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EXHIBIT 10.1
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DEBENTURE AND NOTE PURCHASE AGREEMENT
BY AND AMONG
SAFEGUARD HEALTH ENTERPRISES, INC.
AND
CAI PARTNERS AND COMPANY II, L.P.,
CAI CAPITAL PARTNERS AND COMPANY II, L.P. and
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Dated as of June 29, 1999
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TABLE OF CONTENTS
ARTICLE I
PURCHASE AND SALE OF THE DEBENTURES AND SENIOR NOTES.........................................1
Section 1.1 Purchase and Sale......................................................1
Section 1.2 Closing................................................................2
Section 1.3 Delivery at Closing....................................................2
Section 1.4 Amendment to Certificate of Incorporation..............................2
Section 1.5 Pre-Closing Adjustment to Senior Notes and Warrants....................2
Section 1.6 Issuance of Preferred Stock............................................3
ARTICLE II
SHAREHOLDER APPROVAL.........................................................................3
Section 2.1 Shareholder Meeting....................................................3
Section 2.2 Proxy Statement........................................................3
Section 2.3 No False or Misleading Statements......................................4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................4
Section 3.1 Organization...........................................................4
Section 3.2 Capitalization.........................................................4
Section 3.3 Validity and Rights of the Debentures, Senior Notes and Warrants.......5
Section 3.4 Registration and Other Rights..........................................6
Section 3.5 Offering. .............................................................6
Section 3.6 Company Subsidiaries...................................................6
Section 3.7 Authority Relative to this Agreement...................................7
Section 3.8 Consents and Approvals: No Violations.................................8
Section 3.9 Company SEC Reports....................................................9
Section 3.10 Statutory Financial Statements.........................................9
Section 3.11 Absence of Certain Changes.............................................9
Section 3.12 Litigation............................................................10
Section 3.13 Absence of Undisclosed Liabilities....................................10
Section 3.14 No Default............................................................10
Section 3.15 Taxes.................................................................11
Section 3.16 Title to Property.....................................................12
Section 3.17 Compliance with Laws: Certificates of Authority:
Permits and Licenses..................................................12
Section 3.18 Regulatory Filings....................................................13
Section 3.19 Investments...........................................................13
Section 3.20 Reserves..............................................................13
Section 3.21 Brokers...............................................................14
Section 3.22 Employee Benefit Plans: ERISA.......................................14
Section 3.23 Labor and Employee Relations..........................................16
Section 3.24 Environmental Matters.................................................16
Section 3.25 Opinion of Financial Advisor..........................................16
Section 3.26 Contracts.............................................................17
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Section 3.27 Intellectual Property.................................................18
Section 3.28 Voting Requirements: Takeover Statutes/Rights
Plan/Change of Control Provisions.....................................18
Section 3.29 Year 2000 Compliance..................................................19
Section 3.30 Transactions With Affiliates..........................................19
Section 3.31 Improper Payments.....................................................19
Section 3.32 Plan Membership.......................................................19
Section 3.33 Solvency..............................................................20
Section 3.34 Disclosure............................................................20
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.............................................21
Section 4.1 Organization..........................................................21
Section 4.2 Power.................................................................21
Section 4.3 Binding Obligation....................................................21
Section 4.4 Information...........................................................21
Section 4.5 Investment Purposes...................................................21
Section 4.6 Accredited Investor...................................................22
Section 4.7 Legend on Certificates................................................23
Section 4.8 Proxy Statement.......................................................23
ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING.....................................................23
Section 5.1 Conduct of Business by the Company Pending the Closing................23
Section 5.2 Investment Restrictions...............................................26
ARTICLE VI
ADDITIONAL AGREEMENTS.......................................................................26
Section 6.1 Access and Information................................................26
Section 6.2 No Solicitation.......................................................26
Section 6.3 Filings: Other Action................................................28
Section 6.4 Public Announcements..................................................29
Section 6.5 Stock Exchange Listing................................................29
Section 6.6 Comfort Letters.......................................................29
Section 6.7 Additional Matters....................................................29
Section 6.8 Investors Standstill..................................................30
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE CLOSING...................................................30
Section 7.1 Conditions to Each Party's Obligation to Effect the Closing...........30
Section 7.2 Conditions to Obligations of the Company..............................31
Section 7.3 Conditions to Obligations of Investors................................31
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER...........................................................32
Section 8.1 Termination by Mutual Consent.........................................32
Section 8.2 Termination by Either Investors or the Company........................33
Section 8.3 Termination by the Company............................................33
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Section 8.4 Termination by Investors..............................................34
Section 8.5 Effect of Termination and Abandonment.................................34
ARTICLE IX
AFFIRMATIVE COVENANTS OF THE COMPANY........................................................35
Section 9.1 Corporate Existence, Business Maintenance, Insurance..................35
Section 9.2 Payment of Taxes, etc.; ERISA.........................................36
Section 9.3 Books and Records.....................................................36
Section 9.4 Board Committees......................................................36
Section 9.5 Audited Annual Financial Statements...................................37
Section 9.6 Quarterly Reports.....................................................37
Section 9.7 Monthly Unaudited Financial Statements................................37
Section 9.8 Budgets...............................................................37
Section 9.9 Commission and Stock Exchange Filings; Valuation Reports..............38
Section 9.10 Compliance Certificates...............................................38
Section 9.11 Notice of Certain Events..............................................38
Section 9.12 Inspection and Other Information......................................39
Section 9.13 Compliance with Laws..................................................39
Section 9.14 Use of Proceeds.......................................................40
Section 9.15 Other Information.....................................................40
ARTICLE X
NEGATIVE COVENANTS OF THE COMPANY...........................................................40
Section 10.1 Business and Financial Covenants......................................41
Section 10.2 Liens.................................................................43
Section 10.3 Disposition of Stock and Indebtedness of Company Subsidiaries.........44
Section 10.4 Company Subsidiary Dividend Restrictions..............................44
Section 10.5 Acquisition of Securities.............................................44
Section 10.6 Board Committees......................................................44
ARTICLE XI
REGISTRATION, EXCHANGE AND TRANSFER
OF DEBENTURES, SENIOR NOTES AND WARRANTS....................................................45
Section 11.1 Register; Persons Deemed Owners.......................................45
Section 11.2 Issuance of New Notes upon Exchange or Transfer.......................45
Section 11.3 Lost, Stolen, Damaged and Destroyed Notes.............................45
ARTICLE XII EVENTS OF DEFAULT AND REMEDIES..................................................46
Section 12.1 Events or Default.....................................................46
Section 12.2 Acceleration of Maturity..............................................47
Section 12.3 Other Remedies........................................................48
Section 12.4 Conduct to Waiver; Collection Expenses................................48
Section 12.5 Annulment of Acceleration.............................................48
Section 12.6 Remedies Cumulative...................................................49
ARTICLE XIII
INDEMNIFICATION.............................................................................49
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Section 13.1 Indemnification of Investors..........................................49
Section 13.2 Costs and Expenses....................................................50
Section 13.3 Survival..............................................................51
ARTICLE XIV
ARBITRATION.................................................................................51
Section 14.1 Arbitration...........................................................51
Section 14.2 Remedies Cumulative...................................................53
ARTICLE XV
GENERAL PROVISIONS..........................................................................54
Section 15.1 Survival of Representations, Warranties and Agreements................54
Section 15.2 Material Adverse Effect...............................................54
Section 15.3 Notices...............................................................54
Section 15.4 Descriptive Headings..................................................55
Section 15.5 Entire Agreement: Assignment.........................................55
Section 15.6 Governing Law.........................................................55
Section 15.7 Amendment.............................................................56
Section 15.8 Waiver................................................................56
Section 15.9 Exculpation Among Investors...........................................56
Section 15.10 Severability; Validity; Parties in Interest...........................56
Section 15.11 Enforcement of Agreement..............................................56
Section 15.12 Company Disclosure Letter.............................................56
Section 15.13 Counterparts: Effectiveness. .........................................57
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EXHIBITS
Exhibit A: Investors
Exhibit B: Form of Debenture
Exhibit C: Form of Senior Note
Exhibit D: Form of Warrant
Exhibit E: Amendment To Certification of Incorporation
Exhibit F: Certificate of Designation of Preferred Stock
Exhibit G: Registration Rights Agreement (Debenture Conversion Shares)
Exhibit H: Registration Rights Agreement (Warrant Conversion Shares)
Exhibit I: Agreement Among Investors
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TABLE OF DEFINED TERMS
Agreement....................................................................Recitals
Alternate Transaction........................................................Section 8.5
Amendment....................................................................Section 1.4
Closing......................................................................Section 1.2
Closing Date.................................................................Section 1.2
Company......................................................................Recitals
Company Benefit Plan ........................................................Section 3.22
Company Common Stock.........................................................Section 3.2
Company Contracts ...........................................................Section 3.26
Company Disclosure Letter....................................................Article III
Company Insurance Subsidiaries ..............................................Section 3.6
Company Material Adverse Effect..............................................Section 3.1
Company Preferred Stock......................................................Section 3.2
Company SEC Reports..........................................................Section 3.9
Company Meeting..............................................................Section 2.1
Company State Statutory Accounting Principles................................Section 3.10
Company Statutory Financial Statements.......................................Section 3.10
Company Stock Options........................................................Section 3.2
Company Stockholder Approval.................................................Section 3.28
Company Subsidiaries.........................................................Section 3.6
Contracts ...................................................................Section 3.26
Conversion Shares............................................................Section 3.3
Debentures...................................................................Recitals
Dental Practices Notes.......................................................Section 3.6
DGCL.........................................................................Section 3.28
Effective Date...............................................................Recitals
Environmental Laws ..........................................................Section 3.24
ERISA........................................................................Section 3.22
Exchange Act.................................................................Section 2.3
Existing Company Debt........................................................Section 3.14
Expenses.....................................................................Section 8.5
GAAP.........................................................................Section 3.9
Governmental Requirements....................................................Section 3.8
HMO .........................................................................Section 3.17
HSR Act .....................................................................Section 3.8
IRS .........................................................................Section 3.22
Lender Waivers...............................................................Section 3.14
Permitted Encumbrances.......................................................Section 3.16
Permitted Investments........................................................Section 5.2
Proxy Statement..............................................................Section 2.2
Investor.....................................................................Recitals
SEC..........................................................................Section 2.2
Securities Act...............................................................Section 3.4
Senior Notes.................................................................Recitals
Stockholder Agreements.......................................................Recitals
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Superior Proposal............................................................Section 6.2
Takeover Proposal............................................................Section 6.2
Taxes........................................................................Section 3.15
Tax Returns..................................................................Section 3.15
Termination Payment..........................................................Section 8.5
Warrants ....................................................................Recitals
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DEBENTURE AND NOTE PURCHASE AGREEMENT
This Debenture and Note Purchase Agreement (the "Agreement") is made and
entered into this 29th day of June, 1999, (the "Effective Date") by and among
SafeGuard Health Enterprises, Inc., a Delaware corporation (the "Company"), and
CAI Partners and Company II, L.P. a Canadian limited partnership, CAI Capital
Partners and Company II, L.P., a Canadian limited partnership, and ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ (each of such parties being individually referred to herein as an
"Investor" and collectively as the "Investors").
WHEREAS, the Investors desire to purchase from the Company, and the
Company desires to sell to the Investors, 8% Convertible Debentures of the
Company (collectively the "Debentures") in the aggregate principal amount of
$20,000,000 and 8% Senior Notes of the Company (the "Senior Notes") in the
aggregate principal amount of $20,000,000, together with detachable Warrants for
the purchase of 2,500,000 shares of Company Common Stock (hereinafter defined)
(the "Warrants"), all on the terms set forth herein; and
WHEREAS, as a condition of the willingness of the Investors to enter
into this Agreement, certain stockholders of the Company have entered into a
Stockholder Agreement with the Investors (collectively, the "Stockholder
Agreements") that provide, among other things and, on and subject to the terms
and conditions thereof, such stockholders will vote the shares of Company Common
Stock owned by such stockholders in favor of the approval of this Agreement and
the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE DEBENTURES AND SENIOR NOTES
Section 1.1 Purchase and Sale. Subject to the terms and conditions, and
in reliance on the representations and warranties, contained herein, each
Investor, severally and not jointly, hereby subscribes for and agrees to
purchase from the Company, and the Company hereby agrees to issue and sell to
each Investor, on the Closing Date (as hereinafter defined), a Debenture in the
principal amount and a Senior Note in the principal amount set forth opposite
the name of the Investor in Exhibit A attached hereto for the aggregate purchase
price therefor also set forth opposite the name of the Investor in Exhibit A to
be paid in cash at the Closing (as hereinafter defined). The aggregate principal
amount of the Debentures will be $20,000,000 and, subject to adjustment as
specified in Section 1.5, the aggregate principal amount of the Senior Notes
will be $20,000,000. In addition, the Company shall also issue, subject to
adjustment as specified in Section 1.5, detachable Warrants to purchase the
number of shares of Company Common Stock set forth opposite the name of the
Investor in Exhibit A upon the purchase of the Senior Note by such Investor. The
amount of the purchase price allocable to the Warrants is separately set forth
in Exhibit A. Subject to adjustment as specified in Section 1.5, the total
number of shares of Common Stock issuable upon exercise of the Warrants will be
2,500,000 shares.
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Section 1.2 Closing. The Company shall as promptly as practicable notify
the Investors, and the Investors shall as promptly as practicable notify the
Company, when all the conditions to the obligations of the Company and the
Investors, respectively, to effect the purchase and sale of the Debentures, the
Senior Notes and the Warrants set forth in Article VII of this Agreement have
been satisfied. The closing of the purchase and sale of the Debentures, the
Senior Notes and the Warrants (the "Closing") shall take place at the offices of
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m., California time, on the second business
day after the later of such notices has been given (the "Closing Date"), unless
another date or place is mutually approved in writing by the parties hereto.
Section 1.3 Delivery at Closing. At the Closing, the Company shall
deliver to each Investor a Debenture in the form attached hereto as Exhibit B,
if applicable, a certificate evidencing the Preferred Stock issued pursuant to
Section 1.6 below, a Senior Note in the form attached hereto as Exhibit C, and a
Warrant certificate in the form attached hereto as Exhibit D, all of which shall
be properly completed to evidence the Debenture, Preferred Stock, Senior Note
and Warrants that such Investor is purchasing pursuant to this Agreement against
payment of the purchase price therefore by wire transfer of immediately
available funds in the amount of the purchase price to an account designated by
the Company.
Section 1.4 Amendment to Certificate of Incorporation. Prior to the
Closing, the Company shall submit to its stockholders for approval and, upon
approval by the stockholders of the Company, file with the Secretary of State of
the State of Delaware immediately prior to Closing an Amendment to the
Certificate of Incorporation of the Company in the form attached hereto as
Exhibit E (the "Amendment").
Section 1.5 Pre-Closing Adjustment to Senior Notes and Warrants.
(a) In the event that prior to the Closing, the Company shall sell the
notes payable by Pacific Coast Dental, Inc./Associated Dental Services, Inc. or
the assets pledged to secure such notes or the capital stock or assets of such
corporations, then, to the extent that the proceeds from such sale or sales are
actually applied to repay the principal of the Existing Company Debt
(hereinafter defined), exclusive of any regularly scheduled principal
installment payments, then the total aggregate principal amount of the Senior
Notes to be issued and sold pursuant to this Agreement shall be reduced on a
dollar-for-dollar basis in an amount equal to such principal repayment with such
reduction applied in the inverse order of maturity of principal installments in
the same manner as if the Senior Notes were outstanding and applied on a pro
rata basis to the principal amount of the Senior Notes to be purchased by each
Investor pursuant to this Agreement.
(b) In the event that the principal repayment referenced in Section
1.5(a) above, if any, exceeds $8,000,000 then the total number of shares of
Company Common Stock subject to the Warrants shall be reduced by a number of
shares equal to the amount obtained by multiplying 2,500,000 by a fraction, the
numerator of which is the dollar amount of such principal reductions in excess
of $8,000,000 and the denominator of which is $20,000,000; provided, however,
that the amount of such reduction shall be limited to the number of shares
subject to the Warrants at the time when such principal reductions are made.
Such reduction shall be applied on a pro rata basis to Warrants to be purchased
by each Investor pursuant to this Agreement.
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Section 1.6 Issuance of Preferred Stock. In the event that it is
necessary to maintain the listing of the Common Stock of the Company on the
NASDAQ National Market pursuant to NASD Marketplace Rule 4450 at the time of the
Closing, the Investors agreed that, in lieu of purchasing Debentures, the
Investors shall purchase up to a maximum purchase price of $15,000,000 of shares
of Preferred Stock (the "Preferred Stock") of the Company having the rights,
powers and limitations set forth in the Certificate of Designation of 8%
Cumulative Convertible Preferred Stock attached hereto as Exhibit F (the
"Certificate of Designation"). The Preferred Stock shall be sold at a purchase
price of $1,000 per share. The number of shares of Preferred Stock (up to the
maximum amount of the purchase price specified above) that the Investors shall
be required to purchase shall be limited to the minimum number of shares of
Preferred Stock required to be issued in order to satisfy the criteria specified
above necessary to maintain the listing of the Common Stock of the Company on
the NASDAQ National Market. In the event that the Investors are required to
purchase shares of Preferred Stock, the purchase price paid for such Preferred
Stock by the Investors shall reduce on a dollar-for-dollar basis the principal
amount of the Debentures to be issued and sold to the Investors pursuant to this
Agreement. If applicable, the shares of the Preferred Stock shall be sold to and
purchased by the Investors in the same relative proportions as the Debentures.
In the event the Investors are required to purchase shares of Preferred Stock,
the Board of Directors shall approve and authorize the Certificate of
Designation for the Preferred Stock in the form of Exhibit F for the number of
shares of Preferred Stock to be issued to the Investors and cause such
Certificate to be filed with the Secretary of State of the State of Delaware
prior to the closing.
ARTICLE II
SHAREHOLDER APPROVAL
Section 2.1 Shareholder Meeting. In order to consummate the Closing, the
Company, acting through its Board of Directors, shall, in accordance with
applicable law, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Company Meeting"), as soon as practicable, for the purpose of
voting upon the approval of the issuance and sale of the Debentures, Senior
Notes and Warrants, the Amendment and the other transactions contemplated by
this Agreement, including, if applicable, the issuance and sale of the Preferred
Stock. Subject to the provisions of Section 6.2(b), the Company shall include in
the Proxy Statement (as hereinafter defined) the unanimous recommendation of the
Board of Directors of the Company that the stockholders of the Company vote in
favor of the approval of the issuance and sale of the Debentures, Senior Notes
and Warrants, the Amendment and the other transactions contemplated by this
Agreement, including, if applicable, the issuance and sale of the Preferred
Stock.
Section 2.2 Proxy Statement. In connection with the solicitation of
approval of the transactions contemplated by this Agreement by the stockholders
of the Company, the Company shall as promptly as practicable prepare and file
with the Securities and Exchange Commission (the "SEC") a preliminary proxy
statement relating to this Agreement and other matters and use all reasonable
efforts to obtain and furnish the information required to be included by the SEC
in the proxy statement. The Company, after consultation with Investors, shall
respond as promptly as practicable to any comments made by the SEC with respect
to the preliminary proxy statement and shall cause a definitive proxy statement
to be mailed to its stockholders at the earliest practicable date (the "Proxy
Statement"). The Proxy Statement will comply in all material respects with the
provisions of The Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations promulgated thereunder.
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Section 2.3 No False or Misleading Statements. The information provided
and to be provided by each of the Company and the Investors specifically for use
in the Proxy Statement shall not, with respect to the information supplied by
such party, on the date upon which the Proxy Statement is mailed to the
stockholders of the Company or on the date upon which approval of the
transactions contemplated by this Agreement by the stockholders of the Company
is obtained, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Each of the Company and the Investors agrees to correct as
promptly as practicable any such information provided by it that shall have
become false or misleading in any material respect and to take all steps
necessary to file with the SEC and have cleared by the SEC any amendment or
supplement to the Proxy Statement so as to correct the same and to cause the
Proxy Statement as so corrected to be disseminated to the Company's stockholders
to the extent required by applicable law. The Proxy Statement shall comply as to
form in all material respects with the provisions of the Exchange Act and other
applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise disclosed to the Investors in a letter delivered to
the Investors prior to the execution hereof (which letter contains appropriate
references to identify the representations and warranties herein to which the
information in such letter relates) (the "Company Disclosure Letter"), the
Company represents and warrants to the Investors as follows:
Section 3.1 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted or presently proposed to be conducted, except where
the failure to have such governmental approvals would not individually or in the
aggregate have a Company Material Adverse Effect. The Company is duly qualified
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified would not individually or in the aggregate have a
Company Material Adverse Effect. As used in this Agreement, "Company Material
Adverse Effect" shall have the meaning set forth in Section 15.2 of this
Agreement.
Section 3.2 Capitalization. On the Effective Date, (i) the authorized
capital stock of the Company consisted of 30,000,000 shares of Company Common
Stock, $.01 par value per share (the "Company Common Stock") and 1,000,000
shares of Company Preferred Stock, $.01 par value per share (the "Company
Preferred Stock"), (ii) 4,747,498 shares of Company Common Stock and no shares
of Company Preferred Stock were issued and outstanding and (iii) stock options
to acquire 727,300 shares of Company Common Stock were issued and outstanding
under the stock option plans of the Company (the "Company Stock Options"). All
of the issued and outstanding shares of Company Common Stock are validly issued,
fully paid and nonassessable and free of preemptive rights. Since December 31,
1998 to the date hereof, no shares of the Company's capital stock have been
issued, except Company Common Stock issued pursuant to the exercise of stock
options granted under the stock option plans of the Company. The Company has
3,247,788 shares of
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treasury stock. Except as set forth above or as specified in Section 3.2 of the
Company Disclosure Letter, there are no shares of capital stock of the Company
issued or outstanding or any stock options, warrants, subscriptions, calls,
rights, convertible securities or other agreements or commitments obligating the
Company to issue, transfer, sell, redeem, repurchase or otherwise acquire any
shares of its capital stock. Since December 31, 1998, the Company has not
repurchased any shares of Company Common Stock. Upon consummation of the
Closing, the Company shall have 5,000,000 shares of Company Common Stock
reserved for issuance upon conversion of the Debentures (and, if applicable, the
Preferred Stock) and 2,500,000 shares of Company Common Stock reserved for
issuance upon exercise of the Warrants (or such lesser aggregate number of
shares that are subject to the Warrants if reduced pursuant to Section 1.5). If
applicable, on the Closing Date, a number of shares of the authorized preferred
stock shall have been designated as the Preferred Stock to be sold to the
Investors pursuant to their Agreement.
Section 3.3 Validity and Rights of the Debentures, Senior Notes and
Warrants.
(a) The Debentures, when issued to the Investors pursuant to this
Agreement, will be duly authorized and validly issued and will have the terms
and rights set forth in the form of the Debenture attached hereto as Exhibit B.
(b) The Senior Notes, when issued to the Investors pursuant to this
Agreement, will be duly authorized and validly issued and will have the terms
and rights set forth in the form of the Senior Note attached hereto as Exhibit
C.
(c) The Warrants, when issued to the Investors pursuant to this
Agreement will be duly authorized and validly issued and will have the terms and
rights set forth in the form of the Warrant attached hereto as Exhibit D.
(d) The Preferred Stock if and when issued to the Investors pursuant to
this Agreement will be duly authorized and validly issued and will have the
right, preferences and limitations set forth in the form of Certificate of
Designation attached hereto as Exhibit F.
(e) The Debentures, Senior Notes, Warrants, and, if applicable,
Preferred Stock when issued to the Investors pursuant to this Agreement, will be
free and clear of all liens, claims, encumbrances and restrictions of any kind
except solely as provided in this Agreement or in the other agreements expressly
contemplated by this Agreement or imposed by applicable securities laws.
(f) Any and all shares of Company Common Stock issuable upon conversion
of the Debentures (and, if applicable, the Preferred Stock) and upon exercise of
the Warrants (collectively the "Conversion Shares"), when issued, will be
validly issued, fully paid, and nonassessable and will be free and clear of all
liens, claims, encumbrances and restrictions of any kind except solely as
expressly provided in this Agreement or in the other agreements expressly
contemplated by this Agreement or imposed by applicable securities laws.
Section 3.4 Registration and Other Rights. Except as set forth in
Section 3.4 of the Company Disclosure Letter and the Registration Rights
Agreements contemplated by this Agreement, the Company is and will not be under
any obligation to register under the Securities Act
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of 1933 as amended (the "Securities Act") any of its outstanding securities or
any of its securities that may hereafter be issued. Except as expressly
contemplated by this Agreement and the other agreements to be executed and
delivered pursuant to this Agreement, the Company has not granted and is not a
party to any agreement granting preemptive rights or rights of first refusal
with respect to the outstanding capital stock of the Company or any capital
stock of the Company to be issued in the future and the Company is not bound by
any exclusive agency or indemnity agreement applicable to the issuance of shares
of its capital stock.
Section 3.5 Offering. Subject to the accuracy of the representation and
warranties of the Investors in Article IV hereof, the offer, sale and issuance
of the Debentures, Senior Notes, Warrants and, if applicable, Preferred Stock
and the issuance of the Conversion Shares constitute transactions exempt from
the registration requirements of Section 5 of the Securities Act and from the
qualification requirements of any applicable state securities or "blue sky"
laws.
Section 3.6 Company Subsidiaries.
(a) Section 3.6(a) of the Company Disclosure Letter sets forth the name
of each subsidiary of the Company (individually, a "Company Subsidiary" and
collectively, the "Company Subsidiaries") and the state or jurisdiction of its
incorporation. Each Company Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power and authority or
necessary governmental approvals would not individually or in the aggregate have
a Company Material Adverse Effect. Each Company Subsidiary is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing would not individually or in the aggregate have a Company Material
Adverse Effect.
(b) Section 3.6(b) of the Company Disclosure Letter sets forth the name
of each of the Company Subsidiaries that is an insurance company, a health
maintenance organization or prepaid dental plan, a prepaid limited health
service organization or a hospital, medical, dental service or indemnity
corporation (collectively, the "Company Insurance Subsidiaries"). Except as
disclosed in Section 3.6(b) of the Company Disclosure Letter, each of the
Company Insurance Subsidiaries is (i) duly licensed or authorized as an
insurance company, a health maintenance organization or a prepaid dental plan, a
prepaid limited health service organization or a hospital, medical, dental
services or indemnity corporation in its jurisdiction of incorporation and (ii)
duly licensed or authorized as an insurance company, a health maintenance
organization or a prepaid dental plan, a prepaid limited health service
organization or a hospital, medical, dental services or indemnity corporation in
each other jurisdiction where it is required to be so licensed or authorized.
(c) Except as set forth in Section 3.6(c) of the Company Disclosure
Letter, the Company is, directly or indirectly, the record and beneficial owner
of all of the outstanding shares of capital stock of each of the Company
Subsidiaries, there are no proxies with respect to any such shares, and no
equity securities of any Company Subsidiary are or may become required to be
issued by reason of any options, warrants, rights to subscribe to, calls or
commitments of any character whatsoever
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relating to, or securities or rights convertible into or exchangeable or
exercisable for, shares of any capital stock of any Company Subsidiary, and
there are no contracts, commitments, understandings or arrangements by which the
Company or any Company Subsidiary is or may be bound to issue, redeem, purchase
or sell additional shares of capital stock of any Company Subsidiary or
securities convertible into or exchangeable or exercisable for any such shares.
Except as set forth in Section 3.6(c) of the Company Disclosure Letter, all of
such shares so owned by the Company are validly issued, fully paid and
nonassessable and are owned by it free and clear of any encumbrances, restraints
on alienation, or any other restrictions of any kind with respect to the
transferability or assignability thereof (other than restrictions on transfer
imposed by federal or state securities laws).
(d) Except for the Company Subsidiaries or as set forth in Section
3.6(d) of the Company Disclosure Letter, the Company does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity
that directly or indirectly conducts any activity which is material to the
Company.
(e) Section 3.6(e) of the Company Disclosure Letter sets forth certain
promissory notes held by the Company secured by the capital stock or assets of
Pacific Coast Dental, Inc. and Associated Dental Services, Inc. (the "Dental
Practice Notes"). The Company has the right and ability to foreclose its liens
and security interests securing the Dental Practice Notes at any time as a
result of defaults under the Dental Practice Notes and thereby sell the dental
practices operated by such corporations and, to the extent otherwise agreed by
the holders of the Existing Company Debt, retain the proceeds from any such sale
to the extent of the outstanding indebtedness due under the Dental Practice
Notes.
Section 3.7 Authority Relative to this Agreement. The Company has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by the Board of Directors of the
Company, and no other corporate proceedings on the part of the Company, other
than obtaining shareholder approval pursuant to Section 2.1, are necessary to
authorize this Agreement or the transactions contemplated hereby. Subject to the
foregoing, this Agreement has been duly and validly executed and delivered by
the Company and (assuming this Agreement constitutes a valid and binding
obligation of the Investors) constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, subject
to applicable bankruptcy, reorganization, insolvency, moratorium and other laws
affecting creditors' rights generally from time to time in effect and to general
equitable principles.
Section 3.8 Consents and Approvals: No Violations. Except (a) for the
applicable requirements of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvement Act of
1976, as amended (the "HSR Act"), the Securities Act, the Exchange Act, state
laws relating to takeovers, state securities or blue sky laws, state insurance,
health maintenance organization, prepaid dental plans, or third party provider
laws and the regulations promulgated thereunder, certain state and local
regulatory filings relating to insurance companies, health maintenance
organizations, prepaid dental plans or dental practice management and similar
matters (collectively, the "Governmental Requirements") and the filing of the
Amendment, or (b) where the failure to make any filing with, or to obtain any
permit, authorization, consent or approval of, any governmental entity would not
prevent or delay the
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consummation of the transactions contemplated by this Agreement, or otherwise
prevent the Company from performing its obligations under this Agreement, and
would not individually or in the aggregate have a Company Material Adverse
Effect. No filing with, and no permit, authorization, consent or approval of,
any governmental entity is necessary for the execution, delivery and performance
of this Agreement by the Company and the consummation of the transactions
contemplated by this Agreement by the Company. Except as set forth in Section
3.8 of the Company Disclosure Letter, no consent or approval of any other party
(including, but not limited to, any party to any Company Contracts (as defined
below)) is required to be obtained by the Company or any Company Subsidiary for
the execution, delivery or performance of this Agreement or the performance by
the Company of the transactions contemplated hereby. Except as set forth in
Section 3.8 of the Company Disclosure Letter, neither the execution, delivery or
performance of this Agreement by the Company, nor the consummation by the
Company of the transactions contemplated hereby, nor compliance by the Company
with any of the provisions hereof or any other agreement contemplated hereby,
will (i) conflict with or result in any breach of any provisions of the
Certificate of Incorporation or Bylaws of the Company or the Articles or
Certificate of Incorporation, as the case may be, or Bylaws of any of the
Company Subsidiaries, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of' termination, cancellation, vesting, payment, exercise,
acceleration, suspension or revocation) under, any of the terms, conditions or
provisions of any note, bond, mortgage, deed of trust, security interest,
indenture, license, contract, agreement, plan or other instrument or obligation
to which the Company or any of the Company Subsidiaries is a party or by which
any of them or any of their properties or assets may be bound or affected, (iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, any of the Company Subsidiaries or any of their
properties or assets, (iv) result in the creation or imposition of any
encumbrance on any asset of the Company or any Company Subsidiary or (v) cause
the suspension or revocation of any certificate of authority, permit, license,
governmental authorization, consent or approval necessary for the Company or any
of the Company Subsidiaries to conduct its respective business operation as
currently conducted, except for violations, breaches, defaults, terminations,
cancellations, accelerations, vestings, payments, exercises, creations,
impositions, suspensions or revocations which would not individually or in the
aggregate have a Company Material Adverse Effect.
Section 3.9 Company SEC Reports. The Company has filed all required
reports, schedules, forms, statements and other documents with the SEC since
January 1, 1996 (collectively, the "Company SEC Reports"). As of the respective
dates the Company SEC Reports were filed or, if any such Company SEC Reports
were amended, as of the date such amendment was filed, each of the Company SEC
Reports (i) complied in all material respects with all applicable requirements
of the Securities Act and the Exchange Act, and the rules and regulations
promulgated thereunder and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Each of (i) the audited consolidated
financial statements of the Company (including any related notes and schedules)
included (or incorporated by reference) in the Company SEC Reports and (ii) the
unaudited consolidated interim financial statements for the Company (including
any related notes and schedules) included (or incorporated by reference) in the
Company SEC Reports, fairly present, in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial position of the
Company and the Company
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Subsidiaries as of the dates thereof and the consolidated results of their
operations and changes in their financial position for the periods then ended
(subject to normal year-end adjustments in the case of any unaudited interim
financial statements).
Section 3.10 Statutory Financial Statements. The Annual Statements of
each of the Company Insurance Subsidiaries, as filed with the departments of
insurance for all applicable jurisdictions for the years ended December 31,
1996, December 31, 1997 and December 31, 1998 (together with all exhibits and
schedules thereto, the "Company Statutory Financial Statements"), have been
prepared in accordance with the accounting practices prescribed or permitted by
the respective state's department of insurance for purposes of financial
reporting to the respective state insurance regulators (the "Company State
Statutory Accounting Principles"), and such accounting practices have been
applied on a basis consistent for each jurisdiction with Company State Statutory
Accounting Principles throughout the periods involved, except as expressly set
forth in the notes, exhibits or schedules thereto, and the Company Statutory
Financial Statements present fairly in all material respects the financial
position and the results of operations for the Company Insurance Subsidiaries as
of the dates and for the periods therein in accordance with the applicable
Company State Statutory Accounting Principles. Except as set forth in Section
3.10 of the Company Disclosure Letter, the Company has not received any
response, claim, question, notice, show cause order or objections from any
regulatory body relating to any Company Statutory Financial Statements for the
year ended December 31, 1998 whether with respect to the manner in which such
were prepared or the financial condition of the Company or a Company Subsidiary
covered thereby or otherwise. The Company has delivered to the Investors true
and complete copies of the Statutory Financial Statements of the Company.
Section 3.11 Absence of Certain Changes. Except as set forth in Section
3.11 of the Company Disclosure Letter, since December 31, 1998, there has been
no events or conditions which, individually or in the aggregate, has had (or is
reasonably likely to result in) a Company Material Adverse Effect and, except as
set forth in Section 3.11 of the Company Disclosure Letter, the Company and the
Company Subsidiaries have in all material respects conducted their businesses in
the ordinary course consistent with past practices and have not taken any action
which, if taken after the date hereof, would violate Section 5.1 hereof. For the
purposes of this Section 3.11, all events or conditions shall be considered and
shall not be limited to only events or conditions which individually has had or
is reasonably likely to result in a Company Material Adverse Effect.
Section 3.12 Litigation. Except as set forth in Section 3.12 of the
Company Disclosure Letter, there is no suit, action, proceeding or investigation
(whether at law or equity, before or by any federal, state or foreign court,
tribunal, commission, board, agency or instrumentality, or before any
arbitrator) pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of the Company Subsidiaries, which individually or
in the aggregate has had or is reasonably likely to result in a Company Material
Adverse Effect, nor is there any judgment, decree, injunction, rule or order of
any court, governmental department, commission, agency, instrumentality or
arbitrator outstanding against the Company or any of the Company Subsidiaries,
which individually or in the aggregate has had or is reasonably likely to result
in a Company Material Adverse Effect.
Section 3.13 Absence of Undisclosed Liabilities. Except for liabilities
or obligations which are accrued or reserved against in the audited consolidated
financial statements (or reflected in the
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notes thereto) included in the Annual Report on Form 10-K of the Company for the
year ended December 31, 1998 or except as disclosed in Section 3.13 of the
Company Disclosure Letter or except as were incurred after December 31, 1998 in
the ordinary course of business and consistent with past practices or in
connection with the transactions contemplated by this Agreement, the Company and
the Company Subsidiaries do not have any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of a nature required by GAAP to be
reflected in a consolidated balance sheet (or reflected in the notes thereto) of
the Company, which individually or in the aggregate has had or is reasonably
likely to result in a Company Material Adverse Effect.
Section 3.14 No Default.
(a) Except as set forth in Section 3.14 of the Company Disclosure
Letter, neither the Company nor any of the Company Subsidiaries is in violation
or breach of, or default under (and no event has occurred which with notice or
the lapse of time or both would constitute a violation or breach of, or a
default under) any term, condition or provision of (a) its Articles or
Certificate of Incorporation, as the case may be, or Bylaws, (b) any note, bond,
mortgage, deed of trust, security interest, indenture, license, agreement, plan,
contract, lease, commitment or other instrument or obligation to which the
Company or any of the Company Subsidiaries is a party or by which they or any of
their properties or assets may be bound or affected, (c) any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or any
of the Company Subsidiaries or any of their properties or assets, or (d) any
permit, license, governmental authorization, consent or approval necessary for
the Company or any of the Company Subsidiaries to conduct their respective
businesses as currently conducted, except, in the case of clauses (b), (c) and
(d) above, for breaches, defaults or violations which would not individually or
in the aggregate have a Company Material Adverse Effect.
(b) The Company has delivered to the Investors copies of waivers and
agreements (collectively, the "Lender Waivers") executed and delivered by
Silicon Valley Bank and ▇▇▇▇ ▇▇▇▇▇▇▇ Life Insurance Company relating to certain
matters pertaining to the existing indebtedness for borrowed money owed by the
Company to such lenders (the "Existing Company Debt") including, without
limitation, the right of the Company to purchase or repay the Existing Company
Debt in full, without premium, penalty or default interest, with the proceeds
from the issuance and sale of the Debentures, Senior Notes and Warrants pursuant
to this Agreement.
Section 3.15 Taxes. Except as set forth in the Annual Report on Form
10-K of the Company for the year ended December 31, 1998 or in Section 3.15 of
the Company Disclosure Letter:
(a) the Company and the Company Subsidiaries have (i) duly filed (or
there has been filed on their behalf) with the appropriate governmental
authorities all Tax Returns required to be filed by them on or prior to the date
hereof, and (ii) duly paid in full or made provision in accordance with GAAP (or
there has been paid or provision has been made on their behalf) for the payment
of all Taxes for all periods or portions thereof ending through the date hereof;
(b) no federal, state, local or foreign audits or other administrative
proceedings or court proceedings are presently pending with regard to any Taxes
or Tax Returns of the Company or any Company Subsidiary;
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(c) none of the federal income Tax Returns of the Company and each
Company Subsidiary has been examined by the Internal Revenue Service for any
period. Neither the Company nor any of the Company Subsidiaries has granted any
requests, agreements, consent or waivers to extend the statutory period of
limitations applicable to the assessment of any Taxes with respect to any Tax
Returns of the Company or any of the Company Subsidiaries;
(d) neither the Company nor any Company Subsidiary is a party to any tax
sharing, tax indemnity (including, without limitation, any tax indemnification
provision of any acquisition or disposition agreement) or other agreement or
arrangement with respect to Taxes;
(e) none of Company or any of the Company Subsidiaries has been a member
of any affiliated group within the meaning of Section 1504(a) of the Code, or
any similar affiliated or consolidated group for tax purposes under state, local
or foreign law (other than a group the common parent of which is the Company),
or has any liability for the Taxes of any person (other than Company and the
Company Subsidiaries) under Treasury Regulations Section 1.1502-6 or any similar
provision of state, local or foreign law as a transferee or successor, by
contract or otherwise;
(f) neither Company nor any of the Company Subsidiaries has made any
change in accounting methods, received a ruling from any taxing authority or
signed an agreement with any taxing authority;
(g) the Company and each of the Company Subsidiaries have complied in
all respects with all applicable laws, rules and regulations relating to the
payment and withholding of Taxes and have, within the time and the manner
prescribed by law, withheld wages and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over under
applicable laws;
(h) neither Company nor any of the Company Subsidiaries has, with regard
to any assets or property held, acquired or to be acquired by any of them, filed
a consent to the application of Section 341(f) of the Code, or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by Company or
any of the Company Subsidiaries.
(i) "Taxes" shall mean all income, gross income, gross receipts,
premium, sales, use, transfer, franchise, profits, withholding, payroll,
employment, excise, property and windfall profits taxes, and all other taxes or
similar governmental charges, together with any interest and any penalties,
additions to tax or additional amounts applicable thereto, "Tax Returns" shall
mean all federal, state, local and foreign tax returns, declarations,
statements, reports, schedules, forms and information returns and any amendments
to any of the foregoing relating to Taxes.
Section 3.16 Title to Property.
(a) Except as set forth in Section 3.16(a) of the Company Disclosure
Letter, each of the Company and the Company Subsidiaries (i) has good and valid
title to all of its properties, assets and other rights that do not constitute
real property, free and clear of all encumbrances other than Permitted
Encumbrances, and (ii) owns, has valid leasehold interests in or valid
contractual rights to use, all of the assets, tangible and intangible, used by,
or necessary for the conduct of, its business, except where the failure to have
such valid leasehold interests or such valid contractual rights do not,
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individually or in the aggregate, have a Company Material Adverse Effect. As
used in this Section "Permitted Encumbrances" shall mean liens and encumbrances
permitted under Section 10.2 of this Agreement.
(b) Section 3.16(b) of the Company Disclosure Letter sets forth a list
of all real property owned by the Company or a Company Subsidiary. Section
3.16(b) of the Company Disclosure Letter sets forth a list, which is accurate
and complete, of each lease under which the Company or any of the Company
Subsidiaries is a tenant, and the Company has made a true and complete copy of
each such lease available to the Investors. The Company and each Company
Subsidiary is in peaceful and undisturbed possession of the space and/or estate
under each lease under which it is a tenant, and there are no material defaults
by it as tenant thereunder.
Section 3.17 Compliance with Laws: Certificates of Authority: Permits
and Licenses.
(a) The business of the Company and each of the Company Subsidiaries is
being conducted in compliance in all material respects with all applicable laws,
including, without limitation, all insurance, health maintenance organization
("HMO") and prepaid dental plan codes, laws, ordinances, rules, regulations,
decrees and orders of any governmental entity, and any other codes, laws,
ordinances, rules, regulations, decrees and orders of any governmental entity
relating to the offer and sale of dental care products, plans or services
(including the practice of dentistry), the recruitment of dentists or dental
offices in connection with the offer and sale of such products, plans or
services, the marketing of any such products, plans or services to potential
customers, patients or subscribers thereto, or any partnership, joint venture,
cooperative arrangement or business relationship with any other party relating
to the foregoing, and all material notices, reports, documents and other
information required to be filed thereunder within the last three years were
properly filed in all material respects and were in compliance in all material
respects with such laws.
