Execution Copy
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT dated as of May 15, 2003, by and among Castle Dental
Centers, Inc., a Delaware corporation (the "Company"), Sentinel Capital Partners
II, L.P. ("Sentinel"), General Electric Capital Corporation, a Delaware
corporation ("GE"), Midwest Mezzanine Fund II, L.P., a Delaware limited
partnership ("Midwest"), ▇▇▇▇▇ ▇. ▇▇▇▇▇ ("▇▇▇▇▇"), ▇▇▇▇ ▇. ▇▇▇▇▇ ("▇▇▇▇▇"), and
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇▇▇▇"). Sentinel, GE, Midwest, ▇▇▇▇▇, Slack and
▇▇▇▇▇▇▇▇▇▇▇ and any other Person who becomes a party hereto and their Permitted
Transferees are collectively referred to as the "Stockholders" and individually
as a "Stockholder." Capitalized terms used herein but not otherwise defined have
the meaning set forth in Section 1.
WHEREAS, the Company, Sentinel, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇, Midwest, Slack and ▇▇▇▇▇
are parties to a Preferred Stock and Subordinated Note Purchase Agreement dated
as of the date hereof (the "Purchase Agreement"). In order to induce Sentinel,
▇▇▇▇▇▇▇▇▇▇▇, ▇▇, Midwest, Slack and ▇▇▇▇▇ to enter into the Purchase Agreement,
the Stockholders have agreed to enter into this Agreement for the purposes,
among others, of (i) establishing the composition of the Board, (ii) assuring
continuity in the management and ownership of the Company and (iii) limiting the
manner and terms by which the Stockholder Shares may be transferred. The
execution and delivery of this Agreement is a condition to the Closing under the
Purchase Agreement. It is acknowledged that certain other parties shall become a
party to this Agreement following the date hereof in conjunction with such
parties' execution of a joinder to the Purchase Agreement and their purchase of
certain securities of the Company thereunder.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings:
"Affiliate" shall mean, as to any Person, any other Person which directly
or indirectly controls, or is under common control with, or is controlled by,
such Person. As used in this definition, "control" (including, with its
correlative meanings, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise); provided,
that beneficial ownership of 10% or more of the voting securities (or the
equivalents) of a Person shall be deemed to be control.
"Agreement" has the meaning given thereto in the preamble.
"Approved Sale" means a Sale of the Company which has been approved by both
the Board and Sentinel so long as Sentinel holds as least a majority of the
Sentinel Stockholder Shares outstanding on the date of this Agreement; provided
that the purchaser (or the equivalent) with respect to such Sale of the Company
is not Sentinel or an Affiliate of Sentinel.
"Board" means the Company's board of directors.
"Bylaws" means the Bylaws of the Company and subsequent amendments thereto.
"Certificate of Incorporation" means the Certificate of Incorporation of
the Company, as amended from time to time.
"Change of Control" means: (i) the sale, lease, transfer, conveyance or
other disposition, in one or a series of related transactions, of all or
substantially all the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the
Securities Exchange Act), or (ii) the consummation of any transaction (including
any merger or consolidation) the result of which is that any "person" (as
defined above), other than Sentinel Capital Partners II L.P. and/or its
Affiliates, becomes the beneficial owner (as determined in accordance with Rules
13d-3 and 13d-5 under the Securities Exchange Act except that a person will be
deemed to have beneficial ownership of all shares that such person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the Voting
Securities of the Company.
"Common Stock" means the Company's Common Stock, par value $0.000001 per
share.
"Common Stock Deemed Outstanding" means the number of shares of Common
Stock outstanding, determined on a fully diluted as if converted basis giving
effect to all outstanding Common Stock and all outstanding securities
convertible into or exchangeable for Common Stock and any options (reserved for
issuance as approved by the Board or issued), warrants or other rights to
acquire Common Stock (collectively, "Common Stock Equivalents").
"Company" has the meaning given thereto in the preamble.
"Election Notice" has the meaning given thereto in Section 6(a).
"Family Group" means, with respect to an individual Stockholder, such
Stockholder's spouse and descendants (whether natural or adopted) and any trust
solely for the benefit of such Stockholder and/or such Stockholder's spouse,
their respective ancestors and/or descendants (whether natural or adopted).
"▇▇▇▇▇▇▇▇▇▇▇" has the meaning given thereto in the preamble.
"GE" has the meaning given thereto in the preamble.
"Immediate Family" means an individual's spouse, descendants (whether
natural or adopted), siblings, parents or grandparents.
