Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
March 30, 1998
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
CASTLE DENTAL CENTERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 0-22985 76-0486898
(STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1360 Post Oak Boulevard, Suite 1300 Houston, Texas 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 479-8000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT
Not applicable
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 30, 1998, Castle Dental Centers, Inc., a Delaware corporation
("Castle"), acquired (the "Acquisition") the Class A Membership Interest and
Class D Membership Interest of Castle Dental Centers of California, L.L.C., a
Delaware limited liability company ("Castle West"), for $10,756,780 in cash and
$2,689,151 in Castle's subordinated promissory notes. Castle West was formed by
CDC of California, Inc., a wholly owned subsidiary of Castle ("CDC"), and Dental
Consulting Services, LLC, a California limited liability company ("DCS"), for
the purpose of acquiring the dental practice management business of DCS
("Business") from DCS. The Business consists primarily of five dental offices in
the Los Angeles metropolitan area with 27 affiliated dentists.
Castle financed the cash portion of the Acquisition through borrowings
under its existing Credit Facility with NationsBank of Texas, N.A., as agent for
the lenders thereunder.
Following the Acquisition: (i) CDC owns the Class A Membership Interest
and the Class D Membership Interest in Castle West; (ii) sole-purpose
corporations (the "Corporate B Members") formed by the members of DCS ("DCS
Members") collectively own 100% of DCS, which owns the Class B Membership
Interest in Castle West; and (iii) sole-purpose corporations (the "Corporate C
Members") formed by the members ("Holdings Members") of Capital West Holdings,
LLC, a newly formed limited liability company ("Holdings"), collectively own
100% of Holdings, which owns the Class C Membership Interest in Castle West.
The Class A Membership Interest and the Class D Membership Interest
have, in the aggregate, an 80% interest in Castle West's profits and losses and
a 60% interest in Castle West's initial capital. The Class B Membership Interest
has no interest in Castle West's profits and losses and a 20% interest in Castle
West's initial capital. The Class C Membership Interest has a 20% interest in
Castle West's profits and losses and a 20% interest in Castle West's initial
capital. Castle West will be governed by a board of directors ("Board")
consisting of five members, three of whom are elected by CDC as the holder of
the Class D Membership Interest.
CDC has entered into a Management Agreement ("Management Agreement")
with Holdings pursuant to which Holdings will, subject to the control of the
Board, manage the day-to-day operations of Castle West's operations. The
Management Agreement provides for the payment of certain incentive fees if
Castle West's EBITDA growth rate exceeds 25% per annum.
The Corporate B Members as a group were granted the one-time right (the
"B Right"), beginning at least one year after the consummation of the closing of
the Acquisition ("Closing"), to convert their indirect interests in Castle West
into shares of common stock of Castle ("Castle
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Common Stock"), through a merger of all of the Corporate B Members into CDC. An
aggregate of 407,452 shares of Castle Common Stock are currently issuable upon
conversion of the B Right, subject to adjustment on the first anniversary of the
Closing as described below.
Over the one-year period following the Closing, the purchase price of
the Class A Membership Interest and the number of shares of Castle Common Stock
issuable upon exercise of the B Right will be increased to reflect the
anticipated acquisition by Castle West of additional clinics in the Los Angeles
metropolitan area. The amount of cash and notes payable for the Class A
Membership Interest will be increased as such acquisitions are made and the
number of shares issuable upon exercise of the B Right will be adjusted at the
first anniversary of the Closing Date. Such adjustments will be made in such a
manner that the aggregate purchase price for the Class A Membership Interest and
number of shares issuable upon exercise of the B Right will continue to be in
the ratio of 60% in cash, 15% in notes and 25% in Castle Common Stock.
Each Corporate C Member was granted the one-time right (the "Put
Right"), beginning at the start of the 25th month after the consummation of the
Closing, to convert its indirect interest in Castle West into shares of Castle
Common Stock and/or cash through a merger of the Corporate C Member into CDC.
The consideration to be received upon the exercise of the Put Right ("Put
Consideration") will be dependent upon the financial performance of Castle West
up to the date the Put Right is exercised. Each Corporate C Member will have the
right to elect to receive the Put Consideration (i) 100% in Castle Common Stock
or (ii) up to 50% in cash and the remainder in Castle Common Stock; provided
that if a Corporate C Member elects to receive more than 25% of the Put
Consideration in cash, CDC has the right to substitute subordinated promissory
notes ("Notes") of Castle for cash in excess of such 25%.
CDC was granted the one-time right ("Call Right"), beginning at the
start of the 31st month after the consummation of the Closing, to convert all of
the Corporate C Members' indirect interests in Castle West into shares of Castle
Common Stock and/or cash through a merger of the Corporate C Members into CDC.
The consideration to be received upon the exercise of the Call Right ("Call
Consideration") will be determined and payable in the same manner as the Put
Consideration.
If Castle West terminates the Management Agreement or breaches the
Management Agreement in such a manner as to give Holdings the right to terminate
the Management Agreement, the Corporate B Members, as a group, will have the
right to accelerate the Put Right and the B Right. If Holdings terminates the
Management Agreement or breaches the Management Agreement in such a manner as to
give Castle West the right to terminate the Management Agreement, Castle West
will have the right to accelerate the Call Right and treat the B Right as being
exercised.
At the Closing, Castle West, DCS, Holdings, each Corporate B Member,
each stockholder of each Corporate B Member ("B Stockholder"), each Corporate C
Member and each stockholder of each Corporate C Member ("C Stockholder") entered
into a Shareholders' Agreement ("Shareholders' Agreement") with CDC which, among
other things (i) restricts the transfers of ownership interests in Castle West,
DCS, Holdings, any Corporate B Member or any Corporate C
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Member (collectively, the "Companies") other than to immediate family members or
persons controlled by, controlling or under common control with the B
Stockholders or C Stockholders and (ii) grants powers of attorney coupled with
an interest to certain officers of Castle which would allow such
attorneys-in-fact to vote the outstanding shares of common stock of each
Corporate B Member and Corporate C Member in favor of the mergers necessary to
consummate the Call Right and the B Right. The Shareholders' Agreement will
remain in place until CDC acquires, directly or indirectly, all of the
outstanding securities of the Companies.
The Shareholders' Agreement does not restrict CDC's right to sell the
Class D Membership Interest. However, pursuant to the limited liability company
agreement of Castle West, unless the Class D Membership Interest is sold as part
of the sale of all of Castle's assets or in a similar transaction, (i) Holdings
will have a tag along right to participate in any such sale and (ii) Castle must
first offer to Holdings a right to negotiate to purchase the Business.
Castle entered into a Registration Rights Agreement with regard to the
Castle Common Stock issuable to the Corporate B Stockholders and the Corporate C
Stockholders upon consummation of the mergers contemplated by the B Right, Put
Right and Call Right granting them (i) piggyback registration rights and (ii)
one demand right with respect to any shares issued upon exercise of the Call
Right.
The foregoing discussion is qualified in its entirety by reference to
the acquisition agreements, copies of which are included with this filing.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANTS
Not applicable
ITEM 5. OTHER EVENTS
Not applicable
ITEM 6. REGISTRATION OF REGISTRANT'S DIRECTORS
Not applicable
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
The financial statements of the Business acquired are not included in
this initial report. Such financial statements will be filed within 60 days of
the filing of this initial report.
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(b) Pro forma Financial Information
Pro forma financial information including the Business acquired is not
included in this initial report. Such pro forma financial information will be
filed within 60 days of the filing of this initial report.
(c) Exhibits
EXHIBIT
NUMBER DESCRIPTION
1. Underwriting Agreement*
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession
2.1 Master Contribution and Combination Agreement dated as of
January 30, 1998, by and among Castle, CDC of California,
Inc., a Delaware corporation ("CDC"), Dental Consulting
Services, LLC, a California limited liability company
("DCS"), Castle Dental Centers of California, L.L.C., a
Delaware limited liability company ("Castle West"), Castle
West Holdings, LLC, a California limited liability company
("Holdings"), and each of the "Members" who are parties
thereto.
4. Instruments defining the rights of security holders, including
indentures*
16. Letter re change in certifying accountant*
17. Letter re director resignation*
20. Other documents or statements to securityholders*
23. Consents of experts and counsel*
24. Power of attorney*
27. Financial Data Schedule*
99. Additional exhibits
99.1 Limited Liability Company Agreement of Castle West.
99.2 Management Agreement between Holdings and Castle West.
99.3 Form of Subordinated Promissory Note issued to former
members of DCS.
99.4 Form of Subordination Agreement entered into between each
former member of DCS, Castle and NationsBank of Texas,
N.A., as Agent.
99.5 Registration Rights Agreement among Castle and each former
member of DCS.
99.6 Stockholders' Agreement among CDC, Castle West, DCS,
Holdings, each member of DCS ("Corporate B Member"), each
stockholder of each Corporate B Member ("B Stockholder"),
each member of Holdings ("Corporate C Member"), and each
stockholder of each Corporate C Member ("C Stockholder").
99.7 Third Amendment to Credit Agreement among Castle, its
subsidiaries, NationsBank of Texas, N.A., as agent, and
the lenders thereunder.
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* Inapplicable to this filing
ITEM 8. CHANGE IN FISCAL YEAR
Not applicable
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S
Not applicable
6
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CASTLE DENTAL CENTERS, INC.
April 14, 1998 By: John M. Slack
Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
1. Underwriting Agreement*
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession
2.1 Master Contribution and Combination Agreement dated as of
January 30, 1998, by and among Castle, CDC of California,
Inc., a Delaware corporation ("CDC"), Dental Consulting
Services, LLC, a California limited liability company
("DCS"), Castle Dental Centers of California, L.L.C., a
Delaware limited liability company ("Castle West"), Castle
West Holdings, LLC, a California limited liability company
("Holdings"), and each of the "Members" who are parties
thereto.
4. Instruments defining the rights of security holders, including
indentures*
16. Letter re change in certifying accountant*
17. Letter re director resignation*
20. Other documents or statements to securityholders*
23. Consents of experts and counsel*
24. Power of attorney*
27. Financial Data Schedule*
99. Additional exhibits
99.1 Limited Liability Company Agreement of Castle
West.
99.2 Management Agreement between Holdings and Castle
West.
99.3 Form of Subordinated Promissory Note issued to former
members of DCS.
99.4 Form of Subordination Agreement entered into between each
former member of DCS, Castle and NationsBank of Texas,
N.A., as Agent.
99.5 Registration Rights Agreement among Castle and each former
member of DCS.
99.6 Stockholders' Agreement among CDC, Castle West, DCS,
Holdings, each member of DCS ("Corporate B Member"), each
stockholder of each Corporate B Member ("B Stockholder"),
each member of Holdings ("Corporate C Member"), and each
stockholder of each Corporate C Member ("C Stockholder").
8
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99.7 Third Amendment to Credit Agreement among Castle, its
subsidiaries, NationsBank of Texas, N.A., as agent, and
the lenders thereunder.
9
EXHIBIT 2.1
MASTER CONTRIBUTION AND COMBINATION
AGREEMENT
DATED AS OF JANUARY 30, 1998
BY AND AMONG
CASTLE DENTAL CENTERS, INC.,
CDC OF CALIFORNIA, INC.,
DENTAL CONSULTING SERVICES, LLC,
CASTLE DENTAL CENTERS OF CALIFORNIA, L.L.C.,
CASTLE WEST HOLDINGS, L.L.C.,
EACH OF DCS MEMBERS LISTED ON SCHEDULE A HERETO,
EACH OF THE HOLDINGS MEMBERS,
EACH OF THE CORPORATE B MEMBERS,
AND
EACH OF THE CORPORATE C MEMBERS.
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS...........................................................-3-
1.1 DEFINITIONS....................................................-3-
ARTICLE II
THE CASTLE WEST CAPITALIZATION.......................................-12-
2.1 FORMATION OF CASTLE WEST......................................-12-
2.2 CONTRIBUTION OF ASSETS........................................-12-
2.3 EXCLUDED ASSETS...............................................-13-
2.4 ASSUMPTION OF OBLIGATIONS.....................................-14-
2.5 NONASSIGNABLE CONTRACTS AND LEASES............................-14-
2.6 AGENCY RELATIONSHIP...........................................-14-
ARTICLE III
CLASS A SALE.........................................................-15-
3.1 SALE OF CLASS A ..............................................-15-
3.2 DETERMINATION OF AGGREGATE EBIDTA.............................-15-
3.3 PURCHASE PRICE ADJUSTMENT.....................................-16-
3.4 ACQUISITION PURCHASE PRICE ADJUSTMENTS........................-16-
3.5 DETERMINATION OF BURBANK'S EBIDTA.............................-17-
3.6 BURBANK PRICE ADJUSTMENT......................................-17-
3.7 ALLOCATION OF CASH AND MARKETABLE SECURITIES..................-18-
ARTICLE IV
HOLDINGS CAPITALIZATION..............................................-18-
4.1 FORMATION OF HOLDINGS.........................................-18-
4.2 DISTRIBUTION OF C INTEREST....................................-18-
4.3 CONTRIBUTION OF C INTEREST....................................-18-
ARTICLE V
MEMBERSHIP TRANSFERS.................................................-18-
5.1 TRANSFERS OF MEMBERSHIP INTERESTS IN DCS......................-18-
5.2 TRANSFERS OF MEMBERSHIP INTERESTS IN HOLDINGS.................-18-
ARTICLE VI
-i-
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MANAGEMENT AGREEMENT AND INCENTIVE PAYMENT...........................-19-
6.1 MANAGEMENT AGREEMENT..........................................-19-
6.2 POST-CLOSING OPERATIONS.......................................-19-
6.3 INCENTIVE PAYMENT.............................................-19-
ARTICLE VII
CORPORATE B MEMBERS' OPTION..........................................-21-
7.1 CORPORATE B MEMBER'S OPTION TO CAUSE B MERGER.................-21-
7.2 CDC'S OPTION TO CAUSE B MERGER................................-23-
ARTICLE VIII
CORPORATE C MEMBERS' AND CDC'S OPTIONS...............................-23-
8.1 CORPORATE C MEMBER'S OPTION TO CAUSE C MERGER. ...............-23-
8.2. CDC'S CALL OPTION.............................................-29-
ARTICLE IX
REPRESENTATIONS AND WARRANTIES OF DCS................................-31-
9.1 EXISTENCE AND GOOD STANDING...................................-31-
9.2 AUTHORIZATION AND VALIDITY OF AGREEMENT.......................-32-
9.3 OWNERSHIP.....................................................-32-
9.4 CONSENTS AND APPROVALS: NO VIOLATIONS.........................-32-
9.5 SUBSIDIARIES AND AFFILIATES...................................-32-
9.6 FINANCIAL STATEMENTS: NO MATERIAL ADVERSE CHANGE..............-33-
9.7 BOOKS AND RECORDS.............................................-33-
9.8 TITLE TO PROPERTIES: ENCUMBRANCES: CONDITION..................-33-
9.9 REAL PROPERTY.................................................-34-
9.10 LEASES........................................................-34-
9.11 MATERIAL CONTRACTS............................................-34-
9.12 PERMITS.......................................................-34-
9.13 LITIGATION....................................................-35-
9.14 TAXES.........................................................-35-
9.15 INSURANCE.....................................................-36-
9.16 INTELLECTUAL PROPERTIES.......................................-36-
9.17 COMPLIANCE WITH LAWS..........................................-36-
9.18 EMPLOYMENT RELATIONS..........................................-37-
9.19 EMPLOYEE BENEFIT PLANS........................................-37-
9.20 ENVIRONMENTAL LAWS AND REGULATIONS............................-37-
9.21 INTERESTS IN CUSTOMERS. SUPPLIERS. ETC........................-37-
9.22 COMPENSATION OF EMPLOYEES.....................................-38-
9.23 PAYORS........................................................-38-
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9.24 ACCOUNTS RECEIVABLE: ACCOUNTS PAYABLE.........................-38-
9.25 DISCLOSURE....................................................-38-
9.26 BROKER'S OR FINDER'S FEES.....................................-38-
9.27 COPIES OF DOCUMENTS...........................................-38-
9.28 SUBSEQUENT EVENTS.............................................-38-
9.29 ACCOUNTING CONTROLS...........................................-39-
9.30 UNAUTHORIZED USE OF FUNDS.....................................-39-
ARTICLE X
REPRESENTATIONS AND WARRANTIES OF CASTLE AND CDC.....................-39-
10.1 EXISTENCE AND GOOD STANDING: POWER AND AUTHORITY..............-39-
10.2 NO VIOLATIONS.................................................-40-
10.3 CAPITAL STOCK.................................................-40-
10.4 LITIGATION....................................................-41-
10.5 COMPLIANCE WITH LAWS..........................................-41-
10.6 FINANCIAL STATEMENTS..........................................-41-
10.7 SUBSEQUENT EVENTS.............................................-42-
10.8 TITLE TO PROPERTY.............................................-42-
10.9 ACCOUNTING CONTROLS...........................................-42-
10.10 TAXES.........................................................-42-
10.11 NO VIOLATION..................................................-42-
10.12 REGULATORY COMPLIANCE.........................................-43-
10.13 EMPLOYEE RELATIONS............................................-43-
10.14 INTELLECTUAL PROPERTY.........................................-43-
10.15 INSURANCE.....................................................-43-
10.16 UNAUTHORIZED USE OF FUNDS.....................................-43-
10.17 BROKER'S OR FINDER'S FEES.....................................-44-
ARTICLE XI
REPRESENTATIONS AND WARRANTIES OF MEMBERS............................-44-
11.1 AUTHORIZATION AND VALIDITY OF AGREEMENT.......................-44-
11.2 MEMBERSHIP INTERESTS..........................................-44-
11.3 CAPITAL STOCK.................................................-45-
11.4 STATUS OF CORPORATE B MEMBERS AND CORPORATE C MEMBERS.........-45-
11.5 MEMBERSHIP INTERESTS FOLLOWING CONTRIBUTION...................-45-
11.6 CONSENTS AND APPROVALS: NO VIOLATIONS.........................-45-
11.7 LITIGATION....................................................-46-
11.8 COMPLIANCE WITH LAWS..........................................-46-
11.9 INVESTMENT REPRESENTATIONS....................................-46-
11.10 DISCLOSURE....................................................-47-
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ARTICLE XII
CONDITIONS TO OBLIGATIONS OF DCS AND THE MEMBERS
12.1 TRUTH OF REPRESENTATIONS AND WARRANTIES.......................-48-
12.2 PERFORMANCE OF AGREEMENTS.....................................-48-
12.3 NO LITIGATION THREATENED......................................-48-
12.4 GOVERNMENTAL APPROVALS........................................-48-
12.5 PROCEEDINGS...................................................-48-
12.6 SECRETARY'S AND GOOD STANDING CERTIFICATES....................-49-
12.7 REGISTRATION RIGHTS AGREEMENT.................................-49-
12.8 LEGAL OPINION.................................................-49-
12.9 CONSENTS......................................................-49-
12.10 EXHIBITS AND SCHEDULES........................................-49-
12.11 FORMATION OF ENTITIES.........................................-49-
12.12 SHAREHOLDERS' AGREEMENT.......................................-49-
12.13 CASTLE BOARD APPROVAL.........................................-49-
ARTICLE XIII
CONDITIONS TO CASTLE'S AND CDC'S OBLIGATIONS.........................-49-
13.1 TRUTH OF REPRESENTATIONS AND WARRANTIES.......................-49-
13.2 PERFORMANCE OF AGREEMENTS.....................................-50-
13.3 NO LITIGATION THREATENED......................................-50-
13.4 GOVERNMENTAL APPROVALS........................................-50-
13.5 CONSENTS......................................................-50-
13.6 LEGAL OPINION.................................................-50-
13.7 PROCEEDINGS...................................................-50-
13.8 DUE DILIGENCE.................................................-50-
13.9 SECRETARY'S AND GOOD STANDING CERTIFICATES....................-51-
13.10 SHAREHOLDERS' AGREEMENT.......................................-51-
13.11 ACQUISITION OF ASSETS OF THE EXISTING PCS.....................-51-
13.12 NON-COMPETITION AGREEMENT.....................................-51-
13.13 EXHIBITS AND SCHEDULES........................................-51-
13.14 FORMATION OF ENTITIES.........................................-51-
13.15 SUBORDINATION AGREEMENT.......................................-51-
ARTICLE XIV
COVENANTS OF DCS.....................................................-51-
14.1 COOPERATION BY DCS AND THE MEMBERS............................-51-
14.2 CONDUCT OF BUSINESS...........................................-52-
14.3 EXCLUSIVE DEALING.............................................-52-
14.4 REVIEW OF THE ASSETS..........................................-52-
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14.5 ACQUISITION OF ASSETS OF THE EXISTING PCS.....................-52-
14.6 FORMATION OF ENTITIES.........................................-53-
14.7 EXHIBITS AND SCHEDULES........................................-53-
14.8 FURTHER ASSURANCES............................................-53-
14.9 HOLDINGS LIMITED AGREEMENT....................................-53-
ARTICLE XV
COVENANTS OF CASTLE AND CDC..........................................-53-
15.1 COOPERATION BY CASTLE AND CDC.................................-53-
15.2 BOOKS AND RECORDS; PERSONNEL..................................-54-
15.3 FORMATION OF ENTITIES.........................................-54-
15.4 EXHIBITS AND SCHEDULES........................................-54-
15.5 RESERVATION OF SHARES.........................................-54-
15.6 FURTHER ASSURANCES............................................-54-
ARTICLE XVI
TERMINATION..........................................................-55-
16.1 TERMINATION...................................................-55-
16.2 EFFECT ON OBLIGATIONS.........................................-55-
ARTICLE XVII
SURVIVAL AND INDEMNIFICATION.........................................-55-
17.1 INDEMNIFICATION OF DCS........................................-55-
17.2 INDEMNIFICATION OF CASTLE AND CDC.............................-56-
17.3 INDEMNIFICATION OF CASTLE AND CDC.............................-56-
17.4 LIMITATIONS ON INDEMNIFICATION................................-56-
17.5 DEMANDS.......................................................-57-
17.6 RIGHT TO CONTEST AND DEFEND...................................-57-
17.7 COOPERATION...................................................-58-
17.8 RIGHT TO PARTICIPATE..........................................-58-
17.9 PAYMENT OF DAMAGES............................................-58-
17.10 RIGHT OF SETOFF...............................................-58-
17.11 SURVIVAL OF REPRESENTATIONS AND WARRANTIES....................-58-
ARTICLE XVIII
MISCELLANEOUS........................................................-59-
18.1 ENTIRE AGREEMENT..............................................-59-
18.2 SUCCESSORS AND ASSIGNS........................................-59-
18.3 COUNTERPARTS..................................................-59-
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18.4 HEADINGS......................................................-60-
18.5 MODIFICATION AND WAIVER.......................................-60-
18.6 NO THIRD PARTY BENEFICIARY RIGHTS.............................-60-
18.7 EXPENSES......................................................-60-
18.8 NOTICE........................................................-60-
18.9 GOVERNING LAW.................................................-61-
18.10 CONFIDENTIALITY; PUBLICITY....................................-61-
18.11 CONSENT TO JURISDICTION.......................................-61-
18.12 SEVERABILITY..................................................-61-
18.13 ENFORCEMENT...................................................-62-
SCHEDULES
Schedule A List of Members
Schedule B Ownership of DCS and Holdings
Schedule 2.4 Assigned Contracts/Assumed Liabilities
Schedule 9.3 Capitalization
Schedule 9.4 Consents
Schedule 9.5 Subsidiaries and Affiliates
Schedule 9.6 Material Adverse Change/Liabilities
Schedule 9.8 Encumbrances
Schedule 9.9 Real Property
Schedule 9.10 Leased Personal Property
Schedule 9.11 Material Contracts and Proposals
Schedule 9.12 Permits
Schedule 9.13 Litigation
Schedule 9.14 Taxes
Schedule 9.15 Insurance Policies
Schedule 9.16 Intellectual Property
Schedule 9.20 Environmental Matters
Schedule 9.21 Interests in Customers
Schedule 9.22 Employee Compensation
Schedule 9.23 Payors
Schedule 9.24 Accounts Receivable
Schedule 11.2 Options
Schedule 11.6 Consents and Approvals
-vi-
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EXHIBITS
Exhibit A Castle West Certificate
Exhibit B Castle West Limited Agreement
Exhibit C Notes
Exhibit D Holdings Certificate
Exhibit E Holdings Limited Agreement
Exhibit F B Merger Agreement
Exhibit G C Merger Agreement
Exhibit H Letter of Transmittal
Exhibit I Registration Rights Agreement
Exhibit J Shareholders' Agreement
Exhibit K Noncompetition Agreement
Exhibit L Management Agreement
Exhibit M Initial Purchase Price Calculation
Exhibit N Subordination Agreement
-vii-
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MASTER CONTRIBUTION AND COMBINATION AGREEMENT
MASTER CONTRIBUTION AND COMBINATION AGREEMENT dated as of January 30,
1998 by and among Castle Dental Centers, Inc., a Delaware corporation
("Castle"), Dental Consulting Services, LLC, a California limited liability
company ("DCS"), Castle Dental Centers of California, L.L.C., a Delaware limited
liability company ("Castle West"), each of the current members of DCS listed on
Schedule A hereto (the "DCS Members"), and each of the other Persons listed
below who are to become parties hereto prior to or at the Closing.
W I T N E S S E T H:
WHEREAS, prior to the Closing, Castle will form CDC of California, Inc.,
a Delaware corporation as a wholly owned subsidiary of Castle ("CDC"), and cause
CDC to enter into and deliver this Agreement; and
WHEREAS, at or prior to the Closing, each DCS Member will form a wholly
owned corporation ("Corporate B Member"), and cause such Corporate B Member to
enter into and deliver this Agreement; and
WHEREAS, at or prior to the Closing, the DCS Members will form Castle
West Holdings, L.L.C., a California limited liability company ("Holdings"), and
cause Holdings to enter into and deliver this Agreement; and
WHEREAS, at or prior to the Closing, prior to or concurrently with
issuing any membership interests in Holdings to Persons other than DCS Members,
the DCS Members shall cause such Persons (collectively referred to herein, along
with the DCS Members in their capacity as Members of Holdings, the "Holdings
Members") to enter into and deliver this Agreement; and
WHEREAS, at or prior to the Closing, each Holdings Member will form a
wholly owned corporation ("Corporate C Member"), and cause such Corporate C
Member to enter into and deliver this Agreement; and
WHEREAS, at or prior to the Closing, CDC and DCS will form Castle Dental
Centers of California, L.L.C., a Delaware limited liability company ("Castle
West"), and cause Castle West to enter into and deliver this Agreement; and
WHEREAS, the DCS Members desire to restructure their ownership
interests in DCS; and
WHEREAS, at the Closing, in exchange for certain membership interests in
Castle West, DCS will contribute the Business (as defined below) to Castle West;
and
WHEREAS, after DCS's contribution of the Business, CDC desires to
acquire the right to acquire additional membership interests in Castle West from
DCS; and
<PAGE>
WHEREAS, CDC desires to grant to the Corporate B Members the right to
merge into CDC in exchange for common stock, $.001 par value ("Common Stock") of
Castle; and
WHEREAS, CDC desires to grant to the Corporate C Members the right to
merge into CDC in exchange for shares of Common Stock and/or cash, and the
Corporate C Members desire to grant to CDC the right to merge all of the
Corporate C Members into CDC in exchange for shares of Common Stock and/or cash;
and
WHEREAS, the parties hereto desire to effectuate the foregoing
transactions, each in accordance with the terms set forth herein and in the
documents referenced herein or contemplated hereby;
NOW, THEREFORE, to accomplish the foregoing, the parties hereto agree to
enter into and deliver this Agreement to facilitate the transactions described
below on the terms and conditions herein provided:
1. Upon the terms and subject to the conditions set forth in this
Agreement, Castle West will acquire the Business from DCS in exchange for the
Class A Interest, the Class B Interest and the Class C Interest and CDC will
acquire the Class D Interest in Castle West (such transactions being
collectively referred to as the "Castle West Capitalization").
2. Immediately following the Castle West Capitalization, CDC will
purchase from DCS and DCS will sell to CDC the Class A Interest (the "Class A
Sale") in exchange for cash and Notes (as defined below).
3. Immediately following the Class A Sale, DCS will distribute to the
DCS Members the Class C Interest and the DCS Members will then immediately
contribute the Class C Interest to Holdings in exchange for membership interests
therein (such transactions being collectively referred to as the "Holdings
Capitalization").
4. Immediately following the Holdings Capitalization, each Holdings
Member will contribute his or her entire membership interest in Holdings to the
Corporate C Member owned by him or her and each DCS Member will contribute his
or her entire membership interest in DCS to the Corporate B Member owned by him
or her.
5. Upon the terms and subject to the conditions set forth in this
Agreement, the Corporate B Members as a group will be granted the one-time
right, beginning at least one year after the consummation of the Closing, to
convert their interests in Castle West through a merger of all of the Corporate
B Members into CDC in exchange for the issuance of shares of Common Stock of
Castle.
6. Upon the terms and subject to the conditions set forth in this
Agreement, (a) each Corporate C Member will be granted the one-time right,
beginning at the start of the 25th month after
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the consummation of the Closing, to convert its interest in Castle West into
shares of Common Stock of Castle and/or cash through a merger of its Corporate C
Member into CDC and (b) CDC will be granted the one-time right, beginning at the
start of the 31st month after the consummation of the Closing, to convert the
Corporate C Members interests in Castle West into shares of Common Stock of
Castle and/or cash through a merger of the Corporate C Members into CDC.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement and for other good and valuable consideration, the
receipt and sufficiency of which are hereby approved, the parties hereto agree
as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used herein, the following terms have the meanings
set forth below (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
"ACCOUNTS RECEIVABLE" all notes and accounts receivable of DCS and the
Existing PCs as of the Closing Date.
"ACCOUNTS PAYABLE" all payables of DCS and the Existing PCs to trade
account and other creditors as of the Closing Date.
"ACQUIRED CLINICS" means each business (or allocated portion thereof)
with which Castle West enters into an MSO agreement during the 12-month period
following the Closing Date and with respect to which an Acquisition Purchase
Price Adjustment is required to be made.
"ACQUISITION LIMITATION" as defined in Section 3.4 hereof.
"ACQUISITION PURCHASE PRICE ADJUSTMENT" as defined in Section 3.4
hereof.
"ADJUSTED AGGREGATE EBITDA" means Aggregate EBITDA plus the Pro Forma
MSO Fees of the Acquired Clinics, subject to the limitations contained in
Section 6.2.
"ADJUSTED PURCHASE PRICE" as defined in Section 3.3 hereof.
"AFFILIATE" with respect to any Person, any other Person directly or
indirectly controlling (including but not limited to the directors and officers
of such Person), controlled by, or under direct or indirect common control with
such Person.
"AGGREGATE EBITDA" as defined in Section 3.2 hereof, subject to the
limitations contained in Section 6.2.
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"AGREED-UPON PROCEDURES" as defined in Section 3.2 hereof.
"AGREEMENT" this Master Contribution and Combination Agreement, as
amended from time to time as provided herein.
"ANNUAL GROWTH RATE" means the compounded annual growth rate in Castle
West's EBITDA (calculated from January 1, 1999) from a base consisting of the
aggregate of (i) DCS's and the Existing PCs' EBITDA for the period from January
1, 1998 until the Closing Date, (ii) Castle West's EBITDA for the period from
the Closing Date until December 31, 1998, and (iii) Pro Forma MSO Fees (or other
results of operations acquired) for each Acquired Clinic and other acquisition
from January 1, 1998 until the date of consummation of such Acquired Clinic or
other acquisition; provided, however, that the parties agree that for purposes
of this calculation, Burbank's 1998 EBITDA shall be deemed to be $300,000,
regardless of its actual results of operations.
"ASSETS" as defined in Section 2.2 hereof.
"ASSIGNED CONTRACTS" as defined in Section 2.4 hereof.
"ASSUMED OBLIGATIONS" as defined in Section 2.4 hereof.
"B MERGER" as defined in Section 7.1 hereof.
"B MERGER AGREEMENT" the merger agreement by and among CDC and the
Corporate B Members in substantially the form of EXHIBIT F attached hereto and
incorporated herein by reference.
"B MERGER CONSIDERATION" as defined in Section 7.1(b) hereof.
"B MERGER NOTICE" as defined in Section 7.1(a) hereof.
"BALANCE SHEET DATE" as defined in Section 9.6 hereof.
"BOOKS AND RECORDS" all books, records, books of account, files and data
(including customer and supplier lists), certificates and other documents
related to the conduct of the business or the ownership of the Assets, including
personnel records and files, except that the Books and Records shall not include
(a) any books, records, files and other data of DCS or the Existing PCs which
relate exclusively to organizational and corporate governance proceedings of DCS
or the Existing PCs or (b) any Books and Records which would be included in the
Excluded Assets.
"BURBANK" S.A. Soliemani, DMD, Inc., a California professional
corporation d.b.a. Burbank Dental.
"BURBANK ADJUSTMENT" as defined in Section 3.6 hereof.
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"BURBANK REPORTS" as defined in Section 3.5 hereof.
"BURBANK'S 1998 EBITDA" will be equal to Burbank's earnings for the
12-month period ending on March 31, 1999, determined in accordance with GAAP
adjusted to reverse charges thereto made for interest, federal and state income
and franchise taxes, depreciation and amortization, to the extent included in
the calculation of earnings.
"BUSINESS" the practice management of dentistry, including orthodontics
and periodontics and all other management and related activities currently
conducted by DCS and the Existing PCs.
"C MERGER" as defined in Section 8.1 hereof.
"C MERGER AGREEMENT" the merger agreement by and between CDC and each
Corporate C Member in substantially the form of EXHIBIT G attached hereto and
incorporated herein by reference.
"C MERGER CONSIDERATION" as defined in Section 8.1(c) hereof.
"C MERGER NOTICE" as defined in Section 8.1(a) hereof.
"CALL NOTICE" as defined in Section 8.2(c) hereof.
"CAPITAL COST RATE" as defined in Section 6.2 hereof
"CASTLE" as defined in the preamble of this Agreement.
"CASTLE INDEMNITEES" as defined in Section 17.2 hereof.
"CASTLE WEST" as defined in the preamble of this Agreement.
"CASTLE WEST CAPITALIZATION" as defined in the preamble of this
Agreement.
"CASTLE WEST CERTIFICATE" the certificate of formation of Castle West in
substantially the form attached hereto as EXHIBIT A and incorporated herein by
this reference.
"CASTLE WEST DEBT" as defined in Section 8.1(c), subject to the
limitation contained in Section 6.2.
"CASTLE WEST LIMITED AGREEMENT" the limited liability company agreement
of Castle West in substantially the form attached hereto as EXHIBIT B and
incorporated herein by this reference.
"CDC" as defined in the preamble of this Agreement.
"CDC APPROVED EXPANSION" as defined in Section 3(b) of the Management
Agreement.
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"CDC'S CALL OPTION" as defined in Section 8.2.
"CEILING AMOUNT" as defined in Section 17.4 hereof.
"CLAIM" as defined in Section 17.5 hereof.
"CLASS A SALE" as defined in the preamble of this Agreement.
"CLASS A INTEREST" the Class A Member Interest in Castle West created by
the Castle West Limited Agreement.
"CLASS B INTEREST" the Class B Member Interest in Castle West created by
the Castle West Limited Agreement.
"CLASS C INTEREST" the Class C Member Interest in Castle West created by
the Castle West Limited Agreement.
"CLASS D INTEREST" the Class D Member Interest in Castle West created by
the Castle West Limited Agreement.
"CLASS III REPURCHASE OBLIGATION" means the amount of any outstanding
obligation, if any, of Holdings to the former holder of the Class III Interest
in Holdings (as defined in the Holdings Limited Agreement) arising out of the
previous exercise of Holding's option to purchase the Class III Interest
pursuant to Section 5.5(c) of the Holdings Limited Agreement.
"CLOSING" as defined in Article XII hereof.
"CLOSING DATE" as defined in Article XII hereof.
"CODE" the Internal Revenue Code of 1986, as amended from time to time,
and the regulations promulgated and rulings issued thereunder. Section
references to the Code are to the Code as in effect at the date of this
Agreement and any subsequent provisions of the Code amendatory thereof,
supplemental thereto or substituted therefor.
"COMMISSION" the Securities and Exchange Commission.
"COMMON STOCK" the common stock, $.001 par value, of Castle.
"COMMON STOCK VALUE" shall mean the average closing price per share of
the Common Stock on the ten trading days immediately prior to the Closing Date;
provided, however, if such average closing price per share is (i) equal to or
more than $11.00 but no more than $13.96, the Common Stock Value shall be
$12.48, (ii) less than $11.00, the Common Stock Value shall be $11.00, and (iii)
more than $13.96, the Common Stock Value shall be $13.96.
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"CORPORATE B MEMBERS" as defined in the preamble of this Agreement.
"CORPORATE B MEMBERS' MERGER OPTION" as defined in Section 7.1 hereof.
"CORPORATE C MEMBERS" as defined in the preamble of this Agreement.
"CORPORATE C MEMBER'S MERGER OPTION" as defined in Section 8.1.
"DAMAGES" as defined in Section 17.1 hereof.
"DCS" as defined in the preamble.
"DCS INDEMNITEES" as defined in Section 17.1 hereof.
"DCS MEMBERS" as defined in the preamble of this Agreement.
"EBITDA" as defined in Section 8.1(c), subject to the limitations
contained in Section 6.2.
"EBTDA" as defined in Section 6.3, subject to the limitations contained
in Section 6.2.
"ENCUMBRANCES" liens, security interests, options, rights of first
refusal, easements, mortgages, charges, debentures, indentures, deeds of trust,
rights-of-way, restrictions, agreements, encroachments, licenses, leases,
permits, security agreements, or any other encumbrances and other restrictions
or limitations on use of real or personal property or irregularities in title
thereto, except as to any restrictions under federal or state securities laws.
"ENVIRONMENTAL CLAIM" any and all administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of noncompliance
or violations, investigations or proceedings relating in any way to any
Environmental Law (for purposes of this definition, "Claims") or any Permit
issued under any such Environmental Law, including without limitation (i) any
and all Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, remediation or other actions of damages pursuant to any
applicable Environmental Law and (ii) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAW" any federal, state or local statute, law, rule,
regulation, ordinance. code, policy or rule of common law now in effect and in
each case as amended and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment,
relating to Hazardous Materials, the environment or health relating to or
arising from environmental conditions, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended 42 U.S.C. ss. 9601 ET SEQ.; the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. ss. 1801 ET SEQ.; the Resource Conservation and
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Recovery Act, as amended, 42 U.S.C. ss. 6901 ET SEQ.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. ss. 1251 ET SEQ.; the Toxic
Substances Control Act, 15 U.S.C. ss. 2601 ET SEQ.; the Clean Air Act, 42 U.S.C.
ss. 7401 ET SEQ.; the Safe Drinking Water Act, 42 U.S.C. ss. 3808 ET SEQ,.; the
Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 ET SEQ.; and relevant state and
local laws.