(b) The Company, and each of the Company Subsidiaries, has all
certificates of authority, permits and licenses, including, without limitation,
insurance, HMO and dental care and practice licenses, the use and exercise of
which are necessary for the conduct of its business as now conducted, other than
such certificates of authority, permits and licenses, including without
limitation, insurance, HMO and dental care and practice licenses, the absence of
which would not, individually or in the aggregate, be reasonably expected to
have a Company Material Adverse Effect. The business of the Company and each of
the Company Subsidiaries has been and is being conducted in compliance, in all
material respects, with all such certificates of authority, permits and
licenses, including, without limitation, insurance, HMO and dental care and
practice licenses. To the knowledge of the Company, all such certificates of
authority, permits and licenses, including, without limitation, insurance, HMO
and dental care and practice licenses, are in full force and effect, and there
is no proceeding or investigation pending or threatened which would reasonably
be expected to lead to the revocation, amendment, failure to renew, limitation,
suspension or restriction of any such permit or insurance license. Section
3.17(b) of the Company Disclosure Letter sets forth a list and description of
each such certificate of authority, permit or license.
(c) Except as set forth in Section 3.17(c) of the Company Disclosure
Letter, the Company has no agreements or understandings and is not a party to
any consent order with or issued by any regulatory agency.
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Section 3.18 Regulatory Filings. The Company has made available for
inspection by Investor complete copies of all material registrations, filings
and submissions made since January 1, 1996 by the Company or any of the Company
Subsidiaries with any governmental entity and any reports of examinations issued
since January 1, 1996 by any such governmental entity that relate to the Company
or any of the Company Subsidiaries. The Company and the Company Subsidiaries
have filed all reports, statements, documents, registrations, filings or
submissions required to be filed by any of them with any governmental entity,
and, to the knowledge of the Company, all such reports, statements, documents,
registrations, filings or submissions were in all material respects true,
complete and accurate when filed.
Section 3.19 Investments. Except as set forth in Section 3.19 of the
Company Disclosure Letter, all of the securities and other investments of the
Company and the Company Subsidiaries are invested in (a) corporate bonds rated
no lower than Aa3 by Moody's or AA- by S&P, (b) commercial paper rated no lower
than P-1 by Moody's or A-1 by S&P, (c) U.S. government bonds or (d) money market
funds rated no lower than Aa by Moody's or AAm by S&P issued by U.S. commercial
banks having net assets of at least $5 billion.
Section 3.20 Reserves. The aggregate reserves of the Company Insurance
Subsidiaries as recorded in the Company Statutory Financial Statements and the
reserves or similar obligations of the Company and the Company's non-insurance
subsidiaries have been determined in accordance with generally accepted
actuarial principles consistently applied (except as set forth therein). The
aggregate reserves of the Company Insurance Subsidiaries as recorded in the
Company Statutory Financial Statements for the year ended December 31, 1998 and
the reserves and similar obligations of the Company and its Subsidiaries as
recorded in the audited consolidated financial statements of the Company for the
year ended December 31, 1998 included in its Annual Report on Form 10-K with
respect to the year ended December 31, 1998 were and such reserves as maintained
since December 31, 1998 are, adequate and sufficient to satisfy all potential
liability, incurred claims and comparable matters intended or required to be
covered by such reserves. Except as disclosed in Section 3.20 of the Company
Disclosure Letter, the insurance reserving practices and polices of the Company
and the Company Subsidiaries have not changed, in any material respect, since
January 1, 1996 and the results of the application of such practices and
policies are reflected in the Company Statutory Financial Statements and the
other financial statements of the Company and the Company Subsidiaries. All
reserves of the Company Insurance Subsidiaries set forth in the Company
Statutory Financial Statements are, to the best knowledge of the Company, fairly
stated in accordance with sound actuarial principles and meet the requirements
of the insurance laws of the applicable insurance authority. All other reserves
of similar obligations of the Company and the Company's non-insurance
subsidiaries meet the requirements of all applicable laws.
Section 3.21 Brokers. Except as set forth in Section 3.21 of the Company
Disclosure Letter, no person is entitled to any brokerage, financial advisory,
finder's or similar fee or commission payable by the Company in connection with
the transactions contemplated by this Agreement based upon arrangements made by
and on behalf of the Company. Any such brokerage, financial advisory, finder's
or similar fees or commissions are reasonable in relation to the services
actually performed by such person.
Section 3.22 Employee Benefit Plans: ERISA.
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(a) Section 3.22(a) of the Company Disclosure Letter sets forth a
complete and accurate list of: (i) all severance, employment, consulting, change
of control, retention and all other similar agreements currently in effect or
under which there are any outstanding obligations to be performed between the
Company or any Company Subsidiary and any current or former employee, agent,
independent contractor, officer or director, (ii) all severance programs,
policies and practices of the Company and each of the Company Subsidiaries,
(iii) all plans or arrangements of the Company and each of the Company
Subsidiaries relating to its respective current or former employees, agents,
independent contractors, officers or directors that contain change in control
provisions, including in all cases any and all amendments thereto, and (iv) all
material Company Benefit Plans. For purposes of this Agreement, "Company Benefit
Plan" shall mean any bonus, pension, post-retirement benefit, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, equity-based award, retirement, vacation, severance
or termination pay, disability, death benefit, hospitalization or other medical,
dental, accident, disability, life or other insurance, supplemental unemployment
benefits, fringe and other welfare benefit plan, program, policy, agreement or
arrangement, whether written or unwritten, and each other employee benefit plan,
program, agreement, arrangement or understanding providing benefits to any
current or former employee, agent, independent contractor, officer or director
of the Company or any of the Company Subsidiaries.
(b) With respect to each Company Benefit Plan, to the extent applicable,
the Company and the Company Subsidiaries have heretofore made available or have
caused to be made available to the Investors true and complete copies of the
following documents: (i) a copy of each written Company Benefit Plan and a
summary of the essential terms of each unwritten Company Benefit Plan, (ii) a
copy of the most recent annual report on Form 5500 and actuarial report, if
required under the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), (iii) a copy of the most recent Summary Plan Description required
under ERISA with respect thereto, (iv) if the Company Benefit Plan is funded
through a trust or any third party funding vehicle, a copy of the trust or other
funding agreement and the latest financial statements thereof, and (v) the most
recent determination letter received from the Internal Revenue Service (the
"IRS") with respect to each Company Benefit Plan intended to qualify under
Section 401 of the Code.
(c) Except as set forth in Section 3.22(c) of the Company Disclosure
Letter, (i) with respect to the Company Benefit Plans, no event has occurred and
there exists no condition or set of circumstances in connection with which the
Company or any of the Company Subsidiaries could be subject to any liability
under ERISA, the Code or any other applicable law that, individually or in the
aggregate, would result in a Company Material Adverse Effect, (ii) each Company
Benefit Plan has been administered substantially in accordance with its terms,
and all the Company Benefit Plans have been operated and are in material
compliance with the applicable provisions of ERISA, the Code and all other
applicable laws and the terms of all applicable collective bargaining
agreements, (iii) with respect to each plan treated as a qualified plan, the IRS
has issued a favorable determination letter with respect to the qualification of
each such Company Benefit Plan and its related trust, if any, and the IRS has
not taken any action to revoke any such letter, and (iv) there are no pending
or, to the knowledge of the Company, threatened or anticipated actions suits,
claims, assessments, complaints, proceedings or investigations of any kind in
any court or governmental agency with respect to any Company Benefit Plan (other
than routine claims for benefits).
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(d) Except as set forth in Section 3.22(d) of the Company Disclosure
Letter, (i) no Company Benefit Plan provides for medical benefits (whether or
not insured) to be made available with respect to current or former employees,
agents, officers, directors or independent contractors (or any dependent of any
of them) after retirement or other termination of service (other than (x)
coverage mandated by applicable law or (y) benefits the full cost of which is
borne by the current or former employee, agent, officer, director or independent
contractor) and (ii) and the consummation of the transactions contemplated by
this Agreement will not (x) entitle any current or former employee, agent,
independent contractor, director or officer of the Company or any of the Company
Subsidiaries or any ERISA Affiliate to severance pay, unemployment compensation,
golden parachute payment, or any other payment, (y) accelerate the time of
payment or vesting, or increase the amount of compensation due any such
employee, agent, independent contractor, director or officer, or (z) constitute
a "change in control" under any Company Benefit Plan.
(e) Section 3.22(e) of the Company Disclosure Letter sets forth a
complete and accurate list of all stock option plans of the Company and all
Company Stock Options outstanding as of the Effective Date and the exercise
prices thereof.
Section 3.23 Labor and Employee Relations. Except as disclosed in
Section 3.23 of the Company Disclosure Letter, none of the employees of the
Company or the Company Subsidiaries are represented by any labor organization
and, to the knowledge of the Company, no union claims to represent such
employees have been made. Neither the Company nor any of the Company
Subsidiaries is a party to any collective bargaining or other labor union
contract applicable to persons employed by the Company or any of the Company
Subsidiaries, and no collective bargaining agreement is being negotiated by the
Company or Company Subsidiaries. There is no labor dispute, strike or work
stoppage against the Company or Company Subsidiaries pending, or to the
knowledge of the Company, threatened that may interfere with the respective
business activities of the Company or any of the Company Subsidiaries. To the
knowledge of the Company, the Company and Company Subsidiaries are not, and have
not been, engaged in any unfair labor practices as defined in the National Labor
Relations Act or similar applicable law, ordinance or regulation, nor is there
pending any unfair labor practice charge.
Section 3.24 Environmental Matters.
(a) Except as disclosed in Section 3.24 of the Company Disclosure
Letter, to the knowledge of the Company, (i) each of the Company and the Company
Subsidiaries is and has been in compliance in all material respects with and,
has no existing liabilities under, and (ii) neither the Company nor any of the
Company Subsidiaries has received any written claims or notices from any person
that the Company or any of the Company Subsidiaries has not been in compliance
in all material respects with, or has any existing liabilities under, applicable
laws, rules, regulations, common law, ordinances, decrees, orders and other
binding legal requirements relating to pollution, the preservation of the
environment, hazardous substance and waste handling, storage or disposal, or
exposure of persons to materials in the environment or the work place (together
"Environmental Laws") with respect to property owned or operated by the Company
or any of the Company Subsidiaries, except for such non-compliance or
liabilities that would not be reasonably likely to have a Company Material
Adverse Effect. Except as disclosed in Section 3.24 of the Company Disclosure
Letter, neither the Company nor any of the Company Subsidiaries is subject to
any decrees, orders, decisions of arbitrators or judgments that impose
requirements under Environmental
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Laws, restrictions under Environmental Laws, liabilities under Environmental
Laws, or penalties for violations of Environmental Laws or the aforementioned
requirements or restrictions.
(b) Except as disclosed in Section 3.24 of the Company Disclosure
Letter, to the knowledge of the Company, there are no past or present actions,
conditions or occurrences that could form the basis of any claim under
Environmental Laws against, or liability under such laws of, the Company or any
of the Company Subsidiaries with respect to currently owned property and all
property formerly owned, leased or operated by the Company or any of the Company
Subsidiaries.
Section 3.25 Opinion of Financial Advisor. The Board of Directors of the
Company has received an opinion from Cruttenden ▇▇▇▇ dated as of the Effective
Date to the effect that the consideration to be received by the Company pursuant
to this Agreement is fair to the Company and its stockholders from a financial
point of view, and the Company has received the permission of Cruttenden ▇▇▇▇ to
include such opinion in its entirety as an exhibit in the Proxy Statement.
Section 3.26 Contracts.
(a) Section 3.26 of the Company Disclosure Letter sets forth a list of
contracts, arrangements or understandings (written or oral) ("Contracts") to
which the Company or any of the Company Subsidiaries is a party or by which it
or any of them is bound which:
(i) contain covenants limiting the freedom of the Company or any
of the Company Subsidiaries to engage in any line of business in any
geographic area or to compete with any person or entity or restricting
the ability of the Company Subsidiaries to acquire equity securities of
any person or entity;
(ii) are employment, consulting or severance contracts applicable
to any employee, consultant or shareholder of the Company or the Company
Subsidiaries, including without limitation contracts to employ executive
officers and other contracts with officers or directors of the Company
or any of the Company Subsidiaries, other than any such contract which
by its terms is terminable by the Company or any of the Company
Subsidiaries on not more than 60 days' notice without liability;
(iii) is a management, marketing (including marketing contracts
with HMO's), administrative services, data processing, software
licensing or third party administration contract; or
(iv) are other contracts (excluding dental provider contracts)
which were made in the ordinary course of business and either involve an
obligation on the part of the Company or a Company Subsidiary of more
than $100,000 per annum or could result, upon the breach thereof, in
damages or losses of more than $100,000 other than consequential damages
or damages resulting from liabilities sounding in tort (the Contracts in
clauses (i)-(iv), together with the Contracts filed as exhibits to the
Company SEC Reports, collectively, the "Company Contracts"). All
contracts entered into by the Company or any Company Subsidiary in
connection with an acquisition of another entity or block of business by
the Company or any of the Company Subsidiaries have been filed as
exhibits to the Company SEC Reports.
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(b) With respect to each of the Company Contracts, to the knowledge of
the Company, except as disclosed in Section 3.26 of the Company Disclosure
Letter: (i) such contract is (assuming due power and authority of, and due
execution and delivery by, the other party or parties thereto) valid and binding
upon each party thereto and is in full force and effect; (ii) there is no
material default or claim of material default thereunder and no event has
occurred which, with the passage of time or the giving of notice (or both),
would constitute a material default thereunder, or would permit material
modification, acceleration or termination thereof; and (iii) the consummation of
the transactions contemplated by this Agreement will not give rise to a right of
the other party or parties thereto to terminate such contract or impose
liability under the terms thereof on the Company or any of the Company
Subsidiaries.
(c) The Company has delivered to Investors a true, complete and accurate
list of all agreements or arrangements between the Company or any Company
Subsidiary and any dentist, dental practice or dental association or dental
company under which the Company or any Company Subsidiary makes or is or will be
required to make payments to any such person other than usual and customary
provider agreements made in the ordinary course of business in terms consistent
with other providers of the Company.
(d) The Company has delivered to the Investors a true, complete and
accurate copy of the Contract relating to the sale of the headquarters building
by the Company, as amended.
Section 3.27 Intellectual Property. The Company and/or each of the
Company Subsidiaries owns, or is licensed or otherwise possesses legally
enforceable rights to use all patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, technology, know-how, computer
software programs or applications, and tangible or intangible proprietary
information or materials that are used in the business of the Company and the
Company Subsidiaries as currently conducted and to the knowledge of the Company
all material patents, trademarks, trade names, service marks and copyrights held
by the Company and/or its Subsidiaries are valid and subsisting. The Company
does not know of any grounds for any claim against the use by the Company or any
of the Company Subsidiaries, of any trademarks, trade names, trade secrets,
copyrights, patents, technology, know-how or computer software programs and
applications used in, and material to, the business of the Company or any of the
Company Subsidiaries as currently conducted or as proposed to be conducted.
Section 3.28 Voting Requirements: Takeover Statutes/Rights Plan/Change
of Control Provisions.
(a) The affirmative vote of the holders of a majority of the voting
power of all outstanding shares of the Company Common Stock, voting as a single
class, at the Company Stockholders Meeting (the "Company Stockholder Approval")
is the only vote of the holders of any class or series of the Company's capital
stock necessary to approve this Agreement and the transactions contemplated by
this Agreement.
(b) The Board of Directors of the Company has duly approved the terms of
this Agreement and the Stockholder Agreements and the consummation of the
transactions contemplated by this Agreement and the Stockholder Agreements, and
such approval is sufficient to render inapplicable to the transactions
contemplated by this Agreement and the Stockholder Agreements
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the provisions of Section 203 of the Delaware General Corporation Law ("DGCL").
To the best of the Company's knowledge, no other state takeover statute or
similar statute or regulation applies or purports to apply to this Agreement,
the Stockholder Agreements or any of the transactions contemplated by this
Agreement or the Stockholder Agreements and, subject to the filing of the
Amendment after stockholder approval, no provision of the Certificate of
Incorporation, Bylaws or other governing instruments of the Company or any of
the Company Subsidiaries would, directly or indirectly, restrict or impair the
ability of the Investors to vote, or otherwise to exercise the rights of a
stockholder with respect to, shares of Company Common Stock or the voting rights
of the Investors contained in the Debentures.
(c) The Board of Directors of the Company has taken all action and
adopted all approvals necessary in order that the consummation of the
transactions contemplated by this Agreement and the other agreements expressly
contemplated by this Agreement, including, without limitation, the issuance of
the Conversion Shares, do not and shall not cause the rights issued to the
stockholders of the Company pursuant to that certain Rights Agreement, dated as
of March 22, 1996, between the Company and American Stock Transfer and Trust
Company, as Rights Agent to become exercisable or any similar rights agreement
that is applicable to the stockholders of the Company.
(d) Except as described in Section 3.28 of the Company Disclosure
Letter, the consummation of the transactions contemplated by this Agreement and
the other documents expressly contemplated by this Agreement, including, without
limitation, the issuance of the Conversion Shares do not and shall not cause the
implementation of any "change of control" provisions in any employment
agreement, stock options or other contracts or benefit plans of the Company such
that there occurs any acceleration of any exerciseability or vesting provisions
or any rights to terminate or receive severance payments or any other rights
that will come into effect or thereby result as a result of the consummation of
the transactions contemplated by this Agreement or the effects of any such
change of control provisions have been waived, released or amended or modified
in a manner satisfactory to the Investors.
Section 3.29 Year 2000 Compliance. Except as set forth in Section 3.29
of the Company Disclosure Letter, all of the computer software utilized by the
Company in its business operations will correctly recognize and correctly
process data and formulas relating to the year 2000 and beyond and provide all
such date-related data and formulas used by other applications in a format that
will permit the correct recognition and processing of such data by the other
applications, except as such which could not be reasonably likely to result in a
Company Material Adverse Effect.
Section 3.30 Transactions With Affiliates. Except as set forth in
Section 3.30 of the Company Disclosure Letter, there are no loans, leases,
agreements, contracts or other transactions between the Company and any present
or former stockholder, director or officer of the Company, or any member of such
stockholder's, director's or officer's immediate family. To the knowledge of the
Company, no 5% stockholder, director or executive officer of the Company nor any
of their respective spouses or family members owns directly or indirectly on an
individual or joint basis, any material interest in, or serves as an officer or
director of, or in any similar capacity for, any competitor, customer, provider
or supplier of the Company or any organization which has a material contract or
arrangement with the Company.
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Section 3.31 Improper Payments. Neither the Company nor any stockholder,
director, officer, employee or agent of the Company has made any improper
bribes, kickbacks or other payments on behalf of the Company to, or received any
such payments from, customers, vendors, suppliers or other persons contracting
with the Company and has not proposed or offered to make or receive any such
payments.
Section 3.32 Plan Membership. Section 3.32 of the Company Disclosure
Letter sets forth a detailed schedule showing the number of subscribers in each
dental and vision plan of the Company and the Companies Subsidiaries as well as
total covered lives under all such plans of the Company and the Company
Subsidiaries as of the Effective Date.
Section 3.33 Solvency. The Company is not entering into any of the
transactions contemplated hereby, nor does the Company intend to make any
transfer or incur any obligations hereunder, with actual intent to hinder, delay
or defraud either present or future creditors. On the Closing Date, after giving
effect to the consummation of the transactions contemplated hereby and the use
of the proceeds of the issuance and sale of the Debentures, Senior Notes and
Warrants for the purposes described herein, (i) the Company expects the cash
available to the Company and the Company Subsidiaries on a consolidated basis,
after taking into account all other anticipated uses of the case of the Company,
will be sufficient to satisfy all final judgments for money damages which have
been docketed against the Company and the Company Subsidiaries or which may be
rendered against the Company and the Company Subsidiaries in any action in which
the Company is a defendant (taking into account the reasonably anticipated
maximum amount of any such judgment and the earliest time at which such judgment
might be entered); (ii) the Company and the Company Subsidiaries on a
consolidated basis will not have incurred or intended to incur, or believed that
they will have incurred, debts beyond their ability to pay such debts as such
debts mature (taking into account the timing and amounts of cash to be received
by the Company from any source, and of amounts to be payable on or in respect of
debts of the Company and the Company Subsidiaries); and (iii) the Company and
the Company Subsidiaries on a consolidated basis will have sufficient capital
with which to conduct their present and proposed businesses and the property of
the Company and the Company Subsidiaries does not constitute unreasonably small
capital with which to conduct their present or proposed businesses. For purposes
of this Section "debt" means any liability on a claim, and "claim" means (1) any
right to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed (other than those
being disputed in good faith), undisputed, legal, equitable, secured or
unsecured, or (2) any right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment, whether or not such right to an
equitable remedy is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured.
Section 3.34 Disclosure. No representation or warranty by the Company or
the Company Subsidiaries in this Agreement, including the Company Disclosure
Letter, and no statement contained in the Company SEC Reports and the Company
Statutory Financial Statements contains or will contain any untrue statement of
a material fact or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was made, to make the statements
herein or therein not misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor, severally and not jointly, hereby represents and warrants
to the Company as follows:
Section 4.1 Organization. If the Investor is not an individual, the
Investor is duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or formation. The execution and
delivery of this Agreement and the performance of the transactions contemplated
by this Agreement and all other instruments, agreements, certificates and
documents contemplated hereby to which the Investor is or will be a party do not
and will not violate or conflict with the corporate, partnership, limited
liability company, trust agreement or other organizational or governing
documents of the Investor.
Section 4.2 Power.
(a) The Investor has the requisite power to execute and deliver this
Agreement and the agreements contemplated hereby and to perform its obligations
thereunder,
(b) The execution and delivery by the Investor of this Agreement and the
agreements contemplated hereby, the performance by the Investor of the
transactions contemplated thereby and the purchase of and payment for the
Debentures, the Preferred Stock (if applicable), the Senior Notes and the
Warrants have been duly authorized by all necessary action on the part of the
Investor.
Section 4.3 Binding Obligation. This Agreement has been duly executed
and delivered by the Investor, and constitutes a valid and binding agreement of
the Investor, enforceable against the Purchaser in accordance with its terms
except as enforceability may be limited by (a) bankruptcy, insolvency,
rearrangement, reorganization, fraudulent conveyance, fraudulent transfer,
moratorium, liquidation, conservatorship and other laws applicable to creditor's
rights or the collection of debtor's obligations generally and (b) general
principles of equity.
Section 4.4 Information. The Investor has been given access to all
information concerning the condition, properties, operations and prospects of
the Company, that the Investor has reasonably requested. The Investor has had an
opportunity to ask questions of, and to receive information from the Company and
persons acting on its behalf concerning the terms and conditions of each
Investor's investment in the Debentures, the Preferred Stock (if applicable),
the Senior Notes and the Warrants. The Investor's knowledge and experience in
financial matters is such that it is capable of evaluating the merits and risks
of its investment in the Debentures, the Preferred Stock (if applicable), the
Senior Notes and the Warrants.
Section 4.5 Investment Purposes.
(a) The Investor is acquiring the Debentures, the Preferred Stock (if
applicable), the Senior Notes and the Warrants solely for its account for
investment and not with a view to, or for resale in connection with, the
distribution thereof, except for any distribution thereof effected in compliance
with the Securities Act.
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(b) The Investor understands: (i) that the purchase of the Debentures,
the Preferred Stock (if applicable), the Senior Notes and the Warrants is a
speculative investment which involves a high degree of risk of loss of the
Investor's investment therein; (ii) that there are restrictions on the
transferability of the Debentures, the Preferred Stock (if applicable), the
Senior Notes and the Warrants (and the Conversion Shares) under the terms of
this Agreement and the other agreements contemplated by this Agreement; and
(iii) that there are restrictions on transfer of all such securities under the
applicable provisions of the Securities Act and the rules and regulations of the
Securities and Exchange Commission (the "SEC") promulgated thereunder and
applicable state securities or "blue sky" laws, and that, at the Closing, and
for an indeterminate period following the Closing, there will be no public
market for the Debentures, the Preferred Stock (if applicable), the Senior
Notes, the Warrants or the Conversion Shares and, accordingly, that it may not
be possible to readily liquidate an investment in the Company, if at all.
(c) The Investor has been advised and understands that, (i) the offer
and sale of the Debentures, the Preferred Stock (if applicable), the Senior
Notes, the Warrants and the Conversion Shares have not been registered under the
Securities Act; (ii) the Debentures, the Preferred Stock (if applicable), the
Senior Notes, the Warrants and the Conversion Shares must be held indefinitely
and each Investor must continue to bear the economic risk of the investment in
the Debentures, the Preferred Stock (if applicable), the Senior Notes, the
Warrants and the Conversion Shares unless the offer or sale of the Debentures,
the Preferred Stock (if applicable), the Senior Notes, the Warrants or the
Conversion Shares is subsequently registered under the Securities Act or an
exemption from such registration is available; (iii) there is not currently any
public market for the Debentures, the Preferred Stock (if applicable), the
Senior Notes, the Warrants or the Conversion Shares; (iv) when and if the
Debentures, the Preferred Stock (if applicable), the Senior Notes, the Warrants
or Conversion Shares may be disposed of without registration in reliance on Rule
144, such disposition can be made only in accordance with the terms and
conditions of such Rule, (v) restrictive legends shall be placed on the
certificates representing the Debentures, the Preferred Stock (if applicable),
the Senior Notes, the Warrants and the Conversion Shares and (vi) a notation
shall be made in the appropriate records of the Company indicating that the
Debentures, the Preferred Stock (if applicable), the Senior Notes, the Warrants
and the Conversion Shares are subject to restrictions on transfer and
appropriate stop transfer instructions will be issued to the transfer agent of
the Company with respect to the Debentures, the Preferred Stock (if applicable),
the Senior Notes, the Warrants and the Conversion Shares.
(d) The Investor is aware that, except as expressly provided in the
Registration Rights Agreements contemplated by this Agreement, there exists no
right to require registration of the Conversion Shares and the Investors must
bear the economic risk of the investment in the Conversion Shares.
Section 4.6 Accredited Investor. The Investor is an "accredited
investor" as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act of 1933, as amended.
Section 4.7 Legend on Certificates. Each Investor has been advised by
the Company that the certificates representing the Debentures, the Preferred
Stock (if applicable), the Senior Notes, the Warrants and the Conversion Shares
will bear an appropriate legend to the effect that the securities and the
underlying Conversion Shares represented by such certificates have not been
registered under the Securities Act, and may not be transferred in the absence
of an effective
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registration statement under the Securities Act or an exemption from such
registration under said Act, and will also bear such additional legends as may
be specified in the other agreements contemplated by this Agreement.
Section 4.8 Proxy Statement. Each Investor shall provide such
information as the Company reasonably requests for inclusion in the Proxy
Statement and none of the information supplied by the Investor specifically for
inclusion or incorporation by reference in the Proxy Statement will, at the date
mailed to the stockholders of the Company and at the time of the Company
Meeting, contain any untrue statement of material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING
Section 5.1 Conduct of Business by the Company Pending the Closing. From
the Effective Date until the Closing Date, unless Investors that are purchasing
Debentures and Senior Notes representing at least sixty percent (60%) of the
aggregate principal balance of all the Debentures and Senior Notes to be issued
and sold pursuant to this Agreement shall otherwise agree in writing, or except
as set forth in the Company Disclosure Letter or as otherwise contemplated by
this Agreement, the Company and the Company Subsidiaries shall conduct their
respective businesses in the ordinary course consistent with past practice and
shall use all reasonable efforts to preserve intact their business organizations
and relationships with third parties (including but not limited to their
respective relationships with policyholders, members of prepaid dental plans,
insureds, dentists and agents) and to keep available the services of their
present officers and key employees, subject to the terms of this Agreement.
Except as set forth in Section 5.1 of the Company Disclosure Letter or as
otherwise provided in this Agreement (including as permitted by Section 6.2),
from the Effective Date until the Closing Date, without the prior written
consent of Investors that are purchasing Debentures and Senior Notes
representing at least sixty percent (60%) of the aggregate principal balance of
all the Debentures and Senior Notes to be issued and sold pursuant to this
Agreement:
(a) the Company shall not adopt or propose any amendment or change in
its Certificate of Incorporation or Bylaws;
(b) the Company shall not declare, set aside or pay any dividend or
other distribution with respect to or acquire any shares of capital stock of the
Company, or split, combine or reclassify any of the Company's capital stock, and
the Company and the Company Subsidiaries shall not repurchase, redeem or
otherwise acquire any shares of capital stock or other securities of, or other
ownership interests in, the Company;
(c) the Company shall not, and shall not permit any Company Subsidiary
to, merge or consolidate with any other person or (except in the ordinary course
of business) acquire a material amount of assets of any other person except that
any Company Subsidiary may be merged into the Company or another wholly-owned
Company Subsidiary;
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(d) the Company shall not, and shall not permit any Company Subsidiary
to, enter into, or terminate, any material contract, agreement, commitment, or
understanding other than agreements entered into with unaffiliated third
parties, on an arms-length basis and in the ordinary course of business
constituting either (1) employer group agreements at premium rates and for terms
comparable to its most recent employer group agreements and having an
underwriting margin of at least 8%, (2) dental provider agreements on terms
comparable with its existing agreements of such nature and (3) marketing
affiliation and sales agreements on terms comparable with its existing
agreements of such nature;
(e) the Company, shall not, and shall not permit any Company Subsidiary
to, sell, lease, license or otherwise surrender, relinquish or dispose of (i)
any material facility owned or leased by the Company or any Company Subsidiary
or (ii) any assets or property which are material to the Company and the Company
Subsidiaries, taken as a whole, excluding, however, the assets contemplated to
be sold as described in Section 1.5(a), except pursuant to existing contracts or
commitments (the terms of which have been disclosed to Investors prior to the
date hereof), or in the ordinary course of business consistent with past
practice;
(f) the Company shall not, and shall not permit any Company Subsidiary
to, settle any material audit, make or change any material Tax election or file
amended Tax Returns unless required by law and the Company notifies Investors at
least five days prior to the date any such action is taken or such settlement
results in a refund to the Company;
(g) the Company and the Company Subsidiaries shall not issue any capital
stock (other than pursuant to Company Stock Options outstanding on the Effective
Date) or any other securities or enter into any amendment of any material term
of any outstanding security of the Company, and the Company and the Company
Subsidiaries shall not incur any material indebtedness except in the ordinary
course of business or amend or otherwise increase, accelerate the payment or
vesting of the amounts payable or to become payable under or fail to make any
required contribution to, any Company Benefit Plan or materially increase any
non-salary benefits payable to any employee or former employee, except in the
ordinary course of business consistent with past practice or as otherwise
permitted by this Agreement;
(h) the Company shall not, and shall not permit any Company Subsidiary
to (i) grant any stock options; (ii) grant any increase in the compensation,
bonus, severance, termination pay or other benefits of any former or current
employee, agent, consultant, officer or director of the Company or any Company
Subsidiary; provided, however, that increases in the ordinary course of business
consistent with past practice in the compensation of employees, consultants or
agents, who are not officers or directors, shall be permitted; (iii) enter into
or amend any employment agreement, deferred compensation, consulting, severance,
termination, indemnification or any other such agreement with any such former or
current employee, agent, consultant officer or director of the Company or any
Company Subsidiary; or (iv) amend, adopt or terminate any Company Benefit Plan,
except as may be required to retain qualification of any such plan under Section
401(a) of the Code;
(i) the Company shall not change any method of accounting or accounting
practice by the Company or any Company Subsidiary, except for any such required
change in GAAP or the Company State Statutory Accounting Principles;
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(j) except as contemplated by Section 5.2, the Company shall not permit
any Company Insurance Subsidiary to conduct transactions in investments except
in compliance with the investment policies of such Company Insurance
Subsidiaries as previously disclosed to Investor and in effect on the Effective
Date hereof and all applicable insurance laws and regulations;
(k) the Company shall not, and shall not permit any Company Subsidiary
to, enter into any agreement to purchase any real property, or lease for a term
in excess of one year or renew any existing lease pursuant to an option granted
prior to the date hereof; if such agreement, lease, or renewal involves an
expense in excess of $100,000;
(l) except to the extent necessary to comply with the requirements of
applicable laws and regulations, the Company shall not, and shall not permit any
Company Subsidiary to, (i) take, or agree or commit to take, any action that
would make any representation and warranty of the Company hereunder inaccurate
in any material respect at, or as of any time prior to the Closing Date, (ii)
omit, or agree or commit to omit, to take any action necessary to prevent any
such representation or warranty from being inaccurate in any material respect at
any such time, provided however, that the Company shall be permitted to take or
omit to take such action which (without any uncertainty) can be cured, and in
fact is cured, at or prior to the Closing Date, or (iii) take, or agree or
commit to take, any action that would result in, or is reasonably likely to
result in, any of the conditions of the parties to the consummation of the
transactions contemplated by this Agreement set forth in Article VII not being
satisfied;
(m) the Company, shall not release any third party from its obligations,
or grant any consent, under any existing standstill provision relating to any
Takeover Proposal (hereinafter defined) or otherwise under any confidentiality
or other agreement, or fail to fully enforce any such agreement; and
(n) none of the Company Insurance Subsidiaries shall make any material
change in its underwriting, claims management or reserving practices.
(o) the Company and the Company Subsidiaries shall not make or commit to
make, individually or in the aggregate, any capital expenditures or investments
in excess of $250,000;
(p) the Company shall not enter into, or request, any waiver, release,
amendment, supplement, commitment or other agreement relating to or in
connection with the Existing Company Debt;
(q) the Company and the Company Subsidiaries shall not hire any person
having annual compensation in excess of $100,000 including, without limitation,
a new chief financial officer, and will not increase employee staffing beyond
that reflected in the approved 1999 budget furnished to the Investors; and
(r) the Company shall not, and shall not permit any Company Subsidiary
to, agree or commit to do any of the foregoing.
Section 5.2 Investment Restrictions. From the date hereof until the
Closing Date, the Company and each Company Subsidiary shall invest available
cash only in (a) corporate bonds rated
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no lower than Aa3 by Moody's or AA- by S&P, (b) commercial paper rated P-1 by
Moody's or S-1 by S&P (c) U.S. government bonds, (d) money market funds rated no
lower than Aa by Moody's or AAm by S&P issued by U.S. commercial Banks having
net assets of at least $5 billion or (e) other securities or investments agreed
to in writing by Investor ("Permitted Investments"); provided, however, that
nothing in this Section 5.2 shall require any Company Insurance Subsidiary to
make any investment other than in compliance with all insurance laws and
regulations applicable thereto, and provided that the Company may continue and
renew the investments listed on Schedule 3.19.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Access and Information. The Company shall afford to the
Investors and to the Investors' financial advisors, legal counsel, accountants,
consultants, financing sources, and other authorized representatives access
during normal business hours throughout the period prior to the Closing Date to
all of its books, records, properties, plans and personnel and, during such
period, each shall furnish as promptly as practicable to the other (a) a copy of
each report, schedule and other document filed or received by it pursuant to the
requirements of federal securities laws or state regulatory laws, and (b) all
other information as such other party reasonably may request, provided that no
investigation pursuant to this Section 6.1 shall affect waive, amend or release
any representations or warranties made herein or the conditions to the
obligations of the respective parties to consummate the transactions
contemplated by this Agreement.
Section 6.2 No Solicitation.
(a) The Company shall not, nor shall it permit any of the Company
Subsidiaries to, nor shall it authorize or permit any officer, director or
employee of or any investment banker, attorney or other advisor or
representative of, the Company or any of the Company Subsidiaries to, directly
or indirectly, (1) solicit, initiate or encourage the submission of any Takeover
Proposal (as defined in Section 6.2(e) below, (2) enter into any agreement with
respect to any Takeover Proposal or give any approval of the type referred to in
Sections 3.28(b) and (c) with respect to any Takeover Proposal or (3) continue
or participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Takeover Proposal; provided, however, that if the
Board of Directors of the Company determines in good faith, after consultation
with legal counsel, that failure to do so would present a reasonable probability
of a violation of its fiduciary duties to the Company's stockholders under
applicable law, the Company may, in response to an unsolicited Takeover Proposal
(including any such unsolicited offer received after April 2, 1999) that
involves a transaction with the Company or the Company's stockholders that the
Company's Board of Directors or a committee thereof reasonably believes, after
receiving advice from the Company's independent financial advisor, is superior
to that provided for in this Agreement, and subject to compliance with Section
6.2(c) below, (x) furnish information with respect to the Company pursuant to a
customary confidentiality agreement to any person making such proposal and (y)
participate in negotiations regarding such proposal.
(b) Neither the Board of Directors of the Company nor any committee
thereof shall (x) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to Investors, the
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approval or recommendation by such Board of Directors or such committee of this
Agreement or (y) approve or recommend, or propose to approve or recommend, any
Takeover Proposal, except in connection with a Superior Proposal (as defined in
Section 6.2(c) below) and then only at or after termination of this Agreement
pursuant to and in accordance with Section 8.3(b).
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 6.2, the Company promptly shall advise
Investors orally and in writing of the receipt of any Takeover Proposal, whether
in writing or oral, or the receipt of any request for information or any inquiry
with respect to or which could reasonably be expected to lead to any Takeover
Proposal, the identity of the person making any such Takeover Proposal request
or inquiry and all the material terms and conditions thereof and promptly shall
provide Investors with a true and complete copy of such Takeover Proposal
request or inquiry, if in writing. The Company shall keep Investors fully
informed of the status and details (including amendments or proposed amendments)
of any such Takeover Proposal request or inquiry and shall give the Investors
not less than one business day prior advance notice of any information to be
supplied to the person making such request, proposal or inquiry.
(d) Nothing contained in this Section 6.2 shall prohibit the Company
from taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act; provided, however, neither the
Company nor its Board of Directors nor any committee thereof shall, except as
permitted by Section 6.2(b), withdraw or modify, or propose to withdraw or
modify, its position with respect to this Agreement or approve or recommend, or
propose or approve or recommend, a Takeover Proposal.
(e) As used in this Agreement, "Superior Proposal" means a bona fide
written Takeover Proposal (x) to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 50% of the shares
and/or voting power of Company Common Stock then outstanding or all or
substantially all the assets of the Company, (y) otherwise on terms which the
Board of Directors of the Company or a committee thereof decides in its good
faith reasonable judgment to be more favorable to the Company's stockholders
than this Agreement (after receiving advice from the Company's independent
financial advisor that the transaction provided for in such proposal is superior
to that provided for in this Agreement), for which financing, to the extent
required, is then committed or which, in the good faith reasonable judgment of
the Board of Directors, after receiving advice from the Company's independent
financial advisor, is reasonably capable of being obtained by such third party
and (z) which the Board of Directors determines, in its good faith reasonable
judgment, is reasonably likely to be consummated without undue delay; and
"Takeover Proposal" means any written proposal for a merger, consolidation or
other business combination involving the Company or any proposal or offer to
acquire in any manner, directly or indirectly, an equity interest in, fifteen
percent (15%) or more of the voting power of, or a substantial portion of the
assets of, the Company and its subsidiaries, taken as a whole, which proposal
may contain customary conditions and qualifications.
Section 6.3 Filings: Other Action. Subject to the terms and conditions
herein provided, as promptly as practicable, the Company and Investors shall:
(i) promptly make all filings and submissions required under the HSR Act and all
filings required by the insurance regulatory authorities and deliver notices and
consents to jurisdiction to state insurance departments, each as reasonably may
be required to be made in connection with this Agreement and the transactions
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contemplated hereby, (ii) use all reasonable efforts to cooperate with each
other in (A) determining which filings are required to be made prior to the
Closing Date with, and which material consents, approvals, permits, notices or
authorizations are required to be obtained prior to the Closing Date from,
governmental or regulatory authorities of the United States, the several states
or the District of Columbia, the Commonwealth of Puerto Rico and foreign
jurisdictions in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and (B) timely
making all such filings and timely seeking all such consents, approvals,
permits, notices or authorizations, and (iii) use all reasonable efforts to
take, or cause to be taken, all other action and do, or cause to be done, all
other things necessary or appropriate to consummate the transactions
contemplated by this Agreement as soon as practicable. In connection with the
foregoing, the Company will provide Investors, and Investors will provide the
Company, with copies of correspondence, filings or communications (or memoranda
setting forth the substance thereof) between such party or any of its
representatives, on the one hand, and any governmental agency or authority or
members of their respective staffs, on the other hand, with respect to this
Agreement and the transactions contemplated hereby. Investors and the Company
acknowledge that certain actions may be necessary with respect to the foregoing
in making notifications and obtaining clearances, consents, approvals, waivers
or similar third party actions which are material to the consummation of the
transactions contemplated hereby, and Investors and the Company agree to take
such action as is necessary to complete such notifications and obtain such
clearances, approvals, waivers or third party actions, provided, however, that
nothing in this Section 6.3 or elsewhere in this Agreement shall require any
party hereto to incur expenses in connection with the transactions contemplated
hereby which are not reasonable under the circumstances in relation to the size
of the transaction contemplated hereby or to require Investors, the Company or
any Company Subsidiary to hold separate or make any divestiture of a significant
asset or otherwise agree to any material restriction on their operations in
order to obtain any clearance, waiver, consent or approval or third party action
required by this Agreement.
Section 6.4 Public Announcements. Investors, on the one hand, and the
Company, on the other hand, agree that they will not issue any press release or
otherwise make any public statement or respond to any press inquiry with respect
to this Agreement or the transactions contemplated hereby without the prior
written approval of the other party (which approval will not be unreasonably
withheld), except as may be required by applicable law. Investors acknowledge
that this Agreement shall be filed by the Company with the SEC.
Section 6.5 Stock Exchange Listing.
(a) The Company shall as promptly as reasonably practicable prepare and
submit to NASDAQ a listing application covering the Conversion Shares and shall
use its best efforts to obtain, prior to the Closing Date, approval for the
listing of the Conversion Shares, subject to official notice of issuance, and a
determination that the consummation of the transactions contemplated by this
Agreement will not affect the continued listing of the Common Stock of the
Company on the NASDAQ National Market.
(b) In the event that the Company is unable to obtain a determination
that the consummation of the transactions contemplated by this Agreement will
not affect the continued listing of the Common Stock of the Company in the
NASDAQ National Market, the Investors and the Company will review and consider
what amendments or other changes to the transactions
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contemplated by this Agreement are required in order to obtain such a
determination. The Investors shall not be obligated to accept any such
amendments but, in the event that the Investors are willing to accept any
amendments for such purpose, the Company shall accept such amendments if such
amendments do not significantly limit or hinder any of the rights of the Company
under the transactions contemplated by this Agreement, or increase the economic
burden or decrease the economic benefit of the transactions contemplated by this
Agreement.
Section 6.6 Comfort Letters. The Company shall use all reasonable
efforts to cause Deloitte & Touche, L.L.P., the Company's independent
accountants, to deliver to Investors a letter dated as of the date of the Proxy
Statement and addressed to Investors, in form and substance reasonably
satisfactory to Investors, in connection with the procedures undertaken by them
with respect to the financial statements and other financial information of the
Company and the Company Subsidiaries contained in the Proxy Statement and other
matters customarily included in comfort letters relating to transactions similar
to the transactions contemplated by this Agreement. The Company acknowledges
that Deloitte & Touche, LLP is the accountants for one or more of the Investors,
hereby waives any conflicts of interest that may exist by virtue of this
Agreement and hereby agrees that such accounting firms may continue to represent
the Company and such Investors.