"Indebtedness" means at a particular time, without duplication, (i) any
indebtedness for borrowed money or issued in substitution for or exchange of
indebtedness for borrowed money, (ii) any indebtedness evidenced by any note,
bond, debenture, or other debt security, (iii) any indebtedness for the deferred
purchase price of property or services with
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respect to which a Person is liable, contingently or otherwise, as obligor or
otherwise (other than trade payables and other current liabilities), (iv) any
commitment by which a Person assures a creditor against loss (including
contingent reimbursement obligations with respect to letters of credit), (v) any
indebtedness guaranteed in any manner by a Person (including guarantees in the
form of an agreement to repurchase or reimburse), (vi) any obligations under
capitalized leases with respect to which a Person is liable, contingently or
otherwise, as obligor, guarantor or otherwise, with respect to which obligations
a Person assures a creditor against loss, (vii) any indebtedness secured by a
lien on a Person's assets and (viii) any unsatisfied obligation for "withdrawal
liability" to a "multiemployer plan" as such terms are defined under the
Employee Retirement Income Security Act of 1974, as amended.
"Issuance Notice" has the meaning given thereto in Section 6(a).
"Joinder Agreement" means an agreement, in the form of Exhibit A, pursuant
to which a holder of Stockholder Shares becomes a party to, and subject to the
obligations of, this Agreement.
"Midwest" has the meaning given thereto in the preamble.
"Non-Sentinel Directors" has the meaning given thereto in Section
2(a)(i)(B).
"Non-Sentinel Stockholder Shares" means the Stockholder Shares issued or
issuable to, or otherwise held by, GE, Midwest, ▇▇▇▇▇ and their respective
Affiliates. Any reference herein to a "holders of a majority of the Non-Sentinel
Stockholder Shares", means the holders of a majority of the Non-Sentinel
Stockholder Shares on a fully diluted as if converted basis.
"Notes" means the Subordinated Promissory Notes issued to Sentinel,
Fitzpatrick, Slack, ▇▇▇▇▇ and certain other parties pursuant to the Purchase
Agreement.
"Offered Shares" has the meaning given thereto in Section 6(a).
"Other Stockholders" means, with respect to a Stockholder, all Stockholders
other than such Stockholder.
"Ownership Ratio" means, as to a holder of Stockholder Shares at the time
of determination, the percentage obtained by dividing the number of shares of
Common Stock owned by such holder at such time on a fully diluted as if
converted basis, by the aggregate number of shares of Common Stock Deemed
Outstanding at such time.
"Permitted Transferees" has the meaning given thereto in Section 4(c).
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
"Preemptive Period" has the meaning given thereto in Section 6(a).
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"Public Sale" means any sale of Stockholder Shares to the public pursuant
to an offering registered under the Securities Act or to the public effected
through a broker, dealer or market maker pursuant to the provisions of Rule 144
(or any similar rule or rules then in effect) under the Securities Act.
"Purchase Agreement" has the meaning given thereto in the preamble.
"Sale Notice" has the meaning given thereto in Section 4(b).
"Sale of the Company" means (i) a transaction or series of related
transactions closing contemporaneously (including by way of merger,
consolidation, or sale of equity) the result of which is that the holders of the
Common Stock immediately prior to such transaction(s) (on a fully diluted as if
converted basis) are after giving effect to such transaction(s) no longer, in
the aggregate, the "beneficial owners" (as such term is defined in Rule 13d-3
and Rule 13d-5 promulgated under the Securities Exchange Act), directly or
indirectly through one or more intermediaries, of more than 50% of the Common
Stock Deemed Outstanding, or (ii) the sale, lease, transfer, conveyance or other
disposition, in one or a series of related transactions closing
contemporaneously, of all or substantially all of the Company's assets
determined on a consolidated basis.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Sentinel" has the meaning given thereto in the preamble.
"Sentinel Directors" has the meaning given thereto in Section 2(a)(i)(A).
"Sentinel Stockholder Shares" means all Stockholder Shares issued or
issuable to, or otherwise held by, Sentinel and its Affiliates. Any reference
herein to a "holders of a majority of the Sentinel Stockholder Shares", means
the holders of a majority of the Sentinel Stockholder Shares on a fully diluted
as if converted basis.
"Series A-1 Stock" means the Convertible Preferred Stock, Series A-1, of
the Company, par value $0.000001 per share.
"Series A-2 Stock" means the Convertible Preferred Stock, Series A-2, of
the Company, par value $0.000001 per share.
"Series B Stock" means the Company's Series B Convertible Preferred Stock,
par value $0.000001 per share.
"Slack" has the meaning given thereto in the preamble.
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"Stock Option Plan" means any capital stock plan adopted by the Company for
the benefit of the Company's officers, employees, consultants, agents or
directors which has been or is approved by the Board of Directors, including the
Company's 2002 Stock Option Plan.
"Stockholder" has the meaning given thereto in the preamble.
