Form and Manner of Sale, Break up Fees, Stalking Horse Bidder - Doc 106

8/2/2019 Form and Manner of Sale, Break up Fees, Stalking Horse Bidder - Doc 106

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8574903.6 1

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE MIDDLE DISTRICT OF TENNESSEE

NASHVILLE DIVISION------------------------------------------------------------------------IN RE: )

) Chapter 11CHURCH STREET HEALTH MANAGEMENT, LLC, )et al.

1 ) Case No. 12-01573)

Debtors ) (Jointly Administered)------------------------------------------------------------------------

DEBTORS EXPEDITED MOTION FOR ENTRY OF AN ORDER: (A) AUTHORIZING

AND SCHEDULING AN AUCTION, (B) AUTHORIZING AND APPROVING (i)

BIDDING PROCEDURES, (ii) NOTICE OF THE AUCTION, (iii) BREAK-UP FEE

AND EXPENSE REIMBURSEMENT, (iv) THE FORM AND MANNER OF SALE

NOTICE, (v) THE FORM AND MANNER OF SALE SUMMARY, AND (vi) THE

FORM AND MANNER OF ASSUMPTION AND ASSIGNMENT NOTICE;

(C) SCHEDULING A SALE HEARING; AND (D) GRANTING RELATED RELIEF

By this expedited motion (the Motion),2 the above-captioned debtors and debtors in

possession (collectively, the Debtors, or Sellers), hereby move the Court, pursuant to

sections 105(a), 363, 365, and 503 of title 11 of the United States Code (the Bankruptcy Code),

Rules 2002, 6004, 6006, 7004 and 9014 of the Federal Rules of Bankruptcy Procedure (the

Bankruptcy Rules) and Rules 6004-1, 9014-1 and 9075-1 of the Local Rules of Court for the

United States Bankruptcy Court for the Middle District of Tennessee (the Local Rules), for

entry of an order on an expedited basis: (A) authorizing and scheduling an auction (the

Auction) for the sale by the Sellers of substantially all of the Debtors assets (the Assets) as

described more fully in the Asset Sale Agreement (the Stalking Horse Agreement), dated

1 The Debtors in these chapter 11 cases are jointly administered for procedural purposes only under a singlecase number. The Debtors (with the last four digits of each Debtors federal tax identification number andchapter 11 case number), are: Church Street Health Management, LLC (2335; Case No. 12-01573), SmallSmiles Holding Company, LLC (4993; Case No. 12-01574), FORBA NY, LLC (8013; Case No. 12-01575), FORBA Services, Inc. (6506; Case No. 12-01577), EEHC, Inc. (4973; Case No. 12-01576).

2 Capitalized terms used herein and not otherwise defined, unless indicated otherwise, shall have themeanings given to them in the Bidding Procedures

Case 3:12-bk-01573 Doc 106 Filed 03/02/12 Entered 03/02/12 17:26:14 Desc MainDocument Page 1 of 35


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March 2, 2012, by and among the Sellers and CSHM LLC (the Stalking Horse Bidder), which

agreement is annexed as ExhibitF hereto, (B) authorizing and approving (i) bidding procedures

(the Bidding Procedures) substantially in the form annexed hereto as Exhibit A, (ii) notice of

the Auction, (iii) the Break-Up Fee and Expense Reimbursement (each as defined below) in

connection with the sale (the Sale) of the Assets, (iv) the form and manner of the notice of the

Sale (the Sale Notice) substantially in the form annexed hereto as Exhibit B, (v) the form and

manner of the Summary of the Sale Process (the Sale Summary) substantially in the form

annexed hereto as Exhibit C for service to all individuals and entities on the Debtors mailing

matrix, and (vi) the form and manner of notice for the assumption and assignment (the

Assumption and Assignment Notice) of certain prepetition executory contracts and unexpired

leases (the Assigned Contracts) and proposed cure costs associated with such assumption (the

Cure Costs) in connection with the Sale substantially in the form annexed hereto as Exhibit D,

(C) scheduling a hearing to approve a Sale (the Sale Hearing), and (D) granting related relief.

NEED FOR EXPEDITED RELIEF

A. Expedited consideration of this Motion and an expedited hearing on this Motion is

necessary to avoid irreparable harm to the Debtors and their bankruptcy estates. The relief

requested herein is critical to, among other reasons, (1) meet the timeline required by the Interim

Order (i) Authorizing the Debtors to (A) Obtain Postpetition Secured Financing and (b) Utilize

Cash Collateral, (ii) Granting Liens and Superpriority Administrative Expense Status, (iii)

Granting Adequate Protection, (iv) Modifying the Automatic Stay, and (v) Scheduling a Final

Hearing entered by this Court on February 22, 2012 [Docket No. 60] (as corrected on February

24, 2012 [Docket No. 67], the Interim DIP Order),3 (2) avoid an operating cash shortfall, (3)

3 On February 24, 2012, the Court entered a corrected order to reflect certain non-material corrections to theFebruary 22, 2012 order.



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minimize the number of separate hearings on related motions for the convenience of the parties

in travelling and attending hearings, (4) reduce significant expense to the estate, and (5) permit

the Debtors to adequately prepare for a potential sale of substantially all of the Debtors assets

within the timeline required under the Interim DIP Order and the DIP Credit Agreement and, is

therefore, crucial to the success of the Debtors Chapter 11 efforts.

B. Upon entry of an order setting this Motion for expedited hearing, the Debtors will

immediately serve the order and notice of the hearing upon the following parties or, in lieu

thereof, their counsel, if known: (a) the Office of the United States Trustee for the Middle

District of Tennessee; (b) counsel to the administrative agent for the Debtors prepetition secured

lenders; (c) counsel for any official unsecured creditors committee appointed in these cases, or

until such time as counsel is named, the holders of the fifty (50) largest unsecured claims on a

consolidated basis against the Debtors; (d) counsel to all postpetition lenders or their agent(s); (e)

counsel of record representing patients of dental centers associated with CSHM with litigation

pending against the Debtors as of the Petition Date; (f) all parties known or reasonably believed

to have asserted any lien, claim, interest or encumbrance on any of the Assets; (g) the U.S.

Attorney General; (h) United States Department of Health and Human Services, Office of

Inspector General; (i) New York State Office of Medicaid Inspector General; (j) the Attorney

General for each State that is a party to a settlement agreement with a Debtor; and (k) any party

who has requested notice pursuant to Bankruptcy Rule 2002(i).

C. The Debtors request that an expedited hearing on the Motion be held on Tuesday,

March 13, 2012 at 1:00 p.m. Central Standard Time.



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NON-EXPEDITED RELIEF REQUESTED

1. The Debtors hereby move the Court, pursuant to sections 105(a), 363, 365, and

503 of the Bankruptcy Code, Bankruptcy Rules 2002, 6004, 6006, 7004 and 9014, and Local

Rules 6004-1 and 9014-1, for entry of an order: (A) authorizing the Sale free and clear of liens,

claims, interests and encumbrances (other than Permitted Encumbrances, as defined in the

Stalking Horse Agreement), including, without limitation, claims arising under the doctrine of

successor liability, pursuant to section 363 of the Bankruptcy Code, (B) authorizing and

approving the purchase agreement entered into with the Successful Bidder (as defined in the

Bidding Procedures), (C) approving the assumption and assignment of certain executory

contracts and unexpired leases related thereto, and (D) granting related relief.

2. The facts and circumstances supporting this Motion are set forth in the Affidavit

of Martin McGahan, the Chief Restructuring Officer of Church Street Health Management, LLC,

in Support of Chapter 11 Petition and First Day Pleadings filed on February 21, 2012 (the First

Day Affidavit). In support of this Motion, the Debtors further represent as follows:

JURISDICTION

3. The Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and1334.

4. This matter is a core proceeding pursuant to 28 U.S.C. 157(b)(2).5. Venue of these cases is proper in this District pursuant to 28 U.S.C. 1408 and

1409.

6. The statutory bases for the relief requested herein are Sections 105, 363 and 365of the Bankruptcy Code, Bankruptcy Rules 2002, 6004, 6006, 7004 and 9014, and Local Rules

6004-1, 9014-1 and 9075-1.



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INTRODUCTION

I. General Background7. On February 20 and 21, 2012 (the Petition Date), each of the Debtors filed a

voluntary petition for relief with the Court under chapter 11 of the Bankruptcy Code. The

Debtors are operating their businesses and managing their property as debtors in possession

pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. No request for the appointment

of a trustee or examiner has been made in these chapter 11 cases (the Chapter 11 Cases) and,

as of the date of the filing of this Motion, no official committees have been appointed or

designated. On February 22, 2012, the Court entered its order approving the joint administration

and procedural consolidation of these Chapter 11 Cases.