Section 6.7 Additional Matters. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including using all reasonable efforts to obtain all necessary waivers, consents
and approvals in connection with the Governmental Requirements and any other
third party consents and to effect all necessary registrations and filings. In
case at any time after the Closing Date any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers
and/or directors of Investors and the Company shall take all such necessary
action.
Section 6.8 Investors Standstill. During the term of this Agreement, and
for a period of one (1) year after the termination of this Agreement, except in
the case of termination pursuant to Section 8.3(b) or Section 8.4, the Investors
will not, and will not permit any of their respective affiliates (as such term
is used in Rule 12b-2 of the Exchange Act), without the prior approval of the
Board of Directors of the Company, (a) acquire or offer to acquire, whether by
purchase, gift or through a partnership or other group (as defined in Section
13(d)(3) of the Exchange Act), any assets, businesses or properties of the
Company, any shares of Common Stock of the Company or any securities convertible
into, exchangeable for, or exercisable for Common Stock of the Company or (b)(i)
submit, initiate or participate in any solicitation of proxies or become a
participant in any election contest, or call, or in any way participate in a
call for, any special meeting of stockholders, or initiate or propose any
stockholder proposal or (ii) otherwise act to control or influence the
management, Board of Directors, policies or affairs of the Company.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE CLOSING
Section 7.1 Conditions to Each Party's Obligation to Effect the Closing.
The respective obligations of each party to effect the transactions contemplated
by this Agreement shall be subject to the satisfaction at or prior to the
Closing Date of the following conditions:
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(a) any waiting period applicable to the consummation of the
transactions contemplated by this Agreement under the HSR Act shall have expired
or been terminated, and no action shall have been instituted by the Department
of Justice or Federal Trade Commission challenging or seeking to enjoin the
consummation of the transactions contemplated by this Agreement, which action
shall have not been withdrawn or terminated;
(b) no statute, rule, regulation, executive order, decree, ruling or
preliminary or permanent injunction shall have been enacted, entered,
promulgated or enforced by any federal or state court or governmental authority
having jurisdiction which prohibits, restrains, enjoins or restricts
consummation of the transactions contemplated by this Agreement;
(c) each of the Company, the Company Subsidiaries and Investor shall
have made such filings, and obtained such permits, authorizations, consents, or
approvals, as are required by Governmental Requirements to consummate the
transactions contemplated hereby, and all appropriate forms shall have been
executed, filed and approved as required by the Governmental Requirements;
(d) this Agreement, the Amendment, and the transactions contemplated by
this Agreement shall have been approved by the requisite vote of the
stockholders of the Company in accordance with the applicable provisions of the
DGCL, and the Amendment and, if applicable, the Certificate of Designation shall
have been duly and properly filed with the Secretary of the State of Delaware.
Section 7.2 Conditions to Obligations of the Company. The obligations of
the Company to effect the Closing shall be subject to the satisfaction at or
prior to the Closing Date of the following additional conditions:
(a) the Investors shall have performed in all material respects their
obligations under this Agreement required to be performed at or prior to the
Closing Date; the representations and warranties of Investors contained in this
Agreement which are qualified with respect to materiality shall be true and
correct in all respects, and such representations and warranties that are not so
qualified shall be true and correct in all material respects, in each case as of
the Effective Date and at and as of the Closing Date as if made at and as of
such time (except to the extent such representations and warranties specifically
relate to an earlier date, in which case as of such earlier date) except as
contemplated by this Agreement; and the Company shall have received a
certificate of the Investors as to the satisfaction of this condition; and
(b) the Company shall have received a determination from the NASDAQ
National Market that the consummation of the transactions contemplated by this
Agreement will not affect the continued listing of the Common Stock of the
Company on the NASDAQ National Market.
Section 7.3 Conditions to Obligations of Investors. The obligations of
the Investors to effect the transactions contemplated by this Agreement shall be
subject to the satisfaction at or prior to the Closing Date of the following
additional conditions:
(a) the Company shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior to
the Closing Date; and the representations and
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warranties of the Company contained in this Agreement which are qualified with
respect to materiality shall be true and correct in all respects, and such
representations and warranties that are not so qualified shall be true and
correct in all material respects, in each case as of the Effective Date and at
and as of the Closing Date as if made at and as of such time (except to the
extent such representations and warranties specifically relate to an earlier
date, in which case as of such earlier date), except as contemplated by the
Company Disclosure Letter or this Agreement; and Investors shall have received a
Certificate of the Chairman and the Chief Executive Officer, the President and
the Chief Financial Officer of the Company as to the satisfaction of this
condition;
(b) the third party consents and related amendments listed in Section
3.8 of the Company Disclosure Letter shall have been obtained and all other
third party consents shall have been obtained other than consents the failure of
which to be obtained would not reasonably be expected to have a Company Material
Adverse Effect;
(c) effective as of the Closing Date, the Board of Directors shall
consist of eight members and four (4) of the Directors of the Company shall
consist of individuals designated in writing to the Company by the Investors;
(d) each Investor shall have received from ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ &
▇▇▇▇▇, counsel for the Company, an opinion dated the Closing Date in form and
substance satisfactory to Investors and their counsel covering such legal
matters as would be normal and customary for a transaction of this nature
contemplated by this Amendment;
(e) the Company and the Investors shall have entered into a Registration
Rights Agreement in the form attached hereto as Exhibit G with respect to the
Conversion Shares issuable upon convening of the Debentures and a Registration
Rights Agreement in the form attached as Exhibit H with respect to the
Conversion Shares issuable upon exercise of the Warrants;
(f) the Investors and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S. shall have entered into
the Agreement Among Investors in the form attached hereto as Exhibit I;
(g) the Lender Waivers shall still be in full force and effect and no
event or condition shall have occurred constituting a breach or violation
thereof, and the Company shall have the right to pay in full, without premium or
penalty, the Existing Company Debt on the Closing Date;
(h) there shall not exist on the Closing Date an Event of Default as
defined in Article XII hereof or any condition or event which, after notice or
lapse of time or both, would constitute an Event of Default;
(i) the Company shall have duly reserved for issuance the Conversion
Shares;
(j) the Company shall have amended all of its written employment
agreements with its executives in effect on the Effective Date in a manner
reasonably satisfactory to the Investors to remove all "change of control"
provisions contained therein and, specifically, provide that the consummation of
the transaction contemplated by this Agreement and the issuance of the
Conversion Shares do not constitute a "change of control" under such agreements
as in effect on the Effective Date; and
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(k) the Conversion Shares shall have been listed, subject to notice of
issuance, on the NASDAQ National Market and the Company shall have received a
determination from the NASDAQ National Market that the consummation of the
transactions contemplated by this Agreement will not affect the continued
listing of the Common Stock of the Company on the NASDAQ National Market.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing Date by mutual written agreement of
Investors that are purchasing Debentures and Senior Notes representing at least
sixty percent (60%) of the aggregate principal balance of all Debentures and
Senior Notes to be issued and sold pursuant to this Agreement and the Company.
Section 8.2 Termination by Either Investors or the Company. This
Agreement may be terminated by action of the Investors or the Company if (a)
this Agreement, the Amendment and the transactions contemplated by this
Agreement shall fail to receive the requisite vote for approval and adoption by
the stockholders of the Company at the Company Meeting, (b) the transactions
contemplated by this Agreement shall not have been consummated on or before
December 31, 1999; provided, however, that this Agreement may be extended by
written notice of either the Company or the Investors to a date no later than
March 31, 2000 if the Closing shall have not occurred solely as a direct result
of the failure to receive all regulatory approvals relating to insurance
companies, health maintenance organizations and prepaid dental plans required
for the transactions contemplated by this Agreement by December 31, 1999 and
applications for any approvals not received by such date have been filed and are
still in process and provided further, however, that this Agreement may also be
extended by the mutual written agreement of Investors and the Company, or (c) a
United States federal or state court of competent jurisdiction or United States
federal or state governmental, regulatory or administrative agency or commission
shall have issued an order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and non-appealable; provided, that the party seeking to
terminate this Agreement pursuant to (b) above shall not be in material
violation of any of its representations, warranties or covenants set forth in
this Agreement, and the party seeking to terminate this Agreement pursuant to
clause (c) above shall have used all reasonable efforts to remove such
injunction, order or decree.
Section 8.3 Termination by the Company. (a) This Agreement may be
terminated at any time prior to the Closing Date by action of the Board of
Directors of the Company if (i) there has been a breach by Investors of any
representation or warranty contained in this Agreement which would have or would
be likely to have a Company Material Adverse Effect or (ii) there has been a
material breach of any of the covenants or agreements set forth in this
Agreement on the part of Investors, which breach is not curable or, if curable,
is not cured within thirty (30) days after written notice of such breach given
by the Company to Investors.
(b) This Agreement may be terminated and the transactions contemplated
by this Agreement may be abandoned at any time prior to the Closing Date, before
or after the approval of
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this Agreement by the stockholders of the Company referred to in Section 2.1, by
action of the Board of Directors of the Company, if the Board of Directors of
the Company has (i) withdrawn, or modified or changed in a manner adverse to the
Investors its approval or recommendation of this Agreement in order to approve
and permit the Company to execute a definitive agreement relating to a Superior
Proposal, (ii) determined, after consultation with legal counsel to the Company,
that the failure to take such action as set forth in the preceding clause (i)
would present a reasonable probability of a violation of the Board of Directors'
fiduciary duties under applicable law, notwithstanding all terms and conditions
which may be offered by the Investors in negotiations entered into pursuant to
the following proviso to this sentence, provided, however, that prior to any
such termination, the Company shall, and shall cause its respective financial
and legal advisors to, negotiate in good faith with the Investors to make such
adjustments in the terms and conditions of this Agreement as would enable the
Company to proceed with the transactions contemplated herein on such adjusted
terms and (iii) paid, immediately prior to such termination, the Termination
Payment in accordance with Section 8.5(b).
Section 8.4 Termination by Investors. This Agreement may be terminated
at any time prior to the Closing Date by action of the Investors that are
purchasing Debentures and Senior Notes representing at least sixty percent (60%)
of the aggregate principal balance of all Debentures and Senior Notes to be
issued and sold pursuant to this Agreement if (a) there has been a breach by the
Company of any representation or warranty contained in this Agreement which
would have or would be likely to have a Company Material Adverse Effect; (b)
there has been a material breach of any of the covenants or agreements set forth
in this Agreement on the part of the Company, which breach is not curable or, if
curable, is not cured within thirty (30) days after written notice of such
breach given by Investors to the Company; (c) the Board of Directors of the
Company shall have withdrawn, modified or changed in a manner adverse to the
Investors its approval or recommendation of this Agreement or shall have
recommended a Takeover Proposal, or shall have executed an agreement in
principle (or similar agreement) or definitive agreement providing for a
Takeover Proposal or other business combinations with a person or entity other
than the Investors (or the Board of Directors of the Company resolves to do any
of the foregoing); or (d) the Investors may terminate this Agreement at any time
prior to Closing at their sole election provided, however, that such termination
pursuant to this Section 8.4(d) shall be conditioned upon (a) a reasonable
determination by the general partner of the CAI Investors that such termination
is necessary to fulfill its fiduciary responsibilities to the CAI Investors and
(b) the payment by the Investors to the Company of a termination fee in the
amount of $2,750,000.
Section 8.5 Effect of Termination and Abandonment. (a) In the event of
termination of the Agreement pursuant to this Article VIII, written notice
thereof shall as promptly as practicable be given to the other parties to this
Agreement and this Agreement shall terminate and the transactions contemplated
hereby shall be abandoned, without further action by any of the parties hereto.
If this Agreement is terminated as provided herein: (i) there shall be no
liability or obligation on the part of Investors, the Company or the Company
Subsidiaries or their respective officers and directors, and all obligations of
the parties shall terminate, except as provided in Section 8.5(b) below, and
except for the obligations of the parties pursuant to Sections 3.21, 6.3,
Article XIII and Article XV of this Agreement and except that a party who is in
material breach of its representations, warranties, covenants or agreements set
forth in this Agreement shall be liable for damages occasioned by such breach,
including without limitation any expenses incurred by the other party in
connection with this Agreement and the transactions contemplated hereby, and
(ii) all
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filings, applications and other submissions made pursuant to the transactions
contemplated by this Agreement shall, to the extent practicable, be withdrawn
from the agency or person to which made.
(b) If (i) either the Company or the Investors terminates this Agreement
pursuant to Section 8.2(a) and a Takeover Proposal had been made prior to or as
of the date of termination of this Agreement and within nine (9) months after
such a termination, the person that made the Takeover Proposal (or an affiliate
thereof) completes a merger, consolidation or other business combination with
the Company or purchases from the Company of twenty-five percent (25%) or more
(in voting power) of the voting securities of the Company or twenty-five percent
(25%) or more (in market value or book value) of the assets of the Company (any
such transaction, an "Alternate Transaction") or (ii) the Investors terminate
this Agreement (A) pursuant to Section 8.4(a) or (b) at any time after a
Takeover Proposal has been made and within nine (9) months after such
termination, the person that made the Takeover Proposal (or an affiliate
thereof) completes an Alternative Transaction or (B) pursuant to Section 8.4(c)
or (iii) the Company terminates this Agreement pursuant to Section 8.3(b), then
the Company shall pay the Investors in cash the sum (x) the Investors' Expenses
(as defined below) in an amount up to but not to exceed $250,000 and (y)
$2,750,000 (collectively the "Termination Payment"). The Company acknowledges
that the agreements contained in this Section 8.5(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
the Investors would not enter into this Agreement; accordingly, if the Company
fails to promptly pay the amount due pursuant to this Section 8.5(b), and, in
order to obtain such payment, the Investors commence a suit which results in a
judgment against the Company for the fee set forth in this Section 8.5(b), the
Company shall pay to the Investors their costs and expenses (including
reasonable attorneys' fees) in connection with such suit, together with interest
from the date of termination of the Agreement on the amounts owed at the prime
rate of The Chase Manhattan Bank, in effect from time to time from the due date
thereof until paid plus two percent. "Investor Expenses" shall mean the
out-of-pocket fees and expenses incurred or paid by or on behalf of the
Investors in connection with the due diligence review and negotiation,
preparation of this Agreement by the Investors and the consummation of any of
the transactions contemplated by this Agreement, including all fees and expenses
of counsel, commercial banks, investment banking firms, accountants, experts and
consultants to the Investors.
(c) Such Termination Payment and Expenses shall be made by wire transfer
of immediately available funds to an account designated by the Investors (i)
prior to termination of this Agreement if such payment is made pursuant to
Section 8.5(b)(iii), or (ii) prior to the consummation an Alternate Transaction
if such payment is made pursuant to Section 8.5(b)(i) or 8.5(b)(ii).
ARTICLE IX
AFFIRMATIVE COVENANTS OF THE COMPANY
The Company covenants and agrees with the Investors as set forth below
in this Article IX. The covenants and agreements of the Company set forth in
this Article IX shall terminate (i) on the date when none of the Debentures
(and, if applicable, Preferred Stock) and Senior Notes remain outstanding and
(ii), with respect to the holders of the Debentures (and, if applicable,
Preferred Stock) only, on the date when the Conversion Shares issuable upon
conversion of the outstanding Debentures (and, if applicable, Preferred Stock)
represent less than forty percent (40%) of the total votes that can be cast by
all outstanding voting securities of the Company assuming such conversion.
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In the event that such covenants and agreements have terminated with respect to
the Debentures (and, if applicable, Preferred Stock) but not the Senior Notes,
then only the holders of the Senior Notes shall be considered for the purposes
of determining the requisite approval under Section 15.8 of this Agreement for
any waiver, consent or amendment relating to such covenants and agreements.
Section 9.1 Corporate Existence, Business Maintenance, Insurance.
(a) The Company will at all times preserve and keep in full force and
effect its corporate existence, rights and franchises deemed material to its
business and those of its subsidiaries, except any subsidiary of the Company may
be merged into the Company or another subsidiary; provided, however, that
nothing contained in this Section 9.1 shall prevent the Company or any
Subsidiary from discontinuing its operations in any particular state or at any
particular location or locations within a state, or prevent the corporate
existence, rights and franchises of any Subsidiary from being terminated if, in
the opinion of the Board of Directors of the Company, such discontinuance or
termination is in the best interests of the Company and would not be
disadvantageous in any material respect to the holders of the Debentures,
Preferred Stock, and the Senior Notes and if such discontinuance or termination
is not otherwise in contravention of any provision of this Agreement.
(b) The Company will maintain or cause to be maintained in good repair,
working order and condition all properties used or useful in the business of'
the Company and any subsidiary and from time to time will make or cause to be
made all appropriate repairs, renewals and replacements thereof. The Company and
any subsidiary will at all times comply in all material respects with the
provisions of all material leases to which it is a party or under which it
occupies property so as to prevent any loss or forfeiture thereof or thereunder
(c) The Company will maintain or cause to be maintained, with
financially sound and reputable insurers, appropriate insurance with respect to
its properties and business and the properties and business of any subsidiary
against such casualties and contingencies and of such types and in such amounts
as is customary in the case of business organizations engaged in the same or a
similar business or having properties similarly situated.
Section 9.2 Payment of Taxes, etc.; ERISA.
(a) The Company will pay, and will cause any subsidiary to pay, all
taxes, assessments and other governmental charges imposed upon it or any of its
properties or assets or in respect of any of its franchises, business, income or
profits before any penalty or interest accrues thereon, and all claims
(including without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
might become a lien or charge upon any of its properties or assets; provided,
however, that no such charge or claim need be paid if being contested in good
faith by appropriate proceedings and if such reserve or other appropriate
provisions, if any, as shall be required by generally accepted accounting
principles shall have been made therefor.
(b) The Company and any subsidiary will comply in all material respects
with the Employee Retirement Income Security Act of 1974, as amended from time
to time.
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Section 9.3 Books and Records. The Company and any subsidiary will keep
true records and books of account in which full, true and correct entries will
be made of all dealings or transactions in relation to its business and affairs
in accordance with generally accepted accounting principles applied on a
consistent basis.
Section 9.4 Board Committees. To the extent permissible by applicable
law or regulation, all committees of the Board of Directors of the Company shall
consist of members of which at least fifty percent (50%) shall be directors
elected by the holders of the Debentures and, if applicable, Preferred Stock.
Section 9.5 Audited Annual Financial Statements. As soon as practicable
and, in any case, within ninety (90) days after the end of each fiscal year, the
Company will deliver to each holder of a Debenture, Preferred Stock, and a
Senior Note financial statements of the Company and its subsidiaries, consisting
of the consolidated balance sheet of the Company and its subsidiaries as of the
end of such fiscal year and the consolidated statements of operations,
statements of shareholders' equity and statements of cash flows of the Company
and its subsidiaries for such fiscal year, setting forth in each case, in
comparative form, the figures for the preceding fiscal year, all in reasonable
detail and fairly presented in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods reflected
therein, and accompanied by an opinion thereon of an independent certified
public accountants selected by the Company of good and recognized national
standing in the United States reasonably satisfactory to the holders of
Debentures and Senior Notes representing more than fifty percent (50%) of the
aggregate principal balance of all outstanding Debentures and Senior Notes
(considered as a single class).
Section 9.6 Quarterly Reports. As soon as available, but in any event
within forty-five (45) days after the end of each of the first three fiscal
quarters of the Company, the Company will deliver to the holders of the
Debentures, Preferred Stock, and the Senior Notes copies of the unaudited
consolidated balance sheet of the Company and its subsidiaries as at the end of
such fiscal quarter and the related consolidated statements of operations and
cash flows of the Company and its subsidiaries for such quarter and the portion
of the fiscal year through such quarter, in each case setting forth in
comparative form the figures for the corresponding periods of (a) the previous
fiscal year and (b) the budget for the current fiscal year, prepared in
reasonable detail and in accordance with generally accepted accounting
principals applied consistently throughout the periods reflected therein and
certified by the chief financial officer or chief executive officer of the
Company as presenting fairly the financial condition and results of operations
of the Company and its subsidiaries (subject to customary exceptions for interim
unaudited financial statements).
Section 9.7 Monthly Unaudited Financial Statements. As soon as
available, but in any event within thirty (30) days after the end of each
calendar month, the Company will deliver to each holder of a Debenture,
Preferred Stock, or the Senior Notes copies of the unaudited consolidated
balance sheet of the Company and its subsidiaries as at the end of such calendar
month and the related consolidated unaudited statements of operations and cash
flows of the Company and its subsidiaries for such calendar month and the
portion of the calendar year through such calendar month, in each case setting
forth in comparative form the figures for the corresponding periods of (a) the
previous calendar year and (b) the budget for the current year, prepared in
reasonable detail and in accordance with generally accepted accounting
principles applied consistently throughout the periods reflected therein and
certified by the chief financial officer or the chief executive officer or
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chief operating officer of the Company as presenting fairly the financial
condition and results of operations of the Company and any subsidiary (subject
to customary exceptions for interim unaudited financial statements).
Section 9.8 Budgets. As soon as practicable, but in any event prior to
the commencement of a fiscal year, the Company will deliver to each holder of a
Debenture, Preferred Stock, or a Senior Note an annual operating budget of the
Company and its subsidiaries for such fiscal year, approved by the Board of
Directors, including monthly income and cash flow projections and projected
balance sheets as of the end of each month within such fiscal year.
Section 9.9 Commission and Stock Exchange Filings; Valuation Reports.
The Company will deliver to each holder of a Debenture, Preferred Stock, or a
Senior Note, as soon as available, a copy of (i) all regular or periodic or
special reports, if any, which the Company or any Subsidiary shall file with the
Commission or any national securities exchange, and (ii) all reports, proxy
statements, financial statements and other communications delivered or sent by
the Company to its stockholders in such capacity or by any Subsidiary to its
stockholders other than the Company. The Company will deliver to each such
holder, as soon as available, a copy of all reports prepared by independent
appraisers containing valuations of the fair market value of the Common Stock of
the Company.
Section 9.10 Compliance Certificates. Simultaneously with the delivery
of the financial statements required by Section 9.5 and 9.6, the Company will
deliver to each Note holder a certificate, signed by its chief financial officer
or chief executive officer, (i) stating that a review of the activities of the
Company and the Subsidiaries during such quarter or such fiscal year and to the
date of such certificate, as the case may be, has been made under their
supervision and that no Event of Default or condition or event which, with
notice or lapse of time, would constitute an Event of Default has occurred, or,
if such has occurred, specifying the nature and status thereof.
Section 9.11 Notice of Certain Events. The Company agrees to execute and
deliver to each holder of a Debenture, Preferred Stock, or a Senior Note a
certificate signed by the chief executive officer or chief financial officer of
the Company, specifying the nature and status of any of the following events,
promptly, but in any event not later than two business days, after any executive
officer of the Company becomes aware of the occurrence of any of the following
events or aware of the possibility that any of such events might occur:
(a) Material Litigation. The Company or any Company Subsidiary shall
have become a party to one or more suits, actions or proceedings which, if
adversely determined, could have a Company Material Adverse Effect or the
Company shall have become aware of any circumstances that might cause or result
in any such suits, actions or proceedings;
(b) Events of Default. Any condition or event which constitutes or
which, with notice or lapse of time, would constitute an Event of Default shall
have occurred, or any holder of a Debenture or Senior Note has given any notice
or taken any other action with respect to a claimed default or Event of Default;
(c) Other Defaults. The Company or any Company Subsidiary has received
notice of any default or failure to perform any covenant or provision by the
Company or such Company
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Subsidiary under any agreement relating to indebtedness for money borrowed to
which the Company or such Company Subsidiary is a party;
(d) Material Adverse Change. Any condition shall exist which has
resulted in or which is likely, in the reasonable judgment of the Company, to
result in a material adverse change in the business, properties, operations or
condition, financial or otherwise, of the Company and the Company Subsidiaries
taken as a whole or the ability of the Company to perform its obligations
hereunder.
Section 9.12 Inspection and Other Information. Each holder of a
Debenture, Preferred Stock, or Senior Note and such persons as such holder may
designate, may, if such holder, in its sole discretion exercised in good faith,
determines that it is appropriate or necessary in connection with determining a
default under or compliance with this Agreement, preserving or protecting its
investment in the Debentures, Preferred Stock, or the Senior Notes or enforcing
this Agreement or Debentures, Preferred Stock, or the Senior Notes, with the
Company having the right to have a representative of the Company present, visit
and inspect, upon giving five business days' notice thereof, any of the
properties of the Company or any Company Subsidiary, examine their books of
account, take copies and extracts therefrom and discuss the affairs, finances
and accounts of the Company or such Company Subsidiary with its officers,
employees and public accountants (and by this provision the Company and each
such Subsidiary hereby authorize said accountants to discuss with each such
holder and such persons its affairs, finances and accounts), at such reasonable
times and as often as such holder may reasonably desire. The Company will
promptly furnish to each holder such other information as it from time to time
may reasonably request.
Each holder agrees that such holder will not disclose without the prior
written consent of the Company (other than to such persons who such holder
reasonably believes have a need to know such information in connection with
determining a default under or compliance with this Agreement, preserving or
protecting its investment in the Debentures, Preferred Stock, or Senior Notes or
enforcing this Agreement or the Debentures, Preferred Stock, or Senior Notes,
and who have agreed to be bound by the provisions of this Section 9.12) any
information furnished to it pursuant to Section 9.7, 9.8, 9.12 or 9.15 of this
Agreement (and not otherwise furnished or required to be furnished pursuant to
this Agreement) which is designated by the Company to such holder in writing as
confidential, provided that such holder may disclose any such information (i) as
has become generally available to the public, (ii) was available to such holder
on a nonconfidential basis prior to its disclosure to you by the Company or its
representatives, (iii) as becomes available to such holder on a nonconfidential
basis from a course other than the Company or its representatives, provided that
the source is not bound by a confidentiality agreement with the Company or its
representatives, (iv) as may be necessary or appropriate in any report,
statement or testimony submitted to any municipal, state or federal regulatory
body having or claiming to have jurisdiction over such, (v) as may be required
in response to any summons or subpoena or in connection with any litigation,
(vi) to the extent that such holder deems it necessary to enforce its rights
under this Agreement, or (vii) in order to comply with any law, order,
regulation or ruling applicable to such holder, provided that in the case of
disclosure under clause (iv), (v), (vi) or (vii) above, such holder shall
promptly inform the Company of such pending disclosure and cooperate with the
Company in taking such steps as the Company requests to maintain the
confidentiality of such information.
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Section 9.13 Compliance with Laws. The Company will, and will cause each
Company Subsidiary to, comply with all applicable statutes, rules, regulations
and orders of all governmental authorities, with respect to the conduct of its
business and the ownership of its properties, including without limitation (i)
all applicable statutes, rules, regulations and orders relating to environmental
protection and pollution control, (ii) the Occupational Safety and Health Act of
1970, as amended, and (iii) ERISA, provided that the Company shall not be deemed
to be in violation of this Section 9.13 as a result of any failure to comply
with any provisions of such statutes, rules, regulations and orders, the
noncompliance with which would not result in fines, penalties, injunctive relief
or other civil liabilities which, individually or in the aggregate, could result
in a Company Material Adverse Effect.
Section 9.14 Use of Proceeds. The Company shall use the proceeds form
the issuance and sale of the Debentures, the Preferred Stock (if applicable),
Senior Notes and Warrants pursuant to this Agreement first to purchase or repay
the Existing Company Debt in its entirety and secondarily for working capital
purposes subject to compliance with the covenants of the Company contained in
this Agreement.
Section 9.15 Other Information. The Company shall deliver the following
to each Investor:
(a) promptly after the submission thereof to the Company, copies of any
detailed reports (including the auditors' comment letter to management, if any
such letter is prepared) submitted to the Company by its independent auditors in
connection with each annual or interim audit of the accounts of the Company and
its subsidiaries made by such accountants;
(b) promptly upon, and in any event within thirty (30) days after
obtaining knowledge thereof, notice of any breach of, default under or failure
to comply with any term under this Agreement or any material adverse change in
the relationship of the Company and its subsidiaries with any major customer,
supplier, employee or other entity with which the Company or a Company
Subsidiary has a business relationship;
(c) with reasonable promptness, a notice of any default by the Company
or any subsidiary under any material agreement to which it is a party.
ARTICLE X
NEGATIVE COVENANTS OF THE COMPANY
The Company covenants and agrees with the Investors as set forth below
in this Article X. The covenants and agreements set forth in this Article X,
with the exception of Section 10.6 below, shall terminate (i) on the date when
none of the Debentures (and, if applicable, Preferred Stock) and Senior Notes
remain outstanding and (ii) with respect to the holders of the Debentures (and,
if applicable, Preferred Stock) only, on the date when the Conversion Shares
issuable upon conversion of the outstanding Debentures (and, if applicable,
Preferred Stock) represent less than forty percent (40%) of the total votes that
can be cast by all outstanding voting securities of the Company assuming such
conversion. In the event that such covenants and agreements have terminated with
respect to the Debentures (and, if applicable, Preferred Stock) but not the
Senior Notes, then only the holders of the Senior Notes shall be considered for
the purposes of determining the requisite
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approval under this Article X and Section 15.8 of this Agreement for any waiver,
consent or amendment relating to such covenants and agreements. The provisions
of Sections 10.6 shall not be subject to termination.
Section 10.1 Business and Financial Covenants. The Company covenants
that, without the prior written consent of the holders of Debentures and Senior
Notes representing at least sixty percent (60%) of the aggregate principal
balance of the Debentures and Senior Notes then outstanding, considered as a
single class, (in the event of any shares of Preferred Stock are issued pursuant
to this Agreement, such consent requirement shall include the holders of the
Preferred Stock and such sixty percent (60%) requirement shall include the
aggregate preferential liquidation amount of the outstanding shares of Preferred
Stock with the principal balance of the outstanding Debentures and Senior
Notes):
(a) Merger, Consolidation, Acquisitions, Sale of Assets.
(i) The Company shall not merge, effect a liquidation or
statutory share exchange, consolidate with, or otherwise engage in any
transaction or series of related transactions which results in a change
of control or permit any Subsidiary to merge, effect a liquidation or
statutory share exchange, or consolidate with, any entity (other than
the Company or another Company subsidiary) or otherwise effect a change
of control. For the purposes of this Agreement, "change of control of
the Company" means (a) the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(e) or 14(d)(2) of the
Exchange Act (an "Acquiring Person") of beneficial ownership (within the
meaning of Rule 13d-e promulgated under the Exchange Act) of 50% or more
of either (i) the then outstanding shares of Common Stock (or Common
Stock equivalents) of the Company or (ii) the combined voting power of
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors; or (b) individuals who, as of
the Closing Date, constitute the Board cease for any reason (other than
the resignation or removal of any individual designated by or serving at
the request of the Investors) to constitute at least a majority of the
Board; provided, however, that any individual becoming a director
subsequent to the Closing Date hereof whose election, or nomination for
election by the Company's stockholders was approved by a vote of at
least a majority of the directors then comprising the Board shall be
considered as though such individual were a member of the Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by or on
behalf of an Acquiring Person other than the Board.
(ii) The Company shall not sell, assign, lease or otherwise
dispose of, or permit or any Company Subsidiary to sell, assign, lease,
or otherwise dispose of, all or substantially all of its assets (whether
now owned or hereafter acquired).
(b) Loans to and Investments in Others. The Company and any Company
Subsidiary shall not (except for prepaid expenses, deposits and the advancement
of money for expenses to employees) make, or permit any other Company Subsidiary
to make any loans or advances to any person or entity or have outstanding any
investment in any entity, whether by way of loan or advance
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to, or by the acquisition of the capital stock, assets or obligations of or any
interest in, any person or entity and shall not guarantee any indebtedness of
any third party, other than:
(i) extensions of credit to customers in the ordinary course of
business;
(ii) extensions of credit and capital contributions to and
investments in Subsidiaries; and
(iii) Permitted Investments.
(c) Restricted Payments, Repurchase of Common Stock. The Company and any
Company Subsidiary shall not declare or make any Restricted Payment. "Restricted
Payment" means (i) any payment or the incurrence of any liability to make any
payment in cash, property or other assets as a dividend or other distribution in
respect of any shares of capital stock of the Company or Subsidiary, excluding,
however, stock dividends and any dividends payable to the Company or a Company
Subsidiary by a Company Subsidiary, and (ii) any payment or the incurrence of
any liability to make any payment in cash, property or other assets for the
purposes of purchasing, retiring or redeeming any shares of any class or series
of capital stock of the Company or any Subsidiary; provided, however, that
dividends on the Preferred Stock shall not constitute a Restricted Payment.
(d) Debt or Lease Obligations. The Company and any Company Subsidiary
shall not create, incur or suffer to exist, or permit any subsidiary to create,
incur or suffer to exist, any debt or lease obligation (or a guarantee of the
debt or lease obligations of another third party other than a Subsidiary) other
than:
(i) the Debentures and the Senior Notes; and
(ii) debt or leases for real or personal property having (i) as
to any debt, an original principal amount and (ii) as to any lease, a
present value of all obligations thereunder, which in the aggregate for
the Company and all Subsidiaries are less than $2,000,000 in any one
calendar year;
(iii) Senior Debt permitted under the Debentures and Senior
Notes;
(iv) Debt and lease obligations existing on the Closing Date
(other than Existing Company Debt);
(v) Trade and other obligations incurred in the ordinary course
of business, including, without limitation, debt in respect of
performance, surety or appeal bonds and letters of credit provided in
the ordinary course of business;
(vi) Debt secured by Liens permitted under Section 10.2 below;
and
(vii) Debt arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from guarantees,
letters of credit or other obligations
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of third parties securing obligations of the Company or a subsidiary
thereunder, in connection with the permitted sale or other disposition
of assets.
(e) Transactions with Affiliates. Except for the transactions
contemplated by this Agreement, the Company and the Companies Subsidiaries shall
not, directly or indirectly, enter into any material transaction or agreement
with any director, officer, employee or stockholder of the Company and the
Companies Subsidiaries or any Investor or any affiliate of any such person or
entity or a material transaction or agreement in which any director, officer,
employee or stockholder of the Company and the Companies Subsidiaries has a
direct or indirect interest, except upon fair and reasonable terms no less
favorable to the Company or the Company Subsidiaries than could be obtained in a
comparable arm's length transaction with a person or entity who is not such a
director, officer, employee, stockholder or affiliate. The foregoing limitation
shall not apply to or limit (i) transactions approved by a majority of the
disinterested members of the Board of Directors, (ii) customary directors' fees,
indemnification and similar arrangements, employee salaries and bonuses,
employment agreements and arrangements or compensation or employee benefit
arrangements in the ordinary course of business, (iii) transactions,
arrangements and business relationship which are in effect on the Closing Date,
and (iv) transactions and payments not otherwise prohibited by this Section
10.1.
(f) Business. The Company and the Companies Subsidiaries shall not enter
into any new lines of business different than the business operations currently
conducted by the Company and the Companies Subsidiaries, and shall not in any
other respect materially change the nature of such business operations.
Section 10.2 Liens. The Company will not, and will not permit any
Company Subsidiary to, create, incur, assume or permit to exist, any lien upon
any of the property or assets (including capital stock) now owned or hereafter
acquired by it or on any income or rights in respect of any thereof, except:
(a) Company Liens. Any Company Subsidiary may create, incur and suffer
to exist any lien upon all or any part of its property in favor of the Company
or a Company Subsidiary as security for indebtedness owing to the Company or
such Company Subsidiary;
(b) Statutory and Good Faith Deposits. The Company and the Company
Subsidiaries may make and maintain in the ordinary course of business (i) liens,
pledges or deposits under worker's compensation laws, unemployment insurance
laws or similar legislation, (ii) good faith deposits in connection with bids,
tenders, contracts (other than for the purpose of borrowing money or obtaining
credit) or leases to which the Company or any Subsidiary is a party, including
rent security deposits, and (iii) deposits to secure public or statutory
obligations of the Company or any Company Subsidiary, or surety, custom or
appeal bonds to which the Company or any Company Subsidiary, or surety, custom
or appeal bonds to which the Company or any Company Subsidiary is a party (other
than in connection with borrowing money or obtaining credit), or the payment of
contested taxes or import duties of the Company or any Company Subsidiary;
(c) Statutory and Judgment Liens. The Company and the Subsidiaries may
create and suffer to exist (i) any lien which is imposed by law, such as those
of carriers, lessors, warehousemen and mechanics, if payment of the obligation
secured thereby is not yet delinquent, or the validity or
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amount of which is being contested in good faith by appropriate legal
proceedings and with respect to which adequate reserves or provisions required
by GAAP have been set up, (ii) any lien which arises out of a judgment or award
against the Company or any Company Subsidiary with respect to which the Company
or such Company Subsidiary at the time shall currently be prosecuting an appeal
or proceedings for review and with respect to which it shall have secured a stay
of execution pending such appeal or proceedings for review or not giving rise to
an Event of Default, (iii) any lien for taxes, assessments or other governmental
charges or levies not yet subject to penalties for nonpayment or the validity or
amount of which is being contested in good faith by appropriate legal
proceedings and with respect to which adequate reserves have been set up, (iv)
liens securing Senior Debt permitted under the Debentures and Senior Notes, (vi)
liens and encumbrances existing on the Closing Date, (vi) easements,
rights-of-way, restrictions leases or sub-leases granted to others and other
similar charges or encumbrances not interfering with the ordinary conduct of the
business of the Company or any of the Company Subsidiaries and title defects or
irregularities which do not in the aggregate materially impair the use of the
property; and (vii) extensions, renewals or refundings of any of the foregoing,
provided that the extension, renewal or refunding is limited to all or part of
the property securing the original lien.
Section 10.3 Disposition of Stock and Indebtedness of Company
Subsidiaries. The Company will not, and will not permit any Company Subsidiary
to, sell or otherwise dispose of any shares of stock or any indebtedness of a
Company Subsidiary owned by the Company or another Company Subsidiary, except
sales or other dispositions to the Company or to another Subsidiary.
Section 10.4 Company Subsidiary Dividend Restrictions. Unless required
by applicable law, regulation or regulatory action or request, the Company will
not permit any Company Subsidiary to create, incur, assume or permit to exist
any agreement or instrument (other than this Agreement) which has the effect of
restricting or prohibiting the power, authority or legal right of such Company
Subsidiary to declare or pay any dividend or other distribution.
Section 10.5 Acquisition of Securities. The Company will not, and will
not permit any Company Subsidiary to, acquire or hold or make any offer to
acquire, in any manner, any Debentures or Senior Notes, unless the Company or
such Company Subsidiary has offered, upon the same terms, to acquire Debentures
or Senior Notes, pro rata, from all holders thereof.
Section 10.6 Board Committees. Upon termination of the rights of the
holders of the Debentures (and, if applicable, Preferred Stock) to elect fifty
percent (50%) of the members of the Board of Directors of the Company, and
provided that the Debentures (and, if applicable, Preferred Stock) are still
convertible into voting securities of the Company, and for only so long as such
continues to be the case, the Company shall not change the number of members
constituting each committee of the Board of Directors of the Company until the
respective committee does not have as a member an individual appointed or
elected as a director pursuant to this Agreement as a designee of the Debenture
(and, if applicable, Preferred Stock) holders or elected by the Debenture
holders voting as a separate class and the Company shall not remove any director
who is an individual appointed or elected pursuant to this Agreement as a
designee of the Debenture (and, if applicable, Preferred Stock) holders or
elected by the Debenture (and, if applicable, Preferred Stock) holders voting as
a separate class; provided, however, that the Company shall have no obligation
to nominate or re-elect any such individuals upon expiration of their respective
then term of office.
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ARTICLE XI
REGISTRATION, EXCHANGE AND TRANSFER
OF DEBENTURES, SENIOR NOTES AND WARRANTS
Section 11.1 Register; Persons Deemed Owners. The Company shall
maintain, at its office designated for notices in accordance with the Agreement,
a register for the Debentures, Preferred Stock, Senior Notes and Warrants, in
which the Company shall record the name and address of the person in whose name
each Debenture, Preferred Stock, Senior Note or Warrant had been issued and the
name and address of each transferee and prior owner thereof. The Company may
deem and treat the person in whose name a Debenture, Senior Note or Warrant is
so registered as the holder and owner thereof for all purposes and shall not be
affected by any notice to the contrary, until due presentment of such Debenture,
Preferred Stock, Senior Note or Warrant for registration of transfer as provided
in this Article XI.
Section 11.2 Issuance of New Notes upon Exchange or Transfer. Upon
surrender for exchange or registration of transfer of any Debenture, Preferred
Stock, Senior Note or Warrant at the office of the Company designated for
notices in accordance with this Agreement, the Company shall execute and
deliver, at its expense, one or more new Debentures, Preferred Stock, Senior
Notes or Warrants, and, in the case of a Debenture or Senior Note, each dated
the date to which interest has been paid on the Debenture, or Senior Note so
surrendered (or, if no interest has been paid, the date of such surrendered
Debenture or Senior Note), but in the same aggregate unpaid principal amount as
such surrendered Debenture or Senior Note, and registered in the name of such
person or persons as shall be designated in writing by such holder. Every
Debenture, Preferred Stock, Senior Note or Warrant surrendered for registration
of transfer shall be duly endorsed, or be accompanied by a written instrument of
transfer duly executed, by the holder or by his attorney duly authorized in
writing.
Section 11.3 Lost, Stolen, Damaged and Destroyed Notes. At the request
of any holder, the Company will issue, at its expense, in replacement of any
Debenture, Preferred Stock, Senior Note or Warrant lost, stolen, damages, or
destroyed, upon surrender of the mutilated portions thereof, if any, a new
Debenture, Preferred Stock, Senior Note or Warrant of the same denominations, of
the same unpaid principal amounts and otherwise of the same tenor as, the
Debenture, Preferred Stock, Senior Note or Warrant so lost, stolen, damaged or
destroyed. The Company may condition the replacement of a Debenture, Senior Note
or Warrant reported by a holder as lost, stolen, damaged or destroyed, upon the
receipt from such holder of an indemnity or security reasonably satisfactory to
the Company.
ARTICLE XII
EVENTS OF DEFAULT AND REMEDIES
Section 12.1 Events or Default. Each of the following shall constitute
an Event of Default under the Debentures and the Senior Notes.
