CONTRIBUTION AGREEMENT

Exhibit 10.1

CONTRIBUTION AGREEMENT

AMONG

CARE FOR KIDS – USA, LLC,

a Delaware limited liability company,

CENTRAL’S TOOTH DOCTOR FOR KIDS, LLC,

an Arizona limited liability company,

A TOOTH DOCTOR FOR KIDS, LLC,

a Nevada limited liability company,

EAST VALLEY’S TOOTH DOCTOR, L.L.C.,

an Arizona limited liability company,

ARIZONA’S TOOTH DOCTOR FOR KIDS – GLOBE, LLC,

an Arizona limited liability company,

ARIZONA’S KIDS DENTAL CARE, LLC,

an Arizona limited liability company,

ARIZONA’S TOOTH DOCTOR, PC,

an Arizona professional corporation,

BRENCHLEY DENTAL CONTRACTING, PLC,

an Arizona professional corporation,

ERICKSON FAMILY TRUST dated July 20, 2000,

with Christine E. Erickson and Jeffrey T. Erickson as Trustees,

ERICKSON INVESTMENT LIMITED PARTNERSHIP,

a Nevada limited partnership,

ERICKSON CHILDREN’S EDUCATIONAL TRUST dated December 29, 1999,

with Christine E. Erickson and Jeffrey T. Erickson as Trustees,

AND

JEFFREY T. ERICKSON, D.D.S.,

CHRISTOPHER BARNEY, D.D.S.,

EMERICO GOMEZ, JR., D.D.S.

PAUL BRENCHLEY, D.D.S.

CHRISTE D. ERICKSON

October 25, 2006

 

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DEFINED TERMS LOCATOR LIST

 

 

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CONTRIBUTION AGREEMENT

This Contribution Agreement (this “ Agreement ”) is made October 25, 2006, among Care for Kids – USA, LLC, a Delaware limited liability company (“ Care for Kids ”), Central’s Tooth Doctor for Kids, LLC, an Arizona limited liability company (“ Central ”), A Tooth Doctor for Kids, LLC, a Nevada limited liability company (“ Doctor for Kids ”), East Valley’s Tooth Doctor, L.L.C., an Arizona limited liability company (“ East Valley ”), Arizona’s Tooth Doctor for Kids – Globe, LLC, an Arizona limited liability company (“ Globe ”), Arizona’s Kids Dental Care, LLC, an Arizona limited liability company (“ Kids Dental ”) (Central, Doctor for Kids, East Valley, Globe, and Kids Dental may be referred to herein collectively as “ Sellers ”), and Arizona’s Tooth Doctor, PC, an Arizona professional corporation (“ Tooth PC ”), Jeffrey T. Erickson, D.D.S. (“ Dr. Erickson ”), Christopher Barney, D.D.S. (“ Dr. Barney ”), Emerico Gomez, Jr. (“ Dr. Gomez ”), Paul Brenchley, D.D.S. (“ Dr. Brenchley ”), Christe D. Erickson (“ Ms. Erickson ”), Brenchley Dental Contracting, PLC, an Arizona professional corporation controlled by Dr. Brenchley (“ Brenchley PLC ”), Erickson Family Trust dated July 20, 2000, with Christine E. Erickson and Jeffrey T. Erickson as Trustees (“ Erickson Living Trust ”), Erickson Investment Limited Partnership, a Nevada limited partnership controlled by Dr. Erickson (“ EILP ”), and the Erickson Children’s Educational Trust dated December 29, 1999, with Christine E. Erickson and Jeffrey T. Erickson as Trustees (“ Erickson Children’s Trust ”) (Tooth PC, Dr. Erickson, Dr. Barney, Dr. Gomez, Dr. Brenchley, Ms. Erickson, Brenchley PLC, Erickson Living Trust, EILP, and Erickson Children’s Trust may be referred to herein collectively as “ Owners ”). Sellers and Owners may sometimes be referred to herein collectively as “ Tooth Doctor .” Care for Kids and Tooth Doctor may be referred to herein collectively as the “ Parties .” Care for Kids shall perform or cause to be performed any obligation in this Agreement that is to be performed by Care for Kids of Arizona, LLC, a Delaware limited liability company and wholly-owned subsidiary of Care for Kids (“ Arizona Subsidiary ”).

Background Information

Tooth Doctor operates a dental practice specializing in the treatment of children, including primarily children covered by Arizona’s Medicaid program called Arizona Health Care Cost Containment System (“ AHCCCS ”), with five locations in the Phoenix, Arizona metropolitan area and one location in Globe, Arizona (the “ Business ”). Sellers desire to contribute substantially all of their assets used in the Business to Care for Kids, subject to certain liabilities, and Care for Kids desires to assume those liabilities and to admit Owners as members of Care for Kids, all as more fully described below (collectively, the “ Contribution ”). The Parties are entering into this Agreement to provide for the Contribution and certain related transactions and agreements.

