LOAN, SECURITY AND WARRANT AGREEMENT

 

AMONG

 

HEARTLAND DENTAL CARE, INC.

 

AS LENDER

 

AND

 

DENTAL PATIENT CARE AMERICA, INC.

DENTAL COOPERATIVE, INC.

U.S. DENTIST DIRECT, INC.

DENTAL PRACTICE TRANSACTION, INC.

 

COLLECTIVELY AS BORROWER

 

 

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

TABLE OF CONTENTS

 

Section

Page

1.

DEFINITIONS

1

2.

AMOUNT OF LOAN

5

 

2.01

Credit Advances

5

 

2.02

Optional Prepayment

6

 

2.03

Interest Payments and Rate

6

 

2.04

Indemnity

6

3.

CONDITIONS PRECEDENT

7

 

3.01

Execution and Delivery of Agreement

7

 

3.02

Documents and Other Agreements

7

4.

REPRESENTATIONS AND WARRANTIES

7

 

4.01

Corporate Existence; Compliance with Law

8

 

4.02

Subsidiaries Law

8

 

4.03

Corporate Power; Authorization; Enforceable Obligations Law

8

 

4.04

Ownership of Property; Leases; Liens Laws

8

 

4.05

Trademarks, Copyrights and Licenses Law

8

 

4.06

Taxes Law

8

 

4.07

Liens Laws

8

 

4.08

No Litigation Law

8

 

4.09

No Material Adverse Effect Law

9

 

4.10

No Default Law

9

 

4.11

Capitalization Law

9

 

4.12

Registration Rights

9

 

4.13

Securities Act

9

 

4.14

Disclosure; No Misleading Statements

9

 

4.15

Brokers

9

 

4.16

No Conflict; Required Filings and Consents

9

 

4.17

Report and Financial Statements

10

 

4.18

Compliance with Applicable Laws

10

 

4.19

SEC Documents

10

 

4.20

Internal Controls and Procedures

10

 

4.21

Subsequent Events

11

 

4.22

Full Disclosure

11

5.

COLLATERAL: GENERAL TERMS

11

 

5.01

Security Interest

11

 

5.02

Special Collateral

11

 

5.03

Financing Statements and Costs

12

 

5.04

Notice Regarding Disputed Accounts

12

 

5.05

Collections; Lender’s Right to Notify Account Debtors; Verification

12

 

5.06

Consignment of Inventory

12

 

5.07

Proceeds of Equipment

12

 

5.08

Proceeds of Real Property

12

 

5.09

Release of Source Codes; Grant of Exclusive Licenses

12

 

i

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

Section

Page

 

 

5.10

Access

13

6

COVENANTS

13

 

6.01

Affirmative Covenants

13

 

6.02

Negative Covenants

14

7

EVENTS OF DEFAULT; RIGHTS AND REMEDIES

16

 

7.01

Events of Default

16

 

7.02

Remedies

16

 

7.03

Waivers by Borrower

17

 

7.04

Right of Set-Off

18

8.

MISCELLANEOUS

18

 

8.01

Complete Agreement; Modification of Agreement; Sale of Interest

18

 

8.02

Fees and Expenses

18

 

8.03

No Waiver by Lender

19

 

8.04

Remedies

19

 

8.05

Governing Law; Jurisdiction and Venue

19

 

8.06

Severability

20

 

8.07

Parties

20

 

8.08

Conflict of Terms

20

 

8.09

Notices

20

 

8.10

Survival

21

 

8.11

Section Titles

21

 

8.12

Counterparts

21

 

 

EXHIBITS

 

A.

Form of Secured Subordinated Note

B.

Form of Warrant

C.

Form of Consulting Agreement

 

ii

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

LOAN , SECURITY AND WARRANT AGREEMENT

 

LOAN, SECURITY AND WARRANT AGREEMENT, dated as of December 27, 2006 among DENTAL
PATIENT CARE AMERICA, INC., a Utah corporation (the “Company”) or DENTAL
COOPERATIVE, INC., a Utah Corporation, and U.S. DENTIST DIRECT, INC., a Utah
corporation, and DENTAL PRACTICE TRANSITIONS, INC., a Utah corporation
(collectively the “Borrower”), and HEARTLAND DENTAL CARE, INC., a Delaware
corporation (“Lender”).

R E C I T A L S:

 

A.           Borrower desires that Lender extend financing to supply working
capital and acquisition funds to Borrower to the extent permitted by this
Agreement.

B.           As security for the loans to be made by Lender to, or for the
account of, Borrower, and for the repayment of obligations incurred by Lender
for the benefit of Borrower, Borrower will grant to Lender, a lien on, and
security interest in, all of the tangible and intangible assets of Borrower.

C.           Accordingly, in consideration of the mutual agreements contained
herein, and subject to the terms and conditions hereof, the parties hereto agree
as follows:

1.

DEFINITIONS.

In addition to the defined terms appearing above, capitalized terms used in this
Agreement shall have (unless otherwise provided elsewhere in this Agreement) the
following respective meanings:

“Accounts” shall mean (a) any and all savings, checking, time deposit, money
market and other accounts of the Borrower at any financial institution or
investment bank, and (b) all “accounts” as such term is defined in the Uniform
Commercial Code.

“Account Debtor” shall mean any Person who is or may become obligated to
Borrower under, with respect to, or on account of an Account Receivable.

“Accounts Receivable” shall mean all now owned or hereafter acquired accounts,
accounts receivable, other receivables, contract rights, chattel paper, notes,
instruments and documents.

“Affiliate” shall mean with respect to any Person (i) each Person that, directly
or indirectly, owns or controls, beneficially, 5% or more of the Stock having
ordinary voting power in the election of directors of such Person, (ii) each
Person that controls, is controlled by or is under common control with such
Person, or (iii) each of such Person’s officers, directors, joint venturers and
partners. For the purpose of this definition, “control” of a Person shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise.

“Agreement” shall mean this Loan, Security and Warrant Agreement, including all
amendments, modifications and supplements hereto and any appendices, exhibits or
schedules to any of the foregoing.

“Business Day” or “Trading Day” shall mean any day that is not a Saturday, a
Sunday or a day on which banks are required or permitted to be closed in the
State of Illinois.

 

1

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

“Charges” shall mean all Federal, state, county, city, municipal, local, foreign
or other governmental taxes at the time due and payable, levies, assessments or
charges upon or relating to (i) the Collateral, (ii) the Obligations,
(iii) Borrower’s employees (other than taxes not required to be withheld),
payroll, income or gross receipts, (iv) Borrower’s ownership or use of any of
its assets, or (v) any other aspect of Borrower’s business.

“Code” shall mean the Uniform Commercial Code of the jurisdiction with respect
to which such term is used, as in effect from time to time.

“Collateral” shall mean all of the property and interests in property described
in Section 5.01 and all other property and interests in property which shall,
from time to time, secure the Obligations.

“Collateral Documents” shall mean this Agreement, the financing statements under
the Code and any other documents or instruments executed by Borrower respecting
the Collateral.

“Commission” shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act and other federal
securities laws.

“Default” shall mean any event which, with the passage of time or notice or
both, would, unless cured or waived, become an Event of Default.

“Equipment” shall mean all of Borrower’s now owned or hereafter acquired
equipment, machinery, furniture, “fixtures” (as defined in the Code) and
leasehold improvements, including, without limitation, vehicles and trade
fixtures.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulations promulgated thereunder.

“Event of Default” shall have the meaning assigned to it in Section 7.01 hereof.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.

“Financial Statements” shall mean the financial statements referred to in
Section 4.17 hereof.

“Fiscal Year” shall mean the twelve month period that ends on December 31 of
each calendar year. Subsequent changes of the fiscal year of Borrower shall not
change the term “Fiscal Year,” unless the Lender shall consent in writing to
such changes.