(a) Non-payment. If the Company fails to pay (i) the principal of any
Debenture, when and as the same becomes due and payable, whether at the maturity
thereof, on a date fixed for an
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installment payment or for a prepayment, or otherwise, or (ii) the interest on
any Debenture or any principal installment or interest on any Senior Note when
and as the same becomes due and payable, and such failure to pay interest shall
have continued for ten days; or
(b) Negative Covenants. If the Company fails to perform or observe any
covenant or agreement contained in Article X of this Agreement; or
(c) Other Covenants. If the Company fails to perform or observe any
other of the covenants, conditions or agreements on the part of the Company, set
forth in this Agreement or in any Debenture, Preferred Stock (including, without
limitation, the timely payment of dividends thereon), or Senior Note, and such
failure shall have continued for 30 days after notice thereof to the Company; or
(d) Misrepresentations. If any representation, warranty or statement
made by the Company in this Agreement, or in any certificate or other instrument
delivered by or on behalf of the Company to the Investors or any holder of a
Debenture or Senior Note pursuant to the Agreement, shall be incorrect in any
material respect as of the time when made; or
(e) Voluntary Bankruptcy and Insolvency proceedings. If the Company or
any Company Subsidiary shall file a petition in bankruptcy or for reorganization
or for an arrangement or any composition, readjustment, liquidation, dissolution
or similar relief pursuant to the Federal Bankruptcy Code of 1978 as amended or
under any similar present or future federal law or the law of any other
jurisdiction or shall be adjudicated a bankrupt or become insolvent, or consent
to the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequester (or other similar official) of the Company or such
Company Subsidiary or for all or any substantial part of the property of the
Company or such Company subsidiary, or shall make an assignment for the benefit
of its creditors, or shall admit in writing its inability to pay its debts
generally as they become due, or shall take any corporate action, in furtherance
or any of the foregoing; or
(f) Adjudication of Bankruptcy. If a petition or answer shall be filed
proposing the adjudication or the Company or any Company Subsidiary as a
bankrupt or its reorganization or arrangement, or any composition, readjustment,
liquidation, dissolution or similar relief with respect to it pursuant to the
Federal Bankruptcy Code of 1978 as amended or under any similar present or
future federal law or the law of any other jurisdiction applicable to the
Company or such Company Subsidiary, and the Company or such Company Subsidiary
shall consent to or consent to or acquiesce in the filing thereof, or such
petition or answer shall not be discharged or denied within 60 days after the
filing thereof; or
(g) Receivership or Sequestration. If a decree or order is rendered by a
court having jurisdiction (i) for the appointment of a receiver or custodian or
liquidator or trustee or sequestrator or assignee (or similar official) in
bankruptcy or insolvency of the Company or any Company Subsidiary or of all or a
substantial part of its property, or for the winding-up or liquidation of its
affairs, and such decree or order shall have remained in force undischarged and
unstayed for a period of 60 days, or (ii) for the sequestration or attachment of
any property of the Company or any Company Subsidiary without its return to the
possession of the Company or such Company Subsidiary or its release from such
sequestration or attachment within 60 days thereafter; or
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(h) Default on Other Indebtedness. If the Company or any Company
Subsidiary fails to pay any part of the principal of, the premium, if any, or
the interest on , or any other payment of money due under, any of its
indebtedness (other than the Debentures and Senior Nots) the aggregate
outstanding amount of which is $250,000 or more (irrespective of the amount of
such failure) beyond any period of grace provided with respect thereto; or it
the Company of any Company Subsidiary fails to perform or observe any other
agreement, term or condition contained in any document evidencing or securing
any of its indebtedness (other than the Debentures and Senior Notes) the
aggregate outstanding amount of which is $250,000 or more, or in any agreement
under which any such indebtedness was issued or created, it the effect of any
such failure is to cause, or permit the holders of such indebtedness (or a
trustee on behalf of such holders) to cause, any payment in respect of such
indebtedness to become due prior to its stated maturity or scheduled due date;
or
(i) Undischarged Judgments. If final judgment for the payment of money
shall be entered against the Company or any Company Subsidiary and if such
judgment shall not be vacated, satisfied or discharged within 30 days after the
entry thereof or within such longer period as the execution of such judgment
shall have been stayed, and if such judgment, together with all other such
judgments, exceeds, in the aggregate, $250,000.
(j) ERISA Minimum Funding. If a Plan shall fail to maintain the minimum
funding standard required by Section 412 of the Code for any plan year or a
waiver of such minimum funding standard is sought or granted under Section
412(d) of the Code, or a Plan is, shall have been, or is likely to be,
terminated or the subject of termination proceedings so that the Company or any
member of the Controlled Group has incurred or is likely to incur a liability to
or on account of a Plan under Section 4062 or Section 4064 of ERISA, or the
Company or any member of the Controlled Group has withdrawn from a Plan so that
the Company or any member of the Controlled Group has incurred or is likely to
incur a liability under Section 4063 or Section 4201 of ERISA, and there shall
result from any such event or events a liability or material risk of incurring a
liability to the PBGC or a Plan.
Section 12.2 Acceleration of Maturity. If any Event of Default shall
have occurred and be continuing, the holders of not less than a majority in
aggregate principal amount of all of the Debentures or Senior Notes,
respectively, then outstanding may, by notice to the Company, declare the entire
outstanding principal of the Debentures or Senior Notes, respectively, and all
accrued and unpaid interest thereon, to be due and payable immediately, and upon
any such declaration the entire outstanding principal of the Debentures and
Senior Notes, respectively, and all accrued and unpaid interest thereon shall
become and be immediately due and payable, without presentment, demand, protest
or other notice whatsoever, all of which are hereby expressly waived, anything
in the Debentures or Senior Notes, respectively, or in this Agreement to the
contrary notwithstanding, provided that, if an Event of Default under clause
(e), (f) or (g) of Section 12.1 shall have occurred with respect to the Company
or any Company Subsidiary, the entire outstanding principal amount of all of the
Debentures and Senior Notes, and all accrued and unpaid interest thereon, shall
become and be immediately due and payable, without any declaration and without
presentment, demand, protest or other notice whatsoever, all of which are hereby
expressly waived, anything in the Debentures and Senior Notes or this Agreement
to the contrary notwithstanding, provided, further, that if an Event of Default
under clause (a) of Section 10.1 shall have occurred and be continuing with
respect to any Debenture or Senior Note, the holder of such Debenture or Senior
Note may, by
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notice to the Company, declare the entire outstanding principal of such
Debenture or Senior Note, and all accrued and unpaid interest thereon, to be due
and payable immediately, and upon any such declaration the entire outstanding
principal of such Debenture or Senior Note and all accrued and unpaid interest
thereon shall become and be immediately due and payable, without presentment,
demand, protest or other notice whatsoever, all of which are hereby expressly
waived, anything in such Debenture or Senior Note or in this Agreement to the
contrary notwithstanding. The decision to accelerate the maturity of the
Debentures or Senior Notes upon the occurrence of an Event of Default shall be
made separately and independently by the holders thereof.
Section 12.3 Other Remedies. If any Event of Default shall have occurred
and be continuing, any holder of a Debenture or Senior Note may enforce its
rights by suit in equity, by action at law, or by any other appropriate
proceedings, whether for the specific performance (to the extent permitted by
law) of any covenant or agreement contained in this Agreement or in the
Debenture or Senior Note or in aid of the exercise of any power granted in this
Agreement or in the Debenture or Senior Note, and any holder may enforce the
payment of any Debenture or Senior Note held by such holder and any of its other
legal or equitable rights.
Section 12.4 Conduct to Waiver; Collection Expenses. No course of
dealing on the part of any holder of a Debenture or Senior Note, nor any delay
or failure on the part of any holder to exercise any of its rights, shall
operate as a waiver of such right or otherwise prejudice such holder's rights,
powers and remedies. If the Company fails to pay, when due, the principal of, or
the interest on, any Debenture or Senior Note, the Company will pay to the
holders, to the extent permitted by law, on demand, such further amounts as
shall be sufficient to cover the cost and expenses, including but not limited to
all attorney's fees, incurred by such holders in collecting any sums due on the
Debentures or Senior Notes. If the Company fails to comply with any other
provision of this Agreement, the Company will pay to the holders, to the extent
permitted by law, on demand, such further amounts as shall be sufficient to
cover the costs and expenses, including but not limited to, all attorneys' fees,
incurred by such holders in enforcing any of their rights.
Section 12.5 Annulment of Acceleration. If a declaration is made in
accordance with Section 12.2, then and in every such case, the holders of not
less than a majority in aggregate principal amount of the Debentures or Senior
Notes, respectively, then outstanding (and also, in the case of any declaration
by a holder following an Event of Default under clause (a) of Section 10.1 with
respect to any Debenture or Senior Note held by such holder, the holder of such
Note), may, by an instrument delivered to the Company, annul such declaration
and the consequences thereof, provided that at the time such declaration is
annulled:
(a) no judgment or decree has been entered for the payment of any monies
due on the Debentures or Senior Notes, respectively, or pursuant to this
Agreement;
(b) all arrears of interest on the Debentures or Senior Notes,
respectively, and all other sums payable on the Debentures or Senior Notes
pursuant to this Agreement (except principal of or interest on premium on the
Debentures or Senior Notes, respectively, which has become due and payable by
reason of such declaration) shall have been duly paid; and
(c) every other Event of Default shall have been duly waived or
otherwise made good or cured;
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and provided, further, that no such annulment shall extent to or affect any
subsequent Event of Default or impair any right consequent thereon.
Section 12.6 Remedies Cumulative. No right or remedy conferred upon or
reserved to the Investors or any holder under this Agreement or the Debentures
or Senior Notes is intended to be exclusive or any other right or remedy, and
every right and remedy shall be cumulative and in addition to every other right
or remedy given hereunder or now or hereafter existing under any applicable law.
Every right and remedy given by this Agreement or by applicable law to the
Investors or any holder of the Debentures or Senior Notes may be exercised from
time to time and as often as may be deemed expedient by the Investors or such
holder, as the case may be.
ARTICLE XIII
INDEMNIFICATION
Section 13.1 Indemnification of Investors.
(a) The Company shall indemnify, defend and hold harmless the Investors
and their respective affiliates, officers, agents, general and limited partners,
shareholders, and employees, from and against any and all claims, suits,
hearings, actions, damages, liabilities, fines, penalties, costs, losses or
expenses, including reasonable attorney's fees (in the singular, an
"Indemnification Claim" and collectively, "Indemnification Claims"), incurred or
caused by or resulting from any suit, either direct or derivative, commenced by
or on behalf of Company or any of Company's shareholders in connection with (i)
the issuance and sale of the Debentures, Preferred Stock, Senior Notes and
Warrants pursuant to this Agreement, (ii) any agreement contemplated by this
Agreement and (iii) any claim, litigation, investigation or proceeding relating
to any of the foregoing, whether or not the Investor or any such person is a
party thereto the transactions contemplated under this Agreement. No
indemnification shall be provided under this Article XIII with respect to any
claim by Investor (other than a claim by Investor for indemnification under this
Section 13.1). Indemnification under this Article XIII shall be provided with
respect to any suits, hearings, or actions with respect to which any of such
indemnified parties or is required under applicable rules to join in or
otherwise must appear.
(b) The Company shall indemnify and hold harmless the Investors and the
shareholders, members, partners, officers and employees of the Investors from,
against, and in respect of, any loss, liability, claim, demand, or expense,
including but not limited to reasonable attorney, investigation and consultant
fees and costs, of any kind whatsoever, arising out of or resulting from (i) any
misrepresentations, breach of warranty, or failure to fulfill any agreement or
covenant of the Company under this Agreement or under any other agreement or
document delivered by the Company to the Investors at Closing hereunder; and
(ii) any and all actions, suits, proceedings, demands, assessments, judgments,
costs, and legal and other expenses incident to any of the foregoing.
(c) Upon obtaining knowledge of an Indemnification Claim which could
give rise to indemnification under this Article XIII, the party demanding such
indemnification (the "Indemnitee") shall promptly notify Company, in writing, of
any Indemnification Claim which the Indemnitee has determined has given or could
give rise to a right of indemnification under
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Section 13.1(a) or (b) hereof (the "Notice of Claim"). The Notice of Claim shall
specify, in reasonable detail, the nature of any such Indemnification Claim
giving rise to the right of indemnification.
(d) With respect to any third party Indemnification Claim set forth in a
Notice of Claim, Company may defend, in good faith and at its own expense, any
such Indemnification Claim and the Indemnitee, at its expense, shall have the
right to participate in the defense of any such third party Indemnification
Claim. In connection with its defense of a third party Indemnification Claim,
the Company shall have the absolute right to choose or approve counsel for the
defense or prosecution of such action. So long as Company is defending in good
faith any such third party Indemnification Claim, the Indemnitee shall not
settle or compromise such third party Indemnification Claim. The Indemnitee
shall make available to Company or its representatives all records and other
materials reasonably required by Company for its use in contesting any third
party Indemnification Claim and shall cooperate with Company in the defense of
all such Indemnification Claims.
Section 13.2 Costs and Expenses. Whether or not the transactions
contemplated by this Agreement shall be consummated:
(a) The Company will pay (or reimburse upon request) all costs and
expenses of the Investors, including, without limitation, reasonable fees and
expenses of their consultants, counsel and accountants, in connection with or
leading to their due diligence review of the Company, the preparation,
negotiation and execution of this Agreement and the consummation of the
transactions contemplated by this Agreement; provided, however, that the Company
shall not be required to pay (or reimburse) an amount in excess of $250,000 for
such costs and expenses of the Investors. The Company will not be required to
pay the costs and expenses of any prospective transferee incurred in connection
with such transferee's acquisition of any Debentures, Preferred Stock, Senior
Notes and Warrants, other than the cost of registering the transfer thereof and
the cost of transmitting such Securities to such transferee.
(b) The Company will pay and indemnify the Investors and every other
holder against all liability and loss with respect to (i) all claims for fees or
commissions of brokers or finders engaged by the Company with respect to the
transactions contemplated by this Agreement, and (ii) all taxes, fees and other
public charges payable in connection with the issuance of any of the Debentures,
Preferred Stock, Senior Notes and Warrants, or the execution, delivery and
enforcement of this Agreement or any of the Debentures, Preferred Stock, Senior
Notes and Warrants, or any amendment or supplement to this Agreement.
(c) In the event that a filing under the HSR Act is required, the
Company shall pay (or reimburse) the Investors for the fee paid relating to the
HSR filing by the Investors.
(d) The Company will pay for (or reimburse upon request) all costs and
expenses of the Investors and each other holder, including, without limitation,
fees and expenses of their consultants, counsel and accountants, in connection
with or relating to any future amendment or supplement to this Agreement or any
of the Debentures, Preferred Stock, Senior Notes or Warrants (or any proposal
for such amendment or supplement) whether or not consummated, or any waiver or
consent with respect thereto (or any proposal for such waiver or consent)
whether or not consummated.
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Section 13.3 Survival. The rights provided under this Article XIII shall
survive the termination or consummation of this Agreement and the transfer of
the Debentures, Preferred Stock, Senior Notes or Warrants.
ARTICLE XIV
ARBITRATION
Section 14.1 Arbitration.
(a) Arbitration Procedure. In the event of a dispute regarding any
matters arising out of or relating to this Agreement (including, but not limited
to, actions for injunctive or declaratory relief except as provided in Section
14(f) below) (hereinafter collectively "Arbitrable Issues") that cannot be
settled by agreement between the parties, such controversy or dispute shall be
submitted for arbitration in Dallas, Texas, and for this purpose each party
hereby expressly consents to such arbitration in such forum. The arbitration
process shall proceed as follows:
(i) Step One. In the event of a dispute, the Disputing Party
(herein so called) may at any time notify the other party ("Answering
Party") in writing that the Disputing Party demands to pursue
arbitration as provided in Step Two below, setting forth in specific
terms the Disputing Party's proposed statement of the matters in dispute
to be submitted to arbitration and the name and address of the
arbitrator selected by the Disputing Party. Within five (5) business
days following receipt of the Disputing Party's written arbitration
demand complying with the requirements of this Step One, the Answering
Party shall notify the Disputing Party in writing, setting forth in
specific terms the Answering Party's proposed statement of the matter in
dispute and identifying the name and address of the arbitrator selected
by such Answering Party.
(ii) Step Two. The two (2) arbitrators so selected shall meet and
confer within ten (10) business days after receipt by the disputing
party of the Answering Party's written notice as called for under Step
One above, and they shall within said ten (10) day period, jointly
select a neutral third arbitrator. If said arbitrators are unable to
choose a neutral third arbitrator, any party may request the American
Arbitration Association ("AAA") to appoint an additional arbitrator from
its National Panel of Commercial Arbitrators. Any party to this
Agreement may advise the AAA that time is of the essence and that the
parties to this Agreement would like such selection as soon as is
reasonably possible, it being expressly understood that in such AAA
selection process the selection is in the sole discretion of the AAA,
and that the AAA shall not be required by reason of this Agreement to
consult with the parties to this Agreement in said selection process;
provided that all arbitrators, including the additional arbitrator
selected by the AAA, shall be disinterested individuals knowledgeable in
commercial transactions. Upon selection of the additional arbitrator,
all arbitrators shall within twenty (20) business days thereafter
convene an arbitration proceeding at a date, time and place (in
metropolitan Dallas, Texas) designated by said arbitrators by a majority
vote, written notice of which shall be given to the parties not later
than seven (7) calendar days prior to said hearing date. At the hearing,
each party may be represented by counsel and present testimony and
evidence. If, at the commencement of the hearing the parties cannot
agree on a joint statement of the matters in dispute to be submitted
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to the arbitrators, the arbitrators shall be empowered to frame the
submission issue(s). A certified court reporter's transcript may be
demanded by any party or by the arbitrators and said official transcript
shall be prepared, completed, and delivered to the arbitrators with
copies to each party within ten (10) business days following the
conclusion of the hearing. Arbitration sessions following the initial
session, if necessary, shall be scheduled by the arbitrators so that the
arbitration proceedings (i.e., presentation of evidence and/or oral
arguments) are completed within twenty (20) business days of the initial
session. Each party shall be given the opportunity to file with the
arbitrators simultaneous written briefs five (5) business days following
receipt by the arbitrators of the official transcript but, if no
transcript is demanded as provided in this Agreement, said briefs shall
be filed simultaneously five (5) business days following conclusion of
the hearing. Copies of any such briefs shall be provided to the other
party concurrently upon filing with the arbitrators.
(iii) Step Three. Within ten (10) business days following the
receipt by the arbitrators of the brief(s) (or within ten (10) business
days following conclusion of the hearing if all parties waive briefs),
the arbitrators shall make and deliver to the parties their decision and
award in writing. The arbitrators shall have the authority to enter any
award or to grant any relief which could be obtained in a court of
competent jurisdiction and reasonable attorneys', arbitrators' and
experts' fees and expenses of arbitration may be awarded as the
arbitrators see fit, consistent with the provisions of this Agreement.
The arbitrators shall have no authority to modify, amend or alter the
provisions of this Agreement and shall base their decision and award on
applicable law, the language contained in this Agreement and the facts
giving rise to the dispute as presented on the record at the hearing.
The arbitrators shall issue a written opinion explaining the basis for
their findings.
(b) Self-Execution. It is expressly understood between the parties that
this Article XIV is a self-executing arbitration provision and that any party
may unilaterally select an arbitrator if the other party refuses to arbitrate.
It is further expressly agreed that said unilaterally-selected arbitrator may
proceed to arbitrate the issue(s) and the arbitration and decision shall be
self-executing and therefore shall not require the order of any Court to
proceed. The parties may, however, mutually stipulate in writing to extend or to
shorten the prescribed time periods (including a stipulation to expedite the
referral and submission to arbitration). All provisions of this Agreement not in
dispute shall be observed and performed without interruption during the pendency
of any proceeding called for under this Article XIV.
(c) Arbitrator's Fees. With respect to the additional arbitrator if
required pursuant to Step Two under Section (a) above, each party shall pay its
pro rata share of any required retainer or other payments required by such
arbitrator upon such arbitrator's demand and each party shall pay the fees of
the arbitrator it selects, with the ultimate responsibility for the arbitrators'
fees to be determined by the arbitrators in the final arbitration award pursuant
to Step Three of Section (a) above; otherwise, each party shall bear its own
costs and expenses in connection with any proceedings under this Article XIV.
(d) Rules Governing Arbitration. In all other respects, the arbitration
shall be conducted pursuant to the then-existing Commercial Rules of the AAA to
the extent such rules are not inconsistent with any provision of this Agreement.
Subject to the foregoing, the arbitrators shall determine the scope and extent
of permissible discovery, if any.
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(e) Entry of Award. The award of the arbitrators may be entered as a
final judgment by any court of competent jurisdiction.
(f) Injunctive Relief. Notwithstanding the provisions of this Article
XIV to the contrary, each party shall be entitled to seek temporary or
preliminary injunctive relief from a court of competent jurisdiction if the
failure to immediately obtain injunctive relief will result in irreparable harm
to that party. The jurisdiction of the court shall extend only to such relief
and any request for permanent injunctive relief shall remain subject to the
arbitration provisions of this Agreement.
Section 14.2 Remedies Cumulative. No right or remedy conferred upon or
reserved to the Investors or any holder under this Agreement or the Debentures,
Preferred Stock, Senior Notes or Warrants is intended to be exclusive or any
other right or remedy, and every right and remedy shall be cumulative and in
addition to every other right or remedy given hereunder or now or hereafter
existing under any applicable law. Every right and remedy given by this
Agreement or by applicable law at the Investors or any holder of the Debentures,
Preferred Stock, Senior Notes and Warrants may be exercised from time to time
and as often as may be deemed expedient by the Investors, or such holder, as the
case may be.
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Survival of Representations, Warranties and Agreements. All
representations, warranties, covenants or agreements in this Agreement or in any
instrument delivered pursuant to this Agreement, shall survive beyond the
Closing Date.
Section 15.2 Material Adverse Effect. For the purposes of this Agreement
a "Company Material Adverse Effect" shall mean any material adverse effect in
the business, assets, liabilities, results of operations or financial condition
of the Company and the Company Subsidiaries taken as a whole, whether resulting
from an individual, or a combination of one or more, events, occurrences or
circumstances.
Section 15.3 Notices. All notices, claims, demands and other
communications hereunder shall be in writing and shall be deemed given upon (a)
confirmation of receipt of a facsimile transmission, (b) confirmed delivery by a
standard overnight carrier (c) when delivered by hand or (d) the expiration of
five business days after the day when mailed by registered or certified mail
(postpaid prepaid, return receipt requested), addressed to the respective
parties at the following addresses (or such other address for party as shall be
specified by like notice):
(a) If to Investors, to:
CAI Partners and Company II, L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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CAI Capital Partners and Company II, L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
With copy to:
▇▇▇▇▇▇▇▇▇▇▇ & Price, L.L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
(b) If to the Company, to:
SafeGuard Health Enterprises, Inc.
▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: 949-425-4586
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
With copy to:
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Section 15.4 Descriptive Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
Section 15.5 Entire Agreement: Assignment. This Agreement (including the
Exhibits, Company Disclosure Letter and other documents and instruments referred
to herein) constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties or any
of them, with respect to the subject matter hereof, including, without
limitation, any transaction between or among the parties hereto. This Agreement
shall not be assigned by operation of law or otherwise, except that Investors
may assign all or any part of their
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respective rights and obligations hereunder to any third parties which shall
then be substituted for the respective Investor for all purposes hereof to the
extent of such assignment; provided, however, that the representations and
warranties of the Investors contained in Article IV hereof shall be applicable
to such assignee.
Section 15.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the provisions thereof relating to conflicts of law.
Section 15.7 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. This
Agreement may be amended on behalf of the Investors by the approval of Investors
that are purchasing or holding not less than sixty percent (60%) of the
principal amount of the Debentures and Senior Notes to be issued and sold
pursuant to this Agreement.
Section 15.8 Waiver. At any time the Company or Investors hereto may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the Agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party, and, in the case of the Investors, by Investors or their transferees that
hold not less than sixty percent (60%) of the principal amount of the then
outstanding Debentures (and, if applicable, Preferred Stock) and Senior Notes
(or, in the case of Article IX and X after such covenants and agreements have
terminated with respect to the holders of the Debentures, by Investors or their
transferees that hold sixty percent (60%) or more of the principal amount of the
then outstanding Senior Notes.)
Section 15.9 Exculpation Among Investors. Each Investor acknowledges
that such Investor is not relying upon any person, firm or corporation, other
than the Company, in making its investment or decision to invest in the
Debentures, the Preferred Stock (if applicable), Senior Notes and Warrants of
the Company. Each Investor agrees that no other Investor nor the respective
controlling persons, officers, directors, partners, agents or employees of any
other Investor shall be liable for any action heretofore or hereafter taken or
omitted to be taken by any of such Investors in connection with the issuance and
sale of the Debentures, Preferred Stock, Senior Notes and Warrants (and the
issuance of the Conversion Stock) by the Company.
Section 15.10 Severability; Validity; Parties in Interest. If any
provision of this Agreement, or the application thereof to any person or
circumstance is held invalid or unenforceable, the remainder of this Agreement,
and the application of such provision to other persons or circumstances, shall
not be affected thereby, and to such end, the provisions of this Agreement are
agreed to be severable. Nothing contained in this Agreement, express or implied,
is intended to confer upon any person not a party to this Agreement any rights
or remedies of any nature whatsoever under or by reason of this Agreement except
that the provisions of Section 13.1 shall inure to the benefit of and be
enforceable by the Indemnified Parties (as defined in such Section).
Section 15.11 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any provision of this Agreement
was not performed in accordance with
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its specific terms or was otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of competent jurisdiction, this being in addition to any other remedy
to which they are entitled at law or in equity.
Section 15.12 Company Disclosure Letter. Reference to a Section of the
Company Disclosure Letter shall include any applicable disclosure expressly set
forth on the face of any other Section of the Company Disclosure Letter even if
not specifically cross-referenced to such other Section; provided, however, that
the representations and warranties of the Company set forth in this Agreement
shall not be modified, limited or waived in any respect by the information
contained in any agreement or document listed or referenced in the Company
Disclosure Letter unless the listing or reference on the face of the Company
Disclosure Letter expressly by its terms indicates that such agreement or
document modifies, or limits such representation or warranty and the specific
nature of such modification or limitation. The Company Disclosure Letter
delivered pursuant to this Agreement shall not be attached hereto but shall be
delivered separately accompanied by a certificate of a duly authorized officer
of the Company to the effect that such constitutes the Company Disclosure Letter
to this Agreement and constitutes a part hereof.
Section 15.13 Counterparts: Effectiveness. This Agreement may be
executed in two or more counterparts, each of which shall be deemed to be an
original but all of which shall constitute one and the same agreement. This
Agreement shall become effective when each party hereto shall have received
counterparts thereof signed by all of the other parties hereto.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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IN WITNESS WHEREOF, each of the Company and the Investors have caused
this Debenture and Note Purchase Agreement to be executed as of the Effective
Date.
COMPANY: INVESTORS:
CAI PARTNERS AND COMPANY II, L.P.
SAFEGUARD HEALTH ENTERPRISES,
INC. By: CAI PARTNERS GP & CO., L.P.,
the General Partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------- -------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President of
Title: Chairman and Chief Executive ▇▇▇▇ ▇▇ Co., a General Partner
Officer
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ CAI CAPITAL PARTNERS AND
----------------------------- COMPANY II, L.P.
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Senior Vice President and By: CAI CAPITAL PARTNERS GP &
Secretary CO., L.P., the General Partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President of
▇▇▇▇ ▇▇ Co., a General Partner
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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EXHIBIT A
SCHEDULE OF INVESTORS
INVESTOR SECURITY PURCHASE PRICE
-------- -------- --------------
CAI Partners and Company II, $17,500,000 Debentures $17,500,000
L.P. and CAI Capital Partners
and Company II, L.P. and/or $17,500,000 Senior Notes $17,500,000
assigns
Warrants for 2,187,500
shares of Common Stock
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and/or $2,500,000 Debentures $2,500,000
assigns
$2,500,000 Senior Notes $2,500,000
Warrants for 312,500 shares
of Common Stock
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EXHIBIT B
THE DEBENTURE REPRESENTED BY THIS CERTIFICATE AND THE COMMON STOCK
UNDERLYING SUCH DEBENTURE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF (a) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE DEBENTURE AND/OR COMMON STOCK UNDER THE
SECURITIES ACT OF 1933 OR (b) AN OPINION REASONABLY SATISFACTORY TO SAFEGUARD
HEALTH ENTERPRISES, INC. FROM COUNSEL FOR SAFEGUARD HEALTH ENTERPRISES, INC. OR
FROM COUNSEL FOR THE PROPOSED TRANSFEROR REASONABLY SATISFACTORY TO SAFEGUARD
HEALTH ENTERPRISES, INC. TO THE EFFECT THAT THE TRANSFER MAY BE EFFECTED WITHOUT
SUCH REGISTRATION.
THE VOTING AND TRANSFER OF THIS DEBENTURE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF THIS DEBENTURE ARE SUBJECT TO THE TERMS AND
PROVISIONS OF AN AGREEMENT AMONG INVESTORS DATED AS OF _____________, 1999, A
COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND THIS
DEBENTURE AND SUCH SHARES OF COMMON STOCK MAY NOT BE VOTED, SOLD OR OTHERWISE
DISPOSED EXCEPT IN ACCORDANCE WITH THE TERMS OF THAT AGREEMENT. A COPY OF SUCH
AGREEMENT WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF THIS CERTIFICATE
UPON RECEIPT BY THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED
OFFICE OR A WRITTEN REQUEST FROM THE HOLDER REQUESTING SUCH COPY.
SAFEGUARD HEALTH ENTERPRISES, INC.
8% CONVERTIBLE DEBENTURE
___________, 1999
NO. _________ $_______________
SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware corporation (the
"Company"), for value received, hereby promises to pay to the order of
_________________________________ ("Holder") or its registered assigns, the sum
of ________________________________________ and ___/100ths Dollars
($__________), or such lesser amount as shall then equal the outstanding
principal amount hereof and any unpaid accrued interest hereon, as set forth
below, on the earlier to occur of (i) ______, 2009 or (ii) when declared due and
payable pursuant to the provisions contained in the Debenture and Note Purchase
Agreement (defined below).
This Debenture has been issued pursuant and subject to that certain
Debenture and and Note Agreement, dated June ___, 1999, by and among the Company
and the Investors named therein, as the same may from time to time be amended,
modified or supplemented (the "Debenture and Note Purchase Agreement"). The
holder of this Debenture is subject to certain restrictions set forth in the
Debenture and Note Purchase Agreement and shall be entitled to certain rights
and privileges set
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forth in the Debenture and Note Purchase Agreement. This Debenture is one of the
Debentures referred to as the "Debentures" in the Debenture and Note Purchase
Agreement.
The following is a statement of the rights of the Holder of this
Debenture and the conditions to which this Debenture is subject, and to which
the Holder hereof, by the acceptance of this Debenture, agrees:
1. Definitions. As used in this Debenture, the following terms, unless
the context otherwise requires, have the following meanings:
(a) "Common Stock" means the Common Stock, $0.01 par value per share, of
the Company.
(b) "Company" includes any corporation which shall succeed to or assume
the obligations of the Company under this Debenture.
(c) "Holder," when the context refers to a holder of this Debenture,
shall mean any person who shall at the time be the registered holder of this
Debenture.
(d) "Merger, Share Exchange or Consolidation" shall mean the merger,
statutory share exchange, or consolidation of the Company with or into another
entity, or any corporate reorganization in which the shareholders of the Company
do not hold fifty percent (50%) or more of the voting securities of the
continuing or surviving entity or any transaction or series of transactions by
the Company in which in excess of fifty percent (50%) of the voting power of the
outstanding securities of the Company is transferred or a sale of all or
substantially all of the assets of the Company.
2. Interest.
(a) Interest Rate. The unpaid principal balance of this Debenture shall
bear interest at a rate equal to 8% per annum from the date hereof until paid in
full.
(b) Payment of Interest. Accrued interest shall accrue from the date
hereof and shall be due and payable (i) on each (calendar day 180 days after the
Closing Date as defined in the Debenture and Note Purchase Agreement) and
(calendar day 360 days after the Closing Date), from and after the date hereof,
commencing (date 180 days after the Closing Date) and (ii) at maturity (whether
stated, by acceleration or otherwise).
(c) Interest After Maturity. All past due principal of, and accrued
interest on, this Debenture shall bear interest from maturity (whether stated,
by acceleration or otherwise) until paid at the rate of eighteen percent (18%)
per annum.
3. Voluntary Prepayment. The Company shall not have the right to prepay,
in whole or in part this Debenture at any time.
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4. Mandatory Prepayment.
(a) Upon Liquidation of the Company.
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, prior and in preference to any
distribution of any of the assets or surplus funds of the Company to the
holders of capital stock of the Company by reason of their ownership
thereof, all outstanding principal and unpaid accrued interest on this
Debenture shall be immediately due and payable. In the event that the
assets and funds of the Company are insufficient to permit payment in
full of all then outstanding Debentures and Senior Notes (as such term
is defined in the Debenture and Note Purchase Agreement) issued pursuant
to the Debenture and Note Purchase Agreement, then the entire assets and
funds of the Company legally available for distribution shall be
distributed ratably among the holders of such Debentures and Senior
Notes in proportion to the face amounts thereof.
(ii) For purposes of this Section 4(a), at the election of the
holders of at least sixty percent (60%) of the face amount of all then
outstanding Debentures and Senior Notes issued pursuant to the Debenture
and Note Purchase Agreement, a liquidation, dissolution or winding up of
the Company shall be deemed to be occasioned by, and to include, a Sale
of Assets or a Merger, Share Exchange or Consolidation. In the event of
any such transaction, the holders of all then outstanding Debentures
issued pursuant to the Debenture and Note Purchase Agreement shall be
entitled, pursuant to and as a condition to such transaction, to receive
in the manner provided in Section 4(a) the amounts such holders would
receive pursuant to a liquidation, dissolution or winding up of the
Company in which the amount of assets available for distribution equals
the consideration to be received in such transaction.
(iii) Any asset other than cash that is distributed, or deemed
distributed under Section 4(a)(ii), by the Company shall be valued at
its fair market value.
(b) Upon Event of Default. Upon the occurrence of an Event of Default as
defined in the Debenture and Note Purchase Agreement, the maturity of this
Debenture may be accelerated as provided in the Debenture and Note Purchase
Agreement.
(c) Limitation. In the event the Company lacks sufficient funds to
prepay lawfully all of the Debentures and Senior Notes which the Company is, at
any such time, obligated to prepay in accordance with this Section 4, then
holders of all of the then outstanding Debentures and Senior Notes issued
pursuant to the Debenture and Note Purchase Agreement shall share ratably in any
funds legally available for prepayment of such Debentures and Senior Notes
according to the respective amounts which would be payable with respect to the
then outstanding face amount of the Debentures and Senior Notes owned by them if
all such Debentures and Senior Notes were prepaid in full.
5. Events of Default and Remedies. Without notice or demand (each of
which is hereby waived), the entire unpaid principal balance of and all accrued
interest on this Debenture may become immediately due and payable upon the
occurrence of any Event of Default as defined in the Debenture and Note Purchase
Agreement and in the manner set forth in the Debenture and Note
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Purchase Agreement. The holder of this Debenture shall have all rights and
remedies exercisable upon an Event of Default as specified in and subject to the
Debenture and Note Purchase Agreement.
6. Conversion.
(a) The holder of this Debenture has the right at the holder's option,
at any time prior to payment in full of the principal balance of this Debenture,
to convert this Debenture, in whole or in part, into fully paid and
nonassessable shares of Common Stock of the Company (the "Common Stock"). The
number of shares of Common Stock into which this Debenture may be converted
("Conversion Shares") shall be determined by dividing the outstanding principal
balance hereof to be converted by the Conversion Price (defined below) in effect
at the time of conversion. The initial conversion price shall be $4.00 (as
adjusted as hereinafter provided, the "Conversion Price").
(b) The Company shall pay all interest on the principal amount of this
Debenture surrendered for conversion accrued to the date of conversion.
(c) In order to convert this Debenture, the holder shall surrender this
Debenture at the office of the Company and shall give written notice by mail,
postage prepaid, to the Company of the election to convert this Debenture
pursuant hereto and shall state therein the principal amount hereof to be
converted and the name or names in which the certificate or certificates for the
shares of Common Stock are to be issued. The Company shall, as soon as
practicable thereafter, issue and deliver to the holder a certificate or
certificates for the number of shares of Common Stock to which the holder shall
be entitled upon which conversion. The conversion shall be deemed to have been
made immediately prior to the close of business on the date of the surrender of
the Debenture. The person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date.
7. Adjustments.
(a) The Conversion Price and the number of shares of Common Stock
issuable upon the conversion of this Debenture shall be subject to adjustment
from time to time as follows:
(i) Except as hereinafter provided, in case the Company shall at
any time after the date hereof issue or sell any shares of Common Stock
(including shares held in the Company's treasury) for a consideration
per share less than the Conversion Price (or, if an Adjusted Conversion
Price shall be in effect by reason of a previous adjustment under this
Section 7 as provided below, then less than such Adjusted Conversion
Price), then and in each such case the holder of this Debenture, upon
the conversion hereof, shall be entitled to receive, in lieu of the
shares of Common Stock theretofore receivable upon the conversion of
this Debenture, a number of shares of Common Stock determined by
dividing the outstanding principal balance hereof to be converted by an
Adjusted Conversion Price to be computed as provided below in this
Paragraph 7(a)(i). Such Adjusted Conversion Price shall be computed (to
the nearest cent -- a half cent or more being considered a full cent) by
dividing:
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(1) the sum of (x) the result obtained by multiplying the
number of shares of Common Stock of the Company outstanding
immediately prior to such issue or sale by the Conversion Price
(or, if an Adjusted Conversion Price shall be in effect by reason
of a previous adjustment under this Paragraph 7(a)(i), by such
Adjusted Conversion Price) in effect immediately prior to such
issue or sale, and (y) the consideration, if any, received by the
Company upon such issue or sale; by
(2) the number of shares of Common Stock of the Company
outstanding immediately after such issue or sale.
For the purposes of the foregoing calculation, all shares of Common Stock of the
Company issuable upon conversion of all then outstanding convertible securities
(including the Debentures) and upon exercise of all then outstanding options,
warrants or other rights to acquire Common Stock shall be deemed outstanding but
only to the extent and only if the Market Value of the Common Stock of the
Company on such date is in excess of the conversion price of such convertible
securities then in effect or the exercise price of such options, warrants or
other rights then in effect, respectively.
"Market Value" for the purposes hereof shall mean the average of the closing
prices of the Common Stock for sales on all national securities exchanges on
which the Common Stock may at the time be listed, or, if there shall have been
no sales on any such exchange on any such day, the average of the bid and asked
prices at the end of such day, or, if the Common Stock shall not be so listed,
the average of the high and low bid and asked prices on such day in the
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of 10 consecutive business days prior to the day as of which
"Market Value" is being determined; provided that if the Common Stock is listed
on any domestic exchange the term "business days" as used in this sentence shall
mean business days on which such exchange is open for trading. If at any time
the Common Stock is not listed on any national securities exchange or quoted in
the over-the-counter market, the "Market Value" shall be deemed to be the higher
of (i) the book value thereof, as determined by any firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Corporation, as at the last day of any month ending within 60 days preceding the
date as of which the determination is to be made, or (ii) the fair value thereof
determined in good faith by the Board of Directors of the Corporation as of a
date which is within 15 days of the date as of which the determination is to be
made.
No adjustment of the Conversion Price, or Adjusted Conversion Price if in
effect, however, shall be made in an amount less than $.05 per share, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which together with any
adjustments so carried forward shall amount to $.05 per share or more.
(ii) In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be cash, the amount of
cash consideration therefor shall be deemed to be the amount of cash
received by the Company for such shares (or, if shares of Common Stock
are offered by the Company for subscription, the subscription price, or,
if shares of Common Stock shall be sold to underwriters or dealers for
public offering without a subscription offering, the initial public
offering price) without deducting therefrom any compensation paid or
discount allowed in the sale, underwriting or purchase thereof by
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underwriters or dealers or others performing similar services or any
expenses incurred in connection therewith.
(iii) In case of the issuance or sale (otherwise than as a
dividend or other distribution on or subdivision of any stock of the
Company or on conversion or exchange of other securities of the Company)
of shares of Common Stock for a consideration part or all of which shall
be other than cash, the amount of the consideration therefor other than
cash shall be deemed to be the value of such consideration, as
determined in good faith by the Board of Directors of the Company, at or
about, but as of, the date of the adoption of the resolution authorizing
such issuance for a consideration other than cash of such Common Stock
immediately prior to the close of business on the date fixed for the
determination of security holders entitled to receive such Common Stock.
(iv) Shares of Common Stock issuable by way of dividend or other
distribution on or subdivision of any stock of the Company shall be
deemed to have been issued immediately after the opening of business on
the date following the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution or subdivision.
(b) Except as hereinafter provided, in case the Company shall at any
time after the date hereof issue options or rights to subscribe for shares of
Common Stock (including shares held in the Company's treasury), or issue any
securities convertible into or exchangeable for shares of Common Stock, for an
exercise or conversion price per share less than the Conversion Price in effect
immediately prior to the issuance of such options or rights or convertible or
exchangeable securities, or without consideration, the Conversion Price in
effect immediately prior to the issuance of such options or rights or securities
shall be increased or reduced to a price determined by making a computation in
accordance with the provisions of Paragraph 7(a)(i), provided that:
(i) the aggregate maximum number of shares of Common Stock
deliverable under such options or rights shall be considered to have
been delivered at the time such options or rights were issued, and for a
consideration equal to the purchase price per share of Common Stock
provided for in such options or rights, plus the consideration
(determined in the same manner as consideration received on the issue or
sale of Common Stock), if any, received by the Company for such options
or rights;
(ii) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or exchange for any such securities shall
be considered to have been delivered at the time of issuance of such
securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or
sale of Common Stock) received by the Company for such securities, plus
the consideration, if any, to be received by the Company upon the
exchange or conversion thereof; and
(iii) on the expiration of such options or rights, or the
termination of such right to convert or exchange, if none or only part
of such options or rights have been exercised, the Conversion Price
shall forthwith be readjusted to such Conversion Price as would have
been obtained had the adjustments made upon the issuance of such
options, rights or convertible or exchangeable securities been made upon
the basis of the delivery of only the number of
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shares of Common Stock actually delivered upon the exercise of such
options or rights or upon conversion or exchange of such securities.
(c) In the event the Company shall issue additional shares of Common
Stock in a stock dividend, stock distribution or subdivision, the Conversion
Price in effect immediately prior to such stock dividend, stock distribution or
subdivision shall, concurrently with the effectiveness of such stock dividend,
stock distribution or subdivision, be proportionately decreased.
(d) In the event the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares of Common Stock, the Conversion Price in effective immediately prior
to such combination or consolidation shall, concurrently with the effectiveness
of such combination or consolidation, be proportionately increased.
(e) Notwithstanding anything contained herein to the contrary, no
adjustment of the Conversion Price shall be made:
(i) In connection with the issuance or sale of Common Stock upon
the exercise of options or rights or upon the conversion or exchange of
convertible or exchangeable securities in any case where the adjustment
was made upon the issuance of such options, rights, or convertible or
exchangeable securities by reason of the provisions of this Paragraph
7(b)(ii).