 

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Statement of Agreement

The Parties acknowledge the accuracy of the foregoing Background Information and hereby agree as follows:

ARTICLE I

CONTRIBUTION OF PROPERTY

1.1. Contribution of Property . On the terms and subject to the conditions described in this Agreement, at the Closing (as defined in Section 1.5, below), Sellers shall contribute, assign, transfer, convey, and deliver to Care for Kids all of the assets (other than the Excluded Assets, as defined in Section 1.2, below) used in connection with the operation of the Business (the “ Contributed Property ”), including without limitation the following:

(a) All furniture, fixtures, equipment, inventory, and office and dental supplies of Sellers (collectively, the “ FFE, Inventory, and Supplies ”), including without limitation those which are identified on Schedule 1.1(a) ;

(b) All notes receivable of Sellers (collectively, the “ Notes Receivable ”), including without limitation those which are identified on Schedule 1.1(b) ;

(c) All prepaid expenses of Sellers (collectively, the “ Prepaids ”), including without limitation those which are identified on Schedule 1.1(c) ;

(d) All of Seller’s rights in, to, and under all contracts which are identified on Schedule 1.1(d) (collectively, the “ Assumed Contracts ”), including without limitation, with respect to any Assumed Contract that is a lease for a dental facility used by Sellers, any security deposit or letter of credit given under such lease;

(e) All Permits (as defined in Section B.11, below) which are necessary in order for Care for Kids to operate the Business after the Closing (the “ Assignable Permits ”), including without limitation those which are identified on Schedule 1.1(e) ;

(f) All Proprietary Rights and Software (each as defined in Section B.12, below) and all goodwill and other intangibles of Sellers (collectively, the “ Intangibles ”), including without limitation the Proprietary Rights, Software, and Intangibles which are identified on Schedule 1.1(f) ;

(g) Cash and cash equivalents of Sellers as of the Effective Time, in the following amounts (the “ Required Cash ”):

(i) If the Closing (as defined in Section 1.5, below) occurs on or after the first day of a month but prior to the sixth day of a month, the Required Cash shall equal $50,000 times the number of business days between the first day of the month and the Closing;

(ii) If the Closing occurs on or after the sixth day of the month but prior to the 22 ^nd day of the month, there shall be no Required Cash, but Care for Kids shall reimburse Sellers for regular accrued payroll obligations incurred on behalf of Care for Kids by paying the difference between the actual regular payroll paid by Sellers and $50,000 times the number of business days between the sixth day of such month and the Closing, all as detailed on the Settlement Statement (as defined in Section 1.4(a)); and

 

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(iii) If the Closing occurs on or after the 22 ^nd day of the month but prior to the first day of the next calendar month, there shall be no Required Cash.

(h) All accounts receivable of Sellers as of the Effective Time (the “ Accounts Receivable ”), including without limitation those which are identified on Schedule 1.1(h) ;

(i) All patient records of Sellers (the “ Patient Records ”);

(j) All agreements between any Seller and any dentist employed or otherwise retained by any Seller (including without limitation the Owners) and any third party providing for payment for dental services rendered by any Seller or such dentist, as applicable (the “ Third-Party Payor Agreements ”), including without limitation those which are identified on Schedule 1.1(j) ;

(k) All contracts with patients of any Seller or any dentist employed or otherwise retained by any Seller for the future provision of dental or orthodontic services by Sellers or such dentist, as applicable (the “ Future Services Contracts ”), including without limitation those which are identified on Schedule 1.1(k) ;

(l) All employment and independent contractor agreements with dentists and dental specialists employed or otherwise retained by any Seller (the “ Dentist Agreements ”), including without limitation those which are identified on Schedule 1.1(l) ; and

 

(m)	Sellers’ goodwill with respect to the Business as a going concern (collectively, the “ Goodwill ”).

1.2. Excluded Assets . Notwithstanding any other provision of this Agreement to the contrary, the following items (the “ Excluded Assets ”) shall be excluded from the Contribution:

(a) All Permits other than the Assignable Permits;

(b) All corporate or limited liability company books and records of Sellers, including without limitation corporate or limited liability company minute books, stock ledgers, books of account, general ledgers, financial statements, and tax returns and records;

(c) All cash and cash equivalents of Sellers in excess of the Required Cash;

(d) All bank accounts of Sellers as of the Effective Time;

(e) All leasehold improvements; and

(f) The assets identified on Schedule 1.2 , if any.

1.3. Liabilities Assumed . Care for Kids shall assume the following liabilities of Sellers (collectively, the “ Assumed Liabilities ”):

(a) The liabilities of Sellers first arising at or after the Effective Time (as defined in Section 1.5, below) under the Assumed Contracts;

 

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(b) Current trade payables that are outstanding not more than 45 days incurred in the ordinary course of business consistent with past practices, including those payables set forth on Schedule 1.3(b) ; and

(c) Those other liabilities of the Business, if any, specifically identified in the attached Schedule 1.3(c) .

Except as specifically provided in the first paragraph of this Section 1.3, Care for Kids shall not assume, or in any way be liable or responsible for, any claims, liabilities, obligations, or debts of Sellers, including without limitation any liabilities relating to: (i) federal, state or local tax liabilities or obligations of any Seller in respect of periods prior to and through the date of the Closing or resulting from the consummation of the transactions contemplated herein including, without limitation, any income tax, any franchise tax, any tax recapture, any sales and/or use tax, any state and local recording fees and taxes which may arise upon the consummation of the transactions contemplated herein, and any FICA, FUTA, workers’ compensation, and any and all other taxes or amounts due and payable as a result of the exercise by the employees of any Seller of such employee’s right to vacation, sick leave, and holiday benefits accrued while in the employ of a Seller; (ii) any pension, profit sharing, or employee benefit plans covering any of the employees of any Seller for any period prior to the Closing; (iii) express or implied warranties; (iv) any acts or omissions of any Seller or any employee, agent, representative, member, or shareholder of any Seller (including without limitation those related directly or indirectly to any tort claim asserted against any Seller or any employee, agent, or representative of any Seller); (v) claims for breach of contract; and (vi) other claims of any kind whatsoever, or any other liabilities of any Seller, direct or contingent, including without limitation, any matters disclosed in the schedules referenced in Exhibit B and Sellers shall pay or discharge all such liabilities as and when due.