“GAAP” shall mean generally accepted accounting principles in the United States
of America as in effect from time to time.

“General Intangibles” shall mean all now owned or hereafter acquired personal
property (including, without limitation, choses in action, causes of action,
corporate or other business records, customer lists, source codes, technical
specifications, inventions, designs, patents, patent applications, trademarks,
trade names, trade secrets, internet domain names and sites, goodwill,
copyrights, registrations, licenses, franchises, tax refund claims, computer
programs, and any guarantee claims, security interests or other security held by
or granted to Borrower to secure payment by an Account Debtor of any of the
Accounts Receivable), other than goods, Accounts, chattel paper, Equipment,
Inventory, documents, Investment Property, instruments and money.

 

2

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

“Guaranteed Indebtedness” shall mean, as to any Person, any obligation of such
Person guaranteeing any indebtedness, lease, dividend, or other obligation
(“primary obligations”) of any other Person (the “primary obligor”) in any
manner including, without limitation, any obligation or arrangement of such
Person (a) to purchase or repurchase any such primary obligation, (b) to advance
or supply funds (i) for the purchase or payment of any such primary obligation
or (ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet condition
of the primary obligor, (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, or (d) to indemnify the owner of such primary obligation against
loss in respect thereof.

“Indebtedness” shall mean all liabilities, obligations and indebtedness of any
and every kind and nature, including, without limitation, all amounts
outstanding under this Agreement, all Charges, all Guaranteed Indebtedness and
all liabilities and all obligations to trade creditors, whether now or hereafter
owing, arising, due or payable, from Borrower to any Person and howsoever
evidenced, created, incurred, acquired or owing, whether primary, secondary,
direct, contingent, fixed, or otherwise.

“Inventory” shall mean all now owned or hereafter acquired inventory,
wheresoever located, including without limitation all goods, merchandise, raw
materials, goods in process, finished goods, findings or component materials,
and all supplies, incidentals, office supplies, packaging materials and any and
all goods or items used or consumed in the operation of the business of the
Borrower or any Subsidiary of Borrower, or which contribute to the finished
products or to the sale, promotion and shipment thereof, or which are held for
sale, lease or resale or furnished or to be furnished under contracts of
service, or used or consumed in Borrower’s business.

“Investment Property” shall mean all securities, whether certificated or
uncertificated, including, without limitation, stocks, bonds, interests in
limited liability companies, partnership interests, treasuries, certificates of
deposit and mutual fund shares, options or rights to acquire Investment
Property, all securities entitlements, including, without limitation, all rights
to any securities account and any free credit balance or other money owing by
any securities intermediary with respect to such account, all securities
accounts, all commodity contracts and commodity accounts.

“IRC” shall mean the Internal Revenue Code of 1986, as amended, and any
successor thereto, and any regulations or notices promulgated thereunder.

“IRS” shall mean the Internal Revenue Service.

“Lien” shall mean any pledge, hypothecation, assignment, deposit arrangement,
lien, source code escrow, security interest, easement or encumbrance, or
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, any lease intended
as security or any title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security interest
under the Code or comparable law of any jurisdiction).

“Loan Documents” shall mean this Agreement, the Note, the Collateral Documents,
and the Other Agreements and any other document executed by and among the Lender
and Borrower in furtherance of the transaction contemplated hereby.

“Material Adverse Effect” shall mean material adverse effect on (i) the
business, assets, operations, prospects, financial or other condition of
Borrower and its Subsidiaries taken as a whole,

 

3

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

(ii) the Borrower’s and its Subsidiaries’ collective ability to pay the
Obligations in accordance with the terms thereof, and (iii) the Collateral or
Lender’s Liens on the Collateral or the priority of such Liens.

“Maturity Date” shall mean the date on which the Secured Subordinated Notes
mature and the entire unpaid principal balance and all unpaid accrued interest
is due and payable in full.

“Maximum Lawful Rate” shall have the meaning assigned to it in Section 2.03(c)
hereof.

“1933 Act” shall mean the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.

“Note” shall mean the Secured Subordinated Notes dated as of December 27, 2006
made by the Borrower to the order of the Lender in the aggregate stated
principal amount of $1,250,000.

“Obligations” shall mean all loans, advances, debts, liabilities, and
obligations, for monetary amounts (whether or not such amounts are liquidated or
determinable) owing by Borrower to Lender, and all covenants and duties
regarding such amounts, of any kind or nature, present or future, whether or not
evidenced by any note, agreement or other instrument, arising under any of the
Loan Documents.

“Other Agreements” shall mean all agreements, instruments and documents,
including, without limitation, notes, guarantees, mortgages, deeds of trust,
chattel mortgages, escrow agreements, pledges, powers of attorney, consents,
assignments, contracts, notices, security agreements, leases, financing
statements, subordination agreements, escrow agreements, warrants, warrant
agreements, registration rights agreements, and all other written matter whether
heretofore, now, or hereafter executed by or on behalf of Borrower and delivered
to any Lender with respect to this Agreement.

“Person” shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, limited liability partnership, institution, public benefit
corporation, entity, or government (whether Federal, state, county, city,
municipal or otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof).

“Real Property” shall mean all rights, title and interest now or hereafter held
by Borrower (whether in fee, under leasehold or otherwise) to or in any real
property.

“SEC Documents” shall mean the Company’s latest Form 10-K or 10-KSB as of the
time in question, all Forms 10-Q or 10-QSB and Forms 8-K filed thereafter, and
the Proxy Statement for its latest fiscal year as of the time in question until
such time as the Company no longer has an obligation to maintain the
effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.

“Stock” shall mean all shares, options, warrants, interests, participations or
other equivalents (regardless of how designated) of or in a corporation or
equivalent entity, whether voting or nonvoting, including, without limitation,
common stock, preferred stock, or any other “equity security” (as such term is
defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the
Commission under the Exchange Act).

“Subsidiary” shall mean, with respect to any Person, any corporation or other
entity of which an aggregate of 50% or more of the outstanding voting power to
elect a majority of the board of directors, general partners or managers of such
entity is at the time, directly or indirectly, owned legally or beneficially by
such Person and/or one or more Subsidiaries of such Person.

 

4

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

“Supplemental Documentation” shall mean agreements, instruments, documents,
financing statements, warehouse receipts, bills of lading, notices of assignment
of accounts, schedules of accounts assigned, mortgages and other written matter
necessary or requested by Lender to perfect and maintain perfected Lender’
security interest in the Collateral.

“Termination Date” shall mean the date on which all Obligations hereunder have
been completely discharged.

“Warrant” shall mean the Common Stock Purchase Warrant(s) issued pursuant to
Section 2.05 hereof.

Any accounting term used in this Agreement shall have, unless otherwise
specifically provided herein, the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied. That certain terms or computations are explicitly modified
by the phrase “in accordance with GAAP” shall in no way be construed to limit
the foregoing. All other undefined terms contained in this Agreement including,
without limitation, chattel paper, instruments, documents and proceeds, shall,
unless the context indicates otherwise, have the meanings provided for by the
Code as in effect in the State of Illinois to the extent the same are used or
defined therein. The words “herein,” “hereof” and “hereunder” and other words of
similar import refer to this Agreement as a whole, including the Exhibits and
Schedules hereto, as the same may from time to time be amended, modified or
supplemented and not to any particular section, subsection or clause contained
in this Agreement.

Wherever from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and the plural, and pronouns
stated in the masculine, feminine or neuter gender shall include the masculine,
the feminine and the neuter.

2.

AMOUNT OF LOAN

 

2.01

Credit Advances.

(a)   The stated principal amount of the Loan is One Million Two Hundred Fifty
Thousand Dollars ($1,250,000).