II. The Debtors Operations8. The Debtor, Small Smiles Holding Company, LLC (SSHC), formed in

Delaware in September 2006, is the parent of a group of companies headquartered in Nashville,

Tennessee that provide dental practice management services to 67 dental centers serving low

income and underprivileged families in 22 states across the country (collectively, SSHC and its

affiliates, the Company or, as noted above, the Debtors or Sellers).

9. The daily operations of the Debtors are delegated to the executive managementteam of the Debtor Church Street Health Management, LLC (CSHM), which is jointly led by

interim management personnel from Alvarez & Marsal Healthcare Industry Group, LLC

(A&M), and incumbent CSHM management. As discussed in the First Day Affidavit, Martin

McGahan was appointed Chief Restructuring Officer by the Board in October 2011.

10. As of the Petition Date, the Debtors, through EEHC, Inc. (EEHC), hadapproximately 72 full-time, 2 part-time, and 2 as needed employees (collectively, the

Employees). There are no unions representing the Employees.



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11. As of the Petition Date, the Debtors had aggregate assets (at book value) andliabilities on a consolidated, unaudited basis of approximately $84,900,000 and approximately

$303,400,000, respectively. For the fiscal year ended December 31, 2011, the Debtors had

contractual revenues of approximately $138,600,000 ($28,200,000 collectible) and incurred a

positive change in net assets of approximately $101,000,000 (of which $110,400,000 is

uncollectible revenue).

III. The Debtors Pre-Petition Secured Debt12. As set forth more fully in the First Day Affidavit, the Companys financing

facilities are arranged on a Shariah-compliant basis. All of the Companys financing facilities

employ the same fundamental structure. The structures are intended to be characterized as loans

for tax and other United States law purposes, including bankruptcy laws. The facilities interpose

a special purpose vehicle between the Company and the entities providing financing to the

Company (the Finance Providers). There are two such special purpose vehicles (the SPVs)

for the Company facilities - SSO Funding Corp. (SSO) and SSH Funding Corp. (SSH). The

SPVs function as conduits for the provision of financing by the Finance Providers to the

Company. The SPVs were placed between the Finance Providers and the Company to (1) enter

into conventional finance facilities with the Finance Providers, and (2) use the funds obtained

from such conventional facilities to provide Shariah-compliant facilities to the Company. The

chief characteristic of this arrangement is that for each conventional financing facility provided

to an SPV, there is a corresponding, matching Shariah-compliant facility provided by such SPV

to the Company.

13. For United States law purposes, each corresponding pair of conventional andShariah facilities is intended to be a single facility between the relevant Finance Providers and



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the Company. The payment and other provisions in the conventional facilities and Shariah

facilities are drafted to operate on a back-to-back basis, so that conventional obligations imposed

upon an SPV will be matched by Shariah obligations imposed upon the Company. On this

basis, and to simplify analysis, the Companys financing facilities are described in the First Day

Affidavit as if each corresponding pair of Shariah and conventional financing facilities were in

fact one facility. In addition, only conventional finance terms, such as principal and interest, are

used to describe the obligations associated with such facilities.

14. As set forth more fully in the First Day Affidavit, as of the Petition Date, (i) theDebtors were indebted and liable to the Prepetition Agent and the Prepetition First Lien Lenders

(each as defined in the First Day Affidavit), without objection, defense, counterclaim or offset of

any kind under the Prepetition First Lien Documents and the Lease Agreement (each as defined

in the First Day Affidavit) in the principal amount of no less than $128,225,000 plus interest

accrued and accruing, costs and any fees and expenses due and owing thereunder (collectively,

the Prepetition First Lien Facility Obligations); and (ii) the Debtors were indebted and liable to

the Prepetition Agent and the Prepetition Second Lien Lenders (each as defined in the First Day

Affidavit, and along with the Prepetition First Lien Lenders, the Senior Lenders), without

objection, defense, counterclaim or offset of any kind under the Prepetition Second Lien

Documents and the Commodities Agreement (each as defined in the First Day Affidavit) in the

principal amount of no less than $25,639,000 plus interest accrued and accruing, costs and any

fees and expenses due and owing thereunder (collectively, the Prepetition Second Lien Facility

Obligations and, together with the Prepetition First Lien Facility Obligations, the Prepetition

Secured Obligations). The Prepetition Secured Obligations are fully secured by substantially all



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assets of the Debtor, subject to certain limitations, pursuant to the Prepetition Credit Documents

(as defined in the First Day Affidavit).

IV. Events and Circumstances Leading to the Chapter 11 Filing15. The Company is party to a Management Services Agreement (MSA) with each

non-debtor dental center for which the Company provides management services (collectively the

Dental Centers). Pursuant to each MSA, the Company provides the Dental Centers with

management services such as billing and collection, bookkeeping, accounting and tax services,

dentist and staff recruitment, payroll services, human resources, information technology support,

equipment and supplies procurement, leasing, repairs and capital improvements, and assistance

with compliance, legal issues, governmental affairs, and licensing and permitting. In exchange

for providing these services to the Dental Centers, the Company receives a management fee from

which it funds its operations. The Dental Centers are owned by licensed dentists.16. In September 2006, SSHC acquired substantially all of the assets of FORBA,

LLC and its affiliates (Old FORBA), which were principally owned by members of the

DeRose family. In connection with that acquisition, the Company was capitalized by a group of

private equity sponsors and lenders with a mix of equity, senior secured debt and subordinated

debt. Presently, the Company is capitalized with $181,700,000 in equity, $153,864,000 million

in senior secured debt and $76,005,000 million in subordinated or mezzanine indebtedness.

17. In 2007, The Office of Inspector General of the U.S. Department of Health andHuman Services (OIG) began an investigation of the Company and the Dental Centers. At

about the same time period, the United States Department of Justice (the DOJ), began an

investigation of the Company and the Dental Centers. Thereafter, a number of state Attorneys

General commenced parallel state investigations of the Company and the Dental Centers. The



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New York State Office of Medicaid Inspector General (OMIG) also commenced an

investigation.

18. The cumulative effect of the investigations by the governmental entities alongwith the negative news stories placed an extraordinary financial burden on the Company. During

the pendency of the investigations, the Company spent millions of dollars to defend itself and the

Dental Centers.

19. In January 2010, the Company entered into Settlement Agreements with the DOJand the 22 states in which it operated (the States) to bring an end to the investigations (the

Settlement Agreements). Without admitting to any wrongdoing, the Company agreed to pay a

total of $24,000,000 to the DOJ and the States over a five-year period and entered into two

Corporate Integrity Agreements one with the OIG (the OIG CIA) and one with OMIG (the

NY CIA). Pursuant to the OIG CIA and the NY CIA (together, the CIAs), the Company

agreed to maintain the robust compliance program it had developed over the course of the

investigations, and to engage an independent monitor to oversee the quality of care being

provided to patients at the Dental Centers.

20. Not surprisingly, the combination of adverse publicity and the settlements withthe DOJ, OIG and OMIG drew the attention of the plaintiffs bar. Almost immediately after the

Settlement Agreements were executed, trial lawyers began soliciting patients of the Dental

Centers to become plaintiffs in lawsuits against the Company and certain Dental Centers and

assert a variety of tort and fraud claims against the Company and those Dental Centers. Since

January 2010, approximately 11 lawsuits on behalf of over one hundred plaintiffs have been filed

against the Company and certain of the Dental Centers, in primarily three states, Ohio, New

York and Oklahoma (the Patient Litigation). In addition, a previously-filed malpractice case



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in New Mexico was expanded to add fraud claims against the Company similar to those asserted

in the Patient Litigation. That case went to trial in August 2011 and resulted in a jury verdict in

favor of the Company and the applicable Dental Centers. Nonetheless, the plaintiffs attorneys

have told the Company that they represent a number of former patients and have requested the

charts of those patients, presumably in an effort to file additional lawsuits against the Company

and certain Dental Centers.

21. The cost of complying with the Settlement Agreements, the CIAs and the additionof necessary staff and external professionals to improve its compliance programs, along with the

litigation and solicitation efforts of the plaintiffs attorneys have been a significant drain on the

Company's resources and the staff of the Dental Centers. The negative publicity, the Company

believes, has also had an impact on its revenues.