1.4. Consideration . In consideration of the contribution of the Business to Care for Kids:

(a) Cash Consideration. At the Closing, Care for Kids shall pay Sellers through direct payments to the Owners (which shall be deemed payments to Sellers followed by an immediate distribution to Owners) cash in the amount of $18,700,000, by wire transfer (the “ Cash Consideration ”), allocated and payable to Sellers and Owners as set forth in the Settlement Statement attached to this Agreement as Exhibit 1.4(a) (the “ Settlement Statement ”), it being understood and agreed that, except as specifically contemplated by §1.3, above, as of the Closing, all debt of the Business, including without limitation equipment leases, outstanding credit card balances and cash advances carried on the Business balance sheet, shall have been paid off, and that Care for Kids shall have the right to pay such pay-off amounts directly to the creditors of the Business out of the Cash Consideration, and reduce the amount of Cash Consideration otherwise payable to Sellers (all as further detailed on the Settlement Statement);

(b) Assumption of Liabilities. At the Closing, Care for Kids shall assume the Assumed Liabilities by executing and delivering an assumption agreement in the form previously agreed upon by the Parties (the “ Assignment and Assumption Agreement ”), as well as each Assignment, Assumption, and Amendment of Lease (as defined in Section 3.2(d)(vii), below) and each Assignment and Assumption of Lease (as defined in Section 3.2(d)(viii), below); and

 

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(c) Issuance of Units. At the Closing, Care for Kids shall issue to Owners (which shall be deemed issuance to Sellers, followed by an immediate distribution to Owners) 15,000 Units (as defined in the Operating Agreement), representing 15% of the total number of Units issued and outstanding after the issuance of such Units, with such Units allocated among the Sellers and Owners as follows (all as more fully provided for in the Operating Agreement), and in such names as may be directed by Owners, subject to the approval of Care for Kids, which shall not be unreasonably withheld:

 

(d) Earn Out. Not later than March, 30, 2008, Care for Kids will make an additional cash payment (by wire transfer) by direct payments to Owners (which shall be deemed payments to Sellers followed by an immediate distribution to Owners) in an amount equal to 85% of the result obtained when the amount, if any, by which Arizona Subsidiary’s 2007 EBITDA (as defined below) exceeds $4,000,000 is multiplied by 4 (the “ Earn Out Payment ”). The Earn Out Payment shall be allocated among Sellers and Owners in the same proportions as the Cash Consideration. For purposes of calculating the 2007 EBITDA all revenues related to the Business, regardless of which entity recognizes such revenues for accounting purposes, shall be included.

For purposes of this Section 1.4(d), the term “ 2007 EBITDA ” means, earnings, before interest, taxes, depreciation, and amortization (“ EBITDA ”), based upon Generally Accepted Accounting Principles, realized from Sellers’ current dental offices used in the operation of the Business, specifically excluding any dental offices that may be added to Tooth

 

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Doctor or Arizona Subsidiary subsequent to the Closing, net of all direct costs associated with administering the Business, including but not limited to, the costs of the Chief Executive Officer and the Director of Operations of Arizona Subsidiary and related expenses, and any and all inter-company expense allocations for the cost of personnel performing direct services to or on behalf of Arizona Subsidiary, such as accounting, payroll, and similar services, as well as other allocations directly benefiting Arizona Subsidiary, such as external payroll processing fees and practice management software and support fees. Notwithstanding the foregoing, such direct costs shall not include any salary or expenses for other officers or senior managers of any American Dental Partners, Inc., a Delaware corporation (“ ADPI ”) related entity, including Care for Kids or ADP-CFK, LLC, a Delaware limited liability company and wholly-owned subsidiary of ADPI and parent of Care for Kids (“ ADP-CFK ”). Notwithstanding the foregoing, to the extent any costs paid by Care for Kids related to the asphalt for the University Drive property is expensed rather than capitalized, such expensed item shall not be included in the calculation of 2007 EBITDA. If applicable, for purposes of the Earn Out Payment calculation, the minority interest expense resulting from the Owners’ equity ownership in Care for Kids shall be added back to EBITDA. Owners shall have the right to engage independent auditors, at reasonable times and upon reasonable prior notice to Care for Kids, to review the books and records of Care for Kids and Arizona Subsidiary in connection with the calculation of the Earn Out; provided that such engagement shall be solely an expense of the Owners.

The Cash Consideration and Earn Out Payment shall be allocated among the Contributed Property in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended (the “ Code ”), and the applicable regulations thereunder. The Parties have agreed upon a preliminary allocation prior to the execution of this Agreement, which allocation is reflected in the Allocation of Consideration attached hereto as Exhibit 1.4 . Such allocation shall be finalized after the Closing by Care for Kids and Sellers, each of which must agree to the final allocation. The allocation of the Cash Consideration and Earn Out Payment determined under this Section 1.4 shall be binding on the Parties, shall be used for all purposes on their respective federal, state, and local income tax returns, as applicable, and shall be supported by them in any audits or other disputes or litigation involving any such returns.

The Parties shall timely prepare and file all required tax reports and returns with respect to the allocation of the Cash Consideration and Earn Out Payment under this Section 1.4, such as Internal Revenue Service Form 8594 or any equivalent statement, and shall furnish each other with a copy of any such form or statement no later than 10 days prior to the required filing date. Each such form(s) will be prepared consistent with the allocation of consideration attached as Exhibit 1.4, as it is finalized by the agreement of Care for Kids and each Seller. Sellers shall pay, and Sellers and Owners, jointly and severally, shall indemnify and hold Care for Kids harmless from and against, any and all taxes, assessments, and other charges that may be due and payable in connection with, or which relate in any way to, the transfer of the Contributed Property by Sellers to Care for Kids, including without limitation as a result of the payment of the Cash Consideration and the Earn Out Payment.