(b)   The Loan shall be funded by the Lender to the Borrower in increments. The
first increment shall be in the amount of Two Hundred Seventy Five Thousand
Dollars ($275,000) .upon satisfaction of the initial funding requirements
herein. The balance of the Loan shall be funded, if at all, .in up to four
additional increments on or before November 15, 2007. The second increment shall
be in the amount of Two Hundred Twenty Five Thousand Dollars ($225,000) and
funded by Lender to Borrower within ten (10) Business Days after delivery to
Lender of notice that Borrower has completed five (5) dental practice
acquisitions. The third, fourth and fifth increments shall be in the amount of
Two Hundred Fifty Thousand Dollars ($250,000) each and shall be funded by Lender
to Borrower within ten (10) Business Days after delivery to Lender of written
notice that Borrower has completed the acquisition of 15, 20 and 25 dental
practices (being 25 acquisitions in the aggregate). Each notice hereunder shall
be accompanied by (i) copies of the closing statements signed by Borrower and a
representatives of the acquired dental practices, and (ii) a certificate of the
Chief Executive Officer and Chief Financial Officer of the Company that at the
time of delivery of such notice there has occurred no default under the Loan
Documents that continues uncured and there are no events occurring that with the
passage of time or notice would constitute a default under the Loan Documents
and confirming the

 

5

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

representations and warranties are true and correct in all material respects as
of the date of such notice.

(c)   The Loan shall be evidenced by the Note to be executed and delivered by
Borrower, the form of which is attached hereto as Exhibit A and made a part
hereof.

(d)   The Note and the Loan evidenced thereby shall mature, and the principal
balance of and all unpaid accrued interest thereon shall be due and payable in
full, on the Maturity Date.

2.02        Optional Prepayment. The Borrower may prepay this Loan, in whole or
in part, at any time without premium or penalty.

 

2.03

Interest Payments and Rate.

(a)   Borrower shall pay interest quarterly in arrears as provided on the Note.
Interest shall be at the rate and calculated as provided in the Notes.

(b)   Upon the occurrence of and during the continuation of Borrower’s failure
to make any payment of principal of, or interest on, or any amount owing in
respect of, the Loan, or any of the other Obligations when due and payable or
declared due and payable, the interest rate applicable to the Loan, shall be
increased to the default rate provided in the Note.

(c)   Notwithstanding anything to the contrary set forth in this Section 2.03,
if at any time until payment in full of all of the Obligations the interest rate
on the Notes exceeds the highest rate of interest permissible under any law
which a court of competent jurisdiction shall, in a final determination, deem
applicable hereto (the “Maximum Lawful Rate”), then in such event and so long as
the Maximum Lawful Rate would be so exceeded, the rate of interest payable
hereunder shall be equal to the Maximum Lawful Rate.

 

2.04

Indemnity.

Borrower hereby indemnifies Lender and its directors, officers, employees,
Affiliates and agents (collectively, “Indemnified Persons”) against, and agrees
to hold each such Indemnified Person harmless from, any and all losses, claims,
damages and liabilities, including without limitation, claims brought by any
stockholder or former stockholder of Borrower, and related expenses, including
reasonable counsel fees and expenses, incurred by such Indemnified Person
arising out of any claim, litigation, investigation or proceeding (whether or
not such Indemnified Person is a party thereto) relating to any transactions,
services or matters that are the subject of the Loan Documents; provided,
however, that such indemnity shall not apply to any such losses, claims,
damages, or liabilities or related expenses determined by a court of competent
jurisdiction to have arisen from the gross negligence or willful misconduct of
such Indemnified Person.

2.05        Issuance of Warrant.   In further consideration of Lender entering
into this Agreement, Borrower shall issue to Lender the Warrant to purchase
shares of Common Stock in the form of Exhibit B attached hereto and made a part
hereof. The Warrant shall be exercisable in proportion to the amount of loan
proceeds advanced as provided in Section 2.01(b) above. For example, upon the
initial funding of the loan proceeds, the Warrant shall be exercisable to the
extent of 2.75/12.5 (22%) of the full Warrant value, and upon funding of the
first $225,000 increment the Warrant shall be exercisable to the extent of
5/12.5 (40%), and upon the funding of the first $250,000 increment, the Warrant
shall be exercisable to the extent of 7.5/12.5 (60%) of the full

 

6

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

Warrant value. If one or more increments of the Loan shall not be funded the
percentage of the Warrant that will be exercisable will be reduced
proportionately.

3.

CONDITIONS PRECEDENT.

 

As conditions to the initial funding of the Loan:

3.01        Execution and Delivery of Agreement. This Agreement shall be duly
executed by, and delivered to, Borrower and Lender.

3.02        Documents and Other Agreements. Borrower shall deliver to Lender the
following, each in form and substance satisfactory to the Lender:

 

(a)

Note of Borrower payable to Lender as required by Section 2.01(b);

(b)   A true and correct copy of the resolutions of the Boards of Directors of
Borrower authorizing the execution, delivery and performance of this Agreement,
the Notes, the Warrant (in the case of the Company), the other Loan Documents
and the Other Agreements;

(c)   Certified copies of all documents evidencing corporate existence,
qualification and good standing of each Borrower and each Subsidiary of Borrower
in their respective states of incorporation and confirmation of their good
standing in all other jurisdictions (U.S. and foreign) in which qualification
and good standing are required for the conduct of business or the ownership or
leasing of property; and any other necessary corporate action, consents and
governmental approvals (if any) with respect to this Agreement, the Notes,
Warrants, the other Loan Documents and the Other Agreements;

(d)   Certificate representing all of the shares of stock and other securities
held by the Company or any other Borrower in any Subsidiary of the Company.

 

(e)

The Warrant executed by Borrower and issued to the Lender;

(f)    Copies of Financing Statements under the Code regarding the Collateral,
in form and substance recorded electronically in the office of the Secretary of
State of Uta h and suitable for recordation in other jurisdictions in which the
Lender, upon advice of their counsel, shall desire to file or record such
Financing Statements under the Code;

(g)   Registration Rights Agreement relating to any shares of Stock issued or
issuable to Lender under the Note or upon the exercise of the Warrant;

(h)   Consulting Agreement in the form attached hereto as Exhibit C executed by
Borrower; and

(i)    Tag Along Rights Agreement by and among the principal stockholders of
Borrower and Lender in the form attached hereto as Exhibit D

4.

REPRESENTATIONS AND WARRANTIES.

To induce Lender to make the Loan, Borrower, jointly and severally, make the
following representations and warranties:

 

7

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

4.01        Corporate Existence; Compliance with Law. Borrower: (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Utah; (ii) is duly qualified as a foreign corporation and in
good standing under the laws of each jurisdiction (U.S. and foreign), where the
failure to be so qualified or to be in good standing would have a Material
Adverse Effect; (iii) has the requisite corporate power and authority and the
legal right to own, pledge, mortgage or otherwise encumber and operate its
properties, to lease the property it operates under lease, and to conduct its
business as now, heretofore and proposed to be conducted.

4.02        Subsidiaries. The Company owns 100% of the shares of capital stock
of each of the other Borrowers. Borrower has no subsidiaries or affiliated
companies and does not otherwise own or control, directly or indirectly, any
equity interest in any corporation, partnership, limited liability company,
association or other business entity.

4.03        Corporate Power; Authorization; Enforceable Obligations. The
execution, delivery and performance by Borrower of its obligations under the
Note: (i) are within Borrower’s corporate power; (ii) have been duly authorized
by all necessary or proper corporate action; (iii) are not in contravention of
any provision of Borrower’s articles of incorporation or bylaws; (iv) will not
violate any law or regulation, or any order or decree of any court or
governmental instrumentality; (v) will not conflict with or result in the breach
or termination of, constitute a default under, or accelerate any performance
required by, any indenture, mortgage, deed of trust, lease, agreement or other
instrument to which Borrower is a party or by which Borrower or any of its
property is bound; (vi) will not result in the creation or imposition of any
lien upon any of the property of Borrower other than those in favor of Lender;
and (vii) do not require the consent or approval of any governmental body,
agency, authority or any other person. Each of the Loan Agreements constitutes a
legal, valid and binding obligation of Borrower enforceable in accordance with
its terms.

