions. Except as set forth in Schedule 4.29, during
--------------------
the three year period ending on December 31, 1995, there have been no
disciplinary or other similar actions, proceedings, or investigations taken by
the Wisconsin Board of Dentistry or other governmental or accrediting board,
agency, or
27
authority against or with respect to Smileage, any Smileage Shareholder, or any
employee of Smileage or its affiliate, Wisconsin Dental Group, S.C. ("WDG").
(S)4.30 Complete Disclosure. No representation or warranty by either
-------------------
Smileage or the Smileage Shareholders in this Agreement or the Smileage
Schedules contains, or will contain as of the Closing, any untrue statement of a
material fact or omits, or will omit as of the Closing, a material fact
necessary to make the statements contained herein or therein not misleading.
ARTICLE V
COVENANTS OF THE PARTIES
------------------------
(S)5.1 Mutual Covenants.
----------------
(a) General. Each Party shall use all reasonable efforts to take all
-------
actions and do all things necessary, proper or advisable to consummate the
Merger and the other transactions contemplated by this Agreement, including
without limitation using all reasonable efforts to cause the conditions set
forth in this Article for which such Party is responsible to be satisfied
as soon as reasonably practicable and to prepare, execute, acknowledge or
verify, deliver, and file such additional documents, and take or cause to
be taken such additional actions, as any other Party may reasonably
request.
(b) Governmental Matters. Each Party shall use all reasonable
--------------------
efforts to take any action that may be necessary, proper or advisable in
connection with any notices to, filings with, and authorizations, consents
and approvals of any court, administrative agency or commission, or other
governmental authority or instrumentality that it may be required to give,
make or obtain.
(c) Securities Law Compliance. ADP shall have the right to revise and
-------------------------
update the attached Exhibit D and the disclosure documents described in
that Exhibit prior to the Closing in such manner as ADP deems necessary to
comply with any federal or state securities laws.
(d) Subordination Agreement. At the Closing, ADP and each of the
-----------------------
Smileage Shareholders shall execute a Subordination Agreement with respect
to the Notes in substantially the form as Exhibit E attached to this
Agreement.
(S)5.2 Covenants of Smileage and the Smileage Shareholders. Smileage and
---------------------------------------------------
the Smileage Shareholders jointly and severally agree that:
28
(a) Delivery of Smileage Interim Statements. Smileage shall cause
---------------------------------------
the Smileage Interim Statements to be delivered to ADP as soon as is
reasonably practicable.
(b) Conduct of Business. Except as otherwise expressly contemplated
-------------------
by this Agreement, from the date of this Agreement until the Closing (the
"Pre-Merger Period"): (i) neither Smileage nor the Smileage Shareholders
shall take or permit to be taken any action or do or permit to be done
anything in the conduct of the business of Smileage or WDG, or otherwise,
that would be contrary to or in breach of any of the provisions of this
Agreement or which would cause any of their representations and warranties
contained in this Agreement to be or become untrue in any material respect;
(ii) Smileage and WDG shall conduct their respective businesses in the
ordinary course consistent with their past practices; and (iii) Smileage
and the Smileage Shareholders shall use all reasonable efforts to preserve
Smileage's business organizations intact, keep available to Smileage and
ADP the present services of Smileage's nonprofessional employees, keep
available for WDG the services of WDG's professional employees, and
preserve for Smileage and ADP the goodwill and all agreements with third
parties with whom business relationships exist. Without limiting the
generality of the foregoing, during the Pre-Merger Period, except as
otherwise expressly contemplated by this Agreement or with the prior
written consent of ADP, Smileage shall not:
(i) Adopt or propose any change in its articles or certificate of
incorporation or bylaws; adjust, split, combine, or reclassify any of
its capital stock; or make any other changes in its authorized or
issued capital stock except in connection with the Xxxxx Option;
(ii) Redeem, purchase, or otherwise acquire any shares of its
capital stock; grant any person or entity any right to acquire any
shares of its capital stock; issue, deliver, sell, or agree to issue,
deliver, or sell, any additional shares of its capital stock or any
other securities other than issuances of the capital stock of Smileage
upon the exercise of any currently outstanding options to acquire such
shares set forth in Schedule 4.2; or enter into any agreement or
arrangement with respect to the sale or voting of its shares of
capital stock except in connection with the Xxxxx Option;
(iii) Merge or consolidate with any other person or entity or
acquire a material amount of assets of any other person or entity;
(iv) Sell, lease, license, pledge, encumber, or otherwise dispose
of any assets or property other than in
29
the ordinary course of business consistent with past practices;
(v) Incur, create, assume, or otherwise become liable for any
indebtedness other than indebtedness incurred in the ordinary course
of business consistent with past practices (but subject in any event
to (S)5.2(g) of this Agreement);
(vi) Enter into or modify any employment, severance, termination,
or similar agreement or arrangement with, or grant any bonuses, salary
increases, severance or termination pay to, any officer, director,
consultant, or employee;
(vii) Adopt, amend or terminate any employee benefit plan,
except in accordance with (S)4.19, above, or increase, amend, or
terminate any benefits to officers, directors, consultants, or
employees;
(viii) Modify in any material way or terminate any of the
contracts listed or required to be listed in Schedule 4.20 except in
the ordinary course of business consistent with past practices;
(ix) Settle any claims, litigation, or actions, whether now
pending or hereafter made or brought, unless such settlement does not
and could not have a Material Adverse Effect on Smileage;
(x) Engage in any transaction, or enter into any agreement,
contract, lease, or other arrangement or understanding, with any
Affiliate of Smileage, except for any transactions agreed to in
writing by ADP; or
(xi) Agree or commit to do any of the foregoing.