It is the express intention of the parties that the transactions described in this Agreement with respect to the contribution of the Contributed Property by Sellers to Care for Kids in exchange for Units be treated as provided in Section 721 of the Code. The parties agree to treat the transaction contemplated by this Agreement for federal income tax purposes, in part as a

 

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contribution transaction pursuant to Section 721 of the Code, and in part as a sale of assets and to report the transaction in such a manner on their respective federal income tax returns. In applying Section 704(c) of the Code to the contribution made by Sellers pursuant to this Agreement, Care for Kids shall use the “traditional method with curative allocations” (within the meaning of Treasury Regulation Section 1.704-3(b)). No party has relied on any other party for any tax advice related to the transactions contemplated by this Agreement.

1.5. Closing . The closing of the Contribution and the other transactions contemplated by this Agreement (the “ Closing ”) shall be held at the offices of Joseph M. Udall, 18 East University Drive, Suite 201, Mesa, Arizona 85201, on such date as may be reasonably designated by Care for Kids (the “ Closing Date ”); provided that the Closing shall be held not later than 10 business days after satisfaction or waiver of all conditions to the Closing set forth in Sections 2 and 3 of Exhibit C attached to this Agreement (“ Exhibit C ”). The Closing shall be effective as of 12:01 a.m., Phoenix, Arizona time, on the Closing Date (the “ Effective Time ”), unless otherwise agreed in writing by the Parties. This Agreement may be terminated by the Parties in accordance with Section 4 of Exhibit C attached to this Agreement.

1.6. Conveyance Documents . At the Closing, in consideration of Care for Kids’ payment of the Cash Consideration, issuance of the Units, and assumption of the Assumed Liabilities, Sellers shall convey, assign, and transfer the Assets to Care for Kids through the execution and delivery of the following documents:

(a) A bill of sale for the Required Cash, FFE, Inventory, and Supplies, in the form previously agreed upon by the Parties;

(b) An assignment of the Notes Receivable, Accounts Receivable, Prepaids, Assumed Contracts, Future Services Contracts, Third-Party Payor Agreements, Dentist Agreements, Assignable Permits, Proprietary Rights, Software, Intangibles, Patient Records, and Goodwill, in the form previously agreed upon by the Parties; and

(c) Such other assignment or conveyance documents as may be reasonably requested by Care for Kids.

Without limiting any of the foregoing provisions of this Agreement, if any Owner has any interest in any name, permit, agreement, trademark, service mark, or other Contributed Property to be transferred to Care for Kids, including without limitation any Owner’s interest in the names and federal and state trademarks of “Tooth Doctor,” “A Tooth Doctor for Kids,” “A Tooth Doctor for Kids-East,” “A Tooth Doctor for Kids-Central,” “Arizona’s Tooth Doctor for Kids,” “Arizona’ s Mobile Tooth Doctor,” “The Traveling Mobile Tooth Doctor for Kids,” and “East Valley Tooth Doctor for Kids,” and all related marks and logos, such Owner also shall assign its entire interest in such Contributed Property to Care for Kids, at the Closing, and shall deliver any and all supporting documentation with respect to federal and state trademarks and service marks.

If consents or approvals of any other parties are required for any sales, conveyances, assignments, or transfers contemplated by this Agreement, then the Sellers shall have obtained those consents or approvals prior to the Closing. All costs and expenses related to any such

 

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sales, conveyances, assignments, consents or approvals, and all transfer taxes or other similar taxes, assessments, or charges related to the contribution of the Contributed Property to Care for Kids, shall be paid by the Sellers.

1.7. Possession . Care for Kids shall be entitled to exclusive possession of the Contributed Property as of the Closing.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE PARTIES

2.1. Representations and Warranties of Care for Kids . In order to induce Tooth Doctor to enter into this Agreement, Care for Kids hereby represents and warrants to Tooth Doctor that the statements contained in Exhibit A attached hereto (“ Exhibit A ”) are true, correct, and complete, and Care for Kids acknowledges that each representation and warranty made under this Section 2.1 is material to Tooth Doctor and that Tooth Doctor is entering into and performing this Agreement in reliance upon each such representation and warranty. Whenever used in any representation or warranty set forth in Exhibit A, the phrases “to the best of Care for Kids’ knowledge,” “Care for Kids does not know,” “Care for Kids knows,” and words of similar import signify that no information has come to the attention of the President of Care for Kids, or upon reasonable inquiry would have come to the attention of the President of Care for Kids, which gives him, or upon such inquiry would have given him, actual knowledge contrary to such representation or warranty.

2.2. Representations and Warranties of Sellers and Owners . In order to induce Care for Kids to enter into this Agreement, Sellers and Dr. Erickson hereby jointly and severally represent and warrant to Care for Kids that the statements contained in Exhibit B attached hereto (“ Exhibit B ”) are true, correct, and complete. Each Owner hereby represents to Care for Kids that the statements contained in Exhibit B are true, correct, and complete with respect to the Seller and the business, financial and other matters related to such Seller, in which Owner has a direct or indirect ownership interest. Sellers and Owners acknowledge that each representation and warranty made under this Section 2.2 is material to Care for Kids and that Care for Kids is entering into and performing this Agreement in reliance upon each such representation and warranty. Whenever used in any representation or warranty set forth in Exhibit B, the phrases “to the best of each Seller or Owner’s knowledge,” “Seller or Owner does not know,” “Seller and Owner knows,” and words of similar import signify that no information has come to the attention of any Seller or Owner, or upon reasonable inquiry would have come to the attention of any Seller or Owner, which gives such Seller or Owner, or upon such inquiry would have given such Seller or Owner, actual knowledge contrary to such representation or warranty covenants of the parties.