22. On September 30, 2011, the Company was unable to meet its regularly scheduleddebt service payment to its secured lenders, and, shortly thereafter, the Board retained A&M and

appointed Martin McGahan as Chief Restructuring Officer.

V. Decision to Pursue the Sale and the Debtors Marketing Efforts23. In connection with A&Ms retention, the Debtors started exploring various

restructuring alternatives during the last quarter of 2011. Negotiations ensued between the

Debtors and the Senior Lenders concerning various out-of-court restructuring alternatives. A&M

highlighted that, while the impact of certain of the Debtors cost-saving initiatives was still

unknown, there was a real possibility that a sale of the Assets, whether in connection with an

out-of-court restructuring or through a sale process under Section 363 of the Bankruptcy Code (a

363 Sale) or through a plan under Section 1129 of the Bankruptcy Code (the Plan) would be

the superior option. A&M and the Debtors continued to negotiate with the Senior Lenders with



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respect to various restructuring and sale options. In connection therewith, the Debtors, in

consultation with A&M, analyzed extensive restructuring and sale alternatives, and determined

that a 363 Sale or Plan was the most feasible option, due to the uncertainty and difficulties that

would attend any out-of court restructuring of the Debtors.

24. Commencing shortly after its engagement by the Company in September 2011and continuing through early February of this year, A&M contacted numerous potential buyers

and lenders who might have interest in investing in or lending to the Company. Various routes

were explored, including but not limited to, a consensual foreclosure process with the existing

lending group, some sort of take-out lending whereby the existing lenders would reduce their

indebtedness and allow a new lender to recapitalize the company, new capitalization from

existing equity or some combination of those options. Approximately 21 capital sources were

contacted by, or contacted, A&M. Ultimately, out-of-court alternatives were jettisoned in favor

of proceedings under chapter 11 because of the certainty provided by a bankruptcy filing.

Timing and cash position has dictated that a 363 Sale be the preferred transaction.

25. By December 2011, two potential financing providers with potential interest inpurchasing the Assets emerged, both of whom were existing Senior Lenders. Of the two

potential financing providers, the group led by the largest Prepetition First Lien Lenders emerged

with the support of a majority of the Senior Lenders to provide financing on a priming basis

ahead of the Prepetition Secured Obligations.

26. Accordingly, the Debtors negotiated and finalized the Stalking Horse Agreementwith the Stalking Horse Bidder. As more fully set forth in the First Day Affidavit, the Debtors

have determined that the Stalking Horse Agreement is superior to any other proposal received.



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27. Although it is anticipated that a credit bid may be the winning bid at the Auction,the Sale will result in the assumption of a significant portion of the Debtors existing unsecured

obligations, including without limitation the CIAs, Settlement Agreements, and certain trade

payables, and ensure the continued provision of services to the Dental Centers and their patients.

If the Debtors are not able to consummate the Sale, their financial limitations would lead to an

orderly but relatively quick shut down of all operations.

VI. The Chapter 11 Filing28. As set forth in the First Day Affidavit, the Board and the Debtors management

determined that the Debtors best option to maximize the value of the Assets for stakeholders

and to safeguard the welfare of their patients was to pursue the acquisition transaction with the

Stalking Horse Bidder in an orderly fashion through these Chapter 11 cases. Accordingly, the

Board authorized the filing of these Chapter 11 cases and the proposed sale process described

herein.

29. Upon the Debtors motion, dated February 21, 2012 (the DIP Motion), andbased on the First Day Affidavit and the evidence submitted by the Debtors at the hearing on the

Interim DIP Order, the Court approved the Debtors entry into and performance under that

certain Debtor-in-Possession Credit Agreement (the DIP Credit Agreement) dated as of

February 22, 2012, by and among the Debtors, Garrison Loan Agency Services LLC (and its

affiliates) as administrative and collateral agent (in such capacities, the DIP Agent), and such

other lenders (and their affiliates) under the Prepetition Facilities (together the with the DIP

Agent, the DIP Lenders), and all other loan documents (together with the DIP Credit

Agreement, the DIP Financing Documents) and entered the Interim DIP Order, pursuant to



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which the Debtors were authorized to borrow up to $5,500,000 on an interim basis (the Interim

DIP Loan).

30. The final hearing on the DIP Motion, whereby the Debtors have sought authorityto, among other things, borrow, on a final basis, pursuant to the DIP Financing Documents,

postpetition financing, including the Interim DIP Loan, of up to $12,000,000 on a revolving basis

(the DIP Loan) and, together with the Interim DIP Loan, the DIP Facility) is scheduled for

1:00 p.m. Central Standard Time on Tuesday, March 13, 2012.

31. The Debtors currently have pending before the Court their expedited applicationfor entry of an order pursuant to Rule 2014(a) of the Bankruptcy Rules and sections 327(a) and

328(a) authorizing the retention and employment of an investment banker. The Debtors have

sought authority to engage an investment banker to market, promote and publicize the Sale in a

format that will facilitate prospective bidders ability to evaluate and analyze the terms of the

Sale within the short time frame in which the Debtors must secure the Sale so as to maximize the

bids and attract the best bids for the Sale process.

VII. The Stalking Horse Agreement432. Set forth in this section are the key terms of the Stalking Horse Agreement. This

section is intended as a summary of the Stalking Horse Agreement, which includes, among other

things, terms and conditions customary in other stalking horse purchase agreements entered into

in connection with sales under Section 363 of the Bankruptcy Code. To the extent that any

description of such agreement contained in this Motion conflicts with the Stalking Horse

Agreement, the terms of the Stalking Horse Agreement shall control.

4 Capitalized terms used in this section but not defined shall have the meanings given to them in the Stalking

Horse Agreement.



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A. Purchase Price. Pursuant to sections 363 and 365 of the Bankruptcy Code, theSeller shall transfer, sell, convey, assign and deliver to the Stalking Horse Bidderfree and clear of all liens, claims and liabilities, all of the Assets in considerationof the Purchase Price, defined as the aggregate amount of (i) the Credit BidAmount ($25,000,000) and (ii) the aggregate amount of the Assumed Liabilities

(as defined in the Stalking Horse Agreement), including liabilities under the DIPCredit Agreement, assumed by the Stalking Horse Bidder.

B. Break-Up Fee and Expense Reimbursement. In consideration for Stalking HorseBidder having expended considerable time and expense in connection with theStalking Horse Agreement and the negotiation thereof and the identification andquantification of assets of the Debtors, the Debtors will pay the Stalking HorseBidder (i) a break up fee in an amount equal to 2% of the Purchase Price (theBreak-Up Fee) and (ii) reimbursement of actual out-of-pocket expensesincurred in negotiating the Stalking Horse Agreement and performing duediligence, in an amount not to exceed $250,000 (the Expense Reimbursement),following the consummation of a transaction with a Successful Bidder other thanthe Stalking Horse Bidder if no material breach by the Stalking Horse Bidder ofthe Stalking Horse Agreement has occurred.

C. Outside Closing Deadline. In the event that the Closing does not occur by May11, 2012, the Stalking Horse Agreement is terminable by either Sellers or theStalking Horse Bidder (so long as the terminating party has not breached theStalking Horse Agreement).

D. Assumption of Liabilities. The Stalking Horse Bidder has agreed to assume,subject to the Excluded Liabilities set forth in Section 2.1(d) of the Stalking HorseAgreement, the following of the Debtors liabilities: (a) trade obligations of the

Sellers accrued or arising in the ordinary course on or after the Petition Date inaccordance with the DIP Budget and existing as of immediately prior to theClosing and disclosed to the Stalking Horse Bidder in a writing accepted by theStalking Horse Bidder, (b) all liabilities of Sellers under the Assigned Contracts tothe extent such liabilities arise or are required to be performed after the ClosingDate and any Cure Costs, subject to certain limitations sets forth in the StalkingHorse Agreement, (c) all liabilities of Sellers under the Governmental and RelatedContracts, including all principal amounts, accrued interest, fee amounts and otheramounts and obligations due to the United States and various States thereunder,(d) liabilities of any Transferred Employ Plan and liabilities in respect ofemployee obligations owed to the Transferred Employees, subject to certain

exclusions sets forth in the Stalking Horse Agreement, (e) liabilities under theDIP Loan Documents, subject to certain exclusions included in the Stalking HorseAgreement, and (f) all liabilities of Sellers in respect of, among other things,employee wages, salaries, paid-time-off and all liabilities for withholding, trustfund or other employment-related taxes obligations that accrue in the ordinarycourse after the Petition Date.