"ERISA" the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA as in effect at the date of
this Agreement and any subsequent provisions of ERISA amendatory thereof,
supplemental thereto or substituted therefor.
"EXCHANGE ACT" the Securities Exchange Act of 1934, as amended.
"EXCLUDED ASSETS" as defined in Section 2.3 hereof.
"EXCLUDED LIABILITIES" as defined in Section 2.4 hereof.
"EXISTING PCS" means Martin Schechter, DDS, Inc., a California
professional corporation d.b.a. Hawthorne Family Dental Group; Martin Schechter,
DDS, Inc., a California professional corporation d.b.a. Broadway Dental; Elliot
Schlang, DDS, Inc., a California professional corporation d.b.a. South Gate
Dental Center; Elliot Schlang, DDS, Inc., a California professional corporation
d.b.a. Lincoln Dental Center; and Burbank.
"FINANCIAL REPORTS" as defined in Section 3.2 hereof.
"FINANCIAL STATEMENTS" as defined in Section 9.6 hereof.
"GAAP" generally accepted accounting principles consistently applied.
"HAZARDOUS MATERIALS" (i) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
(ii) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "contaminants" or "pollutants," or words of similar import
under any applicable Environmental Law; and (iii) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by any
governmental authority because it is hazardous or toxic.
"HOLDINGS" as defined in the preamble of this Agreement.
"HOLDINGS CERTIFICATE" the certificate of formation of Holdings in
substantially the form attached hereto as EXHIBIT D and incorporated herein by
this reference.
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"HOLDINGS CAPITALIZATION" as defined in the preamble of this Agreement.
"HOLDINGS INDEBTEDNESS" means, at the time of determination, all
outstanding indebtedness of Holdings to any Person, including, without
limitation, the Class III Repurchase Obligation. In no event shall CDC, as a
Member of Holdings, be deemed to have any interest in or direct or indirect
obligation to pay the Holdings Indebtedness.
"HOLDINGS LIMITED AGREEMENT" the limited liability company agreement of
Holdings in substantially the form attached hereto as EXHIBIT E and incorporated
herein by this reference.
"HOLDINGS MEMBERS" as defined in the preamble of this Agreement.
"HOLDINGS NEW VALUE" as defined in Section 8.1(c) hereof, subject to the
limitation contained in Section 6.2.
"HOLDINGS OLD VALUE" as defined in Section 8.1(c) hereof, subject to the
limitation contained in Section 6.2.
"INCENTIVE PAYMENT" as defined in Section 6.3 hereof, subject to the
limitation contained in Section 6.2.
"INCREMENTAL EBITDA" as defined in Section 8.1(c) hereof, subject to the
limitations contained in Section 6.2.
"INITIAL PURCHASE PRICE" as defined in Section 3.1 hereof.
"INTELLECTUAL PROPERTY" domestic and foreign patents, patent
applications, registered and unregistered trademarks, service marks, trade names
and logos, registered and unregistered copyrights, computer programs, data
bases, trade secrets and proprietary information relating to the conduct of the
Business.
"LETTER OF TRANSMITTAL" means a Letter of Transmittal executed by each
stockholder in a Corporate B Member or Corporate C Member, as applicable, in
substantially the form attached hereto as EXHIBIT H and incorporated herein by
this reference.
"MANAGEMENT AGREEMENT" means the management agreement between Castle
West and Holdings in substantially the form attached hereto as EXHIBIT L and
incorporated herein by this reference.
"MATERIAL ADVERSE EFFECT" material adverse effect on the assets,
liabilities, business, condition (financial or otherwise), or results of
operations of (i) DCS and the Existing PCs, taken as a whole, or (ii) CDC and
Castle, taken as a whole, as appropriate.
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"MEMBERS" the DCS Members, the Holdings Members, the Corporate B Members
and the Corporate C Members.
"NONCOMPETITION AGREEMENT" means a Confidentiality and Noncompetition
Agreement between Castle and each DCS Member in substantially the form attached
hereto as EXHIBIT K and incorporated herein by this reference.
"NOTES" means the Subordinated Promissory Notes of Castle in
substantially the form attached hereto as EXHIBIT C and incorporated herein by
this reference.
"ORIGINAL REGISTRATION RIGHTS AGREEMENT" as defined in Section 10.2
hereof.
"PERMITS" as defined in Section 9.12 hereof.
"PERMITTED ENCUMBRANCES" as defined in Section 9.8 hereof.
"PERSON" any individual, partnership, joint venture, corporation,
limited liability company, trust, unincorporated organization, government or
other department or agency thereof or other entity.
"PLANS" as defined in Section 9.19 hereof.
"PRE-CLOSING PERIODS" as defined in Section 9.14(a) hereof.
"PRO FORMA MSO FEES" means, with respect to any Acquired Clinic, the MSO
fees (determined based upon actual operating results) that would have been paid
to Castle West (over the 12-month period ending prior to the acquisition with
respect to which the Acquired Clinic was valued by Castle West and the Acquired
Clinic for purposes of Castle West's acquisition thereof) if the MSO agreement
with respect to such Acquired Clinic had been in effect at the beginning of such
period.
"PRO RATA SHARE" means, (a) with respect to a DCS Member's or Corporate
B Member's interest in the Initial Purchase Price, the Adjusted Purchase Price
and each Acquisition Purchase Price Adjustment, such Member's percentage thereof
set forth on Schedule A-1, (b) with respect to a DCS Member's or Corporate B
Member's interest in the B Merger Consideration, such Member's percentage
thereof set forth on Schedule A-2 (subject to adjustment to reflect permitted
changes in ownership following the Closing), (c) with respect to a Corporate C
Member's or Holdings Member's interest in the Incentive Payment, the Holdings
New Value, the Holdings Old Value or the Holdings Indebtedness, such Corporate C
Member's or Holdings Member's ownership percentage therein set forth on Schedule
A-3 (subject to adjustment to reflect permitted changes in ownership following
the Closing), and (d) with respect to a Member's share in the Ceiling Amount,
the aggregate of such Member's interest in each of (a), (b) and (c) above
divided by the aggregate of all of the Members' interests in (a), (b) and (c)
above.
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"PROPERTY" any real property and improvements thereon presently owned,
leased, operated or occupied by DCS or the Existing PCs (other than any of the
foregoing included in Excluded Assets).
"PROFESSIONAL" as defined in Section 9.12 hereof.
"PROSPECTUS" as defined in Section 11.10 hereof.
"RECAPITALIZATION TRANSACTION" as defined in Section 7.1(e) hereof.
"REGISTRATION RIGHTS AGREEMENT" means that Registration Rights Agreement
between Castle and each of the Holdings Members and DCS Members in substantially
the form attached hereto as EXHIBIT I and incorporated herein by reference.
"RELEASE" disposing, discharging, injecting, spilling, leaking,
leaching, dumping, emitting, escaping, emptying, seeping, placing and the like,
into or upon any land or water or air, or otherwise entering into the
environment.
"RETURNS" as defined in Section 9.14(a) hereof.
"SECURITIES ACT" as defined in Section 11.9 hereof.
"SHARE LIMITATION" as defined in Section 8.1(c) hereof.
"SHARE VALUE" as defined in Section 8.1(c) hereof.
"SHAREHOLDERS' AGREEMENT" means the shareholders agreement to be entered
into between Castle West, CDC, DCS, Holdings and each of the Members in
substantially the form attached hereto as EXHIBIT J and incorporated herein by
this reference.
"SUBORDINATION AGREEMENT" the subordination agreement by and between
NationsBank of Texas, N.A., as agent, on behalf of each of Castle's lenders,
Castle and DCS in substantially the form of EXHIBIT N attached hereto and
incorporated herein by reference.
"TAX" any net income, alternative or add-on minimum tax, advance,
corporation, gross income, gross receipts, sales, use, ad valorem, franchise,
profits, license, value added, withholding, payroll, employment, excise, stamp
or occupation tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty imposed by any
governmental authority with respect thereto, and any liability for such amounts
as a result either of being a member of an affiliated group or of a contractual
obligation to indemnify any other entity.
"TERRITORY" as defined in Section 6.2 hereof.
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"WEST VALLEY" Kavanaugh & Schlang, a general partnership d.b.a. West
Valley Dental.
ARTICLE II
THE CASTLE WEST CAPITALIZATION
2.1 FORMATION OF CASTLE WEST. Prior to Closing, CDC shall cause the
Castle West Certificate to be filed with the Delaware Secretary of State.
Immediately following the execution of this Agreement, CDC and DCS shall enter
into and deliver the Castle West Limited Agreement which shall provide for the
issuance of the Class A Interest, the Class B Interest, the Class C Interest and
the Class D Interest. The Class D Interest shall be issued to CDC in exchange
for the consideration therefor contemplated by the Castle West Limited
Agreement.
2.2 CONTRIBUTION OF ASSETS. Subject to the terms and conditions of
Article XII, DCS agrees to contribute to Castle West, on the Closing Date as
part of the Closing, in exchange for the issuance of the Class A Interest, the
Class B Interest and the Class C Interest, the Assets, free and clear of any
Encumbrances except Permitted Encumbrances. The contribution of the Assets is
intended to be a tax free contribution pursuant to Code Section 721. The term
"Assets" shall mean all of the rights, title and interests of DCS in and to the
assets used in or relating to the conduct of the Business on the Closing Date
(assuming that DCS has acquired the Assets of the Existing PCs immediately prior
to the Closing Date), tangible and intangible, real, personal and mixed,
wheresoever situated and whether or not specifically referred to herein or in
any instrument of conveyance delivered pursuant hereto, other than the Excluded
Assets. The Assets shall include but are not limited to the following categories
of assets:
(a) DCS's title to, interest in or rights under the leases of
Property described in SCHEDULE 9.9 attached hereto together with all
buildings, facilities, fixtures and other leasehold improvements thereon
and all easements, rights-of-way, transferable licenses and Permits and
other appurtenances thereof;
(b) plant, machinery, equipment, operating equipment, tools,
supplies, inventories, furniture, fixtures, furnishings, vehicles and
other fixed assets owned or leased (as to such leasehold interest) by
DCS and used or held for use in the conduct of the Business;
(c) contracts, documents, instruments and general intangibles of
DCS, including the name "Dental Consulting Services" and derivatives
thereof, and goodwill associated therewith;
(d) Accounts Receivable as of the Closing Date; provided,
however, that DCS shall be entitled to retain (and Castle West shall be
required to remit to DCS as soon as practicable) the proceeds of
collections after the Closing Date of Accounts Receivable generated on
or before December 31, 1997, but only if and to the extent aggregate
collections
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of Accounts Receivable by Castle West during the months of April, May
and June, 1998 equal or exceed DCS's aggregate collections of Accounts
Receivable during the months of April, May and June, 1997;
(e) all licenses, Permits, registrations and authorizations,
proprietary information, methods, know-how, designs, processes,
procedures, goodwill and all rights held by DCS to other Intellectual
Property;
(f) Books and Records;
(g) any rights of DCS pertaining to any counterclaims, set-offs
or defenses it may have with respect to any Assumed Obligations;
(h) all prepaid claims, prepaid taxes, prepaid insurance premiums
and other prepaid expense items;
(i) third-party indemnities, policies of insurance, fidelity,
surety or similar bonds and the coverages afforded thereby relating to
the Business; and
(j) cash, cash equivalents, deposits, advance payments,
securities, letters of credit naming DCS as account party, certificates
of deposit, notes, drafts, checks and similar instruments.
2.3 EXCLUDED ASSETS. The Assets shall not include any of the
following (the "Excluded Assets"):
(a) any license, patient record or other property that must,
under applicable law, be owned by an individual licensed to practice
dentistry or an entity owned solely by persons licensed to practice
dentistry;
(b) any contract for the employment of an individual licensed to
practice dentistry;
(c) any real property other than leasehold interests of DCS in
real property occupied by the Business pursuant to leases described in
SCHEDULE 9.9;
(d) undistributed profits of DCS permitted to be distributed
hereby at or prior to Closing;
(e) other than DCS's leasehold interest therein, any plant,
machinery, equipment, operating equipment, tools, supplies, inventories,
furniture, fixtures, furnishings, vehicles and other fixed assets leased
by DCS;
(f) minute books and governance documents of DCS and the Existing
PCS; or
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(g) any and all interests in, benefits from or assets of West
Valley, including, without limitation, Elliot Schlang, D.D.S., Inc.'s
partnership interest therein (including, without limitation, any
economic benefit arising therefrom), Elliot Schlang, D.D.S.'s consulting
agreement therewith (including, without limitation, the economic
benefits arising therefrom) and any agreement transferring or purporting
to transfer, in any way, any interest in any of the foregoing to DCS,
any Existing PC or any other Member.
2.4 ASSUMPTION OF OBLIGATIONS. Upon the contribution of the Assets by
DCS, Castle West shall assume and agree to pay, perform and discharge, in a
timely manner and in accordance with the terms thereof, only such of the
obligations of DCS in respect of (a) the licenses, leases, Permits, contracts,
notes and other debts set forth in SCHEDULE 2.4 (the "Assigned Contracts") which
are being assigned to Castle West hereunder, (b) Accounts Payable, (c) the long
term debt set forth on SCHEDULE 2.4 and (d) other liabilities disclosed in the
Financial Statements (including the footnotes thereto) or otherwise arising in
the ordinary course of business from the Balance Sheet Date (collectively,
"Assumed Obligations"). Notwithstanding anything contained herein to the
contrary, Castle West does not assume, and hereby expressly disclaims
responsibility for, any obligation or liability of DCS or the Existing PCs
("Excluded Liability") that is (x) not described in (a), (b), (c) or (d) above,
(y) arises out of any Tax imposed upon the Business, DCS, the DCS Members, the
Existing PCs or the owners of the Existing PCs, if such liability or obligation
relates to any period ending prior to the Closing Date or arises as a result of
the consummation of DCS's acquisition of the Assets of the Existing PCs or DCS's
contribution of the Assets to Castle West or (z) relates to or arises out of the
unusual and non-recurring expenses incurred in connection with the transactions
contemplated by this Agreement.
2.5 NONASSIGNABLE CONTRACTS AND LEASES. In the case of any material
Assigned Contracts which are not by their terms assignable or with respect to
which a consent to assignment is not obtained by the Closing Date, DCS agrees to
use reasonable efforts to obtain, or cause to be obtained, prior to the Closing
Date, any written consents necessary to convey to Castle West the benefit
thereof. Castle West shall cooperate with DCS, in such manner as may be
reasonably requested, in connection therewith, including without limitation,
active participation in visits to and meetings, discussions and negotiations
with all Persons with the authority to grant or withhold consent. If DCS is
unable to obtain such necessary written consents for the remaining term of such
Assigned Contract, Castle West shall act as DCS's agent in the performance of,
and shall be responsible for, all obligations and liabilities under such
Assigned Contract and DCS shall act as Castle West's agent in the receipt of any
benefits, rights or interests which inure to DCS under such Assigned Contract.
2.6 AGENCY RELATIONSHIP. In the event that, following the Closing Date,
DCS receives any funds, documents or instruments which constitute or are
delivered in respect of Assets transferred to Castle West pursuant to this
Agreement, DCS agrees to hold such funds, documents or instruments in trust for
Castle West and as Castle West's agent therefor.
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ARTICLE III
CLASS A SALE
3.1 SALE OF CLASS A INTEREST. Contemporaneously with the Castle West
Capitalization, CDC agrees to purchase from DCS, and DCS agrees to sell, convey,
transfer, assign and deliver, and cause to be sold, conveyed, transferred,
assigned and delivered, to CDC against the receipt by DCS of a wire transfer of
immediately available funds in the amount of Eleven Million Two Hundred
Twenty-Two Thousand Six and No/100 Dollars ($11,222,006) and the delivery of
Notes in the original principal amount of Two Million Eight Hundred Five
Thousand Five Hundred Two and No/100 Dollars ($2,805,502) (in the aggregate, the
"Initial Purchase Price"), 100% of the Class A Interest, free and clear of any
Encumbrances.
3.2 DETERMINATION OF AGGREGATE EBIDTA. On or prior to the 60th day
following the Closing Date, DCS's independent public accountants shall prepare
an income statement and statement of cash flows for DCS and the Existing PCs for
the year ended December 31, 1997, and a balance sheet for DCS and the Existing
PCs at December 31, 1997 prepared in a manner consistent with the past practices
of DCS (collectively, the "Financial Reports"), and deliver the Financial
Reports to CDC's independent public accountants. CDC's independent public
accountants shall perform such procedures as shall be agreed upon between CDC
and such independent public accountants ("Agreed-Upon Procedures") regarding the
Financial Reports (including any corresponding work papers of DCS's independent
public accountants) and prepare and deliver a written report with respect to any
disagreement CDC's independent public accountants may have with regard to the
treatment or amount of any item in the Financial Reports affecting EBITDA within
15 days of receipt thereof. If DCS's independent public accountants and CDC's
independent public accountants cannot resolve such disagreement within 15 days
after DCS's independent public accountants receipt of such report, then they
shall so notify DCS and CDC, and DCS and CDC shall attempt to resolve the
discrepancy within 15 days of such notice. If DCS and CDC cannot resolve the
disagreement to their mutual satisfaction, another independent public accounting
firm reasonably acceptable to DCS and CDC shall be retained to resolve the
disagreement regarding the Financial Reports. Such firm's conclusions as to the
resolutions of disputed matters for purposes of determining the Aggregate EBITDA
shall be conclusive. DCS and CDC shall share equally in the expenses of
retaining such third independent accounting firm. CDC shall pay the expenses of
CDC's independent public accountants for their work regarding the Financial
Reports and related matters, and DCS shall pay the expenses of DCS's independent
public accountants for their work regarding the Financial Reports and related
matters. Based upon the Financial Reports, CDC and DCS shall determine the
Aggregate EBITDA of DCS. The Aggregate EBITDA shall be determined consistent
with the methods used by DCS's independent public accountants in preparing the
Financial Statements described in Section 9.6 hereof. The "Aggregate EBITDA"
shall be equal to (a) the pro forma aggregate earnings of DCS and the Existing
PCs for the year ended December 31, 1997, adjusted to reverse charges thereto
made for interest, federal and state income and franchise taxes, depreciation
and amortization (such amounts to be
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determined based upon actual 1997 performance as if any portion of any Existing
PC not owned by DCS on January 1, 1997, were acquired by DCS on January 1,
1997), plus (b) an amount equal to the unusual and non-recurring expenses
incurred during 1997 in connection with the transactions contemplated by this
Agreement to the extent that they were deducted in determining earnings, and an
adjustment for (c) any difference between the 1997 operations of DCS and
anticipated Castle West operations in 1998 related either to compensation paid
to the DCS Members and other DCS employees or increased expenses related to
additional staffing necessary to operate the Acquired Clinics (with any increase
in 1998 levels to reduce Aggregate EBITDA and any decrease in 1998 levels to
increase Aggregate EBITDA) as agreed upon by Castle and DCS; provided, however,
that for purposes of calculating Aggregate EBITDA, the 1997 pro forma EBITDA for
Burbank shall be deemed to be $300,000, regardless of Burbank's actual results
of operations. A worksheet detailing the method DCS and Castle used to calculate
Aggregate EBITDA for purposes of calculating the Initial Purchase Price is
attached hereto as EXHIBIT M. Subsequent calculations of Aggregate EBITDA shall
be made in accordance with the method shown on EXHIBIT M.
3.3 PURCHASE PRICE ADJUSTMENT. Immediately following the determination
of Aggregate EBITDA in accordance with Section 3.2, the parties shall determine
whether the Initial Purchase Price should be adjusted (the "Adjusted Purchase
Price"). In order to determine the Adjusted Purchase Price, the parties shall
multiply the Aggregate EBITDA by 60%, then shall multiply the resulting number
by 6.5 (the initial purchase multiple). If the Adjusted Purchase Price is less
than the Initial Purchase Price, within 15 days of such determination DCS shall
deliver or cause to be delivered to CDC cash in the amount of 80% of the
difference between the Initial Purchase Price and the Adjusted Purchase Price
and shall return all Notes previously delivered hereunder to Castle so that the
aggregate original principal amount thereof may be reduced by 20% of the
difference between the Initial Purchase Price and the Adjusted Purchase Price.
Castle hereby agrees to deliver to DCS Notes in an amount equal to 20% of the
Adjusted Purchase Price in exchange for the Notes tendered by DCS in the
previous sentence. If the Adjusted Purchase Price is more than the Initial
Purchase Price, within 15 days of such determination CDC shall wire transfer to
DCS immediately available funds and deliver to DCS Notes in the original
principal amount of, 80% and 20%, respectively, of the difference between the
Adjusted Purchase Price and the Initial Purchase Price.
3.4 ACQUISITION PURCHASE PRICE ADJUSTMENTS. During the 12-month period
following the Closing Date, the Adjusted Purchase Price shall be increased from
time to time (each an "Acquisition Purchase Price Adjustment") by (a) 6.5 times
60% of the Pro Forma MSO Fees of each business which becomes an Acquired Clinic
during such period minus (b) 60% of the purchase price of such Acquired Clinic.
An Acquisition Purchase Price Adjustment shall be made with respect to each
business with which Castle West enters into an MSO agreement during such period;
provided, however, that notwithstanding the foregoing, no Acquisition Purchase
Price Adjustment shall be made with respect to Pro Forma MSO Fees of any
business to the extent the Pro Forma MSO Fees of such business plus the Pro
Forma MSO Fees of all other previously acquired or simultaneously acquired
Acquired Clinics exceeds $1,500,000 (the "Acquisition Limitation"); provided
further, that Castle West may acquire West Valley during the 12-month period
following the Closing Date and treat West Valley as an Acquired Clinic
notwithstanding the Acquisition Limitation, and the Pro
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Forma MSO Fees of West Valley shall not be counted against or in any reduce the
Acquisition Limitation. To the extent that the Pro Forma MSO Fees of any
business, when aggregated with the Pro Forma MSO Fees of all other previously
acquired or simultaneously acquired Acquired Clinics, cause Pro Forma MSO Fees
to exceed the Acquisition Limitation, the Acquisition Purchase Price Adjustment
shall include (a) such portion of the Pro Forma MSO Fees of such business that
becomes an Acquired Clinic that, when aggregated with the Pro Forma MSO Fees of
all other previously acquired or simultaneously acquired Acquired Clinics,
causes Pro Forma MSO Fees to equal the Acquisition Limitation and (b) the
corresponding pro rata portion of the purchase price of such business that
becomes an Acquired Clinic. Within 15 days of the closing date of the
acquisition of each such Acquired Clinic, CDC shall wire transfer to each DCS
Member immediately available funds equal to, and deliver to each DCS Member
Notes in the original principal amount of, such DCS Member's pro rata share
(which, for purposes of this sentence only, shall be 20% for each DCS Member) of
80% and 20%, respectively, of the Acquisition Purchase Price Adjustment with
respect to such acquisition.
3.5 DETERMINATION OF BURBANK'S EBIDTA. On or prior to June 1, 1999, the
DCS Members' independent public accountants shall prepare an income statement
and statement of cash flows for Burbank for the 12-month period ended March 31,
1999, and a balance sheet for Burbank at March 31, 1999 prepared in accordance
with GAAP (collectively, the "Burbank Reports"), and deliver the Burbank Reports
to CDC's independent public accountants. CDC's independent public accountants
shall perform Agreed-Upon Procedures regarding the Burbank Reports (including
any corresponding work papers of the DCS Members' independent public
accountants) and prepare and deliver a written report with respect to any
disagreement CDC's independent public accountants may have with regard to the
treatment or amount of any item in the Burbank Reports affecting Burbank's 1998
EBITDA within 15 days of receipt thereof. If the DCS Members' independent public
accountants and CDC's independent public accountants cannot resolve such
disagreement within 15 days after the DCS Members' independent public
accountants receipt of such report, then they shall so notify the DCS Members
and CDC, and the DCS Members and CDC shall attempt to resolve the discrepancy
within 15 days of such notice. If the DCS Members and CDC cannot resolve the
disagreement to their mutual satisfaction, another independent public accounting
firm reasonably acceptable to the DCS Members and CDC shall be retained to
resolve the disagreement regarding the Burbank Reports. Such firm's conclusions
as to the resolutions of disputed matters for purposes of determining Burbank's
1998 EBITDA shall be conclusive. The DCS Members and CDC shall share equally in
the expenses of retaining such third independent accounting firm. CDC shall pay
the expenses of CDC's independent public accountants for their work regarding
the Burbank Reports and related matters, and the DCS Members shall pay the
expenses of the DCS Members' independent public accountants for their work
regarding the Burbank Reports and related matters. Based upon the Burbank
Reports, CDC and the DCS Members shall determine Burbank's 1998 EBITDA.
3.6 BURBANK PRICE ADJUSTMENT. If Burbank's 1998 EBITDA, determined in
accordance with Section 3.5, is less than $300,000, the Purchase Price shall be
further adjusted (the "Burbank
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Adjustment"). The Burbank Adjustment shall be equal to 6.5 times 80% of the
difference between Burbank's 1998 EBITDA and $300,000. Within 15 days of such
determination each DCS Member shall return all Notes previously delivered
hereunder to Castle so that the aggregate original principal amount thereof may
be reduced by such Member's Pro Rata Share of the Burbank Adjustment. Castle
hereby agrees to deliver to each DCS Member as soon as practicable a Note in an
amount equal to the Notes tendered by such DCS Member in the previous sentence
less such DCS Member's Pro Rata Share of the Burbank Adjustment.
3.7 ALLOCATION OF CASH AND MARKETABLE SECURITIES. To the extent any cash
or marketable securities are contributed to Castle West, it is agreed that only
Class A Interests shall be received in consideration therefor.
ARTICLE IV
HOLDINGS CAPITALIZATION
4.1 FORMATION OF HOLDINGS. Prior to Closing, DCS shall cause the
Holdings Certificate to be filed with the Delaware Secretary of State.
Immediately following the Class A Sale, each Holdings Member shall enter into
and deliver the Holdings Limited Agreement which shall provide for the issuance
of membership interests therein in exchange for the Class C Interest.
4.2 DISTRIBUTION OF C INTEREST. Immediately following the Class A Sale,
DCS shall distribute to each of the DCS Members such member's pro rata share of
the Class C Interest, free and clear of any Encumbrances.
4.3 CONTRIBUTION OF C INTEREST. Immediately following DCS's distribution
of the Class C Interest to the DCS Members, each of the DCS Members shall
contribute such member's pro rata share of the Class C Interest to Holdings,
free and clear of any Encumbrances.
ARTICLE V
MEMBERSHIP TRANSFERS
5.1 TRANSFERS OF MEMBERSHIP INTERESTS IN DCS. Immediately following the
Holdings Capitalization, each of the DCS Members shall contribute such Member's
entire membership interest in DCS to the Corporate B Member owned by such
Member, free and clear of any Encumbrances.
5.2 TRANSFERS OF MEMBERSHIP INTERESTS IN HOLDINGS. Immediately following
the Holdings Capitalization, each of the Holdings Members shall contribute such
member's entire membership interest in Holdings to the Corporate C Member owned
by such Member, free and clear of any Encumbrances.
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ARTICLE VI
MANAGEMENT AGREEMENT AND INCENTIVE PAYMENT
6.1 MANAGEMENT AGREEMENT. As part of the Class A Sale, Castle West and
Holdings shall enter into and deliver the Management Agreement pursuant to which
Holdings shall manage the business and operations of Castle West pursuant to the
terms described therein.
6.2 POST-CLOSING OPERATIONS. Following the Closing, pursuant to the
Management Agreement, Holdings shall be responsible for management of the
day-to-day operations of Castle West's operations within the California counties
of Los Angeles, Orange, Riverside, Ventura, Kern, San Bernardino, Santa Barbara
and San Diego (collectively, the "Territory"). Acquisition and expansion
opportunities acquired by Castle, CDC or any of their Affiliates within the
Territory will be included within Castle West. Castle, in its sole discretion,
will determine whether expansion and acquisition opportunities that Castle
generates outside of the Territory should be included within Castle West. All
acquisition and expansion opportunities shall be subject to the prior approval
of Castle; provided that if any acquisition or expansion constitutes a CDC
Approved Expansion, the results of operations, costs of capital and Castle West
Debt arising from such CDC Approved Expansion shall be excluded from all
calculations of Adjusted EBITDA, Adjusted Aggregate EBITDA, Incremental EBITDA,
EBITDA, EBTDA, Incentive Payments, Holdings Old Value, Holdings New Value and
Castle West Debt hereunder. Castle shall fund such acquisitions and expansions,
including the Acquired Clinics. All material investment costs, incentives,
profit distributions and expenses related to Castle West acquisitions or
expansions will be subject to the approval of Castle's board of directors and,
following the execution of a definitive agreement with respect thereto, all such
amounts will be borne by Castle West. Castle West will be assessed a capital
cost with respect to all funds expended in accordance with the previous sentence
plus the value of Common Stock issued by Castle (determined in accordance with
acquisition agreements pursuant to which such Common Stock is issued) to close
acquisitions or expansions following the Closing Date included within Castle
West. The cost of such capital shall be deemed to be the actual rate charged
Castle by its lender from time to time plus .25% (the "Capital Cost Rate").
6.3 INCENTIVE PAYMENT. As compensation for providing services under the
Management Agreement, in the event that the actual EBITDA of Castle West and/or
DCS (as appropriate) for any calendar year, or portion thereof, ending prior to
the exercise of CDC's Call Option exceeds (a) for the year beginning January 1,
1998, Adjusted Aggregate EBITDA for DCS, (b) for the year beginning January 1,
1999, the aggregate of (i) DCS's and the Existing PCs' EBITDA for the period
from January 1, 1998 until the Closing Date, (ii) Castle West's EBITDA for the
period from the Closing Date until December 31, 1998, and (iii) Pro Forma MSO
Fees for each Acquired Clinic from January 1, 1998 until the date of
consummation of such Acquired Clinic, and (c) for each year beginning January 1,
2000 or later, Castle West's EBITDA for the immediately preceding calendar year,
Castle West shall pay Holdings the following percentages of excess EBTDA (the
"Incentive Payment"):
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INCREASE IN CASTLE WEST EBITDA PERCENTAGE OF EXCESS EBTDA
FROM PREVIOUS YEAR PAYABLE TO HOLDINGS
Less than 26% 0.0%
26% or more but less than 27% 2.0%
27% or more but less than 28% 4.0%
28% or more but less than 29% 6.0%
29% or more but less than 30% 7.5%
30% or more but less than 31% 9.0%
31% or more but less than 32% 10.5%
32% or more but less than 33% 12.0%
33% or more but less than 34% 13.0%
34% or more but less than 35% 14.0%
35% or more but less than 36% 15.0%
36% or more but less than 37% 16.0%
37% or more but less than 38% 17.0%
38% or more but less than 39% 18.0%
39% or more but less than 40% 19.0%
40 % or more 20.0%
"EBTDA" is defined as earnings adjusted, without duplication, to reverse charges
thereto made for federal and state income and franchise taxes, depreciation and
amortization. It is acknowledged that earnings will be reduced by a cost of
capital charge equal to the Capital Cost Rate multiplied by all Castle West
Debt. EBTDA shall be determined prior to any deduction of the Incentive Payment
from earnings and, other than as stated above, there shall be no deduction for
any overhead, management or similar fees paid by Castle West to any Affiliate of
Castle or otherwise allocated to Castle West. EBTDA will be determined each year
based upon audited financial statements of Castle West prepared in accordance
with GAAP consistently applied in the normal course of business. The Incentive
Payment will be paid in cash each year prior to the end of March in the year
immediately following the year during which the Incentive Payment is earned.
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ARTICLE VII
CORPORATE B MEMBERS' OPTION
7.1 CORPORATE B MEMBER'S OPTION TO CAUSE B MERGER. The Corporate B
Members (as a group) shall have the right and option ("Corporate B Members'
Merger Option") to cause all of the Corporate B Members to merge with and into
CDC (the "B Merger") at any time following the twelve-month anniversary of the
Closing and prior to the 24-month anniversary of the Closing, in the manner and
subject to the conditions set forth herein.
(a) B MERGER NOTICE. In order to exercise their right and option
to cause the B Merger to occur, Corporate B Members owning a majority in
interest of the membership interest in DCS shall notify ("B Merger
Notice") CDC of their intent to cause the B Merger.
(b) CDC'S AND CORPORATE B MEMBERS' OBLIGATIONS. Promptly
following the receipt of a B Merger Notice, each DCS Member shall cause
such Member's Corporate B Member to enter into and perform the B Merger
Agreement and Castle shall cause CDC to enter into and perform the B
Merger Agreement. Pursuant to the B Merger Agreement, each Corporate B
Member will be merged with and into CDC and CDC shall be the surviving
corporation. The B Merger Agreement shall provide for the conversion of
all of the outstanding capital stock of the Corporate B Members into
that number of shares of Common Stock (valued at the Common Stock Value)
with an aggregate value equal to the amount determined by multiplying
the Adjusted Aggregate EBITDA by 20%, then multiplying the resulting
number by 6.5 (the initial purchase multiple) and subtracting from the
balance 20% of the purchase price of the Acquired Clinics (the "B Merger
Consideration"). The B Merger Consideration for each Corporate B Member
shall be equal to the Corporate B Member's Pro Rata Share of the B
Merger Consideration. By their execution of this Agreement, each DCS
Member, as the sole stockholder of such DCS Member's Corporate B Member,
and Castle, as the sole stockholder of CDC, agrees to vote for, adopt,
consent to and agree to the B Merger pursuant to the terms of the B
Merger Agreement if the Corporate B Members' Merger Option is exercised.
Prior to the closing of the B Merger, Castle shall cause a Notice of
Inclusion to be filed with the Nasdaq National Market regarding all
shares of Common Stock issuable pursuant to this Agreement. The B Merger
Consideration will be distributed to the stockholders of a Corporate B
Member promptly following the closing of the B Merger (which will be
consummated as soon as reasonably practicable after the exercise of the
Corporate B Member's Merger Option) and the receipt by CDC of a properly
executed Letter of Transmittal from such stockholder, complete with
stock powers executed in blank and the stock certificates representing
all of the outstanding capital stock of such Corporate B Member.
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(c) LEGEND. Each DCS Member agrees to maintain a legend on all
certificates representing such member's capital stock in his or her
Corporate B Member referring to the right and option set forth in this
Section. Each DCS Member acknowledges that any Common Stock issued to it
hereunder shall contain a legend referring to restrictions on transfer
arising under the Securities Act and state Blue Sky laws.
(d) STOCK SPLITS, ETC. If, prior to the B Merger, Castle shall
effect a subdivision or consolidation of shares or other increase or
reduction in the number of shares of the Common Stock outstanding
without receiving compensation therefor in money, services or property
(including a stock dividend), then (i) in the event of an increase in
the number of such shares outstanding, the Common Stock Value shall be
proportionately decreased and (ii) in the event of a decrease in the
number of such shares outstanding the Common Stock Value shall be
proportionately increased.
(e) RECAPITALIZATION TRANSACTIONS. If, prior to the B Merger,
Castle (i) consolidates with or merges into any other Person where
Castle is not the continuing or surviving corporation of such
consolidation or merger, (ii) permits any other Person to consolidate
with or merge into Castle even though Castle shall be the continuing or
surviving Person where, in connection with such consolidation or merger,
the Common Stock shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property, or (iii)
transfers all or substantially all of its properties or assets to any
other Person (each, a "Recapitalization Transaction"), following each
such transaction, each Corporate B Member shall be entitled upon
consummation of the B Merger to receive, (subject to any required action
by stockholders to consummate the Recapitalization Transaction) in lieu
of the number of shares of Common Stock to which such Member would
otherwise be entitled, the number and class of shares of stock, other
securities or consideration to which such Member would have been
entitled to receive pursuant to the terms of the Recapitalization
Transaction if, immediately prior to such Recapitalization Transaction,
such Member had been the holder of record of a number of shares of
Common Stock equal to the number of shares of Common Stock to which such
Member would have received upon consummation of the B Merger.
(f) BINDING AGREEMENT. Prior to the consummation of the B Merger,
Castle shall not enter into a Recapitalization Transaction unless, prior
to the consummation thereof, each Person (other than Castle) which may
be required to deliver any stock, securities, cash or property in
exchange for the outstanding shares of Common Stock of Castle shall
assume, by written instrument (i) the obligations of Castle under this
Agreement (and if Castle shall survive the consummation of such
transaction, such assumption shall be in addition to, and shall not
release Castle from, any continuing obligations of Castle under this
Agreement) and (ii) the obligation to deliver to such Corporate B
Members such shares of stock, securities, cash or
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property as, in accordance with Section 7.1(e), such holder may be
entitled to receive upon consummation of the B Merger.
(g) ACCELERATION OF RIGHT TO EXERCISE. Notwithstanding the
foregoing, in the event Castle West terminates the Management Agreement
(other than because of a breach thereof by Holdings which gives Castle
West the right to terminate the Management Agreement) or breaches the
Management Agreement in such a manner as to give Holdings the right to
terminate the Management Agreement, the Corporate B Members, as a group,
shall immediately have the right to deliver the B Merger Notice and
convert the shares of common stock in the Corporate B Members into
Common Stock pursuant to the B Merger.
7.2 CDC'S OPTION TO CAUSE B MERGER. In the event Holdings terminates the
Management Agreement (other than because of a breach thereof by Castle West
which gives Holdings the right to terminate the Management Agreement) or
breaches the Management Agreement in such a manner as to give Castle West the
right to terminate the Management Agreement, CDC shall immediately have the
right, but not the obligation, to cause all of the Corporate B Members to merge
with and into CDC (the "B Merger") in the manner and subject to the conditions
set forth in Section 7.1 above as if such termination or breach of the
Management Agreement constituted the delivery of the B Merger Notice.
ARTICLE VIII
CORPORATE C MEMBERS' AND CDC'S OPTIONS
8.1 CORPORATE C MEMBER'S OPTION TO CAUSE C MERGER. Each Corporate C
Member (other than the holder of the Class III Interest (whose right shall be
limited to the circumstances described in Section 8.1(b) and 8.1(j) below))
shall have the right and option ("Corporate C Member's Merger Option") to cause
such Corporate C Member to merge with and into CDC (each, a "C Merger"), in the
manner and subject to the conditions set forth herein.
(a) C MERGER NOTICE. In order to exercise its right and option to
cause the C Merger with respect to itself to occur, a Corporate C Member
shall notify ("C Merger Notice") CDC of its intent to cause a C Merger.