"Stockholder Shares" means (i) any Common Stock, Series A-1 Stock, Series
A-2 Stock, Series B Stock or Warrants held by the Stockholders, (ii) any Common
Stock or Series A-2 Stock issuable upon conversion, exercise or exchange of the
securities referred to in clause (i) above, and (iii) any equity securities of
the Company issued or issuable directly or indirectly with respect to the
securities referred to in clauses (i) or (ii) above by way of stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization. As to any particular shares
constituting Stockholder Shares, such shares will cease to be Stockholder Shares
when they have been sold in a Public Sale or an Approved Sale.
"Sub Board" has the meaning given thereto in Section 2(a)(ii).
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control the managing
director or a general partner of such partnership, association or other business
entity.
"Transaction Documents" means the Purchase Agreement and the other
documents expressly contemplated thereby.
"Transfer" has the meaning given thereto in Section 4(a).
"Transferring Stockholder" has the meaning given thereto in Section 4(b).
"Voting Securities" means securities of the Company ordinarily having the
power to vote for the election of directors of the Company; provided that when
the term "Voting Securities" is used with respect to any other Person it means
the capital stock or other interests of any class or kind ordinarily having the
power to vote for the election of directors or other members of the governing
body of such Person.
"▇▇▇▇▇" has the meaning given thereto in the preamble.
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"Warrants" means the warrants to purchase Series A-2 Stock issued to or
held by GE.
2. Voting Matters.
(a) To the extent permitted by law, each Stockholder shall vote all voting
securities of the Company over which such Stockholder has voting control, and
shall take all other necessary or desirable actions within such Stockholder's
control (whether in such Stockholder's capacity as a stockholder, director,
member of a board committee or officer of the Company or otherwise, and
including, without limitation, attendance at meetings in person or by proxy for
purposes of obtaining a quorum and execution of written consents in lieu of
meetings), and the Company shall take all necessary and desirable actions within
its control (including, without limitation, calling special Board and
stockholder meetings), so that:
(i) the authorized number of directors on the Board shall be established at
7 persons; provided that the Board shall be enlarged upon the affirmative
written consent of the holders of a majority of the Sentinel Stockholder Shares;
(ii) the following persons shall be elected to the Board:
(A) so long as Sentinel and its Affiliates own at least a majority of the
Sentinel Stockholder Shares outstanding on the date of this Agreement, 4 persons
designated by holders of a majority of the Sentinel Stockholder Shares, who
shall initially include ▇▇▇▇▇ ▇. Lobel, Fitzpatrick, ▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇▇; provided that if the Board is enlarged as described in clause (i) above,
the holders of a majority of the Sentinel Stockholder Shares shall be permitted
to designate the smallest number of directors greater than 4 which would be a
majority of the Board (i.e., 5 of 8, 5 of 9, 6 of 10) (all such persons
designated pursuant to this clause (A), the "Sentinel Directors");
(B) so long as GE, Midwest, ▇▇▇▇▇ and their Affiliates own at least a
majority of the Non-Sentinel Stockholder Shares outstanding on the date of this
Agreement, 2 persons designated by holders of a majority of the Non-Sentinel
Stockholder Shares; provided that if the Board is enlarged as described in
clause (i) above, the holders of a majority of the Non-Sentinel Stockholder
Shares shall be permitted to designate such number of directors as are on the
enlarged Board and not designated pursuant to clause (A) above and clause (C)
below (all such persons designated pursuant to this clause (B), the
"Non-Sentinel Directors");
(C) the Chief Executive Officer of the Company;
(iii) the Company shall cause the board of directors of each Subsidiary of
the Company (each a "Sub Board") to be comprised of the same members as are on
the Board;
(iv) except as otherwise required by law, two Sentinel Directors and one
Non-Sentinel Director, who shall be appointed by the holders of a majority of
the Sentinel Stockholder Shares and the holders of a majority of the
Non-Sentinel Stockholder Shares respectively (and who may appoint different
directors for each such committee), shall be appointed to the executive
committee, nominating committee, compensation committee and audit committee of
the Board (each of which shall have no more than three (3) members) and such
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other committees of the Board and of the board of directors of each Subsidiary
of the Company as requested by the holders of a majority of the Sentinel
Stockholder Shares; notwithstanding the foregoing, the Non-Sentinel Directors
and the CEO shall be appointed to a committee of the Board which committee shall
be delegated the sole and exclusive power and authority to determine (x) when
and if the debt, or any portion thereof, represented by the Notes is prepaid
pursuant to Section 3 of the Notes, and (y) any debt financing arrangements of
the Company necessary to acquire the funds to affect such prepayment, subject to
any restrictions on such financing set forth in Section 3 of the Notes and
provided that the aggregate proceeds of such debt financing arrangement do not
materially exceed the amount necessary for such prepayment;
(v) Sentinel Directors shall be removed from the Board or any committee
thereof (without cause) at the written request of the holders of a majority of
the Sentinel Stockholder Shares, but only upon such written request and under no
other circumstances, except as required by law, and Non-Sentinel Directors shall
be removed from the Board or any committee thereof (without cause) at the
written request of the holders of a majority of the Non-Sentinel Stockholder
Shares, but only upon such written request and under no other circumstances,
except as required by law;
(vi) in the event that any Sentinel Director for any reason ceases to serve
as a member of the Board or any committee thereof during such representative's
term of office, the resulting vacancy on the Board or committee shall be filled
by a representative designated by the holders of a majority of the Sentinel
Stockholder Shares and in the event that any Non-Sentinel Director for any
reason ceases to serve as a member of the Board or any committee thereof during
such representative's term of office, the resulting vacancy on the Board or
committee shall be filled by a representative designated by the holders of a
majority of the Non-Sentinel Stockholder Shares.