ARTICLE III

COVENANTS OF THE PARTIES

3.1. 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 Contribution and the other

 

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transactions contemplated by this Agreement, including without limitation using all reasonable efforts to cause the obligations set forth in this Agreement 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.

3.2. Covenants of Tooth Doctor . Sellers and Owners hereby jointly and severally agree as follows:

(a) Disclosures . After the date of this Agreement, no Seller or Owner shall: (i) disclose to any person, association, firm, corporation or other entity (other than Care for Kids and its representatives, attorneys, accountants, and agents or those designated in writing by Care for Kids) in any manner, directly or indirectly, any proprietary information of the Business, 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 Care for Kids and its representatives, attorneys, accountants, and agents or those designated in writing by Care for Kids) to use, in any manner, directly or indirectly, any such information, excepting only (A) use of such information as is at the time generally known to the public and which did not become so known through any breach of any provision of this Section 3.2(a) by any Seller or Owner, and (B) disclosures of information to employees, representatives, attorneys, accountants, and agents of any Seller or Owner who need to know such information and use of such information by employees, representatives, attorneys, accountants, and agents of any Seller or Owner who need to use such information.

(b) Non-Competition . During the Restricted Period (as defined below), no Seller or Owner shall, directly or indirectly (whether individually or as a shareholder (except as a shareholder owning 1% or less of the outstanding capital stock of a publicly traded corporation), partner, member, director, officer, employee, consultant, creditor, or agent of any person, association, or other entity), other than on behalf of an Affiliated Company (as defined below):

(i) Engage in the practice of dentistry or otherwise perform professional dental services or related services anywhere in the Dentistry Restricted Territory (as defined below);

(ii) Manage, operate, control, lend funds to, lend his or its name to, maintain any interest in, or otherwise enter into, engage in, or promote or assist (financially or otherwise), directly or indirectly, any entity, business, or enterprise which (A) provides, distributes, or promotes any type of management or administrative services or products in the dental field to third parties in competition with any Affiliated Company in the Restricted Territory, or (B) offers any type of dental service or product to third parties substantially similar to those offered by any Affiliated Company to any practice providing dental, orthodontic, periodontic, prosthodontic, endodontic, or other professional dental services, pediatric dentistry or oral surgery anywhere in the Restricted Territory (as defined below);

 

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(iii) 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

(iv) 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, manager, or agent of any Affiliated Company.

For purposes of this Section 3.2(b), (A) “ Affiliated Company ” shall mean ADPI and all Affiliates (as defined below in this Section 3.2(b)) of ADPI; (B) an “ Affiliate ” of a person shall mean any other person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the first person; (C) “ Restricted Period ” shall mean, with respect to each Seller or Owner, the period beginning on the Closing Date and ending on the later of (1) the fifth anniversary of the Closing Date, or (2) the second anniversary of the date such Seller or Owner (x) no longer has any direct or indirect interest in Care of Kids (or any successor entity) or any Affiliated Company, and (y) is no longer employed or retained by Care for Kids (or any successor entity) or any Affiliated Company and is no longer receiving any compensation or other remuneration from Care for Kids (or any successor entity) or any Affiliated Company; (D) “ Restricted Territory ” shall mean (1) for all of the Owners a radius of 25 miles from any facility or operation leased, owned, managed, or operated by Care for Kids, and (2) for Dr. Erickson only shall also include Globe, Arizona, the Phoenix, Arizona metropolitan area, and any city, town, county, metropolitan statistical area, or other geographic territory with respect to which Dr. Erickson has been or is hereafter involved in the planning with management of any Affiliated Company regarding the expansion of the Business, the establishment or expansion of a dental practice similar to the Business, including without limitation the expansion of the business of any dental practice to which any Affiliated Company now or hereafter provides services, or the provision of services to any dental practice which is similar to the Business; and (E) “ Dentistry Restricted Territory ” shall mean (1) for all of the Owners other than Dr. Erickson, a radius of 10 miles from any Arizona Subsidiary offices or facilities at which such Owner has been regularly scheduled to see patients or has seen patients on a regular basis at any time during the two-year period immediately prior to the termination of such Owner’s employment with Arizona Subsidiary, and (2) for Dr. Erickson a radius of ten miles from any Arizona Subsidiary dental office or facility. Nothing in this Section 3.2 shall prohibit any of the Owners from teaching in a dental school or lecturing or providing dental education seminars, provided such Owner is doing so in compliance with any and all terms of any employment agreement with ADP-CFK or Arizona Subsidiary, as applicable, and in accordance with any policies and procedures adopted by either ADP-CFK or Arizona Subsidiary. Subject to any other restrictions binding on any of the Owners, nothing in Section 3.2(b)(ii) shall prohibit any Owner from practicing dentistry as an employee or independent contractor of another company, or managing his own dental practice if such Owner is operating as a sole practitioner.

 

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(c) Injunctive Relief . Sellers and Owners acknowledge and agree that Care for Kids’ remedies at law for any violation or attempted violation of any obligation of any Seller or Owner under this Section 3.2 would be inadequate and that, in the event of any such violation or attempted violation, Care for Kids 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 Care for Kids from time to time.

(d) Closing Deliveries of Tooth Doctor . At the Closing, Sellers and Owners shall deliver or cause to be delivered to Care for Kids (in addition to the deliveries to be made by Sellers under Article I, above):

(i) Certificates of Good Standing . Certificates of good standing (or their equivalent) for Sellers, each issued not more than 15 days prior to the Closing Date by the secretary of state (or equivalent officer) of the respective states of organization of Sellers and any other state (or, if applicable, foreign jurisdiction) in which any Seller is qualified to do business.