The C Merger Notice shall state what percentage of the merger
consideration to be received by the Holdings Member owning the
applicable Corporate C Member ("C Merger Consideration") it elects to
receive in cash; provided, however, that at least 50% of the C Merger
Consideration shall be payable by CDC in Common Stock and, if the
Corporate C Member elects to receive more than 25% of the C Merger
Consideration in cash, CDC shall have the option of delivering a
promissory note of Castle for the amount by which such cash payment
would otherwise exceed 25% of the C Merger Consideration. Such note
would be subordinated to the Company's institutional senior lenders
substantially in accordance with the terms of the Subordination
Agreement,
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would bear interest, payable quarterly in arrears, at the Capital Cost
Rate and the principal thereon would be payable in one installment being
payable on the first anniversary of the effective date of the applicable
C Merger. Other than as set forth in the previous sentence, such note
would be substantially in the form of the Notes.
(b) CDC'S AND CORPORATE C MEMBER'S OBLIGATIONS. Promptly
following the receipt of a C Merger Notice, but no later than five days
thereafter, CDC shall send or cause to be sent to each Corporate C
Member a copy of the C Merger Notice so received. Each other Corporate C
Member shall have the right (exercisable by delivery to CDC of a C
Merger Notice with respect to itself within 10 days of the delivery of
the notice from CDC with respect to the receipt of the C Merger Notice
from the other Corporate C Member) to be a party to such C Merger.
Promptly following the receipt of a C Merger Notice, but no later than
15 days thereafter, CDC shall cause the C Merger Consideration to be
computed. CDC shall then promptly send a notice to the Corporate C
Member or Members informing such Member(s) of the calculation of the C
Merger Consideration. Each stockholder of an applicable Corporate C
Member shall cause such Corporate C Member promptly to enter into and
perform the C Merger Agreement and Castle shall cause CDC promptly to
enter into and perform the C Merger Agreement. Pursuant to the C Merger
Agreement, such Corporate C Member will be merged with and into CDC and
CDC shall be the surviving corporation. The C Merger Agreement shall
provide for the conversion of all of the outstanding capital stock of
such Corporate C Member into the C Merger Consideration. By their
execution of this Agreement, each stockholder of each such Corporate C
Member, and Castle, as the sole stockholder of CDC, agrees that it will
vote for, adopt, consent to and agree to the C Merger pursuant to the
terms of the C Merger Agreement if such Corporate C Member's Merger
Option is exercised. Each C Merger shall be consummated as soon as
reasonably practicable following the exercise of the applicable
Corporate C Member's Merger Option. The C Merger Consideration will be
distributed to the stockholders of a Corporate C Member promptly
following the closing of the C Merger and the receipt by CDC of a
properly executed Letter of Transmittal from such stockholder, complete
with the stock certificates representing all of the outstanding capital
stock of such Corporate B Member.
(c) C MERGER CONSIDERATION. The C Merger Consideration shall be
equal to the Corporate C Member's Pro Rata Share of the Holdings Old
Value plus the Corporate C Member's Pro Rata Share of the Holdings New
Value less the Corporate C Member's Pro Rata Share of the Holdings
Indebtedness. The Holdings Old Value shall be equal to 20% of the
Adjusted Aggregate EBITDA multiplied by the initial purchase multiple of
6.5 less (i) 20% times the purchase price of the Acquired Clinics and
(ii) 25% of the Burbank Adjustment. The gross Holdings New Value shall
be equal to 20% of the Incremental EBITDA multiplied by 90% of the
trailing twelve-month EBITDA market multiple for Castle Common Stock.
The
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trailing twelve-month EBITDA market multiple for Castle Common Stock
shall be determined by multiplying the average closing price of the
Common Stock on the principal exchange or quotation system therefor over
the 30-day period ending on the date immediately prior to delivery of
the C Merger Notice by the weighted average fully diluted number of
shares of Common Stock outstanding over the one-year period ending on
such date and dividing the product by Castle's aggregate EBITDA for the
four quarters preceding such date. Incremental EBITDA will be equal to
the amount by which the EBITDA for Castle West for the prior four fiscal
quarters ending immediately prior to delivery of the C Merger Notice
exceeds the Adjusted Aggregate EBITDA. EBITDA will be equal to Castle
West's earnings determined in accordance with GAAP adjusted to reverse
charges thereto made for interest, federal and state income and
franchise taxes, depreciation and amortization, to the extent included
in the calculation of earnings. EBITDA shall be determined prior to any
deduction of the Incentive Payment from earnings and there shall be no
deduction for any overhead, management or similar fees paid by Castle
West to any Affiliate of Castle or otherwise allocated to Castle West.
The gross Holdings New Value shall be reduced (as so reduced, the
"Holdings New Value"), without duplication, by (i) the aggregate capital
costs related to Common Stock invested in Castle West acquisitions or
expansions, excluding DCS, the Existing PCs and the Acquired Clinics,
and (ii) a percentage of 20% of the Castle and Castle West debt (as of
the date immediately prior to the delivery of the C Merger Notice)
directly related to Castle West's business and operations (excluding
debt related to the acquisition of DCS, the Existing PCs, the Acquired
Clinics and any CDC Approved Expansion)("Castle West Debt") determined
as follows:
CASTLE WEST PERCENTAGE OF 20% OF
ANNUAL GROWTH RATE CASTLE WEST DEBT
FROM JANUARY 1, 1999 ALLOCATED TO HOLDINGS INTEREST
Less than 26% 100.0%
26% or more but less than 27% 90.0%
27% or more but less than 28% 80.0%
28% or more but less than 29% 70.0%
29% or more but less than 30% 60.0%
30% or more but less than 31% 50.0%
31% or more but less than 32% 40.0%
32% or more but less than 33% 30.0%
33% or more but less than 34% 20.0%
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34% or more but less than 35% 10.0%
35% or more 0.0%
Aggregate capital costs related to Common Stock invested in Castle West
acquisitions or expansions shall be based upon the valuation given to
such Common Stock pursuant to the agreements pursuant to which such
acquisitions or expansions were consummated multiplied by the Capital
Cost Rate. Incremental EBITDA and the outstanding Castle West Debt used
to determine the Holdings New Value shall exclude the EBITDA, Castle
West Debt and Common Stock capital costs relating to any acquisitions
completed in the three-month period immediately preceding the delivery
of the C Merger Notice. The C Merger Consideration shall be paid (i) by
delivery of Common Stock valued (the "Share Value") at the average
closing price of the Common Stock on the primary exchange or quotation
system on the 30 trading days immediately prior to delivery of the C
Merger Notice, (ii) in cash at the closing by wire transfer of
immediately available funds payable to the account of the stockholder of
the appropriate Corporate C Member and (iii) if the Corporate C Member
elects to receive more than 25% of the C Merger Consideration in cash,
at the election of CDC, by delivery of notes in the form described in
Section 8.1(a). Notwithstanding the foregoing, in no event shall the
aggregate number of shares of Common Stock issuable as C Merger
Consideration (when added to the number of shares of Common Stock issued
as B Merger Consideration) exceed 20% of the number of shares of Common
Stock outstanding on the Closing Date ("Share Limitation"). If the
number of shares of Common Stock issuable as C Merger Consideration
would, if issued, exceed the Share Limitation, the number of shares of
Common Stock issuable as C Merger Consideration shall be limited to the
Share Limitation and cash equal in value to (i) such number of shares in
excess of the Share Limitation multiplied by (ii) the Share Value shall
be substituted for the remainder thereof. The shares of Common Stock
delivered by CDC shall be unregistered and subject to the restrictions
on transfer required by the Securities Act and state Blue Sky laws. In
addition to the C Merger Consideration set forth above, following the
closing of a C Merger, CDC shall be required to pay in cash to the
stockholders of the Corporate C Member so merged, such Corporate C
Member's Pro Rata Share of the Incentive Payment relating to any portion
of a year with respect to which Castle West had not yet paid the
Incentive Payment at the time of delivery of the C Merger Notice. Such
payment shall be calculated based upon the entire year's operations
(unless otherwise provided below) and shall be payable at the same time
that Castle West is obligated to pay Holdings the Incentive Payment
relating to such year. If, following the consummation of a C Merger,
however, CDC is the only member in Holdings, such payment shall be
calculated based upon the actual results for the portion of a year
ending at the end of the calendar month immediately prior to the date of
delivery of the C Merger
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Notice (as compared to the same prior year period) and shall be paid
within 90 days of the consummation of such C Merger.
(d) RECAPITALIZATION TRANSACTIONS. If, prior to a C Merger,
Castle enters into a Recapitalization Transaction, following each such
transaction, each Corporate C Member shall be entitled upon consummation
of a C Merger to receive, (subject to any required action by
stockholders to consummate the Recapitalization Transaction) in lieu of
the number of shares of Common Stock to which such Member would
otherwise be entitled, the number and class of shares of stock, other
securities or consideration to which such Member would have been
entitled to receive pursuant to the terms of the Recapitalization
Transaction if, immediately prior to such Recapitalization Transaction,
such Member had been the holder of record of a number of shares of
Common Stock equal to the number of shares of Common Stock to which such
Member would have received upon consummation of a C Merger.
(e) BINDING AGREEMENT. Prior to the consummation of the C Merger,
Castle shall not enter into a Recapitalization Transaction unless, prior
to the consummation thereof, each Person (other than Castle) which may
be required to deliver any stock, securities, cash or property in
exchange for the outstanding shares of Common Stock of Castle shall
assume, by written instrument (i) the obligations of Castle under this
Agreement (and if Castle shall survive the consummation of such
transaction, such assumption shall be in addition to, and shall not
release Castle from, any continuing obligations of Castle under this
Agreement) and (ii) the obligation to deliver to such Corporate C
Members such shares of stock, securities, cash or property as, in
accordance with Section 8.1(d), such holder may be entitled to receive
upon consummation of a C Merger.
(f) LIMITATION ON TIMING OF C MERGERS. Each Corporate C Member
shall be entitled to deliver a C Merger Notice with respect to itself
either independently or in conjunction with one or more of the other
Corporate C Members at any time following the 24-month anniversary of
the Closing. However, CDC shall not be obligated to enter into a C
Merger Agreement with any Corporate C Member if, during the previous
12-month period, CDC shall have consummated on two separate occasions a
C Merger with any other Corporate C Member.
(g) LEGEND. Each Corporate C Member acknowledges that any Common
Stock issued to it hereunder shall contain a legend referring to
restrictions on transfer arising under the Securities Act and state Blue
Sky laws.
(h) RESOLUTION OF DISPUTES. If any Corporate C Member disagrees
with the computation of the C Merger Consideration, the parties shall
resolve such dispute in the manner provided below. The Corporate C
Member's independent public accountants shall perform such procedures as
shall be agreed upon between such
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Corporate C Member and such independent public accountants regarding the
calculation (including any corresponding financial statements and work
papers of CDC's independent public accountants) and prepare and deliver
a written report with respect to any disagreement such independent
public accountants may have with regard to the calculation within 15
days of receipt thereof. If the Corporate C Member's independent public
accountants and CDC's independent public accountants cannot resolve such
disagreement within 15 days after CDC's independent public accountants
receipt of such report, then they shall so notify the Corporate C Member
and CDC, and the Corporate C Member and CDC shall attempt to resolve the
discrepancy within 15 days of such notice. If the Corporate C Member and
CDC cannot resolve the disagreement to their mutual satisfaction,
another independent public accounting firm reasonably acceptable to the
Corporate C Member and CDC shall be retained to resolve the disagreement
regarding the calculation. Such firm's conclusions as to the resolutions
of disputed matters for purposes of determining the C Merger
Consideration shall be conclusive. The Corporate C Member and CDC shall
share equally in the expenses of retaining such third independent
accounting firm. CDC shall pay the expenses of CDC's independent public
accountants for their work regarding the calculation and related
matters, and the Corporate C Member shall pay the expenses of the
Corporate C Member's independent public accountants for their work
regarding the calculation and related matters. The calculation of the C
Merger Consideration shall be determined in accordance with GAAP
consistently applied.
(i) ACCELERATION OF RIGHT TO EXERCISE. Notwithstanding the
foregoing, in the event Castle West terminates the Management Agreement
(other than because of a breach thereof by Holdings which gives Castle
West the right to terminate the Management Agreement) or breaches the
Management in such a manner as to give Holdings the right to terminate
the Management Agreement, each Corporate C Member shall immediately have
the right to deliver a C Merger Notice and to convert its shares of
common stock of its respective Corporate C Member into C Merger
Consideration.
(j) CLASS III INTEREST. If following the consummation of a C
Merger required by the delivery of a Corporate C Member's Merger Option,
the only remaining Corporate C Member would be the holder of the Class
III Interest, the Corporate C Member holding the Class III Interest
shall be deemed to have exercised its right to be a party to such C
Merger pursuant to Section 8.1(b) at the same time as the other
Corporate C Member(s) who delivered the applicable C Merger Notice and
such Corporate C Member shall be a party to such C Merger in accordance
with the terms of this Section 8.1 as if it had delivered such C Merger
Notice.
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8.2. CDC'S CALL OPTION. From and after the 30-month anniversary of the
Closing Date, CDC shall have the right and option ("CDC's Call Option") to cause
all, but not less than all, of the Corporate C Members to merge with and into
CDC, in the manner and subject to the conditions set forth herein.
(a) CALL NOTICE. In order to exercise CDC's Call Option, CDC
shall notify ("Call Notice") each Corporate C Member of its intent to
cause a C Merger. The Call Notice shall state the amount of the C Merger
Consideration. If any Corporate C Member disagrees with the computation
of the C Merger Consideration, the parties shall resolve such dispute in
the manner provided in Section 8.1(h).
(b) CDC'S AND CORPORATE C MEMBER'S OBLIGATIONS. Promptly
following the receipt of a Call Notice, the Holdings Members owning each
Corporate C Member shall cause such Corporate C Member to enter into and
perform a C Merger Agreement and Castle shall cause CDC to enter into
and perform such C Merger Agreements. Pursuant to the C Merger
Agreements, each Corporate C Member will be merged with and into CDC and
CDC shall be the surviving corporation. The C Merger Agreements shall
provide for the conversion of all of the outstanding capital stock of
each Corporate C Member into the C Merger Consideration; provided,
however, that in the circumstances described in paragraph 8.2(f) below,
any shares of Common Stock delivered by CDC pursuant to the exercise of
CDC's Call Option shall be fully registered freely transferrable shares.
By their execution of this Agreement, each Holdings Member, as the sole
stockholder of such Holdings Member's Corporate C Member, and Castle, as
the sole stockholder of CDC, agrees that it shall vote for, adopt,
consent to and agree to the C Merger pursuant to the terms of the C
Merger Agreement if CDC's Call Option is exercised.
(c) C MERGER CONSIDERATION. The C Merger Consideration for each C
Merger shall be equal to the Corporate C Member's Pro Rata Share of the
Holdings Old Value plus the Corporate C Member's Pro Rata Share of the
Holdings New Value less the Corporate C Member's Pro Rata Share of the
Holdings Indebtedness, in each case calculated in the manner provided in
Section 8.1(c), substituting the term "Call Notice" for the term "C
Merger Notice" therein, as appropriate. Subject to the limitations
contained in Section 8.1(a), at least 10 days prior to closing, each
Corporate C Member shall notify CDC of the portion of the C Merger
Consideration it elects to receive in cash. In addition to the C Merger
Consideration set forth above, following the closing of a C Merger, CDC
shall be required to pay in cash to the stockholders of the Corporate C
Member so merged, such Corporate C Member's Pro Rata Share of the
Incentive Payment relating to any portion of a year with respect to
which Castle West had not yet paid the Incentive Payment at the time of
delivery of the Call Notice. Such payment shall be calculated based upon
the actual results for the portion of a year ending at the end of the
calendar month including the date of delivery of the Call Notice (as
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compared to the same prior year period) and shall be payable within 90
days of the consummation of the C Merger.
(d) RECAPITALIZATION TRANSACTIONS. If, prior to the C Merger,
Castle enters into a Recapitalization Transaction, following each such
transaction, each Corporate C Member shall be entitled upon consummation
of the C Merger to receive, (subject to any required action by
stockholders to consummate the Recapitalization Transaction) in lieu of
the number of shares of Common Stock to which such Member would
otherwise be entitled, the number and class of shares of stock, other
securities or consideration to which such Member would have been
entitled to receive pursuant to the terms of the Recapitalization
Transaction if, immediately prior to such Recapitalization Transaction,
such Member had been the holder of record of a number of shares of
Common Stock equal to the number of shares of Common Stock to which such
Member would have received upon consummation of the C Merger.
(e) BINDING AGREEMENT. Prior to the consummation of the C Merger,
Castle shall not enter into a Recapitalization Transaction unless, prior
to the consummation thereof, each Person (other than Castle) which may
be required to deliver any stock, securities, cash or property in
exchange for the outstanding shares of Common Stock of Castle shall
assume, by written instrument (i) the obligations of Castle under this
Agreement (and if Castle shall survive the consummation of such
transaction, such assumption shall be in addition to, and shall not
release Castle from, any continuing obligations of Castle under this
Agreement) and (ii) the obligation to deliver to such Corporate C
Members such shares of stock, securities, cash or property as, in
accordance with Section 8.2(d), such holder may be entitled to receive
upon consummation of the C Merger.
(f) DELIVERY OF FULLY REGISTERED FREELY TRANSFERRABLE SHARES.
Following the Closing, Castle's securities counsel, in conjunction with
DCS's securities counsel, shall contact the Commission to determine (i)
whether the shares of Castle Common Stock issuable as C Merger
Consideration upon the consummation of the C Mergers to be implemented
as a result of the exercise of CDC's Call Option may be registered on
Form S-3 (as to the issuance of such shares and not for resale following
their issuance) and (ii) the required timing for filing such a
registration statement on Form S-3. In the event the Commission agrees
that the issuance of such shares is registrable on Form S-3 and such
registration statement may be filed after CDC delivers the Call Notice,
at Holdings' election, Castle shall be required to deliver fully
registered freely transferrable shares of Common Stock upon consummation
of the C Mergers required by the exercise of CDC's Call Option provided
Castle is then eligible to utilize Form S-3. Castle agrees to use its
reasonable efforts to become and remain eligible to utilize Form S-3. In
such event, following the delivery of the Call Notice, Castle shall
expeditiously prepare and file a registration statement with the
Commission registering the shares of Common Stock (and notes, if
applicable) issuable as part of
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the C Merger Consideration, but in any event, within 10 business days of
the delivery of the Call Notice. The closing of the C Merger shall be
delayed until such time as such registration statement is declared
effective by the Commission. Castle shall use its best efforts to
expedite the registration of such shares of Common Stock in order that
the delay between the delivery of the Call Notice and the closing of the
C Merger shall be as brief as practicable.
(g) LEGEND. Each Holdings Member agrees to maintain a legend on
all certificates representing the capital stock of its Corporate C
Member referring to the right and option set forth in this Section. Each
Corporate C Member acknowledges that any Common Stock issued to it
hereunder (other than fully registered freely transferrable shares)
shall contain a legend referring to restrictions on transfer arising
under the Securities Act and state Blue Sky laws.
(h) ACCELERATION OF RIGHT TO EXERCISE. Notwithstanding the
foregoing, in the event Holdings terminates the Management Agreement
(other than because of a breach thereof by Castle West which gives
Holdings the right to terminate the Management Agreement) or breaches
the Management Agreement in such a manner as to give Castle West the
right to terminate the Management Agreement, CDC shall immediately have
the right to deliver the Call Notice and cause the consummation of the C
Merger.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES OF DCS
As an inducement to Castle and CDC to enter into and perform this
Agreement, DCS hereby represents and warrants to Castle West, Castle and CDC as
follows:
9.1 EXISTENCE AND GOOD STANDING. DCS and each Existing PC is duly
organized and validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization with full power and authority
to own its properties and conduct its business as now conducted and is duly
qualified or authorized to do business and is in good standing in all
jurisdictions wherein the nature of its business or the character of property
owned or leased may require it to be authorized or qualified to do business
except where the absence of which would have a Material Adverse Effect. DCS and
each Existing PC holds all licenses, consents and approvals, and has satisfied
all eligibility and other similar requirements imposed by federal and state
regulatory bodies, administrative agencies or other governmental bodies,
agencies or officials, in each case as required for the conduct of the business
in which it is engaged.
9.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. DCS has full legal right,
power and authority to enter into this Agreement and this Agreement has been
duly authorized, executed and delivered by DCS and constitutes a valid and
binding agreement of DCS enforceable against DCS in
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accordance with its terms, except to the extent that its enforceability may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles.
9.3 OWNERSHIP. The owners of membership interests in DCS are set forth
on SCHEDULE 9.3. All of the membership interests of DCS have been duly and
validly authorized and issued, and are fully paid and nonassessable. Other than
as set forth herein or contemplated hereby, DCS does not have outstanding any
options to purchase, or any rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, any membership interests therein.
9.4 CONSENTS AND APPROVALS: NO VIOLATIONS. Except as set forth on
SCHEDULE 9.4, no consent, approval, authorization or order of any court or
governmental agency or body or third party is required for the performance of
this Agreement by DCS or any Existing PC or the consummation by DCS or any
Existing PC of the transactions contemplated hereby, except such as have been
obtained or may be required under the Securities Act or state Blue sky laws.
Except as set forth on SCHEDULE 9.4, DCS's performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in a breach
or violation of, or conflict with, any of the terms or provisions of, or
constitute a default by DCS or any Existing PC or under, any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or instrument
to which DCS or any Existing PC is a party or to which DCS or any Existing PC or
any of their respective properties is subject, the certificate of incorporation,
bylaws or other governing instrument of DCS or any Existing PC or any judgment,
decree, order, rule or, to the knowledge of DCS, any statute or regulation of
any court or governmental agency or body applicable to DCS, any Existing PC or
any of their respective properties. Neither DCS nor any Existing PC is in
violation of its certificate of incorporation, bylaws or other governing
instrument or any law, administrative rule or regulation or arbitrators' or
administrative or court decree, judgment or order or in violation or default
(there being no existing state of facts which with notice or lapse of time or
both would constitute a default) in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, deed of trust, mortgage, loan agreement, note, lease, agreement or
other instrument or Permit to which it is a party or by which it or any of its
properties is or may be bound, which violation or default could reasonably be
expected to have a Material Adverse Effect.
9.5 SUBSIDIARIES AND AFFILIATES. Except as set forth on SCHEDULE 9.5,
neither DCS nor any Existing PC has any subsidiaries nor has it conducted
business under any name except its legal name on its organizational documents.
Except as set forth on SCHEDULE 9.5, neither DCS nor any Existing PC owns, of
record or beneficially, or controls, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or other business entity, and neither DCS nor any
Existing PC is, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
9.6 FINANCIAL STATEMENTS: NO MATERIAL ADVERSE CHANGE. DCS has heretofore
furnished CDC with its and the Existing PCs compilated balance sheets as of
September 30, 1997 (the "Balance
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Sheet Date"), the compilated statements of operations and cash flows for the
period then ended, the compilated balance sheets of DCS and the Existing PCs as
of December 31, 1996 and 1995, and the compilated statements of operation and
cash flows for the years then ended (all such compilated financial statements,
collectively, the "Financial Statements"). The Financial Statements fairly
present in all material respects in accordance with DCS's past accounting
practices the financial position of DCS and the Existing PCs at the dates
thereof and the results of operations of DCS and the Existing PCs and their cash
flows for the periods indicated. Except as set forth in SCHEDULE 9.6 attached
hereto, since the Balance Sheet Date there has been no material adverse change
in the assets or liabilities, or in the business or condition, financial or
otherwise, or in the results of operations of DCS or any Existing PC.
Other than as (i) disclosed in the Financial Statements, (ii) incurred
since the Balance Sheet Date in the ordinary course of business or (iii)
disclosed on SCHEDULE 9.6 or another Schedule hereto, neither DCS nor any
Existing PC has any direct or indirect indebtedness, liability, claim,
deficiency, obligation or responsibility, known or unknown, fixed or contingent,
liquidated or unliquidated, accrued, absolute or otherwise.
9.7 BOOKS AND RECORDS. DCS has previously made available to CDC true,
correct and complete copies of its certificate of formation and limited
liability company agreement and all amendments to each as well as the articles
of incorporation and bylaws of each of the Existing PCs. The minute books of DCS
and the Existing PCs, as previously made available to CDC and its
representatives, contain accurate records in all material respects of the
meetings of the DCS Members and the stockholders of the Existing PCs.
9.8 TITLE TO PROPERTIES: ENCUMBRANCES: CONDITION. Except as set forth in
SCHEDULE 9.8 or 9.9, and except for properties and assets reflected in the
Financial Statements or acquired since the Balance Sheet Date which have been
sold or otherwise disposed of in the ordinary course of business, DCS and each
Existing PC has good and valid title to its assets, in each case subject to no
Encumbrances except for (i) Encumbrances consisting of easements, permits and
other restrictions or limitations on the use of real property or irregularities
in title thereto that do not materially detract from the value of, or materially
impair the use of, such property by DCS or such Existing PC in the operation of
the Business, (ii) Encumbrances for current taxes, assessments or governmental
charges or levies on property not yet due or delinquent or currently contested
in good faith and as to which reserves have been recorded in accordance with
GAAP, (iii) materialmen's and similar statutory liens in favor of service
providers, and (iv) Encumbrances created by CDC or pursuant to or contemplated
by this Agreement or any other agreement contemplated hereby (liens of the type
described in clauses (i), (ii), (iii) and (iv) above are hereinafter sometimes
referred to as "Permitted Encumbrances"). DCS has heretofore furnished CDC with
a fixed asset ledger which sets forth all material fixed assets owned by DCS and
each Existing PC as of the Balance Sheet Date. DCS is not aware of any defects
in such assets that would have a Material Adverse Effect.
9.9 REAL PROPERTY. SCHEDULE 9.9 identifies all interests in real
property used by DCS and the Existing PCs in the Business, including leases, and
includes the name of either the lessor or the
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record title holder thereof. All of the buildings, structures and appurtenances
situated on the real property owned or leased by DCS and the Existing PCs are in
good operating condition, and in a state of good maintenance and repair, subject
to ordinary wear and tear. The real property has adequate rights of ingress and
egress for operation of the Business in the ordinary course as currently
conducted. No condemnation or similar proceeding is pending or, to the best
knowledge of DCS, threatened, which would preclude or impair the use of any such
property, except where such proceeding would not have a Material Adverse Effect.
9.10 LEASES. SCHEDULE 9.10 contains an accurate and complete list of all
personal property leases to which DCS or any Existing PC is a party (as lessee
or lessor). To the knowledge of DCS, each lease set forth in SCHEDULE 9.10 is in
full force and effect, and no event has occurred that with the giving of notice,
the passage of time or both would constitute a default thereunder.
9.11 MATERIAL CONTRACTS. SCHEDULE 9.11 contains an accurate and complete
list of all material contracts, commitments and similar agreements to which DCS
or any Existing PC is a party or by which it or any of its properties are bound
(including but not limited to, contracts with significant customers, joint
venture or partnership agreements, contracts with any labor organizations,
strategic alliances and options to purchase land). The contracts set forth on
SCHEDULE 9.11 include (a) any written agreement, contract or commitment relating
to the employment of any person by DCS or any Existing PC, (b) any agreement,
indenture or other instrument which contains restrictions with respect to
payment of profits, dividends or any other distributions, (c) any agreement,
contract or commitment relating to capital expenditures in excess of $20,000,
(d) any loan or advance to, or investment in, any Person or any agreement,
contract or commitment relating to the making of any such loan, advance or
investment, (e) any guarantee or other contingent liability in respect of any
indebtedness or obligation of any Person, (f) any management service, consulting
or any other similar type contract, (g) any agreement, contract or commitment
limiting the freedom of DCS or any Existing PC to engage in any line of business
or to compete with any Person, (h) any agreement, contract or commitment which
involves $20,000 or more and is not cancellable without penalty within 90 days,
or (i) any other agreement, contract or commitment, the breach or nonperformance
of which would reasonably be expected to cause a Material Adverse Effect. Also
set forth in SCHEDULE 9.11 is a list of all proposals submitted by DCS or any
Existing PC to any third party that, if accepted by such third party, would
require disclosure on SCHEDULE 9.11. Each contract or agreement set forth in
SCHEDULE 9.11 is in full force and effect and to the knowledge of DCS there
exists no default or event of default or event, occurrence, condition or act
(including the purchase of the Assets hereunder) which, with the giving of
notice, the lapse of time or the happening of any other event or condition,
would become a default or event of default thereunder.
9.12 PERMITS. SCHEDULE 9.12 attached hereto lists all of the
governmental and other third party permits (including occupancy permits),
licenses, consents and authorizations ("Permits") required in connection with
the use, operation or ownership of the Assets and the conduct of the Business as
currently conducted. DCS or an Existing PC holds all of the applicable Permits
listed on SCHEDULE 9.12, and, to the knowledge of DCS, none is presently subject
to revocation or challenge. Except as set forth on SCHEDULE 9.12, none of such
Permits will be subject to revocation or
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termination as a result of the consummation of the transactions contemplated
hereby. To the knowledge of DCS, each of the (i) dentists, orthodontists, other
dental specialists and (ii) other professionals involved in providing dental
care to patients (each, a "Professional") who is employed by or affiliated with
DCS or an Existing PC has such Permits under laws and related governmental
regulations (including, as applicable, state and local licenses to practice
dentistry and federal Drug Enforcement Agency Controlled Substances Registration
Certificates) as are necessary to provide dental, orthodontic and other
specialty dental care in such jurisdictions, the failure of which to have would
have a Material Adverse Effect; each of such Professionals has fulfilled and
performed all of his or her material obligations with respect to such Permits,
and no event has occurred which allows, or after notice or lapse of time (or
both) would allow, revocation or termination thereof or would result in any
other material impairment of the rights of the holder of such Permit; and,
except as described in SCHEDULE 9.12, no such Permit contains any restrictions
that are materially burdensome to the holder thereof.
9.13 LITIGATION. Except as set forth in SCHEDULE 9.13, there is no
action, suit, proceeding at law or in equity, arbitration or administrative or
other proceeding by or before (or, to the knowledge of DCS, any investigation
by) any governmental or other instrumentality or agency, pending, or, to the
knowledge of DCS, threatened, against or affecting the properties, rights or
goodwill of DCS or any Existing PC, or employees of DCS or any Existing PC, and
DCS knows of no valid basis for any such action, proceeding or investigation.
There are no such suits, actions, claims, proceedings or investigations pending
or, to the knowledge of DCS threatened, seeking to prevent or challenge the
transactions contemplated by this Agreement.
9.14 TAXES. (a) All returns and reports for Taxes for all taxable years
or periods that end on or before the Closing Date and, with respect to any
taxable year or period beginning before and ending after the Closing Date, the
portion of such taxable year or period ending on and including the Closing Date
("Pre-Closing Periods"), which are required to be filed by or with respect to
DCS and each Existing PC (collectively, the "Returns"), have been or will be
filed when due in a timely fashion and such Returns as filed are or will be
accurate in all material respects.
(b) Except as provided in SCHEDULE 9.14, there is no material
action, suit, proceeding, investigation (to the knowledge of DCS), audit, or
claim now pending or, to the knowledge of DCS, threatened by any authority
regarding any Taxes relating to DCS or any Existing PC for any Pre-Closing
Period.
(c) Except as provided in SCHEDULE 9.14, there are no liens or
security interests on any of the assets of DCS or any Existing PC that arose in
connection with any failure (or alleged failure) to pay any Taxes.
(d) Except as provided in SCHEDULE 9.14, there are no agreements
for the extension or waiver of the time for assessment of any Taxes relating to
DCS or any Existing PC for any Pre-Closing Period and neither DCS nor any
Existing PC has been requested to enter into any such agreement or waiver.
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(e) All Taxes relating to DCS and each Existing PC which DCS or
such Existing PC is required by law to withhold or collect have been duly
withheld or collected, and have been timely paid over to the proper authorities
to the extent due and payable, except with respect to such amounts being
contested in good faith and as to which reserves have been recorded in the
Financial Statements in accordance with GAAP.
(f) Neither DCS nor any Existing PC is now nor has ever been a
party to any Tax allocation or sharing agreement that could result in any
liability to Castle West.
9.15 INSURANCE. Set forth in SCHEDULE 9.15 is a complete list of
insurance policies that DCS and each Existing PC maintains with respect to its
Business and properties or on its employees. Such policies are in full force and
effect, are free from any right of termination on the part of the insurance
carriers arising from any event that has already occurred. DCS believes that
such policies, with respect to their amounts and types of coverage, are adequate
to insure against risks to which DCS, the Existing PCs and their Assets are
normally exposed in the operation of the Business, subject to customary
deductibles and policy limits.
9.16 INTELLECTUAL PROPERTIES. SCHEDULE 9.16 sets forth all material
Intellectual Property used by DCS and the Existing PCs in the Business and the
owner of such Intellectual Property. The operation of the Business as conducted
by DCS as of the Closing Date requires no rights under Intellectual Property
other than rights under Intellectual Property listed on SCHEDULE 9.16 and rights
granted to DCS pursuant to agreements listed on SCHEDULE 9.16. Except as
otherwise set forth in SCHEDULE 9.16, as of the Closing Date, DCS will own all
right, title and interest in the Intellectual Property listed in SCHEDULE 9.16.
No litigation is pending or, to the knowledge of DCS, threatened wherein DCS or
any Existing PC is accused of infringing or otherwise violating the Intellectual
Property rights of another, or of breaching a contract conveying rights under
Intellectual Property.
9.17 COMPLIANCE WITH LAWS. Except as set forth on SCHEDULE 9.17, DCS and
each of the Existing PCs operates its business in conformity, in all material
respects, with all applicable statutes, common laws, ordinances, decrees,
orders, rules and regulations of governmental bodies including, without
limitation, those relating to the practice of dentistry (including the
management or operation of dental offices), the splitting of professional fees
with non-dentists, the ownership or control of the assets of a dental practice,
the employment of dentists, orthodontists, other dental specialists or other
personnel, the content of advertising, the making of payments in consideration
for referrals of patients, limitations on tasks that may be delegated by a
dentist to other staff members, the business of insurance and reimbursement by
governmental agencies. Except as set forth on SCHEDULE 9.17, DCS is not aware of
any existing or imminent matter which could reasonably be expected to have a
Material Adverse Effect. Except as set forth on SCHEDULE 9.17, DCS's business
practices do not violate any foreign, federal or state laws regarding dentist
ownership of (or financial relationship with), and referral to, entities
providing dentistry-related goods or services, or laws respecting financial
interests held by dentists in entities to which they may refer patients for the
provision of dentistry-related goods or services.
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9.18 EMPLOYMENT RELATIONS. (a) Neither DCS nor any Existing PC is or has
engaged in any unfair labor practice; (b) to the knowledge of DCS, no
representation question exists respecting the employees of DCS or any Existing
PC; (c) neither DCS nor any Existing PC has been notified of any grievance that
could reasonably be expected to have a Material Adverse Effect and no
arbitration proceeding arising out of or under any collective bargaining
agreement is pending; and(d) no collective bargaining agreement is currently
being negotiated by DCS or any Existing PC.
9.19 EMPLOYEE BENEFIT PLANS. DCS has delivered to CDC true and complete
copies of all employee benefit plans, policies, programs and arrangements and
all related contracts, agreements and other descriptions thereof with respect to
the employee benefits provided to the employees of the Business prior to the
Closing Date (the "Plans"). Each of the Plans has, to the knowledge of DCS, been
maintained in compliance with its terms and the requirements of all applicable
laws. None of the Plans is subject to Title IV of ERISA or the minimum funding
obligations of Section 912 of the Code, and neither DCS nor any entity required
to be aggregated therewith pursuant to Section 414(b) or (c) of the Code has any
liability under Title IV of ERISA or under Section 412(f) or 412(n) of the Code.
9.20 ENVIRONMENTAL LAWS AND REGULATIONS. Except as set forth in SCHEDULE
9.20, (a) Hazardous Materials have not been generated, used, treated or stored
on, or transported to or from, any Property by DCS or the Existing PCs, their
authorized agents or their independent contractors (including suppliers) or any
property adjoining any Property, (b) Hazardous Materials have not been Released
or disposed of by DCS or the Existing PCs, their authorized agents or their
independent contractors (including suppliers) on any Property or any property
adjoining any Property except such Releases which do not violate any
Environmental Laws, (c) DCS is in compliance with all applicable Environmental
Laws and the requirements of any Permits issued under such Environmental Laws
with respect to any Property, (d) there are no pending or, to the knowledge of
DCS, threatened Environmental Claims against DCS, the Existing PCs or any
Property, (e) there are no facts or circumstances, conditions, pre-existing
conditions or occurrences on any Property known to DCS that could reasonably be
expected (A) to form the basis of an Environmental Claim against DCS or any
Property or (B) to cause such Property to be subject to any restrictions on its
ownership, occupancy, use or transferability under any Environmental Law, (f) to
the knowledge of DCS, there are not now and there never have been any
underground storage tanks located on any Property, and (g) neither DCS nor any
Existing PC has transported or stored Hazardous Materials.
9.21 INTERESTS IN CUSTOMERS. SUPPLIERS. ETC. Except as set forth in
SCHEDULE 9.21 or for relationships with Affiliates, DCS does not possess,
directly or indirectly, any financial interest in, and no DCS officer, director
or Member serves as a director, officer or employee of, any person which is a
supplier, customer, lessor, lessee, or competitor of DCS.
9.22 COMPENSATION OF EMPLOYEES. Set forth in SCHEDULE 9.22 is an
accurate and complete list showing the names of all persons whose compensation
from DCS or the Existing PCs for the period ended on the Balance Sheet Date
exceeded an annualized rate of $20,000, together with a
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statement of the full amount paid or payable to each such person for services
rendered during the current fiscal year to date.
9.23 PAYORS. SCHEDULE 9.23 sets forth the ten largest payors of DCS and
the Existing PCs for the most recently completed fiscal year. To the knowledge
of DCS, the relationship of DCS and the Existing PCs with each such payor as of
the date of this Agreement is a good commercial working relationship, and except
as set forth in SCHEDULE 9.23 no significant payor has canceled or otherwise
terminated or, to the knowledge of DCS, threatened to cancel or otherwise
terminate its relationship with DCS or the Existing PCs within the last three
years.
9.24 ACCOUNTS RECEIVABLE: ACCOUNTS PAYABLE. Except as set forth on
SCHEDULE 9.24, the Accounts Receivable are collectible in the ordinary course of
business, net of the reserves established with respect thereto. Except as set
forth on SCHEDULE 9.24, there has been no material change since the Balance
Sheet Date (other than in the ordinary course of business) in the amount of the
Accounts Receivable or other fees or debts due to DCS or the Existing PCs or the
allowances with respect thereto, or in the amount of Accounts Payable of DCS or
the Existing PCs, from that disclosed to CDC and Castle.
9.25 DISCLOSURE. None of this Agreement, the Financial Statements, any
Schedule, Exhibit or certificate attached hereto or delivered in accordance with
the terms hereof contains any untrue statement of a material fact, or omits any
statement of a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances under which they
were made.