(b) In addition, so long as Sentinel and its Affiliates own at least a
majority of the Sentinel Stockholder Shares outstanding on the date of this
Agreement, the Company shall not, without the affirmative vote of the holders of
a majority of the outstanding Sentinel Stockholder Shares: (i) alter or change
the preferences, rights or powers of the Series B Stock, (ii) create, authorize
or issue any capital stock that ranks prior (whether with respect to dividends,
redemption or upon liquidation, dissolution, winding up or otherwise) to or pari
passu with the Series B Stock, (iii) increase the authorized number of shares of
Series B Stock, (iv) create, authorize or issue any capital stock of the Company
or any Subsidiary of the Company or any security convertible into, exchangeable
for, or that otherwise gives the holder the right to obtain, capital stock of
the Company or any Subsidiary of the Company (other than (x) the shares of
Common Stock or Series A-2 Stock issuable upon conversion, exercise or exchange
of the Stockholder Shares outstanding as of the date hereof, or (y) options to
acquire shares of Common Stock issued to employees, officers, directors,
consultants and agents of the Company, or shares of Common Stock issuable
pursuant to the exercise of such options, pursuant to the Stock Option Plan, (v)
declare or pay a dividend with respect to any Stockholder Shares, (vi) amend the
Company's Certificate of Incorporation or Bylaws except as specifically
contemplated in the Purchase Agreement, (vii) materially amend the terms of the
Company's senior credit facility entered into on the date hereof, except as
required to prepay the debt represented by the Notes pursuant to Section 3 of
the Notes, (viii) effect a Change of Control, (ix) create or incur, or permit
any Subsidiary of the Company to create or incur, Indebtedness other than
Indebtedness
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existing on the date hereof, Indebtedness approved in an annual budget approved
by the Board and other Indebtedness not to exceed $1,000,000 in the aggregate,
except as required to prepay the debt represented by the Notes pursuant to
Section 3 of the Notes, (x) effect a voluntary liquidation, dissolution or
winding up of the Company, (xi) acquire, or permit any Subsidiary of the Company
to acquire, any interest in any company or business (whether by a purchase of
assets, purchase of stock, merger or otherwise), or enter into any joint venture
involving the operation of a business, or make any investment in any company or
business, (xii) enter into, amend, modify or supplement, or permit any
Subsidiary of the Company to enter into, amend, modify or supplement, any
agreement, transaction, commitment or arrangement with any of its or any
Subsidiary's officers, directors, or stockholders holding at least 2% of the
Common Stock, with any Affiliate or with any Immediate Family of any such
individual or with any entity in which any such Person or individual owns a
beneficial interest, except for employment arrangements and benefit programs
approved by the Board or the applicable board of directors of the Company's
Subsidiaries or authorized committees thereof, (xiii) become subject to, or
permit any of its Subsidiaries to become subject to, (including by way of
amendment to or modification of) any agreement or instrument which by its terms
would (under any circumstances) restrict the Company's right to comply (but not
the Company's ability to comply) with these terms of the Series B Stock, or
(xiv) terminate the employment of any senior executive.
(c) The Company shall pay the reasonable out-of-pocket expenses incurred by
each director in connection with attending the meetings of the Board or any Sub
Board and any committee thereof.
(d) In the event that any provision of the Bylaws or Certificate of
Incorporation is inconsistent with any provision of this Section 2, the
Stockholders shall take such action as may be necessary to amend any such
provision in the Bylaws or the Certificate of Incorporation to remedy such
inconsistency.