4.04        Ownership of Property; Leases; Lien. Borrower owns no Real Estate.
Borrower holds good and merchantable title to, or valid leasehold interest in,
all of its properties and assets, and none of the properties and assets of
Borrower are subject to any Liens that are not subordinate to the Liens of the
Lender.

4.05        Trademarks, Copyrights and Licenses. Borrower owns and will continue
to own fee and clear of all claims of third parties, liens and encumbrances all
material licenses, patents, patent applications, copyrights, service marks,
trademarks, trademark applications, URLs and internet domain names and
registrations, internet protocol addresses and trade names necessary to continue
to conduct its business as heretofore conducted by it, now conducted by it and
proposed to be conducted by it.

4.06        Taxes. Borrower has timely filed and will timely file all tax
returns (federal, state, and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and to
Borrower’s knowledge, all other taxes due and payable on or before the Issue
Date, have been paid or will be paid prior to the time they become delinquent.
Borrower has not been advised: (i) that any of its returns, federal, state or
other, have been or are being audited as of the date hereof; or (ii) of any
deficiency in assessment or proposed judgment to its federal, state or other
taxes.

4.07        Liens. The Liens granted to Lender pursuant to the Collateral
Documents, subject to the filing or recording thereof with the appropriate
government offices, will be fully perfected priority Liens in and to the
Collateral described therein.

4.08        No Litigation. No action, claim or proceeding is now pending or, to
the knowledge of Borrower, threatened against Borrower at law, in equity or
otherwise, before any court, board, commission, agency or instrumentality of any
federal, state, or local government or of any agency or

 

8

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

subdivision thereof, or before any arbitrator or panel of arbitrators, which, if
determined adversely, could reasonably be expected to have a Material Adverse
Effect, nor to the knowledge of Borrower does a state of facts exist which is
reasonably likely to give rise to such proceedings.

4.09        No Material Adverse Effect. No event has occurred and is continuing
which has had or could reasonably be expected to have a Material Adverse Effect
on Borrower’s business. Material Adverse Effect means an event that will have a
negative affect on: (i) Borrower’s business, assets, operations, management,
prospects, financial or other condition of Borrower taken as a whole; or
(ii) Borrower’s ability to pay its obligations to Lender (collectively a
“Material Adverse Effect”).

4.10        No Default. Except for loans from officers and directors, Borrower
is not in material default, nor, to the knowledge of Borrower, is any third
party in default, under or with respect to any contract, agreement, lease or
other instrument to which it is a party which default will not be cured at
Closing. Borrower is not in violation of its Articles of Incorporation or
By-laws or any other instrument, judgment or order, except for any default or
violation which (either individually or collectively with other defaults arising
out of the same event or events) could not reasonably be expected to have a
Material Adverse Effect. No default or event of default has occurred and is
continuing.

4.11        Capitalization. The authorized capital stock of Company consists, or
will consist prior to the Issue Date, of

(i)            Stock. The only classes of stock of the Company are Common Stock
and Preferred Stock. The Common Stock has no par value per share and 50,000,000
shares are authorized. Currently 23,312,697 shares are issued and outstanding
and 663,914 shares are reserved for issuance upon exercise of previously granted
stock options. The Preferred Stock has no par value and there are 10,000,000
shares authorized and no shares issued or outstanding.

 

(ii)          No Other Securities. There are no other outstanding options,
warrants or other securities, plans, contracts or agreements giving Lender
thereof or other person the right to purchase from Borrower any Stock or any
securities convertible into any Stock or under which any such option, warrant or
convertible security may be issued in the future, except those contemplated by
this Agreement. There are no preemptive or other similar rights with respect to
any of Lender’s securities.

 

4.12        Registration Rights. Borrower has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.

4.13        Securities Act. The offer and sale by Borrower of the Note hereunder
to Lender are exempt from and/or are not subject to the registration
requirements of the Securities Act and from registration or qualification under
any applicable state securities laws, as a transaction not involving any public
offering within the meaning of the Act or said state securities laws.

4.14        Disclosure; No Misleading Statements. No information provided to
Lender contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading at the time and in light of the circumstances under which made.

4.15        Brokers. Borrower has a finder’s commission arrangement in place
with USGT Investors, LP, an unaffiliated third party. Borrower has no other
obligation to any person or entity in respect of any finder’s or brokerage fees
in connection with the transactions contemplated by this Agreement.

 

9

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

4.16        No Conflict; Required Filings and Consents. The execution and
delivery of this Agreement by Borrower does not, and the performance by Borrower
of their respective obligations hereunder will not: (i) conflict with or violate
the Articles or By-Laws of Borrower; (ii) conflict with, breach or violate any
federal, state, foreign or local law, statute, ordinance, rule, regulation,
order, judgment or decree (collectively, “Laws”) in effect as of the date of
this Agreement and applicable to Borrower; or (iii) result in any breach of,
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, give to any other entity any right of
termination, amendment, acceleration or cancellation of, require payment under,
or result in the creation of a lien or encumbrance on any of the properties or
assets of Borrower pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Borrower is a party or by Borrower or any of its properties or assets
is bound. Excluding from the foregoing are such violations, conflicts, breaches,
defaults, terminations, accelerations, creations of liens, or incumbency that
would not, in the aggregate, have a Material Adverse Effect.

4.17        Report and Financial Statements. The Borrower’s audited financial
statements for the fiscal year ending December 31, 2005 and unaudited interim
financial statements for the nine months ended September 30, 2006 (collectively,
the “Financial Statements”) fairly presented the financial position of the
Company, as of its date, and each of the statements of income and changes in
stockholders’ equity and cash flows or equivalent statements in such Financial
Statements (including any related notes and schedules thereto) fairly presents,
changes in stockholders’ equity and changes in cash flows, as the case may be,
of the Company, for the periods to which they relate, in each case in accordance
with United States generally accepted accounting principles (“U.S. GAAP”)
consistently applied during the periods involved, except in each case as may be
noted therein, subject to normal year-end audit adjustments in the case of
unaudited statements. The books and records of Borrower have been, and are
being, maintained in all material respects in accordance with U.S. GAAP and any
other applicable legal and accounting requirements and reflect only actual
transaction.

4.18        Compliance with Applicable Laws. Borrower is not in violation of,
or, to the knowledge of Borrower is under investigation with respect to or has
been given notice or has been charged with the violation of any Law of a
government agency, except for violations which individually or in the aggregate
do not have a Material Adverse Effect.

4.19        SEC Documents. Borrower is a publicly held company and has made
available to the Holder true and complete copies of any SEC Documents (“SEC
Documents”). SEC Documents shall mean the Company’s latest Form 10-KSB, all
Forms 10-QSB and 8-K filed thereafter, and the Proxy Statement for its latest
fiscal year. The Company Common Stock is quoted and traded on the OTC Bulletin
Board of the National Association of Securities Dealers, Inc. The Company has
received no notice, either oral or written, with respect to the continued
quotation or trading of the common Stock on the OTC Bulletin Board. The Company
has not provided to the Holder any information that, according to applicable
law, rule or regulation, should have been disclosed publicly prior to the date
hereof all SEC Documents complied in all material respects with the requirements
of the 1934 Act, and rules and regulations of the SEC promulgated thereunder and
the SEC Documents did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.

4.20        Internal Controls and Procedures. Borrower maintains books and
records and internal accounting controls which provide reasonable assurance that
(i) all transactions to which the Company or any Subsidiary is a party or by
which its properties are bound are executed with management’s authorization;
(ii) the recorded accounting of the Borrower’s consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Borrower’s
consolidated assets is permitted only in

 

10

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

accordance with management’s authorization; and (iv) all transactions to which
the Company or any Subsidiary is a party or by which its properties are bound
are recorded as necessary to permit preparation of the financial statements of
Borrower in accordance with GAAP.