(ii) Secretary’s Certificate . A certificate signed by the Secretary (or equivalent officer or representative) of each Seller, in the form previously agreed upon by Care for Kids and the Tooth Doctor.

(iii) Releases . Evidence reasonably satisfactory to Care for Kids that all mortgages, pledges, liens, security interests, encumbrances, and restrictions of any nature whatsoever encumbering the Contributed Property have been terminated or otherwise released prior to the Closing or are being terminated or otherwise released concurrently with the Closing.

(iv) Operating Agreement . The Care for Kids Limited Liability Company Agreement executed by Owners in the form previously agreed upon by Care for Kids and Owners (the “ Operating Agreement ”).

(v) Employment Agreements . Employment and non-competition agreements between Arizona Subsidiary and Drs. Barney, Gomez, and Brenchley, each in the form previously agreed upon by Arizona Subsidiary and the employee under such agreement, executed by the employee under each such agreement, and an employment and non-competition agreement between ADP-CFK, LLC, a Delaware limited liability company and wholly-owned subsidiary of ADPI and parent of Care for Kids (“ ADP-CFK ”) and Dr. Erickson in the form previously agreed upon by ADP-CFK and Dr. Erickson, executed by Dr. Erickson (each such agreement, a “ New Employment Agreement ”).

(vi) Closing Balance Sheet . The Estimated Closing Balance Sheet (as defined in Exhibit B, Section B.7(c), below), along with an accounts receivable aging report and an accounts payable aging report.

(vii) Lease Matters – Amendments . Separate Assignment, Assumption, and Amendment Agreements, as the case may be, each relating to Sellers’ lease for certain of Sellers’ offices and each in the form previously agreed upon by Arizona Subsidiary, the Seller which is the lessee under the lease, and the landlord under such lease, and each executed by the appropriate Seller and such landlord (each, an “ Assignment , Assumption, and Amendment of Lease ”).

 

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(viii) Lease Matters – Assumptions . Separate Assignment and Assumption Agreements, as the case may be, each relating to Sellers’ lease for certain of Sellers’ offices and each in the form previously agreed upon by Arizona Subsidiary, the Seller which is the lessee under the lease, and the landlord under such lease, and each executed by the appropriate Seller and such landlord (each, an “ Assignment and Assumption of Lease ”).

(ix) Lease Matters – New Leases . Separate Office Leases, as the case may be, for certain of Sellers’ offices that are owned by affiliates of Sellers and each in the form previously agreed upon by Arizona Subsidiary and the landlord of the office, and each executed by such landlord (each, a “ New Office Lease ”).

(x) Investment Questionnaires . Each Owner shall deliver a completed and executed investment questionnaire, in the form provided by Care for Kids (each, an “ Investment Questionnaire ”).

(xi) Schedules . All schedules to this Agreement, updated to the date of Closing.

(e) Name Change . As soon as reasonably practicable following the Closing and in any event not later than 10 days after the Closing Date, each Seller shall cause its articles of organization, certificate of formation, or similar organizational document to be amended so that such Seller’s name no longer contains the phrase “Tooth Doctor,” the phrase “Kids Dental Care,” the phrase “for Kids,” or any variation or combination of any such phrase or phrases.

3.3. Closing Deliveries of Care for Kids . Concurrently with the execution of this Agreement, Care for Kids shall deliver or cause to be delivered to the Sellers (in addition to the deliveries to be made by Care for Kids under Article I, above):

(a) Certificates of Good Standing . A certificate of good standing or full force and effect for Care for Kids issued not more than 15 days prior to the Closing Date by the secretary of state (or equivalent officer) of Delaware.

(b) Secretary’s Certificate . A certificate signed by the secretary of Care for Kids, in the form previously agreed upon by Care for Kids and Sellers.

(c) Operating Agreement . The Operating Agreement executed by ADP-CFK.

(d) New Employment Agreements . The New Employment Agreements executed by Arizona Subsidiary or ADP-CFK, as applicable.

(e) Lease Matters . Each Assignment, Assumption, and Amendment of Lease, each Assignment and Assumption of Lease, and each New Office Lease, all executed by Arizona Subsidiary.

 

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3.4. Employment and Employee Benefits Matters .

(a) Pension Plan . Prior to Closing, Sellers shall have taken all steps necessary to commence the termination of Tooth PC’s Defined Benefit Pension Plan and any other plan that, if in existence as of the Closing, would constitute an Employee Plan (as defined in Exhibit B, Section B.19) that is a retirement plan qualified under Section 401(a) of the Code, such steps to include, without limitation, execution of board, manager, or member resolutions, as applicable, authorizing such termination. Such plan termination(s) shall be effective as soon as reasonably possible after the Effective Time.

(b) Retention of Employees and Benefits .

(i) As of the Closing Date, Arizona Subsidiary shall offer employment to, and Sellers shall use their best efforts to assist Arizona Subsidiary in employing as new employees of Arizona Subsidiary, those of Sellers’ employees who are listed on Schedule 3.4(b)(i) attached hereto and incorporated herein by reference (the “ New Employees ”). The terms and conditions of such employment by Arizona Subsidiary shall be in accordance with the employment practices of the Affiliated Companies for their similarly situated employees. Nothing contained herein shall alter, nor shall it be construed to alter in any way, the at-will employment relationship between Arizona Subsidiary and any New Employee. Furthermore, nothing contained in this Agreement shall create, nor shall it be construed to create in any way, rights of any individual not a party to this Agreement. Tooth Doctor shall terminate its employment of all of the New Employees, effective as of the Effective Time.