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VIII. Requested Sale Process Timeline33. The Debtors are seeking: (a) a Bid Deadline (as defined below) of April 16, 2012;

(b) to hold the Auction on April 20, 2012; (c) to appear before the Court for the Sale Hearing on

April 26, 2012; and (d) to close the Sale on or before May 11, 2012 (the Closing Date).

34. The Stalking Horse Agreement requires that the Closing (as defined therein)occur no later than two (2) Business Days after the day upon which all of the closing conditions

are satisfied, and that the sale order be entered at least ten (10) business days prior to the Closing

Date. Accordingly, the Debtors have requested that the Sale Hearing occur on or prior to April

26, 2012, in order provide the Stalking Horse Bidder with more than ten (10) business days

thereafter before the Closing Date. Given the limited availability of funding available to the

Debtors, the Debtors exigent financial circumstances and the efforts undertaken by or on behalf

of the Debtors prior to the Petition Date, the above-requested timeline is reasonable, and,

moreover, is in compliance with applicable sections of the Bankruptcy Code as well as the Local

and Bankruptcy Rules.

RELIEF REQUESTED

35. As stated above, the Debtors are hereby requesting, pursuant to sections 105, 363,365, and 503 of the Bankruptcy Code and Bankruptcy Rules 2002, 6004, 6006, 7004 and 9014,

entry of an order (the Bidding Procedures Order), substantially in the form attached hereto as

Exhibit A, (A) authorizing and scheduling the Auction, (B) authorizing and approving (i) the

Bidding Procedures, (ii) notice of the Auction, (iii) the Break-Up Fee, (iv) the form and manner

of Sale Notice, (v) the form and manner of the Sale Summary, and (vi) the form and manner of

Assumption and Assignment Notice, (C) scheduling a Sale Hearing and (D) granting related

relief.



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36. The Sale to the Successful Bidder as contemplated herein will maximize the valuereceived by the Debtors for the Assets and result in the assumption of a significant portion of the

Debtors existing unsecured obligations and ensure the continued provision of services to the

Dental Centers and their patients, and, accordingly, is in the best interests of the Debtors, their

creditors, and their other economic stakeholders. For this reason and for those set forth below,

the Debtors respectfully submit that the relief requested in this Motion should be granted.

DESCRIPTION OF THE PROPOSED BID AND SALE PROCEDURES

IX. The Proposed Bidding Procedures37. The Debtors believe that the best interests of their estates are served by

conducting a public auction to identify the highest or otherwise best offer for the Assets.

Accordingly, the Debtors seek the Courts approval of the Bidding Procedures. The following is

a summary of the key provisions thereof:5

A. General Process. The Debtors shall solicit bids from interested parties. OnlyQualified Bids (as defined below) shall be considered by the Debtors. If theDebtors do not receive a Qualified Bid other than the Stalking Horse Agreementprior to the Bid Deadline (as defined below), then the Stalking Horses offer toacquire the Assets under the Stalking Horse Agreement shall constitute thehighest or otherwise best Qualified Bid (the Successful Bid). If the Debtorsreceive a Qualified Bid other than the Stalking Horse Agreement prior to the BidDeadline, then the Debtors shall select a Qualified Bid as the High Bid after theDebtors have conducted the Auction and considered, among other things, the totalnet consideration to be received by their estates as well as other financial andcontractual terms relevant to the proposed Sale, including those factors affectingthe speed and certainty of consummating the proposed Sale.

B. Payment of the Break-Up Fee and Expense Reimbursement. In the event that theBankruptcy Court approves any agreement that contemplates a transaction or

series of related transactions, other than the transactions to be consummated underthe Stalking Horse Agreement, pursuant to which a material portion of the Assetswill be acquired by, or transferred to a Successful Bidder other than the Stalking

5 To the extent the description of the Bidding Procedures set forth herein differs from those set forth in

Exhibit A hereto, the terms of Exhibit A shall control.



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Horse, then upon the Sellers consummation of such a Sale, the Break-Up Fee andExpense Reimbursement shall be immediately paid to the Stalking Horse.

C. Deposits. The Debtors shall require Bidders to submit Good Faith Deposits (asdefined below). The Good Faith Deposits of all Qualified Bidders other than theStalking Horse, shall be retained by the Sellers and held in escrow in an interestbearing account and all Qualified Bids will remain open, notwithstandingBankruptcy Court approval of a Sale, until three (3) business days after the earlierof (1) the closing of the Sale of the Assets, or (2) the date that is twenty (20) daysafter entry of a Sale Order approving a Sale to the Successful Bidder.

D. Potential Bidders. Unless otherwise ordered by the Bankruptcy Court for causeshown, to participate in the sale process, each person (a Potential Bidder) mustdeliver to the Debtors:

i. an executed confidentiality agreement in form and substance satisfactoryto the Debtors; and

ii. a bona fide, non-binding letter of intent or expression of interest withrespect to a purchase of the Assets.

E. Qualified Bidders. A Qualified Bidder is (1) the Stalking Horse Bidder and, ifapplicable, (2) a Potential Bidder that delivers the documents described insubparagraphs D(i)-(ii) and F(i)-(iv) hereof and that the Debtors determine isreasonably likely (based on the availability of financing, experience and otherconsiderations) to submit a bona fide offer and to be able to consummate theproposed Sale if selected as the Successful Bidder. Two or more PotentialBidders may be deemed a Qualified Bidder if such Potential Bidders, considered

in the aggregate, otherwise meet the foregoing criteria and so long as such biddersbid in good faith and do not violate section 363(n) of the Bankruptcy Code.

F. Qualified Bids. A Qualified Bid is (1) the Stalking Horses offer to acquire theAssets pursuant to the Stalking Horse Agreement and, if applicable, (2) anotherQualified Bidders offer to acquire the Assets, for cash, if such offer was receivedprior to the Bid Deadline and if such offer included each of the following(collectively, a Bid):

i. a letter:

(A) Offering to acquire the Assets on terms substantially identical to

the Stalking Horse Agreement and providing for the releasescontemplated therein and expressly agreeing to assume, at aminimum, all of the liabilities provided for in the Stalking HorseAgreement;

(B) Accompanied by a duly executed agreement attached to the letter,marked to show any proposed amendments and modifications tothe Stalking Horse Agreement and its schedules and exhibits;



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(C) Specifying Bid terms that are substantially the same or better (asdetermined in the Sellers reasonable business judgment) than theterms of the Stalking Horse Agreement;

(D) Agreeing that the Potential Bidders offer, irrespective of whethersuch Potential Bidder is the Successful Bidder or the BackstopBidder, is binding and irrevocable until the earlier of (i) theClosing Date, or (ii) twenty (20) days after the Sale Hearing;

(E) Providing that such Bid is not subject to any due diligence orfinancing contingency;

(F) Agreeing not to request or assert entitlement to any transaction orbreak-up fee, expense reimbursement or similar type of payment;and

(G) Agreeing to serve as the Backstop Bidder in accordance with these

Bidding Procedure.

ii. be accompanied by adequate assurance information (the AdequateAssurance Information), including (i) information about the PotentialBidders financial condition, such as federal tax returns for two years, acurrent financial statement, or bank account statements, (ii) informationdemonstrating (in the Sellers reasonable business judgment) that thePotential Bidder has the financial capacity to consummate the proposedSale, (iii) evidence that the Potential Bidder has obtained authorization orapproval from its board of directors (or comparable governing body) withrespect to the submission of its Bid, (iv) the identity and exact name of thePotential Bidder (including any equity holder or other financial backer ifthe Potential Bidder is an entity formed for the purpose of consummatingthe Sale), and (v) such additional information regarding the PotentialBidder as the Potential Bidder may elect to include. By submitting a Bid,Potential Bidders agree that the Sellers may disseminate their AdequateAssurance Information to affected landlords or contract counterparties inthe event that the Sellers determine such bid to be (a) a Qualified Bid (asdefined below) and (b) a higher and better bid than the Stalking HorseAgreement.

iii. a good faith cash deposit (the Good Faith Deposit) in the amount of10% of the Purchase Price, in cash, with respect to a Bid, which Good

Faith Deposit shall be held in escrow or another segregated account, notsubject to any security interest or lien, and utilized in accordance with theBidding Procedures.

iv. written evidence, documented to the Sellers reasonable satisfaction, thatdemonstrates the Potential Bidder has available cash or a commitment forfinancing and such other evidence of ability to consummate the transactionas the Sellers may reasonably request, including proof that such fundingcommitments or other financing are not subject to any internal approvals,



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syndication requirements, diligence or credit committee approvals(provided, that such commitments may have covenants and conditionsreasonably acceptable to the Sellers).