9.26 BROKER'S OR FINDER'S FEES. Other than the fee payable to TR
Capital, no agent, broker, Person or firm acting on behalf of DCS is, or will
be, entitled to any fee, commission or broker's or finder's fees in connection
with this Agreement or any of the transactions contemplated hereby.
9.27 COPIES OF DOCUMENTS. DCS has caused to be made available for
inspection, review and copying by Castle and its advisers, true, complete and
correct copies of all documents referred to in this Article IX or in any
Schedule attached hereto.
9.28 SUBSEQUENT EVENTS. Subsequent to September 30, 1997, DCS has not
sustained any material loss or interference with its business or properties from
fire, flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, which is not disclosed in the Financial Statements; and subsequent to
the respective dates as of which information is given in the Financial
Statements, there has not been any material adverse change, or any development
involving a prospective material adverse change, in the general affairs,
management, business, prospects, financial position, net worth or results of
operations of DCS or any Existing PC, except in each case as described in the
Financial Statements.
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9.29 ACCOUNTING CONTROLS. DCS's system of internal accounting controls
is sufficient to meet the broad objectives of internal accounting controls
insofar as those objectives pertain to the prevention or detection of errors or
irregularities in amounts that would be material in relation to DCS's financial
statements, its Accounts Receivable and its Accounts Payable.
9.30 UNAUTHORIZED USE OF FUNDS. Neither DCS nor any of the Existing PCs,
nor to the knowledge of DCS, any director, officer, agent, employee or other
person acting on behalf of DCS has (i) used, or authorized the use of, any
corporate or other funds for unlawful payments, contributions, gifts or
entertainment, (ii) made unlawful expenditures relating to political activity to
government officials or others, or (iii) established or maintained any unlawful
or unrecorded funds in violation of any federal, state, local or foreign law or
regulation, including Section 30A of the Exchange Act. Neither DCS nor, to the
knowledge of DCS, any director, officer, agent, employee or other person acting
on behalf of DCS has accepted or received any unlawful contributions, payments,
gifts or expenditures.
ARTICLE X
REPRESENTATIONS AND WARRANTIES
OF CASTLE AND CDC
Castle and CDC jointly and severally represent and warrant to DCS,
Holdings, the DCS Members, the Holdings Members, the Corporate B Members and the
Corporate C Members as follows:
10.1 EXISTENCE AND GOOD STANDING: POWER AND AUTHORITY. Castle and each
subsidiary of Castle (as used herein, the term "subsidiary" includes any
corporation, limited liability company, joint venture, partnership or other
entity in which Castle or any subsidiary of Castle (including CDC) has a direct
or indirect ownership interest) is duly incorporated and validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization with full power and authority to own its properties and conduct its
business as now conducted and is duly qualified or authorized to do business and
is in good standing in all jurisdictions wherein the nature of its business or
the character of property owned or leased may require it to be authorized or
qualified to do business except where the absence of which would have a Material
Adverse Effect. Castle and each subsidiary holds all licenses, consents and
approvals, and has satisfied all eligibility and other similar requirements
imposed by federal and state regulatory bodies, administrative agencies or other
governmental bodies, agencies or officials, in each case as required for the
conduct of the business in which it is engaged. Each of Castle and CDC has full
legal right, power and authority to enter into this Agreement and this Agreement
has been duly authorized, executed and delivered by Castle and CDC and
constitutes a valid and binding agreement of Castle and CDC enforceable against
Castle and CDC in accordance with its terms, except to the extent that its
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
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10.2 NO VIOLATIONS. No consent, approval, authorization or order of any
court or governmental agency or body or third party is required for the
performance of this Agreement by Castle or any subsidiary or the consummation by
Castle or any subsidiary of the transactions contemplated hereby, except such as
have been obtained or may be required under the Securities Act or state Blue sky
laws. Except for the consent required under that certain registration rights
agreement dated as of December 18, 1995, with purchasers of Castle's Series A
Convertible Preferred Stock and certain other parties (the "Original
Registration Rights Agreement") to the demand registration rights contained in
the Registration Rights Agreement, the issuance of the Common Stock by Castle
contemplated by this Agreement, Castle's and CDC's performance of this Agreement
and the consummation of the transactions contemplated hereby will not result in
a breach or violation of, or conflict with, any of the terms or provisions of,
or constitute a default by Castle or any subsidiary or under, any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or instrument
to which Castle or any subsidiary is a party or to which Castle or any
subsidiary or any of their respective properties is subject, the certificate of
incorporation, bylaws or other governing instrument of Castle or any subsidiary
or any statute or any judgment, decree, order, rule or regulation of any court
or governmental agency or body applicable to Castle, any subsidiary or any of
their respective properties. Neither Castle or any subsidiary is in violation of
its certificate of incorporation, bylaws or other governing instrument or any
law, administrative rule or regulation or arbitrators' or administrative or
court decree, judgment or order or in violation or default (there being no
existing state of facts which with notice or lapse of time or both would
constitute a default) in the performance or observance of any material
obligation, agreement, covenant or condition contained in any contract,
indenture, deed of trust, mortgage, loan agreement, note, lease, agreement or
other instrument or Permit to which it is a party or by which it or any of its
properties is or may be bound.
10.3 CAPITAL STOCK. The capitalization of Castle as of September 30,
1997 is as set forth in its Quarterly Report on Form 10-Q for the period ended
September 30, 1997, filed with the Commission, and Castle's capital stock
conforms to the description thereof contained in the Prospectus. All the issued
shares of capital stock of Castle have been duly authorized and validly issued,
are fully paid and nonassessable. None of the issued shares of capital stock of
Castle have been issued in violation of any preemptive or similar rights. The
Common Stock issuable by Castle hereunder has been duly and validly authorized
and, upon issuance and delivery and payment therefor in the manner herein
described, will be validly issued, fully paid and nonassessable. Except as set
forth in the Prospectus, provided for herein or provided in other documents
pursuant to which Castle has agreed to acquire other dental practice businesses,
(i) Castle does not have outstanding any options to purchase, or any rights or
warrants to subscribe for, or any securities or obligations convertible into, or
any contracts or commitments to issue or sell, any shares of Common Stock and
(ii) there are no preemptive rights or other rights to subscribe for or to
purchase, or any restriction upon the transfer of, any shares of Common Stock
pursuant to Castle's certificate of incorporation, bylaws or any agreement or
other instrument to which Castle is a party or by which it may be bound.
10.4 LITIGATION. Except as described in the Prospectus, there is not
pending, or to the knowledge of Castle threatened, any legal or governmental
action, suit, proceeding, inquiry or investigation, to which Castle, any of its
subsidiaries or any of their respective officers or directors
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is a party, or to which their respective property is subject, before or brought
by any court or governmental agency or body, wherein an unfavorable decision,
ruling or finding could prevent or materially hinder the consummation of this
Agreement or result in a material adverse change in the business condition
(financial or other), prospects, financial position, net worth or results of
operations of Castle or any of its subsidiaries.
10.5 COMPLIANCE WITH LAWS. Castle and each of its subsidiaries operates
its business in conformity, in all material respects, with all applicable
statutes, common laws, ordinances, decrees, orders, rules and regulations of
governmental bodies including, without limitation, those relating to the
practice of dentistry (including the management or operation of dental offices),
the splitting of professional fees with non-dentists, the ownership or control
of the assets of a dental practice, the employment of dentists, orthodontists,
other dental specialists or other personnel, the content of advertising, the
making of payments in consideration for referrals of patients, limitations on
tasks that may be delegated by a dentist to other staff members, the business of
insurance and reimbursement by governmental agencies. Castle and each of its
subsidiaries has all licenses, approvals, consents or Permits to operate its
businesses in all locations in which such businesses are currently being
operated, and, except as described in the Prospectus, such Permits contain no
restrictions that are materially burdensome. Castle is not aware of any existing
or imminent matter which may materially adversely impact its, any of its
subsidiaries' operations or business prospects other than as specifically
disclosed in the Prospectus. Each of the Professionals who is employed by or
affiliated with Castle has such Permits under laws and related governmental
regulations (including, as applicable, state and local licenses to practice
dentistry and federal Drug Enforcement Agency Controlled Substances Registration
Certificates) as are necessary to provide dental, orthodontic and other
specialty dental care in such jurisdictions, the failure of which to have would
have a material adverse effect on Castle; each of such Professionals has
fulfilled and performed all of his or her material obligations with respect to
such Permits, and no event has occurred which allows, or after notice or lapse
of time (or both) would allow, revocation or termination thereof or would result
in any other material impairment of the rights of the holder of such Permit;
and, except as described in the Prospectus, no such Permit contains any
restrictions that are materially burdensome to the holder thereof. Castle's
business practices do not violate any foreign, federal or state laws regarding
dentist ownership of (or financial relationship with), and referral to, entities
providing dentistry-related goods or services, or laws respecting financial
interests held by dentists in entities to which they may refer patients for the
provision of dentistry-related goods or services.
10.6 FINANCIAL STATEMENTS. The historical financial statements, together
with the related schedules and notes, of Castle included in the Prospectus and
in its Exchange Act reports, conform to the requirements of the Securities Act
or the Exchange Act, as appropriate. Such historical financial statements fairly
present the financial position of Castle at the respective dates indicated in
accordance with generally accepted accounting principles applied on a consistent
basis for the periods indicated.
10.7 SUBSEQUENT EVENTS. Subsequent to September 30, 1997, Castle has not
sustained any material loss or interference with its business or properties from
fire, flood, hurricane, accident or
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other calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, which is not disclosed in the
Prospectus; and subsequent to the respective dates as of which information is
given in the Prospectus, there has not been any material adverse change, or any
development involving a prospective material adverse change, in the general
affairs, management, business, prospects, financial position, net worth or
results of operations of Castle, except in each case as described in the
Prospectus or the Exchange Act reports.
10.8 TITLE TO PROPERTY. Except as described in the Prospectus, Castle
and each of its subsidiaries has good and marketable title to all real and
material personal property owned by it, free and clear of all liens, charges,
encumbrances or defects, except those reflected in the financial statements
hereinabove described. The real and personal property and buildings referred to
in the Prospectus which are leased from others by Castle or its subsidiaries are
held under valid, subsisting enforceable leases. Castle or its subsidiaries owns
or leases all such properties as are necessary to their respective operations as
now conducted.
10.9 ACCOUNTING CONTROLS. Castle's system of internal accounting
controls is sufficient to meet the broad objectives of internal accounting
controls insofar as those objectives pertain to the prevention or detection of
errors or irregularities in amounts that would be material in relation to
Castle's financial statements.
10.10 TAXES. Castle and each of its subsidiaries has filed all foreign,
federal, state and local income and franchise tax returns required to be filed
through the date hereof and has paid all taxes shown as due therefrom to the
extent such taxes have become due and are not being contested in good faith; and
there is no tax deficiency that has been, nor does Castle have knowledge of any
tax deficiency which is likely to be, asserted against Castle, any of its
subsidiaries, which if determined adversely could materially and adversely
affect the earnings, assets, affairs, business prospects or condition (financial
or other) of Castle.
10.11 NO VIOLATION. Neither Castle nor any of its subsidiaries is in
material violation of any federal, state, local or foreign law or regulation
relating to occupational safety and health or to the storage, handling or
transportation of hazardous or toxic materials, and Castle and each of its
subsidiaries has received all Permits, licenses or other approvals required of
it under applicable federal, state and foreign occupational safety and health
and environmental laws and regulations to conduct its respective businesses, and
Castle and each of its subsidiaries is in compliance with all terms and
conditions of any such Permit, license or approval, except any such violation of
law or regulation, failure to receive required Permits, licenses or other
approvals or failure to comply with the terms and conditions of such Permits,
licenses or approvals which would not result in a material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
prospects of Castle.
10.12 REGULATORY COMPLIANCE. Neither Castle nor any of its subsidiaries
has failed to file with the applicable regulatory authorities any statements,
reports, information or forms required by all applicable laws, regulations or
orders; all such filings or submissions were in compliance with
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applicable laws when filed, and no deficiencies have been asserted by any
regulatory commission, agency or authority with respect to such filings or
submissions. Neither Castle nor any of its subsidiaries has failed to maintain
in full force and effect any licenses, registrations or Permits necessary or
proper for the conduct of its business, or received any notification that any
revocation or limitation thereof is threatened or pending, and there is not to
the knowledge of Castle pending any change under any law, regulation, license or
Permit which could materially adversely affect the business, operations,
property or business prospects of Castle. Neither Castle nor any of its
subsidiaries has received any notice of violation of or been threatened with a
charge of violating or is under investigation with respect to a possible
violation of any provision of any law, regulation or order.
10.13 EMPLOYEE RELATIONS. No labor dispute exists or is imminent with
any of the employees of Castle nor any of its subsidiaries or otherwise which
could materially adversely affect Castle or any of its subsidiaries. Castle is
not aware of any existing or imminent labor disturbance by employees of Castle,
any of its subsidiaries which could be expected to materially adversely affect
the condition (financial or otherwise), results of operations, properties,
affairs, management, business affairs or business prospects of Castle.
10.14 INTELLECTUAL PROPERTY. Castle and each of its subsidiaries owns
all licenses, copyrights, trademarks, service marks and trade names presently
employed by it in connection with the businesses proposed to be operated by it,
and neither Castle nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to any
of the foregoing which, alone or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could result in any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of Castle.
10.15 INSURANCE. Castle and each of its subsidiaries is insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which it
is engaged and in which it proposes to engage; and neither Castle nor any of its
subsidiaries has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a comparable cost.
10.16 UNAUTHORIZED USE OF FUNDS. Neither Castle nor any of its
subsidiaries, nor to the knowledge of Castle, any director, officer, agent,
employee or other person acting on behalf of Castle has (i) used, or authorized
the use of, any corporate or other funds for unlawful payments, contributions,
gifts or entertainment, (ii) made unlawful expenditures relating to political
activity to government officials or others, or (iii) established or maintained
any unlawful or unrecorded funds in violation of any federal, state, local or
foreign law or regulation, including Section 30A of the Exchange Act. Neither
Castle nor, to the knowledge of Castle, any director, officer, agent, employee
or other person acting on behalf of Castle has accepted or received any unlawful
contributions, payments, gifts or expenditures.
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10.17 BROKER'S OR FINDER'S FEES. Other than the GulfStar Group, no
agent, broker, Person or firm acting on behalf of Castle or CDC is, or will be,
entitled to any fee, commission or broker's or finder's fee in connection with
this Agreement or any of the transactions contemplated hereby.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES OF MEMBERS
Each DCS Member and his or her Corporate B Member jointly and severally
represent and warrant (with such representations and warranties being joint and
several only with respect to such DCS Member and his or her Corporate B Member,
not with respect to any other Member, whose representations and warranties are
several and not joint) to Castle and CDC, and each Holdings Member and his or
her Corporate C Member jointly and severally represent and warrant (with such
representations and warranties being joint and several only with respect to such
Holdings Member and his or her Corporate C Member, not with respect to any other
Member, whose representations and warranties are several and not joint) to
Castle and CDC as follows (each of the representations and warranties by or with
respect to a Corporate B Member, Corporate C Member or Holdings Member shall
only be made after the formation thereof and the execution and delivery by each
of such Members of this Agreement):
11.1 AUTHORIZATION AND VALIDITY OF AGREEMENT. Each Member has full power
and authority to execute and deliver this Agreement, to perform its respective
obligations hereunder and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by each Corporate B
Member and Corporate C Member and the consummation by them of the transactions
contemplated hereby, have been duly authorized and approved by the Board of
Directors of such Member, and no other action on the part of any Member is
necessary to authorize the execution, delivery and performance of this Agreement
by such Member or the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by each Member and is a valid and
binding obligation of each such Member enforceable against each in accordance
with its terms, except to the extent that its enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles.
11.2 MEMBERSHIP INTERESTS. The outstanding membership interest in DCS
set forth next to each DCS Member's name on Schedule B hereto is owned
beneficially and of record by such DCS Member free and clear of any
Encumbrances. Except as contemplated by this Agreement, no outstanding options,
warrants or rights to acquire membership interests in DCS exist. Upon issuance
in accordance with the terms of this Agreement, the membership interest in
Holdings set forth next to each Holdings Member's name on Schedule B hereto will
be owned beneficially and of record by such Holdings Member free and clear of
any Encumbrances. All of the outstanding membership interests in Holdings have
been duly and validly authorized and upon issuance in accordance with the terms
of this Agreement, will be fully paid and nonassessable. Except as contemplated
by this
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Agreement, no outstanding options, warrants or rights to acquire membership
interests in Holdings exist.
11.3 CAPITAL STOCK. Each Corporate B Member and Corporate C Member is a
corporation duly organized and validly existing under the laws of the state of
its incorporation. All of the outstanding shares of capital stock of each
Corporate B Member and each Corporate C Member are owned beneficially and of
record by the DCS Member or Holdings Member listed next to such Member's name on
Schedule A hereto free and clear of any Encumbrances. All of the shares of
capital stock of each DCS Member's Corporate B Member and each Holdings Member's
Corporate C Member have been duly and validly authorized and issued, and are
fully paid and nonassessable. No outstanding options, warrants or rights to
acquire capital stock of any DCS Member's Corporate B Member or any Holdings
Member's Corporate C Member exist.
11.4 STATUS OF CORPORATE B MEMBERS AND CORPORATE C MEMBERS. Each
Corporate B Member has been recently formed by the DCS Member set forth opposite
its name on Schedule A hereto and prior to the date hereof has conducted no
business operations other than those necessary to consummate the transactions
contemplated herein. Each Corporate C Member has been recently formed by the
Holdings Member set forth opposite its name on Schedule A hereto and prior to
the date hereof has conducted no business operations other than those necessary
to consummate the transactions contemplated herein.
11.5 MEMBERSHIP INTERESTS FOLLOWING CONTRIBUTION. Following the
contribution of each DCS Member's membership interest in DCS to such DCS
Member's Corporate B Member in accordance with the terms of this Agreement, the
membership interest in DCS set forth next to such DCS Member's name on Schedule
B hereto will be owned beneficially and of record by such DCS Member's Corporate
B Member free and clear of any Encumbrances. Following the contribution of each
Holdings Member's membership interest in Holdings to such Holdings Member's
Corporate C Member in accordance with the terms of this Agreement, the
membership interest in Holdings set forth next to such Holdings Member's name on
Schedule B hereto will be owned beneficially and of record by such Holdings
Member's Corporate C Member free and clear of any Encumbrances.
11.6 CONSENTS AND APPROVALS: NO VIOLATIONS. Except as set forth on
SCHEDULE 11.6, the execution, delivery and performance of this Agreement by each
Member and the consummation by any such Member of the transactions contemplated
hereby will not, with or without the giving of notice or the lapse of time or
both: (a) violate, conflict with, or result in a breach or default under any
provision of the organizational documents of such Member; (b) violate any
statute, ordinance, rule, regulation, order, judgment or decree of any court or
of any governmental or regulatory body, agency or authority applicable to such
Member by which any of such Member's properties or assets may be bound; (c)
require any filing by such Member with, or require such Member to obtain any
Permit, consent or approval of, or require such Member to give any notice to,
any governmental or regulatory body, agency or authority other than as set forth
in SCHEDULE 11.6 attached hereto or as may be required under the Securities Act
or state Blue sky laws; or (d) result in a violation or breach by such Member
of, conflict with, constitute (with or without due notice or lapse of time or
both) a default
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by such Member (or give rise to any right of termination, cancellation, payment
or acceleration) under or result in the creation of any Encumbrance upon any of
the properties or assets of such Member under any of the terms, conditions, or
provisions of any note, bond, mortgage, indenture, license, franchise, Permit,
agreement, lease, franchise agreement or other instrument or obligation to which
such Member is a party, or by which such Member or any of its properties or
assets may be bound.
11.7 LITIGATION. Except as set forth on SCHEDULE 11.7, There is no
action, suit, proceeding at law or in equity, arbitration or administrative or
other proceeding by or before (or, to the knowledge of such Member, any
investigation by) any governmental or other instrumentality or agency, pending,
or, to the knowledge of any Member, threatened, against or affecting the
properties, rights or goodwill of such Member or its employees, except where
such Proceeding would not have a material adverse effect on such Member and such
Member knows of no valid basis for any such action, proceeding or investigation.
There are no such Proceedings pending or, to the knowledge of such Member,
threatened, seeking to prevent or challenge the transactions contemplated by
this Agreement.
11.8 COMPLIANCE WITH LAWS. To the knowledge of each Member, such Member
is in compliance with all applicable laws, regulations, orders, judgments and
decrees applicable to its business, except where any noncompliance would not
have a material adverse effect on such Member.
11.9 INVESTMENT REPRESENTATIONS.
(a) Each DCS Member and Holdings Member understands that the
Common Stock and the Notes (collectively, the "Securities") have not
been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and are being offered and sold pursuant to an
exemption from registration contained in the Securities Act based in
part upon the representations of such Members contained in this
Agreement.
(b) Each DCS Member and Holdings Member, in consultation with his
or her accountants, attorneys and financial advisors, has the requisite
experience in evaluating and investing in private placement transactions
of securities so that he or she is capable of evaluating the merits and
risks of his or her investment in Castle and has the capacity to protect
his or her own interests. Each DCS Member and Holdings Member
understands that he or she must bear the economic risk of this
investment indefinitely unless the Securities are registered pursuant to
the Securities Act or unless an exemption from registration is
available. Each DCS Member and Holdings Member also understands that
there is no assurance that any exemption from registration under the
Securities Act will be available and that, even if available, such
exemption may not allow him or her to transfer all or any portion of the
Securities under the circumstances, in the amounts or at the times it
might propose.
(c) Each DCS Member and Holdings Member who acquires Securities
pursuant to any of the transactions contemplated by this Agreement is
acquiring such Securities for his or her own account for investment
only, and not with a view towards distribution.
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(d) Each DCS Member and Holdings Member represents that by reason
of his or her business or financial experience, he or she has the
capacity to protect his or her own interests in connection with the
transactions contemplated in this Agreement.
(e) Each DCS Member and Holdings Member represents that he or she
is an accredited investor within the meaning of Regulation D under the
Securities Act.
(f) Each DCS Member and Holdings Member acknowledges that the
Securities have been offered to such Member without any form of general
solicitation or advertising of any type by or on behalf of Castle or any
of its officers, directors, shareholders, employees, agents, attorneys
or representatives.
(g) Each DCS Member and Holdings Member has reached the age of
majority in the state in which such Member resides, has adequate means
of providing for such Member's current financial needs and
contingencies, is able to bear the substantial economic risks of an
investment in the Securities, has no need for liquidity in such
investment, and is able to withstand a complete loss of such investment.
(h) Each DCS Member and Holdings Member acknowledges and
understands that no federal or state agency has passed on the fairness
of the investment in the Securities, nor made any recommendation or
endorsement of the Securities, and that there is a significant risk of
loss of all or a portion of such Member's investment in the Securities.
(i) Each DCS Member and Holdings Member acknowledges that Castle
and Castle's officers, directors, agents, attorneys and other
representatives are relying on the representations and warranties set
forth herein, and would not issue the Securities to such Member but for
the execution and delivery of this Agreement by such Member.
11.10 DISCLOSURE. Each DCS Member and Holdings Member acknowledges
receipt of a copy of Castle's prospectus dated September 12, 1997 (the
"Prospectus"), relating to Castle's initial public offering of its Common Stock.
Each DCS Member and Holdings Member has carefully reviewed the Prospectus and
has been given the opportunity to discuss any questions relating thereto with
members of Castle's management. Each DCS Member and Holdings Member has also
received a copy of Castle's Report on Form 10-Q for the quarter ended September
30, 1997, in the form filed with the Commission.
ARTICLE XII
CONDITIONS TO OBLIGATIONS OF DCS AND THE MEMBERS
Subject to the satisfaction of the conditions to closing set forth
herein, the closing (the "Closing") of the transactions contemplated in Section
2.1, Section 2.2, Section 2.4, Section 3.1, Article IV, Article V and Section
6.1 hereof shall be held at the offices of Boyer, Ewing & Harris
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Incorporated, Nine Greenway Plaza, Suite 3100, Houston, Texas 77046 on or before
March 31, 1998, or such other place, date and time as may be mutually agreed
upon by the parties hereto. Such time and date are referred to herein as the
"Closing Date."
The obligations of DCS and the Members to consummate the transactions
contemplated hereby shall be subject to the satisfaction (or waiver by the party
entitled to performance) on or prior to the Closing Date of all of the following
conditions:
12.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Castle and CDC contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
the Closing Date, and each of Castle and CDC shall have delivered to DCS on the
Closing Date a certificate of an authorized officer, dated the Closing Date, to
such effect.
12.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of Castle and CDC to be performed on or before the Closing Date
pursuant to the terms hereof shall have been duly performed in all material
respects, and each of Castle and CDC shall have delivered to DCS a certificate
of an authorized officer, dated the Closing Date, to such effect.
12.3 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before a court or other governmental body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and each of
Castle and CDC shall have delivered to DCS a certificate of an authorized
officer, dated the Closing Date, to such effect to the best knowledge of such
officer.
12.4 GOVERNMENTAL APPROVALS. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received other than any filings required to
register any of the shares of Common Stock issuable hereunder under the
Securities Act or pursuant to state Blue Sky laws or filings required to include
such shares of Common Stock on the Nasdaq National Market.
12.5 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to DCS and its counsel,
and DCS shall have received copies of all such documents and other evidence as
it or its counsel may reasonably request in order to establish the consummation
of such transactions and the taking of all proceedings in connection therewith.
12.6 SECRETARY'S AND GOOD STANDING CERTIFICATES. DCS shall have received
a certificate of the secretary or any assistant secretary of each of Castle and
CDC certifying as to the following attachments: (a) its articles of
incorporation (certified by the Secretary of State of or other appropriate
governmental authority of its state of incorporation); (b) its bylaws; (c) the
resolutions of its board of directors respecting the transactions contemplated
hereby; and (d) a certificate respecting the incumbency and true signatures of
its officers who executed this Agreement and any
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related documents. DCS shall have received recently dated good standing and
existence certificates respecting Castle, CDC and Castle West.
12.7 REGISTRATION RIGHTS AGREEMENT. Each DCS Member and Holdings Member
shall have entered into and delivered a Registration Rights Agreement with
Castle.
12.8 LEGAL OPINION. Castle shall have delivered to DCS an opinion of its
counsel in form and substance reasonably satisfactory to DCS and its counsel.
12.9 CONSENTS. Each of the consents referred to in SCHEDULE 9.4 attached
hereto shall have been obtained. The consent of Castle's lender and the
appropriate parties to the Original Registration Rights Agreement shall have
been obtained.
12.10 EXHIBITS AND SCHEDULES. The parties hereto shall have agreed to
the final form of each of the Exhibits and Schedules to be attached hereto and
incorporated herein by reference.
12.11 FORMATION OF ENTITIES. The parties hereto shall have formed CDC,
Castle West, Holdings, the Corporate B Members and the Corporate C Members and
each of them shall have executed a counterpart of this Agreement and agreed to
be bound by the terms hereof.
12.12 SHAREHOLDERS' AGREEMENT. CDC, DCS, Holdings and each of the
Members shall have entered into and delivered the Shareholders' Agreement.
12.13 CASTLE BOARD APPROVAL. Castle's board of directors shall approved
the execution of this Agreement and the agreements contemplated hereby and shall
have authorized the issuance of, and reserved for issuance, the shares of Common
Stock issuable hereunder and thereunder.
ARTICLE XIII
CONDITIONS TO CASTLE'S AND CDC'S OBLIGATIONS
The obligations of Castle and CDC under this Agreement to consummate the
transactions contemplated hereby shall be subject to the satisfaction (or waiver
by Castle and CDC) on or prior to the Closing Date of all of the following
conditions:
13.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of DCS and each Member contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
the Closing Date; and DCS and each Member shall have delivered to Castle and CDC
on the Closing Date a certificate of an authorized officer or representative, as
appropriate, dated the Closing Date, to such effect.
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13.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of DCS and each Member to be performed on or before the Closing Date
pursuant to the terms hereof shall have been duly performed in all material
respects, and DCS and each Member shall have delivered to Castle and CDC a
certificate of an authorized officer or representative, as appropriate, dated
the Closing Date, to such effect.
13.3 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before a court or other governmental body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and DCS and
each Member shall have delivered to Castle and CDC a certificate of an
authorized officer or representative, as appropriate, dated the Closing Date, to
such effect to the best knowledge of such officer or representative.
13.4 GOVERNMENTAL APPROVALS. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received other than any filings required to
register any of the shares of Common Stock issuable hereunder under the
Securities Act or pursuant to state Blue Sky laws or filings required to include
such shares of Common Stock on the Nasdaq National Market.
13.5 CONSENTS. Each of the consents referred to in SCHEDULE 9.4 attached
hereto shall have been obtained, and Castle shall have also received the consent
of all other parties, including its senior lender and the parties to the
Original Registration Rights Agreement (to the extent required), whose consent
is required to permit Castle to perform its obligations hereunder.
13.6 LEGAL OPINION. DCS shall have delivered to CDC and Castle an
opinion of its counsel in form and substance reasonably satisfactory to Castle
and its counsel.
13.7 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to CDC and its counsel,
and CDC shall have received copies of all such documents and other evidence as
it or its counsel may reasonably request in order to establish the consummation
of such transactions and the taking of all proceedings in connection therewith.
13.8 DUE DILIGENCE. CDC shall have satisfactorily completed a due
diligence review of DCS, the Existing PCs and the Business and shall not have
determined, in the exercise of its reasonable discretion, that the information
obtained from such review materially and adversely affects its appraisal of the
business, prospects and financial condition of DCS and the Existing PCs taken as
a whole or the Business.
13.9 SECRETARY'S AND GOOD STANDING CERTIFICATES. Castle and Purchase
shall have received a certificate of the secretary or any assistant secretary of
DCS and each Corporate B Member and Corporate C Member certifying as to the
following attachments: (a) its articles or certificate of incorporation or
organization (certified by the Secretary of State of or other appropriate
governmental authority of its state of incorporation or organization); (b) its
bylaws or operating
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agreement; (c) the resolutions of its board of directors (or similar governing
body) respecting the transactions contemplated hereby; and (d) a certificate
respecting the incumbency and true signatures of its officers (or other
representatives) who executed this Agreement and any related documents. Castle
and CDC shall have received recently dated good standing and existence
certificates respecting Castle West, Holdings, DCS and each Corporate B Member
and Corporate C Member.
13.10 SHAREHOLDERS' AGREEMENT. Each Member, DCS, Holdings and CDC shall
have entered into a Shareholders' Agreement.
13.11 ACQUISITION OF ASSETS OF THE EXISTING PCS. DCS shall have acquired
all of the Assets of the Existing PCs other than Excluded Assets and shall have
assumed all of the Liabilities of the Existing PCs other than Excluded
Liabilities. DCS shall have entered into "market value" leases of the real
property owned by the Existing PCs on terms and conditions reasonably acceptable
to CDC.
13.12 NON-COMPETITION AGREEMENT. Each DCS Member shall have entered into
a Non-Competition Agreement.
13.13 EXHIBITS AND SCHEDULES. The parties hereto shall have agreed to
the final form of each of the Exhibits and Schedules to be attached hereto and
incorporated herein.
13.14 FORMATION OF ENTITIES. The parties hereto shall have formed CDC,
Castle West, Holdings, the Corporate B Members and the Corporate C Members and
each of them shall have executed a counterpart of this Agreement and agreed to
be bound by the terms hereof.
13.15 SUBORDINATION AGREEMENT. DCS shall have entered into the
Subordination Agreement.
ARTICLE XIV
COVENANTS OF DCS AND THE MEMBERS
DCS and each Member hereby covenants and agrees with CDC and Castle as
follows:
14.1 COOPERATION BY DCS AND THE MEMBERS. DCS and the Members shall use
their reasonable best efforts to cooperate with CDC and Castle to secure all
necessary consents, approvals, authorizations, exemptions and waivers from third
parties as shall be required in order to enable DCS and the Members to effect
the transactions contemplated on their part hereby, and DCS and the Members
shall otherwise use their reasonable best efforts to cause the consummation of
such transactions in accordance with the terms and conditions hereof and to
cause all conditions contained in this Agreement over which they have control to
be satisfied. DCS and the Members further agree to deliver to CDC and Castle
prompt written notice of any event or condition which if it existed on the date
of this Agreement, would result in any of the representations and warranties of
DCS or any Member contained herein being untrue in any material respect.
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14.2 CONDUCT OF BUSINESS. Except as CDC may otherwise consent to in
writing, between the date hereof and the Closing Date, DCS shall, (a) conduct
the Business only in the ordinary course, (b) use reasonable efforts to keep
available the services of its employees and maintain satisfactory relationships
with licensors, suppliers, lessors, distributors, customers, clients and others
with respect to the Business, (c) maintain, consistent with past practice and
good business judgment, all its material assets in customary repair, order and
condition, ordinary wear and tear excepted, and insurance upon all its material
assets used in the conduct of the Business in such amounts and of such kinds
comparable to that in effect on the date hereof, to the extent available at
current premiums, and (d) maintain its books and records in the usual, regular
and ordinary manner, on a basis consistent with past practice. DCS shall be
allowed, however, to distribute its net profits arising prior to the Closing
Date to the DCS Members so long as such distribution does not result in the
Business having a shortage of available cash necessary to carry on its
operations consistent with past practice.
14.3 EXCLUSIVE DEALING. During the period from the date of this
Agreement to the earlier of the Closing Date or the termination of this
Agreement, none of DCS and the Members shall take any action to, directly or
indirectly, encourage, initiate or engage in discussions or negotiations with,
or provide any information to, any Person other than Castle or its Affiliates,
concerning any sale of the Assets or the Business or any material part thereof
or a similar transaction involving any of DCS or the Members.
14.4 REVIEW OF THE ASSETS. CDC may, prior to the Closing Date, through
its representatives, review (a) the assets of DCS and the Existing PCs, (b) the
complete working papers of DCS's and the Existing PCs' certified public
accountants used in their preparation of financial statements for DCS and the
Existing PCs and (c) the books and records of DCS and the Existing PCs and to
otherwise review the financial and legal condition of DCS and the Existing PCs
as CDC deems necessary or advisable to familiarize itself with the Business and
related matters. Such review shall occur only during normal business hours upon
reasonable notice by CDC. DCS shall permit CDC and its representatives to have,
after the execution of this Agreement, full access to employees of DCS and the
Existing PCs who can furnish CDC with financial and operating data and other
information with respect to the Business as CDC shall from time to time
reasonably request.
14.5 ACQUISITION OF ASSETS OF THE EXISTING PCS. Prior to the Closing,
DCS shall acquire all of the Assets of the Existing PCs other than Excluded
Assets and shall assume all of the Liabilities of the Existing PCs other than
Excluded Liabilities. DCS shall enter into "market value" leases of the real
property owned by the Existing PCs on terms and conditions reasonably acceptable
to CDC.
14.6 FORMATION OF ENTITIES. Prior to the Closing, each DCS Member will
form a Corporate B Member and cause such Corporate B Member to enter into and
deliver this Agreement and perform its obligations hereunder and each Holdings
Member will form a Corporate C Member and cause such Corporate C Member to enter
into and deliver this
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Agreement and perform its obligations hereunder. At or prior to the Closing,
assuming all of the other conditions precedent to Closing have been met or
waived, CDC and DCS shall form Castle West and cause Castle West to enter into
and deliver this Agreement and the Holdings Members will form Holdings and cause
Holdings to enter into and deliver this Agreement and perform its obligations
hereunder.
14.7 EXHIBITS AND SCHEDULES. DCS and each of the Members agrees to use
its best efforts to negotiate, prepare and deliver final version of each of the
Exhibits and Schedules contemplated by this Agreement in order that all such
Exhibits and Schedules shall be finalized no later than March 23, 1998.
14.8 FURTHER ASSURANCES. At any time or from time to time after the
Closing Date, DCS shall, at the reasonable request of Castle West and at Castle
West's expense, execute and deliver any further instruments or documents and
take all such further action as Castle West may reasonably request in order to
consummate and make effective the contribution of the Assets and the assumption
of the Assumed Obligations pursuant to this Agreement or any other transaction
contemplated hereby.
14.9 HOLDINGS LIMITED AGREEMENT. Following the Closing, the Holdings
Members and the Corporate C Members shall not (i) amend the Holdings Limited
Agreement if the effect of such an amendment would be to materially interfere
with the economic expectations of CDC and Castle (based on the Holdings Limited
Agreement as in effect on the Closing Date) with respect to the Corporate C
Member's Merger Option or CDC's Call Option or CDC's ownership of membership
interests in Holdings on a going-forward basis arising as a result of the
exercise of the aforementioned options or (ii) vote to dissolve Holdings.
ARTICLE XV
COVENANTS OF CASTLE AND CDC
Castle and CDC hereby covenant and agree with DCS and the Members as
follows:
15.1 COOPERATION BY CASTLE AND CDC. Castle and CDC will use their
reasonable best efforts to cooperate with DCS and the Members, to secure all
necessary consents, approvals, authorizations, exemptions and waivers from third
parties as shall be required in order to enable Castle and CDC to effect the
transactions contemplated on their part hereby, and Castle and CDC shall
otherwise use their reasonable best efforts to cause the consummation of such
transactions in accordance with the terms and conditions hereof and to cause all
conditions contained in this Agreement over which they have control to be
satisfied. Castle and CDC further agree to deliver to DCS and the Members prompt
written notice of any event or condition, which if it existed on the date of
this Agreement, would result in any of the representations and warranties of
Castle and CDC contained herein being untrue in any material respect.
15.2 BOOKS AND RECORDS; PERSONNEL. At all times after the Closing Date,
CDC shall cause Castle West to allow DCS and any agents of any DCS, upon
reasonable advance notice to Castle West, access to all Books and Records of DCS
which are transferred to Castle West in connection
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herewith, to the extent necessary or desirable in anticipation of, or
preparation for, existing or future litigation, employment matters, tax returns
or audits, or reports to or filings with governmental agencies or similar
matters, during normal working hours at Castle West's principal places of
business or at any location where such Books and Records are stored, and DCS
shall have the right, at DCS's sole cost, to make copies of any such Books and
Records. CDC shall cause Castle West to maintain such books and records for a
period of no less than six years and, prior to the disposal or destruction
thereof, shall give DCS reasonable notice of such pending disposal or
destruction in order that DCS may retrieve such books and records from Castle
West.
15.3 FORMATION OF ENTITIES. Prior to the Closing, Castle will form and
cause CDC to enter into and deliver this Agreement and to perform its
obligations hereunder. At or prior to the Closing, assuming all of the other
conditions precedent to Closing have been met, CDC and DCS shall form Castle
West and cause Castle West to enter into and deliver this Agreement.
15.4 EXHIBITS AND SCHEDULES. Castle and CDC each agrees to use its best
efforts to negotiate, prepare and deliver final version of each of the Exhibits
and Schedules contemplated by this Agreement in order that all such Exhibits and
Schedules shall be finalized no later than March 23, 1998.