(c) Exclusive Rights. Neither Smileage nor the Smileage Shareholders,
----------------
nor any of their respective Affiliates or representatives shall, directly
or indirectly, solicit (including without limitation by way of furnishing
or making available any non-public information concerning the business,
properties or assets of Smileage) or engage in negotiations or discussions
with, disclose any of the terms of this Agreement to, accept any offer
from, furnish any information to, or otherwise cooperate, assist or
participate with any person or organization (other than ADP and its
representatives) regarding any Acquisition Proposal (defined below), except
that (i) any person or entity making an Acquisition Proposal may be
informed of the restrictions contained in this sentence and (ii) any action
required by law (including the fiduciary duties of directors) shall be
permitted. Smileage and the Smileage Shareholders shall notify ADP
promptly by telephone,
30
and thereafter promptly confirm in writing, if any such information is
requested from, or any Acquisition Proposal is received by, Smileage or any
of the Smileage Shareholders. For purposes of this Agreement, "Acquisition
Proposal" shall mean any offer or proposal received by the Smileage
Shareholders or Smileage prior to the Effective Time regarding the
acquisition by purchase, merger, lease, or otherwise of any capital stock
of Smileage, any of the business of Smileage, or any material assets,
customer relationships or other operations of Smileage.
(d) Access to Records and Other Due Diligence. During the Pre-Merger
-----------------------------------------
Period, Smileage shall: (i) make or cause to be made available to ADP and
its representatives, attorneys, accountants and agents, for examination,
inspection, and review, the assets and property of Smileage and WDG and all
books, contracts, agreements, commitments, records and documents of every
kind relating to Smileage's or WDG's businesses, and shall permit ADP and
its representatives, attorneys, accountants and agents to have access to
the same at all reasonable times, including without limitation access to
all tax returns filed and in preparation and all audit and other work
papers of BDO Xxxxxxx and all reports to management and related responses;
(ii) permit representatives of ADP to interview suppliers, customers, and
personnel of Smileage; and (iii) permit representatives of ADP to
participate in all aspects of the preparation of the Smileage Interim
Statements.
(e) Disclosures. After the date of this Agreement, neither Smileage
-----------
nor any of the Smileage Shareholders shall: (i) disclose to any person,
association, firm, corporation or other entity (other than ADP or those
designated in writing by ADP) in any manner, directly or indirectly, any
proprietary information or data relevant to the business of Smileage or WDG
whether of a technical or commercial nature, or (ii) use, or permit or
assist, by acquiescence or otherwise, any person, association, firm,
corporation or other entity (other than ADP or those designated in writing
by ADP) to use, in any manner, directly or indirectly, any such information
or data, excepting only (A) use of such data or information as is at the
time generally known to the public and which did not become generally known
through any breach of any provision of this section by Smileage or any
Smileage Shareholder, and (B) disclosures of information to employees of
Smileage who need to know such information and use of such information by
employees of Smileage who need to use such information, in each use only to
the extent necessary for the benefit of Smileage or ADP.
(f) Employee Retention. Smileage and the Smileage Shareholders
------------------
understand that in ADP's view it is essential to the successful operation
of the business of Smileage that Smileage retain substantially unimpaired
its operating
31
organization, except for any changes contemplated by this Agreement.
During the Pre-Merger Period, Smileage and the Smileage Shareholders shall
endeavor in good faith at all times to maintain good relations with all
Smileage employees.
(g) Affiliate Indebtedness. During the Pre-Merger Period, neither
----------------------
Smileage nor any of the Smileage Shareholders shall cause or permit
Smileage to make any advances, loans, or extensions of credit to any
Affiliate of Smileage, or otherwise increase the Related Party Receivables
owed to Smileage by any Affiliate of Smileage other than in the ordinary
course of business.
(h) Dividends and Distributions. During the Pre-Merger Period,
---------------------------
Smileage shall not, and the Smileage Shareholders shall not permit Smileage
to, declare, set aside or pay any dividend or any distribution (in cash or
in kind) to any of its shareholders.
(i) Agreements with Shareholders. At the Closing, the Smileage
----------------------------
Shareholders shall execute a Shareholders Agreement in substantially the
form of Exhibit F attached to this Agreement (the "Shareholders Agreement")
and a Registration Rights Agreement in substantially the form of Exhibit G
attached to this Agreement.
(j) Restructuring of WDG. Prior to the Closing, Smileage and the
--------------------
Smileage Shareholders shall take such actions to cause the ownership,
employees, assets, and other items of WDG to be restructured, reallocated,
or otherwise modified on terms satisfactory to ADP, and after the Closing,
WDG shall operate the professional dental practice currently operated by
WDG prior to such restructuring.
(k) Notices of Certain Events. Smileage and the Smileage Shareholders
-------------------------
shall promptly notify ADP of:
(i) Any notice or other communication from any person or entity
alleging that the consent of such person or entity is or may be
required in connection with the transactions contemplated by this
Agreement;
(ii) Any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(iii) Any actions, suits, claims, investigations or proceedings
commenced or, to the knowledge of Smileage or any of the Smileage
Shareholders, threatened against, relating to, involving, or otherwise
affecting any of the Smileage Shareholders, Smileage, or any of their
32
respective properties which, if in existence on the date of this
Agreement would have been required to have been disclosed by Smileage
and the Smileage Shareholders pursuant to (S)4.18 or which relate to
the consummation of the transactions contemplated by this Agreement;
and
(iv) Any circumstances or events which, if in existence on the
date of this Agreement, would make any representation or warranty of
the Smileage Shareholders incorrect or incomplete in any material
respect.
(l) Representations and Warranties. At the Closing, Smileage and the
------------------------------
Smileage Shareholders shall deliver to ADP a certificate, in form and
content reasonably satisfactory to ADP, confirming that the representations
and warranties set forth in Article IV of this Agreement are correct and
complete in all material respects as of the Closing Date.