(e) The Company hereby agrees that as long as GE owns a majority of the
Stockholder Shares held by it on the date of this Agreement and as long as
Midwest owns a majority of the Stockholder Shares held by it on the date of this
Agreement: (i) each of GE and Midwest, as the case may be, will be given
reasonable and adequate notice of each meeting of the Board, which shall be no
less notice than that given to a majority of the members of the Board: (ii) each
of GE and Midwest, as the case may be, shall each have the right to have one
observer attend each such meeting; (iii) each of GE and Midwest, as the case may
be, shall be entitled to observe such meeting by phone or other method whereby
they can hear all of the participants in the meeting; (iv) each of GE and
Midwest, as the case may be, shall be entitled to receive all materials provided
to the members of the Board of Directors in connection with such meeting; and
(v) if the Board intends to take any action pursuant to a written consent, each
of GE and Midwest, as the case may be, will be forwarded copies of such written
consents no later than the date copies are distributed to the members of the
Board.
(f) Notwithstanding anything herein to the contrary, nothing contained in
this Agreement shall (i) affect, limit or impair the rights and/or remedies of
GE in its capacity as a lender to the Company or any of its Subsidiaries
pursuant to any agreement under which the Company or any of its Subsidiaries has
or have borrowed money or (ii) be deemed otherwise to
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require or cause GE to take or omit to take any action in its capacity as a
lender or any other holder of debt of the Company or any of its Subsidiaries.
3. Conflicting Agreements. Each Stockholder represents that such
Stockholder has not granted and is not a party to any proxy, voting trust or
other agreement which is inconsistent with or conflicts with the provisions of
this Agreement, and no holder of Stockholder Shares shall grant any proxy or
become party to any voting trust or other agreement which is inconsistent with
or conflicts with the provisions of this Agreement.
4. Restrictions on Transfer of Stockholder Shares.
(a) Transfer of Stockholder Shares. No holder of Stockholder Shares shall
sell, transfer, assign, pledge or otherwise dispose (a "Transfer") of (whether
with or without consideration and whether voluntarily or involuntarily or by
operation of law) any interest in such holder's Stockholder Shares, except (i)
pursuant to the provisions of Section 4(b) below, (ii) in a Public Sale, (iii)
pursuant to an Approved Sale, or (iv) to a Permitted Transferee.
(b) Tag Along Rights. At least 30 days prior to any Transfer of Stockholder
Shares by a Stockholder (other than those Transfers described in clauses (ii),
(iii) and (iv) of Section 4(a) above) (the "Transferring Stockholder"), the
Transferring Stockholder shall deliver a written notice (the "Sale Notice") to
the Company, which shall promptly deliver the Sale Notice to the Other
Stockholders, specifying in reasonable detail the identity of the prospective
transferee(s) and the terms and conditions of the Transfer. The Other
Stockholders may elect to participate in the contemplated Transfer by delivering
written notice to Sentinel within 10 days after delivery of the Sale Notice. If
any Other Stockholders have elected to participate in such Transfer, each of the
Transferring Stockholder and such Other Stockholders shall be entitled to sell
in the contemplated Transfer, at the same price and on the same terms (provided
that adequate provision shall be made to account for any exercise or conversion
prices payable by any Stockholder with respect to any rights to acquire
Stockholder Shares), a number of shares of Common Stock (or Stockholder Shares
exercisable for or convertible into such number) equal to the product of (i) the
quotient determined by dividing the number of shares of Common Stock owned by
such Stockholder on a fully diluted as if converted basis by the aggregate
number of shares of Common Stock owned by the Stockholders participating in such
Transfer on a fully diluted as if converted basis, and (ii) the aggregate number
of shares of Common Stock to be sold to the proposed transferee in the
contemplated Transfer on a fully diluted as if converted basis. Upon
consummation of a Transfer contemplated by this clause (b), each Stockholder
shall receive in exchange for the Stockholder Shares Transferred by such
Stockholder pursuant to such Transfer, its pro rata portion of the aggregate
consideration received pursuant to such Transfer based upon the percentage of
all Stockholder Shares on a fully diluted as if converted basis Transferred
pursuant to such Transfer held by such Stockholder. All Stockholders will bear
their pro rata share (based upon the consideration received pursuant to the
Transfer) of the reasonable costs of such Transfer to the extent such costs are
incurred for the benefit of all participating Stockholders and are not otherwise
paid by the Company or the acquiring party. Costs incurred by any Stockholder on
its own behalf will not be considered costs of the transaction hereunder.
(c) Permitted Transfers. The restrictions contained in Sections 4(a) and
4(b) shall not apply with respect to any Transfer of Stockholder Shares by any
Stockholder (i) to
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another Stockholder who is party to this Agreement, (ii) in the case of an
individual Stockholder, pursuant to applicable laws of descent and distribution
or to any member of such Stockholder's Family Group, or (iii) in the case of an
entity, (x) among its Affiliates, partners or employees, or consultants, or (y)
to any employee or director of the Company or any Affiliate of the Company. All
transferees permitted under this Section 4(c) are collectively referred to
herein as "Permitted Transferees."