15.5 RESERVATION OF SHARES. Prior to the Closing, Castle shall reserve
for issuance out of its authorized but unissued shares, and thereafter keep so
reserved, such number of shares of Common Stock which may be issuable from time
to time upon the conversion of all of the capital stock of the Corporate B
Members and the Corporate C Members in accordance with the terms of this
Agreement. In addition, prior to the issuance of such shares, Castle shall use
its best efforts to include for trading, or list, all of such shares on the
Nasdaq National Market and on each securities exchange the shares of Common
Stock are then listed.
15.6 FURTHER ASSURANCES. At any time or from time to time after the
Closing Date, CDC shall cause Castle West, at the request of DCS and at DCS's
expense, to execute and deliver any further instruments or documents and take
all such further action as DCS may reasonably request in order to consummate and
make effective the contribution of the Assets and the assumption of the Assumed
Obligations pursuant to this Agreement or any other transaction contemplated
hereby. In the event that CDC fails for any reason to comply with any of its
obligations hereunder or in any of its obligations under any ancillary documents
executed in connection herewith, Castle hereby agrees, upon demand, to promptly
perform such obligations as if such obligation were the direct obligation of
Castle hereunder.
ARTICLE XVI
TERMINATION
16.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date:
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(a) by the mutual written consent of Castle and DCS; or
(b) by Castle or DCS in writing without liability on the part of
the terminating party on account of such termination (provided the
terminating party is not otherwise in default or in breach of this
Agreement as to which liability shall continue), if the Closing Date
shall not have occurred on or before March 31, 1998; or
(c) by Castle and CDC, on the one hand, or DCS and the Members,
on the other hand, in writing, without liability on the part of the
terminating party on account of such termination (provided the
terminating party is not otherwise in default or breach of this
Agreement as to which liability shall continue), if the other party
shall (i) fail to perform in any material respects its or their
covenants or agreements contained herein required to be performed on or
prior to the Closing Date, or (ii) breach or have breached any of its
representations or warranties contained herein in any material respect.
16.2 EFFECT ON OBLIGATIONS. Termination of this Agreement pursuant to
this Article shall terminate all obligations of the parties hereunder, except
for the obligations under Sections 18.7 and 18.10 hereof and the obligations set
forth in the next succeeding sentence of this Section 16.2 and except as to any
default or breach of this Agreement by any party. Upon any termination of this
Agreement each party hereto shall return all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
and all copies of such materials, whether so obtained before or after the
execution hereof, to the party furnishing the same.
ARTICLE XVII
SURVIVAL AND INDEMNIFICATION
17.1 INDEMNIFICATION OF DCS. Castle and CDC, from and after the Closing
Date, jointly and severally, shall indemnify and hold DCS, Holdings, the Members
and their respective officers, directors, employees, agents, members,
stockholders, representatives and Affiliates (the "DCS Indemnitees") harmless
from and against any and all damages (including, without limitation, exemplary
damages and penalties, losses, deficiencies, costs, expenses, obligations,
fines, expenditures, claims and liabilities, including reasonable counsel fees
and reasonable expenses of investigation, defending and prosecuting litigation
(collectively, the "Damages")), suffered by any DCS Indemnitee as a result of,
caused by, arising out of, or in any way relating to (a) any misrepresentation,
breach of warranty, or nonfulfillment of any agreement or covenant on the part
of Castle or CDC under this Agreement or any misrepresentation in or omission
from any list, schedule, certificate, or other instrument furnished or to be
furnished to DCS by CDC or Castle pursuant to the terms of this Agreement, (b)
any liability or obligation (other than those for which Castle West is being
indemnified by DCS hereunder) which pertains to the ownership, operation or
conduct of the Business or Assets arising from any acts, omissions, events,
conditions or circumstances occurring on or after the Closing Date or (c) any
Assumed Obligation.
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17.2 INDEMNIFICATION OF CASTLE AND CDC. DCS, Holdings and the Members
(other than the Holdings Member or Corporate C Member, as appropriate, holding
the Class III Interest in Holdings), jointly and severally, shall indemnify and
hold Castle West, Castle and CDC and their respective officers, directors,
employees, agents, members, stockholders, representatives and Affiliates (the
"Castle Indemnitees") harmless from and against any and all Damages suffered by
any Castle Indemnitee as a result of, caused by, arising out of, or in any way
relating to (a) any misrepresentation, breach of warranty, or nonfulfillment of
any agreement or covenant on the part of DCS under this Agreement or any
misrepresentation in or omission from any list, schedule, certificate, or other
instrument furnished or to be furnished to CDC by DCS pursuant to the terms of
this Agreement, (b) any liability or obligation (other than those for which DCS
is being indemnified by Castle West hereunder and other than those relating to,
caused by, resulting from or arising from the Assumed Obligations) which
pertains to the ownership, operation or conduct of the Business or Assets
arising from any acts, omissions, events, conditions or circumstances occurring
before the Closing Date or (c) Excluded Liabilities.
17.3 INDEMNIFICATION OF CASTLE AND CDC. Each DCS Member and his or her
Corporate B Member jointly and severally shall indemnify and hold harmless the
Castle Indemnitees (with such obligation being joint and several only with
respect to such DCS Member and his or her Corporate B Member, not with respect
to any other Member, whose obligations are several and not joint), and each
Holdings Member and his or her Corporate C Member jointly and severally shall
indemnify and hold harmless the Castle Indemnitees (with such obligation being
joint and several only with respect to such Holdings Member and his or her
Corporate C Member, not with respect to any other Member, whose obligations are
several and not joint) from and against any and all Damages suffered by any
Castle Indemnitee as a result of, caused by, arising out of, or in any way
relating to any misrepresentation, breach of warranty, or nonfulfillment of any
agreement or covenant on the part of such Member under this Agreement or any of
the ancillary agreements contemplated hereby.
17.4 LIMITATIONS ON INDEMNIFICATION. In no event shall (i) the aggregate
joint and several liability of DCS, Holdings and the Members under this
Agreement exceed 3.25 times the Adjusted Aggregate EBITDA (the "Ceiling Amount")
or (ii) the aggregate liability of each Member under this Agreement, exceed that
Member's Pro Rata Share of the Ceiling Amount. For purposes of determining the
amount of Damages, no effect will be given to any resulting Tax benefit to any
indemnified party. Notwithstanding the provisions of Section 17.1, neither
Castle nor CDC shall be required to indemnify or hold harmless any of the DCS
Indemnitees on account of any Damages unless the liability of Castle and CDC
with respect to such Damages, when aggregated with the liability of Castle and
CDC with respect to all other Damages, exceeds, and only to the extent the
aggregate amount of all those Damages does exceed, $100,000. Notwithstanding the
provisions of Sections 17.2 and 17.3, neither DCS, Holdings nor any Member shall
be required to indemnify or hold harmless any of the Castle Indemnitees on
account of any Damages unless the liability of DCS, Holdings and the Members
with respect to such Damages, when aggregated with the liability of DCS,
Holdings and the Members with respect to all other Damages, exceeds, and only to
the extent the aggregate amount of all those Damages does exceed, $100,000.
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17.5 DEMANDS. Each indemnified party hereunder agrees that promptly upon
its discovery of facts giving rise to a claim for indemnity under the provisions
of this Agreement, including receipt by it of notice of any demand, assertion,
claim, action or proceeding, judicial or otherwise, by any third party (such
third party actions being collectively referred to herein as the "Claim"), with
respect to any matter as to which it claims to be entitled to indemnity under
the provisions of this Agreement, it will give prompt notice thereof in writing
to the indemnifying party, together with a statement of such information
respecting any of the foregoing as it shall have. Such notice shall include a
formal demand for indemnification under this Agreement. The indemnifying party
shall not be obligated to indemnify the indemnified party with respect to any
Claim if the indemnified party failed to notify the indemnifying party thereof
in accordance with the provisions of this Agreement in sufficient time to permit
the indemnifying party or its counsel to defend against such matter and to make
a timely response thereto including, without limitation, any responsive motion
or answer to a complaint, petition, notice or other legal, equitable or
administrative process relating to the Claim, only insofar as such failure to
notify the indemnifying party has actually resulted in prejudice or damage to
the indemnifying party.
17.6 RIGHT TO CONTEST AND DEFEND. The indemnifying party shall be
entitled at its cost and expense to contest and defend by all appropriate legal
proceedings any Claim with respect to which it is called upon to indemnify the
indemnified party under the provisions of this Agreement; provided, that notice
of the intention so to contest shall be delivered by the indemnifying party to
the indemnified party within 20 days from the date of receipt by the
indemnifying party of written notice by the indemnified party of the assertion
of the Claim. Any such contest may be conducted in the name and on behalf of the
indemnifying party or the indemnified party as may be appropriate. Such contest
shall be conducted by reputable counsel employed by the indemnifying party
(subject to the approval of the indemnified party, such approval not to be
unreasonably withheld), but the indemnified party shall have the right but not
the obligation to participate in such proceedings and to be represented by
counsel of its own choosing at its sole cost and expense. The indemnifying party
shall have full authority to determine all action to be taken with respect
thereto; provided, however, that the indemnifying party will not have the
authority to subject the indemnified party to any obligation whatsoever, other
than the performance of purely ministerial tasks or obligations not involving
material expense. If the indemnifying party does not elect to contest any such
Claim, the indemnifying party shall be bound by the result obtained with respect
thereto by the indemnified party. At any time after the commencement of the
defense of any Claim, the indemnifying party may request in writing the
indemnified party to agree in writing to the abandonment of such contest or to
the payment or compromise by the indemnified party of the asserted Claim,
whereupon such action shall be taken unless the indemnified party determines
that the contest should be continued, and so notifies the indemnifying party in
writing within 15 days of such request from the indemnifying party. If the
indemnified party determines that the contest should be continued, the
indemnifying party shall be liable hereunder only to the extent of the amount
that the other party to the contested Claim had agreed in writing
unconditionally to accept in payment or compromise as of the time the
indemnifying party made its request therefor to the indemnified party.
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17.7 COOPERATION. If requested by the indemnifying party, the
indemnified party agrees to cooperate with the indemnifying party and its
counsel in contesting any Claim that the indemnifying party elects to contest
or, if appropriate, in making any counterclaim against the person asserting the
Claim, or any cross-complaint against any person, and the indemnifying party
will reimburse the indemnified party for any reasonable expenses incurred by it
in so cooperating.
17.8 RIGHT TO PARTICIPATE. The indemnified party agrees to afford the
indemnifying party and its counsel the opportunity to be present at, and to
participate in, conferences with all persons, including governmental
authorities, asserting any Claim against the indemnified party or conferences
with representatives of or counsel for such persons.
17.9 PAYMENT OF DAMAGES. The indemnifying party shall pay to the
indemnified party in immediately available funds any amounts to which the
indemnified party may become entitled by reason of the provisions of this
Agreement, such payment to be made within five days after any such amounts are
finally determined either by mutual agreement of the parties hereto or pursuant
to the final unappealable judgment of a court of competent jurisdiction.
17.10 RIGHT OF SETOFF. Castle, CDC and Castle West shall have the right
to set off any amounts owed by DCS, Holdings or any Member under this Article
XVII against any amount Castle, CDC or Castle West may owe any such party
pursuant to any section of this Agreement or any of the ancillary agreements
contemplated hereby; provided, however, that neither CDC nor Castle shall be
entitled to offset any such amounts against the payment of the B Merger
Consideration payable, directly or indirectly, to the stockholders of the
Corporate B Members in exchange for their interests in the Corporate B Members
pursuant to the B Merger.
17.11 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) Notwithstanding any investigation at any time made by or on
behalf of any party hereto, the representations and warranties set forth
herein and in any certificate delivered in connection herewith with
respect to any of those representations and warranties will survive the
Closing and the Closing Date until the day that is two years from the
Closing Date, whereupon they will terminate and expire, except that the
representations and warranties of the Stockholders which relate
expressly or by necessary implication to Taxes will survive until the
expiration of the applicable statutes of limitations (including all
periods of extension and tolling).
(b) After a representation and warranty has expired, as provided
in Section 17.11(a), no claim for Damages may be made or prosecuted by
any Person who would have been entitled to Damages on the basis of that
representation and warranty prior to its termination and expiration,
provided that no claim presented in writing for Damages to the Person or
Persons from which or whom those damages are sought on the basis of that
representation and warranty prior to its termination and expiration will
be affected in any way by that termination and expiration.
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(c) Each party agrees that, with respect to the nonfulfillment of
any covenant or agreement provided for herein, no claim for Damages may
be made or prosecuted by any Person who otherwise would have been
entitled to Damages on the basis of the failure of any party to perform
that covenant or agreement if such claim shall not have been brought
within two years of the date such covenant or agreement was required to
be performed.
(d) Other than as provided in (a) and (c) above, no claim for
Damages may be made or prosecuted by any Person who otherwise would have
been entitled to Damages if such claim shall not have been brought
within two years of the Closing Date.
ARTICLE XVIII
MISCELLANEOUS
18.1 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules) sets forth the entire understanding of the parties with respect to
the subject matter hereof. Any previous agreements or understandings (whether
oral or written) between the parties regarding the subject matter hereof are
merged into and superseded by this Agreement.
18.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors of
the parties hereto; provided that (a) (except as permitted by and in accordance
with the Shareholders' Agreement) this Agreement, including the representations
and warranties herein, may not be assigned by DCS, Holdings or any Member
without the prior written consent of Castle and CDC and (b) this Agreement,
including the representations and warranties herein, may not be assigned by
Castle or CDC to any Person without the prior written consent of Holdings unless
(i) such assignment is part of the sale, exchange or other disposition of all,
or substantially all, of Castle's assets or securities or the merger of Castle
with another person or entity or (ii) Holdings was afforded a "First Right to
Negotiate" with regard to such assignment pursuant to the terms of the Castle
West Limited Agreement. Any assignment in violation of this Section 18.2 shall
not be effective to transfer any rights or obligations under this Agreement.
18.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
18.4 HEADINGS. The headings of the Articles, Sections and paragraphs of
this Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
18.5 MODIFICATION AND WAIVER. No amendment, modification or alteration
of the terms or provisions of this Agreement shall be binding unless the same
shall be in writing and duly executed by the parties hereto, except that any of
the terms or provisions of this Agreement may be waived in
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writing at any time by the party which is entitled to the benefits of such
waived terms or provisions. No waiver of any of the provisions of this Agreement
shall be deemed to or shall constitute a waiver of any other provision hereof
(whether or not similar) or any subsequent application of such provision. No
delay on the part of either party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof.
18.6 NO THIRD PARTY BENEFICIARY RIGHTS. Except as provided in Article
XVII, this Agreement is not intended to and shall not be construed to give any
Person (other than the parties signatory hereto from time to time) any interest
or rights (including, without limitation, any third party beneficiary rights)
with respect to or in connection with any agreement or provision contained
herein or contemplated hereby.
18.7 EXPENSES. Except as otherwise provided in this Agreement, DCS,
Holdings, each Member, Castle and CDC shall each pay all costs and expenses
incurred by them or on their behalf in connection with this Agreement and the
transactions contemplated hereby.
18.8 NOTICE. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party shall be sufficiently
given if delivered in person or sent by telecopier or registered or certified
mail, postage prepaid, return receipt requested, or by recognized overnight
courier, addressed as follows:
if to CDC, to:
Castle Dental Centers of California, Inc.
1360 Post Oak Boulevard, Suite 1300
Houston, Texas 77056-3021
Fax No. (713) 513-1401
with a copy to:
John W. Menke, Esq.
Boyer, Ewing & Harris
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Fax No. (713) 871-2024
if to DCS or any Member to:
Dental Consulting Services, LLC
4392 West 132nd Street
Hawthorne, California, 90250
Attention: Jeffrey D. Schechter, D.D.S., a Manager
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with a copy to:
Barry H. Lawrence, Esq.
Kaye, Scholer, Fierman, Hayes & Handler, LLP
1999 Avenue of the Stars, Suite 1600
Los Angeles, California 90067
Fax No. (310) 788-1200
or at such other address for a party as shall be specified by like notice, and
such notice or communication shall be deemed to have been duly given as of the
date so delivered, mailed or sent by telecopier.
18.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without regards to conflict of
law rules thereof.
18.10 CONFIDENTIALITY; PUBLICITY. The terms and conditions of this
Agreement shall not be disclosed by any party hereto without the prior written
consent of the other parties; provided, however, that Castle may disclose such
information as is required to comply with the requirements of their lenders and
to comply with applicable securities laws. Subject at all times to the limit in
the immediately preceding sentence, no party hereto shall issue any press
release or make any other public statement, in each case relating to or
connected with or arising out of this Agreement or the matters contained herein,
without first providing a copy of the text of such release to the other party
hereto and giving such other party an opportunity to comment thereon.
18.11 CONSENT TO JURISDICTION. Any judicial proceeding brought against
any of the parties to this Agreement on any dispute arising out of this
Agreement or any matter related hereto shall be brought in any federal or state
court located in Harris County, Texas, and, by execution and delivery of this
Agreement, each of the parties to this Agreement accepts for itself the
non-exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement.
18.12 SEVERABILITY. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled.
18.13 ENFORCEMENT. The parties hereto agree that the remedy at law for
any breach of this Agreement is inadequate and that should any dispute arise
concerning any matter hereunder following the Closing and only if the Closing
occurs, this Agreement shall be enforceable in a court of equity
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by an injunction or a decree of specific performance. Such remedies shall,
however, be cumulative and nonexclusive, and shall be in addition to any other
remedies which the parties hereto may have.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on its behalf as of the date first above written.
CASTLE DENTAL CENTERS, INC.
By: /s/ JOHN M. SLACK
John M. Slack, Vice President and Chief Financial
Officer
CDC OF CALIFORNIA, INC.
/s/ JOHN M. SLACK
John M. Slack, Vice President and Chief Financial
Officer
CASTLE DENTAL CENTERS OF CALIFORNIA, L.L.C.
/s/ JOHN M. SLACK
John M. Slack, Vice President and Chief Financial
Officer
DENTAL CONSULTING SERVICES, LLC
/s/ JEFFREY D. SCHECHTER, D.D.S.
Jeffrey D. Schechter, D.D.S., a Manager
CASTLE WEST HOLDINGS, LLC
/s/ JEFFREY D. SCHECHTER, D.D.S.
Jeffrey D. Schechter, D.D.S., a Manager
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DCS MEMBERS
JEFFREY D. SCHECHTER, D. D.S.
Jeffrey D. Schechter, D.D.S., Individually
S. ALEXANDER SOLEIMANI, D.M.D.
S. Alexander Soleimani, D.M.D., Individually
MARTIN SCHECHTER, D. D.S.
Martin Schechter, D.D.S., Individually
ELLIOT SCHLANG, D. D.S.
Elliot Schlang, D.D.S., Individually
DENTAL ADVISORY GROUP, LLC
/s/ TIMOTHY REGAS
Timothy Regas, Managing Member
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HOLDINGS MEMBERS
JEFFREY D. SCHECHTER, D. D.S.
Jeffrey D. Schechter, D.D.S., Individually
S. ALEXANDER SOLEIMANI, D.M.D.
S. Alexander Soleimani, D.M.D., Individually
MARTIN SCHECHTER, D. D.S.
Martin Schechter, D.D.S., Individually
ELLIOT SCHLANG, D. D.S.
Elliot Schlang, D.D.S., Individually
DENTAL ADVISORY GROUP, LLC
/s/ TIMOTHY REGAS
Timothy Regas, Managing Member
JULIE D'AGUANNO
Julie D'Aguanno, Individually
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CORPORATE B MEMBERS
JDS-B CORPORATION
/s/ JEFFREY D. SCHECHTER, D.D.S.
Jeffrey D. Schechter, D.D.S., President
SAS-B CORPORATION
/s/ S. ALEXANDER SOLEIMANI, D.M.D.
S. Alexander Soleimani, D.M.D., President
MART-B CORPORATION
/s/ MARTIN SCHECHTER, D.D.S.
Martin Schechter, D.D.S., President
ES-B CORPORATION
/s/ ELLIOT SCHLANG, D.D.S.
Elliot Schlang, D.D.S., President
DAG-B CORPORATION
/s/ TIMOTHY REGAS
Timothy Regas, President
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CORPORATE C MEMBERS
JDS-C CORPORATION
/s/ JEFFREY D. SCHECHTER, D.D.S.
Jeffrey D. Schechter, D.D.S., President
SAS-C CORPORATION
/s/ S. ALEXANDER SOLEIMANI, D.M.D
S. Alexander Soleimani, D.M.D., President
MART-C CORPORATION
/s/ MARTIN SCHECHTER, D.D.S.
Martin Schechter, D.D.S., President
EL-S-C CORPORATION
/s/ ELLIOT SCHLANG, D.D.S.
Elliot Schlang, D.D.S., President
DAG-C CORPORATION
/s/ TIMOTHY REGAS
Timothy Regas, President
JUL-C CORPORATION
By: /s/ JULIE D'AGUANNO
Julie D'Aguanno, President
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EXHIBIT 99.1
LIMITED LIABILITY COMPANY AGREEMENT
OF
CASTLE DENTAL CENTERS
OF CALIFORNIA, L.L.C.
a Delaware limited liability company
Dated: March 30, 1998
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
OF
CASTLE DENTAL CENTERS
OF CALIFORNIA, L.L.C.
a Delaware limited liability company
This Limited Liability Company Agreement ("Agreement") of CASTLE
DENTAL CENTERS OF CALIFORNIA, L.L.C. (the "Company") is entered into as of March
30, 1998 among the signatories hereto (collectively, the "Members"). In
consideration of their mutual promises, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
Capitalized terms not otherwise defined herein shall have the
meanings assigned pursuant to EXHIBIT A hereto.
ARTICLE 2
BUSINESS OF COMPANY
The business of the Company ("Business") shall be:
(a) To provide various consulting and administrative services to
dental practices in the Territory (by way of management service agreements
or otherwise), including, without limitation, obtaining facilities, office
and dental supplies for dental practices; providing for the selection and
training of non-dental personnel; providing billing services, marketing
services, collection services, financial services and access to dental
equipment and maintenance thereof; advising in the development of new
clients; advice regarding compliance with regulatory bodies; and such
other reasonable services consistent with the services described above as
the Members shall agree from time to time; provided however, that at no
time shall the Company carry on any activities that are prohibited by the
California Dental Act or other similar federal or state law;
(b) To exercise all other powers necessary to or reasonably
connected with the Company's business, as described in (a) above, that may
be legally exercised by limited liability companies under the Act; and
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(c) To engage in all activities necessary, customary, convenient or
incidental to any of the foregoing.
ARTICLE 3
ORGANIZATIONAL MATTERS
3.1 REGULATION OF INTERNAL AFFAIRS. Consistent with the Act, the internal
affairs of the Company shall be regulated by this Agreement as it shall be
amended by the Members from time to time. Except as provided herein, the rights
and obligations of the Members and the administration and termination of the
Company shall be governed by the Act.
3.2 FORMATION. The Members have or will cause to be filed with the
Secretary of State a Certificate of Formation, pursuant to Section 18-201 of the
Act, for the purposes and upon the terms and subject to the conditions set forth
in this Agreement.
3.3 NAME. The name of the Company is Castle Dental Centers of California,
L.L.C. The Company's Business may be conducted under any other name or names
deemed advisable by the Board. The Board, in its sole and absolute discretion,
may change the name of the Company at any time and from time to time in
accordance with applicable law.
3.4 TERM. The term of the Company shall commence on the date of this
Agreement and shall continue until December 31, 2098, unless sooner terminated
or dissolved in accordance with this Agreement.
3.5 FILING. In connection with the execution of this Agreement, the
Members shall execute such further documents and take such further action as is
appropriate to comply with the requirements of law for the formation or
operation of a limited liability company in all states and counties where the
Company may conduct its Business.
3.6 REGISTERED OFFICE AND AGENT; PRINCIPAL PLACE OF BUSINESS; OTHER PLACES
OF BUSINESS. The address of the registered office of the Company in the State of
Delaware is located at 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801, and the registered agent for service of process on the Company
in the State of Delaware at such registered office is The Corporation Trust
Company. The principal office of the Company is located at 4392 West 132nd
Street, Hawthorne, California, 90250, or such other place as the Board may from
time to time designate by notice to the Members. The Company may maintain
offices at such other place or places within or outside the State of Delaware as
the Board deems advisable.
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ARTICLE 4
MEMBERSHIP
4.1 CLASSES OF INTERESTS. Interests in the Company shall be divided into
four classes:
(a) CLASS A INTEREST. The Class A Interest shall have an initial
Capital Account equal to the amount set forth on Exhibit B. The Class A
Interest shall have no interest in Net Profits or Net Losses.
(b) CLASS B INTEREST. The Class B Interest shall have an initial
Capital Account equal to the amount set forth on Exhibit B. The Class B
Interest shall have no interest in Net Profits or Net Losses.
(c) CLASS C INTEREST. The Class C Interest shall have an initial
Capital Account equal to the amount set forth on Exhibit B. The Class C
Interest shall have, in the aggregate, a Percentage Interest of twenty
percent (20%), which shall be owned by the Class C Members as set forth in
Exhibit B. The Capital Account and Percentage Interest of a Class C
Interest Member relating to its Class C Interest shall be based on its
percentage ownership interest of the Class C Interest.
(d) CLASS D INTEREST. The Class D Interest shall have an initial
Capital Account of zero. The Class D Interest shall have, in the
aggregate, a Percentage Interest of eighty percent (80%), which shall be
owned by the Class D Members as set forth in Exhibit B. The Capital
Account and Percentage Interest of a Class D Interest Member relating to
its Class D Interest shall be based on its percentage ownership interest
of the Class D Interest.
4.2 MEMBERS. The Members of the Company are set forth on Exhibit B,
attached hereto. A Person may be admitted as a new Member or a Substituted
Member only as provided in Article 9.
4.3 ASSIGNEE. An interest in the Company may only be assigned as provided
in Article 9.
4.4 LIMITED LIABILITY. No Member shall be personally liable under any
judgment of a court, or in any other manner, for any debt, obligation or
liability of the Company, whether that liability or obligation arises in
contract, tort or otherwise, solely by reason of being a Member.
4.5 COMPENSATION OF MEMBERS; INCENTIVE PAYMENT OBLIGATION. Except as
provided in this Agreement and the Transaction Agreements, no Member, Affiliate
of a Member, or any of its employees, shareholders of members shall be entitled
to remuneration for services rendered or
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goods provided to the Company. Pursuant to Section 6.3 of the Master
Contribution Agreement, Holdings will be paid a certain Incentive Payment. The
Company agrees that the Incentive Payment obligation is an expense and liability
of the Company that becomes due and payable in accordance with its terms and
regardless of the existence of Available Net Cash Flow and that Holdings shall
be considered a creditor of the Company with respect thereto. In the event the
Company does not timely pay its Incentive Payment obligation, Holdings shall
have the right to exercise any and all rights and remedies it may have at law or
equity, in addition to any rights it may have under this Agreement or the
Transaction Agreements. It is the intention of the Members that the Incentive
Payment be treated as a Code Section 707(a)(1) payment for income tax purposes,
once Holdings becomes a Member.
4.6 MANAGEMENT AGREEMENT. The Company shall enter into the Management
Agreement. By signing this Agreement all Members hereby approve all of the terms
set forth in the Management Agreement and the Company entering into the
Management Agreement.
4.7 TRANSACTIONS BETWEEN THE COMPANY AND THE MEMBERS. Notwithstanding that
it may constitute a conflict of interest, the Members and their Affiliates may
engage in transactions to provide goods and services to the Company so long as
such transaction is not expressly prohibited by this Agreement and so long as
the terms and conditions of such transaction, on an overall basis, (i) are
determined by the Board to be fair and reasonable to the Company, and (ii) are
at least as favorable to the Company as those that are generally available from
independent third parties capable of similarly performing them at arm's length.
4.8 COMPETING ACTIVITIES. The Members may not, and the Members shall cause
their Affiliates not to, engage or invest, independently or with others, in any
business that is competitive with the Company's Business in the Territory.
4.9 MEETINGS. Special meetings of the Members may be held at any place,
either within or without the State of Delaware, selected by the person or
persons calling the meeting. There shall be no regularly scheduled meetings of
the Company. A special meeting of the Members may be called by any Member.
4.10 VOTES OF MEMBERS; QUORUM; AND EFFECT OF VOTE. Each Member shall have
a number of votes equal to such Member's Percentage Interest in the Company,
provided that if, pursuant to the terms of this Agreement, a Member is not
entitled to vote on a specific matter, then such Member's number of votes and
Percentage Interest shall not be considered for purposes of determining whether
a quorum is present, or whether the requisite percentage approval by vote of the
Members has been obtained with respect to such specific matter. Members holding
an aggregate of one hundred percent (100%) of the votes, (i.e. one hundred
percent (100%) of the Percentage Interests) shall constitute a quorum at all
meetings of the Members. Notwithstanding there being a quorum present, unless
otherwise specifically indicated in this Agreement to the contrary, any
percentage vote needed to approve any action under this Agreement shall take
that
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percentage of all votes outstanding, regardless of the percentage of votes
attending a meeting or approving of the action at a meeting.
4.11 NOTICE FOR MEETINGS. Written notice of a meeting shall be given to
each Member entitled to vote not less than three (3) days nor more than thirty
(30) days before the date of the meeting, unless waived by all Members. The
notice shall state the place, date and hour of the meeting and the general
nature of the business to be transacted.
4.12 ACTIONS WITHOUT A MEETING. Any action that may be taken at any
meeting of Members may be taken without a meeting and without prior notice if a
consent in writing, setting forth the action so taken, shall be signed and
delivered to the Board by Members holding in the aggregate the number of votes
equal to or greater than the votes necessary to approve the action to be taken.
Notice of any action approved by the Members by written consent without a
meeting shall be given to all Members by the Board at least three (3) days
before the Company shall take any action in accordance with the written consent,
unless the written consent was unanimous. Any Member giving a written consent
may revoke such consent by a writing received by the Board prior to the time
that the Board has received sufficient written consents of Members necessary to
authorize the proposed action set forth in such consent.
4.13 NO CERTIFICATES OF INTEREST. Interests will not be represented by
certificates of membership but will be recorded and conclusively evidenced by
the books and records of the Company.
ARTICLE 5
MANAGEMENT
5.1 MANAGEMENT OF THE COMPANY BY THE BOARD OF DIRECTORS.
(a) EXCLUSIVE MANAGEMENT BY THE BOARD OF DIRECTORS. Subject to the
provisions of this Agreement relating to actions required to be approved
by the Members, the business, property and affairs of the Company shall be
managed and all powers of the Company shall be exercised by or under the
direction of the Board of Directors ("Board"). Each of the Members'
initial designations to serve on the Board shall appear on Exhibit C.
(b) MEETINGS OF THE BOARD. Special meetings of the Board may be
called by any Director (there shall be no regularly scheduled meetings
unless the Board decides to schedule them). All meetings shall be held
upon seven (7) days' notice by mail or twenty-four (24) hours' notice
delivered personally or by telephone, telegraph or facsimile to the
Directors setting forth the time and location of such meeting. Notice of a
special meeting shall also state the purpose or purposes for which such
meeting is called. Each notice of a Board meeting shall specify the
matters to be discussed at that meeting and no decision may be taken at
any Board meeting on any matter not specified in the notice of
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that meeting unless consented to by all Directors before or after the
meeting (whether or not present at the meeting). Notice of a meeting need
not be given to any Director who signs a waiver of notice or a consent to
holding the meeting (which waiver or consent need not specify the purpose
of the meeting) or an approval of the minutes thereof, whether before or
after the meeting, or who attends the meeting without protesting, prior to
its commencement, the lack of notice to such Director. All such waivers,
consents and approvals shall be filed with the Company records or made a
part of the minutes of the meeting. A majority of the Directors present,
whether or not a quorum is present, may adjourn any meeting to another
time. If the meeting is adjourned for more than twenty-four (24) hours,
notice of any adjournment shall be given prior to the time of the
adjourned meeting to the Directors who are not present at the time of the
adjournment. Meetings of the Board may be held in Hawthorne, California,
Los Angeles, California or such other place as may be approved by the
Board. Directors may participate in a meeting through use of conference
telephone or similar communications equipment, so long as all Directors
participating in such meeting can hear one another. Participation in a
meeting in such manner constitutes a presence in person at such meeting.
Any decision or approval of the Board under this Agreement requires a
majority of votes cast in favor of that decision or approval by the
Directors (each Director having one vote) present at a duly constituted
meeting of Directors.
(c) QUORUM. A quorum shall exist when at least three (3) Directors
are present. A meeting at which a quorum is initially present may continue
to transact business, notwithstanding the withdrawal of Directors, but any
action taken must be approved by the requisite number of Directors, based
on the original quorum, adjusted upward for any Directors who later join
the meeting, for such meeting.
(d) WRITTEN CONSENT. Any action required or permitted to be taken by
the Board may be taken by the Board without a meeting if all of the
Directors consent in writing to such action. Such action by written
consent shall have the same force and effect as a vote at a duly
constituted meeting of the Board.
5.2 ELECTION OF DIRECTORS.
(a) NUMBER, TERM AND QUALIFICATIONS. The Board shall initially be
comprised of five (5) directors (each, a "Director"). The holders of the
Class D Interest shall be entitled to elect, by majority vote (based on
the holders' relative Percentage Interests) three (3) Directors and shall
have the continuous right to elect three (3) Directors (including without
limitation, the election of replacement or successor Directors). The
holders of the Class C Interest, excluding any Class C Interest held by
Castle or an Affiliate of Castle, shall be entitled to elect, by majority
vote (based on such holders' relative Percentage Interests) two (2)
Directors and shall have the continuous right to elect two (2) Directors
(including without limitation, the election of replacement or successor
Directors). The number of Directors of the Company may only be changed by
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the unanimous written consent of the Members. Each Director shall hold
office until a successor shall have been elected.
(b) RESIGNATION. Any Director may resign at any time by giving
written notice to the holders of the class of Interest that elected him or
her. The resignation of any Director shall take effect three (3) business
days following receipt of that notice or at such later time as shall be
specified in the notice. Unless otherwise specified in the notice, the
acceptance of the resignation shall not be necessary to make it effective.
(c) REMOVAL. Any Director may be removed at any time, with or
without cause, by the holders of the class of Interest that elected such
Director.
(d) VACANCIES. Any vacancy occurring for any reason in the Board
shall be filled by the holders of the class of Interest that elected such
Director for which a vacancy exists.
5.3 POWERS OF THE BOARD.
(a) POWERS OF BOARD. Without limiting the generality of Section 5.1,
but subject to Section 5.3(b) and to the express limitations set forth
elsewhere in this Agreement, the Board shall have all necessary powers to
manage and carry out the purposes, business, property and affairs of the
Company, including, without limitation, the power to exercise on behalf
and in the name of the Company all of the powers permitted under the Act
by a "Manager," as that term is defined in the Act. The Board may delegate
any of its management powers in any manner it desires, including without
limitation, delegation pursuant to the terms of the Management Agreement.
(b) LIMITATIONS ON POWER OF BOARD. Notwithstanding anything stated
herein to the contrary, the Board shall not have authority hereunder to
cause the Company to engage in the following transactions without first
obtaining the affirmative vote or the written consent of all Members
("Major Decisions"):
(1) The (i) sale, exchange or other disposition of all, or
substantially all, of the Company's assets occurring as part of a
single transaction or plan, or in a series of transactions, or (ii)
the merger of the Company with or into another person or entity,
unless (A) the holders of the Class C Interest are given a First
Right to Negotiate, or (B) (x) such transaction is part of the sale,
exchange or other disposition of all or substantially all of
Castles' assets or securities or (y) the merger of Castle with or
into another person or entity;
(2) The admission of a new Member, or the establishment of
different classes of Members if either such action would adversely
affect the rights, preferences or privileges of the holders of the
Class B Interest or Class C Interest
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(including without limitation their interest in capital, Net Profits
and the Incentive Payment or the dilution of their interest through
the issuance of additional Class B Interests or Class C Interests);
(3) Any act which would make it impossible to carry on the
Business of the Company;
(4) A contract for debt, liability, obligations, guaranties or
encumbrances outside the ordinary course of business (without
limiting the foregoing, the parties specifically agree that neither
the granting of a security interest in the assets of the Company to
secure the repayment of Senior Indebtedness nor the guaranty by the
Company of Senior Indebtedness is outside of the ordinary course of
business);
(5) The disposition of Business assets (including the
termination, material modification or cancellation of management
service agreements) outside the ordinary course of business,
provided however that such disposition can occur outside the
ordinary course of business if the disposition is by sale or
exchange to an unrelated third party;
(6) Distributions of cash or property to the Members prior to
a dissolution, except in accordance with their Percentage Interests;
(7) A call for additional capital contribution; provided,
however, that the Board may elect to allow CDC to make additional
contributions solely in return for an increase in its Capital
Account for the amount contributed, but with no increase in its
Percentage Interest or other interests in profits, losses, gains,
deductions or distributions (other than distributions pursuant to
Article 10);
(8) Withdrawal of any part of a Member's Capital Contribution
other than upon the dissolution of the Company or in accordance with
Section 9.6;
(9) All equity placements, or going public or floating shares,
if the effect would be to adversely affect the rights, preferences
or privileges of the holders of the Class B Interest or Class C
Interest (including without limitation their interest in capital,
Net Profits and the Incentive Payment or the dilution of their
interest through the issuance of additional Class B Interests or
Class C Interests);
(10) Transactions with Members and/or their Affiliates, other
than those described in Section 4.6 and Section 4.7;
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(11) Amendment of this Agreement, the Certificate of Formation
or any of the Transaction Agreements to which the Company is a
party;
(12) A change in the Business of the Company as set forth in
Article 2;
(13) Any other transaction described in this Agreement as
requiring the vote, consent or approval of the Members.
5.4 PERFORMANCE OF DUTIES; LIABILITY OF DIRECTORS. A Director shall not be
liable to the Company or to any Member for any loss or damage sustained by the
Company or any Member as a result of his or her carrying out his or her duties
of a Director in good faith, unless the loss or damage shall have been the
result of fraud, deceit, gross negligence, reckless or intentional misconduct,
or a knowing violation of law by the Director.
5.5 COMPETING ACTIVITIES. (i)The holders of the Class C Interests and the
holders of the Class D Interests shall cause the Directors elected by the
respective holders, and (ii) the Company shall cause the officers of the
Company, not to engage or invest in, independently or with others, any activity
of any type or description, that might be the same as or similar to the
Company's Business and that might be in direct or indirect competition with the
Company in the Territory. If done so in violation of the above sentence, the
respective Interest holders or the Company, as the case may be, shall cause the
Company to have the right in, or to, such other ventures or activities and to
the income and proceeds derived therefrom. Directors and officers shall be
obligated to present any investment opportunity to the Company which is directly
or indirectly related to the Company's Business.