(m) Noncompetition. From and after the Effective Date and for the
--------------
period of two years thereafter, each Smileage Shareholder shall not
directly or indirectly (whether individually or as a shareholder or other
owner, partner, member, director, officer, employee, consultant, creditor,
or agent of any person, association, or other entity):
(i) Enter into, engage in, or promote or assist (financially or
otherwise), directly or indirectly, any business which provides
management, consulting or other similar services of the type provided
by any Affiliated Company (defined below) to any practice providing
dental, orthodontic, periodontic, prosthodontic, endodontic, or other
professional dental services, pediatric dentistry, or oral surgery
anywhere in the Restricted Territory (defined below);
(ii) Induce or encourage any employee, officer, director, agent,
supplier, or independent contractor of any Affiliated Company to
terminate its relationship with any such Affiliated Company, or
otherwise interfere or attempt to interfere in any way with any
Affiliated Company's relationships with its employees, officers,
directors, agents, suppliers, independent contractors, or others; or
(iii) Employ or engage any person who, at any time within the
one-year period immediately preceding such employment or engagement,
was an employee, officer, director, agent, supplier, or independent
contractor of any Affiliated Company.
For purposes of this (S)5.2(m): (A) "Affiliated Company" shall mean
ADP and all subsidiaries or affiliates of ADP other
33
than Summit Ventures IV, L.P. and Noro-Xxxxxxx Partners III, L.P., and
their affiliates which are not engaged in a business similar to that of ADP
or its subsidiaries; (B) "Restricted Territory" shall mean a radius of 30
miles from any facility or operation leased, owned, managed, or operated by
any Affiliated Company; and (C) nothing contained in this (S)5.2(m) shall
be construed to prohibit or restrict any Smileage Shareholder who is a
licensed dentist from practicing dentistry anywhere in the world.
(n) Injunctive Relief. Smileage and the Smileage Shareholders
-----------------
acknowledge and agree that ADP's remedies at law for any violation or
attempted violation of any of Smileage's or the Smileage Shareholders'
obligations under this Article would be inadequate, and agree that in the
event of any such violation or attempted violation, ADP shall be entitled
to a temporary restraining order, temporary and permanent injunctions, and
other equitable relief, without the necessity of posting any bond or
proving any actual damage, in addition to all other rights and remedies
which may be available to ADP from time to time.
(S)5.3 Covenants of ADP. ADP agrees that:
----------------
(a) Representations and Warranties. At the Closing, ADP shall
------------------------------
deliver to Smileage and the Smileage Shareholders a certificate, in form
and substance reasonably satisfactory to the Smileage Shareholders,
confirming that the representations and warranties set forth in Article III
of this Agreement are correct and complete in all material respects as of
the Closing Date.
(b) Delivery of Interim Statements. ADP shall cause the ADP Interim
------------------------------
Statements to be delivered to Smileage as soon as is reasonably
practicable.
ARTICLE VI
CONDITIONS
----------
(S)6.1 Mutual Conditions. The obligations of the Parties to consummate
-----------------
the Merger and the other transactions contemplated by this Agreement shall be
subject to the fulfillment of all of the following conditions unless waived by
both Smileage and ADP:
(a) Legal Prohibition. No temporary restraining order, preliminary or
-----------------
permanent injunction or other order or decree which prevents the
consummation of the Merger or the other transactions contemplated by this
Agreement having been issued and remaining in effect, and no statute, rule
or regulation having been enacted by any state or federal government or
governmental agency, which would prevent the consummation of
34
the Merger or the other transactions contemplated by this Agreement.
(b) Service Agreement. WDG and Smileage shall have entered into a
-----------------
Services Agreement in the form attached as Exhibit H to this Agreement (the
"Service Agreement").
(c) Governmental Approvals. Any governmental or other approvals or
----------------------
reviews of this Agreement or the transactions contemplated by this
Agreement required under any applicable laws, statutes, orders, rules,
regulations, policies or guidelines promulgated thereunder, or Smileage's
governance documents shall have been received.
(d) Xxxxx Option. ADP and Smileage shall be satisfied with the
------------
resolution of the issues arising in connection with the Xxxxx Option.
(S)6.2 Conditions to Obligations of Smileage and the Smileage Shareholders.
-------------------------------------------------------------------
The obligations of Smileage and the Smileage Shareholders to consummate the
Merger and the other transactions contemplated by this Agreement shall be
subject to the fulfillment of all of the following conditions unless waived by
Smileage and the Smileage Shareholders in writing:
(a) Representations and Warranties. The representations and
------------------------------
warranties of ADP set forth in Article III of 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.
(b) Performance of Agreement. ADP shall have performed and observed
------------------------
in all material respects all obligations and conditions to be performed or
observed by it under this Agreement at or prior to the Closing Date.
(c) Certificate. ADP shall have furnished Smileage and the Smileage
-----------
Shareholders with a certificate dated the Closing Date signed by its
president to the effect that the conditions set forth in (S)(S)6.2(a) and
(b) have been satisfied.
(d) Opinion of Counsel. Smileage and the Smileage Shareholders shall
------------------
have received the legal opinion, dated the Closing Date, of Xxxxx &
Xxxxxxxxx, counsel to ADP, in substantially the form as Exhibit I attached
to this Agreement.
(e) Authority. Smileage shall have received evidence satisfactory to
---------
it that this Agreement and the transactions contemplated by this Agreement
have been properly authorized by ADP.
35
(f) Restrictive Conditions. ADP shall be free from any agreements,
----------------------
restrictions or conditions which in the reasonable opinion of Smileage
would have a material adverse effect upon ADP's financial condition,
operations, projects, assets, business or ability to consummate this
transaction.
(g) Due Diligence. Smileage and the Smileage Shareholders shall be
-------------
satisfied with the results of their due diligence review of ADP.
(h) Financial Statements. ADP shall have delivered to Smileage the
--------------------
ADP Financial Statements and the ADP Interim Statements.