(d) Provisions of General Applicability. Each transaction of purchase and
sale of Stockholder Shares pursuant to this Agreement shall be completed by
delivery of the certificates representing such shares endorsed in blank and by
actual registration of the transfer of such shares on the books of the Company
upon payment of the purchase price to the seller of such shares.
5. Sale of the Company.
(a) In the event of an Approved Sale, each Stockholder will (i) consent to
and raise no objections against the Approved Sale or the process pursuant to
which the Approved Sale was arranged, (ii) waive any dissenter's rights and
other similar rights, and (iii) if the Approved Sale is structured as a sale of
securities, each Stockholder will agree to sell its Stockholder Shares (and any
other capital stock of the Company) on the terms and conditions of the Approved
Sale; provided that it is acknowledged that each Stockholder retains his, her or
its right to object to the Approved Sale on the basis that the members of the
Board are in breach of their fiduciary duty as members of the Board.
(b) The obligations of each Stockholder under this Section 5 are subject to
the satisfaction of the following conditions: (i) upon consummation of an
Approved Sale, each Stockholder shall receive in exchange for the Stockholder
Shares (and any other capital stock of the Company) held by such Stockholder the
same portion of the aggregate consideration from such sale or exchange that such
Stockholder would have received if such aggregate consideration had been
distributed by the Company in complete liquidation pursuant to the rights and
preferences set forth in the Certificate of Incorporation, (ii) if the holders
of a class or series of capital stock of the Company are given an option as to
the form of consideration to be received, all holders of shares of such class or
series of capital stock shall be given the same option (excluding any options or
similar securities given to an executive of the Company as an incentive to
remain an employee following the Approved Sale; provided that such incentive
compensation is reasonable under the circumstances and is negotiated by the
Company, such executive and the applicable purchaser in good faith without the
intention of allocating incentive consideration to an executive in excess of
what such purchaser would normally allocate in lieu of paying a larger purchase
price for the Company), (iii) each holder of then currently exercisable rights
to acquire Stockholder Shares shall be given no less than ten (10) days notice
to exercise such rights prior to the consummation of the Approved Sale and
participate in such sale as a holder of such Stockholder Shares, and (iv) with
respect to any Approved Sale that implies an equity value of less than the
aggregate "Liquidation Payment" of the outstanding Series B Stock as of the date
of consummation of the Approved Sale, the Company shall receive a customary
fairness opinion with respect to such Approved Sale from an investment bank
reasonably acceptable to the holders of a majority of the Sentinel Stockholder
Shares and the holders of a majority of the Non-Sentinel Stockholder Shares.
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(c) All Stockholders will bear their pro rata share (based upon the
consideration received pursuant to the Approved Sale) of the reasonable costs of
an Approved Sale to the extent such costs are incurred for the benefit of all
Stockholders and are not otherwise paid by the Company or the acquiring party.
Costs incurred by any Stockholder on its own behalf will not be considered costs
of the transaction hereunder.
(d) Sentinel and the Company covenant that so long as Sentinel holds at
least a majority of the Sentinel Stockholder Shares outstanding on the date of
this Agreement, they will give GE and Midwest prompt written notice of the
commencement of a process intended to consummate in a Sale of the Company;
provided that GE shall be entitled to such notice only so long as GE owns a
majority of the Stockholder Shares held by it on the date of this Agreement and
Midwest shall be entitled to such notice only so long as Midwest owns a majority
of the Stockholder Shares held by it on the date of this Agreement.
(e) Each Stockholder will take all necessary and desirable actions as
directed by the Board and the Approving Stockholders in connection with the
consummation of any Approved Sale, including without limitation executing the
applicable purchase agreement and granting identical indemnification rights;
provided that (i) each Stockholder shall only be severally obligated to join on
a pro rata basis (based on such Stockholder's share of the aggregate proceeds
paid with respect to his or its interest) in any indemnification obligation
agreed to in connection with such Approved Sale, other than any such obligations
that relate to breaches of covenants by such Stockholder or breaches of
representations specifically concerning such Stockholder (i.e. such
Stockholder's ownership of shares, title, authority, investment intent, etc.),
for which such Stockholder shall be fully liable, and (ii) each Stockholder's
indemnity obligation shall be limited to an amount equal to the net cash
proceeds paid to such Stockholder in connection with such Approved Sale (other
than obligations resulting from breaches of covenants by such Stockholder or
breaches of representations specifically concerning such Stockholder, as to
which no limitation shall apply).