5.6 TRANSACTIONS BETWEEN THE COMPANY AND THE DIRECTORS. Notwithstanding
that it may constitute a conflict of interest, the Directors and their
Affiliates may engage in any transaction with the Company so long as such
transaction is not expressly prohibited by this Agreement and so long as the
terms and conditions of such transaction, on an overall basis, are determined by
the Board (consisting of only disinterested Directors) to be fair and reasonable
to the Company and are at least as favorable to the Company as those that are
generally available from independent third parties capable of similarly
performing them at arm's length, or if a majority of the Members holding votes
having no interest in such transaction (other than interests as Members) approve
the transaction in writing.
5.7 PAYMENTS TO DIRECTORS. Except as specified in this Agreement, no
Director is entitled to remuneration for services rendered or goods provided to
the Company in his or her capacity as a Director.
5.8 OFFICERS.
(a) APPOINTMENT OF OFFICERS. The Board may appoint officers at any
time. The officers shall serve at the pleasure of the Board, subject to
all rights, if any, of an
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officer under any contract of employment. Any individual may hold any
number of offices. The officers shall exercise such powers and perform
such duties as shall be determined from time to time by the Directors.
(b) REMOVAL, RESIGNATION AND FILLING OF VACANCY OF OFFICERS. Subject
to the rights, if any, of an officer under a contract of employment, any
officer may be removed, either with or without cause, by the Board at any
time. Any officer may resign at any time by giving notice to the Board.
Any resignation shall take effect upon receipt of that notice or at any
later time specified in that notice; and, unless otherwise specified in
that notice, the acceptance of the resignation shall not be necessary to
make it effective. Any resignation is without prejudice to the rights, if
any, of the Company including, without limitation, any rights under any
contract to which such officer is a party. A vacancy in any office because
of death, resignation, removal, disqualification or any other cause shall
be filled in the manner prescribed by the Board.
ARTICLE 6
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
6.1 INITIAL MEMBERS. The initial Members, their respective addresses,
Interests, Capital Contributions and Percentage Interests are set forth in
EXHIBIT B.
6.2 ADDITIONAL CAPITAL CONTRIBUTIONS. No Member shall be obligated to
contribute additional capital to the Company unless a capital contribution is
approved by vote of at least 100% of the votes outstanding.
6.3 LIMITATIONS. No Member shall have the right to resign prior to the
termination of this Agreement or withdraw its Capital Contribution or demand and
receive property of the Company or any distribution in return for such Capital
Contribution, except as may be specifically provided in this Agreement.
Notwithstanding the previous sentence, no Member shall receive out of the
Company property any part of such Member's Capital Contribution if the
distribution would be considered a distribution in violation of Section 18-607
of the Act.
6.4 PERCENTAGE INTEREST OF MEMBER. Each Member's initial Percentage
Interest is set forth on EXHIBIT B. Notwithstanding any provision to the
contrary herein, a Member's Percentage Interest may not be changed without the
written consent of such Member.
6.5 CAPITAL ACCOUNT FOR EACH MEMBER. A separate Capital Account will be
maintained for each Member in accordance with Section 704(b) of the Code and
Regulation Section 1.704-1(b)(2)(iv). "Capital Account" means, with respect to
each Member, such Member's initial Capital Contribution to the Company:
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(a) Increased by (A) the amount of money contributed by such Member
to the Company, (B) the Gross Asset Value of any property contributed by
such Member to the capital of the Company (net of liabilities secured by
such contributed property that the Company is considered to assume or take
subject to under Section 752 of the Code), (C) the amount of any Net
Profits allocated to such Member pursuant to this Agreement, and (D) any
items in the nature of income or gain that are specially allocated to such
Member and, therefore, excluded from Net Profits; and
(b) Decreased by (A) the amount of money distributed to such Member
by the Company, (B) the Gross Asset Value of any property distributed to
such Member by the Company (net of liabilities secured by such distributed
property that such Member is considered to assume or take subject to under
Code Section 752), (C) the amount of any Net Losses charged to such Member
pursuant to this Agreement, and (D) any items in the nature of expenses or
losses that are specially allocated to such Member and, therefore,
excluded from Net Losses.
6.6 DETERMINATION OF CAPITAL ACCOUNTS. Except as otherwise provided
herein, the Capital Account of a Member shall be determined in accordance with
the rules set forth in Regulation Section 1.704-1(b)(2)(iv) as the same may be
amended or revised hereafter. Any references in this Agreement to the Capital
Account of a Member shall be deemed to refer to such Capital Account as the same
may be credited or debited from time to time as set forth above.
6.7 CAPITAL ACCOUNT ADJUSTMENTS FOR SPECIAL EVENTS.
(a) SUCCESSION TO CAPITAL ACCOUNT. In the event all or a portion of
an Interest is transferred in accordance with the terms of this Agreement,
the transferee shall succeed to the Capital Account of the transferor to
the extent it relates to the transferred Interest.
(b) ASSUMPTION OF LIABILITY. An assumption of an unsecured liability
by the Company shall be treated as a distribution of money to the Member
in the amount of such liability less the Member's share of the Company's
debt. An assumption of the unsecured liability of the Company by a Member
shall be treated as a cash contribution to the Company in the amount of
such liability less the Member's share of the Company's debt. In
determining the amount of any liability for this purpose, there shall be
taken into account Code Section 752(c) and any other applicable provisions
of the Code and Regulations.
(c) ADJUSTMENTS FOR NONCASH DISTRIBUTION. In the event that assets
of the Company other than cash are distributed in kind to a Member,
Capital Accounts shall be adjusted for the hypothetical "book" gain or
loss that would have been realized by the Company if the distributed
assets had been sold for their fair market values in a cash sale (in order
to reflect unrealized gain or loss).
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(d) ADJUSTMENTS TO FAIR MARKET UPON TRANSFER OF INTEREST. Capital
Accounts shall be adjusted to reflect fair market value of all properties
in the event of the acquisition of an Interest by an existing or new
Member.
(e) ADJUSTMENT FOR CONSTRUCTIVE TERMINATION OF THE COMPANY. Capital
Accounts also shall be adjusted upon constructive termination of the
Company under Code Section 708 in accordance with Regulations Section
1.704-1(b)(2)(iv)(d), (e) and (l).
(f) ADJUSTMENT FOR RECAPTURE OF CERTAIN CREDITS. Capital Accounts
shall be adjusted appropriately on account of investment tax credit and
investment tax credit recapture in accordance with the principles of Code
Section 48(q).
ARTICLE 7
ALLOCATIONS OF PROFITS AND LOSSES
7.1 ALLOCATION OF NET PROFITS AND NET LOSSES. Subject to the prior
application of Section 7.2 and other applicable provisions of this Agreement,
Net Profits and Net Losses for any taxable year (or shorter period as may be
required in order to comply with Code Sections 706(c) and (d)) shall be
allocated in accordance with the Members' Percentage Interests as set forth in
EXHIBIT B.
7.2 SPECIAL AND REGULATORY ALLOCATIONS. Allocations shall be made under
this Section 7.2 before allocations are made under Section 7.1. Allocations
under this Section 7.2 shall be made in the order they appear below.
(a) DECREASE IN COMPANY MINIMUM GAIN. Notwithstanding any other
provisions of this Agreement, if there is a net decrease in Company
Minimum Gain for a Company taxable year, then, if and to the extent
required by the Regulations, each Member shall be allocated items of
income and gain for such year (and, if necessary, subsequent years) in
proportion to, and to the extent of, an amount equal to the greater of (a)
the portion of such Member's share of the net decrease in the Company
Minimum Gain during such year that is allocable to the disposition of
Company property subject to one or more Company Nonrecourse Liabilities,
and (b) the deficit balance in such Member's Capital Account at the end of
such year. For this purpose, the balance in a Member's Capital Account at
the end of such year shall be determined with the adjustments prescribed
by Regulation Section 1.704-2(g)(1).
(b) DECREASE IN MEMBER NONRECOURSE LIABILITY MINIMUM GAIN.
Notwithstanding any other provision of this Agreement, if there is a net
decrease during a Company taxable year in a Member's share of Member
Nonrecourse Liability Minimum
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Gain, then, if and to the extent required by the Regulations, any Member
with a share of the Member Nonrecourse Liability Minimum Gain at the
beginning of the year shall be allocated items of Company income and gain
for such year (and, if necessary, subsequent years) in proportion to, and
to the extent of, an amount equal to the greater of (a) the portion of
such Member's share of the net decrease in the Member Nonrecourse
Liability Minimum Gain that is allocable to the disposition of Company
property subject to such Member's Nonrecourse Liability, and (b) the
deficit balance in such Member's Capital Account at the end of such year.
The items of Company income and gain allocated with respect to a decrease
in shall not include any items of income or gain allocated with respect to
a decrease in Company Minimum Gain. For this purpose, the balance in a
Member's Capital Account at the end of such year shall be determined with
the adjustments prescribed by, and the allocations hereunder shall be made
in accordance with, the provisions of Regulations Section 1.704-2(i).
(c) QUALIFIED INCOME OFFSET. Items of income and gain shall be
specially allocated to each Member in an amount and manner sufficient to
eliminate, if and to the extent required by the Regulations, the Adjusted
Capital Account Deficit of the Member as quickly as possible in the event
any Member unexpectedly receives any (i) distributions that, as of the end
of such year, reasonably are expected to be made to a Member to the extent
they exceed offsetting increases to such Member's Capital Account that
reasonably are expected to occur during (or prior to) Company taxable
years in which such distributions reasonably are expected to be made
(other than increases pursuant to a minimum gain chargeback of the
Agreement) or (ii) adjustments, allocations, or distributions described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6). This subsection
is intended to comply with Regulation Section 1.704-1(b)(2)(ii)(d) and
should be so interpreted. Any allocation pursuant to the preceding
sentence shall be taken into account in computing subsequent allocations
of Net Profits or Losses so that the net amount of all items allocated for
all periods shall, to the extent possible, be equal to the net amount that
would have been allocated to each Member if the allocations required by
the preceding sentence had not been made.
(d) ALLOCATION OF NONRECOURSE DEDUCTIONS. Nonrecourse Deductions
shall be allocated in accordance with the Members' respective Percentage
Interests. The Percentage Interests represent the interests in profits of
the Company for purposes of allocating excess nonrecourse liabilities
under Regulations Section 1.752-3(a)(3).
(e) ALLOCATION OF MEMBER NONRECOURSE DEDUCTIONS. Member Nonrecourse
Deductions shall be allocated to the Member, if any, that bears the
economic risk of loss for the Member Nonrecourse Liability to which the
Member Nonrecourse Deductions are attributable. If more than one Member
bears the economic risk of loss for a Member Nonrecourse Liability, the
Member Nonrecourse Deductions attributable to such Member Nonrecourse
Liability shall be allocated among such Members in accordance with the
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ratios in which such Members share the economic risk of loss for such
Nonrecourse Liability.
(f) ALLOCATION OF INCOME, GAINS AND LOSSES RELATED TO CONTRIBUTED OR
REVALUED PROPERTY. In accordance with Code Section 704(c) and the
Regulations thereunder, income, gain, loss and deduction with respect to
any property contributed to the capital of the Company shall, solely for
tax purposes, be allocated among the Members so as to take account of any
variation between the adjusted basis of such property to the Company for
federal income tax purposes and its initial Gross Asset Value pursuant to
the "TRADITIONAL METHOD" as described in Regulation Section 1.704-3(b). In
the event the Gross Asset Value of any Company asset is adjusted,
subsequent allocations of income, gain, loss, and deduction with respect
to such asset shall take account of any variation between the adjusted
basis of such asset for federal income tax purposes and its Gross Asset
Value in the same manner as under Code Section 704(c) and the Regulations
thereunder, pursuant to the "TRADITIONAL METHOD." Any other elections or
decisions relating to such allocations shall be made by the Board in any
manner that reasonably reflects the purpose and intention of this
Agreement. Allocations pursuant to this subsection are solely for purposes
of federal, state, and local taxes and shall not affect, or in any way be
taken into account in computing, any member's Capital Account or share of
Net Profits, Net Losses, or other items or distributions pursuant to any
other provision of this Agreement.
(g) ALLOCATION OF GAIN AND LOSSES RELATED TO ADJUSTMENTS IN TAX
BASIS. Any adjustment to the adjusted tax basis of any Company asset
pursuant to Code Section 732(d), 734(b) or 743(b) that is required,
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into
account determining Capital Accounts, and thus treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis) shall be specially allocated to the
Members in a manner consistent with the manner in which their Capital
Accounts are required to be adjusted pursuant to such section of the
Regulations.
(h) CURATIVE ALLOCATIONS. The allocations set forth in
Sections 7.2(a),(b),(c),(d) and (e) directly above (the "Regulatory
Allocations") are intended to comply with certain requirements of
Regulations Section 1.704-1(b). Items of income (including gross income),
gain, loss and deductions (computed after taking into consideration the
adjustments resulting from the Regulatory Allocations) shall be specially
allocated among the Members in such a fashion, so that, to the extent
possible, the allocations to each Member of the remaining items, when
combined with the allocations resulting from the Regulatory Allocations,
shall equal the amount that would have been allocated to each Member if
the Regulatory Allocations had not been applied.
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ARTICLE 8
DISTRIBUTIONS
8.1 DISTRIBUTIONS OF ADJUSTED TAXABLE INCOME. Subject to any limitations
found elsewhere in this Agreement, the Board shall distribute Quarterly Adjusted
Taxable Income among the Members in accordance with their respective Percentage
Interests within thirty (30) days of the end of each calendar quarter, but only
to those Persons recognized on the books of the Company as Members or as holders
of Economic Interests on the day of the distribution.
8.2 DISTRIBUTIONS OF QUARTERLY TAX DISTRIBUTIONS. To the extent the
distributions made pursuant to Section 8.1 for a calendar quarter are due to
occur after the estimated tax payment due date with respect to such quarter, the
Company shall distribute at least ten (10) days before each estimated tax
payment due date the Quarterly Tax Distribution Amount. The amount to be
distributed under Section 8.1 with respect to a calendar quarter shall be
reduced any amounts distributed under this Section with respect to such calendar
quarter. For purposes of this Section, the April 15 estimated tax due date shall
relate to the first calendar quarter, the June 15 estimated tax due date shall
relate to the second calendar quarter, the September 15 estimated tax due date
shall relate to the third calendar quarter and the January 15 estimated tax due
date shall relate to the fourth calendar quarter.
ARTICLE 9
SALE, ASSIGNMENT, TRANSFER AND
WITHDRAWAL OF INTERESTS;
ADMISSION OF NEW MEMBERS
9.1 TRANSFER AND ASSIGNMENT OF INTERESTS.
(a) Except as set forth in this Article 9 and the Transaction
Agreements, no Member shall be entitled to transfer, assign, convey, sell,
encumber or in any way alienate (collectively "Transfer") all or any part
of his or her Interest unless approved by the votes of all of the Members
not Transferring their Interests, which consent may be given or withheld,
conditioned or delayed as the other Members may determine in their sole
discretion. Transfers in violation of this Article 9 shall be null and
void and of no force and effect whatsoever.
(b) Except as otherwise provided in this Article 9, CDC, Castle or
any of their Affiliates shall have the right to Transfer any or all of its
Interest if such transferor provides the other Members with the First
Right to Negotiate, provided however, that if the Transfer of CDC's,
Castle's or any of their Affiliate's Interest in the Company is part of
the sale, exchange or other disposition of all or substantially all of
Castles's assets or
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securities or the merger of Castle with or into another person or entity,
no First Right to Negotiate need be provided to the other Members;
(c) CDC shall be permitted to pledge its interest to secure any
Senior Indebtedness.
(d) CDC shall not be permitted to Transfer any of its Percentage
Interest (in the aggregate), other than in accordance with Section 9.1(b)
and (c) above, without first complying with the Tag-Along provision set
forth in Section 9.11.
(e) No Interest shall be Transferred if it is a Restricted Transfer,
as determined in the reasonable discretion of the Board.
(f) After the consummation of any Transfer of any part of an
Interest, the Interest so transferred shall continue to be subject to the
terms and provisions of this Agreement and any further Transfers shall be
required to comply with all the terms and provisions of this Agreement.
9.2 ADDITIONAL CONDITIONS TO TRANSFER. In addition to meeting the
requirements of Section 9.1, a Transfer shall not be effective until all of the
following have been satisfied:
(a) The transferee consents in writing, in form reasonably
satisfactory to the Board, to be bound by the terms of this Agreement;
(b) If requested by the Board, satisfactory evidence is delivered to
the Board that such assignment is not a Restricted Transfer;
(c) The transferor provides the Board with any information
reasonably requested by the Board in order for the Company to comply with
the requirements of Code Section 6050K or any other reporting requirements
imposed by law, provided that the Board determines, with the advice of
legal counsel, if necessary, that the Transfer is subject to Code Section
6050K or any other reporting requirements imposed by law;
(d) The transferee, upon request of the Board, shall execute such
certificates or other documents and perform such acts as the Board
reasonably deems appropriate to preserve the limited liability status of
the Company under the laws of the jurisdiction in which the Company is
doing business; and
(e) The transferor agrees to pay all reasonable expenses, including
attorneys' fees, incurred by the Company in connection with such Transfer.
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9.3 SUBSTITUTION OF MEMBERS. A permitted transferee of an Interest under
this Article 9 shall have only an Economic Interest unless admitted as a
Substituted Member. A permitted transferee shall become a Substituted Member
only upon (i) compliance with Section 9.2 and (ii) the approval of at least two
members of the Board, which consent may be given or withheld, conditioned or
delayed as may be determined in their sole discretion. The admission of a
Substituted Member shall not result in the release of the Member who assigned
the Interest from any liability that such Member may have to the Company.
9.4 INDEMNIFICATION AND ADMISSION. The transferor Member and any
transferee of a Member under this Article 9 shall indemnify, defend and hold
harmless the Company, the Board and the other Members, if any, who become or are
threatened to be made parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of or arising from any actual or alleged misrepresentation or
misstatement of facts (or omission to state facts) made (or omitted to be made)
in connection with any admission, assignment, transfer, encumbrance or other
disposition of all or any part of an Interest in the Company or the admission of
a Substituted Member to the Company, against any and all liability, damage, loss
and expense for which the Company or such Members have not otherwise been
reimbursed (including attorneys' fees, judgments, fines and amounts paid in
settlement), actually and reasonably incurred in connection with such action,
suit or proceeding.
9.5 ADMISSION OF NEW MEMBERS. A Person may be admitted as a new Member
only upon the vote of the Board and the approval required under Section 5.3(b).
A new Member shall not be deemed admitted until he or she has made the required
Capital Contribution and consents in writing, in form satisfactory to the Board,
to be bound by the terms of this Agreement.
9.6 WITHDRAWAL OR RESIGNATION OF A MEMBER. No Member may resign or
withdraw as a Member, or withdraw its Capital Contribution or a Capital Account
prior to the termination and dissolution of the Company, and only in accordance
with the terms of this Agreement.
9.7 ALLOCATION IN RESPECT OF A TRANSFERRED INTEREST. If any Interest is
transferred, or is increased or decreased by reason of the admission of a new
Member, withdrawal of a Member or otherwise, during any year of the Company,
each item of income, gain, loss, deduction or credit of the Company for such
taxable year shall be assigned pro rata to each day in the particular period of
such year to which such item is attributable (i.e., the day on or during which
it is accrued or otherwise incurred) and the amount of each such item so
assigned to any such day shall be allocated to the Member based upon its
respective Interest at the close of the day.
9.8 OPTIONAL ADJUSTMENT TO BASIS. In the connection with the transfer of
all or part of the Interest of any Member, including without limitation, the
transfer of the Class A Interest, the Company shall make the election provided
in Code Section 754 (if such an election is not already
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in effect for the Company), and make the adjustments to the basis of the Company
property (with regard to the transferee Member only) as provided in Code Section
743.
9.9 AMENDMENT TO THE COMPANY RECORDS. Upon admission of any Member to the
Company, the Board shall add the name, address, Capital Contribution and
Member's Percentage Interest in Net Profits and Net Losses to a list of Members
that shall be kept in the principal executive office of the Company.
9.10 ASSIGNEES, SUBSTITUTED MEMBERS AND ADMITTED MEMBERS BOUND BY
AGREEMENT. Any person who acquires an Interest of any Member or is admitted to
the Company as a Substituted Member or new Member shall be subject to and bound
by all the provisions of this Agreement as if originally a party to this
Agreement.
9.11 TAG-ALONG PROVISION.
(a) Provided that such transaction is not made under circumstances
described in Section 5.3 (b)(1)(B), if CDC, Castle, or any of its
Affiliates (collectively the "Selling Group"), at any time from time to
time, enters into an agreement (whether oral or written) to transfer, sell
or otherwise dispose of directly or indirectly (including without
limitation, a sale of CDC stock) any of its Percentage Interest in the
Company to a Person (a "Tag-Along Sale"), each of DCS and Holdings shall
have the right, but not the obligation, to participate in such Tag-Along
Sale by selling their respective Interest or portion thereof, as provided
in this Section 9.11 (a "Participating Sale").
(b) Regardless of whether the Selling Group intends to sell all or a
portion of its Percentage Interest in a Tag-Along Sale, each of DCS and
Holdings shall have the right to sell the same portion of their respective
Percentage Interest (the "Tag-Along Allotment") in the Tag-Along Sale as
the portion of the Selling Group's Percentage Interest that the Selling
Group intends to sell in such Tag-Along Sale as set forth in the
applicable Sale Notice (as defined below).
(c) Any Participating Sale shall be on the same economic terms and
conditions as the proposed Tag-Along Sale.
(d) The Selling Group member(s) participating in a Tag-Along Sale
shall promptly provide each of DCS and Holdings with written notice (the
"Sale Notice") at least thirty (30) days prior to such Tag-Along Sale. The
Sale Notice shall set forth: (i) the name and address of the proposed
transferee or purchaser; (ii) the percentage points of Percentage Interest
proposed to be transferred, sold or disposed of; (iii) the proposed amount
and form of consideration to be received in connection with such Tag-Along
Sale, and the terms and conditions of payment offered by the proposed
purchaser or transferee; (iv) the percentage points of Percentage Interest
the Selling Group member believes Holdings is entitled to include in the
Tag-Along Sale; and (v) confirmation that the
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proposed transferee or purchaser has been informed of the "Tag-Along
Rights" provided for in this Section and has agreed to purchase from DCS
and/or Holdings, as applicable, in accordance with the terms hereof and be
bound by this Section as if it were a member of the Selling Group.
(e) If DCS and/or Holdings desires to participate in the Tag-Along
Sale, it or they, as applicable, shall provide a written notice (the
"Tag-Along Notice") to CDC within twenty (20) days of receiving the Sale
Notice. The Tag-Along Notice shall set forth the percentage points of
Percentage Interest DCS or Holdings, as applicable, believes it is
entitled to include in the Tag-Along Sale, which amount shall be the
Tag-Along Allotment. The Tag-Along Notice shall constitute its binding
agreement to sell the Tag-Along Allotment on the economic terms and
conditions applicable to such Tag-Along Sale. If the proposed purchaser or
transferee does not purchase the percentage points of Percentage Interest
from DCS and/or Holdings, as applicable, in accordance with the terms of
this Section, CDC or its Affiliates shall purchase, or the Company shall
redeem, such amount on the same economic terms and conditions applicable
to such Tag-Along Sale at the time of such Tag-Along Sale.
(f) If a Tag-Along Notice is not received from DCS and/or Holdings
within the twenty day period specified above, the Selling Group member(s)
shall have the right to sell the Percentage Interest described in the Sale
Notice without participation by DCS and/or Holdings, as applicable, but
only on the terms and conditions stated in the Sale Notice and only if the
sale, transfer or disposition occurs not later than 75 days after the
receipt of the Sale Notice.
ARTICLE 10
DISSOLUTION AND WINDING UP
10.1 CONDITIONS OF DISSOLUTION. The Company shall be dissolved, its assets
shall be disposed of and its affairs wound up on the first to occur of the
following:
(a) A determination by the unanimous written agreement of the
Members that the Company should be dissolved;
(b) Entry of a decree of judicial dissolution of the Company
pursuant to the terms of the Act;
(c) The sale of all or substantially all of the assets of the
Company; or
(d) The expiration of the term of the Company, as set forth in
Section 3.4, unless all Members approve an extension of the term.
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10.2 WINDING UP. Upon the dissolution of the Company, the Company shall
continue solely for the purpose of winding up its affairs in an orderly manner,
liquidating its assets and satisfying the claims of its creditors. No Member
shall take any action that is inconsistent with, or not necessary to or
appropriate for, winding up the business and affairs of the Company. To the
extent not inconsistent with the foregoing, all covenants and obligations in
this Agreement shall continue in full force and effect until such time as the
assets have been distributed and the Company has terminated.
10.3 RESPONSIBILITIES OF BOARD FOR WINDING UP. The Board shall be
responsible for overseeing the winding up and liquidation of the Company, shall
take full account of the liabilities and assets of the Company, shall, cause its
assets to be liquidated as promptly as is consistent with obtaining the fair
market value thereof, and shall cause the proceeds therefrom, to the extent
sufficient therefor, to be applied and distributed as provided in Section 10.4.
Assets can be distributed in kind to Members and need not be liquidated if
agreed to by all of the Members.
10.4 ORDER OF PAYMENT OF LIABILITIES UPON DISSOLUTION. In settling
accounts of the Company after dissolution, the proceeds to the extent sufficient
therefor, shall be applied and distributed on or before the end of the taxable
year of liquidation or, if later, within ninety (90) days after such liquidation
in the following order:
(a) First to creditors of the Company, including Members who are
creditors (as a result of the Incentive Payment or otherwise), in
satisfaction of liabilities of the Company;
(b) Then to Members of the Company in accordance with their
respective positive Capital Account balances after giving effect to all
Capital Contributions, distributions, revaluations and allocations
strictly in accordance with the positive capital account balance
limitation and other requirements of Regulations Section
1.704-1(b)(2)(ii)(d).
10.5 LIMITATIONS ON PAYMENTS MADE IN DISSOLUTION; CAPITAL ACCOUNT
DEFICITS. Except as otherwise specifically provided in this Agreement, each
Member shall be entitled to look solely to the assets of the Company for the
return of such Member's positive Capital Account balance. If any Member has a
deficit balance in its Capital Account (after giving effect to all
contributions, distributions and allocations for all taxable years, including
the year during which such liquidation occurs), such Member shall have no
obligation to make any contribution to the capital of the Company with respect
to such deficit, and such deficit shall not be considered a debt owed to the
Company or to any other Person for any purpose whatsoever.
10.6 LIQUIDATION NOT IN CONNECTION WITH A DISSOLUTION. Notwithstanding any
other provision of this Article 10, in the event the Company is liquidated
within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no
dissolution has occurred, the Company's property shall not be liquidated, the
Company's liabilities shall not be paid or discharged, and the
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Company's affairs shall not be wound up. In such event, the Company shall treat
such liquidation in a manner that is consistent with the Code.
ARTICLE 11
BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS
11.1 MAINTENANCE OF BOOKS AND RECORDS. The Board shall cause books and
records of the Company to be maintained on a calendar year basis in accordance
with GAAP for financial purposes, and in accordance with this Agreement and the
Regulations for federal income tax purposes. The Board shall supply unaudited
financial reports to the Members at least quarterly, and shall supply timely
unaudited financial statements to the Members at least annually, as provided in
Section 11.2 below. There shall be kept at the principal office of the Company
the following Company documents:
(a) A current list of the full name and last known business or
residence address of each Member and of each holder of an Economic
Interest in the Company set forth in alphabetical order;
(b) A copy of the Certificate of Formation, Organization and any
amendments thereto;
(c) Copies of the Company's federal, state and local income tax or
information returns and reports, if any, for the six most recent taxable
years;
(d) A copy of this Agreement and any amendments thereto;
(e) Copies of the financial statements of the Company for the six
most recent calendar years;
(f) The Company's books and records as they relate to the internal
affairs of the Company for at least the current and past four calendar
years;
(g) Originals or copies of all minutes, actions by written consent,
consents to action and waivers of notice to Members and Member votes,
actions and consents; and
(h) Any other information required to be maintained by the Company
pursuant to the Act.
11.2 ANNUAL ACCOUNTING. Within 120 days after the close of each calendar
year of the Company, the Board shall (i) cause to be prepared and submitted to
each Member a balance sheet and income statement for the preceding calendar year
of the Company (or portion thereof) in
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accordance with GAAP, and (ii) provide to the Members all information necessary
for them to complete federal and state tax returns.
11.3 INSPECTION AND AUDIT RIGHTS. Each Member and each holder of an
Economic Interest in the Company who is not a Member has the right upon
reasonable request, for purposes reasonably related to the interest of that
Person, to inspect and copy, except as provided in Section 11.4 at its expense
and during normal business hours, any of the Company books and records. Such
right may be exercised by the Person or by that Person's agent or attorney. Any
Member may require, at his or her expense, a review and/or audit of the books,
records and reports of the Company.
11.4 RIGHTS OF MEMBERS AND NON-MEMBERS. Upon the request of a Member or a
holder of an Economic Interest who is not a Member, for purposes reasonably
related to the interest of that Person, the Board shall promptly deliver to the
Member or holder of an Economic Interest, at the expense of the Company, a copy
of this Agreement and a copy of the information listed in Sections 11.1 of this
Agreement.
11.5 BANK ACCOUNTS. The bank accounts of the Company shall be maintained
in such banking institutions as the Board shall determine, provided such
institutions have a net worth in excess of One Hundred Million Dollars
($100,000,000).
11.6 TAX MATTERS HANDLED BY CDC. CDC shall be designated as "Tax Matters
Partner" (as defined in Code section 6231), to represent the Company (at the
Company's expense) in connection with all examinations of the Company's affairs
by tax authorities, including resulting judicial and administrative proceedings,
and to expend Company funds for professional services and costs associated
therewith. In its capacity as "Tax Matters Partner," CDC shall oversee the
Company tax affairs in the overall best interests of the Company. CDC shall
supply the Internal Revenue Service and any other similar state taxing authority
with the information required by Code Section 6223 (or similar provision under
state law) and the Regulations thereunder, sufficient to require such taxing
authority to give the notice described in Code Section 6223(a) (or similar state
law).
11.7 FEDERAL INCOME TAX ELECTIONS MADE BY THE BOARD. The Board may make
all elections for federal income tax purposes on behalf of the Company, and
shall make the "754 election" as provided in Section 9.8.
11.8 ACCOUNTING METHOD. For financial reporting purposes, the books and
records of the Company shall be kept on the accrual method of accounting in
accordance with GAAP, applied in a consistent manner and shall reflect all
transactions of the Company and be appropriate and adequate for the purposes of
the Company.
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ARTICLE 12
INDEMNIFICATION
12.1 INDEMNIFICATION OF MEMBERS, BOARD AND OFFICERS. If the requirements
of this Article with respect to indemnification are satisfied, the Company shall
indemnify any Member, Director or officer made a party to any proceeding because
such Person is or was a Member, Director or officer or acted pursuant to the
Management Agreement, against all liability to the greatest extent not
inconsistent with the laws and public policies of Delaware. For purposes of this
Article:
(a) "EXPENSES" includes all direct and indirect costs (including
without limitation counsel fees, retainers, court costs, transcripts, fees
of experts, witness fees, travel expenses, duplicating costs, printing and
binding costs, telephone charges, postage, delivery service fees and all
other disbursements or out-of-pocket expenses) actually incurred in
connection with the investigation, defense, settlement or appeal of a
proceeding or establishing or enforcing a right to indemnification under
this section, applicable law or otherwise.
(b) "LIABILITY" means the obligation to pay a judgment, settlement,
penalty, fine, excise tax (including an excise tax assessed with respect
to an employee benefit plan), or reasonable expenses incurred with respect
to a proceeding.
(c) "PARTY" includes anyone who was, is or is threatened to be made
a named defendant or respondent in a proceeding.
(d) "PROCEEDING" means any threatened, pending or completed action,
suit or proceeding, whether, civil, criminal, administrative or
investigative and whether formal or informal.
12.2 STANDARDS OF CONDUCT FOR INDEMNIFICATION. Indemnification shall be
provided under this Article if the person seeking indemnification: (i) acted in
good faith; and (ii) reasonably believed that such person's conduct was in or at
least not opposed to the Company's best interests. Indemnification shall also be
provided for any conduct with respect to an employee benefit plan if the person
seeking indemnification: (i) acted in good faith; and (ii) reasonably believed
such person's conduct to be in or at least not opposed to the best interests of
the participants in and beneficiaries of the plan.
12.3 UNDERTAKINGS FOR INDEMNIFICATION AND ADVANCES. The Company shall pay
for, advance or reimburse the reasonable expenses incurred by a Member in
connection with any such proceeding in advance of final disposition thereof if
(i) such person furnishes the Company a written affirmation of such person's
good faith belief that such person has met the standard of conduct for
indemnification described in Section 12.2, (ii) such person furnishes the
Company a written undertaking to repay the advance if it is ultimately
determined that such person did not
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meet such standard of conduct, and (iii) a determination is made in accordance
with Section 12.4, based upon facts then known to those making the
determination. The undertaking described in (ii) above must be a general
obligation of such person subject to such reasonable limitations as the Company
may permit, but need not be secured and shall be accepted without reference to
financial ability to make repayment. Notwithstanding (ii) and (iii) above, the
Company shall indemnify a Member who is wholly successful, on the merits or
otherwise, in the defense of any such proceeding, as a matter of right, against
reasonable expenses incurred by such person in connection with the proceeding
without the requirement of a determination as set forth in Section 12.4.
12.4 DEMAND FOR INDEMNIFICATION OR ADVANCEMENT OF EXPENSES; DETERMINATION
BY THE COMPANY. Upon demand by a Member for indemnification or advancement of
expenses, as the case may be, the Board shall expeditiously determine whether it
believes that it is more likely than not that the Member has met the standard
for indemnification set forth in Section 12.2. Such determination can be made in
any of the following ways:
(a) By the Board, not taking into account Directors elected by the
Member seeking indemnification;
(b) By a vote of all Members other than the Member seeking
indemnification;
(c) By legal counsel approved by either: (i) the Board, not taking
into account Directors elected by the Member seeking indemnification, or
(ii) a vote of all Members other than the Member seeking indemnification;
(d) If the Member seeking indemnification is not satisfied with the
determination made in accordance with Paragraphs (a), (b) or (c) of this
Section, he or she may elect to submit the dispute for resolution to an
arbitrator in accordance with the rules of the American Arbitration
Association. The prevailing party in such arbitration shall be entitled to
recover its reasonable costs and expenses incurred in connection with such
arbitration, including, without limitation, reasonable attorney's and
accountant's fees.
12.5 INDEMNIFICATION OF OTHERS. Company shall have the power, but not the
obligation, to indemnify any person who is or was an employee or agent of the
Company, but is not or was not a Member, to the same extent as if such person
were a Member.
12.6 INDEMNIFICATION RIGHTS NON-EXHAUSTIVE. Nothing contained in this
Article shall limit or preclude the exercise or be deemed exclusive of any right
under the law, by contract or otherwise, relating to indemnification of or
advancement of expenses to any person who is or was a Member of the Company or
is or was serving at the Company's request as a director, officer, partner,
manager, trustee, employee, or agent of another foreign or domestic company,
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partnership, association, limited liability company, corporation, joint venture,
trust, employee benefit plan, or other enterprise, whether for profit or not.
12.7 CONSTRUCTION OF INDEMNIFICATION RIGHTS. Nothing contained in this
Article shall limit the ability of the Company to otherwise indemnify or advance
expenses to any individual. It is the intent of this Article to provide
indemnification to Members and Board to the fullest extent now or hereafter
permitted by the law consistent with the terms and conditions of this Article.
Indemnification shall be provided in accordance with this Article irrespective
of the nature of the legal or equitable theory upon which a claim is made,
including without limitation negligence, breach of duty, mismanagement, waste,
breach of contract, breach of warranty, strict liability, violation of federal
or state securities law, violation of ERISA or violation of any other state or
federal law.
12.8 INSURANCE FOR INDEMNIFICATION. The Company may purchase and maintain
insurance for its benefit, the benefit of any person who is entitled to
indemnification under this Article, or both, against any liability asserted
against or incurred by such person in any capacity or arising out of such
person's service with the Company, whether or not the Company would have the
power to indemnify such person against such liability.
ARTICLE 13
CASTLE GUARANTY
The parties hereto are aware that CDC is a wholly-owned, single-purpose
entity formed by Castle to be a Member of the Company. By signing this
Agreement, Castle agrees that it shall cause CDC to carry out each and every one
of its obligations under this Agreement. Nothing in this Article 14 shall be
construed as providing any rights to any person who is not a party to this
Agreement, as a third party beneficiary or otherwise.
ARTICLE 14
MISCELLANEOUS PROVISIONS
14.1 INVESTMENT IN SECURITIES. Each Member hereby represents and warrants
to, and covenants and agrees with, the Company as follows:
(a) Except as contemplated by the Master Contribution Agreement, the
Member's Interest is being purchased for the Member's own account, for
investment purposes only, and not for the account of any other person, and
not with a view to distribution, assignment or resale to others or to
fractionalization in whole or in part. Except as contemplated by the
Master Contribution Agreement, no other person has or
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will have a direct or indirect beneficial interest in the Interest, and
the Member will not sell, hypothecate or otherwise transfer the Interest
except in accordance with this Agreement, the Securities Act and
applicable state securities laws or unless, in the opinion of counsel,
which may be counsel for the Company, an exemption from the registration
and qualification requirements of the Securities Act and such laws is
available.
(b) The Member has sufficient knowledge and experience in financial
and business matters to evaluate the merits and risks of acquiring an
Interest. The Company has made available to the Member all documents and
information that the Member has requested relating to an investment in the
Company.
(c) The Member recognizes that the Company has no operating history
and that an investment in the Company involves substantial risks. The
Member has taken full cognizance of and understands all of the risk
factors related to the purchase of the Interest.
(d) The Member has had prior business relationships with the
Company, its predecessor or its Board or by reason of the Member's
business or financial experience has the capacity to protect the
undersigned's own interest in connection with this transaction.
(e) The Member has not purchased the Interest as a result of any
general solicitation or general advertising, including advertisements,
articles, notices or other communications published in any newspaper,
magazine or similar media or broadcast over radio or television, or any
seminar or meeting whose attendees have been invited by general
solicitation or advertising.
(f) No federal or state agency has made any finding or determination
as to the fairness of this offering for investment, nor any recommendation
or endorsement of the Interests.
(g) There is no public market for the Interests, and there can be no
assurance that the Member will be able to sell or dispose of the Interest.
Moreover, no assignment, sale, transfer, exchange or other disposition of
the Interest can be made other than in accordance with all applicable
securities laws. It is understood that in order not to jeopardize the
offering's exempt status under the Securities Act, certain state acts and
certain rules and regulations promulgated pursuant thereto, any transferee
will at a minimum be required to fulfill applicable investor suitability
requirements.