(i) Material Adverse Changes. No material adverse change having
------------------------
occurred in ADP's financial condition, operations, prospects, assets or
business.
(S)6.3 Conditions to Obligations of ADP and American. The obligations of
---------------------------------------------
ADP and American to consummate the Merger and the other transactions
contemplated by this Agreement shall be subject to the fulfillment of all of the
following conditions unless waived by ADP in writing:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Smileage and the Smileage Shareholders set forth in Article
IV of 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.
(b) Performance of Agreement. Smileage and the Smileage Shareholders
------------------------
shall have performed and observed in all material respects all obligations
and conditions to be performed or observed by them under this Agreement at
or prior to the Closing Date.
(c) Certificate. Smileage and the Smileage Shareholders shall have
-----------
furnished ADP with a certificate dated the Closing Date signed by Smileage
and all of the Smileage Shareholders to the effect that the conditions set
forth in (S)(S)6.3(a) and (b) have been satisfied.
(d) Reorganization. The Smileage Shareholders shall have caused such
--------------
reorganization or restructuring of Smileage as may be necessary or
appropriate on terms satisfactory to ADP so that the Merger complies with
all applicable federal and state laws and regulations.
(e) Restructure of WDG. WDG shall have been restructured as described
------------------
in (S)5.2(j), and ADP shall be satisfied with the organizational and
operational documents
36
and structures of WDG, including without limitation the employment and
noncompetition agreements between WDG and those Smileage Shareholders who
are employees of WDG.
(f) Authority. ADP shall have received evidence satisfactory to it
---------
that this Agreement and the transactions contemplated by this Agreement
have been properly authorized by Smileage and WDG.
(g) Professional Personnel. ADP confirming to its satisfaction that
----------------------
the professional personnel employed or otherwise retained by Smileage or
WDG support the transactions contemplated by this Agreement, including
without limitation the restructuring and operation of WDG and the ability
of WDG to support its obligations under the Service Agreement.
(h) Financial Statements. Smileage shall have delivered to ADP the
--------------------
Smileage Financial Statements and the Smileage Interim Statements.
(i) Opinion of Counsel. ADP shall have received the legal opinion,
------------------
dated the Closing Date, of Xxxxxxx & Xxxxx, S.C., counsel to Smileage and
the Smileage Shareholders, in the form attached as Exhibit J to this
Agreement.
(j) Existing Employment and Deferred Compensation Agreements. At or
--------------------------------------------------------
prior to the Closing, Smileage shall have terminated all employment
agreements or arrangements (including without limitation all individual
disability and deferred compensation arrangements) between Smileage and any
of its employees.
(k) Employment and Noncompetition Agreement with ADP. Each of Don A.
------------------------------------------------
Xxxxx, Xx. Xxxxx X. Xxxxxxxx and Xxxxx X. Xxxxxx shall have entered into an
employment and noncompetition agreement with Smileage acceptable to ADP.
(l) Employment and Noncompetition Agreements of WDG. WDG shall have
-----------------------------------------------
agreed to enter into employment and noncompetition agreements with each of
the Smileage Shareholders who are employees of WDG as required by the
Service Agreement, substantially in the form as Exhibit K attached to this
Agreement.
(m) Third Party Consents. ADP shall have received all necessary or
--------------------
appropriate third party consents and approvals relating to this Agreement
and the transactions contemplated by this Agreement, and ADP shall be
satisfied that all significant contracts of Smileage shall remain in full
force and effect after the Effective Time in accordance with the terms and
conditions of such contracts, subject to any modifications required by this
Agreement.
37
(n) Termination of Options. Prior to the Closing, all outstanding
----------------------
options, warrants, or other rights to acquire any capital stock of Smileage
which have not been exercised prior to the execution of this Agreement
shall have been terminated on terms satisfactory to ADP.
(o) Restrictive Conditions. Smileage, WDG, and the Smileage
----------------------
Shareholders shall be free from any agreements, restrictions or conditions
which in the reasonable opinion of ADP would have a material adverse effect
upon Smileage's or WDG's financial condition, operations, prospects,
assets, business, or ability to consummate the transactions contemplated by
this Agreement.
(p) Defaults. No material agreement or other document or restriction
--------
to which Smileage, WDG, or any Smileage Shareholder is subject being in
default or being breached by the transactions contemplated by this
Agreement, which in either case in the reasonable opinion of ADP would have
a material adverse effect on Smileage's or WDG's financial condition,
operations, prospects, assets, or business or on the ability of Smileage,
WDG, or any of the Smileage Shareholders to consummate the transactions
contemplated by this Agreement.
(q) Material Adverse Changes. No material adverse change having
------------------------
occurred in Smileage's or WDG's financial condition, operations, prospects,
assets, or business.
(r) Books and Records. Smileage shall have delivered to ADP all books
-----------------
and corporate records of Smileage, including without limitation the stock
books and ledgers, the corporate seal, minute books, books of account, bank
account lists and tax returns and records.
(s) Shareholders' Equity. The shareholders' equity of Smileage,
--------------------
calculated in accordance with generally accepted accounting principles,
shall not be less than $461,000 (the "Equity Requirement") as of the
Closing; provided that, in the event the Closing occurs after October 31,
1996, the Equity Requirement shall increase automatically at a rate of
$12,000 per month, prorated on a daily basis through the date of the
Closing. If the Equity Requirement is not met, then ADP may, at its option
elect to waive this condition, proceed with the Closing: and (i) reduce
the number of ADP Shares which the Smileage Shareholders are to receive at
the Closing by an amount agreed upon by ADP and Smileage (with such
reduction to be allocated among the ADP Shares to be issued to the Smileage
Shareholders, respectively, in proportion to the respective interests of
the Smileage Shareholders in the total number of ADP Shares which could be
issued but for such reduction); or (ii) in the event ADP and Smileage are
unable to reach such an
38
agreement by the Closing Date, ADP may instead reduce the Cash
Consideration by the amount by which the shareholders' equity of Smileage
is less than the Equity Requirement. For purposes of determining
compliance with such condition, such shareholders' equity shall be based
upon financial statements (the "Closing Financial Statements") prepared in
accordance with generally accepted accounting principles, as of a date
which is not more than three business days prior to the Closing, by BDO
Xxxxxxx and approved by any firm of independent certified public
accountants selected by ADP (the "ADP CPAs"). Smileage shall, and shall
cause BDO Xxxxxxx to, permit representatives of ADP and the ADP CPAs to
review all aspects of the preparation of the Closing Financial Statements,
including without limitation review of all work papers of BDO Xxxxxxx.