(ii) In connection with grants to employees, directors,
consultants or others with similar relationships with the Company or its
subsidiaries of options to purchase, at a price equal to or in excess of
fair market value as determined by the Board of Directors of the Company
at the time of grant, shares of Common Stock of the Company.
(iii) In connection with any issuance or sale of Common Stock to
officers, directors or employees of, or consultants to, the Company
pursuant to a grant or plan approved by the Board of Directors of the
Company.
(iv) In connection with any acquisition of assets, securities, or
a business or any exchange of securities to acquire all or part of any
business, provided that such acquisition or exchange has been approved
by the Board of Directors of the Company.
(v) In connection with the issuance of Common Stock or other
securities upon conversion of this Debenture or any other Debenture
issued pursuant to the Debenture and Note Purchase Agreement.
(vi) In connection with the issuance of Common Stock or other
securities upon the exercise of Warrants issued pursuant to the
Debenture and Note Purchase Agreement.
(vii) In connection with the issuance of Common Stock or other
securities upon the conversion of Preferred Stock issued pursuant to the
Debenture and Note Purchase Agreement.
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(f) If any capital reorganization or reclassification of the capital
stock of the Company (other than a change in par value, or from par value to no
par value, or as a result of the subdivision or combination), or consolidation
or merger of the Company with another corporation (other than a consolidation or
merger in which the Company is the continuing corporation and which does not
result in any reclassification of the outstanding Common Stock), or the sale of
all or substantially all of its assets to another corporation shall be
effective, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision shall be made
whereby the holder hereof shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Debenture and in lieu of the shares of Common Stock and other capital stock (if
any) of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock and other capital stock (if any)
equal to the number of shares of such Common Stock and other capital stock (if
any) immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interest of the holders
of this Debenture to the end that the provisions hereof shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon exercise hereof. The Company shall not
effect any such consolidation, merger or sale, unless prior to or simultaneously
with the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger of the corporation
purchasing such assets shall assume by written instrument the obligation to
deliver to such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
purchase and the other obligations under this Debenture. The adjustments
provided for in this Paragraph 7(f) shall apply with respect to each such change
occurring while this Debenture is outstanding.
(g) In case at any time:
(i) The Company shall declare any dividend upon its Common Stock
payable otherwise than in cash or in Common Stock of the Company or
payable otherwise than out of consolidated net income for a twelve-month
period ending not earlier than 90 days prior to the date of payment of
such dividend; or
(ii) The Company shall offer for subscription to the holders of
its Common Stock any additional shares of stock of any class or any
other securities convertible into shares of stock or any rights to
subscribe thereto other than the sale of any additional shares of Common
Stock contemplated under the Agreement; or
(iii) There shall be any capital reorganization or
reclassification of the capital stock of the Company, or a sale of all
or substantially all of the assets of the Company, or a consolidation or
merger of the Company with another corporation (other than a merger with
a subsidiary in which merger the Company is the continuing corporation
and which does not result in any reclassification), or change of the
then outstanding shares of Common Stock or other capital stock issuable
upon conversion of this Debenture (other than a change in par value, or
from par value or as a result of subdivision or combination); or
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(iv) There shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company.
then, in any one or more of said cases, the Company shall cause to be mailed to
each of the registered holders of the Debentures at the earliest practicable
time (and, in any event, not less than 20 days before any record date or other
date set for definitive action), written notice of the date on which the books
of the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights or such reorganization, reclassification,
sale, consolidation, merger, dissolution, or liquidation shall take place, as
the case may be. Such notice shall also set forth such facts as shall indicate
the effect of such action (to the extent such effect may be known at the date of
such notice) on the Conversion Price and the kind and amount of the shares of
stock and other securities and properly deliverable upon exercise of the
Debentures. Such notice shall also specify the date as of which the holders of
the Common Stock of record shall participate in said dividend, distribution or
subscription rights or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, sale, consolidation, merger, dissolution, liquidation, winding
up or conversion, as the case may be (on which date, in the event of voluntary
or involuntary dissolution, or liquidation of the Company, the right to exercise
the Debentures shall terminate).
8. No Fractional Shares. The Company shall not be required to issue
certificates representing fractional shares of Common Stock, but will make a
payment in cash based on the fair market value of one share of Common Stock on
the date of Conversion for any fractional share.
9. Reservation of Shares. All shares which may be issued upon the
conversion of this Debenture shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable and free from all preemptive rights of any
stockholder and all taxes, liens and charges with respect to the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue). During the Conversion Period within which the conversion rights
represented by this Debenture may be converted, the Company will at all times
have authorized, and reserved, a sufficient number of shares of its Common Stock
to provide for the conversion of this Debenture, and will at its expense
expeditiously upon each such reservation of shares procure the listing of such
shares (subject to issuance or notice of issuance) to the extent required on all
stock exchanges or automated quotation systems, if any, on which the Common
Stock is then listed.
10. Delivery of Stock Certificates. As promptly as practicable after the
conversion of this Debenture, the Company at its expense will issue and deliver
to the holder of this Debenture a certificate or certificates for the number of
full shares of Common Stock issuable upon such conversion and, if applicable, a
new Debenture evidencing the principal amount hereof not so converted.
11. Voting Rights. To the extent specified in the Certificate of
Incorporation of the Company, the holder of this Debenture shall have the right
and power to vote, together with the holders of all outstanding shares of Common
Stock of the Company, on each matter on which the holders of record of Common
Stock of the Company shall be entitled to vote (subject to the right to vote as
a separate class in the election of Directors as specified in the Certificate of
Incorporation of the Company) and the holder of this Debenture shall receive
notice of and shall be entitled to attend in person or by proxy any meeting of
stockholders. The number of votes which the holder
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of this Debenture is entitled to vote pursuant to the Certificate of
Incorporation of the Company, as amended, shall be equal to the number of shares
of Common Stock into which this Debenture is convertible as determined from time
to time by the provisions hereof. In addition, the holder of this Debenture
shall have such other rights as are specified in the Certificate of
Incorporation of the Company.
12. Cumulative Rights. No delay on the part of the holder of this
Debenture in the exercise of any power or right under this Debenture, or under
any document or instrument executed in connection herewith, shall operate as a
waiver thereof, nor shall a single or partial exercise of any other power or
right. Enforcement by the holder of this Debenture of any security for the
payment hereof shall not constitute any election by it of remedies so as to
preclude the exercise of any other remedy available to it.
13. Waiver. Except as provided in the Debenture and Note Purchase
Agreement, the Company and each surety, endorser, guarantor, and other party now
or ever liable for the payment of any sum of money payable on this Debenture,
jointly and severally, waive demand, presentment, protest, notice of intention
to accelerate, notice of acceleration, notice of protest, and any and all lack
of diligence or delay in collection or the filing of suit hereon which may
occur, and agree that their liability on this Debenture shall not be affected by
any renewal or extension in the time of payment hereof, by any indulgences, or
by any release or change in any security for the payment of this Debenture, and
hereby consent to any and all renewals, extensions, indulgences, releases, or
changes, regardless of the number of such renewals, extensions, indulgences,
releases, or changes.
14. Subordination. The indebtedness including interest, principal and
default interest, if any, evidenced by this Debenture is hereby expressly
subordinated, to the extent and in the manner set forth in this Section 14, in
right of payment to the prior payment in full of all the Company's Senior
Indebtedness (as hereinafter defined) whether now outstanding or hereafter
defined.
(a) Senior Indebtedness. As used in this Note, the term "Senior
Indebtedness" shall mean the principal of and unpaid accrued interest on: (i)
indebtedness of the Company to banks, insurance companies or other financial
institutions regularly engaged in the business of lending money, which is for
money borrowed by the Company (whether or not secured), for working capital
purposes, and (ii) which indebtedness has been approved in advance and in
writing by the holders of Debentures and Senior Notes (as defined in the
Debenture and Note Purchase Agreement) issued pursuant to the Debenture and Note
Purchase Agreement having an aggregate outstanding principal balance greater
than sixty percent (60%) of the aggregate outstanding principal balance of all
outstanding Debentures and Senior Notes, as such indebtedness may be amended,
supplemented, extended, renewed, replaced, refinanced or restructured.
(b) Default on Senior Indebtedness. If there should occur any
receivership, insolvency, assignment for the benefit of creditors, bankruptcy,
reorganization or arrangements with creditors (whether or not pursuant to
bankruptcy or other insolvency laws), sale of all or substantially all of the
assets, dissolution, liquidation or any other marshaling of the assets and
liabilities of the Company, or if this Debenture shall be declared due and
payable upon the occurrence of an Event of Default with respect to any Senior
Indebtedness, then (i) no amount shall be paid by the Company in respect of the
principal of or interest on this Debenture at the time outstanding, unless and
until the principal of and interest on the Senior Indebtedness then outstanding
shall be paid in full, and
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(ii) no claim or proof of claim shall be filed with the Company by or on behalf
of the holder of this Debenture that shall assert any right to receive any
payments in respect of the principal of and interest on this Debenture, except
subject to the payment in full of the principal of and interest on all of the
Senior Indebtedness then outstanding. If there occurs an event of default that
has been declared in writing with respect to any Senior Indebtedness, or in the
instrument under which any Senior Indebtedness is outstanding, permitting the
holder of such Senior Indebtedness to accelerate the maturity thereof, then,
unless and until such event of default shall have been cured or waived or shall
have ceased to exist, or all Senior Indebtedness shall have been paid in full,
no payment shall be made in respect of the principal of or interest on this
Debenture, unless within three (3) months after the happening of such Event of
Default, the maturity of such Senior Indebtedness shall not have been
accelerated.
(c) Effect of Subordination. Subject to the rights, if any, of the
holders of Senior Indebtedness under this Section 14 to receive cash, securities
or other properties otherwise payable or deliverable to the holder of this
Debenture, nothing contained in this Section 14 shall impair, as between the
Company and the holder, the obligation of the Company, subject to the terms and
conditions hereof, to pay to the holder the principal hereof and interest hereon
as and when the same become due and payable, or shall prevent the holder of this
Debenture, upon default hereunder, from exercising all rights, powers and
remedies otherwise provided herein or by applicable law.
(d) Subrogation. Subject to the payment in full of all Senior
Indebtedness and until this Debenture shall be paid in full, the holder shall be
subrogated to the rights of the holders of Senior Indebtedness (to the extent of
payments or distributions previously made to such holders of Senior Indebtedness
pursuant to the provisions of Section 14(b) above) to receive payments or
distributions of assets of the Company applicable to the Senior Indebtedness. No
such payments or distributions applicable to the Senior Indebtedness shall, as
between the Company and its creditors, other than the holders of Senior
Indebtedness and the holder, be deemed to be a payment by the Company to or on
account of this Debenture; and for the purposes of such subrogation, no payments
or distributions to the holders of Senior Indebtedness to which the holder would
be entitled except for the provisions of this Section 14 shall, as between the
Company and its creditors, other than the holders of Senior Indebtedness and the
holder, be deemed to be a payment by the Company to or on account of the Senior
Indebtedness.
(e) Undertaking. If the Holder receives any payment on this Note which
is prohibited by this Section 14, such payment shall be held in trust by the
Holder for the benefit of, and shall be paid and delivered upon written request
to, the holders of Senior Indebtedness or their agent, for application to the
payment on such Senior Indebtedness. By its acceptance of this Debenture, the
holder agrees to execute and deliver such documents as may be reasonably
requested from time to time by the Company or the lender of any Senior
Indebtedness in order to implement the foregoing provisions of this Section 14.
15. Attorneys' Fees and Costs. In the event an Event of Default shall
occur, and in the event that thereafter this Debenture is placed in the hands of
an attorney for collection, or in the event this Debenture is collected in whole
or in part through legal proceedings of any nature, then and in any such case
the Company promises to pay all costs of collection, including, but not limited
to, reasonable attorneys' fees incurred by the holder hereof on account of such
collection, whether or not suit is filed.
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16. Notices. All notices, claims, demands and other communications
hereunder shall be in writing and shall be deemed given upon (a) confirmation of
receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier (c) when delivered by hand or (d) the expiration of five
business days after the day when mailed by registered or certified mail
(postpaid prepaid, return receipt requested), addressed to the respective
parties at the following addresses (or such other address for party as shall be
specified by like notice):
(a) if to the registered holder of a Debenture at the address of such
holder as shown on the books of the Company; or
(b) if to the Company, at:
SafeGuard Health Enterprises, Inc.
▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Chief Executive Officer
17. Transferability. This Debenture evidenced hereby may not be pledged,
sold, assigned or transferred except upon satisfaction of the conditions
specified in the legend on the face of this certificate. However, this Debenture
shall be binding upon any successors or assigns of the Company.
18. Treatment of Debenture. To the extent permitted by generally
accepted accounting principles, the Company will treat, account and report this
Debenture as debt and not equity for accounting purposes and with respect to any
returns filed with federal, state or local tax authorities.
19. Headings; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Debenture.
Except where otherwise indicated, all references herein to Sections refer to
Sections hereof.
20. Successors and Assigns. All of the covenants, stipulations,
promises, and agreements in this Debenture by or on behalf of the Company shall
bind its successors and assigns, whether so expressed or not; provided, however,
that the Company may not, without the prior written consent of the Holder
hereof, assign any rights, duties, or obligations under this Debenture. Any
assignment in violation of the foregoing shall be null and void.
21. Governing Law. This Debenture shall be governed by the laws of the
State of Delaware, and the laws of such state (other than conflicts of laws
principles) shall govern the construction, validity, enforcement, and
interpretation hereof, except to the extent federal laws otherwise govern the
validity, construction, enforcement, and interpretation hereof.
22. Maximum Interest Rate. Regardless of any provision contained herein,
or in any other document executed in connection herewith, the holder hereof
shall never be entitled to receive, collect, or apply, as interest hereon, any
amount in excess of the maximum rate of interest permitted to be charged from
time to time by applicable law, and in the event the holder hereof ever
receives, collects, or applies, as interest, any such excess, such amount which
would be excessive interest shall be deemed a partial prepayment of the
principal hereof and treated hereunder as such; and, if the
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principal hereof is paid in full, any remaining excess shall forthwith be paid
to Company. In determining whether or not the interest paid or payable, under
any specified contingency, exceeds the highest lawful rate, Company and the
holder hereof shall, to the maximum extent permitted under applicable law, (a)
characterize any nonprincipal payment as an expense, fee, or premium rather than
as interest, (b) exclude voluntary prepayments and the effects thereof, and (c)
spread the total amount of interest throughout the entire contemplated term
hereof; provided that if the indebtedness evidenced hereby is paid and performed
in full prior to the end of the full contemplated term thereof, and if the
interest received for the actual period of existence thereof exceeds the maximum
lawful rate, the holder hereof shall refund to Company the amount of such excess
or credit the amount of such excess against the principal hereof, and in such
event, the holder hereof shall not be subject to any penalties provided by any
laws for contracting for, charging, or receiving interest in excess of the
maximum lawful rate.
23. Payments. Each payment of the principal of or accrued interest on
this Debenture shall be due and payable in lawful money of the United States of
America, at the address of Holder as shown on the books of the Company, in funds
which are or will be available for immediate use by Holder at such office at or
before 1:00 p.m., New York time on the day each payment thereof is due. In any
case where a payment of principal or interest hereon is due on a nonbusiness
Day, the Company shall be entitled to delay such payment until the next
succeeding business day, but interest shall continue to accrue until the payment
is, in fact, made.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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IN WITNESS WHEREOF, the Company has caused this Debenture to be issued
this __th day of _____________, 1999.
SAFEGUARD HEALTH ENTERPRISES, INC.
By:_____________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
Title: Chairman and Chief Executive
Officer
By:_____________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Senior Vice President and
Secretary
Name of Holder: ______________________________
Address: ______________________________
______________________________
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ELECTION TO CONVERT
To SafeGuard Health Enterprises, Inc.
The undersigned owner of the accompanying Debentures hereby irrevocably
exercises the option to convert to shares of Common Stock in accordance with the
terms of such Debenture, and directs that the shares issuable and deliverable
upon such conversion be issued in the name of and delivered to the undersigned.
Dated:_______________________
COMPLETE FOR REGISTRATION OF SHARES OF COMMON STOCK ON THE STOCK TRANSFER
RECORDS MAINTAINED BY THE COMPANY:
________________________________________________________________________________
Name of Debenture Holder
Name(s) of Person(s) in which Common Stock Certificate(s) are to be registered:
________________________________________________________________________________
Address: ______________________________
______________________________
______________________________
________________________________________________________________________________
Taxpayer Identification Number
Principal Portion to be converted
(if less than all)
$_______________
Shares of Common Stock to be Issued
_______________ shares
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EXHIBIT C
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF (a) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE NOTE UNDER THE SECURITIES ACT OF 1933 OR (b) AN OPINION
REASONABLY SATISFACTORY TO SAFEGUARD HEALTH ENTERPRISES, INC. FROM COUNSEL FOR
SAFEGUARD HEALTH ENTERPRISES, INC. OR FROM COUNSEL FOR THE PROPOSED TRANSFEROR
REASONABLY SATISFACTORY TO SAFEGUARD HEALTH ENTERPRISES, INC. TO THE EFFECT THAT
THE TRANSFER MAY BE EFFECTED WITHOUT SUCH REGISTRATION.
SAFEGUARD HEALTH ENTERPRISES, INC.
8% SENIOR NOTE
___________, 1999
NO. _________ $_______________
SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware corporation ("Maker"),
hereby promises to pay to the order of ________________________________
("Payee"), or its registered assigns, the sum of
________________________________________ Dollars ($__________), together with
interest accruing from the date hereof on the unpaid principal hereof at the
rate of interest of eight percent (8%) per annum.
This Note is issued pursuant to that certain Debenture and Note Purchase
Agreement, dated as of ________ __, 1999, between the Company and the Investors
named therein, as the same may from time to time be amended, modified or
supplemented (the "Debenture and Note Purchase Agreement"). The holder of this
Note is subject to certain restrictions set forth in the Debenture and Note
Purchase Agreement and shall be entitled to certain rights and privileges set
forth in the Debenture and Note Purchase Agreement. This Note is one of the
"Senior Notes" referred to in the Debenture and Note Purchase Agreement.
1. Principal Payments/Mandatory Prepayments
(a) The principal of this Note shall be due and payable in four (4)
annual installments of $__________ each, due and payable on ______________,
2005, _______________ 2006, _______________, 2007, and _______________, 2008,
and a final installment in the amount of all principal hereof then outstanding
shall be due and payable on _______________, 2009.
(b) In addition, or before ninety (90) days after the last day of each
fiscal year of Maker, Maker shall prepay the principal of this Note in an amount
equal to seventy-five percent (75%) of the Excess Cash Flow (as defined below)
of the Maker for such preceding fiscal year, provided that
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the Excess Cash Flow for the fiscal year ending December 31, 1999 shall not
include Excess Cash Flow for the period from January 1, 1999 through _______,
1999.
(c) In addition, in the event that the Maker or its subsidiaries shall
sell any of their respective assets, other than in the normal course of
business, including, without limitation, the Notes payable by Pacific Coast
Dental, Inc./Associated Dental Services, Inc. or the assets securing such Notes
or the capital stock or assets of such corporations, subject to regulatory
approval or requirements, Maker shall prepay the outstanding principal of this
Note in an amount equal to the net proceeds received by the Maker from each such
sale within five (5) days after the consummation of each such sale; provided,
however, that, in the event of the sale of the Notes payable by Pacific Coast
Dental, Inc./Associated Dental Services, Inc. or the capital stock or assets of
such corporation, the Maker shall be entitled to retain up to a maximum amount
of $2,000,000 in the aggregate out of the net proceeds from both such sales for
working capital purposes.
2. Interest Payments. Interest accruing from the date hereof on the
outstanding principal of this Note shall be due and payable on each (calendar
day 90 days after the Closing Date) and (calendar day 270 days after the Closing
Date), from and after the date hereof, commencing (date 90 days after the
Closing Date), and at maturity. All past due principal of, and accrued interest
on, this Note shall bear interest from maturity (whether stated, by acceleration
or otherwise) until paid at the rate of eighteen percent (18%) per annum.
3. Prepayments. The unpaid principal balance of this Note may be prepaid
in whole or in part at any time without premium or penalty, but only if all
accrued interest on the amount of each such prepayment is paid to the date of
such prepayment. Each such prepayment, including the mandatory prepayments under
Paragraphs 1(b) or 1(c) above, shall be applied first to the payment of all
accrued interest on the amount of principal being prepaid and next to the
remaining principal installments under this Note in the inverse order of
maturity.
4. Mandatory Prepayment.
(a) Upon Liquidation of the Company.
i. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, prior and in preference to any
distribution of any of the assets or surplus funds of the Company to the
holders of capital stock of the Company by reason of their ownership
thereof, all outstanding principal and unpaid accrued interest on this
Note shall be immediately due and payable. In the event that the assets
and funds of the Company are insufficient to permit payment in full of
all then outstanding Senior Notes and Debentures (as such term is
defined in the Debenture and Note Purchase Agreement) issued pursuant to
the Debenture and Note Purchase Agreement, then the entire assets and
funds of the Company legally available for distribution shall be
distributed ratably among the holders of such Debentures and Senior
Notes in proportion to the face amounts thereof.
ii. For purposes of this Section 4(a), at the election of the
holders of at least sixty percent (60%) of the aggregate principal
balance of all then outstanding Debentures and Senior Notes issued
pursuant to the Debenture and Note Purchase Agreement, a liquidation,
dissolution or winding up of the Company shall be deemed to be
occasioned by, and to
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include, a Sale of Assets or a Merger, Share Exchange or Consolidation.
In the event of any such transaction, the holders of all then
outstanding Senior Notes issued pursuant to the Debenture and Note
Purchase Agreement shall be entitled, pursuant to and as a condition to
such transaction, to receive in the manner provided in Section 4(a) the
amounts such holders would receive pursuant to a liquidation,
dissolution or winding up of the Company in which the amount of assets
available for distribution equals the consideration to be received in
such transaction. As used in this Note, "Merger, Share Exchange or
Consolidation" shall mean the merger, statutory share exchange, or
consolidation of the Company with or into another entity, or any
corporate reorganization in which the shareholders of the Company do not
hold fifty percent (50%) or more of the voting securities of the
continuing or surviving entity or any transaction or series of
transactions by the Company in which in excess of fifty percent (50%) of
the voting power of the outstanding securities of the Company is
transferred or a sale of all or substantially all of the assets of the
Company.
iii. Any asset other than cash that is distributed, or deemed
distributed under Section 4(a)(ii), by the Company shall be valued at
its fair market value.
(b) Upon Event of Default. Upon the occurrence of an Event of Default as
defined in the Debenture and Note Purchase Agreement, the maturity of this Note
may be accelerated as provided in the Debenture and Note Purchase Agreement.
(c) Limitation. In the event the Company lacks sufficient funds to
prepay lawfully all of the Debentures and Senior Notes which the Company is, at
any such time, obligated to prepay in accordance with this Section 4, then
holders of all of the then outstanding Debentures and Senior Notes issued
pursuant to the Debenture and Note Purchase Agreement shall share ratably in any
funds legally available for prepayment of such Debentures and Senior Notes
according to the respective amounts which would be payable with respect to the
face amount of the then outstanding Debentures and Senior Notes owned by them if
all such Debentures and Senior Notes were prepaid in full.
5. Events of Default and Remedies. Without notice or demand (each of
which is hereby waived), the entire unpaid principal balance of and all accrued
interest on this Note may become immediately due and payable upon the occurrence
of any Event of Default as defined in the Debenture and Note Purchase Agreement
and in the manner set forth in the Debenture and Note Purchase Agreement. The
holder of this Note shall have all rights and remedies exercisable upon an Event
of Default as specified in and subject to the Debenture and Note Purchase
Agreement.
6. Cumulative Rights. No delay on the part of the holder of this Note in
the exercise of any power or right under this Note, or under any document or
instrument executed in connection herewith, shall operate as a waiver thereof,
nor shall a single or partial exercise of any other power or right. Enforcement
by the holder of this Note of any security for the payment hereof shall not
constitute any election by it of remedies so as to preclude the exercise of any
other remedy available to it.
7. Waiver. Except as provided in the Debenture and Note Purchase
Agreement, Maker, and each surety, endorser, guarantor, and other party ever
liable for the payment of any sum of money payable on this Note, jointly and
severally, waive demand, presentment, protest, notice of
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intention to accelerate, notice of acceleration, notice of protest, and any and
all lack of diligence or delay in collection or the filing of suit hereon which
may occur, and agree that their liability on this Note shall not be affected by
any renewal or extension in the time of payment hereof, by any indulgences, or
by any release or change in any security for the payment of this Note, and
hereby consent to any and all renewals, extensions, indulgences, releases, or
changes, regardless of the number of such renewals, extensions, indulgences,
releases, or changes.
8. Subordination. The indebtedness, including interest, principal and
default interest, if any, evidenced by this Note is hereby expressly
subordinated, to the extent and in the manner set forth in this Section 8, in
right of payment to the prior payment in full of all the Company's Senior
Indebtedness (as hereinafter defined) whether now outstanding or hereafter
incurred.
(a) Senior Indebtedness. As used in this Note, the term "Senior
Indebtedness" shall mean the principal of and unpaid accrued interest and any
other monetary obligation in respect of: (i) indebtedness of the Company or a
subsidiary to banks, insurance companies or other financial institutions
regularly engaged in the business of lending money, which is for money borrowed
by the Company or a subsidiary (whether or not secured), for working capital
purposes, and (ii) which indebtedness has been approved in advance in writing by
the holders of Debentures (as defined in the Debenture and Note Purchase
Agreement) and Senior Notes issued pursuant to the Debenture and Note Purchase
Agreement having an aggregate outstanding principal balance greater than sixty
percent (60%) of the aggregate outstanding principal balance of all outstanding
Debentures and Senior Notes, as such indebtedness may be amended, supplemented,
extended, renewed, replaced, refinanced or restructured.
(b) Default on Senior Indebtedness. If there should occur any
receivership, insolvency, assignment for the benefit of creditors, bankruptcy,
reorganization or arrangements with creditors (whether or not pursuant to
bankruptcy or other insolvency laws), sale of all or substantially all of the
assets, dissolution, liquidation or any other marshaling of the assets and
liabilities of the Company, or if this Note shall be declared due and payable
upon the occurrence of an event of default with respect to any Senior
Indebtedness, then (i) no amount shall be paid by the Company in respect of the
principal of or interest on this Note at the time outstanding, unless and until
the principal of and interest on the Senior Indebtedness then outstanding shall
be paid in full, and (ii) no claim or proof of claim shall be filed with the
Company by or on behalf of the Holder of this Note that shall assert any right
to receive any payments in respect of the principal of and interest on this
Note, except subject to the payment in full of all of the Senior Indebtedness
then outstanding. If there occurs an event of default that has been declared in
writing with respect to any Senior Indebtedness, or in the instrument under
which any Senior Indebtedness is outstanding, permitting the holder of such
Senior Indebtedness to accelerate the maturity thereof, then, unless and until
such event of default shall have been cured or waived or shall have ceased to
exist, or all Senior Indebtedness shall have been paid in full, no payment shall
be made in respect of the principal of or interest on this Note, unless within
three (3) months after the happening of such Event of Default, the maturity of
such Senior Indebtedness shall not have been accelerated.
(c) Effect of Subordination. Subject to the rights, if any, of the
holders of Senior Indebtedness under this Section 8 to receive cash, securities
or other properties otherwise payable or deliverable to the holder of this Note,
nothing contained in this Section 8 shall impair, as between the Company and the
holder, the obligation of the Company, subject to the terms and conditions
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hereof, to pay to the holder the principal hereof and interest hereon as and
when the same become due and payable, or shall prevent the holder of this Note,
upon default hereunder, from exercising all rights, powers and remedies
otherwise provided herein or by applicable law.
(d) Subrogation. Subject to the payment in full of all Senior
Indebtedness and until this Note shall be paid in full, the holder shall be
subrogated to the rights of the holders of Senior Indebtedness (to the extent of
payments or distributions previously made to such holders of Senior Indebtedness
pursuant to the provisions of Section 8(b) above) to receive payments or
distributions of assets of the Company applicable to the Senior Indebtedness. No
such payments or distributions applicable to the Senior Indebtedness shall, as
between the Company and its creditors, other than the holders of Senior
Indebtedness and the holder, be deemed to be a payment by the Company to or on
account of this Note; and for the purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness to which the holder would be
entitled except for the provisions of this Section 8 shall, as between the
Company and its creditors, other than the holders of Senior Indebtedness and the
holder, be deemed to be a payment by the Company to or on account of the Senior
Indebtedness.
(e) Undertaking. If the Holder receives any payment on this Note which
is prohibited by this Section 8, such payment shall be held in trust by the
Holder for the benefit of, and shall be paid and delivered upon written request
to, the holders of Senior Indebtedness or their agent, for application to the
payment on such Senior Indebtedness. By its acceptance of this Note, the holder
agrees to execute and deliver such documents as may be reasonably requested from
time to time by the Company or the lender of any Senior Indebtedness in order to
implement the foregoing provisions of this Section 8.
9. Attorneys' Fees and Costs. In the event an Event of Default shall
occur, and in the event that thereafter this Note is placed in the hands of an
attorney for collection, or in the event this Note is collected in whole or in
part through legal proceedings of any nature, then and in any such case Maker
promises to pay all costs of collection, including, but not limited to,
reasonable attorneys' fees incurred by the holder hereof on account of such
collection, whether or not suit is filed.
10. Notices. All notices, claims, demands and other communications
hereunder shall be in writing and shall be deemed given upon (a) confirmation of
receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier (c) when delivered by hand or (d) the expiration of five
business days after the day when mailed by registered or certified mail
(postpaid prepaid, return receipt requested), addressed to the respective
parties at the following addresses (or such other address for party as shall be
specified by like notice):
(a) if to the registered holder of this Note at the address of such
holder as shown on the books of the Company; or
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(b) if to the Company, at:
SafeGuard Health Enterprises, Inc.
▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Chief Executive Officer
11. Transferability. This Note evidenced hereby may not be pledged,
sold, assigned or transferred except upon satisfaction of the conditions
specified in the legend on the face of this certificate. However, this Note
shall be binding upon any successors or assigns of the Company.
12. Headings; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Debenture.
Except where otherwise indicated, all references herein to Sections refer to
Sections hereof.
13. Successors and Assigns. All of the covenants, stipulations,
promises, and agreements in this Note by or on behalf of Maker shall bind its
successors and assigns, whether so expressed or not; provided, however, that
Maker may not, without the prior written consent of the holder hereof, assign
any rights, duties, or obligations under this Note. Any assignment in violation
of the foregoing shall be null and void.
14. Governing Law. This Note shall be governed by the laws of the State
of Delaware, and the laws of such state (other than conflicts of laws
principles) shall govern the construction, validity, enforcement, and
interpretation hereof, except to the extent federal laws otherwise govern the
validity, construction, enforcement, and interpretation hereof.
15. Maximum Interest Rate. Regardless of any provision contained herein,
or in any other document executed in connection herewith, the holder hereof
shall never be entitled to receive, collect, or apply, as interest hereon, any
amount in excess of the maximum rate of interest permitted to be charged from
time to time by applicable law, and in the event the holder hereof ever
receives, collects, or applies, as interest, any such excess, such amount which
would be excessive interest shall be deemed a partial prepayment of the
principal hereof and treated hereunder as such; and, if the principal hereof is
paid in full, any remaining excess shall forthwith be paid to Maker. In
determining whether or not the interest paid or payable, under any specified
contingency, exceeds the highest lawful rate, Maker and the holder hereof shall,
to the maximum extent permitted under applicable law, (a) characterize any
nonprincipal payment as an expense, fee, or premium rather than as interest, (b)
exclude voluntary prepayments and the effects thereof, and (c) spread the total
amount of interest throughout the entire contemplated term hereof; provided that
if the indebtedness evidenced hereby is paid and performed in full prior to the
end of the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the maximum lawful rate, the holder
hereof shall refund to Maker the amount of such excess or credit the amount of
such excess against the principal hereof, and in such event, the holder hereof
shall not be subject to any penalties provided by any laws for contracting for,
charging, or receiving interest in excess of the maximum lawful rate.
16. Payments. Each payment of the principal of or accrued interest on
this Note shall be due and payable in lawful money of the United States of
America, at the address of Payee as shown
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on the books of the Company, in funds which are or will be available for
immediate use by Payee at such office at or before 1:00 p.m., New York time on
the day each payment thereof is due. In any case where a payment of principal or
interest hereon is due on a nonbusiness Day, Maker shall be entitled to delay
such payment until the next succeeding business day, but interest shall continue
to accrue until the payment is, in fact, made.
17. Certain Definitions.
(a) "GAAP" shall mean United States generally accepted accounting
principles as in effect on the date hereof and consistent with those utilized in
the preparation of the financial statements referred to in Section 3.9 of the
Debenture and Note Purchase Agreement.
(b) "Capital Expenditures" shall mean, for any period, the sum of
expenditures (whether paid in cash or accrued as a liability, including the
portion of Capitalized Leases originally incurred during such period that is
capitalized on the consolidated and balance sheet of Maker and its subsidiaries)
by Maker and its subsidiaries during such period that, in conformity with GAAP,
are included in "capital expenditures," "additions to property, plant or
equipment" or comparable items in the consolidated financial statements of Maker
and its subsidiaries.
(c) "Capitalized Lease" shall mean (i) any leases of property, real or
personal, the obligations under which are capitalized on the consolidated
balance sheet of Maker and its subsidiaries, and (ii) any other such lease to
the extent that the then present value of the minimum rental commitment
thereunder should in accordance with GAAP, be capitalized on a balance sheet of
the lessee.
(d) "Consolidated Current Assets" shall mean, at any time, the current
assets of Maker and its subsidiaries at such time, determined on a consolidated
basis in accordance with GAAP.
(e) "Consolidated Current Liabilities" shall mean, at any time, the
current liabilities (other than the current portion of the Notes) of Maker and
its subsidiaries at such time, determined on a consolidated basis in accordance
with GAAP.
(f) "Consolidated Net Income" for any period, means the net income (or
loss) of Maker and its subsidiaries on a consolidated basis for such period
(taken as a single accounting period) determined in accordance with GAAP.
(g) "Consolidated Tax Expense" shall mean for any fiscal period of Maker
the aggregate of the tax expense of Maker and its subsidiaries for such period
determined in accordance with GAAP.
(h) "Consolidated Working Capital" shall mean at any time an amount
equal to Consolidated Current Assets minus Consolidated Current Liabilities at
such time.
(i) "Excess Cash Flow" shall mean, with respect to any fiscal period of
Maker, a positive number, if any, equal to (i) Consolidated Net Income for such
fiscal period, plus (ii) depreciation and amortization expense to the extent
deducted in determining Consolidated Net Income for such fiscal period, plus
(iii) Consolidated Tax Expense to the extent deducted in determining
Consolidated Net
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Income for such fiscal period, minus (iv) the aggregate amount
actually paid in cash by Maker and its subsidiaries during such fiscal period
for Consolidated Tax Expense, plus (or minus) (v) decreases (or increases) in
Consolidated Working Capital from the last day of the preceding fiscal period to
the last day of such fiscal period, minus (vi) the aggregate amount actually
paid in cash by Maker and its subsidiaries during such fiscal period for Capital
Expenditures permitted pursuant to the Debenture and Note Purchase Agreement (to
the extent not financed with the proceeds of purchase money indebtedness or
insurance), minus (vii) all regularly scheduled principal payments and
prepayments of the Senior Notes made during such fiscal period (other than
prepayments pursuant to Paragraphs 1(b) or 1(c) of each of the Senior Notes),
minus (viii) all regularly scheduled principal payments made during such fiscal
period in respect of other indebtedness for money borrowed to the extent such
indebtedness and payments are permitted to be incurred and made under the
Debenture and Note Purchase Agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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IN WITNESS WHEREOF, the Company has executed this Note as of the day and
year first above written.
SAFEGUARD HEALTH ENTERPRISES, INC.
a Delaware corporation
By:_____________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
Title: Chairman and Chief Executive
Officer
By:_____________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Senior Vice President and
Secretary
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EXHIBIT D
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE COMMON STOCK
UNDERLYING SUCH WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF (a) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE WARRANTS AND/OR COMMON STOCK UNDER THE SECURITIES
ACT OF 1933 OR (b) AN OPINION REASONABLY SATISFACTORY TO SAFEGUARD HEALTH
ENTERPRISES, INC. FROM COUNSEL FOR SAFEGUARD HEALTH ENTERPRISES, INC. OR FROM
COUNSEL FOR THE PROPOSED TRANSFEROR REASONABLY SATISFACTORY TO SAFEGUARD HEALTH
ENTERPRISES, INC. TO THE EFFECT THAT THE TRANSFER MAY BE EFFECTED WITHOUT SUCH
REGISTRATION.
SAFEGUARD HEALTH ENTERPRISES, INC.
WARRANT CERTIFICATE
FOR
PURCHASE OF SHARES OF COMMON STOCK
_______________, 1999
No. WC-______________
THIS CERTIFIES THAT, for value received, _____________________ is
entitled, subject to the terms and conditions hereinafter set forth, to purchase
from SafeGuard Health Enterprises, Inc., a Delaware corporation (the "Company"),
up to _______________________________ (________) fully paid and nonassessable
shares of Common Stock, par value $.01 per share, of the Company (the "Common
Stock"), upon presentation and surrender of this Warrant Certificate, together
with a completed and executed Election to Purchase in the form annexed thereto,
at any time during the Exercise Period as hereinafter defined, at the principal
office of the Company or at such other office as shall have theretofore been
designated by the Company by notice pursuant hereto, and upon payment therefor
of the Exercise Price as hereinafter defined, in lawful money of the United
States of America, as hereinafter set forth. In certain contingencies provided
for below, the number of shares of Common Stock subject to purchase hereunder
and/or the Exercise Price thereof are subject to adjustment. This Warrant has
been issued pursuant and subject to that certain Debenture and Note Purchase
Agreement, dated as of _______, 1999, by and among the Company and the Investors
named therein (the "Debenture and Note Purchase Agreement").
This Warrant is subject to the following terms and conditions:
1. Term of Warrant/Exercise Period. The purchase rights represented by
this Warrant shall be exercisable at the option of the holder hereof, in whole
at any time, or in part from time to time (but not as to a fractional share of
Common Stock), during the Exercise Period. In the case of the purchase of less
than all the shares then purchasable under this Warrant, the Company shall
cancel this Warrant upon the surrender hereof and shall execute and deliver a
new Warrant of like tenor for the balance of the shares purchasable hereunder.
The term "Exercise Period" shall mean
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and refer to the period commencing on the date hereof and ending at 5:00 p.m.
California Time, on ______________, 2009, after which time this Warrant shall be
void and no longer exercisable.
2. Exercise Price. The exercise price for each share of Common Stock
purchasable pursuant to the exercise of this Warrant (the "Exercise Price")
shall be $8.00 per share payable in funds of the United States of America (or
shall be such amount per share if and as the Exercise Price is adjusted as
provided in Paragraph 3 below (the "Adjusted Exercise Price")).
3. Adjustments.
(a) The Exercise Price and the number of shares of Common Stock
purchasable pursuant to the exercise of this Warrant shall be subject to
adjustment from time to time as follows:
(i) Except as hereinafter provided, in case the Company shall at
any time after the date hereof issue or sell any shares of Common Stock
(including shares held in the Company's treasury) for a consideration
per share less than the Exercise Price (or, if an Adjusted Exercise
Price shall be in effect by reason of a previous adjustment under this
Section 3 as provided below, then less than such Adjusted Exercise
Price), then and in each such case the holder of this Warrant, upon the
exercise hereof, shall be entitled to receive, in lieu of the shares of
Common Stock theretofore receivable upon the exercise of this Warrant, a
number of shares of Common Stock determined by dividing the Exercise
Price by an Adjusted Exercise Price to be computed as provided below in
this Section 3(a)(i), and multiplying the resulting quotient by the
number of shares of Common Stock called for on the face of this Warrant.
Such Adjusted Exercise Price shall be computed (to the nearest cent -- a
half cent or more being considered a full cent) by dividing:
(1) the sum of (x) the result obtained by multiplying the
number of shares of Common Stock of the Company outstanding
immediately prior to such issue or sale by the Exercise Price
(or, if an Adjusted Exercise Price shall be in effect by reason
of a previous adjustment under this Section 3(a)(i), by such
Adjusted Exercise Price) in effect immediately prior to such
issue or sale, and (y) the consideration, if any, received by the
Company upon such issue or sale; by
(2) the number of shares of Common Stock of the Company
outstanding immediately after such issue or sale.
For the purposes of the foregoing calculations, all shares of Common Stock
issuable upon the conversion of all then outstanding convertible securities and
upon the exercise of all then outstanding options, warrants or other rights to
acquire Common Stock (including the Warrants) shall be deemed outstanding but
only to the extent and only if the Market Value of the Common Stock of the
Company on such date is in excess of the conversion price of such convertible
securities then in effect or the exercise price of such options, warrants or
other rights then in effect, respectively.
"Market Value" for the purposes hereof shall mean the average of the
closing prices of the Common Stock for sales on all national securities
exchanges on which the Common Stock may at the time be listed, or, if there
shall have been no sales on any such exchange on any such day, the average of
the bid and asked prices at the end of such day, or, if the Common Stock shall
not be so
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listed, the average of the high and low bid and asked prices on such day in the
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of 10 consecutive business days prior to the day as of which
"Market Value" is being determined; provided that if the Common Stock is listed
on any domestic exchange the term "business days" as used in this sentence shall
mean business days on which such exchange is open for trading. If at any time
the Common Stock is not listed on any national securities exchange or quoted in
the over-the-counter market, the "Market Value" shall be deemed to be the higher
of (i) the book value thereof, as determined by any firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Corporation, as at the last day of any month ending within 60 days preceding the
date as of which the determination is to be made, or (ii) the fair value thereof
determined in good faith by the Board of Directors of the Corporation as of a
date which is within 15 days of the date as of which the determination is to be
made.
No adjustment of the Exercise Price, or Adjusted Exercise Price if in effect,
however, shall be made in an amount less than $.05 per share, but any such
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which together with any adjustments
so carried forward shall amount to $.05 per share or more.
(ii) In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be cash, the amount of
cash consideration therefor shall be deemed to be the amount of cash
received by the Company for such shares (or, if shares of Common Stock
are offered by the Company for subscription, the subscription price, or,
if shares of Common Stock shall be sold to underwriters or dealers for
public offering without a subscription offering, the initial public
offering price) without deducting therefrom any compensation paid or
discount allowed in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar services or any
expenses incurred in connection therewith.