(h) The Interests will not be registered under the Securities Act,
and their resale may be restricted for a period of at least two years
under Rule 144 of the Securities Act unless otherwise registered under the
Securities Act or exempt from registration. The Member is willing to bear
the economic risk of this illiquid investment.
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14.2 COMPLETE AGREEMENT. This Agreement and the Transaction Agreements
constitute the complete and exclusive statement of agreement among the Members.
This Agreement replaces and supersedes all prior oral or written agreements by
and among the Members or any of them regarding the subject matter hereof.
14.3 BINDING EFFECT. Subject to the provisions of this Agreement relating
to transferability, this Agreement will be binding upon and inure to the benefit
of the Members and their respective distributees, successors and assigns.
14.4 GOVERNING LAW. This Agreement and the rights of the parties hereunder
shall be governed by and interpreted in accordance with the internal laws of the
State of Delaware without regard to the conflict of laws provisions thereof.
14.5 NO THIRD PARTY BENEFICIARY. The Agreement is made solely and
specifically among and for the benefit of the parties hereto, and their
respective successors and assigns subject to the express provisions hereof
relating to successors and assigns, and no other person will have any rights,
interest, or claims hereunder or be entitled to any benefits under or on account
of this Agreement as a third party beneficiary.
14.6 NOT FOR BENEFIT OF CREDITORS. The provisions of this Agreement are
intended only for the regulation of relations among the Members and the Company.
The Agreement is not intended for the benefit of any non-Member creditors and
does not grant any rights to or confer any benefits on any non-Member creditors
or any other person who is not a Member, a Director, or an officer of the
Company.
14.7 AMENDMENT. This Agreement may be amended only by the requisite vote
of the Members, as set forth in Section 5.3.
14.8 CAPTIONS. Captions contained in this Agreement are inserted only as a
matter of convenience and in no way define, limit or extend the scope or intent
of this Agreement or any provision thereof.
14.9 RIGHTS OF LEGAL REPRESENTATIVES. If a Member is a corporation, trust,
or other entity and is dissolved or terminated, the powers of that Member may be
exercised by his or her legal representative or successor.
14.10 REFERENCES TO THE AGREEMENT. Numbered or lettered articles, sections
and subsections herein contained refer to articles, sections and subsections of
the Agreement unless otherwise expressly stated.
14.11 EXHIBITS. All Exhibits attached to this Agreement are incorporated
by this reference and shall be treated as if set forth herein.
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14.12 SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under the present or future laws effective
during the term of this Agreement, such provision will be fully severable; the
Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part of the Agreement; and the
remaining provisions of the Agreement will remain in full force and effect and
will not be affected by the illegal, invalid, or unenforceable provision or by
its severance from the Agreement. Furthermore, in lieu of such illegal, invalid,
or unenforceable provision, there will be added automatically as a part of the
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
14.13 ADDITIONAL DOCUMENTS AND ACTS. Each Member agrees to execute and
deliver such additional documents and instruments and to perform such additional
acts as may be necessary or appropriate to effectuate, carry out and perform all
of the terms, provisions, and conditions of this Agreement and the transactions
contemplated hereby.
14.14 NOTICES. Any notice to be given or to be served upon the Company or
any party hereto in connection with this Agreement must be in writing and will
be deemed to have been given and received (i) when personally delivered, or (ii)
upon the third business day following mailing, if mailed by deposit in the
United States mail, registered or certified, postal charges prepaid, and
addressed to the address set forth on EXHIBIT B for the party who is to receive
the notice. Any Member or the Company may, at any time by giving five days prior
written notice to the other Members and the Company, designate any other address
in substitution of the foregoing address to which such notice will be given.
14.15 RELIANCE ON AUTHORITY OF PERSON SIGNING AGREEMENT. If a Member is
not a natural person, neither the Company nor any Member will (a) be required to
determine the authority of the individual signing this Agreement to make any
commitment or undertaking on behalf of such entity or to determine any fact or
circumstance bearing upon the existence of the authority of such individual or
(b) be required to see to the application or distribution of proceeds paid or
credited to individuals signing this Agreement on behalf of such entity.
14.16 PROVISIONS INCONSISTENT WITH THE ACT. Should any provision of this
Agreement be inconsistent or otherwise be in conflict, with the provisions of
the Act, it is the intent of the parties to have the provisions of this
Agreement prevail and override the Act to the fullest extent possible.
14.17 PUBLICITY. None of the parties will make any disclosure of the
transactions contemplated by this Agreement, or any discussions in connection
therewith, without the prior written consent of each of the other parties. The
preceding sentence shall not apply to any disclosure required to be made by the
Securities Act or other applicable law as reasonably determined by counsel to
the party determining that such disclosure is required, except that such party,
whenever practicable, shall be required to consult with the other party
concerning the timing and content of such disclosure before making it.
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14.18 MULTIPLE COUNTERPARTS. The Agreement may be executed in several
counterparts, each of which will be deemed an original but all of which will
constitute one and the same instrument. However, in making proof hereof it will
be necessary to produce only one copy hereof signed by the party to be charged.
14.19 COORDINATION WITH OTHER TRANSACTION AGREEMENTS. Certain provisions
of the Transaction Agreements discuss the operations of the Company. To the
extent such provisions are not clearly inconsistent with the express language
contained in provisions of this Agreement, the provisions of this Agreement
shall be interpreted in a manner that is consistent with the provisions in the
Transaction Agreements.
IN WITNESS WHEREOF, all of the Members have executed this Agreement
effective as of the latest date set forth below.
"CDC"
CDC OF CALIFORNIA, a Delaware corporation
By_____________________________________
Name:
Title:
"HOLDINGS"
CASTLE WEST HOLDINGS, LLC,
a California limited liability company
By_____________________________________
Name:
Title:
"DCS"
DENTAL CONSULTING SERVICES, LLC,
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a California limited liability company
By_____________________________________
Name:
Title:
With respect to Article 13:
"CASTLE"
CASTLE DENTAL CENTERS, INC., a Delaware
corporation
By_____________________________________
Name:
Title:
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EXHIBIT A
DEFINITIONS
The following terms used in this Agreement shall have the following
meanings (unless otherwise expressly provided herein):
(a) "ACT" shall mean the Delaware Limited Liability Company Act,
Delaware General Corporation Law Sections 18-101 ET SEQ., as it may be
amended from time to time.
(b) "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account as
of the end of the relevant taxable year, after giving effect to the
following adjustments:
(1) A credit to the extent of any amounts which such
Member is obligated to restore (pursuant to the terms of such
Member's promissory note or otherwise) for purposes of Regulations
Section 1.704-1(b)(ii)(d)(2) or is deemed to be obligated to restore
for such purposes pursuant to Regulations Section 1.704-2(g)(1) and
1.704-2(i)(5); and
(2) A debit to the extent of the items described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)
(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of "Adjusted Capital Account Deficit"
is intended to comply with the provisions of Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(c) "AFFILIATE" shall mean any individual, partnership, corporation,
trust, or other entity or association, directly or indirectly, through one
or more intermediaries, controlling, controlled by, or under common
control with a Member. The term "control," as used in the immediately
preceding sentence, means, with respect to a corporation, the right to
exercise, directly or indirectly, more than 25 percent of the voting
rights of the controlled corporation, and, with respect to any individual,
partnership, limited liability company, trust, other entity or
association, the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of the
controlled entity.
(d) "AGREEMENT" shall mean this Limited Liability Company Agreement,
as originally executed and as amended from time to time, and shall refer
to the Agreement as a whole, unless the context otherwise requires.
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(e) "BOARD" shall have the meaning set forth in Section 5.1.
(f) "BUSINESS" shall have the meaning set forth in Article 2.
(g) "CALIFORNIA DENTAL ACT" shall mean the California Dental
Practice Act.
(h) "CAPITAL ACCOUNT" shall mean an account maintained for each
Member as specified in Section 6.6 of this Agreement.
(i) "CAPITAL CONTRIBUTIONS" shall mean the total value of cash and
the fair market value of property (including promissory notes) contributed
and/or services rendered or to be rendered to the Company by the Members,
as shown in EXHIBIT B, as the same may be amended from time to time. Any
reference in the Agreement to the Capital Contributions of a Member shall
include all Capital Contributions previously made by the Member and the
Member's predecessor, if any, for the Interest of the Member, reduced by
any distributions to the Member (or the Member's predecessor) as a return
of Capital Contributions as contemplated herein.
(j) "CASTLE" shall mean Castle Dental Centers, Inc., a Delaware
corporation.
(k) "CDC" shall mean CDC of California, Inc., a Delaware
corporation.
(l) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
All references herein to sections of the Code shall include any
corresponding provision or provisions of succeeding law.
(m) "COMPANY" shall mean Castle Dental Centers of California,
L.L.C., a Delaware limited liability company.
(n) "COMPANY MINIMUM GAIN" has the meaning set forth in Regulations
Section 1.704-2(b)(2) (substituting the word "Company" for "partnership"
therein). "Company Minimum Gain" refers to the concept that the
disposition of an item of the Company property encumbered by a Nonrecourse
Liability the amount of which exceeds the adjusted tax basis of the
property (or book value of the property if the property is properly
reflected on the books of the Company at a value that differs from its
adjusted tax basis) will generate gain in an amount that is at least equal
to such excess. The amount of Company Minimum Gain is determined by
computing, with respect to each Nonrecourse Liability of the Company, the
amount of gain (of whatever character), if any, that would be realized by
the Company if it disposed of (in a taxable transaction) the Company
property subject to such liability in full satisfaction thereof (and for
no other consideration), and by then aggregating the amounts so computed.
The determination of the amount of Company Minimum Gain shall be made
pursuant to Regulations
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Section 1.704-2(d). A Member's share of Company Minimum Gain at the end of
any Company taxable year shall be determined pursuant to Regulations
Section 1.704-2(g).
(o) "COMPANY NONRECOURSE DEDUCTION" means any item of loss,
deduction or Code Section 705(a)(2)(B) expenditure (including an
expenditure treated as a Code Section 705(a)(2)(B) expenditure under
Section 1.704-1(b)(2)(iv)(i) of the Regulations) attributable to Company
Nonrecourse Liability. The amount of Nonrecourse Deductions for a Company
taxable year equals the excess, if any, of the net increase in the amount
of Company Minimum Gain during such taxable year, over the aggregate
amount of any distributions during such year of proceeds of a Nonrecourse
Liability that are allocable to an increase in Company Minimum Gain, and
shall be determined in accordance with Regulations Section 1.704-2(c).
(p) "COMPANY NONRECOURSE LIABILITY" means liabilities of the Company
(or portion thereof) for which no Member bears the economic risk of loss
under Regulations Section 1.752-2.
(q) "DCS" means Dental Consulting Services, LLC, a California
limited liability company.
(r) "DEPRECIATION" means, for each fiscal year or other period, an
amount equal to the depreciation, amortization, or other cost recovery
deduction allowable with respect to an asset for such year or other
period, except that, if the Gross Asset Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of such
year or other period, depreciation shall be an amount that bears the same
ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such year
or other period bears to such beginning adjusted tax basis (provided, if
such asset has a zero adjusted tax basis, Depreciation shall be determined
under any reasonable method selected by the Board).
(s) "DIRECTOR" shall have the meaning set forth in Section 5.2.
(t) "DOL REGULATIONS" shall mean Department of Labor Regulation
Section 2510.3-101.
(u) "ECONOMIC INTEREST" shall mean a Person's right to share in the
income, gains, losses, deductions, credit or similar items of, and to
receive distributions from, the Company, but not any other rights of a
Member including, without limitation, the right to vote or to participate
in management of the Company.
(v) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and the regulations in effect thereunder.
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(w) "FIRST RIGHT TO NEGOTIATE" shall mean the Company, CDC or their
Affiliates providing the holders of the Class C Interest a good faith
opportunity to negotiate (throughout the thirty or twenty day period
described herein) to purchase the Company, the Company's assets or the
Interest of the Company, at least thirty days prior to the Company, CDC or
their Affiliates commencing negotiations or soliciting offers from third
parties, or at least twenty days prior to commencing negotiations in the
case of an unsolicited offer from a third party, with respect to (i) a
sale, exchange or other disposition of all, or substantially all, of the
Company's assets occurring as part of a single transaction or plan, or in
a series of transactions, (ii) a merger of the Company with or into
another person or entity, or (iii) a Transfer of any or all of an Interest
held by CDC or any of its Affiliates.
(x) "GROSS ASSET VALUE" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
(1) The initial Gross Asset Value of any asset
contributed by a Member to the Company shall be the gross fair
market value of such asset, as determined by the contributing Member
and the Board, and subject to the approval of all Members, provided
that the initial Gross Asset Values of the initial Capital
Contribution of each Member shall be those set forth in EXHIBIT B
hereto.
(2) The Gross Asset Values of all Company assets shall
be adjusted to equal their respective gross fair market values, as
determined by the Board and approved by all Members, as of the
following times: (a) the acquisition of an additional Interest by
any new or existing Member in exchange for more than a de minimis
Capital Contribution; (b) the distribution by the Company to a
Member of more than a de minimis amount of property as consideration
for an Interest; and (c) the liquidation of the Company within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided,
however, that adjustments pursuant to clauses (a) and (b) above
shall be made only if the Board reasonably determines that such
adjustments are necessary or appropriate to reflect the relative
economic interests of the Members in the Company.
(3) The Gross Asset Value of any Company asset
distributed to any Member shall be adjusted to equal the gross fair
market value of such asset on the date of distribution, as
determined by the distributee and the Board, and approved by all
Members.
(4) The Gross Asset Values of Company assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 732(d), 734(b), or
743, but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Regulations
Section 1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset
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Values shall not be adjusted pursuant to this Subsection to the
extent any Member determines that an adjustment pursuant to
subparagraph (b) above is not necessary or appropriate in connection
with a transaction that would otherwise result in an adjustment
pursuant to this subparagraph.
(5) If the Gross Asset Value of an asset has been
determined or adjusted pursuant to this section, such Gross Asset
Value shall thereafter be adjusted by the depreciation taken into
account with respect to such asset for purposes of computing Net
Profits and Net Losses.
(y) "HOLDINGS" shall mean Castle West Holdings, LLC, a California
limited liability company.
(z) "INTEREST" in the Company shall mean the entire ownership
interest of a Member in the Company at any particular time, including the
right of such Member to any and all benefits to which a Member may be
entitled as provided in this Agreement and under the Act, together with
the obligations of such Member to comply with all terms and provisions of
this Agreement.
(aa) "MANAGEMENT AGREEMENT" shall mean that certain Management
Agreement between the Company and Holdings, attached as Exhibit L to the
Master Contribution Agreement, to be entered into by the Company pursuant
to Section 4.5.
(bb) "MASTER CONTRIBUTION AGREEMENT" shall mean that certain Master
Contribution and Combination Agreement by and among Castle, CDC, DCS, each
of the members of DCS, and certain other persons, dated as of January 30,
1998, as amended.
(cc) "MEMBER" shall mean each person who is an initial signatory to
this Agreement and any other person who may subsequently be admitted as a
new Member of Substituted Member in accordance with this Agreement.
(dd) "MEMBER NONRECOURSE DEDUCTION" means any item of Company
Nonrecourse Deduction that is attributable to a Member Nonrecourse
Liability. The amount of a Member Nonrecourse Deduction with respect to
the Member Nonrecourse Liability for purposes of Regulations Section
1.704-2(i)(2) for a Company taxable year equals the excess, if any, of the
amount of the net increase during such year in the amount of Minimum Gain
Attributable to such Member Nonrecourse Liability, over the aggregate
amount of any distributions during such year to the Member that bears the
economic risk of loss for the Member Nonrecourse Liability of the proceeds
of the Member Nonrecourse Liability that are allocable to an increase in
the Minimum Gain attributable to such Member Nonrecourse Liability, and
shall be determined in accordance with Regulations Section 1.704-2(i)(2).
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(ee) "MEMBER NONRECOURSE LIABILITY" means any Company Liability to
the extent considered nonrecourse for purposes of Regulations Section
1.1001-2, and any Member or related person within the meaning of
Regulations Section 1.752-4(b) bears the economic risk or loss under
Regulations Section 1.752-2.
(ff) "MEMBER NONRECOURSE LIABILITY MINIMUM GAIN" means minimum gain
attributable to a Member Nonrecourse Liability, as determined in
accordance with Regulations Section 1.704-2(i).
(gg) "NET PROFITS" and "NET LOSSES" mean, for each taxable year or
other period, an amount equal to the Company's taxable income or loss for
such year or period, determined in accordance with Code Section 703(a),
and all items of income, gain, loss, or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss, with the following adjustments:
(1) Any income of the Company that is exempt from
federal income tax and not otherwise taken into account in computing
Net Profits or Net Losses pursuant to this section, shall be added
to such taxable income or loss;
(2) Any expenditures of the Company described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i),
and not otherwise taken into account in computing Net Profits or Net
Losses pursuant to this subsection, shall be subtracted from such
taxable income or loss;
(3) In the event the Gross Asset Value of any Company
asset is adjusted pursuant to this Agreement, the amount of such
adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Net Profits or
Net Losses;
(4) To the extent an adjustment to the adjusted tax
basis of any Company asset pursuant to Code Section 732(d), 734(b)
or 743(b) is required pursuant to Regulations Section
1.704-1(b)(2)(iv)(m), is to be taken into account in determining
Capital Accounts, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment
decreases such basis);
(5) Gain or loss resulting from any disposition of
Company property with respect to which gain or loss is recognized
for federal income tax purposes shall be computed by reference to
the Gross Asset Value of the property disposed of, notwithstanding
that the adjusted tax basis of such property differs from its Gross
Asset Value;
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(6) In lieu of the depreciation, amortization, and other
cost recovery deductions taken into account under the Code in
computing such taxable income or loss, there shall be taken into
account Depreciation for such taxable year or other period;
(7) Notwithstanding any other provision of this section,
any items that are specially allocated pursuant to this Agreement
shall not be taken into account in computing Net Profits and Net
Losses.
(hh) "PERCENTAGE INTEREST" shall mean the percentage of a Member set
forth opposite the name of such Member under the column "Member's
Percentage Interest" in EXHIBIT B hereto, as such percentage may be
adjusted from time to time pursuant to the terms of this Agreement.
(ii) "PERSON" includes individuals, general partnerships, limited
partnerships, other limited liability companies, corporations, trusts,
estates, real estate investment trusts and any other association.
(jj) "QUARTERLY ADJUSTED TAXABLE INCOME" means, with respect to any
calendar quarter, the Company's good faith estimate of taxable income for
the taxable year through the end of the applicable calendar quarter (which
estimate shall be reviewed and approved by the Board) (i) increased by any
depreciation or amortization taken and (ii) decreased by the Quarterly
Adjusted Taxable Income amount previously distributed for all prior
calendar quarters for such taxable year.
(kk) "QUARTERLY TAX DISTRIBUTION AMOUNT" shall mean the Company's
estimate of the Company's taxable income for the taxable year through the
end of the month that is two months prior to the month in which the
distribution is to be made (i) multiplied by a fraction, the numerator of
which is the number of full months that have occurred in the taxable year
through to the date the distribution is to be made, and the denominator of
which is the numerator minus one (the resulting product for an estimated
tax period being such period's "Taxable Income Estimate"), (ii) then
reduced by the Company's Taxable Income Estimate for the prior estimated
tax period, and (iii) then multiplied by the highest combined
federal/California marginal tax rate applicable to individuals. The
Quarterly Tax Distribution Amount for any quarter shall be increased by
the amount of any Quarterly Tax Distribution Amount relating to any prior
estimated tax period to the extent the full amount of the Quarterly Tax
Distribution Amount relating to such prior period has not yet been
distributed.
(ll) "REGULATIONS" shall mean, unless the context clearly indicates
otherwise, the regulations currently in force as final or temporary that
have been issued by the U.S. Department of Treasury pursuant to its
authority under the Internal Revenue Code of 1986, as amended.
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(mm) "RESTRICTED TRANSFER" for purposes of this Agreement, a
"Restricted Transfer" is any transfer that would do any of the following:
(1) Jeopardize the status of the Company as a
partnership for federal income tax purposes;
(2) Violate any applicable law or governmental rule or
regulation including (without limitation) any applicable federal or
state securities or Blue Sky law applicable to the Company;
(3) Require filing of a registration statement under the
Securities Act;
(4) Cause any assets of the Company to be deemed "plan
assets" under ERISA (at a minimum, in order to prevent such
characterization as "plan assets," a "Restricted Transfer" shall
include any transfer that, in the opinion of counsel for the
Company, would cause twenty-five percent (25%) or more of the
Economic Interests in the Company of any class of Members to be held
by "benefit plan investors" as defined in the DOL Regulations.
(nn) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
(oo) "SENIOR INDEBTEDNESS" shall mean Senior Debt (as defined in the
Subordination Agreement of even date herewith between Castle, Dental
Consulting Services, LLC, NationsBank of Texas, N.A. and the other parties
thereto), including any modifications, renewals, extensions,
rearrangements, increases, replacements or refinancings of the Senior Debt
(regardless of the identity of the holders of such indebtedness).
(pp) "SHAREHOLDERS' AGREEMENT" shall mean that certain Shareholders'
Agreement between the Company, Holdings and certain other persons,
attached as Exhibit J to the Master Contribution Agreement, to be entered
into pursuant to the Master Contribution Agreement.
(qq) "SUBSTITUTED MEMBER" shall mean any person who has become a
Member by being admitted as a Substituted Member pursuant to the
provisions of this Agreement.
(rr) "TERRITORY" shall have the same meaning as in Section 6.2 of
the Master Contribution Agreement.
(ss) "TRANSACTION AGREEMENTS" shall mean the Master Contribution
Agreement, the Management Agreement, the Shareholders' Agreement and the
other agreements as Exhibits to the Master Contribution Agreement.
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EXHIBIT 99.2
MANAGEMENT AGREEMENT
This MANAGEMENT AGREEMENT ("Agreement") is entered into as of March
30, 1998, by and between Castle Dental Centers of California, L.L.C., a Delaware
limited liability company (the "Company"), and Castle West Holdings, LLC, a
California limited liability company ("Manager").
WHEREAS, on January 30, 1998, Castle Dental Centers, Inc., a
Delaware corporation ("Castle"), the Company, CDC of California, Inc., a
Delaware corporation ("CDC"), Dental Consulting Services, LLC, a California
limited liability company ("DCS"), Manager and each of the other parties listed
on Schedule A thereto entered in that certain Master Contribution and
Combination Agreement (as amended February 27, 1998 and March 16, 1998, the
"Combination Agreement");
WHEREAS, Section 6.1 of the Combination Agreement requires the
Company and Manager to enter into a management agreement pursuant to which
Manager shall provide day-to-day management of the business and operations of
the Company;
WHEREAS, the Company desires that Manager provide day-to-day
management services to the Company upon the terms set forth herein; and
WHEREAS, Manager desires to provide day-to-day management services
the Company upon the terms set forth herein;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements contained herein, the parties hereto agree
as follows:
1. DUTIES. Subject at all times to the control and direction of the
Company, Manager shall serve as the day-to-day manager of the Company pursuant
to the terms of this Agreement. Unless the Company's Limited Liability Company
Agreement (the "Limited Liability Company Agreement") provides otherwise,
control and direction shall be implemented through the Board of Directors of the
Company (the "Board"). In its capacity as manager, Manager shall do and perform
for the Company in the Territory (as defined in the Combination Agreement)
services that are substantially similar to the services previously performed by
the managers and members of DCS for DCS in connection with the management of
DCS' business as it was conducted prior to its transfer to the Company pursuant
to the Combination Agreement, such services as modified from time to time by the
Company or business necessities. Manager's determination of what services are
necessary or required for the operation or conduct of the business of the
Company shall at all times be subject to the review of the Company. Manager
shall periodically report to the Board, as requested by the Board, with respect
to the performance of its obligations under this Agreement.
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2. TERM AND TERMINATION.
(a) The Agreement shall commence on the Closing Date (as defined in
the Combination Agreement), shall initially be for a term of two (2) years and
shall be renewed automatically for successive terms of one (1) year each, unless
at least one hundred eighty (180) days before the expiration of the initial term
or any renewal term, as applicable, either party gives written notice to the
other of its intention not to renew the Agreement.
(b) The Company may terminate this Agreement, prior to the
expiration of its term, if Manager fails to perform its material obligations
under this Agreement after being provided written notice of the failure and
given a reasonable opportunity to cure such failure. Manager may terminate this
Agreement, prior to the expiration of its term, if the Company fails to perform
its material obligations under this Agreement after being provided written
notice of the failure and given a reasonable opportunity to cure such failure.
(c) Either party may terminate this Agreement prior to the
expiration of its term (i) within ten days of consummation of the C Merger,
pursuant to CDC's exercise of CDC's Call Option (as defined in the Combination
Agreement), or (ii) within ten days of the consummation of the C Merger,
pursuant to one or more Corporate C Member's Merger Option (as defined in the
Combination Agreement), that results in there being no Corporate C Members in
existence.
3. COMPENSATION. As compensation for its time and efforts, the Company
shall pay Manager as follows:
(a) The Company shall pay Manager $160,000 per year, along with an
additional $100,000 per year that may be utilized in connection with the payment
of consultants of Manager, in cash ( collectively the "Base Compensation"). The
Base Compensation shall be payable in monthly installments due on the fifteenth
day of each month. The Base Compensation shall be reviewed on an annual basis
and increased, as determined by the Board in the exercise of its reasonable
discretion, in accordance with the policies of Castle as if the agents of
Manager performing services for the Company were employees of Castle holding
similar senior management positions.
(b) The Company shall pay Manager a management fee equal to five
percent (5%) of the gross revenue derived from the management of "CDC Approved
Expansions." For purposes of this Agreement, a "CDC Approved Expansion" shall
mean any and all expansions, acquisitions or other opportunities that are
approved by the Board if none of the Class C Interest Directors affirmatively
voted to approve such expansion, acquisition or other opportunity.
(c) The Company shall pay the Manager the Incentive Payment
described in Section 6.3 of the Combination Agreement, in accordance with the
terms set forth in the Combination Agreement
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4. BENEFITS. The Company shall either provide, or reimburse Manager for
the cost of providing, to Manager's employees and direct and indirect owners,
including without limitation, the individuals who are ultimately the owners of
the members of the Manager, and Michael Moors, a consultant to Brownstone
Holdings (which is a consultant to Dental Advisory Group, LLC, a Delaware
limited liability company, which is a consultant to Manager), employee benefits,
programs and plans substantially the same, in the aggregate, as that provided by
Castle to its senior management executives, from time to time in effect,
including, without limitation, health, life, disability and dental insurance,
qualified and non-qualified retirement plan benefits, stock options granted
pursuant to the Castle Dental Centers, Inc. Omnibus Stock and Incentive Plan
dated January, 1996, or successors thereto, subject to a determination of
eligibility in accordance with the respective terms of such plans (it being
understood that one eligibility requirement is that the person will also have to
be an employee of the Company), and business and entertainment allowances
approved by the Board.
5. EXPENSES. Manager shall submit a cost and expense budget as soon as
practicable after the signing of this Agreement, and thereafter upon the request
of the Board. If a budget is approved by the Board, costs and expenses incurred
by Manager in the performance of its duties or obligations under this Agreement
shall be paid for or promptly reimbursed by the Company in accordance with the
budget and upon submission of receipts in accordance with the Company's
policies. In the absence of a budget for any particular period, Manager shall
not be in breach of this Agreement if the carrying out of its obligations under
this Agreement requires it to expend its own funds and it decides, in its sole
and absolute discretion, not to expend such funds. Should the Manager
nonetheless decide to expend its funds without an approved budget in place, the
Manager shall be reimbursed for costs and expenses incurred in the performance
of its duties or obligations under this Agreement in accordance with the
Company's past practices.
6. LIMITATION ON AUTHORITY. Without the express written consent of the
Company, Manager shall not have any authority to enter into, execute or deliver
any contract, agreement or other instrument in the name or on behalf of the
Company, and nothing herein contained shall authorize or empower or require
Manager to assume or create any obligation, liability or responsibility
whatsoever, express or implied, on behalf of or in the name of the Company, or
to bind the Company in any manner. The officers, directors or members of the
Manager may serve, if appointed by the Board, as officers of the Company, and as
such shall act in accordance with policies established by the Board.
7. RELATIONSHIP BETWEEN PARTIES. Manager has been retained by the Company
only for the purposes and to the extent set forth in this Agreement, and its
relationship to the Company shall be that of an independent contractor.
8. TAXES. No party to this Agreement shall be obligated to pay any income
tax, excise tax, unemployment insurance tax or any other similar tax or charge,
including, without limitation, workers' compensation, that may be payable by or
chargeable to any other party hereto under any present or future laws of the
State of California, the United States or any other governmental agency or
authority. Each party shall withhold all such taxes with respect to its
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employees (and other agents to the extent it is required by law) and shall
indemnify and hold harmless the other party from any claim resulting from the
non-payment thereof.
9. RESOLUTION OF DISPUTES. All disputes among the parties arising out of
or related to this Agreement or breach thereof shall be resolved by binding
arbitration before a qualified, impartial arbitrator, selected in accordance
with this Section, in Los Angeles County, California. Within twenty (20) days of
receiving written demand for arbitration, the parties involved in the dispute
shall attempt to reach agreement upon the selection of a qualified impartial
arbitrator with at least five years of experience in arbitrating commercial
contract disputes. If the parties cannot agree upon an arbitrator within twenty
(20) days from the date written demand for arbitration is given, the party
demanding arbitration may commence an action for the limited purpose of
obtaining appointment of a qualified, impartial arbitrator by the presiding
judge of the Superior Court of the State of California for the County of Los
Angeles. Any arbitration shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, although the
arbitration need not be conducted under the auspices of the Association. The
arbitrator shall have the discretion to order a prehearing exchange of
information by the parties, including without limitation, production of
requested documents, exchange of summaries of testimony of proposed witnesses,
and examination by deposition. The arbitration shall commence within sixty (60)
days of the appointment of the arbitrator, unless the arbitrator extends the
commencement date upon motion and a finding that a party's case could be
materially adversely affected without an extension of time. The arbitrator shall
render its decision within thirty (30) days after the conclusion of the
arbitration hearing, and the decision shall be final and binding. Either party
may appeal the decision; provided however, that the decision of the arbitrator
may be reversed only if the award contains material errors of applicable law or
if the award is arbitrary or capricious. The arbitration decision shall be in
writing and shall specify the factual and legal bases for the award. The
arbitrator shall have the authority to award any remedy or relief that a
California court could order or grant, including without limitation, interim
relief, specific performance and injunctive relief. However, the arbitrator
shall have no authority to award punitive damages.
10. DAMAGES.
(a) If this Agreement is terminated pursuant to Section 2(b) prior
to it being terminated pursuant to Section 2(c), the non-breaching party may
seek damages. If Manager's termination of this Agreement occurs as a result of
the Company's breach, as provided in Section 2(b), the parties agree that
damages shall consist of an amount equal to all compensation that would have
been due to Manager under this Agreement for the remainder of the term (which
shall include the remainder of any renewal term if the term has been renewed in
accordance with Section 2(a)), including without limitation the Base
Compensation and the Incentive Payment, and the Corporate B Members' Merger
Option (as defined in the Combination Agreement) and the Corporate C Members'
Merger Option (as defined in the Combination Agreement) shall become exercisable
in accordance with the terms of the Combination Agreement. If the Company's
termination of this Agreement occurs as a result of Manager's breach, as
provided in Section 2(b), the parties agree that damages shall consist of an
amount equal to the Base Compensation that would have been paid to Manager under
this Agreement for the remainder of the term (which
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shall include the remainder of any renewal term if the term has been renewed in
accordance with Section 2(a)), and CDC's Option to cause a B Merger (as
described in the Combination Agreement) and CDC's Call Option (as defined in the
Combination Agreement) shall become exercisable in accordance with the terms of
the Combination Agreement.
(b) If this Agreement is terminated pursuant to Section 2(c) prior
to it being terminated pursuant to Section 2(b), any compensation due Manager,
including without limitation the Incentive Payment, shall be calculated based on
the entire year and then prorated based on the number of days in the year prior
to termination. Any amounts due shall be payable at such times as they would
otherwise have been paid in accordance with this Agreement or the Combination
Agreement.
11. ATTORNEYS' FEES. Should any party hereto institute any action or
proceeding in arbitration to enforce any provision hereof, including any action
for declaratory relief or for damages by reason of an alleged breach of any
provision of this Agreement, or otherwise in connection with this Agreement, or
any provision hereof, the prevailing party shall be entitled to recover from the
losing party or parties all attorneys' fees and costs for services rendered to
the prevailing party in such action or proceeding.
12. NOTICE. Unless applicable law requires a different method of giving
notice, any and all notices, demands or other communications required or desired
to be given hereunder by any party shall be in writing. Assuming that the
contents of a notice meet the requirements of the specific section of this
Agreement which mandates the giving of that notice, a notice shall be validly
given or made to another party if served either personally or if deposited in
the United States mail, certified or registered, postage prepaid, or if
transmitted by telecopy or other electronic written transmission device or if
sent by overnight courier service, and if addressed to the applicable party as
set forth in the Combination Agreement. If such notice, demand or other
communication is served personally, service shall be conclusively deemed made at
the time of such personal service. If such notice, demand or other communication
is given by mail, service shall be conclusively deemed made seventy-two (72)
hours after the deposit thereof in the United States mail. If such notice,
demand or other communication is given by recognized overnight courier, telecopy
or other electronic written transmission, service shall be conclusively be
deemed made at the time of confirmation of delivery. Either party may change its
or his address by giving written notice in the aforesaid manner to the other
party.
13. INDEMNITY. During the term hereof, the Company shall indemnify and
hold Manager, Jeffrey D. Schechter, D.D.S., S. Alexander Soleimani, D.M.D.,
Martin Schechter, D.D.S., Elliot P. Schlang, D.D.S. and other senior management
officers or members of Manager (an "Indemnitee"), harmless to the fullest extent
that an officer or director of a Delaware corporation MAY be indemnified under
Section 145 of the Delaware General Corporation Law, assuming the Company were a
Delaware corporation and the Indemnitee were an officer or director of such
corporation. If the determination made by the Board utilizing the principles of
Section 145(d) does not provide for indemnification, the requesting Indemnitee
shall have the right to have the matter reviewed by independent legal counsel
agreed to by the Company and the requesting Indemnitee (or appointed by the
presiding judge of the Superior Court for the County
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of Los Angeles if the parties cannot agree within ten days of the request), and
such counsel's written opinion shall be binding on the Indemnitee and the
Company. Without limiting the foregoing, expenses described in Section 145(e),
shall in all events be paid or advanced upon receipt of the undertaking
described therein.
14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and shall not be assignable by either party
without the written consent of the other party hereto.
15. APPLICABLE LAW. This Agreement shall, in all respects, be governed by
the laws of the State of California, without regard to conflicts of law
principles.
16. COUNTERPARTS. This Agreement may be executed in separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
17. CAPTIONS AND DEFINED TERMS. The captions appearing at the commencement
of the sections hereof are descriptive only and for convenience in reference.
Any terms not herein defined shall have the meanings set forth in the
Combination Agreement.
18. INTERPRETATION. The parties hereto acknowledge that each party and
their respective counsel have reviewed and revised this Agreement and agree that
any rule of construction to the effect that ambiguities are to be resolved
against the drafting party shall not apply to the interpretation of this
Agreement or any amendments, exhibits or schedules hereto.
19. FURTHER ASSURANCES. Each party agrees that at any time and from time
to time, at its expense, it will promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary to
comply with the terms of this Agreement.
20. ENTIRE AGREEMENT. This Agreement, together with the Combination
Agreement and the Limited Liability Company Agreement, supersede any and all
other agreements, oral or written, between the parties hereto with respect to
the subject matter hereof, and contains the entire agreement among such parties
with respect to the transactions contemplated hereunder.
21. AMENDMENTS. This Agreement shall not be modified or amended except by
an instrument in writing signed by both of the parties hereto.
22. WAIVER. The waiver by any party hereto of a breach of any of the
provisions of this Agreement by another party must be in writing executed by the
waiving party and shall not operate or be construed as a waiver of any
subsequent breach thereof or as a waiver of any other provision hereof.
23. SEVERABILITY. If any provision of this Agreement or the application of
any such provision shall be held invalid, illegal or unenforceable in any
respect by a court of competent jurisdiction, such invalid, illegal or
unenforceable provision shall not affect any other provision
6
<PAGE>
hereof or any subsequent application of such provision held invalid, illegal or
unenforceable. In lieu of such invalid, illegal or unenforceable provision, the
parties hereto intend that there shall be added as part of this Agreement a
provision as similar in terms to such invalid, illegal or unenforceable
provision as may be possible and be valid, legal and enforceable.
24. OFFICERS. The Company shall elect, appoint or otherwise hire at least
one of the following persons as the president or other executive officer of the
Company with the power and authority to enter into contracts and bind the
Company in connection with obligations and liabilities arising in connection
with the management of the Company ("Manager Executive Officer"): Jeffrey D.
Schechter, D.D.S., S. Alexander Soleimani, D.M.D., Martin Schechter, D.D.S., or
Elliot P. Schlang, D.D.S., provided that at least one of the aforementioned
persons agrees to be employed as a Manager Executive Officer upon terms
satisfactory to the person and the Company (it being understood that such person
will not be compensated under such employment arrangement because he is being
compensated indirectly through this Agreement). Provided that at least one of
the aforementioned persons agrees to be employed as a Manager Executive Officer,
it shall be a failure of the Company to perform its material obligations under
this Agreement if none of such persons is employed by the Company as a Manager
Executive Officer at any time during the term of this Agreement; provided
however, that should there be only one such person acting as a Manager Executive
Officer and he voluntarily terminates his employment with the Company, the
Company shall not be in breach of this Agreement if it appoints another of such
persons as a Manager Executive Officer, upon terms satisfactory to the person
and the Company (it being understood that such person will not be compensated
under such employment arrangement because he is being compensated indirectly
through this Agreement), within seven (7) days of the voluntary termination.
Notwithstanding Section 2(b), no notice or cure period shall be afforded the
Company with respect to the breach described in the preceding sentence.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
CASTLE DENTAL CENTERS OF CALIFORNIA, L.L.C.,
a Delaware limited liability company
By: _______________________________________
Name:
Title:
CASTLE WEST HOLDINGS, LLC,
a California limited liability company
By: __________________________________
Name:
Title:
7
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED, NOR THE SECURITIES LAWS OF ANY STATE. THIS NOTE MAY NOT BE
SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME, EXCEPT UPON
(1) SUCH REGISTRATION, OR (2) DELIVERY TO THE ISSUER OF THIS NOTE OF AN OPINION
OF COUNSEL REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED
FOR SUCH TRANSFER, OR (3) THE SUBMISSION TO THE ISSUER OF THIS NOTE OF OTHER
EVIDENCE, REASONABLY ACCEPTABLE TO THE ISSUER, TO THE EFFECT THAT ANY SUCH SALE,
PLEDGE, HYPOTHECATION OR TRANSFER WILL NOT BE IN VIOLATION OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED, OR OTHER APPLICABLE SECURITIES LAWS OF ANY
STATE, OR ANY RULES OR REGULATIONS PROMULGATED THEREUNDER.