(t) Capital Expenditures. The aggregate capital expenditures and
--------------------
capital lease obligation of Smileage, calculated in accordance with
generally accepted accounting principles, for the period beginning on
September 1, 1996 and ending on the Closing Date shall not be more than
$758,000.
(u) Agreement Between Smileage and GDP. Georgia Dental Plan, Inc.
----------------------------------
shall have entered into an administrative services agreement with Smileage
substantially in the form of Exhibit L attached to this Agreement.
(v) Compliance with Laws. ADP shall have (i) received evidence
--------------------
reasonably satisfactory to it that the business of Smileage has been, at
all times prior to the Closing, in compliance in all material respects with
all Applicable Laws relating directly or indirectly to the provision of
dental services; and (ii) confirmed to its satisfaction that the
transactions contemplated by this Agreement will be in compliance with all
applicable federal and state laws and regulations.
(w) Related Party Transactions. ADP shall be satisfied that all
--------------------------
transactions between Smileage or WDG and any Affiliate of Smileage or WDG
are on arm's-length terms and conditions.
(x) Contract with First Commonwealth. ADP shall be satisfied with the
--------------------------------
contractual arrangements between Smileage and First Commonwealth.
(y) Due Diligence. ADP shall be satisfied with the results of its due
-------------
diligence review of Smileage and WDG.
39
ARTICLE VII
TERMINATION AND AMENDMENT
-------------------------
(S)7.1 Termination.
-----------
(a) Termination by Smileage and the Smileage Shareholders. This
-----------------------------------------------------
Agreement may be terminated and cancelled at any time prior to the
Effective Time by Smileage and the Smileage Shareholders: (i) if (A) any of
the representations or warranties of ADP contained in this Agreement or the
ADP Schedules, if any, shall prove to be inaccurate in any material
respect, or any obligation or condition to be performed or observed by ADP
under this Agreement has not been performed or observed in any material
respect at or prior to the time specified in this Agreement, and (B) such
inaccuracy or failure shall not have been cured within 15 business days
after receipt by ADP of written notice of such occurrence from Smileage and
the Smileage Shareholders; or (ii) if any permanent injunction or other
order of a court or other competent authority preventing consummation of
the Merger or any other transaction contemplated by this Agreement shall
have become final and non-appealable.
(b) Termination by ADP. This Agreement may be terminated and
------------------
cancelled at any time prior to the Effective Time by ADP: (i) if (A) any of
the representations or warranties of Smileage or any of the Smileage
Shareholders contained in this Agreement or the Smileage Schedules shall
prove to be inaccurate in any material respect, or any obligation or
condition to be performed or observed by Smileage or any of the Smileage
Shareholders under this Agreement has not been performed or observed in any
material respect at or prior to the time specified in this Agreement, and
(B) such inaccuracy or failure shall not have been cured within 15 business
days after receipt by Smileage and the Smileage Shareholders of written
notice of such occurrence from ADP; (ii) if any permanent injunction or
other order of a court or other competent authority preventing consummation
of the Merger or any other transaction contemplated by this Agreement shall
have become final and non-appealable; (iii) in the event of a material
adverse loss or damage to, or condemnation of the property or assets of
Smileage, it being understood among the Parties that none of the risk of
any such loss or damage prior to the Closing shall be borne by ADP; (iv) if
within 15 business days after ADP's receipt of the Smileage Interim
Statements, ADP shall notify Smileage that it does not approve the Smileage
Interim Statements; or (v) if the Closing has not occurred on or before
December 31, 1996.
(S)7.2 Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed by all of the Parties.
40
(S)7.3 Extension; Waiver. At any time prior to the Effective Time, ADP
-----------------
(with respect to Smileage) and Smileage and the Smileage Shareholders (with
respect to ADP) may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other Party; (ii)
waive any inaccuracies in the representations and warranties contained in this
Agreement or in any document delivered pursuant hereto; or (iii) waive
compliance with any of the agreements or conditions contained in this Agreement.
Any agreement on the part of a Party to any such extension or waiver shall be
valid only if set forth in a written instrument signed by such Party.
ARTICLE VIII
INDEMNIFICATION
---------------
(S)8.1 Survival of Representations, Warranties and Agreements.
------------------------------------------------------
(a) Subject to the limitations set forth in (S)8.3, below, and
notwithstanding any investigation conducted at any time with regard thereto
by or on behalf of any Party hereto, all representations, warranties,
covenants and agreements in this Agreement and in any other documents
executed or delivered pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement (the "Additional Documents")
shall survive the execution, delivery and performance of this Agreement and
the Additional Documents. All representations and warranties set forth in
this Agreement and in the Additional Documents shall be deemed to have been
made again at and as of the Effective Time.
(b) As used in this Article, any reference to a representation,
warranty or covenant contained in any section of this Agreement shall
include the Schedule relating to such section.
(S)8.2 Indemnification.