G. Due Diligence. Up to and including the date that is one day prior to the Auction,as defined herein (the Diligence Period), the Sellers shall afford any PotentialBidder such due diligence access or additional information as may be reasonablyrequested by the Potential Bidder that the Sellers, in their business judgment,determine to be reasonable and appropriate. The Sellers may designate arepresentative to coordinate all reasonable requests for additional information anddue diligence access from such Potential Bidders. Each Potential Bidder shall berequired to acknowledge that it has had an opportunity to conduct any and all duediligence regarding the Assets prior to submitting its Bid.

H. Bid Deadline. A Potential Bidder that desires to make a bid shall deliver copiesof its bid by facsimile and/or email to (a) proposed counsel to the Sellers, WallerLansden Dortch & Davis, LLP, 511 Union Street, Suite 2700, Nashville, TN

37219, Attn: John C. Tishler, Esq. and Donald R. Moody, Esq.; (b) proposedChief Restructuring Officer of the Sellers, Martin McGahan, Alvarez & MarsalHealthcare Industry Group, LLC, c/o 618 Church Street, Suite 520, Nashville, TN37219; (c) proposed counsel for any official committee of unsecured creditorsappointed in these cases (the Committee); (d) proposed local counsel for theCommittee, if any; and (e) proposed financial advisor to the Committee, if any; byno later than April 16, 2012 at 4:00 p.m. Central Standard Time (the BidDeadline).

I. Auction. If at least one Qualified Bid other than the Stalking Horse Agreement isreceived by the Bid Deadline, the Sellers will conduct the Auction. The Auction

shall take place on April 20, 2012 at 9:00 a.m. Central Standard Time, at theoffices of proposed counsel to the Sellers, Waller Lansden Dortch & Davis, LLP,511 Union Street, Suite 2700, Nashville, Tennessee 37219, or such later time orsuch other place as the Sellers shall designate and notify to all Qualified Bidderswho have submitted Qualified Bids. Only a Stalking Horse Bidder and each otherQualified Bidder who has submitted a Qualified Bid will be eligible to participateat the Auction. Professionals for (a) the Committee (if any), (b) the StalkingHorse Bidder, (c) each other Qualified Bidder, and (d) the agent for the Sellersprepetition secured lenders, along with any other parties the Sellers deemappropriate, shall be able to attend and observe the Auction.

Each Qualified Bidder participating in the Auction will be required to confirm, inwriting, that (a) it has not engaged in any collusion with respect to the BiddingProcess, and (b) its Qualified Bid is a good faith bona fide offer that it intends toconsummate if selected as the Successful Bidder.

At the Auction, participants will be permitted to increase their Qualified Bids.Bidding at the Auction will commence with the Highest and Best Bid and willcontinue in increments of at least $500,000 (the Overbid Amount, and each



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successive bid an Overbid), provided, however, that the initial Overbid (theInitial Overbid) must be at least equal to the Stalking Horse Agreement plus (i)$1,000,000, (ii) the Break-Up Fee and (iii) the Expense Reimbursement (each asdefined in the Stalking Horse Agreement); provided further, however, that if theStalking Horse Agreement is not the Highest and Best Bid, the Initial Overbid, if

made by the Stalking Horse Bidder, may be in an amount at least equal to theOverbid Amount. An Overbid shall remain open and binding on the QualifiedBidder until and unless (a) the Sellers accept an alternate Overbid as the Highestand Best Bid, and (b) such Overbid is not selected as the Backstop Bid (as definedbelow). During the course of the Auction, the Sellers shall, after submission ofeach Overbid, promptly inform each participant which Overbid reflects, in theSellers view, the highest or otherwise best offer.

The DIP Lender, the DIP Agent, the Prepetition Lenders, the Prepetition Agent,and/or any authorized designee of the DIP Agent and/or Prepetition Agent maysubmit credit bids on behalf of the Stalking Horse Bidder to the fullest extentpermitted by section 363(k) of the Bankruptcy Code. Any and all Overbids madeby the Stalking Horse Bidder including, if applicable, the Initial Overbid, may bein the form of a credit bid.

Any and all Bids, Initial Overbids and Overbids, other than those submitted by oron behalf of the Stalking Horse Bidder, shall be in cash.

The Sellers may announce at the Auction additional procedural rules (e.g., theamount of time to make subsequent Overbids) for conducting the Auction so longas the rules are not inconsistent with these Bidding Procedures. The bidding atthe Auction shall be transcribed or videotaped and the Sellers shall maintain atranscript of all Bids made and announced at the Auction, including all Overbids

and the Successful Bid.

Immediately prior to the conclusion of the Auction, the Sellers will: (a) revieweach Qualified Bid made at the Auction on the basis of financial and contractualterms and such factors relevant to the Sale, including those factors affecting thespeed and certainty of consummating the Sale; (b) identify the highest and bestBid for the Assets of the Seller at the Auction (the Successful Bid); and (c)notify all Qualified Bidders at the Auction, prior to its conclusion, of the name ornames of the maker of the Successful Bid (the Successful Bidder), and theamount and other material terms of the Successful Bid. The Sellers shall notconsider any Bids or Overbids submitted after the conclusion of the Auction and

any and all such Bids and Overbids shall be deemed untimely and shall under nocircumstances constitute a Qualified Bid.

X. The Proposed Assumption and Assignment Procedures38. As part of the Sale, the Debtors seek authorization to assume and assign certain

executory contracts and unexpired leases (collectively, the Assigned Contracts) to the



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Successful Bidder. In order to provide counterparties with adequate notice of such potential

assumption and assignment, as well as the proposed cure amounts (the Cure Cost), the Debtors

propose the following Assumption and Assignment Procedures:

A. The Debtors shall serve the Assumption and Assignment Notice, substantially inthe form annexed as Exhibit D, by first-class mail, no later than three (3) daysafter service of the Sale Notice, or as soon thereafter as practicable, on allcounterparties to the Assigned Contracts.

B. On or before the date that is no later than two (2) business days prior to the BidDeadline (as defined in the Bidding Procedures), the Sellers will file a schedule ofcure obligations (the Schedule of Contracts) for all potential AssignedContracts. The Schedule of Contracts will include a description of each of theSellers contracts and leases potentially to be assumed and assigned under theStalking Horse Agreement and the amount, if any, the Sellers believe is necessaryto cure such agreements pursuant to section 365 of the Bankruptcy Code (theCure Costs). A copy of the Schedule of Contracts, together with theAssumption and Assignment Notice, will be served on each of the non-Debtorparties listed on the Schedule of Contracts by first-class mail, postage prepaid, onor before April 12, 2012.

C. Any objections (Assignment Objections) to the assumption and assignment ofany Potentially Assigned Contract, including, but not limited to, objectionsrelating to the validity of Cure Amounts or relating to adequate assurance offuture performance or to the cure amount must be filed with the Bankruptcy Courtand served upon the Notice Parties on or before April 23, 2012 at 4:00 p.m.

(prevailing Central Standard Time) (the Assignment Objection Deadline).

D. Any counterparty failing to file an Assignment Objection by the AssignmentObjection Deadline shall be forever barred from (1) objecting to the Cure Amountset forth on the Schedule of Contracts with respect to its Assigned Contract; (2)seeking additional amounts arising under its Assigned Contract prior to theClosing from the Debtors or the Successful Bidder; and (3) objecting to theassumption and assignment of its contract to the Successful Bidder.

E. Any Assignment Objections not consensually resolved prior to the Sale Hearingshall be heard at the Sale Hearing with any related Cure Amounts or adequate

assurance of future performance being fixed by the Bankruptcy Court. All otherobjections to the proposed assumption and assignment of the Assigned Contractswill be heard at the Sale Hearing.

F. Except as may otherwise be agreed to by all parties to a Assigned Contract, on orbefore the Closing, the cure of any defaults under Assigned Contracts necessaryto permit assumption and assignment thereof in accordance with BankruptcyCode section 365(b), shall be by (i) payment of the undisputed Cure Amount, (ii)



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payment of the Cure Amount judicially determined by the Bankruptcy Court to bethe correct amount, and/or (iii) establishment of a reserve with respect to anydisputed Cure Amount. The party responsible for paying Cure Amounts shall beas set forth in the purchase agreement entered into between the Debtors and theSuccessful Bidder.