6. Pre-emptive Rights.
(a) Subject to Section 6(b) below, if the Company proposes to issue any
shares of Common Stock or any Common Stock Equivalents, in each case after the
date of this Agreement, the Company will offer to sell to each Stockholder a
number of such securities ("Offered Shares") so that the Ownership Ratio for
such holder immediately after the issuance of such securities (and assuming the
purchase of such Offered Shares) would be equal to the Ownership Ratio for such
holder immediately prior to such issuance of securities. The Company shall give
each such holder at least twenty (20) days prior written notice of any proposed
issuance, which notice shall disclose in reasonable detail the proposed terms
and conditions of such issuance (the "Issuance Notice"). Each such Stockholder
will be entitled to purchase such securities at the same price, on the same
terms (including, if more than one type of security is issued, the same
proportionate mix of such securities), and at the same time as the securities
are issued by delivery of irrevocable written notice (the "Election Notice") to
the Company of such election within ten (10) days after delivery of the Issuance
Notice (the "Preemptive Period"). If any such Stockholder has elected to
purchase any Offered Shares, the sale of such shares shall be consummated as
soon as practical after the delivery of the Election Notice. To the extent such
Stockholders do not elect to, or are not entitled to purchase all of the Offered
Shares, then the
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Company may issue the remaining Offered Shares at a price and on terms no more
favorable to the transferee(s) thereof specified in the Issuance Notice during
the 120-day period following the Preemptive Period.
(b) The rights contained in Section 6(a) shall not apply to the issuance of
Common Stock or Common Stock Equivalents: (i) as a stock dividend or upon any
subdivision or stock split of the outstanding shares of Common Stock; (ii) upon
exercise of any warrants or options outstanding as of the date of this
Agreement; (iii) upon exercise or conversion of any Stockholder Shares; (iv) to
officers, directors, consultants and other employees or agents of the Company;
(v) pursuant to the acquisition of another business entity by the Company by
merger, purchase of substantially all of the assets of such entity, or other
transaction whereby the Company acquires not less than a majority of the voting
power of such entity, or (vi) if such issuance is designated in writing by the
holders of a majority of the Sentinel Stockholder Shares as an issuance which
will not be subject to Section 6(a), provided no Common Stock or Common Stock
Equivalents are issued to such holders or their Affiliates pursuant to such
issuance.
7. Legend. In addition to any legend required by any other agreement, each
certificate evidencing Stockholder Shares and each certificate issued in
exchange for or upon the transfer of any Stockholder Shares (if such shares
remain Stockholder Shares as defined herein after such transfer) shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE
ORIGINALLY ISSUED ON __________, AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE AND ANY INTEREST
THEREIN MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS OR
(ii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACTS. THE
TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
IS SUBJECT TO A STOCKHOLDERS AGREEMENT DATED AS OF MAY 15,
2003, BY AND AMONG THE ISSUER OF SUCH SECURITIES (THE
"COMPANY") AND CERTAIN OF THE COMPANY'S STOCKHOLDERS. A COPY
OF SUCH STOCKHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT
CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN
REQUEST."
The Company shall imprint such legend on certificates evidencing Stockholder
Shares outstanding prior to the date hereof. The legend set forth above shall be
removed from the certificates evidencing any shares which cease to be
Stockholder Shares.
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8. Transfers in Violation of Agreement. Any Transfer or attempted Transfer
of any Stockholder Shares in violation of any provision of this Agreement shall
be null and void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such Stockholder Shares as the owner of such
shares for any purpose.
9. Transfer of Stockholder Shares.
(a) In connection with the Transfer of any Stockholder Shares other than a
Transfer to the public pursuant to an offering registered under the Securities
Act, the holder thereof shall deliver written notice to the Company describing
in reasonable detail the Transfer or proposed Transfer, together with an opinion
of counsel reasonably acceptable to the Company to the effect that such Transfer
of Stockholder Shares may be effected without registration of such Stockholder
Shares under the Securities Act (provided that no such opinion shall be
necessary in conjunction with a Transfer to a Permitted Transferee). No Transfer
of Stockholder Shares (including a Transfer to a Permitted Transferee) shall be
permitted unless and until the prospective transferee agrees to become a party
to this Agreement and be bound by all the terms and conditions hereof by
executing and delivering to the Company, a Joinder Agreement in the form
attached hereto as Exhibit A.
(b) Upon the request of a holder of Stockholder Shares, the Company shall
promptly supply to such Person or its prospective transferees all information
regarding the Company required to be delivered in connection with a Transfer
pursuant to Rule 144A (or any similar rule or rules then in effect) of the SEC.
10. Conversion. Each Stockholder agrees that if at any time a majority of
the Series B Stock then outstanding is converted into Common Stock, such
Stockholder will immediately convert all Series A-1 Stock, Series A-2 Stock and
Series B Stock that such Stockholder then holds into Common Stock.