---------------
(a) Subject to the limitations set forth in (S)8.3, below, ADP (on
the one hand) and the Smileage Shareholders, jointly and severally, or
severally as to those representations made severally (on the other hand),
shall indemnify and hold harmless the Party entitled to be indemnified (the
"Indemnified Party," whether one or more) from and against any and all
losses, liabilities, damages, demands, claims, suits, actions, judgments or
causes of action, assessments, costs and expenses, including without
limitation interest, penalties, attorneys' fees, any and all expenses
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts
paid in settlement of any claim or litigation (collectively, "Damages"),
asserted against, resulting to, imposed upon, or incurred or suffered by
the Indemnified
41
Party, directly or indirectly, as a result of or arising from: (i) any
inaccuracy in or breach or nonfulfillment of any of the representations,
warranties, covenants or agreements made by the other Party in this
Agreement or the Additional Documents; or (ii) any Excluded Liability
(defined below).
(b) For purposes of this Agreement: (i) the term "Excluded
Liability" shall include any and all claims of any holder of any legal or
beneficial interest in the Smileage Shares which are based upon, related
to, or arise out of any agreements, transactions, acts, or omissions made
or occurring prior to the Effective Time, including without limitation the
claims of any such holder who dissents with respect to the Merger,
excepting only any claims against ADP or American arising out of the
failure of either of them to perform their respective obligations under
this Agreement; and (ii) the term "Indemnifiable Claims" shall mean the
matters with respect to which the Indemnified Party is entitled to
indemnification under (S)8.2(a).
(c) For purposes of this Article, all Damages shall be computed net
of any insurance proceeds actually collected by the Indemnified Party. The
Indemnified Party agrees to assign to the Party against whom
indemnification is being sought (the "Indemnifying Party," whether one or
more) its rights to receive any other insurance proceeds which may
otherwise reduce the Damages. The Indemnifying Party shall thereafter have
the right to pursue any such insurance proceeds. The Indemnified Party
shall have no obligation to present or pursue any claim for insurance with
respect to any Damages.
(d) Each Party shall be deemed to have suffered Damages arising out
of or resulting from the matters referred to in (S)8.2(a), above, if the
same shall be suffered by any parent, subsidiary or affiliate of such
Party.
(e) The liability hereunder of the Smileage Shareholders shall be
joint and several with respect to the breach of any representation,
warranty or covenant in this Agreement and in any Additional Document and
several and not joint with respect to the breach of any covenant which is
several in the Agreement and in any Additional Document.
(S)8.3 Limitations on Indemnification. Rights to indemnification under
------------------------------
(S)8.2(a)(i) are subject to the following limitations:
(a) ADP shall not be entitled to indemnification hereunder with
respect to an Indemnifiable Claim under (S)8.2(a) arising out of a breach
of a representation or warranty (or,
42
if more than one such Indemnifiable Claim is asserted, with respect to all
such Indemnifiable Claims) unless the aggregate amount of Damages with
respect to such Indemnifiable Claim or Claims exceeds $50,000, in which
event the indemnity provided for above, shall be effective for all amounts
in excess of $50,000. Notwithstanding the foregoing, there shall be no
dollar limitations and no threshold amount with respect to an Indemnifiable
Claim relating to a breach of the representations and warranties set forth
in (S)(S)4.2, 4.3, 4.5, and 4.11.
(b) The obligation of indemnity with respect to the representations
and warranties set forth in (S)4.10 of this Agreement shall terminate on
the expiration of the respective periods of limitations applicable to
assessment and collection of taxes under laws then applicable to such
taxes, with respect to the representations and warranties as to the absence
of unpaid or undisclosed taxes (including any interest, penalties or
expenses) of Smileage.
(c) The obligation of indemnity with respect to the representations
and warranties set forth in (S)4.19 of this Agreement shall terminate upon
expiration of the respective statutes of limitation applicable to the items
addressed in such section.
(d) The obligation of indemnity with respect to the representations
and warranties contained in (S)(S)4.2, 4.3, 4.5, and 4.11 of this Agreement
shall not expire.
(e) The obligation of indemnity with respect to the representations
and warranties set forth in Article IV of this Agreement other than those
addressed in the immediately preceding subsections (b), (c), and (d) shall
terminate on the date which is 90 days after the third anniversary of the
Effective Time.
(f) The foregoing provisions of this (S)8.3 notwithstanding, if, prior
to the termination of any obligation to indemnify, written notice of a
claimed breach or other occurrence or matter giving rise to a claim of
indemnification is given by the Indemnified Party to any other Party, or a
suit or action based upon a claimed breach is commenced against any Party,
the Indemnified Party shall not be precluded from pursuing such claimed
breach, occurrence, other matter, or suit or action, or from recovering
from the other Party (whether through the courts or otherwise) on the
claim, suit or action, by reason of the termination otherwise provided for
above.
(g) The foregoing provisions of this Article VIII notwithstanding, the
total liability of Smileage and the
43
Smileage Shareholders for Damages with respect to all Indemnifiable Claims
shall not exceed $4,900,000 in the aggregate.
(S)8.4 Procedure for Indemnification with Respect to Third Party Claims.
----------------------------------------------------------------
(a) If a Party desires to seek indemnification under this Article
with respect to Indemnifiable Claims resulting from the assertion of
liability by third parties, it shall give notice to the Indemnifying Party
within a reasonable period of time of the Indemnified Party's becoming
aware of any such Indemnifiable Claim, which notice shall set forth such
material information with respect to such Indemnifiable Claim as is then
reasonably available to the Indemnified Party. If any such liability is
asserted against the Indemnified Party and the Indemnified Party notifies
the Indemnifying Party of such liability, the Indemnifying Party shall be
entitled, if they so elect by written notice delivered to the Indemnified
Party within a reasonable period of time (not to exceed 15 days in any
event) after receiving the Indemnified Party's notice (the "Response
Period"), to assume the defense of such asserted liability with counsel
satisfactory to the Indemnified Party. Notwithstanding the foregoing: (i)
the Indemnified Party shall not have any obligation to give any notice of
any assertion of liability by a third party unless such assertion is in
writing; and (ii) the rights of the Indemnified Party to be indemnified in
respect of Indemnifiable Claims resulting from the assertion of liability
by third parties shall not be adversely affected by its failure to give
notice pursuant to the foregoing provisions unless, and, if so, only to the
extent that, the Indemnifying Party is materially prejudiced by such
failure. With respect to any assertion of liability by a third party that
results in an Indemnifiable Claim, the Parties shall make available to each
other all relevant information in their possession which is material to any
such assertion.