(ii) Arizona Subsidiary shall be responsible for any and all liabilities for severance costs and payments to which the New Employees are entitled under Arizona Subsidiary’s benefits programs or by law (including any WARN Act liability) arising out of Arizona Subsidiary’s layoff or termination of the New Employees’ employment after the Closing Date. Sellers shall be responsible for any and all liabilities for severance costs and payments to which the New Employees are entitled under Sellers’ benefit programs or by law arising out of Sellers’ layoff or termination of the New Employees’ employment on or prior to the Closing Date.

(iii) Except as set forth herein, Sellers shall retain all of the liabilities and obligations arising under any employee benefit plan, policy, agreement or arrangement maintained, sponsored, or contributed to by Sellers or any entity treated as a single employer with Sellers pursuant to Section 414(b), (c), (m) or (o) of the Code (collectively, “ Plans ”), including without limitation any obligations with respect to any employees or former employees of Sellers, or to any of such persons’ spouses, children, other dependents or beneficiaries. Care for Kids shall not assume any of the Sellers’ Plans or any liabilities related thereto.

(iv) Sellers shall be responsible for and shall pay any claims or premiums relating to (A) disability, medical, and dental benefits relating to events occurring on or prior to the Closing Date, or, with respect to premium payments, those which are due on or prior to the Closing Date; and (B) workers’ compensation benefits when the same become due and payable, whether prior to or after the Closing Date. Sellers shall be solely responsible for any retiree medical liabilities and related costs of medical and life insurance for persons who

 

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shall have retired from any Seller on or prior to the Closing Date. Sellers shall be responsible for employee benefit claims of employees (or their eligible dependents) with respect to Claim Events, hereinafter defined, occurring on or prior to the Closing Date. A “ Claim Event ” shall be defined as the illness or injury giving rise to the reimbursable event.

(v) Effective on the Closing Date, Arizona Subsidiary agrees to provide all New Employees who accept employment with Arizona Subsidiary with group health plan coverage similar to such coverage that Arizona Subsidiary offers to other similarly situated employees of Arizona Subsidiary, in accordance with the terms and conditions of any group health plan of Arizona Subsidiary (which, in the discretion of Care for Kids, may include the continuation of coverage under Sellers’ plan (if assumed by the Care for Kids) and may be amended or discontinued at any time). Such group health plan (if any) shall recognize the New Employees’ service with Sellers solely for the purposes of determining whether the New Employee has satisfied all applicable waiting periods under Arizona Subsidiary’s group health plan. Any amount paid by the New Employees or their dependents for the current plan year for medical expenses that are treated as a deductible or co-insurance payment under Tooth Doctor’s health insurance plan shall reduce the amount of any deductible or co-insurance payment required to be paid for a similar period under Arizona Subsidiary’s health plan. To the extent Arizona Subsidiary maintains a group health plan for New Employees as of the Closing Date, such plan shall provide health care continuation coverage (pursuant to Section 4980B of the Code and Section 601 et seq. of ERISA (“ COBRA ”)) to any New Employee who is a “qualified beneficiary” (as such term is defined in Section 4980B(g)(1) of the Code) and who experienced a “qualifying event” (as such term is defined in Section 4980B(f)(3) on, prior to, or after the Closing Date. Such plan shall also provide health care continuation coverage pursuant to COBRA to any other employees of Tooth Doctor who are entitled to COBRA continuation coverage as of the Closing Date, in accordance with the terms and conditions of such plan.

(vi) As soon as reasonably practicable following the Closing Date, New Employees shall be eligible to participate in any 401(k) plan maintained or established by Arizona Subsidiary, in accordance with the terms and conditions of such plan. Nothing contained in this Section 3.4(b) shall require Arizona Subsidiary to continue to maintain or offer a 401(k) plan or any other employee benefit plan, program or arrangement of Sellers for any period of time.

(vii) All of Arizona Subsidiary’s employee benefit plans, programs and arrangements in which the New Employees become eligible to participate shall credit such New Employees with a period of service beginning on their original hire date with Sellers for purposes of eligibility and any other purpose required by law.

(viii) Arizona Subsidiary shall assume and be responsible for, and shall give full credit for, all vacation benefits of the New Employees accrued but not taken as of the Closing Date.

3.5. Additional Terms . Since this Agreement is being executed and delivered in advance of the Closing, the Parties hereby agree to the additional covenants, documents, and other terms set forth on Exhibit C.

 

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ARTICLE IV

INDEMNIFICATION

4.1. Survival of Representations, Warranties, and Agreements .

(a) Subject to the limitations set forth in Section 4.3, below, and notwithstanding any investigation conducted at any time by or on behalf of Care for Kids, all representations, warranties, covenants, and agreements of Sellers and Owners in this Agreement and in any other documents executed or delivered by Sellers or Owners 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.

(b) As used in this Article, any reference to a representation, warranty, or covenant contained in any section of this Agreement shall include any schedule relating to such section.

4.2. Indemnification .

(a) Subject to the limitations set forth in Section 4.3, below, Sellers and Dr. Erickson shall, jointly and severally, indemnify and hold harmless Care for Kids 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 in, imposed upon, or incurred or suffered by Care for Kids, directly or indirectly, as a result of or arising from any inaccuracy in or breach or nonfulfillment of any of the representations and warranties, covenants, or agreements made by any Seller or Dr. Erickson in this Agreement or the Additional Documents. Owners shall severally indemnify and hold harmless Care for Kids from and against any and all Damages asserted against, resulting in, imposed upon, or incurred or suffered by Care for Kids, directly or indirectly, as a result of or arising from any inaccuracy in or breach or nonfulfillment of any of the representations and warranties, covenants, or agreements made by such Owner in this Agreement or the Additional Documents.