4.21        Subsequent Events. No events have occurred after September 30, 2006
that would constitute a Material Adverse Effect to the Borrower’s financial
condition, revenue, business, management or prospects that have not been
disclosed in SEC Documents.

4.22        Full Disclosure. No representation or warranty made by Borrower in
this Agreement and no certificate or document furnished or to be furnished to
the Holder pursuant to this Agreement contains or will contain any untrue
statement of material fact, or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading.

5.

COLLATERAL: GENERAL TERMS.

5.01        Security Interest. To secure the prompt payment to Lender of the
Obligations, Borrower hereby grants to the Lender, a continuing security
interest in and to all of the property and interests in property of Borrower,
whether now owned or existing, hereafter acquired or arising, or in which
Borrower now or hereafter has any rights, and wheresoever located including,
without limitation:

 

(a)

Accounts;

 

(b)

Accounts Receivable;

 

(c)

Chattel Paper;

 

(d)

Documents;

 

(e)

Equipment;

 

(f)

General Intangibles;

 

(g)

Instruments;

 

(h)

Inventory;

 

(i)

Source Codes to computer software programs;

 

(j)

Investment Property;

(k)          All monies, residues and property of any kind now or at any time
hereafter in the possession or under the control of any Lender or any, a bailee
of a Lender;

 

(l)

Real Property;

(m)         All accessions to, substitutions for, and all replacements, products
and proceeds of the foregoing; and

 

11

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

(n)          All books and records (including, without limitation, customer
lists, credit files, computer programs, print-outs and other computer materials
and records) of Borrower pertaining to any of the foregoing.

5.02        Special Collateral. Immediately upon Borrower’s receipt of that
portion of the Collateral which is or becomes evidenced by an agreement,
instrument and/or document, including, without limitation, promissory notes,
trade acceptances, documents of title and warehouse receipts (the “Special
Collateral”), Borrower shall deliver the original thereof to the Lender or their
designee, together with appropriate endorsements or other specific evidence (in
form and substance acceptable to the Lender) of assignment thereof to Lender.

5.03        Financing Statements and Costs. Borrower will join with Lender in
the execution and filing of such financing statement or statements as may be
requested by Lender in form and content reasonably required by Lender. Borrower
will pay all costs of filing any financing, continuation or termination
statements with respect to the security interest created by this Agreement,
together with costs and expenses of any lien search reasonably required by
Lender, during the term hereof.

5.04        Notice Regarding Disputed Accounts. In the event any amounts due and
owing in excess of Ten Thousand Dollars ($10,000.00) are in dispute between any
Account Debtor and Borrower, Borrower shall provide the Lender with written
notice thereof explaining in detail the reason for the dispute, all claims
related thereto, and the amount in controversy.

5.05        Collections; Lender’s Right to Notify Account Debtors; Verification.
Borrower hereby authorizes the Lender, at any time or times after an Event of
Default, to (i) notify any or all Account Debtors that the Accounts Receivable
has been assigned to the Lender and that the Lender have a security interest
therein, and (ii) direct such Account Debtors to make all payments due from them
to Borrower upon the Accounts Receivable directly to a lock box designated by
the Lender. The Lender shall promptly furnish Borrower with a copy of any such
notice sent. Any such notice, in the Lender’ sole discretion, may be sent on
Borrower’s stationery, in which event Borrower shall co-sign such notice with
the Lender.

5.06        Consignment of Inventory. Borrower shall not at any time permit any
Inventory to be placed on consignment with any Person without the prior written
consent of the Lender. Any consent to a consignment of Inventory may be
conditioned upon Borrower and consignee executing and delivering to the Lender
such consignment agreements and other instruments, financing statements and
other documents as the Lender shall request.

5.07        Proceeds of Equipment. Borrower shall not, without the prior written
consent of the Lender, sell, lease, grant a security interest in or otherwise
dispose of or encumber any Equipment, or any part thereof; provided that
Borrower may sell obsolete, redundant or unnecessary Equipment in the ordinary
course of business upon written notice to the Lender. Upon any disposition of
Equipment, Borrower shall, unless otherwise agreed to by the Lender, deliver all
of the cash proceeds to the Lender or its designee, which proceeds shall be
applied to the repayment of the Obligations. The foregoing notwithstanding,
Borrower shall have the right to trade in obsolete, redundant or unnecessary
Equipment in connection with the purchase of new Equipment, provided that such
new Equipment is subject to Lender’s security interest free and clear of all
other liens and encumbrances.

5.08        Proceeds of Real Property. Borrower shall not, without the prior
written consent of the Lender, sell, lease (as lessor or sublessor), grant a
mortgage in or otherwise encumber any Real Property or any part thereof. Upon
any such disposition, Borrower shall deliver all of the proceeds thereof to the
Lender or their designee to be applied to the repayment of the Obligations.

 

12

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

5.09        Release of Source Codes; Grant of Exclusive Licenses. Borrower shall
not, without the prior written consent of the Lender, sell, grant an exclusive
license to commercialize or use, lease or further encumber the computer programs
developed or being developed by Borrower. Borrower shall not release into the
public domain or otherwise publish any source code or other information that
will enable Persons to replicate the computer programs developed or being
developed by Borrower.

5.10        Access. Any officers, employees and/or agents of Lender shall have
the right, exercisable as frequently as such Lender determines to be reasonably
appropriate during normal business hours, to inspect the properties and
facilities of Borrower and its Subsidiaries and to inspect, audit and make
extracts from all of Borrower’s and its Subsidiaries’ records, files and books
of account; provided, however, that if no Default has occurred, Lender shall
give Borrower not less than five (5) Business Days notice of such inspection.
Borrower shall deliver any document or instrument reasonably necessary for the
Lender, as it may request, to obtain records from any service bureau maintaining
records for Borrower or its Subsidiaries, and shall maintain duplicate records
or supporting documentation on media, including, without limitation, computer
tapes and discs owned by Borrower and its Subsidiaries. Borrower shall instruct
its and its Subsidiaries’ banking and other financial institutions to make
available to the Lender such information and records as any Lender may
reasonably request. The Lender will utilize reasonable, good faith efforts to
maintain as confidential any information obtained from Borrower or its
Subsidiaries, other than information which (i) at the time of disclosure or
thereafter is generally available to and known by the public (other than as a
result of a disclosure directly or indirectly by a Lender or any of its
representatives), (ii) is available to a Lender on a non-confidential basis from
a source other than Borrower or its Subsidiaries, provided that such source was
not at the time bound by a confidentiality agreement with Borrower or its
Subsidiaries, or (iii) has been independently developed by a Lender, but in no
event (other than willful misconduct) shall any Lender be liable for damages
resulting from the disclosure of any such confidential information obtained from
Borrower or its Subsidiaries.

6.

COVENANTS.

6.01        Affirmative Covenants . Borrower covenants and agrees that, unless
Lender shall otherwise consent in writing, from and after the Issue Date and
until the Note has been paid in full:

(a)           Maintenance of Existence and Conduct of Business. Borrower shall:
(i) preserve and keep in full force and effect its corporate existence, rights
and franchises; (ii) at all times maintain, preserve and protect all of its
licenses, permits, patents, trademarks, service marks, internet domain names and
trade names and preserve all the remainder of its property, in use or useful in
the conduct of its business, (iii) keep the same in good operating condition
(taking into consideration ordinary wear and tear), and (iv) maintain the
property and insurance coverage thereof.

 

(b)           Payment of Obligations. Borrower shall: (i) pay and discharge or
cause to be paid and discharged all its indebtedness, including, without
limitation, the Note as and when due and payable; and (ii) pay and discharge or
cause to be paid and discharged promptly all: (A) Charges imposed upon it, its
income and profits, or any of its property (real, personal or mixed); (B) lawful
claims for labor, materials, supplies and services or otherwise before any
thereof shall become in default; and (C) ERISA claims.