(b) In the event that the Indemnifying Party fails to assume the
defense of the Indemnified Party against any such Indemnifiable Claim,
within the Response Period, the Indemnified Party shall have the right to
defend, compromise or settle such Indemnifiable Claim on behalf, for the
account, and at the risk of the Indemnifying Party.
(c) Notwithstanding anything in this (S)8.4 to the contrary, (i) if
there is a reasonable probability that an Indemnifiable Claim may
materially and adversely affect the Indemnified Party, its subsidiaries or
affiliates, other than as a result of money damages or other money
payments, then the Indemnified Party shall have the right, at the cost and
expense of the Indemnifying Party, to defend, compromise or
44
settle such Indemnifiable Claim; and (ii) the Indemnifying Party shall not,
without the Indemnified Party's prior written consent, settle or compromise
any Indemnifiable Claim or consent to entry of any judgment in respect of
any Indemnifiable Claim unless such settlement, compromise or consent
includes as an unconditional term the giving by the claimant or the
plaintiff to the Indemnified Party (and its subsidiaries and affiliates) a
release from all liability in respect of such Indemnifiable Claim.
(S)8.5 Procedure For Indemnification with Respect to Non-Third Party
-------------------------------------------------------------
Claims. In the event that the Indemnified Party asserts the existence of an
------
Indemnifiable Claim giving rise to Damages (but excluding Indemnifiable Claims
resulting from the assertion of liability by third parties), it shall give
written notice to the Indemnifying Party specifying the nature and amount of the
Indemnifiable Claim asserted. If the Indemnifying Party, within 15 days after
the receipt of such notice by the Indemnified Party, have not given written
notice to the Indemnified Party announcing their intent to contest such
assertion by the Indemnified Party, such assertion shall be deemed accepted and
the amount of Indemnifiable Claim shall be deemed a valid Indemnifiable Claim.
In the event, however, that the Indemnifying Party contests the assertion of an
Indemnifiable Claim by giving such written notice to the Indemnified Party
within such 15-day period, then if the Parties, acting in good faith, cannot
reach agreement with respect to such Indemnifiable Claim within 10 days after
such notice, the contested assertion of the claim shall be referred to binding
arbitration in Milwaukee, Wisconsin, in accordance with the then-current rules
of the American Arbitration Association. The determination made in accordance
with such rules shall be delivered in writing to the Parties and shall be final
and binding and conclusive on the Parties and the amount of the Indemnifiable
Claim, if any, determined to exist shall be a valid Indemnifiable Claim. Each
Party shall pay its own legal, accounting and other fees and expenses in
connection with such a contest; provided that if the contested claim is referred
to and ultimately determined by arbitration, the legal, accounting and other
fees and expenses of the prevailing Party and the fees and expenses of any
arbitrator shall be borne by the non-prevailing Party.
(S)8.6 Right of Setoff. In addition to its other rights under this
---------------
Agreement and the Additional Documents, each Party shall have the right to
setoff any amounts owing to such Party by any other Party against any amounts
owing to such other Party, whether pursuant to this Agreement, the Additional
Documents or otherwise.
45
ARTICLE IX
MISCELLANEOUS
-------------
(S)9.1 Attorney In Fact. Each Smileage Shareholder hereby
----------------
irrevocably appoints [____________________] as such Smileage Shareholder's
attorney-in-fact and agent ("Agent"), and grants to [____________________] full
power and authority to take any and all actions, and perform and do any and all
things, in such Smileage Shareholder's place and stead, which
[____________________] may deem necessary or appropriate in connection with this
Agreement or the transactions contemplated by this Agreement, as fully as such
Smileage Shareholder might or could do if personally present and acting,
including without limitation executing, acknowledging or verifying, and
delivering any amendments, agreements, consents, certificates, acknowledgements
or other documents described in or relating to this Agreement or the
transactions contemplated by this Agreement, receiving and giving notices under
this Agreement, and taking any and all other actions which are permitted or
required to be taken by such Smileage Shareholder under this Agreement.
(S)9.2 Notices. All notices and other communications under this
-------
Agreement to any Party shall be in writing and shall be deemed given when
delivered personally, telecopied (which is confirmed) to that Party at the
telecopy number for that Party set forth below, mailed by certified mail (return
receipt requested) to that Party at the address for that Party (or at such other
address for such Party as such Party shall have specified in notice to the other
Parties), or delivered to Federal Express, United Parcel Service, or any similar
express delivery service for delivery to that Party at that address:
(a) If to ADP:
American Dental Partners, Inc.
000 Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxxxx, President
Telecopy No.: (000) 000-0000
with a copy to
Xxxxx & Xxxxxxxxx
00 Xxxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxx 00000
Attention: Xxxx X. Xxxxxx, Esq.
Telecopy No.: (000) 000-0000
46
(b) If to Smileage:
Smileage Dental Care, Inc.
0000 Xxxxx Xxxxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxx X. Xxxxx, President
Telecopy No.: (414) ____________
with a copy to
Xxxxxxx & Muren, S.C.
000 Xxxxx Xxxxxxxxxx Xxxx
Xxxxx 000
Xxxxxxxxxxx Xxxx I
Drawer 825
Milwaukee, Wisconsin 53008-0825
Attention: Xxxxxx X. Xxxxxxx, Esq.
Telecopy No.: (000) 000-0000
(c) If to any Smileage Shareholder, to Agent
at the following address:
Xxxxx X. Xxxxxxxx, D.D.S.