39. The Debtors believe that the proposed Assumption and Assignment Procedureswill provide the counterparties to the Assigned Contracts a full and fair opportunity to be heard

with respect to issues concerning the proposed assumption and assignment of the Assigned

Contracts, and respectfully request that they be approved. Moreover, other cases in this District

have approved assumption and assignment procedures in connection with a sale process

concerning substantially all of a debtors assets. See, e.g. In re New Day Pharmacy Corp. , Case

No. 09-01947, Doc. 38 (GCP) (Bankr. M.D. Tenn. Mar. 5, 2009).

ARGUMENT

XI. The Bidding Procedures Are Appropriate40. The paramount goal in any proposed sale of property of the estate is to maximize

the proceeds received by the estate. SeeSugarloaf Indus. & Mktg. Co. v. Quaker City Castings,

Inc. (In re Quaker City Castings, Inc.), 2005 Bankr. LEXIS 2211, at *23 (B.A.P. 6th Cir. Nov.

18, 2005);In re Integrated Res., Inc., 147 B.R. 650, 659 (Bankr. S.D.N.Y. 1992) (It is a well-

established principle of bankruptcy law that the . . . [debtors] duty with respect to such sales is

to obtain the highest price or greatest overall benefit possible for the estate.), quotingCello Bag

Co. v. Champion Intl Corp. (In re Atlanta Packaging Prods., Inc.), 99 B.R. 124, 131 (Bankr.

N.D. Ga. 1988).

41. Courts regularly recognize that procedures intended to enhance competitivebidding are consistent with the goal of maximizing the value received by the estate and therefore

are appropriate in the context of bankruptcy sales. See, e.g., Integrated Res., 147 B.R. at 659

(such procedures encourage bidding and maximize the value of the debtors assets).



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Indeed, as one court has stated, [T]he purpose of procedural bidding orders is to facilitate an

open and fair public sale designed to maximize value for the estate. To accomplish that goal,

bankruptcy courts are necessarily given discretion and latitude in conducting the sale. See In re

Nashville Senior Living, 2008 Bankr. LEXIS 3197, at *4-5 (Bankr. M.D. Tenn. Oct. 22, 2008),

appeal dismissed by, as moot, Official Comm. of Unsecured Creditors v. Anderson Senior Living

Prop., LLC (In re Nashville Senior Living, LLC), 407 B.R. 222 (B.A.P. 6thCir. 2009), quoting In

re Edwards, 228 B.R. 552, 561 (Bankr. E.D. Pa. 1998).

42. As set forth above, the Debtors have already undertaken significant efforts toproduce the best bid for purchase of the Assets. Now, the Debtors have further sought to engage

an investment banker to fully market the Assets and expose the Assets and the Auction to

potentially multiple Qualified Bidders. The Debtors believe that the Bidding Procedures

establish the parameters under which the value of the Assets may be maximized through the

Auction and ensuing Sale Hearing. Such procedures unquestionably will increase the likelihood

that the Debtors will receive the greatest possible consideration for such assets because they will

ensure a competitive and fair bidding process. Moreover, auction procedures have been

approved in other cases in this District. See, e.g. In re New Day Pharmacy Corp., Case No. 09-

01947, Docs. 37, 38 (GCP) (Bankr. M.D. Tenn. Mar. 5, 2009).

B. The Initial And Subsequent Overbids Are Appropriate43. One important component of the Bidding Procedures is the overbid provision,

pursuant to which participants at the Auction will be permitted to increase their Qualified Bids.

Bidding at the Auction will commence with the Highest and Best Bid and will continue in

increments of at least $500,000 (the Overbid Amount, and each successive bid an Overbid),

provided, however, that, as a condition to entering into the Stalking Horse Agreement, the

Stalking Horse Bidder has required the initial Overbid (the Initial Overbid) be at least equal to



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the Stalking Horse Agreement plus (i) $1,000,000, (ii) the Break-Up Fee and (iii) the Expense

Reimbursement (each as defined in the Stalking Horse Agreement); provided further, however,

that if the Stalking Horse Agreement is not the Highest and Best Bid, the Initial Overbid, if made

by the Stalking Horse Bidder, may be in an amount at least equal to the Overbid Amount. A

minimum initial overbid is necessary not only to compensate the Debtors for the risk that they

assume in foregoing a known, willing, and able purchaser for a new potential acquirer, but also

to ensure that there is an increase in the net proceeds, after deducting the Break-Up Fee and

Expense Reimbursement to be paid to the Stalking Horse Bidder in the event of a prevailing

overbid. An Overbid shall remain open and binding on the Qualified Bidder until and unless (a)

the Sellers accept an alternate Overbid as the Highest and Best Bid, and (b) such Overbid is not

selected as the Backstop Bid (as defined below). During the course of the Auction, the Sellers

shall, after submission of each Overbid, promptly inform each participant which Overbid

reflects, in the Sellers view, the highest or otherwise best offer.

44. Case law also supports minimum overbids that are up to 10% of the initialpurchase price as fair and reasonable. As the court stated in In re Wintex, Inc., 158 B.R. 540

(Bankr. D. Mass. 1992):

A debtor may avoid the increased cost and complexity associatedwith considering additional bids unless the additional bids are highenough to justify their pursuit. The 10% increase requirement isone example of a reasonable litmus test.

Id. at 543. See also In re New Day Pharmacy Corp., Case No. 09-01947, Doc. 38 (GCP) (Bankr.

M.D. Tenn. Mar. 5, 2009) (requiring an initial overbid to exceed a purchase price of $2 million

by at least $275,000 (13.75%)); In re Fin. News Network, Inc., 126 B.R. 152, 154, 156-57

(Bankr. S.D.N.Y. 1991) (requiring minimum overbids to exceed purchasers offer of $105

million by at least $10 million (9.5%)); Kabro Assocs., LLC v. Colony Hill Assocs. (In re Colony



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Hill Assocs.), 111 F.3d 269, 275-77 (2d Cir. 1997) (requiring minimum overbids to exceed

purchasers initial offer of $7.5 million by at least $650,000 (8.6%)).

45. Here, the Initial Overbid is approximately 5% of the amount of the StalkingHorses bid well within the range of overbids approved in the cases cited above. The Debtors

submit that, given the risks and costs associated with selection of a bid other than the Stalking

Horses, the Initial Overbid is reasonable.

C. The Auction, Hearing And Notice Procedures Are Appropriate46. Pursuant to Bankruptcy Rule 2002(a), the Debtors are required to provide

creditors with twenty one (21) days notice of the Sale Hearing. Pursuant to Bankruptcy Rule

2002(c), the Debtors are required to notify their creditors of the proposed sale of the Debtors

assets, including a disclosure of the time and place of the Sale Hearing, the terms and conditions

of the Sale, and the deadline for filing any objections.

47. The Debtors propose that within three (3) days following entry of the Bid andSale Procedures Order, the Debtors will distribute such order (which includes copies of the

Bidding Procedures, the Assumption and Assignment Procedures, the Sale Summary and the

Sale Notice) to: (a) the United States Trustee for the Middle District of Tennessee; (b) counsel to

the administrative agent for the Debtors prepetition secured lenders; (c) counsel for any official

unsecured creditors committee appointed in these cases, or until such time as counsel is named,

the holders of the fifty (50) largest unsecured claims on a consolidated basis against the Debtors;

(d) counsel to all postpetition lenders or their agent(s); (e) counsel of record representing patients

of Dental Centers associated with CSHM with litigation pending against the Debtors as of the

Petition Date; (f) the Internal Revenue Service; (g) all parties known or reasonably believed to

have asserted any lien, claim, interest or encumbrance on any of the Assets; and (h) all persons

or entities known or reasonably believed to have expressed an interest in acquiring the Assets



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during the past six (6) months; (i) the U.S. Attorney General; (j) United States Department of

Health and Human Services, Office of Inspector General; (k) New York State Office of

Medicaid Inspector General; (l) the Attorney General for each State that is a party to a settlement

agreement with a Debtor; (m) all parties that have requested personal notice pursuant to

Bankruptcy Rule 2002 (collectively, the Notice Parties).

48. Further, if the Court believes it is appropriate, the Debtors will publish anabbreviated version of the Sale Notice at least once in a national paper at least twenty (20) days

prior to the Auction. Moreover, the Debtors have issued a press release to a number of press

outlets regarding the Sale process. The Debtors contend that such notice of the Auction and the

Sale Hearing is good and sufficient notice and that no other or further notice is required.