(iii) In case of the issuance or sale (otherwise than as a
dividend or other distribution on or subdivision of any stock of the
Company or on conversion or exchange of other securities of the Company)
of shares of Common Stock for a consideration part or all of which shall
be other than cash, the amount of the consideration therefor other than
cash shall be deemed to be the value of such consideration, as
determined in good faith by the Board of Directors of the Company, at or
about, but as of, the date of the adoption of the resolution authorizing
such issuance for a consideration other than cash of such Common Stock
immediately prior to the close of business on the date fixed for the
determination of security holders entitled to receive such Common Stock.
(iv) Shares of Common Stock issuable by way of dividend or other
distribution on or subdivision of any stock of the Company shall be
deemed to have been issued immediately after the opening of business on
the date following the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution or subdivision.
(b) Except as hereinafter provided, in case the Company shall at any
time after the date hereof issue options or rights to subscribe for shares of
Common Stock (including shares held in the
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Company's treasury), or issue any securities convertible into or exchangeable
for shares of Common Stock, for an exercise price per share more or less than
the Exercise Price in effect immediately prior to the issuance of such options
or rights or convertible or exchangeable securities, or without consideration,
the Exercise Price in effect immediately prior to the issuance of such options
or rights or securities shall be increased or reduced to a price determined by
making a computation in accordance with the provisions of Section 3(a)(i),
provided that:
(i) the aggregate maximum number of shares of Common Stock
deliverable under such options or rights shall be considered to have
been delivered at the time such options or rights were issued, and for a
consideration equal to the purchase price per share of Common Stock
provided for in such options or rights, plus the consideration
(determined in the same manner as consideration received on the issue or
sale of Common Stock), if any, received by the Company for such options
or rights;
(ii) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or exchange for any such securities shall
be considered to have been delivered at the time of issuance of such
securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or
sale of Common Stock) received by the Company for such securities, plus
the consideration, if any, to be received by the Company upon the
exchange or conversion thereof; and
(iii) on the expiration of such options or rights, or the
termination of such right to convert or exchange, if none or only part
of such options or rights have been exercised, the Exercise Price shall
forthwith be readjusted to such Exercise Price as would have been
obtained had the adjustments made upon the issuance of such options,
rights or convertible or exchangeable securities been made upon the
basis of the delivery of only the number of shares of Common Stock
actually delivered upon the exercise of such options or rights or upon
conversion or exchange of such securities.
(c) In the event the Company shall issue additional shares of Common
Stock in a stock dividend, stock distribution or subdivision, the Exercise Price
in effect immediately prior to such stock dividend, stock distribution or
subdivision shall, concurrently with the effectiveness of such stock dividend,
stock distribution or subdivision, be proportionately decreased.
(d) In the event the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares of Common Stock, the Exercise Price in effective immediately prior to
such combination or consolidation shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately increased.
(e) Notwithstanding anything contained herein to the contrary, no
adjustment of the Exercise Price shall be made:
(i) In connection with the issuance or sale of Common Stock upon
the exercise of options or rights or upon the conversion or exchange of
convertible or exchangeable securities in any case where the adjustment
was made upon the issuance of such options,
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rights, or convertible or exchangeable securities by reason of the
provisions of Section 3(b)(ii) above.
(ii) In connection with grants to employees, directors,
consultants or others with similar relationships with the Company or its
subsidiaries of options to purchase, at a price equal to or in excess of
fair market value as determined by the Board of Directors of the Company
at the time of grant, shares of Common Stock of the Company.
(iii) In connection with any issuance or sale of Common Stock to
officers, directors or employees of, or consultants to, the Company
pursuant to a grant or plan approved by the Board of Directors of the
Company.
(iv) In connection with any acquisition of assets, securities, or
a business or any exchange of securities to acquire all or part of any
business, provided that such acquisition or exchange has been approved
by the Board of Directors of the Company.
(v) In connection with the issuance of Common Stock or other
securities upon exercise of this Warrant or any other Warrant issued
pursuant to the Debenture and Note Purchase Agreement.
(vi) In connection with the issuance of Common Stock or other
securities upon the conversion of any Debenture issued pursuant to the
Debenture and Note Purchase Agreement.
(vii) In connection with the issuance of Common Stock or other
securities upon the conversion of the Preferred Stock issued pursuant to
the Debenture and Note Purchase Agreement.
(f) If any capital reorganization or reclassification of the capital
stock of the Company (other than a change in par value, or from par value to no
par value, or as a result of the subdivision or combination), or consolidation
or merger of the Company with another corporation (other than a consolidation or
merger in which the Company is the continuing corporation and which does not
result in any reclassification of the outstanding Common Stock), or the sale of
all or substantially all of its assets to another corporation shall be
effective, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision shall be made
whereby the holder hereof shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the shares of Common Stock and other capital stock (if
any) of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock and other capital stock (if any)
equal to the number of shares of such Common Stock and other capital stock (if
any) immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interest of the holders
of this Warrant to the end that the provisions hereof shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon exercise hereof. The Company shall not
effect any such consolidation, merger or
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sale, unless prior to or simultaneously with the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger of the corporation purchasing such assets shall assume
by written instrument the obligation to deliver to such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to purchase and the other obligations under this
Warrant. The adjustments provided for in this Section 3(f) shall apply with
respect to each such change occurring during the Exercise Period.
(g) In case at any time:
(i) The Company shall declare any dividend upon its Common Stock
payable otherwise than in cash or in Common Stock of the Company or
payable otherwise than out of consolidated net income for a twelve-month
period ending not earlier than 90 days prior to the date of payment of
such dividend; or
(ii) The Company shall offer for subscription to the holders of
its Common Stock any additional shares of stock of any class or any
other securities convertible into shares of stock or any rights to
subscribe thereto other than the sale of any additional shares of Common
Stock contemplated under the Agreement; or
(iii) There shall be any capital reorganization or
reclassification of the capital stock of the Company, or a sale of all
or substantially all of the assets of the Company, or a consolidation or
merger of the Company with another corporation (other than a merger with
a subsidiary in which merger the Company is the continuing corporation
and which does not result in any reclassification), or change of the
then outstanding shares of Common Stock or other capital stock issuable
upon exercise of the Warrants (other than a change in par value, or from
par value or as a result of subdivision or combination); or
(iv) There shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company.
then, in any one or more of said cases, the Company shall cause to be mailed to
each of the registered holders of the Warrants at the earliest practicable time
(and, in any event, not less than 20 days before any record date or other date
set for definitive action), written notice of the date on which the books of the
Company shall close or a record shall be taken for such dividend, distribution
or subscription rights or such reorganization, reclassification, sale,
consolidation, merger, dissolution, or liquidation shall take place, as the case
may be. Such notice shall also set forth such facts as shall indicate the effect
of such action (to the extent such effect may be known at the date of such
notice) on the Exercise Price and the kind and amount of the shares of stock and
other securities and properly deliverable upon exercise of the Warrants. Such
notice shall also specify the date as of which the holders of the Common Stock
of record shall participate in said dividend, distribution or subscription
rights or shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification, sale,
consolidation, merger, dissolution, liquidation, winding up or conversion, as
the case may be (on which date, in the event of voluntary or involuntary
dissolution, or liquidation of the Company, the right to exercise the Warrants
shall terminate).
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(h) In the event that, at any time within two (2) years after the
original issue date of this Warrant, the Company shall sell all or some of the
notes payable by Pacific Coast Dental, Inc./Associated Dental Services, Inc. or
the assets securing such Notes or the capital stock or assets of such
corporations and applies the net proceeds from such sale or sales to repay the
principal of the Senior Notes issued pursuant to the Debenture and Note Purchase
Agreement, then, in the event that such principal payment or payments exceeds
$8,000,000 in the aggregate, the total number of shares of Common Stock of the
Company subject to this Warrant shall be reduced by a number of shares equal to
the amount obtained by multiplying the number of shares originally subject to
this Warrant by a fraction, the numerator of which is the dollar amount of such
principal reductions in excess of $8,000,000 and the denominator of which is
$20,000,000; provided, however, that the amount of such reduction shall be
limited to the amount of shares subject to this Warrant at the time when such
principal reduction is made.
4. No Fractional Shares. The Company shall not be required to issue
certificates representing fractional shares of Common Stock.
5. Reservation of Shares. All shares which may be issued upon the
exercise of this Warrant shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable and free from all preemptive rights of any
stockholder and all taxes, liens and charges with respect to the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue). During the Exercise Period within which the rights represented by
this Warrant may be exercised, the Company will at all times have authorized,
and reserved, a sufficient number of shares of its Common Stock to provide for
the exercise of the rights represented by this Warrant, and will at its expense
expeditiously upon each reservation of shares for such purpose procure the
listing of the shares of Common Stock issuable upon such exercise (subject to
issuance or notice of issuance) on all stock exchanges or automated quotation
systems, if any, on which the Common Stock is then listed.
6. Delivery of Stock Certificate. As promptly as practicable after the
conversion of this Warrant, the Company at its expense will issue and deliver to
the holder of this Warrant a certificate or certificates for the number of full
shares of Common Stock issuable upon such exercise and, if applicable, a new
Warrant for the balance of the shares purchasable hereunder.
7. No Stockholder Rights. Prior to the exercise of this Warrant, the
holder of this Warrant shall not be entitled to any rights of a stockholder of
the Company, including without limitation the right to vote, to receive
dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company except as provided herein.
8. Attorneys' Fees and Costs. In the event that this Warrant is placed
in the hands of an attorney for enforcement in whole or in part through legal
proceedings of any nature, then and in any such case the Company promises to pay
all costs of enforcing the right of the holder hereof, including, but not
limited to, reasonable attorneys' fees incurred by the holder hereof on account
of such enforcement, whether or not suit is filed.
9. Cumulative Rights. No delay on the part of the holder of this Warrant
in the exercise of any power or right under this Warrant, or under any document
or instrument executed in
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connection herewith, shall operate as a waiver thereof, nor shall a single or
partial exercise of any other power or right.
10. Notices. All notices, claims, demands and other communications
hereunder shall be in writing and shall be deemed given upon (a) confirmation of
receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier (c) when delivered by hand or (d) the expiration of five
business days after the day when mailed by registered or certified mail
(postpaid prepaid, return receipt requested), addressed to the respective
parties at the following addresses (or such other address for party as shall be
specified by like notice):
(i) if to the registered holder of a Warrant, at the address of
such holder as shown on the books of the Company; or
(ii) if to the Company, at:
SafeGuard Health Enterprises, Inc.
▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Chief Executive Officer
11. Transferability. This Warrant Certificate and the Warrants evidenced
hereby may not be pledged, sold, assigned or transferred except upon
satisfaction of the conditions specified in the legend on the face of this
certificate. However, this Warrant certificate and the Warrants evidenced hereby
shall be binding upon any successors or assigns of the Company.
12. Headings; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Warrant.
Except where otherwise indicated, all references herein to Sections refer to
Sections hereof.
13. Successors and Assigns. All of the covenants, stipulations,
promises, and agreements in this Warrant by or on behalf of the Company shall
bind its successors and assigns, whether so expressed or not; provided, however,
that the Company may not, without the prior written consent of the holder
hereof, assign any rights, duties, or obligations under this Warrant. Any
assignment in violation of the foregoing shall be null and void.
14. Governing Law. This note shall be governed by the laws of the State
of Delaware, and the laws of such state (other than conflicts of laws
principles) shall govern the construction, validity, enforcement, and
interpretation hereof, except to the extent federal laws otherwise govern the
validity, construction, enforcement, and interpretation hereof.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered by its duly authorized officer.
Dated as of ________________, 1999
SAFEGUARD HEALTH ENTERPRISES, INC.
By:__________________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
Title: Chairman and Chief Executive Officer
By:__________________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Senior Vice President and Secretary
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Election to Purchase
To SafeGuard Health Enterprises, Inc.
The undersigned owner of the accompanying Warrant hereby irrevocably
exercises the option to purchase shares of Common Stock in accordance with the
terms of such Warrant, and directs that the shares issuable and deliverable upon
such purchase be issued in the name of and delivered to the undersigned. The
undersigned herewith makes payment in full of the Exercise Price (or Adjusted
Exercise Price if appropriate) of such shares, being $__________ per share.
Dated:_______________________
COMPLETE FOR REGISTRATION OF SHARES OF COMMON STOCK ON THE STOCK TRANSFER
RECORDS MAINTAINED BY THE COMPANY:
________________________________________________________________________________
Name of Warrantholder
________________________________________________________________________________
Address
________________________________________________________________________________
Taxpayer Identification Number
Portion to be exercised
(if less than all)
_______________ shares
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EXHIBIT E
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SAFEGUARD HEALTH ENTERPRISES, INC.
SAFEGUARD HEALTH ENTERPRISES, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, at a meeting duly
held, adopted resolutions proposing and declaring advisable the following
amendments to the Certificate of Incorporation of the Corporation, and submitted
such amendments to the stockholders of the Corporation for consideration
thereof:
RESOLVED that a new ARTICLE TWELFTH be added to the Certificate
of Incorporation of the Corporation to read, in its entirety, as
follows:
TWELFTH: The holders of the 8% Convertible Debentures due 2009
issued by the Corporation pursuant to that certain Debenture and
Note Purchase Agreement, dated as of June 29, 1999, by and among
the Corporation and the Investors named therein (the
"Debentures") shall have the rights and power to vote in respect
of the corporate affairs and management of the Corporation to the
extent and in the manner provided in this Article XII of the
Certificate of Incorporation of the Corporation:
1. Notwithstanding any provision of this Certificate of
Incorporation or the ByLaws of the Corporation to the
contrary (and in addition to any other vote that may be
required or permitted by law, this Certificate of
Incorporation or the ByLaws of the Corporation), the
holders of Debentures shall have the right to vote, voting
together as a single class with the holders of the
outstanding shares of Common Stock of the Corporation, on
all matters submitted to a vote of the holders of the
Common Stock of the Corporation (subject, in the case of
election of directors, to the provisions of Section 2 of
this Article TWELFTH below), and the holders of the
Debentures shall receive notice of and be entitled to
attend in person or by proxy any meeting of stockholders.
Each holder of a Debenture shall have the right to cast a
number of votes
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equal to the number of whole shares of the Corporation's
Common Stock into which each Debenture is convertible on
the record date for any vote of the holders of the Common
Stock of the Corporation.
2. So long as the number of shares of stock of the
Corporation issuable upon conversion of the outstanding
Debentures represent twenty-five percent (25%) or more of
the votes that may be cast by all voting securities of the
Corporation assuming such conversion, the holders of the
outstanding Debentures shall have the right and power to
vote, voting as a single class, separately from all other
classes and series of capital stock of the Corporation
(but subject to the last sentence of this Paragraph 2), to
elect that number of members of the Board of Directors of
the Corporation which is equal to 50% of the total number
of authorized members of the Corporations' Board of
Directors; provided, however, that if 50% of the number of
authorized members of the Board of Directors shall result
in a fractional number of directors, the number of
directors which the holders of the Debentures shall have
the right to elect pursuant to the provisions of this
Paragraph 2 shall be rounded to the nearest whole number
(which, in the case of the fraction one-half, shall be
rounded upward). Any director elected by the holders of
Debentures pursuant to the provisions of this Paragraph 2
may be removed at any time, with or without cause, only by
the affirmative majority vote of the holders of the
Debentures then issued and outstanding. If any vacancies
occur in the Board of Directors of the Corporation by
reason of the death, resignation, retirement,
disqualification or removal from office or otherwise of
any director elected by the holders of the Debentures
pursuant to this Paragraph 2, or if the holders of the
Debentures shall become entitled to elect an additional
director or directors by reason of any increase in the
authorized number of directors, then a majority of the
remaining directors(s) elected pursuant to this Paragraph
2 may choose a successor or successors or any such
additional director or directors, and the director(s) so
chosen shall hold office until the earlier to occur of (1)
the next annual election of directors and until their
successors shall have been duly elected and qualified,
unless sooner displaced, or (2) the election of a
successor or successors by the majority vote of the
holders of the Debentures called and held pursuant to the
provisions for special meetings in the ByLaws of the
Corporation. If the number of shares of capital stock of
the Corporation issuable upon conversation of Debentures
represents less than twenty-five percent (25%) of the
votes
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that may be cast by all voting securities of the
Corporation, assuming such conversion, the holders of the
Debentures shall not have the right and power to vote as a
separate class for the election of directors pursuant to
this Paragraph 2, but shall have the right and power to
vote for the election of directors pursuant to and in
accordance with the provisions of Paragraph 1 hereof.
In voting for the election of directors pursuant to this
Paragraph 2, the holders of the Debentures shall be
entitled to cast the number of votes as specified in
Paragraph 1 but, in any election in which the holders of
the Debentures have the right to vote as a separate class
to elect fifty percent (50%) of the members of the Board
of Directors of the Corporation pursuant to this Paragraph
2, the holders of the Debentures shall not vote together
with the holders of the Common Stock in the election of
the other fifty percent (50%) of the members of the Board
of Directors.
In the event that the Company issues any shares of its
eight percent (8%) Cumulation Convertible Preferred Stock
pursuant to that certain Debenture and Note Purchase
Agreement dated June 29, 1999, the holders of the
Debentures shall vote together with the holders of such
Preferred Stock as a single class in the aggregate and not
as a separate class, when voting for fifty percent (50%)
of the members of the Board of Directors pursuant to this
Paragraph 2 and the shares issuable upon conversion of the
Preferred Stock shall be considered together with the
shares issuable upon the conversion of the Debentures in
determining whether the twenty-five percent (25%) of the
votes that may be cast by all voting securities of the
Company standard described above in this Paragraph 2 has
been satisfied.
3. Notwithstanding any provision of this Certificate of
Incorporation or the ByLaws of the Corporation to the
contrary, so long as the number of shares of capital stock
of the Corporation issuable upon the conversion of all
outstanding Debentures (and, if applicable the outstanding
shares of eight percent (8%) Cumulative Convertible
Preferred Stock in the aggregate) represent twenty-five
percent (25%) or more of the votes that may be cast by all
voting securities of the Corporation assuming conversion,
the approval by a majority vote of the holders of the
Debentures and, if applicable, the eight percent (8%)
Cumulative Convertible Preferred Stock, voting together as
a single class,
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shall be required to change the size of the Board of
Directors of the Corporation from eight (8), whether to
either increase or decrease such number, and the Board of
Directors shall not have the right without such approval
to make any such change notwithstanding any provision
contained in the ByLaws of the Company to the contrary.
4. In addition to the foregoing, the holders of the
Debentures shall have the right to vote as a separate
class on all matters for which a separate class vote is
provided under the provisions of the Delaware General
Corporation Act and on the amendment, alteration or repeal
of any provision of this Article TWELFTH or any other
provisions which have reference to or are protective of,
and the taking of any action which adversely affects, the
rights, powers, privileges and preferences of the
Debentures.
5. In addition to the foregoing, the holders of the
Debentures shall have the same rights of inspection as is
provided to the holders of Common Stock under Section 220
of the Delaware General Corporation Law.
SECOND: That thereafter a meeting of the stockholders of the Corporation
was duly called and held, upon notice in accordance with Section 222 of the
Delaware General Corporation Law at which meeting the necessary number of shares
required by Section 242 of the Delaware General Corporation Law were voted in
favor of the amendments.
THIRD: That such amendments were duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, SafeGuard Health Enterprises, Inc. has caused this
Certificate of Amendment of Certificate of Incorporation to be signed by ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇, DDS, Chairman and Chief Executive Officer of such corporation, and
by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, its Secretary, as of this 29th day of June, 1999.
SAFEGUARD HEALTH ENTERPRISES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.,
Chairman and Chief Executive Officer
ATTEST:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Secretary
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EXHIBIT F
CERTIFICATE OF POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL,
OR OTHER SPECIAL RIGHTS OF THE 8% CUMULATIVE
CONVERTIBLE PREFERRED STOCK AND THE QUALIFICATIONS,
LIMITATIONS, OR RESTRICTIONS OF THE 8%
CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
SAFEGUARD HEALTH ENTERPRISES, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
SafeGuard Health Enterprises, Inc.
2. The Certificate of Incorporation, as amended, of the Corporation
authorizes the issuance of 1,000,000 shares of Preferred Stock, $.01 par value,
and expressly vests in the Board of Directors of the Corporation the authority
provided therein to issue any or all of said shares in one or more series and to
fix by resolution or resolutions, the designations and the powers, preferences
and rights and the qualifications, limitations, or restrictions of each series
to be issued.
3. The Board of Directors of the Corporation, pursuant to the authority
expressly vested in it, has adopted the following resolutions relating to
creating an issue of 8% Cumulative Convertible Preferred Stock:
RESOLVED that, pursuant to Article FOURTH of the
Certificate of Incorporation of the Corporation, there
be and hereby is authorized and created a series of
Preferred Stock, hereby designated as "8% Cumulative
Convertible Preferred Stock", such series to consist of
________ shares, $.01 par value, and the designations,
full or limited voting powers, preferences and
relative, participating, optional and other special
rights and the qualifications, limitations,
restrictions and other distinguishing characteristics
of the 8% Cumulative Convertible Preferred Stock
(hereinafter called the "Preferred Stock") are to be as
follows:
"1. Dividends. The holders of the Preferred Stock shall be
entitled to receive, in preference to the holders of the Common Stock or any
Junior Stock, cumulative dividends at the rate of eight percent (8%) per annum,
of the preferential liquidation amount per share ($1,000) of the Preferred
Stock. Such dividends with respect to the Preferred Stock shall accrue from and
after the date of issuance thereof, and shall be paid in cash in quarterly
installments payable on the first business day of each calendar quarter in each
year (hereinafter called "Dividend Dates"),
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commencing with the first such date occurring after the date of the original
issuance of the Preferred Stock. The foregoing dividends shall be declared by
the Board of Directors of the Corporation and paid to the holders of the
Preferred Stock to the extent permitted by law. The dividends payable to the
holders of the Preferred Stock shall accrue from the date of issuance thereof as
provided in Paragraph 8 hereof, and shall be cumulated quarterly, so that if on
any Dividend Date full dividends upon the outstanding Preferred Stock shall not
have been paid in accordance with the provisions of this Paragraph 1, then the
deficiency shall be declared and paid, or set apart for payment, before any
dividends shall be declared and paid, or set apart for payment, upon the Common
Stock, or any Junior Stock, and before the Corporation shall redeem or purchase
any shares of the Common Stock or any Junior Stock. The holders of the Preferred
Stock shall not be entitled to dividends except as aforesaid and except as set
forth in Section 6(e) hereof, nor shall they be entitled to any interest on any
dividends which may be in arrears.
2. Redemption. At any time on or after ten (10) years after the
original date of issuance of the Preferred Stock, but not before, the
Corporation may redeem the whole or any part of the Preferred Stock at any time
and from time to time at the option of the Board of Directors pursuant to the
provisions of Paragraph 3 hereof, by paying the Redemption Price.
The Redemption Price shall be equal to the amount of $1,000.00
per share and the Redemption Price plus accrued but unpaid dividends to the date
fixed for redemption shall be paid for each share of Preferred Stock redeemed.
3. Notice of Redemption; Depositary. In the event that the
Corporation shall redeem any Preferred Stock, notice thereof shall be sent at
least thirty days prior to the redemption date to the holders of the Preferred
Stock being redeemed by registered or certified mail, postage prepaid, to each
such registered holder as his address shall appear on the stock register of the
Corporation. In the case of a redemption of only a part of the shares of said
series, the Corporation shall designate by lot or in such other manner as the
Board of Directors deems fair, the shares of said series to be redeemed. The
Board of Directors shall have full power and authority to prescribe the manner
in which and, subject to the provisions and limitations herein contained, the
terms and conditions upon which the Preferred Stock shall be redeemed from time
to time. If after notice of redemption of all or any of the Preferred Stock
shall have been duly given as in this paragraph provided, and if on or before
the redemption date given in such notice, the Corporation shall deposit with a
bank or trust Corporation having a capital stock and surplus of at least
$100,000,000 (the "Depositary") in trust to be applied to the redemption of the
Preferred Stock so called for redemption, an amount sufficient to redeem all
such Preferred Stock upon the date specified in the notice of redemption, then,
notwithstanding that any certificate for Preferred Stock so called for
redemption shall not have been surrendered for cancellation, from and after the
date of such deposit all rights of holders of the Preferred Stock so called for
redemption as stockholders of the Corporation (including the right to receive
dividends) shall cease, except the right of the holder of such Preferred Stock
to convert all or a part of the Preferred Stock called for redemption as
provided in Paragraph 6 or the right to receive the moneys so deposited in trust
for said series, but without interest; any moneys so deposited for Preferred
Stock which is converted shall be immediately repayable to the Corporation and
any other moneys so deposited which remain unclaimed at the end of six (6) years
from the date of such deposit shall be repaid to the Corporation, after which
event the holders of such Preferred Stock shall look only to the Corporation for
payment of the Redemption Price (subject to applicable escheat or similar laws).
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4. Liquidation. Subject to the provisions of Paragraph 6 hereof,
in the event of any liquidation, dissolution or winding-up of the affairs of the
Corporation, the holders of the Preferred Stock shall be entitled to be paid in
full the sum of $1,000.00 per share, together with accrued but unpaid dividends
thereon to the date full payment of the amounts due pursuant to this paragraph
are made to the holders of the Preferred Stock, before any distribution or
payment shall be made to the holders of stock of any other class or series. If,
upon any such liquidation, dissolution or winding up of the Corporation, the
assets distributable among the holders of the Preferred Stock shall be
insufficient to permit the payment in full to such holders of the preferential
amount hereinabove provided, then the entire assets of the Corporation available
for distribution to stockholders shall be applied ratably to the redemption of
the Preferred stock then outstanding.
After such payment in full to the holders of the Preferred Stock,
as hereinabove provided, the holders of the Preferred Stock shall not be
entitled to any further payments.
The sale, conveyance, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all of the
property and assets of the Corporation shall be deemed a voluntary dissolution,
liquidation or winding up of the Corporation for the purposes of this Paragraph
4, but the merger or consolidation of the Corporation to or with any other
corporation or the merger or consolidation of any other corporation into or with
the Corporation, shall not be deemed to be a dissolution, liquidation or winding
up, voluntary or involuntary, for the purposes of this Paragraph 4.
5. No Reissue of Preferred Stock. None of the Preferred Stock of
the Corporation acquired pursuant to the provisions of Paragraph 2 or
surrendered for conversion pursuant to Paragraph 6, or otherwise acquired by the
Corporation in any manner shall be reissued, but the Corporation shall from time
to time and at convenient times cause all such stock to be retired and canceled
in the manner provided by law and its capital to be reduced accordingly.
6. Conversion.
(a) Conversion of Preferred Stock into Common Stock.
Subject to the provisions of Paragraphs 2 and 4 hereof regarding redemption and
liquidation, and subject to the terms and conditions of this Paragraph 6, the
holder of any share or shares of Preferred Stock shall have the right, at its
option at any time, to convert any such shares of Preferred Stock (except that
(i) in respect of any such stock which shall have been called for redemption
such right shall terminate at the close of business on the day fixed for
redemption unless the Corporation shall default in the payment of the Redemption
Price (together with all dividends accrued to the date of redemption) and (ii)
on any liquidation of the Corporation the right of conversion shall terminate at
the close of business on the last full business day before the date fixed for
full payment of the distributable amount on the Preferred Stock if then paid)
into such number of fully paid and nonassessable shares of Common Stock as is
obtained by multiplying the number of shares of Preferred Stock so to be
converted by the preferential liquidation amount of $1,000.00 per share and
dividing the result by the conversion price of $4.00 per share or, in case an
adjustment of such conversion price has taken place pursuant to the further
provisions of this Paragraph 6, then by the conversion price as last adjusted
and in effect at the date any share or shares of Preferred Stock are surrendered
for con version (such price or such price as last adjusted, as the case may be
being referred to herein as the "Conversion Price"). Such rights of conversion
shall be exercised by the
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holder thereof by giving written notice that the holder elects to convert a
stated number of shares of Preferred Stock into Common Stock and by surrender of
a certificate or certificates for the Preferred Stock so to be converted to the
transfer agent of the Corporation (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the holder
or holders of the Preferred Stock) at any time during its usual business hours
on the date set forth in such notice, together with a statement of the name or
names (with address) in which the certificate or certificates for shares of
Common Stock shall be issued.
(b) Issuance of Certificates; Time Conversion Effected.
Promptly after the receipt of the written notice referred to in Paragraph 6(a)
and surrender of the share or shares of Preferred Stock to be converted, the
Corporation shall issue and deliver, or cause to be issued and delivered, to the
holder, registered in such name or names as such holder may direct, a
certificate or certificates for the number of shares of Common Stock, issuable
upon the conversion of such share or shares thereof. To the extent permitted by
law, such conversion shall be deemed to have been effected and the Conversion
Price shall be determined as of the close of business on the date on which such
notice shall have been received by the Corporation and the certificate for such
share or shares shall have been surrendered as aforesaid, and at such time the
rights of the holder of such share or shares as such holder shall cease, and the
person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented thereby.
(c) Fractional Shares; Dividends; Partial Conversion. No
fractional shares shall be issued upon conversion of Preferred Stock into Common
Stock and no payment or adjustment shall be made upon any conversion on account
of any cash dividends (except as provided in Paragraph 6(e)) on the Common Stock
issued upon such conversion. At the time of each conversion, the Corporation
shall, to the extent permitted by law, pay in cash all dividends accrued and
unpaid on the shares of Preferred Stock surrendered for conversion to the
Dividend Date immediately preceding the date upon which such conversion is
deemed to take place as provided in Paragraph 6(b). In case the number of shares
of Preferred Stock represented by the certificate or certificates surrendered
pursuant to Paragraph 6(a) exceeds the number of shares converted, the
Corporation shall, upon such conversion, execute and deliver to the holder
thereof, at the expense of the Corporation, a new certificate or certificates
for the number of shares of Preferred Stock represented by the certificate or
certificates surrendered which are not to be converted. If any fractional
interest in a share of Common Stock would, except for the provisions of the
first sentence of this Paragraph 6(c), be deliverable upon any such conversion,
the Corporation, in lieu of delivering the fractional share thereof, shall pay
to the holder surrendering Preferred Stock for conversion an amount in cash
equal to the current Market Value of such fractional interest determined in
conformity with the principles set forth in Paragraph 6(d)(10).
(d) (1) Adjustment of Conversion Price Upon Issuance of
Common Stock. Except as provided in Paragraph 6(d)(5) , if and whenever the
Corporation shall issue or sell any shares of its Common Stock for a
consideration per share less than the Conversion Price then in effect on the
date of such issue or sale, then, forthwith upon such issue or sale, the
Conversion Price shall be reduced to the price (calculated to the nearest cent
-- a half cent or more being considered a full cent) determined by multiplying
the Conversion Price in effect immediately prior to the time of such issue or
sale by a fraction, the numerator of which shall be the sum of (i) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied
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by the Conversion Price in effect immediately prior to such issue or sale plus
(ii) the consideration received by the Corporation upon such issue or sale, and
the denominator of which shall be the product of (iii) the total number of
shares of Common Stock outstanding immediately after such issue or sale,
multiplied by (iv) the Conversion Price in effect immediately prior to such
issue or sale.
For the purposes of the foregoing calculation, all shares of Common
Stock of the Corporation issuable upon conversion of all then outstanding
convertible securities (including those certain 8% Debentures issued pursuant to
that certain Debenture and Note Purchase Agreement dated June 29, 1999 (the
"Debenture and Note Purchase Agreement")) and upon exercise of all then
outstanding options, warrants or other rights to acquire Common Stock (including
those certain Warrants issued pursuant to the Debenture and Note Purchase
Agreement) shall be deemed outstanding but only to the extent and only if the
Market Value of the Common Stock of the Corporation on such date is in excess of
the conversion price of such convertible securities then in effect or the
exercise price of such options, warrants or other rights then in effect,
respectively.
(i) In case of the issuance or sale of shares of Common Stock for
a consideration part or all of which shall be cash, the amount of cash
consideration therefor shall be deemed to be the amount of cash received
by the Corporation for such shares (or, if shares of Common Stock are
offered by the Corporation for subscription, the subscription price, or,
if shares of Common Stock shall be sold to underwriters or dealers for
public offering without a subscription offering, the initial public
offering price) without deducting therefrom any compensation paid or
discount allowed in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar services or any
expenses incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a
dividend or other distribution on or subdivision of any stock of the
Corporation or on conversion or exchange of other securities of the
Corporation) of shares of Common Stock for a consideration part or all
of which shall be other than cash, the amount of the consideration
therefor other than cash shall be deemed to be the value of such
consideration, as determined in good faith by the Board of Directors of
the Corporation, at or about, but as of, the date of the adoption of the
resolution authorizing such issuance for a consideration other than cash
of such Common Stock immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive
such Common Stock.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on or subdivision of any stock of the Corporation shall be
deemed to have been issued immediately after the opening of business on
the date following the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution or subdivision.
(2) Except as hereinafter provided, in case the Corporation shall at any
time after the date hereof issue options or rights to subscribe for shares of
Common Stock (including shares held in the Corporation's treasury), or issue any
securities convertible into or exchangeable for shares of Common Stock, for an
exercise price per share less than the Conversion Price in effect immediately
prior to the issuance of such options or rights or convertible or exchangeable
securities, or without
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consideration, the Conversion Price in effect immediately prior to the issuance
of such options or rights or securities shall be increased or reduced to a price
determined by making a computation in accordance with the provisions of
Paragraph 6(d)(1):
(i) the aggregate maximum number of shares of Common Stock
deliverable under such options or rights shall be considered to have
been delivered at the time such options or rights were issued, and for a
consideration equal to the purchase price per share of Common Stock
provided for in such options or rights, plus the consideration
(determined in the same manner as consideration received on the issue or
sale of Common Stock), if any, received by the Corporation for such
options or rights;
(ii) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or exchange for any such securities shall
be considered to have been delivered at the time of issuance of such
securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or
sale of Common Stock) received by the Corporation for such securities,
plus the consideration, if any, to be received by the Corporation upon
the exchange or conversion thereof; and
(iii) on the expiration of such options or rights, or the
termination of such right to convert or exchange, if none or only part
of such options or rights have been exercised, the Conversion Price
shall forthwith be readjusted to such Conversion Price as would have
been obtained had the adjustments made upon the issuance of such
options, rights or convertible or exchangeable securities been made upon
the basis of the delivery of only the number of shares of Common Stock
actually delivered upon the exercise of such options or rights or upon
conversion or exchange of such securities.
(3) In the event the Corporation shall issue additional shares of Common
Stock in a stock dividend, stock distribution or subdivision, the Conversion
Price in effect immediately prior to such stock dividend, stock distribution or
subdivision shall, concurrently with the effectiveness of such stock dividend,
stock distribution or subdivision, be proportionately decreased.
(4) In the event the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares of Common Stock, the Conversion Price in effective immediately prior
to such combination or consolidation shall, concurrently with the effectiveness
of such combination or consolidation, be proportionately increased.
(5) Notwithstanding anything contained herein to the contrary, no
adjustment of the Conversion Price shall be made:
(i) In connection with the issuance or sale of Common Stock upon
the exercise of options or rights or upon the conversion or exchange of
convertible or exchangeable securities in any case where the adjustment
was made upon the issuance of such options, rights, or convertible or
exchangeable securities by reason of the provisions of this Paragraph
6(d).
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(ii) In connection with grants to employees, directors,
consultants or others with similar relationships with the Corporation or
its subsidiaries of options to purchase, at a price equal to or in
excess of fair market value as determined by the Board of Directors of
the Company at the time of grant, shares of Common Stock of the
Corporation.
(iii) In connection with any issuance or sale of Common Stock to
officers, directors or employees of, or consultants to, the Corporation
pursuant to a grant or plan approved by the Board of Directors of the
Corporation.
(iv) In connection with any acquisition of assets, securities, or
a business or any exchange of securities to acquire all or part of any
business, provided that such acquisition or exchange has been approved
by the Board of Directors of the Corporation.
(v) In connection with the issuance of Common Stock or other
securities upon conversion of the 8% Debentures issued pursuant to the
Debenture and Note Purchase Agreement.
(vi) In connection with the issuance of Common Stock or other
securities upon the exercise of Warrants issued pursuant to the
Debenture and Note Purchase Agreement.
(vii) In connection with the issuance of Common Stock or other
securities upon the conversion of the Preferred Stock.
(6) If any capital reorganization or reclassification of the capital
stock of the Corporation (other than a change in par value, or from par value to
no par value, or as a result of the subdivision or combination), or
consolidation or merger of the Corporation with another corporation (other than
a consolidation or merger in which the Corporation is the continuing corporation
and which does not result in any reclassification of the outstanding Common
Stock), or the sale of all or substantially all of its assets to another
corporation shall be effective, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive upon the basis and upon the terms and conditions specified
for the Preferred Stock and in lieu of the shares of Common Stock and other
capital stock (if any) of the Corporation immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby, such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock and other
capital stock (if any) equal to the number of shares of such Common Stock and
other capital stock (if any) immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any such
case appropriate provisions shall be made with respect to the rights and
interest of the holders of the Preferred Stock to the end that the provisions
hereof shall thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon exercise
hereof. The Corporation shall not effect any such consolidation, merger or sale,
unless prior to or simultaneously with the consummation thereof the successor
corporation (if other than the Corporation) resulting from such consolidation or
merger of the corporation purchasing such assets shall assume by written
instrument the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase and the other obligations
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under this Debenture. The adjustments provided for in this Paragraph
6(d)(6)shall apply with respect to each such change occurring while the
Preferred Stock is outstanding.
(7) In case at any time:
(i) The Corporation shall declare any dividend upon its Common
Stock payable otherwise than in cash or in Common Stock of the
Corporation or payable otherwise than out of consolidated net income for
a twelve-month period ending not earlier than 90 days prior to the date
of payment of such dividend; or
(ii) The Corporation shall offer for subscription to the holders
of its Common Stock any additional shares of stock of any class or any
other securities convertible into shares of stock or any rights to
subscribe thereto other than the sale of any additional shares of Common
Stock contemplated under the Agreement; or
(iii) There shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a sale of
all or substantially all of the assets of the Corporation, or a
consolidation or merger of the Corporation with another corporation
(other than a merger with a subsidiary in which merger the Corporation
is the continuing corporation and which does not result in any
reclassification), or change of the then outstanding shares of Common
Stock or other capital stock issuable upon conversion of the Preferred
Stock (other than a change in par value, or from par value or as a
result of subdivision or combination); or
(iv) There shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation.
then, in any one or more of said cases, the Corporation shall cause to be mailed
to each of the registered holders of the Preferred Stock at the earliest
practicable time (and, in any event, not less than 20 days before any record
date or other date set for definitive action), written notice of the date on
which the books of the Corporation shall close or a record shall be taken for
such dividend, distribution or subscription rights or such reorganization,
reclassification, sale, consolidation, merger, dissolution, or liquidation shall
take place, as the case may be. Such notice shall also set forth such facts as
shall indicate the effect of such action (to the extent such effect may be known
at the date of such notice) on the Conversion Price and the kind and amount of
the shares of stock and other securities and properly deliverable upon exercise
of the Preferred Stock. Such notice shall also specify the date as of which the
holders of the Common Stock of record shall participate in said dividend,
distribution or subscription rights or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, sale, consolidation, merger, dissolution,
liquidation, winding up or conversion, as the case may be (on which date, in the
event of voluntary or involuntary dissolution, or liquidation of the
Corporation, the right to convert the Preferred Stock shall terminate).
(8) Record Date. In case the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Common Stock, Options or Convertible
Securities, or (ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the
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issue or sale of the shares of Common Stock deemed to have been issued or sold
upon the declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase, as the
case may be.
(9) Treasury Shares. The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for the account of
the Corporation, and the disposition of any such shares shall be considered an
issue or sale of Common Stock for the purposes of this Paragraph 6(d).
(10) Definition of Market Value. "Market Value" for the purposes of this
Paragraph 6 shall mean the average of the closing prices of the Common Stock for
sales on all national securities exchanges on which the Common Stock may at the
time be listed, or, if there shall have been no sales on any such exchange on
any such day, the average of the bid and asked prices at the end of such day,
or, if the Common Stock shall not be so listed, the average of the high and low
bid and asked prices on such day in the over-the-counter market as reported by
the National Quotation Bureau, Incorporated, or any similar successor
organization, in each such case averaged over a period of 10 consecutive
business days prior to the day as of which "Market Price" is being determined;
provided that if the Common Stock is listed on any domestic exchange the term
"business days" as used in this sentence shall mean business days on which such
exchange is open for trading. If at any time the Common Stock is not listed on
any national securities exchange or quoted in the over-the-counter market, the
"Market Price" shall be deemed to be the higher of (i) the book value thereof,
as determined by any firm of independent public accountants of recognized
standing selected by the Board of Directors of the Corporation, as at the last
day of any month ending within 60 days preceding the date as of which the
determination is to be made, or (ii) the fair value thereof determined in good
faith by the Board of Directors of the Corporation as of a date which is within
15 days of the date as of which the determination is to be made.
6(e). Liquidating Dividends. The Corporation will not pay or declare a
dividend upon the Common Stock payable otherwise than out of consolidated
earnings or consolidated earned surplus (determined in accordance with generally
accepted accounting principles, including the making of appropriate deductions
for minority interests, if any, in subsidiaries), or in Common Stock, unless the
holders of at least 60% of the outstanding shares of Preferred Stock shall have
consented to such dividend in writing, and, in the event that the Corporation
shall pay or declare a dividend payable otherwise than out of such consolidated
earnings or consolidated earned surplus with such consent, the Corporation will
pay over to such holders of Preferred Stock pro rata, on the dividend payment
date, the cash, stock or other securities and other property which each such
holder would have received if it had converted all shares of Preferred Stock
then held by it into Common Stock and had been the record holder of such Common
Stock on the date on which a record is taken for the purposes of such dividend,
or, if a record is not taken, the date as of which the holders of Common Stock
of record entitled to such dividends are to be determined. For the purposes of
the foregoing, a dividend other than in cash shall be considered payable out of
earnings or surplus (other than revaluation or paid-in surplus) only to the
extent that such earnings or surplus are charged an amount equal to the fair
value of such dividend as determined in good faith by the Board of Directors of
the Corporation.
6(f). Certain Events. If any event occurs as to which in the opinion of
the Board of Directors the other provisions of this Paragraph 6 are not strictly
applicable or if strictly applicable would not
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fairly protect the conversion rights of the holder of the Preferred Stock in
accordance with the essential intent and principles of such provisions, then the
Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such conversion rights as aforesaid, but in no event shall any such
adjustment have the effect of increasing the Conversion Price as otherwise
determined pursuant to this Paragraph 6 except in the event of an increase in
option price, additional consideration or conversion rate as contemplated by
Paragraph 6(d)(4), and then in no event to an amount larger than the Conversion
Price as adjusted pursuant to paragraph 6(d)(4).