000 Xxxx Xxxxxxxxx Xxxx
Xxxxxxx, Xxxxxxxxx 00000
with a copy to
Xxxxxxx & Xxxxx, S.C.
000 Xxxxx Xxxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxxx Xxxx I
X.X. Xxxxxx 000
Xxxxxxxxx, Xxxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxxxx, Xx., Esq.
Telecopy No.: (000) 000-0000
(S)9.3 Non-Waiver. No failure by any Party to insist upon strict
----------
compliance with any term or provision of this Agreement, to exercise any option,
to enforce any right, or to seek any remedy upon any default of any other Party
shall affect, or constitute a waiver of, any other Party's right to insist upon
such strict compliance, exercise that option, enforce that right, or seek that
remedy with respect to that default or any prior, contemporaneous, or subsequent
default. No custom or practice of the Parties at variance with any provision of
this Agreement shall affect or constitute a waiver of, any Party's right to
demand strict compliance with all provisions of this Agreement.
(S)9.4 Genders and Numbers. Where permitted by the context, each pronoun
-------------------
used in this Agreement includes the same pronoun in other genders and numbers,
and each noun used in this Agreement includes the same noun in other numbers.
47
(S)9.5 Headings. The headings of the various articles and sections of
--------
this Agreement are not part of the context of this Agreement, are merely labels
to assist in locating such articles and sections, and shall be ignored in
construing this Agreement.
(S)9.6 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same Agreement.
(S)9.7 Entire Agreement. This Agreement (including all exhibits,
----------------
schedules, and other documents referred to in this Agreement (the "Incorporated
Documents"), all of which are hereby incorporated by reference) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the Parties with respect to the subject matter of this
Agreement, including without limitation the Letter Agreement dated September 30,
1996. All obligations of any Party under any Incorporated Document shall
constitute an obligation of such Party under this Agreement. Any capitalized
terms used in any Incorporated Document which are not otherwise defined therein
shall have the respective meanings given such terms in this Agreement.
(S)9.8 No Third Party Beneficiaries. Nothing contained in this Agreement,
----------------------------
expressed or implied, is intended or shall be construed to confer upon or give
to any person, firm, corporation or legal entity, other than the Parties and
American, any rights, remedies or other benefits under or by reason of this
Agreement.
(S)9.9 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Wisconsin without regard to
principles of conflicts of law.
(S)9.10 Binding Effect; Assignment. This Agreement shall be binding upon,
--------------------------
inure to the benefit of and be enforceable by and against the Parties and their
respective heirs, personal representatives, successors, and assigns. Neither
this Agreement nor any of the rights, interests or obligations under this
Agreement shall be transferred or assigned by any of the Parties without the
prior written consent of the other Parties.
(S)9.11 Remedies. All rights and remedies of each Party under this
--------
Agreement shall be cumulative and in addition to all other rights and remedies
which may be available to that Party from time to time, whether under any other
agreement, at law, or in equity.
(S)9.12 Expenses. Except as otherwise specifically provided in this
--------
Agreement, each Party will bear his, her, and its respective legal, accounting,
and other costs and expenses associated with the transactions contemplated by
this Agreement (including without limitation the costs of any brokers and
financial advisors), it being understood that all such costs and expenses
incurred by Smileage shall be paid by the Smileage Shareholders.
48
(S)9.13 Public Announcements. This Agreement and the transactions
--------------------
contemplated herein shall be confidential and no Party shall disclose any
information relating to this transaction without the prior written consent of
Smileage and the president of ADP, except for such disclosures to such
professional advisors as may be necessary or appropriate in order to complete
the Merger and related transactions. Each Party and its representatives will
exercise all reasonable efforts to maintain confidentiality with respect to this
transaction at all times prior to the public announcement, if any, of this
Agreement. The provisions of this section will be subject to each Party's
obligation to comply with applicable requirements of federal or state laws or
any governmental order or regulation.
(S)9.14 Severability. With respect to any provision of this Agreement
------------
finally determined by a court of competent jurisdiction to be unenforceable,
such court shall have jurisdiction to reform such provision so that it is
enforceable to the maximum extent permitted by applicable law, and the Parties
shall abide by such court's determination. In the event that any provision of
this Agreement cannot be reformed, such provision shall be deemed to be severed
from this Agreement, but every other provision of this Agreement shall remain in
full force and effect.
AMERICAN DENTAL PARTNERS, INC.
By /s/ Xxxxxxx X. Xxxxxx
-------------------------------------
Xxxxxxx X. Xxxxxx, President
SMILEAGE DENTAL CARE, INC.
By /s/ Xxx X. Xxxxx
-------------------------------------
Xxx X. Xxxxx, President
/s/ Xxxxx X. Xxxxxxxx
----------------------------------------
XXXXX X. XXXXXXXX, D.D.S.
/s/ Xxxx Xxxxxx
----------------------------------------
XXXX XXXXXX, D.D.S., M.S.
[Signatures continued on following page]
49
XXX XXXXXX TRUST
By /s/ Xxx Xxxxxx
-------------------------------------
Xxx Xxxxxx, Trustee
/s/ Xxxxxx X. Xxxxxxxxx, D.D.S.
----------------------------------------
XXXXXX X. XXXXXXXXX, D.D.S.
/s/ Xxxxxxx Xxxxxxxxx, D.D.S.
----------------------------------------
XXXXXXX XXXXXXXXX, D.D.S.
/s/ Xxxxxx X. Xxxxxxxxx, D.D.S.
----------------------------------------
XXXXXX X. XXXXXXXXX, D.D.S.
/s/ Xxxxxx X. Xxxx, D.D.S.
----------------------------------------
XXXXXX X. XXXX, D.D.S.
/s/ Xxx X. Xxxxx
----------------------------------------
XXX X. XXXXX
50