 

(c)           Books and Records. Borrower shall keep adequate records and books
of account with respect to its business activities, in which proper entries,
reflecting all of their financial transactions, are made in accordance with GAAP
(subject to usual and customary year end adjustments).

 

(d)           Financial Statements. Borrower shall deliver to Lender at the time
of filing, copies of its quarterly reports and annual reports that it files with
the Securities and Exchange Commission (“SEC”) which reports shall be filed
within the time periods required by the SEC rules and regulations.

 

13

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

 

(e)           Litigation. Borrower shall notify Lender in writing, promptly upon
any executive officer or director of Borrower learning of any litigation
commenced or threatened against Borrower.

 

(f)           Use of Proceeds. Borrower will use the net proceeds received by
Borrower under the Note substantially for the acquisition of dental practices
and for working capital and payment of existing obligations..

 

(g)           Subsidiaries. Except as otherwise described herein, Borrower shall
cause each of its Subsidiaries to comply with the affirmative and negative
covenants herein as if a party to this Agreement.             

 

(h)           Inspection and Access. Lender may examine the books and records of
Borrower and inspect its facilities, and will receive upon request information
at reasonable times and intervals concerning the general status of the Borrower
financial condition and operations. If requested in writing by Lender, Borrower
shall invite a representative of Lender to attend all meetings of its Board of
Directors (and all committees thereof) in a nonvoting observer capacity only,
and, in this respect, shall give Lender copies of all notices, minutes, consents
and other materials that it provides to its directors; provided, however, that
Borrower reserves the right to exclude Lender from access to any material or
meeting or portion thereof if Borrower believes upon advice of counsel that such
exclusion is reasonably necessary to preserve the attorney-client privilege, to
protect highly confidential proprietary information or for other similar
reasons.

 

(i)            Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect according to the provisions
of the Registration Rights Agreement and the Company shall comply in all
material respects with the terms thereof.

 

(j)            Reservation of Common Stock. As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to issue the shares of Common Stock underlying the Warrant.

 

(k)           Exchange Act Registration. The Company (a) will continue its
obligation to report to the SEC under Section 15(d) of the 1934 Act and will use
its best efforts to comply in all respects with its reporting and filing
obligations under the 1934 Act, and will not take any action or file any
document (whether or not permitted by the 1934 Act or the rules thereunder) to
terminate or suspend any such registration or to terminate or suspend its
reporting and filing obligations under the 1934 until the Investors have
disposed of all their Shares.

 

(l)            Debt Limitation. The Company agrees for three years after Closing
not to enter into any new borrowings of more than three times as much as the sum
of the EBITDA from recurring operations over the past four quarters.

 

6.02        Negative Covenants. Borrower covenants and agrees that, unless
Lender shall otherwise consent in writing, from and after the Issue Date and
until this Note has been repaid in full.

(a)           Indebtedness. Borrower shall not, create, incur, assume or permit
to exist any indebtedness for borrowed money, whether superior or junior to the
Note, whether secured or unsecured. Notwithstanding the foregoing, Borrower may
incur indebtedness and guaranty indebtedness to Stillwater National Bank and
Trust Company, not to exceed $30,000,000 in the aggregate, in the ordinary
course of business to acquire dental practices and between Dental Patial Care
America, Inc. and its subsidiaries.

 

14

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

(b)           Employee Loans. Borrower shall not make or accrue any loans or
other advances of money to any director, officer, employee, or cooperative
member of Borrower.

 

(c)           Transactions with Affiliates. Borrower shall not enter into or be
a party to any transaction with any affiliate of Borrower (other than with and
among Subsidiaries). Notwithstanding the foregoing, Borrower may enter into (i)
related party transactions with US DentistDirect, Inc. and Dental Direct, LLC,
(ii) arrangement whereby affiliates make debt (subordinated to the Lender) or
equity investments in the Borrower, or (iii) enter into reasonable compensatory
arrangements with officers and directors.

 

(d)          Guaranteed Indebtedness. Borrower shall not guaranty the debts or
obligations of any third party. Notwithstanding the foregoing, Borrower may
guaranty obligations in connection with the acquisition of dental practices.

 

(e)           Liens. Borrower shall not create or permit any lien on any of its
properties or assets; provided, however, that liens may be created on
obligations owed between Dental Patient Care America, Inc. and its Subsidiaries.

 

(f)           Sales of Assets. Borrower shall not sell, transfer, convey or
otherwise dispose of any assets or properties material to its business, other
than the sale of inventory in the ordinary course of business and obsolete,
redundant or unnecessary equipment in the ordinary course of business. This
covenant, however, shall not in any way restrict Borrower’s ability to purchase
and sell dental practices.

 

(g)           Cancellation of Indebtedness. Borrower shall not cancel any claim
or debt owing to it, except for reasonable consideration or in the ordinary
course of business.

 

(h)           Dividends; Distributions. Borrower shall not declare or pay any
dividend or authorize or make any distribution on its Common Stock, whether now
or hereafter outstanding.

 

(i)            Less Than 100%-Owned Subsidiaries. Borrower shall not have any
subsidiary the capital stock of which is not One Hundred Percent (100%) owned by
Borrower or a subsidiary of Borrower.

 

(j)            Change of Control. Borrower shall not permit to cause a change of
control of the Company, whether by merger, consolidation, sale of capital stock
or otherwise. A change of control shall be deemed to occur when any person or
group of persons who do not, on the Issue Date, own 50% or more of the existing
capital stock of the Company after the Issue Date after the Issue Date own 50%
or more of the existing stock of the Company.

 

(k)           Subsequent Equity Sales. For so long as the Warrants shall be
issued and outstanding, the Company and except for options to acquire common
stock that are granted to members of the Dental cooperative issued as
performance incentives and not in connection with financing transactions, the
Company shall not enter into an agreement for any Subsequent Financing that
involves a “Variable Rate Transaction” or an “MFN Transaction” (each as defined
below). The term “Variable Rate Transaction” means a transaction in which the
Company issues or sells (i) any debt or equity securities that are convertible
into, exchangeable or exercisable for, or include the right to receive
additional shares of Common Stock either (A) at a conversion, exercise or
exchange rate or other price that is based upon and/or varies with the trading
prices of or quotations for the shares of Common Stock at any time after the
initial issuance of such debt or equity securities, or (B) with a conversion,
exercise or exchange price that is subject to being reset at some future date
after the initial issuance of such debt or equity security or upon the
occurrence of specified or contingent events directly or indirectly related to
the business of the

 

15

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

Company or the market for the Common Stock. The term “MFN Transaction” means a
transaction in which the Company issues or sells any securities and grants to an
investor the right to acquire, or receive additional shares in future
transactions of the Company on terms more favorable than those granted to such
investor in such future transactions. Lender shall be entitled to obtain
injunctive relief against the Company to preclude any such issuance, which
remedy shall be in addition to any right to collect damages.

7.

EVENTS OF DEFAULT; RIGHTS AND REMEDIES.