6(g). No Participating Preferred Stock. So long as any shares of
Preferred Stock are outstanding, and subject to the further restrictions in
Paragraph 9, the Corporation will not issue any capital stock of any class
preferred as to dividends or preferred as to the distribution of assets upon any
voluntary or involuntary liquidation, dissolution or winding-up unless such
preferential rights of the holders thereof shall be limited to a fixed sum or
percentage of par value in respect of dividends and distribution of assets.
6(h). Stock to be Reserved. The Corporation will at all times reserve
and keep available out of its authorized Common Stock or its treasury shares,
solely for the purpose of issue upon the conversion of the Preferred Stock as
herein provided, such number of shares of Common Stock as shall then be issuable
upon the conversion of all outstanding shares of Preferred Stock. The
Corporation covenants that all shares of Common Stock which shall be so issued
shall be duly and validly issued and fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof, and, without
limiting the generality of the foregoing, the Corporation covenants that it will
from time to time take all such action as may be requisite to assure that the
par value per share of the Common Stock is at all times equal to or less than
the effective Conversion Price. The Corporation will take all such action as may
be necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or regulation, or of any requirements of
any national securities exchange upon which the Common Stock of the Corporation
may be listed. The Corporation will not take any action which results in any
adjustment of the Conversion Price if the total number of shares of Common Stock
issued and issuable after such action upon conversion of the Preferred Stock
would exceed the total number of shares of Common Stock of such class then
authorized by the Corporation's Certificate of Incorporation.
6(i). Registration. If any shares of Common Stock required to be
reserved for purposes of conversion of the Preferred Stock hereunder require
registration with or approval of any governmental authority under any Federal or
State law, or listing on any national securities exchange, before such shares
may be issued upon conversion, the Corporation will, at its expense and as
expeditiously as possible, cause such shares to be duly registered or approved
or listed on such national securities exchange, as the case may be.
6(j). Issue Tax. The issuance of certificates for shares of Common Stock
upon conversion of the Preferred Stock shall be made without charge to the
holders of such Preferred Stock for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Preferred Stock
converted.
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6(k). Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Preferred Stock or of any shares of
Common Stock issued or issuable upon the conversion of any shares of Preferred
Stock in any manner which interferes with the timely conversions of such
Preferred Stock.
6(l). Definition of Common Stock. As used in this Paragraph 6 the term
"Common Stock" shall mean and include the Corporation's authorized Common Stock,
par value $.01 per share, as constituted on the date of issuance of the
Preferred Stock and shall also include any capital stock of any class of the
Corporation thereafter authorized which shall not be limited to a fixed sum or
percentage of par value in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Corporation.
7. (a) Junior Stock. The term "Junior Stock" shall mean any
shares of any class or series of capital stock of the Corporation other than the
Preferred Stock, any Senior Stock or the Common Stock.
(b) Senior Stock. The term "Senior Stock" shall mean any
shares of any class or any series of capital stock of the Corporation ranking
prior to the Preferred Stock in respect of the right to receive dividends and/or
to participate in any distribution of assets other than by way of dividends.
(c) Parity Stock. The term "Parity Stock" shall mean any
shares of any class or any series of capital stock that, if dividends thereon
are not paid in full, be entitled to share ratably with the Preferred Stock in
the payment of dividends including accumulations, if any, in accordance with the
sums which would be payable on such shares if all dividends were declared and
paid in full, and/or shall, in the event that the amounts payable thereon on
liquidation are not paid in full, be entitled to share ratably with the
Preferred Stock in any distribution of assets other than by way of dividends in
accordance with the sums which would be payable in such distribution if all sums
payable were discharged in full.
8. Accrued Dividends. The term "accrued dividends", or the amount
of dividends "accrued", whenever used herein with reference to the Preferred
Stock shall be deemed to mean the amount, if any, by which eight percent (8%) of
the preferential liquidation amount ($1,000) of the Preferred Stock for each
full year and a pro rata amount thereof for any fraction of a year, from the
date of issuance of the Preferred Stock to the date of the payment of dividends,
redemption, conversion or distribution, as the case may be, exceeds the
dividends actually paid upon such shares.
9. Voting Shares. (a)(i) Except as provided in Paragraph 9(a)(ii)
hereof, or by law expressly otherwise provided, the holder of each share of
Preferred Stock shall have the right and power to vote, together with the
holders of all the other shares of Preferred Stock and holders of all the
outstanding shares of Common Stock and not by classes, on each matter on which
the holders of record of the Common Stock shall be entitled to vote (subject, in
the case of election of directors, to the provisions of paragraph 9(a)(ii)
hereof), and the holders of the Preferred Stock shall receive notice of and
shall be entitled to attend in person or by proxy any meeting of stockholders.
The number of votes which the holder of each share of Preferred Stock is
entitled to vote pursuant
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to this paragraph 9(a)(i) shall be equal to the number of shares of Common Stock
into which each share of Preferred Stock is convertible, as determined from time
to time by the provisions of Paragraph 6 hereof. For the purposes of computing
the voting rights of the Preferred Stock, the Corporation shall compute the
aggregate number of shares of Common Stock into which all the shares of
Preferred Stock held by each holder of the Preferred Stock may be converted, and
any resulting fractional shares of Common Stock shall be rounded to the nearest
whole number (which, in the case of one-half of a vote, shall be rounded
upward).
(ii) So long as the number of shares of stock of the Corporation
issuable upon conversion of the outstanding Preferred Stock and the outstanding
8% Debentures represent twenty-five percent (25%) or more of the votes that may
be cast by all voting securities of the Corporation assuming such conversion,
the holder of each share of Preferred Stock shall have the right and power to
vote, voting together with all the holders of the Preferred Stock and the 8%
Debentures as a single class, separately from all other classes and series of
capital stock of the Corporation, to elect that number of members of the Board
of Directors of the Corporation which is equal to 50% of the number of
authorized members of the Corporations' Board of Directors; provided, however,
that if 50% of the number of authorized members of the Board of Directors shall
result in a fractional number of directors, the number of directors which the
holders of the Preferred Stock shall have the right to elect pursuant to the
provisions of this Paragraph 9(a)(ii) shall be rounded to the nearest whole
number (which, in the case of the fraction one-half, shall be rounded upward):
Any director elected by the holders of the Preferred Stock pursuant to the
provisions of this Paragraph 9(a)(ii) may be removed at any time, with or
without cause, only by the affirmative vote of the holders of a majority of the
shares of Preferred Stock and the 8% Debentures then issued and outstanding. If
any vacancies occur in the Board of Directors of the Corporation by reason of
the death, resignation, retirement, disqualification or removal from office or
otherwise of any director elected by the holders of the Preferred Stock and the
8% Debentures pursuant to this Paragraph 9(a)(ii), or if the holders of the
Preferred Stock and the 8% Debentures shall become entitled to elect an
additional director or directors by reason of any increase in the authorized
number of directors, then a majority of the remaining director(s) elected
pursuant to this Paragraph 9(a)(ii) may choose a successor or successors or any
such additional director or directors, and the director(s) so chosen shall hold
office until the earlier to occur of (1) the next annual election of directors
and until their successors shall have been duly elected and qualified, unless
sooner displaced, or (2) the election of a successor or successors by the vote
of the holders of a majority of the shares of Preferred Stock and the 8%
Debentures called and held pursuant to the provisions for special meetings in
the bylaws of the Corporation. If the number of shares of Capital Stock of the
Corporation issuable upon conversation of Preferred Stock and the 8% Debentures
in the aggregate represent less than twenty-five percent (25%) of the votes that
may be cast by all voting securities of the Corporation, assuming such
conversion, the holders of the Preferred Stock, together with the holders of the
8% Debentures shall not have the right and power to vote as a class for the
election of directors pursuant to this paragraph 9(a)(ii), but shall have the
right and power to vote for the election of directors pursuant to and in
accordance with the provisions of paragraph 9(a)(i) hereof.
(b) In addition to any voting rights provided herein, unless the
consent or approval of a greater number of shares shall be required by law, the
affirmative consent of the holders of at least 60% of the shares of Preferred
Stock then issued and outstanding, given in person or by proxy either in writing
or at a meeting called for that purpose at which the Preferred Stock shall vote
separately as a class, shall be necessary for authorizing and approving: the
amendment,
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alteration or repeal of any of the provisions hereof which have reference to or
which are protective of, or the taking of any action which adversely affects,
the preferences, rights, powers or privileges of the Preferred Stock.
10. Payments Due on Saturday, Sunday or Legal Holidays. In case
the Dividend Date for the Preferred Stock, or a date fixed for redemption of
such stock shall be a Saturday, Sunday or, in New York, N.Y. a legal holiday or
a day on which executive order to close or remain closed, the payment of any
dividend on the Preferred Stock or the making of a redemption on such stock need
not be made on such date but may be made on the next succeeding day not a
Saturday, Sunday, or in such city, a legal holiday or a day on which banking
institutions are closed, with the same force and effect as if made on such
Dividend Date or date fixed for redemption."
And it was further
RESOLVED, that the statements contained in the foregoing resolutions
setting forth and fixing the Certificate of Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights of the 8%
Cumulative Convertible Preferred Stock and the Qualifications, Limitations, or
Restrictions, of the 8% Cumulative Convertible Preferred Stock and fixing the
powers, designations, preferences and relative, participating, optional or other
special rights and the qualifications, limitations, or restrictions thereof
shall be deemed to be included in and be a part of the Certificate of
Incorporation of Gulf Energy & Development Corporation pursuant to the
provisions of Sections 104, 151 and 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the undersigned, the Chairman and Chief Executive
Officer, and the Secretary of SafeGuard Health Enterprises, Inc., has executed
this Certificate, this ____ day of ________, 1999.
SafeGuard Health Enterprises, Inc.
By:__________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
Chairman and Chief Executive Officer
Attest:
___________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Secretary
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EXHIBIT G
REGISTRATION RIGHTS AGREEMENT
(Debenture and Preferred Stock Conversion Shares)
This Registration Rights Agreement (this "Agreement"), is entered into
as of ____________, 1999, by and between SafeGuard Health Enterprises, Inc., a
Delaware corporation (the "Company"), and the Investors that are parties to that
certain Debenture and Note Purchase Agreement, dated as of June 29, 1999, by and
among the Company and the Investors named therein (the "Debenture and Note
Purchase Agreement").
WITNESSETH:
WHEREAS, the Investors have acquired on the date hereof those certain 8%
Convertible Debentures of the Company (the "Debentures") in the aggregate
principle amount of $__________ and ________ shares of 8% Cumulative Convertible
Preferred Stock (the "Preferred Stock") pursuant to the Debenture and Note
Purchase Agreement; and
WHEREAS, the Company agreed to grant certain registration rights with
respect to the Common Stock of the Company issuable upon conversion of the
Debentures and the Preferred Stock as additional consideration therefor on and
subject to the terms and conditions hereinafter set forth;
NOW THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto agree as follows:
1. Definitions.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, $.01 par value, of the Company.
"Conversion Shares" means any shares of Common Stock issuable or issued
upon conversion of the Debentures and the Preferred Stock.
"Debentures" means those certain 8% Convertible Debentures issued and
sold to the Purchasers pursuant to the Debenture and Note Purchase Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" means an Investor or any transferee of an Investor owning a
Debenture or Conversion Shares or any assignee or transferee of a Registrable
Security.
"Preferred Stock" means the 8% Cumulative Convertible Preferred Stock,
$.01 par value, of the Company.
"Registrable Securities" means (i) any Conversion Shares that have been
or may be issued pursuant to the conversion of the Debentures and the Preferred
Stock and (ii) any Common Stock
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issued as a dividend or other distribution with respect to or in exchange for or
in replacement of the Conversion Shares. Any Registrable Security will cease to
be a Registrable Security when (i) a registration statement covering such
Registrable Security has been declared effective by the Commission and the
Registrable Security has been disposed of pursuant to such effective
registration statement, (ii) the Registrable Security is sold under
circumstances in which all of the applicable conditions of Rule 144 (or any
similar provisions then in force) under the Securities Act are met or (iii) the
Registrable Security has been otherwise transferred, the Company has delivered a
new certificate or other evidence of ownership for it not bearing a legend
restricting further transfer, and it may be resold without subsequent
registration under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Holder" means a Holder who is selling Registrable Securities
pursuant to a registration statement.
"Underwriters" means a securities dealer which purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
2. Demand Registration.
(a) Request for Registration. At any time after December 31, 1999, a
Holder or Holders of Registrable Securities may make a written request for
registration under the Securities Act (a "Demand Registration") of not less than
800,000 shares of the Registrable Securities; provided, however, that the
Company shall not be obligated to effect more than a total of three (3) Demand
Registrations under this Section 2 and under Section 2 of that certain
Registration Rights Agreement of even date herewith between the Company and the
Investors relating to shares issuable upon the exercise of the Warrants issued
pursuant to the Debenture and Note Purchase Agreement (i.e. the Investors may
request one, two or three registrations under either agreement). Such request
will specify the number of shares of Registrable Securities proposed to be sold
and will also specify the intended method of disposition thereof. Within 10 days
after receipt of such request, the Company will give written notice of such
registration request to all other Holders of the Registrable Securities. Subject
to the provisions of Section 2(d) below, the Company will include in such
registration all Registrable Securities with respect to which the Company has
received written requests by Holders for inclusion therein within 15 days after
the receipt of the Company's notice. Each such request shall specify the number
of shares of Registrable Securities to be registered and the intended method of
disposition thereof.
(b) Effectiveness of and Limitation on Demand Registration. The Company
shall not be obligated to honor any request for a Demand Registration hereunder
if the Company has, within the nine month period immediately preceding the
request for such Demand Registration, honored a request for a Demand
Registration hereunder, or otherwise offered securities pursuant to a
registration statement under the Securities Act (other than a registration
statement on Form S-4 or S-8 (or any substitute form that may be adopted by the
Commission) or a registration statement filed in connection with an exchange
offer or offering of securities or debt solely to the Company's existing
security or debt holders).
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(c) Effective Registration and Expenses. A registration will not count
as a Demand Registration until it has become effective (unless the Holders
demanding such registration withdraw the Registrable Securities, in which case
such demand will count as a Demand Registration unless the Holders of such
Registrable Securities agree to pay all Registration Expenses (as hereinafter
defined)). Except as provided above, the Company will pay all Registration
Expenses in connection with any registration initiated as a Demand Registration,
whether or not it becomes effective.
(d) Priority on Demand Registrations. If the Holders of a majority of
the shares of Registrable Securities to be registered in a Demand Registration
so elect, the offering of such Registrable Securities pursuant to a Demand
Registration shall be in the form of an underwritten offering. In such event, if
the managing Underwriter or Underwriters of such offering advise the Company and
the Holders in writing that in their opinion the number of shares of
Registerable Securities and other securities (if permitted by the Holders)
requested to be included in such offering is sufficiently large to materially
and adversely affect the success of such offering, the Company will include in
such registration the aggregate number of Registrable Securities and other
securities of the Company, which, in the opinion of such managing Underwriter or
Underwriters, can be sold without any such material adverse effect, and such
amount shall be allocated first to the Holders of Registrable Securities based
on the number of Registrable Securities requested to be included in such Demand
Registration and next to the Company and then next pro rata among such other
holders of securities of the Company offering securities under the Demand
Registration on the basis of the relative percentage ownership of all shares of
Common Stock then outstanding owned by each of such other holders.
(e) Selection of Underwriters. If a Demand Registration is in the form
of an underwritten offering, the Holders making such Demand Registration shall
select the managing Underwriter and such additional investment bankers and
managers to be used in connection with the offering; provided, that such
Underwriter and additional investment bankers and managers must be reasonably
satisfactory to the Company.
(f) Deferral of Registration. The Company may defer its obligations to
effect a demand registration pursuant to this Agreement if, in the good faith
judgment of the Company, filing a registration statement with the Commission at
the time such a demand registration is requested would require Adverse
Disclosure (as hereinafter defined), provided that such deferral may not extend
beyond the earlier to occur of (i) 120 days after the receipt by the Company of
the request for such demand registration, or (ii) the date that filing of a
registration statement with the Commission would not require Adverse Disclosure
therein. For purposes of this Agreement, the term "Adverse Disclosure" means
public disclosure of material non-public information relating to a pending or
imminent material acquisition, disposition, or other business combination,
divestiture or transaction or other corporate development (a "Significant
Transaction"), which disclosure (i) would, in the good faith judgment of the
Company, be required to be made in any registration statement filed with the
Commission by the Company so that such registration statement would not be
materially misleading; and (ii) would have a material adverse effect on the
Company's ability to complete such Significant Transaction or the terms upon
which such Significant Transaction can be completed.
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3. Piggyback Registrations.
(a) If at any time following the date of this Agreement, the Company
proposes for any reason to register any shares of Common Stock under the
Securities Act (other than pursuant to a registration statement on Form S-4 or
Form S-8 (or a similar or successor form)) with respect to an offering of Common
Stock by the Company for its own account or for the account of any of its
security holders, it shall at each such time promptly give written notice to the
Holders of its intention to do so (but in no event less than ten days before the
anticipated filing date). Such notice shall offer such Holders the opportunity
to register such number of shares of Registrable Securities as each such Holder
may request; provided, however, that the Company shall not be obligated to
register in such situation less than 100,000 shares of Registrable Securities if
the holder thereof is able to sell such shares pursuant to Rule 144(k) under the
Securities Act.
(b) The Company shall use its reasonable efforts to cause the managing
Underwriter or Underwriters of a proposed underwritten offering to permit the
shares of Registrable Securities requested to be included in the registration
statement for such offering to be included (on the same terms and conditions as
the Common Stock of the Company included therein to the extent appropriate).
Notwithstanding the foregoing, if in the reasonable judgment of the managing
Underwriter or Underwriters, due to the size of the offering which the Company
or such other persons or entities intend to make, the success of the offering
would be adversely affected by inclusion of the Registrable Securities requested
to be included, then if the offering is by the Company for its own account or is
an offering by other holders registering shares of Common Stock of the Company
pursuant to demand registration rights, then the number of shares of Common
Stock to be offered for the accounts of the Holders and other holders
registering shares of Common Stock of the Company pursuant to similar piggyback
registration rights shall be reduced pro rata based on the relative percentage
ownership of all shares of Common Stock then outstanding owned by the Holders
and such other holders to the extent necessary to reduce the total number of
shares of Common Stock to be included in such offering to the amount recommended
by such managing Underwriter or Underwriters. Notwithstanding the foregoing, in
the event that the other holders exercising similar piggyback registration
rights are the holders having such rights pursuant to the Registration Rights
Agreement applicable to the shares issuable upon the exercise of the Warrants
issued pursuant to the Debenture and Note Purchase Agreement, then the piggyback
registration rights of the Holders of the Debenture shall have priority and such
shares shall be allocated first pro rata to the Holders of the Debentures and
then pro rata to the Holders of the Warrants and such other holders.
4. Holdback Agreements.
(a) Restrictions on Public Sale by Holders of Registrable Securities.
Each Holder whose securities are included in a registration statement agrees not
to effect any public sale or distribution of the issue being registered or a
similar security of the Company or any securities convertible into or
exchangeable or exercisable for such securities, including a sale pursuant to
Rule 144 or Rule 144A under the Securities Act, during the ten days prior to,
and during the 90-day period beginning on, the effective date of such
registration statement (except as part of such registration), if and to the
extent requested by the Company in the case of a non-underwritten public
offering or if and to the extent requested by the managing Underwriter or
Underwriters in that case of an underwritten Public offering.
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(b) Underwriter Restriction on Public Sale by Holders of Registrable
Securities. If requested by the managing underwriter(s) of an underwritten
public offering or the initial purchaser(s) in any offering pursuant to Rule
144A under the Securities Act of securities by the Company, each Holder shall
agree on the same terms applicable to officers and directors of the Company not
to effect any public sale or distribution of the issue being registered or a
similar security of the Company or any securities convertible into or
exchangeable or exercisable for such securities, including any sale pursuant to
Rule 144 or Rule 144A under the Securities Act, during the ten days prior to,
and during the 90-day period beginning on, to the date of the final prospectus
contained in the registration statement filed or of the offering memorandum used
in connection with such offering.
(c) Restrictions on Public Sale By the Company. The Company agrees not
to effect any public sale or distribution of any securities similar to those
being registered, or any securities convertible into or exchangeable or
exercisable for such securities (except pursuant to a registration statement on
Form S-4 or S-8 (or any substitute form that may be adopted by the Commission)),
during the ten days prior to, and during the 90-day period beginning on, the
effective date of any registration statement (except as part of such
registration statement (x) where the Holders of a majority of the Registrable
Securities to be included in such registration statement consent, or (y) where
Holders are participating in such registration statement pursuant to Section 3
hereof, such registration statement was filed by the Company with respect to the
sale of securities by the Company and no Holder is simultaneously participating
in a registration statement pursuant to Section 2 hereof) or the commencement of
a public distribution of Registrable Securities pursuant to such registration
Statement.
5. Registration Procedures.
Whenever the Holders have requested that any Registrable Securities be
registered pursuant to Section 2 hereof, the Company will use its best efforts
to effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof as quickly as
practicable, and in connection with any such request, the Company will:
(a) prepare and file with the Commission, within 30 days after the date
on which any request for a Demand Registration is duly made, a registration
statement on any form for which the Company then qualifies or which counsel for
the Company shall deem appropriate and which form shall be available for the
sale of the Registrable Securities to be registered thereunder in accordance
with the intended method of distribution thereof, and use its best efforts to
cause such filed registration statement to become effective; provided, that if
the Company shall furnish to the Holders making a request for the second Demand
Registration pursuant to Section 2 a certificate signed by the Chief Executive
Officer of the Company stating that in his good faith judgment it would be
significantly disadvantageous to the Company or its stockholders for such a
registration statement to be filed as expeditiously as possible (including for
the reason that the Company is considering the commencement of a primary
offering of its own securities), the Company shall have a period of no more than
90 days within which to file such registration statement measured from the date
of receipt of the request in accordance with Section 2; and provided, further,
(i) that at least five days before filing a registration statement or prospectus
or as promptly as practicable prior to filing any amendments or supplements
thereto, the Company will furnish to one counsel selected by the Holders of a
majority of the Registrable Securities covered by such registration statement
copies of
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all such documents proposed to be filed, which documents will be subject to the
review of such counsel, and (ii) that after the filing of the registration
statement, the Company will promptly notify each Selling Holder of Registrable
Securities covered by such registration statement of comments received from, or
any stop order issued or threatened by, the Commission and take all reasonable
actions required to respond to such comments or, as the case may be, prevent the
entry of such stop order or to remove it if it has been entered;
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective pursuant to
Section 2 for a period of not less than 180 days or such shorter period which
will terminate when all Registrable Securities covered by such registration
statement have been sold (but not before the expiration of the period referred
to in subsection 4(3) of the Securities Act and Rule 174 thereunder, if
applicable) and comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
Selling Holders thereof set forth in much registration statement;
(c) furnish to each Selling Holder, prior to filing the registration
statement, if requested, copies of such registration statement as proposed to be
filed, and thereafter furnish to such Selling Holder such number of copies of
such registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto), the prospectus included in such registration
statement (including each preliminary prospectus), and such other documents as
such Selling Holder may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Selling Holder;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any Selling Holder reasonably (in light of such Selling Holder's intended plan
of distribution) requests and do any and all other acts and things which may be
reasonably necessary to enable such Selling Holder to consummate the disposition
in such jurisdictions of the Registrable Securities owned by such Selling
Holder; provided that the Company will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subsection, (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process in any such
jurisdiction;
(e) use its best efforts to cause such Registrable Securities to be
registered with or approved by such other governmental agencies or authorities
as may be necessary by virtue of the business and operations of the Company to
enable the Selling Holder or Selling Holders thereof to consummate the
disposition of such Registrable Securities; provided that the Company will not
be required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subsection, (ii) subject
itself to taxation in any such jurisdiction or (iii) consent to-general service
of process in any such jurisdiction;
(f) notify each Selling Holder of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the occurrence of an event requiring the preparation of a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein
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or necessary to make the statements therein not misleading and promptly make
available to each Selling Holder any such supplement or amendment;
(g) enter into and perform customary agreements (including an
underwriting agreement in customary form with the managing Underwriter, if any)
and take such other actions as are reasonably required in order to expedite or
facilitate the disposition of such Registrable;
(h) make available for inspection by any Selling Holder of such
Registrable Securities, any Underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant, or other
professional retained by any such Selling Holder or Underwriter (collectively,
the "Inspectors"), all financial and other records, pertinent corporate
documents, and properties of the Company (collectively, the "Records") as shall
be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors, and employees to
supply all information reasonably requested by any such Inspectors in connection
with such registration statement. Records which the Company determines, in good
faith, to be confidential and which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) in the judgment of counsel
to the Company the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in such registration statement or (ii) the release of
such Records is ordered pursuant to a subpoena or other order from a court or
government agency of competent jurisdiction. Each Selling Holder of such
Registrable Securities agrees that information obtained by it as a result of
such inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Company unless and
until such is made generally available to the public. Each Selling Holder of
such Registrable Securities further agrees that it will, upon learning that
disclosure of such Records is sought in a court or government agency of
competent jurisdiction, give notice to the Company and allow the Company, at its
expense, to undertake appropriate action to prevent disclosure of the Records
deemed confidential;
(i) if such sale is pursuant to an underwritten offering, use its best
efforts to obtain a comfort letter or comfort letters from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by comfort letters, in accordance with the
applicable rules of the AICPA, as the Selling Holders of a majority of the
Registrable Securities or the managing Underwriter reasonably request;
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make generally available to its security
holders, as soon as reasonably practicable, an earnings statement covering a
period of 12 months, beginning within three months after the effective date of
the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act; and
(k) use its best efforts to cause all such Registrable Securities to be
listed on each securities exchange on which similar securities issued by the
Company are then listed, or on the NASDAQ National Market System, if applicable,
provided that the applicable listing requirements are satisfied.
The Company may require each Selling Holder of Registrable Securities to
promptly furnish in writing to the Company, and each such Holder shall provide
to the Company, such information
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regarding the distribution of the Registrable Securities as it may from time to
time reasonably request and such other information as may be legally required in
connection with such registration.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in subsection 5(f)
hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subsection 5(f) hereof and,
if so directed by the Company such Selling Holder, will deliver to the Company
all copies, other than permanent file copies then in such Selling Holder's
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice. If the Company shall give such notice,
the Company shall extend the period during which such registration statement
shall be maintained effective (including the period referred to in subsection
5(b) hereof) by the number of days during the period from and including the date
of the giving of notice pursuant to subsection 5(f) hereof to the date when the
Company shall make available to the Selling Holders of Registrable Securities
covered by such registration statement a prospectus supplemented or amended to
conform with the requirements of subsection 5(f) hereof.
6. Registration Expenses.
In connection with any registration statement required to be filed
hereunder, the Company shall pay the following registration expenses (the
"Registration Expenses"): (i) all registration and filing fees; (ii) fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of counsel in connection with blue sky qualifications of
the Registrable Securities); (iii) printing expenses; (iv) internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties); (v) fees and expenses incurred
in connection with the listing of the Registrable Securities if the Company
shall choose to list such Registrable Securities; (vi) fees and disbursements of
counsel for the Company and customary fees and expenses for independent
certified public accountants retained by the Company (including the expenses of
any comfort letters or costs associated with the delivery by independent
certified public accountants of a comfort letter or comfort letters requested
pursuant to subsection 5(i) hereof); (vii) fees and expenses of any special
experts retained by the Company in connection with such registration; and (viii)
reasonable fees and expenses of one counsel (who shall be reasonably acceptable
to the Company) for the Holders incurred in connection with such registration.
The Company shall not have any obligation to pay any underwriting fees,
discounts, or commissions attributable to the sale of Registrable Securities, or
any out-of-pocket expenses of the Holders (or the agents who manage their
accounts).
7. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify and
hold harmless each Selling Holder of Registrable Securities, its officers,
directors, shareholders, partners, trustees, beneficiaries and agents, and each
person or entity, if any, who controls such Selling Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to the Registrable
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Securities or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities, or expenses arise out of, or are based upon, any such
untrue statement or omission or allegation thereof based upon information
furnished in writing to the Company by such Selling Holder or on such Selling
Holder's behalf expressly for use therein; provided, that with respect to any
untrue statement or omission or alleged untrue statement or omission made in any
preliminary prospectus, the indemnity agreement contained in this subsection
shall not apply to the extent that any such loss, claim, damage, liability, or
expense results from the fact that a current copy of the prospectus was not sent
or given to the person asserting any such loss, claim, damage, liability, or
expense at or prior to the written confirmation of the sale of the Registrable
Securities to such person and such current copy of the prospectus would have
cured the defect giving rise to such loss, claim, damage, liability or expense.
The Company also agrees to indemnify any Underwriters of the Registrable
Securities, their officers and directors, and each person who controls such
Underwriters on substantially the same basis as that of the indemnification of
the Selling Holders provided in this Section 7(a).
(b) Indemnification by Holder of Registrable Securities. Each Selling
Holder agrees to indemnify and hold harmless the Company, its directors and
officers, and each person, if any, who controls the Company within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to such Selling
Holder, but only with respect to information furnished in writing by such
Selling Holder or on such Selling Holder's behalf expressly for use in any
registration statement or prospectus relating to the Registrable Securities, any
amendment or supplement thereto, or any preliminary prospectus. In case any
action or proceeding shall be brought against the Company or its directors or
officers, or any such controlling person, in respect of which indemnity may be
sought against such Selling Holder, such Selling Holder shall have the rights
and duties given to the Company, and the Company or its directors or officers or
such controlling person shall have the rights and duties given to such Selling
Holder, by the preceding subsection. Each Selling Holder also agrees to
indemnify and hold harmless Underwriters of the Registrable Securities, their
officers and directors, and each person who controls such Underwriters on
substantially the same basis as that of the indemnification of the Company
provided in this Section 7(b).
(c) Conduct of Indemnification Proceedings. If any action or proceeding
(including any governmental investigation) shall be brought or asserted against
any person entitled to indemnification under subsections (a) or (b) above (an
"Indemnified Party") in respect of which indemnity may be sought from any party
who has agreed to provide such indemnification (an "Indemnifying Party"), the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party, and shall assume the
payment of all expenses. Such Indemnified Party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of such
Indemnified Party unless (i) the Indemnifying Party has agreed to pay such fees
and expenses or (ii) the named parties to any such action or proceeding
(including any impleaded parties) include both such Indemnified Party and the
Indemnifying Party, and such Indemnified Party shall have been advised by
counsel that there is a conflict of interest on the part of counsel employed by
the Indemnifying Party to represent such Indemnified Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it elects
to employ separate
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counsel at the expense of the Indemnifying Party, the Indemnifying Party shall
not have the right to assume the defense of such action or proceeding on behalf
of such Indemnified Party; it being understood, however, that the Indemnifying
Party shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys
(together with appropriate local counsel) at any time for all such Indemnified
Parties, which firm shall be designated in writing by such Indemnified Parties).
The Indemnifying Party shall not be liable for any settlement of any such action
or proceeding effected without its written consent, but if settled with its
written consent, or if there be a final judgment for the plaintiff in any such
action or proceeding, the Indemnifying Party shall indemnify and hold harmless
such Indemnified Parties from and against any loss or liability (to the extent
stated above) by reason of such settlement or judgment.
(d) Contribution. If the indemnification provided for in this Section 7
is unavailable to the Indemnified Parties in respect of any losses, claims,
damages, liabilities, or judgments referred to herein, then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages, liabilities, and judgments (i) as between the Company and the
Selling Holders on the one hand and the Underwriters on the other, in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Holders on the one hand and the Underwriters on the
other from the offering of the securities, or if such allocation is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company and the
Selling Holders on the one hand and of the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations, and (ii) as between the Company on the one hand and
each Selling Holder on the other, in such proportion as is appropriate to
reflect the relative fault of the Company and of each Selling Holder in
connection with such statements or omissions, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Holders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total proceeds from the offering (net
of underwriting discounts and commissions but before deducting expenses)
received by the Company and the Selling Holders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the prospectus. The relative fault of
the Company and the Selling Holders on the one hand and of the Underwriters on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
and the Selling Holders or by the Underwriters. The relative fault of the
Company on the one hand and of each Selling Holder on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Underwriters or the Selling Holders, respectively,
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
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to in the immediately preceding paragraph. The amount paid or payable by an
Indemnified Party as a result of the losses, claims, damages, liabilities or
judgments referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 7(d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, and no Selling Holder shall be required to contribute any
amount in excess of the amount by which the total price at which the securities
of such Selling Holder were offered to the public exceeds the amount of any
damages which such Selling Holder has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(e) Survival. The indemnity and contribution agreements contained in
this Section 7 shall remain operative and in full force and effect regardless of
(i) any termination of this Agreement or any underwriting agreement, (ii) any
investigation made by or on behalf of any Indemnified Party or by or on behalf
of the Company, and (iii) the consummation of the sale or successive resale of
the Registrable Securities.
8. Participation in Underwritten Registrations.
No person or entity may participate in any underwritten registration
hereunder unless such person or entity (a) agrees to sell such person's or
entity's securities on the basis provided in any underwriting arrangements
approved by the persons or entities entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and this Agreement.
9. Rule 144.
The Company covenants that it will file any reports required to be filed
by it under the Securities Act and the Exchange Act and the Rules and
Regulations thereunder and it will take such further action as any Holder of
Registrable Securities may reasonably request, all to the extent required, from
time to time, to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any Holder of Registrable Securities, the
Company will deliver to such Holder a written statement as to whether it has
complied with such information and requirements.
10. Miscellaneous.
(a) Remedies. Each Holder of Registrable Securities, in addition to
being entitled to exercise all rights provided herein and granted by law,
including recovery of damages, will be
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entitled to specific performance of its rights under this Agreement. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Agreement and
hereby agrees to waive the defense in any action for specific performance that
remedy at law would be adequate. Each party waives all provisions of law
requiring that a bond be posted in order to effectuate any remedy under this
Agreement.
(b) No Prior or Inconsistent Agreements. The Company has granted certain
registration rights pursuant to that certain Registration Rights Agreement,
dated ________ ___, 1999, with certain institutional investors relating to
shares of Common Stock of the Company issuable upon the exercise of certain
warrants granted by the Company to such investors. To the extent such
registration rights are applicable and to the extent expressly required thereby,
the registration rights granted hereby shall be subject to such rights and
applied in a manner which is not inconsistent with, and which does not conflict
with, such registration rights. The Company will not on or after the date of
this Agreement enter into any other agreement with respect to its securities
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The Company shall not at any time grant any other registration rights with
respect to its securities that are prior or superior to the registration rights
granted to the Holders of Registrable Securities pursuant to this Agreement,
including, without limitation, those registration rights granted by the Company
to the Investors as the holders of the Warrants issued on the date hereof
pursuant to the Debenture and Note Purchase Agreement. Other than the
registration rights described above, the Company has not previously entered into
any agreement with respect to its securities granting any registration rights to
any Person.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified, or supplemented, and waivers or consents to departures from
the provisions hereof may not be given unless the Company has obtained the
written consent of the Holders of at least sixty percent (60%) of the
Registrable Securities; provided that with respect to any waiver or consent
relating to any Demand Registration under Section 2 or any "piggyback"
registration under Section 3 hereof, the Company shall obtain the consent of the
Holders of a majority of the Registrable Securities subject to such
registration.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier, or air courier guaranteeing overnight
delivery:
(i) if to the Holders at their respective address as shown on the
books of the Company;
(ii) if to the Company, initially at ▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Chief Executive Officer; and thereafter at
such other address as may be designated from time to time by notice
given in accordance with the provisions of this section.
(e) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the Company and the
Holders.
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(f) Counterparts. This Agreement may be executed in a number of
identical counterparts and it shall not be necessary for the Company and the
Holders to execute each of such counterparts, but when both have executed and
delivered one or more of such counterparts, the several parts, when taken
together, shall be deemed to constitute one and the same instrument, enforceable
against each in accordance with its terms. In making proof of this Agreement, it
shall not be necessary to produce or account for more than one such counterpart
executed by the party against whom enforcement of this Agreement is sought.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to principles
of conflicts or choice of law.
(i) Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term of this Agreement, such provision shall be fully severable; this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Agreement; and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement. Furthermore, in lieu of each such illegal,
invalid or unenforceable provision, there shall be added automatically as a part
of this Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
(j) Entire Agreement. This Agreement is intended by the Company and the
Holders as a final expression of their agreement and is intended to be a
complete and exclusive statement of their agreement and understanding in respect
of the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the Company and the Holders with respect
to such subject matter.
(k) Third Party Beneficiaries. This Agreement is intended for the
benefit of the Company and the Holders and their respective successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person or entity.
(l) Attorney's Fees. In any proceeding brought to enforce any provision
of this Agreement, the successful party shall be entitled to recover reasonable
attorneys' fees in addition to its costs and expenses and any other available
remedy.
(m) Effectiveness. This Agreement shall become effective as of the day
first set forth above.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date first above written.
SAFEGUARD HEALTH ENTERPRISES, INC.
By:__________________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
Title: Chairman and Chief Executive Officer
By:__________________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Senior Vice President and Secretary
INVESTORS:
CAI PARTNERS AND COMPANY II, L.P.
By: CAI PARTNERS GP & CO., L.P.,
the General Partner
By:___________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President of
▇▇▇▇ ▇▇ Co., a General Partner
CAI CAPITAL PARTNERS AND COMPANY II, L.P.
By: CAI CAPITAL PARTNERS GP & CO., L.P.,
the General Partner
By:___________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President of
▇▇▇▇ ▇▇ Co., a General Partner
_____________________________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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EXHIBIT H
REGISTRATION RIGHTS AGREEMENT
(Warrant Shares)
This Registration Rights Agreement (this "Agreement"), is entered into
as of ____________, 1999, by and between SafeGuard Health Enterprises, Inc., a
Delaware corporation (the "Company"), and the Investors that are parties to that
certain Debenture and Note Purchase Agreement, dated as of June 29, 1999, by
and among the Company and the Investors named therein (the "Debenture and Note
Purchase Agreement").
WITNESSETH:
WHEREAS, the Investors have acquired on the date hereof those certain
Warrants of the Company (the "Warrants") for the purchase of Common Stock of the
Company pursuant to the Debenture and Note Purchase Agreement; and
WHEREAS, the Company agreed to grant certain registration rights with
respect to the Common Stock of the Company issuable upon exercise of the
Warrants as additional consideration therefor on and subject to the terms and
conditions hereinafter set forth;
NOW THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto agree as follows:
1. Definitions.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, $.01 par value, of the Company.
"Conversion Shares" means any shares of Common Stock issuable or issued
upon exercise of the Warrants.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" means a Investor or any transferee of a Purchaser owning a
Warrant or Conversion Shares or any assignee or transferee of a Registrable
Security.
"Registrable Securities" means (i) any Conversion Shares that have been
or may be issued pursuant to the exercise of the Warrants and (ii) any Common
Stock issued as a dividend or other distribution with respect to or in exchange
for or in replacement of the Conversion Shares. Any Registrable Security will
cease to be a Registrable Security when (i) a registration statement covering
such Registrable Security has been declared effective by the Commission and the
Registrable Security has been disposed of pursuant to such effective
registration statement, (ii) the Registrable Security is sold under
circumstances in which all of the applicable conditions of Rule 144 (or any
similar provisions then in force) under the Securities Act are met or (iii) the
Registrable Security has been otherwise transferred, the Company has delivered a
new certificate
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or other evidence of ownership for it not bearing a legend restricting further
transfer, and it may be resold without subsequent registration under the
Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Holder" means a Holder who is selling Registrable Securities
pursuant to a registration statement.
"Underwriters" means a securities dealer which purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
"Warrants" means those certain Warrants issued and sold to the Investors
pursuant to the Debenture and Note Purchase Agreement.
2. Demand Registration.
(a) Request for Registration. At any time after December 31, 1999, a
Holder or Holders of Registrable Securities may make a written request for
registration under the Securities Act (a "Demand Registration") of not less than
400,000 shares of the Registrable Securities provided, however, that the Company
shall not be obligated to effect more than a total of three (3) Demand
Registrations under this Section 2 and under Section 2 of that certain
registration Rights Agreement of even date herewith between the Company and the
investors relating to shares issuable upon the conversion of the Debentures
issued pursuant to the Debenture and Note Agreement (i.e. the Investors may
request one, two or three registrations under either agreement). Such request
will specify the number of shares of Registrable Securities proposed to be sold
and will also specify the intended method of disposition thereof. Within 10 days
after receipt of such request, the Company will give written notice of such
registration request to all other Holders of the Registrable Securities. Subject
to the provisions of Section 2(d) below, the Company will include in such
registration all Registrable Securities with respect to which the Company has
received written requests by Holders for inclusion therein within 15 days after
the receipt of the Company's notice. Each such request shall specify the number
of shares of Registrable Securities to be registered and the intended method of
disposition thereof.
(b) Effectiveness of and Limitation on Demand Registration. The Company
shall not be obligated to honor any request for a Demand Registration hereunder
if the Company has, within the nine month period immediately preceding the
request for such Demand Registration, honored agreement for a Demand
Registration hereunder, or otherwise offered securities pursuant to a
registration statement under the Securities Act (other than a registration
statement on Form S-4 or S-8 (or any substitute form that may be adopted by the
Commission) or a registration statement filed in connection with an exchange
offer or offering of securities or debt solely to the Company's existing
security or debt holders).
(c) Effective Registration and Expenses. A registration will not count
as a Demand Registration until it has become effective (unless the Holders
demanding such registration withdraw the Registrable Securities, in which case
such demand will count as a Demand Registration unless the Holders of such
Registrable Securities agree to pay all Registration Expenses (as hereinafter
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defined)). Except as provided above, the Company will pay all Registration
Expenses in connection with any registration initiated as a Demand Registration,
whether or not it becomes effective.
(d) Priority on Demand Registrations. If the Holders of a majority of
the shares of Registrable Securities to be registered in a Demand Registration
so elect, the offering of such Registrable Securities pursuant to a Demand
Registration shall be in the form of an underwritten offering. In such event, if
the managing Underwriter or Underwriters of such offering advise the Company and
the Holders in writing that in their opinion the number of shares of
Registerable Securities and other securities requested to be included in such
offering is sufficiently large to materially and adversely affect the success of
such offering, the Company will include in such registration the aggregate
number of Registrable Securities and other securities of the Company which in
the opinion of such managing Underwriter or Underwriters can be sold without any
such material adverse effect, and such amount shall be allocated first pro rata
to the Holders of Registrable Securities on the basis of the relative percentage
ownership of the Registrable Securities of such Holders and next to the Company
and then next pro rata among such other holders of securities of the Company
offering securities under the Demand Registration on the basis of the relative
percentage ownership of all shares of Common Stock then outstanding owned by
each of such other holders.