11. Amendment; Waiver and Termination. Except as otherwise provided herein,
no amendment, waiver or termination of any provision of this Agreement shall be
effective against the Company or the Stockholders unless such amendment, waiver
or termination is approved in writing by the Company, the holders of a majority
of the Sentinel Stockholder Shares, and the holders of a majority of the
Non-Sentinel Stockholder Shares; provided, however, no amendment or waiver can
be effected if, by its terms, such amendment, modification, supplement or waiver
adversely affects one Stockholder without having the same relative adverse
effect on all Stockholders without the prior written consent of such adversely
affected Stockholder. The failure of any party to enforce any of the provisions
of this Agreement shall in no way be construed as a waiver of such provisions
and shall not affect the right of such party thereafter to enforce each and
every provision of this Agreement in accordance with its terms.
12. Severability. Whenever 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 is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed,
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construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
13. Entire Agreement. Except as otherwise expressly set forth herein, this
document and the other Transaction Documents embody the complete agreement and
understanding among the parties hereto with respect to the subject matter hereof
and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
14. Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Stockholder Shares and the respective permitted successors and
assigns of each of them, so long as they hold Stockholder Shares.
15. Counterparts. This Agreement may be executed in separate counterparts
each of which shall be an original and all of which taken together shall
constitute one and the same agreement.
16. Remedies. The parties hereto shall be entitled to enforce their rights
under this Agreement specifically to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights existing in
their favor. The parties hereto agree and acknowledge that money damages may not
be an adequate remedy for any breach of the provisions of this Agreement and
that the Company, and may in its sole discretion apply to any court of law or
equity of competent jurisdiction for specific performance and/or injunctive
relief (without posting a bond or other security) in order to enforce or prevent
any violation of the provisions of this Agreement.
17. Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, mailed
by certified or registered mail, return receipt requested and postage prepaid,
or sent via a nationally recognized overnight courier, or sent via facsimile to
the recipient accompanied by a certified or registered mailing. Such notices,
demands and other communications will be sent to the Company at its executive
office, and to each Stockholder at the address set forth for such Stockholder in
the Company's records.
18. GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE
STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
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19. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
20. Waiver of Jury Trial. Each of the parties hereto waives any right it
may have to trial by jury in respect of any litigation based on, arising out of,
under or in connection with this Agreement or any course of conduct, course of
dealing, verbal or written statement or action of any party hereto.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement as of the date first above written.
CASTLE DENTAL CENTERS, INC.
By:
------------------------------------------
Name:
Title:
SENTINEL CAPITAL PARTNERS II, L.P.
By: Sentinel Partners II, L.P.
Its: General Partner
By: Sentinel Managing Company II, LLC
Its: General Partner
By:
------------------------------------------
Name:
Title:
MIDWEST MEZZANINE FUND II, L.P.
By: ABN AMRO Mezzanine Management II, L.P.
Its: General Partner
By: ABN AMRO Mezzanine Management II, INC.
Its: General Partner
By:
------------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇
Title: Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By:
------------------------------------------
Name:
Title:
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/s/
---------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/
---------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
/s/
---------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇
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EXHIBIT A
FORM OF JOINDER TO
STOCKHOLDERS AGREEMENT
THIS JOINDER to the Stockholders Agreement, dated as of May 15, 2003 by and
among Castle Dental Centers, Inc., a Delaware corporation (the "Company"), and
certain stockholders of the Company (the "Agreement"), is made and entered into
as of _________ by and between the Company and _________________ ("Holder").
Capitalized terms used herein but not otherwise defined shall have the meanings
set forth in the Agreement.
WHEREAS, Holder has acquired certain shares of [________________] ("Holder
Stock"), and the Agreement and the Company requires Holder, as a holder of
Holder Stock, to become a party to the Agreement, and Holder agrees to do so in
accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Joinder hereby agree as follows:
1. Agreement to be Bound. Holder hereby agrees that upon execution of this
Joinder, it shall become a party to the Agreement and shall be fully bound by,
and subject to, all of the covenants, terms and conditions of the Agreement as
though an original party thereto and shall be deemed a Stockholder for all
purposes thereof. In addition, Holder hereby agrees that all Holder Stock held
by Holder shall be deemed Stockholder Shares for all purposes of the Agreement.
2. Successors and Assigns. Except as otherwise provided herein, this
Joinder shall bind and inure to the benefit of and be enforceable by the
Company, the Stockholders and their successors and assigns and Holder and any
subsequent holders of Holder Stock and the respective successors and assigns of
each of them, so long as they hold any shares of Holder Stock.
3. Counterparts. This Joinder may be executed in separate counterparts each
of which shall be an original and all of which taken together shall constitute
one and the same agreement.
4. Governing Law. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS JOINDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW
YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF
ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
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5. Descriptive Headings. The descriptive headings of this Joinder are
inserted for convenience only and do not constitute a part of this Joinder.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Joinder as of the
date first above written.
CASTLE DENTAL CENTERS, INC.
By:________________________________
Name:
Title:
[HOLDER]
By:_________________________________
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