7.01        Events of Default. The occurrence of any one or more of the
following events (regardless of the reason therefor) shall constitute an “Event
of Default” hereunder:

(a)   Borrower shall fail to pay any Principal Amount or interest under the Note
or any other Obligation when due (whether by maturity, acceleration or
otherwise);

(b)   Any proceedings shall be instituted by or against Borrower under the
provisions of any Federal bankruptcy, reorganization, arrangement of debt,
insolvency or receivership laws or similar state or Federal laws providing for
the relief of debtors and is not discharged within thirty (30) days thereafter;

 

(c)

Borrower shall make an assignment for the benefit of its creditors;

(d)   Any proceedings shall be instituted by or against Borrower for its
liquidation or dissolution and is not discharged within thirty (30) days
thereafter or Borrower’s business as a going concern shall terminate for any
reason;

(e)   Any covenant herein or in the Note shall be breached and not cured or
representation or warranty herein or the Note or in any written statement
pursuant thereto or hereto, report, financial statement or certificate made or
delivered to Lender by Borrower shall be untrue or incorrect in any material
respect as to Borrower as of the date when made or deemed made;

(f)    Borrower shall pledge, encumber, assign or transfer all or substantially
all of its assets without the prior written consent of Lender;

(g)   Any material provision of any Collateral Document shall for any reason
cease to be valid or enforceable in accordance with its terms, or any security
interest created in any Collateral matured in amount or nature shall cease to be
a valid and perfected security interest or Lien (except as otherwise permitted
herein or therein);

(h)   Borrower shall suffer an event of default under any other indebtedness for
borrowed money which shall not have been cured within applicable notice and
grace periods or satisfied by a guarantor or the guarantors of such loan; and

(i)    Borrower suffers a Default under the Note, Warrant, Registration Rights
Agreement, Consulting Agreement or any other Obligation to Lender.

7.02        Remedies. If any Event of Default shall have occurred and be
continuing, Lender may, without notice, declare all Obligations to be forthwith
due and payable, whereupon all Obligations shall become and be due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are expressly waived by Borrower; provided, however, that upon the occurrence of
an Event of Default

 

16

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

specified in Sections 7.01(b), (c), (d) or (f) hereof, the Obligations shall
become due and payable without declaration, notice or demand by any Lender. In
conjunction with or in addition to other rights and remedies of the Lender, upon
the occurrence of an Event of Default, the Lender may:

(a)   Exercise all of the rights and remedies of a secured party under the Code
or other applicable law, all of which rights and remedies shall be cumulative
and non-exclusive, to the extent permitted by law;

(b)   Immediately cease funding of any unfunded amount of the Loan and take
possession, with or without legal process, of any or all of the Collateral
wherever it may be found using self-help to do so, and for that purpose any
Lender, as principal and agent of Borrower, may enter upon any premises upon
which the Collateral is situated and remove the same therefrom, without such
entry constituting a breach of the peace, or require Borrower to assemble the
Collateral and return it to Lender at Borrower’s expense at a place designated
by such Lender, and Borrower waives any and all claims of damages due to or
arising from or connected with any such taking;

(c)   Sell, lease or otherwise dispose of all or any of the Collateral, in its
then condition or after any further manufacturing or processing thereof, at
public or private sale or sales for cash, credit or any combination thereof,
with such notice as may be required by law (it being agreed by Borrower that, in
the absence of any contrary requirement of law, ten (10) days’ prior notice of a
public or private sale of Collateral shall be deemed reasonable notice), in lots
or in bulk, all as the Lender, in their sole discretion shall deem advisable.
Such sale may be adjourned from time to time with or without notice. Lender
shall have the right to conduct such sales on Borrower’s premises or elsewhere
and shall have the right to use Borrower’s premises without charge for such
sales for such time or times as the Lender shall see fit. Any Lender or Lender
may purchase all or any part of the Collateral at public or, if permitted,
private sale and, in lieu of actual payment of such purchase price, may set off
the amount of such price against the Obligations due under the Note or Notes
held thereby. The proceeds realized from the sale of any Collateral shall be
applied first to the reasonable cost, expenses and attorneys’ fees incurred by
the Lender for collection, acquisition, completion, protection, removal,
storage, sale or delivery of the Collateral; second, to any accrued but unpaid
interest, and third, to any other sums required to be paid by Borrower to Lender
under the Notes, this Agreement, or any Other Documents. If any deficiency shall
arise, Borrower shall remain liable to Lender therefor.

(d)   After exercising its rights under this Section, Lender may, without notice
to Borrower, renew, modify, or extend any Account Receivable, grant waivers or
indulgences with respect thereto, accept partial payments thereon, release,
surrender or substitute any customer security or make compromises with or
release any other party liable thereon in such manner as such Lender may, in its
sole discretion, deem advisable without affecting or diminishing Borrower’s
continuing obligation upon such Account Receivable;

(e)   The Lender may enforce any one or more remedies hereunder successively or
concurrently at their option. All remedies set forth herein are in addition to
all other remedies available to Lender at law or in equity. No delay or failure
on the part of Lender to exercise any right or remedy accruing to them
hereunder, upon any Event of Default shall be held to be an abandonment thereof.
No delay on the part of the Lender in exercising any of its rights or remedies
shall preclude them from the exercise thereof at any time during the continuance
of any Event of Default. No waiver of a single Default or Event of Default shall
be deemed a waiver of any subsequent Default or Event of Default. All waivers
under this Agreement must be in writing.

 

17

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

7.03        Waivers by Borrower. Except as otherwise provided for in this
Agreement and applicable law, Borrower waives (i) presentment, demand and
protest and notice of presentment, dishonor, notice of intent to accelerate,
notice of acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all commercial paper,
accounts, contract rights, documents, instruments, chattel paper and guaranties
at any time held by Lender on which Borrower may in any way be liable and hereby
ratifies and confirms whatever any Lender may do in this regard, (ii) all rights
to notice and a hearing prior to Lender’s taking possession or control of, or to
Lender’s replevy, attachment or levy upon, the Collateral or any bond or
security which might be required by any court prior to allowing any Lender to
exercise any of its remedies, and (iii) the benefit of all valuation, appraisal
and exemption laws. Borrower acknowledges that it has been advised by counsel of
its choice with respect to this Agreement, the other Loan Documents and the
transactions evidenced by this Agreement and the other Loan Documents.

7.04        Right of Set-Off. Upon the occurrence and during the continuance of
any Event of Default and Lender’s declaring all Obligations to be forthwith due
and payable pursuant to the provisions of Section 7.02 hereof, each Lender is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all indebtedness at any time
owing by such Lender to or for the credit or the account of Borrower against any
and all of the obligations of Borrower now or hereafter existing under this
Agreement, and the Notes held by Lender irrespective of whether or not Lender
shall have made any demand under this Agreement or any such Note and although
such obligations may be unmatured. Lender agrees to promptly notify Borrower
after any such set-off and application made by such Lender; provided, however,
that the failure to give such notice shall not affect the validity of such
set-off and application. The rights of Lender under this Section 7.04 are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which such Lender may have.

8.

MISCELLANEOUS.

8.01        Complete Agreement; Modification of Agreement; Sale of Interest. The
Loan Documents and the Other Documents, constitute the complete agreement
between the parties with respect to the subject matter hereof and may not be
modified, altered or amended except by an agreement in writing signed by
Borrower and Lender. Borrower hereby consents to Lender’s sale of
participations, assignment, transfer or other disposition, at any time or times,
of any of the Loan Documents or of any portion thereof or interest therein,
including, without limitation, any Lender’s rights, title, interests, remedies,
powers or duties thereunder, whether evidenced by a writing or not provided that
the same is accomplished in accordance with the terms of the Notes and in
compliance with any applicable federal and state securities laws.

No amendment or waiver of any provision of this Agreement or the Notes or any
other Loan Document, nor consent to any departure by Borrower therefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Lender, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.

8.02        Fees and Expenses. If, at any time or times, regardless of the
existence of any Event of Default (except with respect to paragraphs (c) and (d)
below, which shall be subject to an Event of Default having occurred and be
continuing), Lender shall employ counsel for advice or other representation in
connection with or shall incur reasonable legal or other costs and expenses in
connection with:

(a)   any amendment, modification, termination, or waiver, or consent with
respect to, any of the Loan Documents;

 

18

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

(b)   any litigation, contest, dispute, suit, proceeding or action (whether
instituted by any Lender, Borrower, or any other Person) in any way relating to
the Collateral, any of the Loan Documents or any other agreements to be executed
or delivered in connection herewith;

(c)   any attempt to enforce any rights of any Lender against Borrower, or any
other Person, that may be obligated to any Lender by virtue of any of the Loan
Documents;

(d)   any attempt to verify, protect, collect, sell, liquidate or otherwise
dispose of the Collateral;

then, and in any such event, the reasonable attorneys’ fees arising from such
services, including those of any appellate proceedings, and all reasonable
expenses, costs, charges and other fees incurred by such counsel in any way or
respect arising in connection with or relating to any of the events or actions
described in this Section 8.02 shall be payable, on demand, by Borrower to such
Lender and shall be additional Obligations secured under this Agreement and the
other Loan Documents.