(e) Selection of Underwriters. If a Demand Registration is in the form
of an underwritten offering, the Holder making such Demand Registration shall
select the managing Underwriter and such additional investment bankers and
managers to be used in connection with the offering; provided, that such
Underwriter and additional investment bankers and managers must be reasonably
satisfactory to the Company.
(f) Deferral of Registration. The Company may defer its obligations to
effect a demand registration pursuant to this Agreement if, in the good faith
judgment of the Company, filing a registration statement with the Commission at
the time such a demand registration is requested would require Adverse
Disclosure (as hereinafter defined), provided that such deferral may not extend
beyond the earlier to occur of (i) 120 days after the receipt by the Company of
the request for such demand registration, or (ii) the date that filing of a
registration statement with the Commission would not require Adverse Disclosure
therein. For purposes of this Agreement, the term "Adverse Disclosure" means
public disclosure of material non-public information relating to a pending or
imminent material acquisition, disposition, or other business combination,
divestiture or transaction or other corporate development (a "Significant
Transaction"), which disclosure (i) would, in the good faith judgment of the
Company, be required to be made in any registration statement filed with the
Commission by the Company so that such registration statement would not be
materially misleading; and (ii) would have a material adverse effect on the
Company's ability to complete such Significant Transaction or the terms upon
which such Significant Transaction can be completed.
3. Piggyback Registrations.
(a) If at any time following the date of this Agreement, the Company
proposes for any reason to register any shares of Common Stock under the
Securities Act (other than pursuant to a registration statement on Form S-4 or
Form S-8 (or a similar or successor form)) with respect to an offering of Common
Stock by the Company for its own account or for the account of any of its
security holders, it shall at each such time promptly give written notice to the
Holders of its intention
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to do so (but in no event less than ten days before the anticipated filing
date). Such notice shall offer such Holders the opportunity to register such
number of shares of Registrable Securities as each such Holder may request;
provided, however, that the Company shall not be obligated to register in such
situation less than 100,000 shares of Registrable Securities if the holder
thereof is able to sell such shares pursuant to Rule 144(k) under the Securities
Act.
(b) The Company shall use its reasonable efforts to cause the managing
Underwriter or Underwriters of a proposed underwritten offering to permit the
shares of Registrable Securities requested to be included in the registration
statement for such offering to be included (on the same terms and conditions as
the Common Stock of the Company included therein to the extent appropriate).
Notwithstanding the foregoing, if in the reasonable judgment of the managing
Underwriter or Underwriters, due to the size of the offering which the Company
or such other persons or entities intend to make, the success of the offering
would be adversely affected by inclusion of the Registrable Securities requested
to be included, then, if the offering is by the Company for its own account or
is an offering by other holders registering shares of Common Stock of the
Company pursuant to demand registration rights, then the number of shares of
Common Stock to be offered for the accounts of the Holders and other holders
requesting to register shares of Common Stock of the Company pursuant to similar
piggyback registration rights shall be reduced by first allocating shares to pro
rata the holders of the Debentures and Preferred Stock (as defined in the
Debenture and Note Agreement) or shares issued upon conversion of Debentures
exercising piggyback registration rights and then pro rata based on the relative
percentage ownership of all shares of Common Stock then outstanding owned by the
Holders and such other holders to the extent necessary to reduce the total
number of shares of Common Stock to be included in such offering to the amount
recommended by such managing Underwriter or Underwriters.
4. Holdback Agreements.
(a) Restrictions on Public Sale by Holders of Registrable Securities.
Each Holder whose securities are included in a registration statement agrees not
to effect any public sale or distribution of the issue being registered or a
similar security of the Company or any securities convertible into or
exchangeable or exercisable for such securities, including a sale pursuant to
Rule 144 or Rule 144A under the Securities Act, during the ten days prior to,
and during the 90-day period beginning on, the effective date of such
registration statement (except as part of such registration), if and to the
extent requested by the Company in the case of a non-underwritten public
offering or if and to the extent requested by the managing Underwriter or
Underwriters in that case of an underwritten Public offering.
(b) Underwriter Restriction on Public Sale by Holders of Registrable
Securities. If requested by the managing underwriter(s) of an underwritten
public offering or the initial purchaser(s) in any offering pursuant to Rule
144A under the Securities Act of securities by the Company, each Holder shall
agree on the same terms applicable to officers and directors of the Company not
to effect any public sale or distribution of the issue being registered or a
similar security of the Company or any securities convertible into or
exchangeable or exercisable for such securities, including any sale pursuant to
Rule 144 or Rule 144A under the Securities Act, during the ten days prior to,
and during the 90-day period beginning on, to the date of the final prospectus
contained in the registration statement filed or of the offering memorandum used
in connection with such offering.
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(c) Restrictions on Public Sale By the Company. The Company agrees not
to effect any public sale or distribution of any securities similar to those
being registered, or any securities convertible into or exchangeable or
exercisable for such securities (except pursuant to a registration statement on
Form S-4 or S-8 (or any substitute form that may be adopted by the Commission)),
during the ten days prior to, and during the 90-day period beginning on, the
effective date of any registration statement (except as part of such
registration statement (x) where the Holders of a majority of the Registrable
Securities to be included in such registration statement consent, or (y) where
Holders are participating in such registration statement pursuant to Section 3
hereof, such registration statement was filed by the Company with respect to the
sale of securities by the Company and no Holder is simultaneously participating
in a registration statement pursuant to Section 2 hereof) or the commencement of
a public distribution of Registrable Securities pursuant to such registration
Statement.
5. Registration Procedures.
Whenever the Holders have requested that any Registrable Securities be
registered pursuant to Section 2 hereof, the Company will use its best efforts
to effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof as quickly as
practicable, and in connection with any such request, the Company will:
(a) prepare and file with the Commission, within 30 days after the date
on which any request for a Demand Registration is duly made, a registration
statement on any form for which the Company then qualifies or which counsel for
the Company shall deem appropriate and which form shall be available for the
sale of the Registrable Securities to be registered thereunder in accordance
with the intended method of distribution thereof, and use its best efforts to
cause such filed registration statement to become effective; provided, that if
the Company shall furnish to the Holders making a request for a Demand
Registration pursuant to Section 2 a certificate signed by the Chief Executive
Officer of the Company stating that in his good faith judgment it would be
significantly disadvantageous to the Company or its stockholders for such a
registration statement to be filed as expeditiously as possible (including for
the reason that the Company is considering the commencement of a primary
offering of its own securities), the Company shall have a period of no more than
90 days within which to file such registration statement measured from the date
of receipt of the request in accordance with Section 2; and provided, further,
(i) that at least five days before filing a registration statement or prospectus
or as promptly as practicable prior to filing any amendments or supplements
thereto, the Company will furnish to one counsel selected by the Holders of a
majority of the Registrable Securities covered by such registration statement
copies of all such documents proposed to be filed, which documents will be
subject to the review of such counsel, and (ii) that, after the filing of the
registration statement, the Company will promptly notify each Selling Holder of
Registrable Securities covered by such registration statement of comments
received from, or any stop order issued or threatened by, the Commission and
take all reasonable actions required to respond to such comments or, as the case
may be, prevent the entry of such stop order or to remove it if it has been
entered;
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective pursuant to
Section 2 for a period of not less than 180 days or such shorter period which
will terminate when all Registrable Securities covered by such registration
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statement have been sold (but not before the expiration of the period referred
to in subsection 4(3) of the Securities Act and Rule 174 thereunder, if
applicable) and comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
Selling Holders thereof set forth in much registration statement;
(c) furnish to each Selling Holder, prior to filing the registration
statement, if requested, copies of such registration statement as proposed to be
filed, and thereafter furnish to such Selling Holder such number of copies of
such registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto), the prospectus included in such registration
statement (including each preliminary prospectus), and such other documents as
such Selling Holder may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Selling Holder;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any Selling Holder reasonably (in light of such Selling Holder's intended plan
of distribution) requests and do any and all other acts and things which may be
reasonably necessary to enable such Selling Holder to consummate the disposition
in such jurisdictions of the Registrable Securities owned by such Selling
Holder; provided that the Company will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subsection, (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process in any such
jurisdiction;
(e) use its best efforts to cause such Registrable Securities to be
registered with or approved by such other governmental agencies or authorities
as may be necessary by virtue of the business and operations of the Company to
enable the Selling Holder or Selling Holders thereof to consummate the
disposition of such Registrable Securities; provided that the Company will not
be required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subsection, (ii) subject
itself to taxation in any such jurisdiction or (iii) consent to general service
of process in any such jurisdiction;
(f) notify each Selling Holder of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the occurrence of an event requiring the preparation of a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading and promptly make available to each Selling Holder any such
supplement or amendment;
(g) enter into and perform customary agreements (including an
underwriting agreement in customary form with the managing Underwriter, if any)
and take such other actions as are reasonably required in order to expedite or
facilitate the disposition of such Registrable;
(h) make available for inspection by any Selling Holder of such
Registrable Securities, any Underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant, or other
professional retained by any such Selling Holder or Underwriter (collectively,
the "Inspectors"), all financial and other records, pertinent corporate
documents, and
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properties of the Company (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise their due diligence responsibility, and
cause the Company's officers, directors, and employees to supply all information
reasonably requested by any such Inspectors in connection with such registration
statement. Records which the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (i) in the judgment of counsel to the Company
the disclosure of such Records is necessary to avoid or correct a misstatement
or omission in such registration statement or (ii) the release of such Records
is ordered pursuant to a subpoena or other order from a court or government
agency of competent jurisdiction. Each Selling Holder of such Registrable
Securities agrees that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Company unless and
until such is made generally available to the public. Each Selling Holder of
such Registrable Securities further agrees that it will, upon learning that
disclosure of such Records is sought in a court or government agency of
competent jurisdiction, give notice to the Company and allow the Company, at its
expense, to undertake appropriate action to prevent disclosure of the Records
deemed confidential;
(i) if such sale is pursuant to an underwritten offering, use its best
efforts to obtain a comfort letter or comfort letters from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by comfort letters, in accordance with the
applicable rules of AICPA, as the Selling Holders of a majority of the
Registrable Securities or the managing Underwriter reasonably request;
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make generally available to its security
holders, as soon as reasonably practicable, an earnings statement covering a
period of 12 months, beginning within three months after the effective date of
the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act; and
(k) use its best efforts to cause all such Registrable Securities to be
listed on each securities exchange on which similar securities issued by the
Company are then listed, or on the NASDAQ National Market System, if applicable,
provided that the applicable listing requirements are satisfied.
The Company may require each Selling Holder of Registrable Securities to
promptly furnish in writing to the Company, and each such Holder shall provide
to the Company, such information regarding the distribution of the Registrable
Securities as it may from time to time reasonably request and such other
information as may be legally required in connection with such registration.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in subsection 5(f)
hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subsection 5(f) hereof and,
if so directed by the Company such Selling Holder, will deliver to the Company
all copies, other than permanent file copies then in such Selling Holder's
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice. If the Company shall give such notice,
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the Company shall extend the period during which such registration statement
shall be maintained effective (including the period referred to in subsection
5(b) hereof) by the number of days during the period from and including the date
of the giving of notice pursuant to subsection 5(f) hereof to the date when the
Company shall make available to the Selling Holders of Registrable Securities
covered by such registration statement a prospectus supplemented or amended to
conform with the requirements of subsection 5(f) hereof.
6. Registration Expenses.
In connection with any registration statement required to be filed
hereunder, the Company shall pay the following registration expenses (the
"Registration Expenses"): (i) all registration and filing fees; (ii) fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of counsel in connection with blue sky qualifications of
the Registrable Securities); (iii) printing expenses; (iv) internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties); (v) fees and expenses incurred
in connection with the listing of the Registrable Securities if the Company
shall choose to list such Registrable Securities; (vi) fees and disbursements of
counsel for the Company and customary fees and expenses for independent
certified public accountants retained by the Company (including the expenses of
any comfort letters or costs associated with the delivery by independent
certified public accountants of a comfort letter or comfort letters requested
pursuant to subsection 5(i) hereof); (vii) fees and expenses of any special
experts retained by the Company in connection with such registration; and (viii)
reasonable fees and expenses of one counsel (who shall be reasonably acceptable
to the Company) for the Holders incurred in connection with such registration.
The Company shall not have any obligation to pay any underwriting fees,
discounts, or commissions attributable to the sale of Registrable Securities, or
any out-of-pocket expenses of the Holders (or the agents who manage their
accounts).
7. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify and
hold harmless each Selling Holder of Registrable Securities, its officers,
directors, shareholders, partners, trustees, beneficiaries and agents, and each
person or entity, if any, who controls such Selling Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to the Registrable Securities or
in any amendment or supplement thereto or in any preliminary prospectus, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities, or expenses arise out of, or are based upon, any such untrue
statement or omission or allegation thereof based upon information furnished in
writing to the Company by such Selling Holder or on such Selling Holder's behalf
expressly for use therein; provided, that with respect to any untrue statement
or omission or alleged untrue statement or omission made in any preliminary
prospectus, the indemnity agreement contained in this subsection shall not apply
to the extent that any such loss, claim, damage, liability, or expense results
from the fact that a current copy of the prospectus was not sent or given to the
person asserting any such loss, claim, damage, liability, or expense at or prior
to the written confirmation of the sale of the
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Registrable Securities to such person and such current copy of the prospectus
would have cured the defect giving rise to such loss, claim, damage, liability
or expense. The Company also agrees to indemnify any Underwriters of the
Registrable Securities, their officers and directors, and each person who
controls such Underwriters on substantially the same basis as that of the
indemnification of the Selling Holders provided in this Section 7(a).
(b) Indemnification by Holder of Registrable Securities. Each Selling
Holder agrees to indemnify and hold harmless the Company, its directors and
officers, and each person, if any, who controls the Company within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to such Selling
Holder, but only with respect to information furnished in writing by such
Selling Holder or on such Selling Holder's behalf expressly for use in any
registration statement or prospectus relating to the Registrable Securities, any
amendment or supplement thereto, or any preliminary prospectus. In case any
action or proceeding shall be brought against the Company or its directors or
officers, or any such controlling person, in respect of which indemnity may be
sought against such Selling Holder, such Selling Holder shall have the rights
and duties given to the Company, and the Company or its directors or officers or
such controlling person shall have the rights and duties given to such Selling
Holder, by the preceding subsection. Each Selling Holder also agrees to
indemnify and hold harmless Underwriters of the Registrable Securities, their
officers and directors, and each person who controls such Underwriters on
substantially the same basis as that of the indemnification of the Company
provided in this Section 7(b).
(c) Conduct of Indemnification Proceedings. If any action or proceeding
(including any governmental investigation) shall be brought or asserted against
any person entitled to indemnification under subsections (a) or (b) above (an
"Indemnified Party") in respect of which indemnity may be sought from any party
who has agreed to provide such indemnification (an "Indemnifying Party"), the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party, and shall assume the
payment of all expenses. Such Indemnified Party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of such
Indemnified Party unless (i) the Indemnifying Party has agreed to pay such fees
and expenses or (ii) the named parties to any such action or proceeding
(including any impleaded parties) include both such Indemnified Party and the
Indemnifying Party, and such Indemnified Party shall have been advised by
counsel that there is a conflict of interest on the part of counsel employed by
the Indemnifying Party to represent such Indemnified Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it elects
to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such action
or proceeding on behalf of such Indemnified Party; it being understood, however,
that the Indemnifying Party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel) at any time for all
such Indemnified Parties, which firm shall be designated in writing by such
Indemnified Parties). The Indemnifying Party shall not be liable for any
settlement of any such action or proceeding effected without its written
consent, but if settled with its written consent, or if there be a final
judgment for the plaintiff in any such action or proceeding, the Indemnifying
Party shall
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indemnify and hold harmless such Indemnified Parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment.
(d) Contribution. If the indemnification provided for in this Section 7
is unavailable to the Indemnified Parties in respect of any losses, claims,
damages, liabilities, or judgments referred to herein, then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages, liabilities, and judgments (i) as between the Company and the
Selling Holders on the one hand and the Underwriters on the other, in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Holders on the one hand and the Underwriters on the
other from the offering of the securities, or if such allocation is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company and the
Selling Holders on the one hand and of the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations, and (ii) as between the Company on the one hand and
each Selling Holder on the other, in such proportion as is appropriate to
reflect the relative fault of the Company and of each Selling Holder in
connection with such statements or omissions, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Holders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total proceeds from the offering (net
of underwriting discounts and commissions but before deducting expenses)
received by the Company and the Selling Holders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the prospectus. The relative fault of
the Company and the Selling Holders on the one hand and of the Underwriters on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
and the Selling Holders or by the Underwriters. The relative fault of the
Company on the one hand and of each Selling Holder on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Underwriters or the Selling Holders, respectively,
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
Indemnified Party as a result of the losses, claims, damages, liabilities or
judgments referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 7(d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, and no Selling Holder shall be required to contribute any
amount in excess of the amount by which the total
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price at which the securities of such Selling Holder were offered to the public
exceeds the amount of any damages which such Selling Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) Survival. The indemnity and contribution agreements contained in
this Section 7 shall remain operative and in full force and effect regardless of
(i) any termination of this Agreement or any underwriting agreement, (ii) any
investigation made by or on behalf of any Indemnified Party or by or on behalf
of the Company, and (iii) the consummation of the sale or successive resale of
the Registrable Securities.
8. Participation in Underwritten Registrations.
No person or entity may participate in any underwritten registration
hereunder unless such person or entity (a) agrees to sell such person's or
entity's securities on the basis provided in any underwriting arrangements
approved by the persons or entities entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and this Agreement.
9. Rule 144.
The Company covenants that it will file any reports required to be filed
by it under the Securities Act and the Exchange Act and the Rules and
Regulations thereunder and it will take such further action as any Holder of
Registrable Securities may reasonably request, all to the extent required, from
time to time, to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any Holder of Registrable Securities, the
Company will deliver to such Holder a written statement as to whether it has
complied with such information and requirements.
10. Miscellaneous.
(a) Remedies. Each Holder of Registrable Securities, in addition to
being entitled to exercise all rights provided herein and granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that remedy at law would be adequate. Each party
waives all provisions of law requiring that a bond be posted in order to
effectuate any remedy under this Agreement.
(b) No Prior or Inconsistent Agreements. The Company has granted certain
registration rights pursuant to that certain Registration Rights Agreement,
dated ______ ___, 1999, with certain institutional investors relating to shares
of Common Stock of the Company issuable upon the exercise of certain warrants
granted by the Company to such investors. To the extent such
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registration rights are applicable and to the extent expressly required thereby,
the registration rights granted hereby shall be subject to such rights and
applied in a manner which is not inconsistent with, and which does not conflict
with, such registration rights. The Company will not on or after the date of
this Agreement enter into any other agreement with respect to its securities
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The Company shall not at any time grant any other registration rights with
respect to its securities that are prior or superior to the registration rights
granted to the Holders of Registrable Securities pursuant to this Agreement
other than those registration rights granted by the Company to the Investors as
the holders of the Debentures issued on the date hereof pursuant to the
Debenture and Note Agreement. Except as set forth above and except for the
rights granted to the Holders of the Debentures, the Company has not previously
entered into any agreement with respect to its securities granting any
registration rights to any Person.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified, or supplemented, and waivers or consents to departures from
the provisions hereof may not be given unless the Company has obtained the
written consent of the Holders of at least sixty percent (60%) of the
Registrable Securities; provided that with respect to any waiver or consent
relating to any Demand Registration under Section 2 hereof or any "piggyback"
registration under Section 3 hereof, the Company shall obtain the consent of the
Holders of a majority of the Registrable Securities subject to such
registration.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier, or air courier guaranteeing overnight
delivery:
(i) if to the Holders at their respective address as shown on the
books of the Company;
(ii) if to the Company, initially at ▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Chief Executive Officer; and thereafter at
such other address as may be designated from time to time by notice
given in accordance with the provisions of this section.
(e) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the Company and the
Holders.
(f) Counterparts. This Agreement may be executed in a number of
identical counterparts and it shall not be necessary for the Company and the
Holders to execute each of such counterparts, but when both have executed and
delivered one or more of such counterparts, the several parts, when taken
together, shall be deemed to constitute one and the same instrument, enforceable
against each in accordance with its terms. In making proof of this Agreement, it
shall not be necessary to produce or account for more than one such counterpart
executed by the party against whom enforcement of this Agreement is sought.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
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(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to principles
of conflicts or choice of law.
(i) Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term of this Agreement, such provision shall be fully severable; this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Agreement; and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement. Furthermore, in lieu of each such illegal,
invalid or unenforceable provision, there shall be added automatically as a part
of this Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
(j) Entire Agreement. This Agreement is intended by the Company and the
Holders as a final expression of their agreement and is intended to be a
complete and exclusive statement of their agreement and understanding in respect
of the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the Company and the Holders with respect
to such subject matter.
(k) Third Party Beneficiaries. This Agreement is intended for the
benefit of the Company and the Holders and their respective successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person or entity.
(l) Attorney's Fees. In any proceeding brought to enforce any provision
of this Agreement, the successful party shall be entitled to recover reasonable
attorneys' fees in addition to its costs and expenses and any other available
remedy.
(m) Effectiveness. This Agreement shall become effective as of the day
first set forth above.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date first above written.
SAFEGUARD HEALTH ENTERPRISES, INC.
By:__________________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
Title: Chairman and Chief Executive Officer
By:__________________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Senior Vice President and Secretary
INVESTORS:
CAI PARTNERS AND COMPANY II, L.P.
By: CAI PARTNERS GP & CO., L.P.,
the General Partner
By:___________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President of
▇▇▇▇ ▇▇ Co., a General Partner
CAI CAPITAL PARTNERS AND COMPANY II, L.P.
By: CAI CAPITAL PARTNERS GP & CO., L.P.,
the General Partner
By:___________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President of
▇▇▇▇ ▇▇ Co., a General Partner
_____________________________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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EXHIBIT I
AGREEMENT AMONG INVESTORS
This Agreement Among Investors (this "Agreement") is entered into this
_______ day of _______________, 1999, by and among CAI Partners and Company II,
L.P., a Canadian limited partnership (CAI Partners"), CAI Capital Partners and
Company II, L.P., a Canadian limited partnership ("CAI Capital"), ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇") and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S., in his individual capacity
and not as a trustee or officer of any entity ("Baileys").
WHEREAS, CAI Partners, CAI Capital, and ▇▇▇▇▇▇▇▇ are the holders of
certain 8% Convertible Debentures (the "Debentures") and certain shares of 8%
Cumulative Convertible Preferred Stock (the "Preferred Stock") issued pursuant
to that certain Debenture and Note Purchase Agreement, dated as of June 29,
1999, by and between SafeGuard Health Enterprises, Inc., a Delaware corporation
(the "Company") and the Purchasers named therein.
WHEREAS, Baileys is the chief executive officer and a principal
stockholder of the Company; and
WHEREAS, the parties hereto desire to enter into this Agreement to set
forth certain agreements and restrictions relating to the Debentures and shares
of Common Stock of the Company owned or to be owned by the parties hereto; and
WHEREAS, the parties hereto are hereinafter sometimes referred to
individually as a "Subject Investor" and collectively as the "Subject
Investors".
NOW, THEREFORE, in consideration of the premises and the mutual terms
and conditions set forth in this Agreement, the parties hereto hereby agree as
follows:
ARTICLE I
RESTRICTION AGAINST TRANSFER;
1.1 Securities Subject Hereto. The provisions of this Agreement shall,
except as hereinafter specifically provided, apply to:
(a) The Debentures;
(b) The Preferred Stock;
(c) All shares of common stock of the Company now owned or hereafter
acquired by any Subject Investor including, without limitation, shares of common
stock of the Company issued upon conversion of the Debentures and the Preferred
Stock and shares of common stock of the Company issued upon the exercise of any
stock options or warrants;
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(d) All shares of capital stock of the Company hereafter issued in
respect of, in lieu of or in exchange for the shares of common stock referred to
in Section 1.1(c) above, whether by reason of any stock split, stock dividend,
reverse split, recapitalization, merger, exchange or otherwise; and
(e) All shares of capital stock of the Company hereafter acquired by the
Subject Investors pursuant to any subscription or rights to acquire additional
shares of capital stock of the Company which subscription or other right to
acquire capital stock of the Company is measured by or attributable to the
ownership of any shares of capital stock made subject to this Agreement by the
foregoing provisions of this Section 1.1.
All the Debentures and shares of capital stock of the Company described above in
this Section 1.1 are hereinafter referred to as "Agreement Stock."
1.2 No Transfer Except As Provided Herein. None of the shares of
Agreement Stock shall be voluntarily sold or otherwise voluntarily transferred
whether to third parties or to the Company or to any Subject Investor, except as
provided in this Agreement.
1.3 Permitted Transfers. Notwithstanding the foregoing, any Subject
Investor may transfer all or any portion of the Agreement Stock owned by the
Subject Investor to any member of his immediate family or to any trust of which
the beneficiary is the Subject Investor or a member of his immediate family or
as a distribution to any general or limited partner of the Subject Investor;
provided, however, that any such permitted assignee shall expressly agree in
writing that the Agreement Stock so transferred are held subject to and bound by
the provisions of this Agreement.
1.4 Disposition of Agreement Stock /Purchase and Co-Sale Rights. In the
event a Subject Investor desires to make a voluntary disposition of Agreement
Stock, other than (i) any sale made pursuant to Rule 144 of the Securities and
Exchange Commission (or successor to such rule, specifically including the
volume limitations of Rule 144(e)(1) thereof) except as provided in Subparagraph
1.4(a) below, or (ii) any sale or other transfer by or for the account of
Baileys of the 50,000 shares of Common Stock currently pledged to Bear ▇▇▇▇▇▇▇
(or subsequent pledge of such shares (which sales shall be included for the
purposes hereof in applying the volume limitations of Rule 144(e)(1)):
(a) The Subject Investor desiring to make such a disposition of
Agreement Stock ("Transferor") shall first obtain the unanimous written consent
of all the other Subject Investors ("Non-Transferring Investors"). Such consent
may provide for the waiver or release of such shares of Agreement Stock from all
or any of the provisions of this Agreement on such terms as may be stated in
such consent. If such consent is not obtained, Subparagraphs 1.4(b) through (e)
shall apply. In addition, in the event the Subject Investor desires to make an
open market sale pursuant to Rule 144, Subparagraphs 1.4(b) through (d) shall
apply but not Subparagraph 1.4(e).
(b) In the absence of prior written consent to a disposition of
Agreement Stock as contemplated by Section 1.4(a) hereof, or in the event of an
open market sale pursuant to Rule 144, the Transferor shall have the right at
any time to give written notice (the "Notice") to the Non- Transferring
Investors of a proposed disposition. The Notice shall include full information
concerning the proposed disposition, including the name and address of the
person to whom the Agreement Stock is proposed to be transferred (who must be
ready, willing and able to acquire the
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Agreement Stock in accordance with the terms stated in the Notice) or that such
shares shall be sold on the open market, the financial arrangements relating to
the proposed transfer, the principal amount of the Debentures or the number of
shares of Agreement Stock proposed to be sold, the proposed date of the
transfer, and all other terms of the offer.
(c) The Non-Transferring Stockholders shall each have the right and
option, which in order to be validly exercised must be exercised by written
notice delivered to the Transferor within ten (10) days (three (3) days in the
event of an open market sale) following the date the Notice is given, to acquire
all or any portion of the Agreement Stock respecting which a disposition has
been proposed on the same terms and conditions as stated in the Notice (except
that the closing of such sale and purchase shall occur on the later of the
closing date stated in the Notice or the third business day after a
determination is made under this Section 1.4(d) of the identity of the
purchasing Non- Transferring Investors). In the event of a notice of a proposed
open market sale, the Non- Transferring Stockholder may exercise such option at
a purchase price equal to the then current market price of the Common Stock of
the Company on the date of the Notice less $.06 per share.
(d) In the event the option to purchase the Agreement Stock described in
the Notice is not timely exercised pursuant to Section 1.4(c) above with respect
to all the Agreement Stock proposed to be sold, the Transferor shall be free to
dispose of such of the Agreement Stock as to which the option was not exercised
in accordance with the information furnished in the Notice, provided such
disposition is consummated on or before the later of the proposed closing date
stated in the Notice or sixty (60) days after the date of the Notice and
provided further that any such disposition, other than an open market sale
payment to Rule 144, shall also still be subject to the provisions of Section
1.4(e) below. Agreement Stock so transferred (other than open market sales
pursuant to Rule 144) shall continue to be subject to the terms and provisions
of this Agreement, and the transferee of such shares must, as a condition
precedent to consummation and effectiveness of such transfer and recognition by
the Company of such transfer, deliver to the Non-Transferring Investors a
written agreement to be bound by all of the terms and provisions of this
Agreement. Shares transferred pursuant to any open market sale pursuant to Rule
144 shall not remain subject to the provisions of this Agreement and,
Subparagraph 1.4(e) below, shall not be applicable to any such sales. Failure to
make such timely disposition shall subject any further disposition of such
Agreement Stock to the requirements of this Agreement (including, without
limitation, this Section 1.4) as if the original Notice had not been given.
(e) (i) In addition to the right of first refusal under Section 1.4(c)
above, each of the Non-Transferring Investors shall also have the right,
exercisable upon written notice to the Non-Transferor within ten (10)
days after receipt of the Notice, to participate in such sale (other
than open market sales pursuant to Rule 144) on the same terms and
conditions specified in the Notice; provided, however, that, if the
proposed sale by the Transferor is a sale of Debentures and Preferred
Stock and the then current market price of the Common Stock of the
Company on the date of the Notice is less than the Commission Price in
effect on such date, the provisions of this Subparagraph 1.4(e) shall
not be applicable to such sale but the Transferee shall purchase such
Debentures or Preferred Stock subject to the terms of this Agreement. To
the extent that one or more of the Non-Transferring Investors exercise
such right of participation in accordance with the terms and conditions
set forth below, the principal amount of Debentures or number of shares,
as the case may be, that the Transferor may sell in the transaction
shall be reduced and each of the Non-Transferring Investors may
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sell in the proposed transaction Debentures, Preferred Stock or Common
Stock based on the percentage ownership of the Non-Transferring Investor
in the Company (assuming conversion of all Debentures and Preferred
Stock) as compared to the percentage ownership of all the Subject
Investors participating in such sale, including the Transferor.
(ii) Each Non-Transferring Investor electing to participate shall
effect participation in the sale by promptly delivering to the
Transferor for transfer to the prospective purchaser one or more
Debentures or certificates, properly endorsed for transfer, which
represent (1) the Debentures or the number of shares of common stock of
the Company which such Non-Transferring Investor elects to sell or (2)
such Non-Transferring Investor shall convert Debentures which are at
such time convertible into the number of shares of Common Stock of the
Company which such Non-Transferring Investor elects to sell, and shall
deliver such common stock as provided in Subsection (1) above.
(iii) In the event that a Transferor is proposing to sell
Debentures or Preferred Stock then Baileys shall nevertheless be
entitled to participate in such sale by selling shares of Common Stock
determined by the methodology specified above but utilizing for the
purposes thereof the number of shares of Common Stock into which the
Debentures or Preferred Stock proposed to be transferred are convertible
and such transfer shall be conditional on the transferee purchasing such
shares of Common Stock.
(iv) The Debenture or stock certificate or certificates that the
Non-Transferring Investor delivers to the Transferor pursuant to Section
1.4(e)(ii) shall be transferred to the prospective purchaser in
consummation of the sale pursuant to the terms and conditions specified
in the Notice, and the Transferor shall concurrently therewith remit to
each such Non-Transferring Investor that portion of the sale proceeds to
which such Non-Transferring Investor is entitled by reason of its
participation in such sale. To the extent that any prospective
purchaser, or purchasers, prohibits such assignment or otherwise refuses
to purchase Debentures, shares or other securities from a
Non-Transferring Investor exercising its rights of co-sale hereunder,
the Transferor shall not sell to such prospective purchaser or
purchasers any Debentures or shares of Common Stock of the Company
unless and until, simultaneously with such sale, the Transferor shall
purchase such Debentures, shares or other securities from such
Non-Transferring Investor.
(v) The exercise or non-exercise of the rights of the
Non-Transferring Investor hereunder to participate in one or more sales
of shares made by a Transferor shall not adversely affect its rights to
participate in subsequent sales of shares of Common Stock subject to
Section 1.4(e).
(vi) If none of the Non-Transferring Investors elects to
participate in the sale subject to the Notice, the Transferor may, not
later than sixty (60) days following delivery of the Notice to the other
Subject Investors, enter into an agreement providing for the closing of
the transfer of the Debentures or shares covered by the Notice within
thirty (30) days of such agreement on terms and conditions not more
favorable to the Transferor than those described in the Notice. Any
proposed transfer on terms and conditions more favorable than those
described in the Notice, as well as any subsequent proposed transfer by
the Transferor,
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shall again be subject to the rights of the Non-Transferring Investor
and shall require compliance with the procedures described in this
Section 1.4.
(vii) The co-sale rights of the Subject Investors under this
Section 1.4(e) shall be subject and subordinate to the purchase rights
of the Non-Transferring Investors under Section 1.4(c) of this
Agreement. In the event that the purchase rights under Section 1.4(c) of
the Agreement are exercised, then the co-sale rights of the
Non-Transferring Investors under Section 1.4(e) shall not apply to any
such transfer. However, the co-sale rights under this Section 1.4(e) are
cumulative of the purchase rights of the Subject Investors under Section
1.4(c) of this Agreement and such co-sale rights may be exercised by the
Subject Investor even if the Subject Investor elected not to exercise
such purchase rights.
1.5 Prohibited Transfers.
(a) In the event a Subject Investor should sell any shares in
contravention of the right of first refusal and co-sale rights of the other
Subject Investors under this Agreement (a "Prohibited Transfer"), each of the
other Subject Investors, in addition to such other remedies as may be available
at law, in equity or hereunder, shall have the put option provided below, and
the selling Subject Investor shall be bound by the applicable provisions of such
option.
(b) In the event of a Prohibited Transfer, each other Subject Investor
shall have the right to sell to the selling Subject Investor Debentures or a
number of shares of common stock equal to the Debentures or number of shares
each such other Subject Investor would have been entitled to transfer to the
purchaser had the Prohibited Transfer been effected under Section 1.4(e) hereof
pursuant to and in compliance with the terms hereof. Such sale shall be made on
the following terms and conditions:
(i) The price per Debenture or share, as the case may be, at
which the shares are to be sold to the selling Subject Investor shall be
equal to One Hundred Five Percent (105%) of the price per share paid by
the purchaser to the selling Subject Investor in the Prohibited
Transfer. The selling Subject Investor shall also reimburse each other
Subject Investor for any and all fees and expenses, including legal fees
and expenses, incurred pursuant to the exercise or the attempted
exercise of the rights of the Subject Investor under this Agreement.
(ii) Within 90 days after the later of the dates on which the
other Subject Investor (1) received notice of the Prohibited Transfer,
or (2) otherwise became aware of the Prohibited Transfer, the other
Subject Investor shall, if exercising the option created hereby, deliver
to the selling Subject Investor the Debenture or certificate or
certificates representing the shares to be sold, each properly endorsed
for transfer.
(iii) The selling Subject Investor shall, upon receipt of the
Debenture or certificate or certificates for the shares to be sold by
the other Subject Investor, pursuant to this Section 1.5(b), pay the
aggregate purchase price therefor and the amount of reimbursable fees
and expenses, as specified in Section 1.5(b)(i), in cash or by other
means acceptable to the other Subject Investor.
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1.6 Sale by Subject Investors. In the event that the Subject Investors
(other than Baileys) collectively propose to sell or transfer all of the
Agreement Stock now owned or hereafter acquired, the Subject Investors shall
have the right to require Baileys to participate and to sell or transfer all of
his Agreement Stock in the same transaction. The Investors shall give Baileys
written notice of such proposed sale or transfer, the consideration for the
Agreement Stock, and the name and address of the prospective purchaser or
transferee. Baileys shall participate in such sale on the same terms and
conditions as the Subject Investors as stated in the Notice (including the same
price per share of Common Stock on an as converted basis) and shall promptly
deliver to the Subject Investors for transfer to the prospective purchaser or
transferee certificates evidencing all of the Agreement Stock owned by Baileys
properly endorsed for transfer.
1.7 Termination. The provisions of this Article I shall terminate and
have no further force or effect whatsoever from and after the earlier of six (6)
years after the date of this Agreement or the involuntary termination of Baileys
as Chief Executive Officer of the Company.
ARTICLE II
VOTING AGREEMENT
2.1 Voting Agreement. So long as the outstanding Debentures and
Preferred Stock are convertible into shares of capital stock of the Company
representing twenty-five percent (25%) or more of the total votes that may be
cast by all outstanding voting securities of the Company assuming such
conversion, the Subject Investors (including Baileys) shall not vote to change
the size of the Board of Directors from its current number of eight, whether to
increase or decrease, except with the approval of the Subject Investors (other
then Baileys) that own Debentures and Preferred Stock representing more than
sixty percent (60%) of the aggregate of the principal balance of all then
outstanding Debentures and the original purchase price of all then outstanding
shares of Preferred Stock. In addition, the Subject Investors agree that they
shall vote all of the Agreement Stock on all matters to be submitted to a vote
of the stockholders of the Company, whether by written consent or otherwise, to
cause all the agreements and covenants contained in this Agreement to be fully
implemented and satisfied.
ARTICLE III
RESTRICTIVE LEGEND
3.1 Restrictive Legend. Each certificate representing Agreement Stock
shall be stamped with a legend in substantially the following form:
THE VOTING AND TRANSFER OF THE SHARES OF STOCK REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO AN AGREEMENT AMONG INVESTORS DATED
____________, 1999, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE
OF THE COMPANY, AND SAID SHARES MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT IN STRICT ACCORDANCE WITH THE TERMS
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OF THAT AGREEMENT. A COPY OF SUCH AGREEMENT WILL BE FURNISHED WITHOUT
CHARGE TO THE HOLDER OF THIS CERTIFICATE UPON RECEIPT BY THE COMPANY AT
ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE OF A WRITTEN
REQUEST FROM THE HOLDER REQUESTING SUCH COPY.
ARTICLE IV
SPECIFIC PERFORMANCE AND OTHER REMEDIES
4.1 Remedies. The parties hereby declare that it is impossible to
measure in money the damages which will accrue to a party hereto by reason of a
failure of any party hereto to perform any of its obligations under this
Agreement. Therefore, if any party hereto shall institute any action or
proceeding to enforce the provisions hereof, each party hereto against whom such
action or proceeding is brought hereby waives the claim or defense therein that
such party has an adequate remedy of law, and no such party shall urge in any
such action or proceeding the claim or defense that such remedy at law exists.
Each party hereby acknowledges that the Agreement Stock are unique chattels and
each party to this Agreement shall have the remedies which are available to him
or it for the violation of any of the terms of this Agreement, including, but
not limited to, the equitable remedy of specific performance as specified above
and injunctive relief.
ARTICLE V
TERMINATION
5.1 Termination as to a Subject Investor. Notwithstanding anything
herein to the contrary, this Agreement shall terminate as to any Subject
Investor, at the time such Subject Investor ceases to own any Agreement Stock.
Upon any such termination, such Subject Investor shall have no further rights or
obligations hereunder except that rights or remedies of such Subject Investor
arising out of the breach of this Agreement by any other party hereto prior to
such termination shall not be affected by such termination.
ARTICLE VI
MISCELLANEOUS
6.1 Notices. All notices, claims, demands and other communications
hereunder shall be in writing and shall be deemed given upon (a) confirmation of
receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier (c) when delivered by hand or (d) the expiration of five
business days after the day when mailed by registered or certified mail
(postpaid prepaid, return receipt requested), addressed to the respective
parties at the following addresses (or such other address for party as shall be
specified by like notice):
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(a) If to the CAI Partners and Company II, L.P.:
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(b) If to CAI Capital Partners and Company II, L.P.:
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(c) If to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇:
▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
(d) If to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Any party may change the address for notices to be sent to it hereunder by
written notice delivered pursuant to the terms of this Section 6.1.
6.2 Entire Agreement; Amendments. This Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject matter
hereof. No terms, conditions, or warranties, other than those contained herein,
and no amendments or modifications hereto, shall be valid unless made in writing
and signed by all parties hereto.
6.3 Binding Effect/Assignability. This Agreement shall extend to and be
binding upon and inure to the benefit of the parties hereto, their respective
heirs, legal representatives, successors and assigns.
6.4 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provisions shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof with the remaining provisions
remaining in full force and effect and not affected by the illegal, invalid or
unenforceable provision or by
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severance here from. Furthermore, in lieu of such illegal, invalid or
unenforceable provision there shall be added automatically as part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and still be legal, valid and
enforceable.
6.5 Headings/Captions. The captions to sections and subsections of this
Agreement have been inserted solely for convenience and reference, and shall not
control or effect the meaning or construction of any of the provisions of this
Agreement.
6.6 Waiver; Remedies. Waiver by any party hereto of any breach of or
exercise of any rights under this Agreement shall not be deemed to be a waiver
of similar or other breaches or rights or a future breach of the same duty. The
failure of a party to take any action by reason of any such breach or to
exercise any such right shall not deprive any party of the right to take any
action at any time while such breach or condition giving rise to such right
continues. Except as expressly limited by this Agreement, the parties shall have
all remedies permitted to them by this Agreement or law, and all such remedies
shall be cumulative.
6.7 Attorneys' Fees. If any legal action or other proceeding is brought
for the enforcement of this Agreement, or because of its alleged dispute,
breach, default, or misrepresentation in connection with any of the provisions
of this Agreement, the successful or prevailing party shall be entitled to
recover reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
6.8 Further Assurances. The parties hereto agree to execute, acknowledge
and deliver to the other any further instruments that may be reasonably required
to give full force and effect to the provisions of this Agreement; provided,
however, that neither party shall be required to deliver any other instrument
which expands its duties, obligations or representations and warranties, or
which diminishes its rights under this Agreement.
6.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
6.10 Consent of Spouse. The spouse of each Subject Investor acknowledges
having read the foregoing Agreement and hereby agrees to the provisions of this
Agreement with respect to the shares held by the Subject Investor, including any
community property interest that such spouse may hold in such shares, including,
without limitation, with respect to the provisions of this Agreement relating to
the sale, transfer and voting of such shares.
6.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
among Investors as of the day and year first written above.
_____________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
_____________________________________________
Spouse of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.D.S.
_____________________________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
_____________________________________________
Spouse of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
CAI PARTNERS AND COMPANY II, L.P.
By: CAI PARTNERS GP & CO., L.P.,
the General Partner
By:___________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President of
▇▇▇▇ ▇▇ Co., a General Partner
CAI CAPITAL PARTNERS AND COMPANY II, L.P.
By: CAI CAPITAL PARTNERS GP & CO., L.P.,
the General Partner
By:___________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President of
▇▇▇▇ ▇▇ Co., a General Partner
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