(b) For purposes of this Agreement, the term “ Indemnifiable Claims ” shall mean the matters with respect to which Care for Kids is entitled to indemnification under Section 4.2(a).

(c) For purposes of this Article, all Damages shall be computed net of any insurance coverage which reduces the Damages that would otherwise be sustained, provided that in all cases the timing of the receipt or realization of insurance proceeds shall be taken into account in determining the amount of reduction of Damages.

(d) Care for Kids shall be deemed to have suffered Damages arising out of or resulting from the matters referred to in Section 4.2(a), above, if the same shall be suffered by any parent, subsidiary, or other Affiliate (as defined in Section 3.2(b), above) of Care for Kids.

 

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4.3. Limitations on Indemnification . Rights to indemnification under Sections 4.2(a) are subject to the following limitations:

(a) The obligation of indemnity with respect to the representations and warranties set forth in Section B.10 of Exhibit B as to unclaimed property under the Revised Arizona Unclaimed Property Act and the absence of unpaid or undisclosed taxes (including any interest, penalties or expenses) of Sellers and Owners shall terminate on the expiration of the respective periods of limitations applicable to collection of unclaimed property under laws then applicable to such unclaimed property and to assessment and collection of taxes under laws then applicable to such taxes.

(b) The obligation of indemnity with respect to the representations and warranties set forth in Section B.19 of Exhibit B shall terminate upon expiration of the respective statutes of limitation applicable to the items addressed in such section.

(c) The obligation of indemnity with respect to the representations and warranties contained in Sections B.2, B.3, B.5, and B.11 of Exhibit B shall not expire.

(d) The obligation of indemnity with respect to the representations and warranties set forth in Exhibit B other than those addressed in the immediately preceding subsections (a), (b), and (c) shall terminate on the third anniversary of the Closing Date.

(e) The foregoing provisions of this Section 4.3 notwithstanding, if, prior to the termination of any obligation of indemnity, written notice of a claimed breach or other occurrence or matter giving rise to a claim of indemnification is given by Care for Kids to any Seller or Owner, or a suit, action, or other proceeding based upon a claimed breach is commenced against any Seller or Owner, Care for Kids shall not be precluded from pursuing such claimed breach, occurrence, other matter, or suit or action, or from recovering from Sellers and Owners, or any of them (whether through the courts or otherwise), on the claim, suit, action, or proceeding, by reason of the termination otherwise provided for above.

(f) If, following the Closing, Care for Kids determines that the aggregate of credit balances for any patients, insurance payors, or other entities for services rendered prior to the Closing (collectively, the “ Credit Balances ”) exceeds the amount represented in Exhibit B.30, then the Sellers and Dr. Erickson agree, jointly and severally, to personally fund any and all such Credit Balances in excess of the amount represented in Exhibit B.30 or reimburse Arizona Subsidiary for payment of the aggregate Credit Balances exceeding the amount represented in Exhibit B.30.

4.4. Procedure for Indemnification with Respect to Third-Party Claims .

(a) If Care for Kids (hereinafter being an “ Indemnified Party ”) desires to seek indemnification under this Article with respect to an Indemnifiable Claim resulting from the assertion of liability by a third party (a “ Third-Party Claim ”), it shall give notice to Sellers and Owners (hereinafter each being an “ Indemnifying Party ”) within a reasonable period of time of the Indemnified Party’s becoming aware of any such Third-Party Claim, which notice shall set forth a summary of such material information with respect to such Third-Party Claim as is then reasonably available to the Indemnified Party. If any Third-Party Claim is asserted against an

 

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Indemnified Party and the Indemnified Party notifies the Indemnifying Party of such Third-Party Claim, the Indemnifying Party shall be entitled, if the Indemnifying Party so elects by written notice delivered to the Indemnified Party within a reasonable period of time (not to exceed 10 business days in any event) after receiving the Indemnified Party’s notice (the “ Response Period ”), to assume the defense of such Third-Party Claim with counsel reasonably satisfactory to the Indemnified Party. Notwithstanding the foregoing: (i) the Indemnified Party shall not have any obligation to give any notice of any Third-Party Claim unless the assertion of liability with respect thereto is in writing; (ii) the rights of the Indemnified Party to be indemnified in respect of Indemnifiable Claims resulting from the assertion of any Third-Party Claim 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; and (iii) each Party shall cooperate with any other Party in all ways reasonably requested by such other Party in connection with the defense of any such Third-Party Claims. With respect to any Third-Party Claim that results in a claim for indemnification under this Article, the Parties shall make available to each other all relevant information in their possession which is material to any such Third-Party Claim.

(b) In the event that the Indemnifying Party fails to assume the defense of the Indemnified Party against any Third-Party Claim within the Response Period, the Indemnified Party shall have the right to defend, compromise or settle such Third-Party Claim on behalf, for the account, and at the risk of the Indemnifying Party.

(c) Notwithstanding anything in this Section 4.4 to the contrary: (i) if there is a reasonable probability that a Third-Party Claim may materially and adversely affect an Indemnified Party or its subsidiaries or other Affiliates (as defined in Section 3.2(b), above), 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 settle such Third-Party Claim; and (ii) the Indemnifying Party shall not, without the Indemnified Party’s prior written consent, settle or compromise any Third-Party Claim or consent to entry of any judgment in respect of any Third-Party Claim unless such settlement, compromise, or consent includes