8.03        No Waiver by Lender. Lender’s failure, at any time or times, to
require strict performance by Borrower of any provisions of this Agreement and
any of the other Loan Documents shall not waive, affect or diminish any right of
such Lender or any other Lender thereafter to demand strict compliance and
performance therewith. Any suspension or waiver by Lender of an Event of Default
by Borrower under the Loan Documents shall not suspend, waive or affect any
other Event of Default by Borrower under this Agreement and any of the other
Loan Documents whether the same is prior or subsequent thereto and whether of
the same or of a different type. None of the undertakings, agreements,
warranties, covenants and representations of Borrower contained in this
Agreement or any of the other Loan Documents and no Event of Default by Borrower
under this Agreement and no defaults by Borrower under any of the other Loan
Documents shall be deemed to have been suspended or waived by Lender, unless
such suspension or waiver is by an instrument in writing signed by an officer of
the Lender and directed to Borrower specifying such suspension or waiver.

 

8.04

Remedies.

Lender’s rights and remedies under this Agreement shall be cumulative and
nonexclusive of any other rights and remedies which Lender may have under the
Note or any other agreement, including without limitation, the Loan Documents,
by operation of law or otherwise. Recourse to the Collateral shall not be
required.

8.05        Governing Law, Jurisdiction and Venue. This Loan Agreement is a
contract under the laws of the State of Illinois and for all purposes shall be
construed in accordance with the laws of said State.

BORROWER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY FEDERAL OR STATE
COURT SITTING IN __________ COUNTY, ILLINOIS FOR PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THE NOTE OR THIS AGREEMENT. BORROWER
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

19

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF
ACTION ARISING OUT OF OR IN ANY WAY PERTAINING OR RELATING TO THIS NOTE OR TO
ANY DEALINGS OF THE BORROWER AND LENDER WITH RESPECT TO THIS NOTE WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE. BORROWER AGREES THAT LENDER MAY FILE A
COPY OF THIS WAIVER WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY
AND BARGAINED AGREEMENT OF BORROWER IRREVOCABLY TO WAIVE ITS RIGHTS TO TRIAL BY
JURY, AND THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY SUCH DISPUTE OR
CONTROVERSY BETWEEN BORROWER AND LENDER SHALL INSTEAD BE TRIED IN A COURT OF
COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

BORROWER HEREBY IRREVOCABLY APPOINTS THE SECRETARY OF STATE OF THE STATE OF
ILLINOIS AS BORROWER’S AGENT FOR THE PURPOSE OF ACCEPTING THE SERVICE OF ANY
PROCESS WITHIN THE STATE OF ILLINOIS.

 

8.06

Severability.

Wherever possible, each provision of this Agreement shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Agreement.

8.07        Parties. This Agreement and the other Loan Documents shall be
binding upon, and inure to the benefit of, the successors of Borrower and the
Lender and the assigns, transferees and endorsees of the Lender. Nothing in this
Agreement or the other Loan Documents, express or implied, shall give to any
Person, other than the parties hereto and their successors hereunder, any
benefit or any legal or equitable right, remedy or claim under this Agreement.

 

8.08

Conflict of Terms.

Except as otherwise provided in this Agreement or any of the other Loan
Documents by specific reference to the applicable provisions of this Agreement,
if any provision contained in this Agreement is in conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.

 

8.09

Notices.

Except as otherwise provided herein, whenever it is provided herein that any
notice, demand, request, consent, approval, declaration or other communication
shall or may be given to or served upon any of the parties by another, or
whenever any of the parties desires to give or serve upon another any
communication with respect to this Agreement, each such notice, demand, request,
consent, approval, declaration or other communication shall be in writing and
shall be delivered in person (by personal delivery, delivery service or
overnight courier service) with receipt acknowledged, or telecopied and
confirmed immediately in writing by a copy mailed by registered or certified
mail, return receipt requested, postage prepaid, addressed as hereafter set
forth, or mailed by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:

 

20

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

 

(a) If to Lender at:

 

Heartland Dental Care, Inc.
1200 Network Centre
Suite 2
Effingham, Illinois 62401
Attn:   John Slack, Executive Vice President and
               Financial Officer

With a copy to:

 

DLA Piper US LLP
203 North LaSalle Street
Suite 1900
Chicago, Illinois 60601
Attn:     Deborah Gersh, Esq.

 

(a)         If to Any Borrower:

 

Dental Patient Care America, Inc.
2150 South 1300 East
Salt Lake City, Utah 84106
Attn:    Michael Silva, Chief Executive Officer

 

With a copy to:

 

Blackburn & Stoll, LC
257 East 200 South, Suite 800
Salt Lake City, Utah 84111
Attn: Eric Robinson, Esq.

 

 

(b)          Any party may change its address for notices to such other address
as may be substituted by notice given as herein provided. The giving of any
notice required hereunder may be waived in writing by the party or parties
entitled to receive such notice.

(c)          Every notice, demand, request, consent, approval, declaration or
other communication hereunder shall be deemed to have been duly given or served
on the date on which personally delivered, in person, by delivery service or by
overnight courier service, with receipt acknowledged, or three (3) Business Days
after the same shall have been deposited in the United States mail. Failure or
delay in delivering copies of any notice, demand, request, consent, approval,
declaration or other communication to the persons designated above to receive
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.

8.10        Survival. The representations and warranties of Borrower in this
Agreement shall survive the execution, delivery and acceptance hereof by the
parties hereto and the closing of the transactions described herein or related
hereto.

8.11        Section Titles. The Section titles and Table of Contents contained
in this Agreement are and shall be without substantive meaning or content of any
kind whatsoever and are not a part of the agreement between the parties hereto.

 

8.12

Counterparts.

 

21

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

This Agreement may be executed in any number of separate counterparts, each of
which shall, collectively and separately, constitute one agreement.

 

[SIGNATURE PAGE TO FOLLOW]

 

22

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first
written above.

 

LENDER:

 

HEARTLAND DENTAL CARE, INC.,

 

 

 

 

By:   /s/  

Name:  

Title:

 

BORROWER:

 

DENTAL PATIENT CARE AMERICA, INC.,
a Utah corporation

 

 

 

By:   /s/  

Name:_____________________________

Title: _____________________________

 

DENTAL COOPERATIVE, INC.,
a Utah corporation

 

 

 

By:    /s/__________________________________

Name:_____________________________

Title: ____________________________

 

U.S. DENTIST DIRECT, INC.,
a Utah corporation

 

 

 

By:   /s/ _________________________________

Name: ___________________________

Title: ___________________________

 

DENTAL PRACTICE TRANSITIONS, INC.,
a Utah corporation

 

 

 

By:   /s/__________________________________

Name:_____________________________

Title: ____________________________

 

 

23

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

EXHIBIT A

 

FORM OF SECURED SUBORDINATED NOTE

 

Exhibit A-1

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

EXHIBIT B

 

FORM OF WARRANT

 

Exhibit B-1

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

EXHIBIT C

 

FORM OF CONSULTING AGREEMENT

 

Exhibit C-1

CHGO1\30856633.6

 

--------------------------------------------------------------------------------

EXHIBIT D

 

FORM OF TAG ALONG RIGHTS AGREEMENT

 

Exhibit C-2

CHGO1\30856633.6