D. The Sale Of The Debtors Assets To The Successful Bidder Should beApproved

49. Section 363 of the Bankruptcy Code (Section 363) provides, in relevant part,The trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course

of business, property of the estate. 11 U.S.C. 363(b)(1). Although Section 363 does not set

forth a standard for determining when it is appropriate for a court to authorize the sale or

disposition of substantially all of a debtors assets, the Sixth Circuit and other Circuit Courts of

Appeal, in applying this section, have required that such a sale be based upon a sound business

purpose. See Stephens Indus., Inc. v. McClung, 789 F.2d 386, 390 (6thCir. 1986) (holding that

it was not abuse of discretion for a bankruptcy court to approve a sale of substantially all of a

debtors assets); see alsoComm. of Equity Sec. Holders v.Lionel Corp. (In re Lionel Corp.), 722

F.2d 1063, 1071 (2d Cir. 1983);In re Nicole Energy Servs., 385 B.R. 201, 210 (Bankr. S.D. Ohio

2008).



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50. The Sale is justified by a sound business purpose, and is the best option availableto maximize the value of the Debtors estates. A going concern sale will generate the greatest

possible recovery to the Debtors estates, creditors and other stakeholders. If the Debtors were to

cease operations, the attendant loss of value would be significant and irreparable. The Auction

and Sale process set forth herein, on the other hand, will allow the Debtors to maximize the value

of their assets by selling their operations as going concerns, as opposed to recognizing lesser

value through alternative restructuring strategies. Thus, there is a sound business purpose that

justifies the Sale.

51.

It is apparent to the Debtors that they could not continue operations and continue

to make payroll without running out of cash in short order. Accordingly, the Debtors seek the

sale of the Assets as a going concern without interruption of the services provided by the Debtors

to the Dental Centers and their patients.

52. The sound business purpose test is often formulated to require consideration ofthe following factors: 1) [a] sound business reason; 2) accurate and reasonable notice; 3) [an]

adequate price; and 4) good faith. See, e.g., In re Nicole Energy Servs., 385 B.R. 201, 231

(Bankr. S.D. Ohio 2008) (citation omitted). The Sale satisfies these factors. First, according to

the timing of the Auction and Sale Hearing that the Debtors have requested herein, the Sale

Notice, as well as this motion, is being served more than 21 days in advance of the Auction and

Sale Hearing upon the Notice Parties. The Sale Notice contains all information referenced in

Bankruptcy Rule 2002(c)(1).6 SeeWBQ Ptnr. v. Virginia Dept of Med. Assistance Servs. (In re

6 Bankruptcy Rule 2002(c)(1) provides, in relevant part, that:

[T]he notice of a proposed use, sale, or lease of property required by subdivision (a)(2) of this rule shallinclude the time and place of any public sale, the terms and conditions of any private sale and the timefixed for filing objections. The notice of a proposed use, sale, or lease of property, including real estate, issufficient if it generally describes the property. The notice of a proposed sale or lease of personally



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WBQ Ptnr.), 189 B.R. 97, 103 (Bankr. E.D. Va. 1995) (In [the] context [of a sale under Section

363], notice is sufficient if it includes the terms and conditions of the sale, if it states the time

for filing objections, and if the estate is selling real estate, it generally describes the property.),

quoting In re Karpe, 84 Bankr. 926, 929 (Bankr. M.D. Pa. 1988). Therefore, the Debtors submit

that notice is sufficient. Second, the Stalking Horse Agreement was negotiated in good faith, at

arms-length, between the parties thereto over several weeks, and was chosen after the lengthy

and exhaustive Pre-Petition Process and will be subject to higher and better bids after continued

marketing of the Assets during the pendency of these cases. Accordingly, the Debtors

respectfully submit that a finding that the Sale has been pursued, negotiated and proposed in

good faith is appropriate. See In re Abbotts Dairies of Pennsylvania, Inc., 788 F.2d 143, 147 (3d

Cir. 1986) ([T]ypically, the misconduct that would destroy a purchasers good faith status at a

judicial sale involves fraud, collusion between the purchaser and other bidders or the trustee, or

an attempt to take grossly unfair advantage of other bidders). Lastly, the Sale process subjects

the Stalking Horse Agreement to competitive bidding by a wide variety of potentially interested

parties, which the Debtors submit is the best method to ensure that the Debtors receive a fair and

reasonable price for the Assets. Accordingly, the proposed Sale is proper under Section 363 and

should be approved.

E. The Break-Up Fee and Expense Reimbursement Should be Approved53. Break-up or termination fees must be considered in light of the totality of the

circumstances. In re Nashville Senior Living, 2008 Bankr. LEXIS 3197, at *6-7 (Bankr. M.D.

Tenn. Oct. 22, 2008). Factors considered by courts include: 1) Whether the fee requested

correlates with a maximization of value to the debtors estate; 2) Whether the underlying

identifiable information under 363(b)(1) of the Code shall state whether the sale is consistent with anypolicy prohibiting the transfer of the information.



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negotiated agreement is an arms-length transaction between the debtors estate and the

negotiating acquirer; 3) Whether the principal secured creditors and the official creditors

committee are supportive of the concession; 4) Whether the subject break-up fee constitutes a

fair and reasonable percentage of the proposed purchase price; 5) Whether the dollar amount of

the break-up fee is so substantial that it provides a chilling effect on other potential bidders; 6)

The existence of available safeguards beneficial to the debtors estate; 7) Whether there exists a

substantial adverse impact upon unsecured creditors, where such creditors are in opposition to

the break-up fee. Id. at *6-7.

54.

The Debtors have agreed in the Stalking Horse Agreement that, in the event that

the Sale is consummated with a Successful Bidder other than the Stalking Horse Bidder, the

Debtors will pay the Stalking Horse Bidder the Break-Up Fee of $2,000,000, and will reimburse

the Stalking Horse Bidder for expenses incurred in connection with negotiating the Stalking

Horse Agreement and performing due diligence in connection therewith (up to a maximum

amount of $250,000).7 The Debtors submit that analysis of the above factors demonstrates that

the Break-Up Fee and Expense Reimbursement are reasonable and appropriate. The Break-Up

Fee and Expense Reimbursement are intended to facilitate the Auction, reimburse the Stalking

Horse Bidder for certain of the expenses it has incurred and will continue to incur in connection

with the proposed transaction, and to compensate the Stalking Horse Bidder for the substantial

time and effort it has expended to date and will continue to expend as a stalking horse for

competing bids. The Debtors submit that notwithstanding the Break-Up Fee and Expense

Reimbursement, use of the Stalking Horse Agreement will protect the Debtors creditors and

facilitate discussions with other interested parties, rather than chill bidding, and will establish a

7 As set forth above, payment of the Break-Up Fee and Expense Reimbursement is also contingent upon theStalking Horse Bidder not breaching the Stalking Horse Agreement.



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floor with respect to the Auction. The Debtors believe that without the Stalking Horse

Agreement, which the Debtors were unable to attain without the inclusion of a Break-Up Fee and

Expense Reimbursement, the ultimate proceeds obtained for the Assets would not be maximized.

Moreover, the Break-Up Fee and Expense Reimbursement were negotiated in good faith at

arms-length by unrelated parties. Thus, the use of the Stalking Horse Agreement will ensure

that competing bids will be higher and better, providing a significant benefit to the Debtors

estates and creditors. Lastly, the amounts of the Break-Up Fee and Expense Reimbursement are

fair and reasonable in light of similar fees approved in other cases in this and other Districts.

See, e.g., In re New Day Pharmacy Corp., Case No. 09-01947, Doc. 38 (GCP) (Bankr. M.D.

Tenn. Mar. 5, 2009) (approving a break-up fee of approximately 2.5% of the purchase price); In

re Nashville Senior Living, 2008 Bankr. LEXIS 3197, at *3, *9 (approving a break-up fee of

approximately 1% of the purchase price); In re Chi-Chis, Inc., Case No. 03-13063, Doc. 143

(Bankr. D. Del. November 4, 2003) (fee of 5.1% permitted);In re Great N. Paper, Inc., Case No.

03-10048, Docs. 217, 194 (Bankr. D. Me. February 18, 2003) (fee of 5.4% plus reimbursement

of expenses upheld).

F. A Sale Free And Clear Of Liens, Claims, Encumbrances, And Interests IsAppropriate

55. It is appropriate for the Debtors assets to be sold to the Successful Bidder freeand clear of liens, claims, encumbrances, and interests pursuant to Section 363(f) of the

Bankruptcy Code, with any such liens, claims, encumbrances, or interests to attach to the net sale

proceeds of such assets. See MacArthur Co. v. Johns-Manville Corp., 837 F.2d 89, 93-94 (2d

Cir. 1988) (It has long been recognized that when a debtors assets are disposed of free and

clear of third-party interests, the third party is adequately protected if his interest is assertable

against the proceeds of the disposition); see also In re Riverside Inv. Pship, 674 F.2d 634, 640



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(7th Cir. 1982) (Generally, in a free and clear sale, the liens are impressed on the proceeds of

the sale and discharged at the time of sale ....).

56. Any lien, claim, encumbrance, or interest in the Debtors assets will be adequatelyprotected by attachment to the net proceeds of the sale, subject to any claims and defenses the

Debtors may possess with respect thereto. Moreover, each of the parties that may hold liens on

the assets sold could be compelled to accept a monetary satisfaction of such interests, satisfying

section 363(f)(5) of the Bankruptcy Code. Thus, sale of the Debtors assets free and clear of

liens, claims, encumbrances, and interests will satisfy one or more of the statutory prerequisites

of section 363(f) of the Bankruptcy Code. Accordingly, the Debtors request that their assets be

transferred to the Successful Bidder free and clear of all liens, claims, encumbrances, and

interests, with any such liens, claims, encumbrances, and interests to attach to the net sale

proceeds realized from the sale.

G. Assumption And Assignment Of Contracts and Leases Satisfies Section 36557. Section 365(a) of the Bankruptcy Code provides that a debtor in possession

subject to the courts approval, may assume or reject any executory contract or unexpired lease

of the debtor. 11 U.S.C. 365(a). Upon finding that a debtor has exercised its best business

judgment in determining to assume an executory contract or unexpired lease, courts will

approve the assumption under section 365(a) of the Bankruptcy Code. See Nostas Assocs. v.

Costich (In re Klein Sleep Prods., Inc.), 78 F.3d 18, 25-26 (2d Cir. 1996); Orion Pictures Corp.

v. Showtime Networks, Inc. (In re Orion Pictures Corp.), 4 F.3d 1095, 1099 (2d Cir. 1993).

58. Pursuant to section 365(f)(2) of the Bankruptcy Code, a debtor in possession mayassign an executory contract or unexpired lease of nonresidential real property if adequate

assurance of future performance by the assignee of such contract or lease is provided, whether or

not there has been a default in such contract or lease. 11 U.S.C. 365(f)(2)(B). The meaning of



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adequate assurance of future performance depends on the facts and circumstances of each case,

but should be given practical, pragmatic construction. SeeIn re Bon Ton Rest. & Pastry Shop,

Inc., 53 B.R. 789, 803 (Bankr. N.D. Ill. 1985) ([a]lthough no single solution will satisfy every

case, the required assurance will fall considerably short of an absolute guarantee of

performance.); see also In re Natco Indus., Inc., 54 B.R. 436, 440 (Bankr. S.D.N.Y. 1985)

(adequate assurance of future performance does not mean absolute assurance that debtor will

thrive and pay rent).

59. Among other things, adequate assurance may be given by demonstrating theassignees financial health and experience in managing the type of enterprise or property

assigned. See In re Bygaph, Inc., 56 B.R. 596, 605-06 (Bankr. S.D.N.Y. 1986) (adequate

assurance of future performance is present when prospective assignee of lease has financial

resources and expressed willingness to devote sufficient funding to business to give it strong

likelihood of succeeding; chief determinant of adequate assurance is whether rent will be paid).

60. First, the assumption and assignment of a contract or lease to the SuccessfulBidder is in the best interests of the Debtors estates and a proper exercise of the Debtors

business judgment. In addition to maximizing the consideration received in exchange for the

Sale, it also allows the Debtors to avoid rejection damages that otherwise would accrue if those

contracts or leases were to be rejected. The Debtors will agree that all undisputed cure amounts

associated with assumption and assignment of the leases and contracts shall be paid in

connection with the consummation of the Sale.

61. At the Sale Hearing, the Debtors and the Successful Bidder will be prepared toproffer testimony or present evidence to demonstrate the financial credibility, willingness, and

ability of the Successful Bidder to perform under the contracts and leases to be assumed and



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assigned. The Sale Hearing, therefore, will provide the Court and other interested parties with

the opportunity to evaluate the ability of the Successful Bidder to provide adequate assurance of

future performance under the contracts and leases to be assumed and assigned, as required by

section 365(b)(1)(C) of the Bankruptcy Code. Accordingly, the Debtors respectfully request that

at the conclusion of the Sale Hearing, the Court approve the assumption and assignment of

certain contracts and leases, to be effective upon entry of the Sale Order.

62. Notwithstanding any anti-assignment language in any contract or lease to beassumed and assigned, the Debtors seek permission to assign such agreement, provided that the

Debtors first assume the contract or lease and then provide adequate assurance of future

performance by the Successful Bidder. To facilitate the assumption and assignment of the

contracts and leases to be assumed and assigned, the Debtors will request at the Sale Hearing that

the Court find any anti-assignment provisions of the contracts and leases to be assumed and

assigned to be unenforceable under section 365(f) of the Bankruptcy Code.8

63. Section 365(k) of the Bankruptcy Code provides that assignment by the debtor toan entity of a contract or lease relieves the trustee and the estate from any liability for any

breach of such contract or lease occurring after such assignment. 11 U.S.C. 365(k). Pursuant

to section 365(k), the Debtors and their estates shall be relieved from any liability for any breach

of any assumed and assigned lease or contract after such assignment to and assumption by the

Successful Bidder upon entry of the Sale Order.

8

Section 365(f)(1) provides in part that, notwithstanding a provision in an executory contract or unexpiredlease of the debtor, or in applicable law, that prohibits, restricts, or conditions the assignment of suchcontract or lease, the trustee may assign such contract or lease ... 11 U.S.C. 365(f)(1). Section 365(f)(3)further provides that Notwithstanding a provision in an executory contract or unexpired lease of thedebtor, or in applicable law that terminates or modifies, or permits a party other than the debtor to terminateor modify, such contract or lease or a right or obligation under such contract or lease on account of anassignment of such contract or lease, such contract, lease, right, or obligation may not be terminated ormodified under such provision because of the assumption or assignment of such contract or lease by thetrustee. 11 U.S.C. 365(f)(3).



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H. Relief Under Bankruptcy Rules 6004(h) and 6006(d) Is Appropriate64. Bankruptcy Rule 6004(h) provides an order authorizing the use, sale, or lease of

property is stayed until the expiration of 14 days after entry of the order, unless the court

orders otherwise. Bankruptcy Rule 6006(d) further provides that an order authorizing the

trustee to assign an executory contract or unexpired lease under 365(f) is stayed until the

expiration of 14 days after the entry of the order, unless the court orders otherwise. The

Debtors respectfully request that in light of their limited liquidity and their corresponding need to

consummate the sale, the order approving the sale of the Assets and assumption and assignment

of the Assigned Contracts, if granted, be effective immediately upon entry.

NOTICE

65. Notice of this Motion has been given to: (a) the United States Trustee for theMiddle District of Tennessee; (b) counsel to the administrative agent for the Debtors prepetition

secured lenders; (c) counsel for any official unsecured creditors committee appointed in these

cases, or until such time as counsel is named, the holders of the fifty (50) largest unsecured

claims on a consolidated basis against the Debtors; (d) counsel to all postpetition lenders or their

agent(s); (e) counsel of record representing patients of Dental Centers associated with CSHM

with litigation pending against the Debtors as of the Petition Date; (f) all parties known or

reasonably believed to have asserted any lien, claim, interest or encumbrance on any of the

Assets; (g) the U.S. Attorney General; (h) United States Department of Health and Human

Services, Office of Inspector General; (i) New York State Office of Medicaid Inspector General;

(j) the Attorney General for each State that is a party to a settlement agreement with a Debtor;

and (k) all parties that have requested personal notice pursuant to Bankruptcy Rule 2002. In

light of the nature of the relief requested, the Debtors submit that no further notice is required.



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WHEREFORE, the Debtors respectfully request (A) entry of the Bidding Procedures

Order, substantially in the form attached hereto, and (B) such other and further relief as the Court

deems just and proper.

Dated: March 2, 2012Nashville, Tennessee

By: /s/ John C. Tishler_____________John C. Tishler, BPR No. 13441Katie G. Stenberg, BPR No. 22301Robert P. Sweeter, BPR No. 28859WALLER LANSDEN DORTCH & DAVIS, LLP511 Union Street, Suite 2700Nashville, TN 37219Telephone: (615) 244-6380Facsimile: (615) 244-6804Email:[email protected]

[email protected]@wallerlaw.com

Proposed Attorneys for the Debtors and

Debtors in Possession