THE PAYMENT OF THE PRINCIPAL OF, AND INTEREST ON, AND ALL OTHER AMOUNTS OWING IN
RESPECT OF THE INDEBTEDNESS EVIDENCED BY, THIS NOTE, IS AND SHALL BE EXPRESSLY
SUBORDINATED, TO THE EXTENT AND IN THE MANNER SET FORTH HEREIN AND, IF
APPLICABLE, IN THAT CERTAIN SUBORDINATION AGREEMENT, OR ANY OTHER SUBORDINATION
AGREEMENT NOW OR HEREAFTER EXECUTED, AMONG CASTLE, THE PAYEE, NATIONSBANK OF
TEXAS, N.A., ITS SUCCESSORS OR ASSIGNS, OR ANY OTHER HOLDER OF SENIOR DEBT
(COLLECTIVELY, "SENIOR CREDITOR"), (IN ANY SUCH EVENT, THE "SUBORDINATION
AGREEMENT").
ISSUE DATE: MARCH 30, 1998
CASTLE DENTAL CENTERS, INC.
8 % SUBORDINATED NOTE
NO. __ HOUSTON, TEXAS $____________
CASTLE DENTAL CENTERS, INC., a Delaware corporation with offices
at 1360 Post Oak Boulevard, Suite 1300, Houston, Texas 77056 (hereinafter
referred to as "Castle"), for value received, hereby promises to pay to the
order of __________________________ (the "Payee"), at
____________________________________________________, the sum of
____________________________________________________AND NO/100 DOLLARS
($_______.00), together with interest on the unpaid principal balance hereof
from the date hereof until payment in full, in lawful money of the United States
of America which shall be legal tender for
Page 1 of a 6 Page Note
<PAGE>
the payment of debts from time to time, at a per annum rate of Eight Percent
(8%) prior to maturity. All past due principal, and, to the extent permitted by
applicable law, past due interest, on this Note shall bear interest from and
after maturity until paid at a per annum rate equal to the lesser of (i)
eighteen percent (18%), or (ii) the maximum nonusurious rate allowable under
applicable law.
This 8% Subordinated Note (hereinafter referred to as the "Note")
is being issued by Castle pursuant to the terms of a Master Contribution and
Combination Agreement dated as of January 30, 1998 (the "Agreement"), executed
by and among Castle, the Payee, and the other parties thereto, as partial
consideration for the Class A Interests in Castle Dental Centers of California,
L.L.C. acquired by CDC of California, Inc., a wholly owned subsidiary of Castle
("CDC"), from the Payee. In the event of a Purchase Price adjustment, pursuant
to Section 3.3, 3.4 or 3.6 of the Agreement, the face value of this Note shall
automatically adjust in accordance with the terms of the Agreement.
Notwithstanding such automatic adjustment, in the event of such an adjustment,
the holder of this Note shall return this Note to Castle in exchange for a
substituted Note reflecting the adjusted face value.
1. INTEREST AND PRINCIPAL PAYMENTS. Interest only is payable
quarterly on the last day of each calendar quarter, beginning June 30, 1998, and
continuing regularly and quarterly on the last day of every March, June,
September and December thereafter until March 30, 2001, on which date the entire
unpaid principal balance hereof, together with all accrued but unpaid interest,
shall mature and become due and payable. Principal shall be payable in quarterly
installments of _________________________________________ AND __/100 Dollars
($_________) at the same time and place as interest payments and continuing
regularly through March 30, 2001, on which date the entire unpaid principal
balance hereof, together with all accrued but unpaid interest, shall mature and
become due and payable; provided, however, that in the event CDC's Call Option
(as defined in the Agreement) is exercised prior to March 30, 2001, the entire
unpaid principal balance hereof, together with all accrued but unpaid interest,
shall mature and become due and payable on the date of the closing of the C
Mergers (as defined in the Agreement). All payments received hereon by Payee
shall be applied first to accrued but unpaid interest, and the balance, if any,
shall be returned to Castle, except in those instances in which principal
payment is required or prepayment is permitted hereunder, in which event such
balance shall be applied to the principal remaining unpaid hereon, up to the
amount due or permitted to be prepaid, as applicable.
2. LIMITATIONS ON PREPAYMENTS. This Note may be prepaid, in whole
or in part, without penalty at any time or from time to time. Notwithstanding
the foregoing or any provision hereof to the contrary, however, no prepayment of
this Note shall be attempted or permitted if such prepayment would be or would
be deemed to be, with notice or lapse of time or both, prohibited under the
Subordination Agreement.
3. SUBORDINATION PROVISIONS. Castle covenants and agrees, and the
Payee, on behalf of Payee and each subsequent holder of this Note, by acceptance
hereof likewise covenants and agrees, that notwithstanding any provision of this
Note to the contrary, the payment of all indebtedness evidenced by this Note is,
to the extent and in the manner set forth in the Subordination
Page 2 of a 6 Page Note
<PAGE>
Agreement (the terms of which are incorporated herein by reference),
subordinated in right of payment to all Senior Indebtedness (as hereinafter
defined) of Castle and subject to the payment blockage periods set forth in the
Subordination Agreement. For purposes of this Note, the term "Senior
Indebtedness" shall mean and include (i) Senior Debt (as defined in the
Subordination Agreement), including any modifications, renewals, extensions,
rearrangements, increases, replacements or refinancings of the Senior Debt
(regardless of the identity of the holders of such indebtedness) and (ii) such
other indebtedness of Castle as to which the Payee (or other holder hereof)
consents in writing.
4. EVENTS OF DEFAULT. The occurrence and continuation of any one
of the following events or conditions shall constitute an "Event of Default":
(a) Whether or not payment is prohibited by the terms of Section
3, Castle fails to make any payment, principal or interest, within ten
(10) days after the date such payment is due under the Note;
(b) Castle fails to perform any of its obligations under this
Note (other than the payment obligation described in Section 4(a)
hereof) within thirty (30) days after receipt from Payee of written
notice of such failure to perform;
(c) An event of default occurs under any arrangement with any
holder of Senior Indebtedness and the Senior Indebtedness is accelerated
and not reinstated;
(d) a material breach by Castle of its obligations under the
Agreement or any agreement contemplated thereby which is not cured
within any applicable cure period provided in such agreement; or
(e) Castle makes an assignment for the benefit of creditors or
becomes insolvent or unable to pay its debts generally as they become
due, or applies to any tribunal for the appointment of a trustee,
custodian , receiver or similar person for all or a substantial part of
the assets of Castle, or commences any proceedings relating to Castle
under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debts, dissolution or other liquidation law of any
jurisdiction; or any such application is filed, or any such proceedings
are commenced against Castle and Castle indicates its consent to such
proceedings, or an order is entered appointing such trustee, custodian ,
receiver or similar person, or approving the petition in any involuntary
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or other liquidation proceedings, and such order in
any involuntary matter remains in effect for sixty (60) days.
5. REMEDIES. Subject to the provisions of Section 3 hereof, upon
the occurrence of an Event of Default other than as described in Section 4(d)
hereof, the Payee or other holder of this Note may declare the entire unpaid
principal of this Note, and all accrued but unpaid interest
Page 3 of a 6 Page Note
<PAGE>
thereon, at once due and payable, and upon the occurrence of an Event of Default
under Section 4(d) hereof, the entire unpaid principal of this Note and all
accrued but unpaid interest thereon shall automatically be declared at once due
and payable, and upon any such declaration the principal of this Note and such
accrued but unpaid interest shall become and be immediately due and payable, and
the Payee or any other holder of this Note may, subject to the provisions of
Section 3 hereof, thereupon proceed to protect and enforce its rights, whether
by suit in equity or by action at law or by other appropriate proceedings,
whether for specific performance (to the extent permitted by law or equity) of
any covenant or agreement contained herein or in aid of the exercise of any
power granted herein, or proceed to enforce the payment of this Note or to
enforce any other legal or equitable right of the Payee or such other holder.
The foregoing shall not affect the relative rights and obligations as between
any holder of Senior Indebtedness and the Payee or other holder hereof; as
between such parties, Section 3 shall control the exercise of remedies.
6. IMMUNITY. This Note and the indebtedness and obligations
evidenced hereby are solely corporate indebtedness and obligations, and no
personal liability whatsoever shall attach to or be incurred by any past,
present or future officer, director, shareholder, agent, attorney or employee of
Castle, under or by reason of any of the obligations, covenants or agreements
contained in or implied by this Note.
7. NOTICES. All notices, requests, consents, and other
communications required or permitted under this Note shall be in writing and
shall be deemed, unless otherwise provided, to have been delivered (i) three
business days following the date mailed, postage prepaid, by certified mail,
return receipt requested, (ii) one business day following the deposit thereof
with a recognized overnight courier or (iii) on the date personally delivered:
(i) If to the Payee, to the address of the Payee set forth above,
with a copy of such notice to:
Kaye, Scholer, Fierman, Hayes & Handler, LLP
1999 Avenue of the Stars, Suite 1600
Los Angeles, California 90067
Attn: Barry H. Lawrence, Esq;
(ii) If to Castle, to the address of Castle set forth above,
Attention: President, with a copy of such notice to:
Boyer, Ewing & Harris Incorporated
9 Greenway Plaza, Suite 3100
Houston, Texas 77046
Attn: John W. Menke, Esq;
(iii) If to any holder other than the Payee, to such address as
may have been designated by notice given Castle by such holder;
Page 4 of a 6 Page Note
<PAGE>
(iv) If to any holder of Senior Indebtedness, to such address as
may have been designated by notice given Castle by such holder, which
Castle will provide to the holder of this Note upon request.
Castle, the Payee or any other holder hereof may designate a different address
by notice given in accordance with the foregoing.
8. USURY. It is expressly provided and stipulated that
notwithstanding any provision of this Note or any other instrument evidencing or
securing the indebtedness evidenced hereby, in no event shall the aggregate of
all interest paid by Castle to the Payee hereunder ever exceed the Maximum
Nonusurious Rate of interest (as hereinafter defined) which may lawfully be
charged Castle under the laws of the State of Texas or the United States Federal
Government, as applicable, on the principal balance of this Note remaining
unpaid. If under any circumstances the aggregate amounts paid on the
indebtedness evidenced by this Note prior to and incident to the final payment
hereof include amounts which by law are deemed interest and which would exceed
the Maximum Nonusurious Rate of interest which could lawfully have been charged
or collected on this Note, Castle stipulates that (a) any non-principal payment
shall be characterized as an expense, fee, or premium rather than as interest,
and any excess shall be credited hereon by the holder hereof (or, if this Note
shall have been paid in full, refunded to Castle); (b) determination of the rate
of interest for determining whether the indebtedness evidenced hereby is
usurious shall be made by amortizing, prorating, allocating, and spreading, in
equal parts during the full stated term of such indebtedness, all interest at
any time contracted for, charged, or received from Castle in connection with
such indebtedness, and any excess shall be canceled, credited or refunded as set
forth in (a) herein.
The "Maximum Nonusurious Rate of interest" which may be charged
as herein contemplated shall be the indicated rate ceiling from time to time in
effect pursuant to the applicable provisions of the Texas Finance Code, as
amended, provided that Payee may also rely on any alternative Maximum
Nonusurious Rate of interest provided by other applicable laws if such other
rates are higher than that allowed by said Article, as amended.
THIS NOTE, THE AGREEMENT, THE SUBORDINATION AGREEMENT AND ALL
DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH OR
THEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN CASTLE AND PAYEE AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF CASTLE AND THE PAYEE. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN CASTLE AND PAYEE.
THIS NOTE IS SUBJECT TO FINAL ACCEPTANCE IN, AND ALL TERMS,
OBLIGATIONS, AND PROVISIONS OF THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF, THE STATE OF TEXAS.
Page 5 of a 6 Page Note
<PAGE>
IN WITNESS WHEREOF, Castle has authorized this Note to be
executed in its corporate name by its duly authorized officer as of the date
first above written.
CASTLE DENTAL CENTERS, INC.
By:________________________________
Jack H. Castle, Jr., Chief Executive Officer
Page 6 of a 6 Page Note
SUBORDINATION AGREEMENT
(NationsBank of Texas, N.A. )
This Subordination Agreement dated as of March 30, 1998 ("Agreement"),
is made by ______________________________________ ("Subordinated Creditor"), and
CASTLE DENTAL CENTERS, INC., a Delaware corporation ("Debtor"), in favor of
NATIONSBANK OF TEXAS, N.A. and the other banks under the Credit Agreement
referred to below (collectively, "Senior Creditor").
INTRODUCTION
Reference is made to the Credit Agreement dated as of November 7, 1997
(as may be modified from time to time, the "Credit Agreement") among NationsBank
of Texas, N.A., as agent, the Debtor and Senior Creditor. It is a condition
precedent to the Senior Creditor's permitting the Debtor to incur the
indebtedness represented by the Subordinated Note that the Subordinated Creditor
enter into this Agreement. In consideration of the foregoing and for other good
and valuable consideration, the Subordinated Creditor, the Debtor, and the
Senior Creditor hereby agree as follows:
Section 1. DEFINITIONS. The following terms shall have the following means
"Event of Default" means any "Default" or "Event of Default" as defined
in, and which may occur under the Credit Agreement.
"Loan Documents" shall have the meaning specified by the Credit
Agreement.
"Senior Debt" means (a) all principal, interest, fees, reimbursements,
indemnifications, and other amounts now or hereafter owed by the Debtor to
Senior Creditor under the Credit Agreement, the Loan Documents, and any other
instrument or agreement related thereto and (b) any increases, extensions, and
rearrangements of the foregoing obligations under any amendments, supplements,
and other modifications of the documents and agreements creating the foregoing
obligations.
"Subordinated Debt" means all present and future indebtedness,
liabilities, and obligations of any kind owed by the Debtor to the Subordinated
Creditor, including debt obligations, equity obligations, and other contractual
obligations requiring payments of any kind to be made to the Subordinated
Creditor, whether such indebtedness, liabilities, and obligations are absolute
or contingent, joint, several, or independent arising by operation of law or
contract, created directly with the Subordinated Creditor or acquired by
assignment, participation, or otherwise, or direct or indirect (including
indebtedness, liabilities, obligations of the Debtor to the Subordinated
Creditor as a result of either's membership in any partnership, syndicate,
association, or other group, and whether
1
<PAGE>
incurred by the Debtor as principal, guarantor, surety, endorser, accommodation
party, or otherwise. Subordinated Debt specifically includes the Subordinated
Note.
"Subordinated Note" means all subordinated promissory notes made by the
Debtor and payable to the Subordinated Creditor pursuant to the terms of that
certain Master Combination and Contribution Agreement dated as of January 30,
1998, by and among, Debtor, the Subordinated Creditor and the other parties
thereto ("Contribution Agreement"), as the same may be increased, extended,
rearranged, amended, supplemented, and otherwise modified from time to time in
accordance with this Agreement.
Section 2. TERMS OF SUBORDINATION. Unless and until the Senior Debt shall have
been irrevocably paid in full and the Senior Creditor shall have no commitment
to extend further Senior Debt, the payment and performance of the Subordinated
Debt is hereby made expressly subordinate and junior in right of payment and
performance to the prior payment and performance of all obligations and
liabilities under the Senior Debt to the extent and in the manner set forth in
this Section 2.
2.1 LIMITATION ON PAYMENTS.
(a) Except as otherwise provided herein, no payment or prepayment
of any sum on the Subordinated Debt, whether by acceleration or otherwise, shall
be made, if at the time of such payment, prepayment, or immediately after giving
effect thereto there shall exist a default in the payment or prepayment with
respect to any of the Senior Debt, or immediately after giving effect thereto
(i) there shall exist a default in the payment or prepayment of the principal or
interest with respect to any of the Senior Debt or (ii) there shall have
occurred, or after giving effect to such payment there shall occur, an Event of
Default (other than an Event of Default in the payment of prepayment of
principal or interest with respect to any of the Senior Debt) permitting the
Senior Creditor to accelerate the maturity thereof (with notice, lapse of time,
or both) and such Event of Default shall not have been cured to the satisfaction
of or waived by the Senior Creditor.
(b) If at any time there shall occur an Event of Default, the
Subordinated Creditor shall not be entitled to receive any payment on the
Subordinated Debt before the earlier of (i) cure of the Event of Default to the
satisfaction of, or waiver thereof by, the Senior Creditor or (ii) the
irrevocable payment in full of the Senior Debt and the termination of all
commitments to extend Senior Debt.
(c) In the event that any Subordinated Debt is declared due and
payable before their expressed maturity (including, without limitation, upon the
exercise of CDC's Call Option (as defined in the Combination Agreement)) because
of the occurrence of an event of default (under circumstances when the
provisions of the foregoing paragraphs (a) or (b) are not applicable), the
Senior Creditor shall be entitled to receive payment in full of all principal,
interest, and other sums outstanding in connection with the Senior Debt before
the Subordinated Creditor is entitled to receive any payment on account of such
Subordinated Debt.
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<PAGE>
(d) Any payments received by the Subordinated Creditor in
violation of this Agreement shall be held by the Subordinated Creditor in trust
for the benefit of the Senior Creditor and shall be immediately turned over to
the Senior Creditor in the form received (together with any necessary
endorsements) for application to the Senior Debt until all outstanding Senior
Debt has been irrevocably paid in full.
2.2 REMEDY BLOCKAGE. During certain periods specified below (each a
"Remedy Blockage Period"), the holders of the Subordinated Debt will not have
any of the following rights (a "Remedy Blockage"): (i) to demand, sue for or
take from or on behalf of the Debtor, by set-off or in any other manner, any
moneys which may then or thereafter be owing by the Debtor on the Subordinated
Debt, (ii) to commence, or to join with any Person in commencing, any suit,
action or proceeding against the Debtor (A) to enforce payment of or to collect
all or any portion of the Subordinated Debt or (B) to commence judicial
enforcement of any of the rights and remedies under the documents or instruments
governing the Subordinated Debt or applicable law, (iii) to accelerate the
principal of or interest on or any other amount under the Subordinated Debt, or
(iv) to commence, or to join with any Person in commencing, against Debtor or
any of its property a bankruptcy, reorganization, insolvency, receivership or
other similar proceeding (except that the holders of the Subordinated Debt may
(1) charge interest at a default rate, (2) accelerate the Subordinated Debt
after the Senior Debt is accelerated or otherwise take such actions in respect
of the Subordinated Debt as are taken by the holders of the Senior Debt in
respect of the Senior Debt after such actions are taken by the holders of the
Senior Debt, (3) sue for specific performance, but not for damages or other sums
of money, or obtain injunctive relief, in either case, in respect of the
covenants of the Subordinated Debt which do not require, directly or indirectly,
the payment by the Debtor of money, and (4) give notices and file law suits to
prevent the running of the relevant statute of limitations, pursue rights in
bankruptcy, reorganization, insolvency, receivership, or other similar
proceedings, and otherwise protect legal rights)
The Remedy Blockage Periods shall be as follows:
(a) if there shall exist a default in the payment of any amounts
owing under the Subordinated Debt (a "Payment Default"), the Remedy Blockage
shall remain in effect for a Remedy Blockage Period ending 180 days after agent
for the Senior Debt receives written notice from any holder of the Subordinated
Debt (or any designed representative thereof) of the occurrence of the Payment
Default, and
(b) if there shall exist any default with respect to the
Subordinated Debt other than a Payment Default, the Remedy Blockage Period shall
remain in effect until such default is cured or waived or the Senior Debt is no
longer outstanding; provided, however, that all Remedy Blockage Periods pursuant
to this Section 2.2(b) shall terminate and no further such Remedy Blockage
Periods shall commence upon the expiration of any Remedy Blockage Period which
has expired pursuant to Section 2.2(a) hereof.
3
<PAGE>
2.3 SUBORDINATION ON LIQUIDATION. Upon any receivership, insolvency
proceeding, bankruptcy proceeding, assignment for the benefit of creditors,
reorganization, arrangement with creditors, sale of assets for creditors,
dissolution, liquidation, or marshalling of the assets of the Debtor (each, a
"Bankruptcy Event"), all amounts due with respect to the Senior Debt shall be
irrevocably paid in full before the Subordinated Creditor shall be entitled to
collect or receive any payment with respect to the Subordinated Debt. Any
payments received by the Subordinated Creditor in such proceedings shall be held
by the Subordinated Creditor in trust for the benefit of the Senior Creditor and
shall be immediately turned over to the Senior Creditor in the form received
(together with any necessary endorsements) for application to the Senior Debt
until all outstanding Senior Debt has been irrevocably paid in full.
2.4 SUBORDINATION OF LIENS. The Subordinated Creditor will not create,
assume, or suffer to exist any lien, security interest, or assignment of
collateral securing the repayment of the Subordinated Debt. Any such judgment
lien, and any other lien, security interest, or assignment existing in violation
of the foregoing shall be fully subordinate to any lien, security interest, or
assignment in favor of the Senior Creditor which secures any of the Senior Debt.
At the request of the Senior Creditor, the Subordinated Creditor and the Debtor
will take any and all steps necessary to fully effect the release of any such
lien, security interest, assignment, or collateral.
2.5 FURTHER ASSURANCES. The Subordinated Creditor and the Debtor agree
to execute any and all other instruments reasonably requested by the Senior
Creditor to further evidence the subordination of the Subordinated Debt to the
Senior Debt as herein provided.
2.6. SUBROGATION. After all Senior Debt is irrevocably paid in full and
until the Subordinated Note is irrevocably paid in full, the Subordinated
Creditor shall be subrogated to the rights of holders of the Senior Debt to
receive distributions applicable to Senior Debt to the extent that distributions
otherwise payable to the Subordinated Creditors have been applied to the payment
of the Senior Debt. A distribution made under this Section 2, directly or
indirectly, to holders of Senior Debt that otherwise would have been made to the
Subordinated Creditors is not, as between the Debtor and the Subordinated
Creditors, a payment by the Debtor on the Subordinated Note.
2.7 RELATIVE RIGHTS. This Section 2 defines the relative rights of the
Subordinated Creditors and the Senior Creditor. Nothing in this Agreement shall:
(a) impair, as between the Debtor and the Subordinated Creditors, the
obligation of the Debtor, which is absolute and unconditional, to pay all of the
obligations under the Subordinated Note in accordance with its terms; or
(b) affect the relative rights of the Subordinated Creditors and
creditors of the Debtor other than their rights in relation to the Senior
Creditor.
4
<PAGE>
If the Debtor fails because of this Section 2 to pay any obligation
under the Subordinated Note on the applicable due date thereof (within any
applicable grace periods), such failure shall remain a default or event of
default under the Subordinated Note.
Section 3. SUBORDINATION ABSOLUTE. This is an irrevocable agreement of
subordination and the Senior Creditor may, without notice to any of the parties
hereto and without impairing or releasing the obligations of the Debtor and the
Subordinated Creditor hereunder, (a) create Senior Debt by extending credit
under the Credit Agreement; (b) change the terms of or increase the amount of
the Senior Debt by increasing, extending, rearranging, amending, supplementing,
or otherwise modifying any of the Loan Documents or other instruments or
agreements creating Senior Debt; (c) sell, exchange, release, or otherwise deal
with any collateral securing any Senior Debt; (d) release anyone, including the
Debtor or any guarantor, liable in any manner for the payment or collection of
any Senior Debt; (e) exercise or refrain from exercising any rights against the
Debtor or any other Person; and (f) apply any sums received by any Senior
Creditor, from whatever source, to the payment of the Senior Debt.
Section 4. PROVISIONS REGARDING SUBORDINATED DEBT.
4.1 There may be no increases, extensions, rearrangements, amendments,
supplements, or other modifications to the Subordinated Note which increase the
principal amount of, increase the interest rate payable on, or accelerate the
scheduled principal and interest payments on the Subordinated Note without the
prior written permission of the Senior Creditor.
4.2 The Subordinated Creditor will cause all Subordinated Debt to be
evidenced by a note, debenture, instrument, or other writing evidencing the
Subordinated Debt and will inscribe a statement or legend thereon to the effect
that such note, debenture, instrument, or other writing is subordinated to the
Senior Debt in favor of the Senior Creditor in the manner and to the extent set
forth in this Agreement.
4.3 The Subordinated Creditor shall mark the books of Subordinated
Creditor to show that the Subordinated Debt is subordinated to the Senior Debt
in the manner and to the extent set forth in this Agreement and cause all
financial statements of the Subordinated Creditor hereafter prepared for
delivery to any person to make specific reference to the provisions of this
Agreement.
4.4 The Subordinated Creditor shall not assign or otherwise transfer to
any other person any interest in the Subordinated Debt unless the Subordinated
Creditor causes the assignee or other transferee to execute and deliver to the
Senior Creditor a subordination agreement in substantially the form of this
Agreement or otherwise acknowledges to the reasonable satisfaction of the Senior
Creditor the subordination of the Subordinated Debt in accordance with this
Agreement.
5
<PAGE>
Section 5. MISCELLANEOUS.
5.1 The Debtor shall reimburse the Senior Creditor for all reasonable
expenses of the Senior Creditor, including reasonable charges and disbursements
of legal counsel for the Senior Creditor, in connection with the execution,
amendment, modification, waiver, and interpretation of this Agreement, and the
administration, preservation, and enforcement of any rights of the Senior
Creditor under this Agreement. The Debtor shall indemnify the Senior Creditor
against all claims, liabilities, damages, and expenses in connection with any
litigation or proceeding relating to this Agreement, INCLUDING CLAIMS CAUSED BY
THE SENIOR CREDITOR'S OWN NEGLIGENCE except as a result of the Senior Creditor's
gross negligence or willful misconduct. The Senior Creditor is hereby authorized
to setoff and apply any obligations owed by the Senior Creditor to the Debtor
against any obligations of the Debtor under this Agreement. The provisions of
this paragraph shall survive termination of this Agreement.
5.2 This Agreement shall be governed by the laws of the State of Texas.
If any provision in this Agreement is held to be unenforceable, such provision
shall be severed and the remaining provisions shall remain in full force and
effect. The Senior Creditor's remedies under this Agreement shall be cumulative,
and no delay in enforcing this Agreement shall act as a waiver of the Senior
Creditor's rights hereunder. The provisions of this Agreement may be waived or
amended only in a writing signed by all of the parties hereto. This Agreement
shall bind the Subordinated Creditor and the Debtor and their successors and
assigns and shall inure to the benefit of the Senior Creditor and its successors
and assigns. This Agreement may be executed in multiple counterparts which
together shall constitute one and the same agreement. Unless otherwise
specified, all notices provided for in this Agreement shall be in writing,
delivered to the following addresses:
If to the Subordinated Creditor:
with a copy to:
Barry H. Lawrence, Esq.
Kaye, Scholer, Fierman, Hayes & Handler, L.L.P.
1999 Avenue of the Stars, Suite 1600
Los Angeles, California 90067
Telephone No. (310) 788-1000
Telecopier No. (310) 788-1200
6
<PAGE>
If to the Debtor:
Castle Dental Centers, Inc.
Attn: Jack H. Castle, Jr
1360 Post Oak Boulevard
Houston, Texas 77056
Telephone: (713) 513-1401
Telecopier: (713) 513-1400
If to the Senior Creditor:
NationsBank of Texas, N.A.
Attn: Margaret Barradas
700 Louisiana, 7th Floor
Houston, Texas 77002
Telephone: 713-247-6056
Telecopier: 713-247-7175
or to such other address as shall be designated by one party in writing to the
other parties. Notice sent by telecopy shall be deemed to be given and received
when receipt of such transmission is acknowledged, and delivered notice shall be
deemed to be given and received when receipted for by, or actually received by,
an authorized officer of the receiving party.
THIS WRITTEN AGREEMENT AND THE RELATED CREDIT DOCUMENTS REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARITIES.
7
<PAGE>
EXECUTED as of the date first above written.
NATIONSBANK OF TEXAS, N.A.
By:____________________________
Margaret Barradas
Senior Vice President
CASTLE DENTAL CENTERS. INC.
By:____________________________
John M. Slack, Vice President and
Chief Financial Officer
_________________________________
By:_____________________________
Name____________________________
Title:__________________________
8
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of March 30, 1998 (the
"Agreement"), by and between CASTLE DENTAL CENTERS, INC., a Delaware corporation
(the "Company"), and the parties listed on Exhibit A hereto (the "Holders").
1. INTRODUCTION. Pursuant to that certain Master Contribution and
Combination Agreement dated January 30, 1998 (the "Master Agreement"), the
Holders were granted the right to acquire shares of the Company's Common Stock,
$.001 par value per share ("Common Stock"). The Company has agreed to grant to
the Holders certain registration rights with respect to the shares of Common
Stock to be acquired by the Holders pursuant to the terms of the Master
Agreement. Prior to the date hereof, the Company entered into a Registration
Rights Agreement dated as of December 18, 1995, with purchasers of the Company's
Convertible Preferred Stock (as defined below) and certain other parties, as may
be amended from time to time but which has not been amended as of the date
hereof (the "Original Registration Rights Agreement"), and other agreements
regarding registration of Common Stock with other parties. Certain terms used
herein which are not otherwise defined are defined in the Original Registration
Rights Agreement as in effect on the date hereof.
2. REGISTRATION UNDER SECURITIES ACT.
2.1. REGISTRATION OF CALL SECURITIES ON REQUEST.
(a) REQUEST. At any time the Holder or Holders of in excess of
50% of the Call Securities shall once have the right to request in writing that
the Company effect an underwritten registration under the Securities Act of
1933, as amended (the "Securities Act") of all or part of such Holders' Call
Securities. The Company will promptly give written notice of such requested
registration to all other Holders of Call Securities, which Holders shall be
entitled to include their Call Securities in such registration subject to
Sections 2.1(b) and 2.1(g). Thereupon the Company will use its best efforts to
effect the registrations under the Securities Act of:
(i) the Call Securities which the Company has been so requested
to register by such Holders; and
(ii) subject to Sections 2.1(b) and 2.1(g), all other Call
Securities which the Company has been requested to register by the Holders
thereof by written request given to the Company within 30 days after the giving
of such written notice by the Company (which request shall specify the intended
method of disposition of such Call Securities) all to the extent requisite to
permit the disposition of the Call Securities so to be registered.
(b) REGISTRATION OF OTHER SECURITIES. Whenever the Company shall
effect a registration pursuant to this Section 2.1, no securities other than
Call Securities shall be included among the securities covered by such
<PAGE>
registration unless (i) the managing underwriter of such offering, if
applicable, shall have advised each Holder of Call Securities to be covered by
such registration in writing that the inclusion of such other securities would
not in the underwriter's reasonable judgment adversely affect such offering or
(ii) the Holders of a majority of Call Securities to be covered by such
registration shall have consented in writing to the inclusion of such other
securities. Other than in connection with the Original Registration Rights
Agreement (which right has been waived), the Company has not granted, and the
Company will not grant, to any person at any time on or after the date hereof
the right to be included among the securities registered pursuant to this
Section 2.1 that is inconsistent with the provisions of this Section 2.1(b).
(c) REGISTRATION STATEMENT FORM. Registrations under this Section
2.1 shall be on such appropriate registration form or prospectus of the
Commission (i) as shall be selected by the Company and as shall be reasonably
acceptable to the Holders of more than 50% (by number of shares) of the Call
Securities so to be registered and (ii) as shall permit the disposition of such
Call Securities in accordance with the intended method or methods of disposition
specified in their request for such registration.
(d) EXPENSES. The Company will pay all Registration Expenses in
connection with the registration requests made pursuant to this Section 2.1.
(e) EFFECTIVE REGISTRATION STATEMENT. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected and shall
not count as a requested registration pursuant to Section 2.1 (a) hereof (i)
unless a registration statement with respect thereto has become effective and
remains in effect consistent with the provisions of Section 2.1(c)(ii), (ii) if
a registration statement has been filed with the Commission and prior to its
becoming effective a majority of Holders of the Call Securities to be registered
has decided to terminate the registration process, (iii) if after it has become
effective, such registration is interfered with by any stop order, injunction or
other order or requirement of the Commission or other governmental agency or
court for any reason not the fault of a Holder of Call Securities and the Call
Securities covered thereby have not been sold, or (iv) if the conditions to
closing specified in the selling agreement or underwriting agreement, if
applicable, entered into in connection with such registration are not satisfied
or waived by the parties thereto other than a Holder of Call Securities.
(f) UNDERWRITERS. Any registration effected pursuant to this
Section 2.1 shall at the election of the Holders of at least 50% of the Call
Securities be an underwritten public offering on a firm commitment basis or a
best efforts basis. The managing underwriter or underwriters thereof shall be
selected by the Company and such underwriter as well as the price, terms and
provisions of the offering shall be subject to the approval of the Company and
the Holders of more than 50% (by number of shares) of the Call Securities to be
so registered.
(g) APPORTIONMENT IN REGISTRATIONS REQUESTED. If, in connection
with a registration requested pursuant to this Section 2.1, the managing
underwriter shall advise the Company in writing (with a copy to each Holder of
Call Securities requesting registration) that, in its opinion, the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering within a price range acceptable to the
Holders of more than 50% (by number of shares)
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<PAGE>
of the Call Securities requested to be included in such registration, the number
of securities that are otherwise entitled to be included in such registration
shall be allocated in the following manner: the Call Securities requested to be
included in such registration shall be reduced pro rata among the Holders
thereof requesting such registration on the basis of the percentage of the Call
Securities of the Company held by the Holders of Call Securities which have
requested that such Call Securities be included. In connection with any
registration as to which the provisions of this clause (g) apply, no securities
other than Call Securities or shall be covered by such registration and if the
pro ration as aforesaid results in the exclusion of in excess of 15% of the Call
Securities originally sought to be registered, the request shall not be counted
for purposes of determining the number of registrations pursuant to Section 2.1
hereof.
2.2 "PIGGYBACK" REGISTRATIONS.
(a) RIGHT TO INCLUDE HOLDER SECURITIES. If the Company
at any time proposes to register any Common Stock under the Securities Act
(other than by a registration on Form S-4, Form S-8 or any successor or similar
form, or in connection with a tender offer, merger, or other acquisition), for
sale for its own account, and such Common Stock is to be distributed by or
through one or more underwriters on a firm commitment basis, it will at such
time give prompt written notice to all Holders of Holder Securities (as
hereinafter defined) of its intention to do so and of such Holders' rights under
this Section 2.2. Upon the written request of any such Holder made within 20
days after the date of any such notice given in accordance with Section 7
hereof, the Company will use its reasonable best efforts to effect the
registration under the Securities Act of all Holder Securities which the Company
has been so requested to register by the Holders thereof, and to arrange for
such underwriters to include all the Holder Securities to be offered and sold by
such Holder among the Common Stock to be distributed by such underwriters,
PROVIDED that if, at any time after giving written notice of its intention to
register its Common Stock and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register or to delay registration of its Common
Stock, the Company may, at its election, give written notice of such
determination to each Holder of Holder Securities and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Holder Securities in connection with such registration (but not
from its obligation to pay the Registration Expenses in connection therewith or
to include any Holder Securities in subsequent registrations), and (ii) in the
case of a determination to delay registering, shall be permitted to delay
registering any Holder Securities for the same period as the delay in
registering its Common Stock. The Holders of Holder Securities to be distributed
by such underwriters shall be parties to the underwriting agreement between the
Company and such underwriters. Any such Holder of Holder Securities shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters other than representations, warranties, or
agreements typical in an offering of such type, including those regarding such
Holder, such Holder's Holder Securities and such Holder's intended method of
distribution, any other written information supplied by such Holder to the
Company specifically for use in the registration statement and any other
representation required by law. The Company will pay all Registration Expenses
in connection with each registration of Holder Securities requested pursuant to
this Section 2.2.
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<PAGE>
(b) APPORTIONMENT IN "PIGGYBACK" REGISTRATIONS. If the
managing underwriter of such underwritten offering shall inform the Company and
the Holders of the Holder Securities requesting such registration in writing of
its belief that the aggregate number of shares of Common Stock requested to be
included in such registration (including any securities of other security
holders of the Company included in such registration pursuant to the terms of
the Original Registration Rights Agreement) exceeds the number which can be sold
in (or during the time of) such offering or that the inclusion would adversely
affect the marketing or the selling price of the Common Stock to be sold by the
Company therein, then the Company may include all securities proposed by the
Company to be sold for its own account and may decrease or eliminate the number
of Holder Securities requested to be included in such registration to the extent
necessary to reduce the number of shares of Common Stock to be included in the
registration to the level recommended by the managing underwriter. In the event
that such a reduction is necessary, the number of Holder Securities to be
included in such registration shall be reduced, on a pro rata basis among
Holders and the other parties requesting registration (other than holders of
Registrable Inside Shareholder Securities and Registrable Securities)(based on
the total number of shares of Common Stock owned by Holders and such other
parties (but excluding for purposes of this calculation Common Stock which
constitutes Registrable Inside Shareholder Securities and Registrable
Securities) and requested to be included in such registration), prior to any
reduction in the number of Registrable Inside Shareholder Securities and
Registrable Securities to be included in such registration.
2.3 REGISTRATION PROCEDURES. If and whenever the Company is
required to use its reasonable best efforts to effect the registration of any
Holder Securities under the Securities Act as provided in Section 2.1 or 2.2,
the Company will as expeditiously as possible:
(i) prepare and file with the Commission the requisite
registration statement to effect such registration and thereafter use
its reasonable best efforts to cause such registration statement to
become effective, provided that the Company may discontinue any
registration of its securities at any time prior to the effective date
of the registration statement relating thereto;
(ii) 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 and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement until such time as all of such securities have
been disposed of in accordance with the intended methods of disposition
by the seller or sellers thereof set forth in such registration
statement or for six months, whichever period is shorter;
(iii) furnish to each seller of Holder Securities covered
by such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement
thereto, such number of copies of the prospectus contained in such
registration statement (including each
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<PAGE>
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 or Rule 430A under the Securities Act,
in conformity with the requirements of the Securities Act, and such
other documents, as such seller may reasonably request;
(iv) use its best efforts to register or qualify all
Holder Securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions as each seller
thereof shall reasonably request, to keep such registration or
qualification in effect for so long as such registration statement
remains in effect, and take any other action which may be reasonably
necessary to enable such seller to consummate the disposition in such
jurisdictions of the securities owned by such seller, except that the
Company shall not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction wherein it
would not but for the requirements of this subdivision (iv) be obligated
to be so qualified or to consent to general service of process in any
such jurisdiction or subject itself to be required to pay any franchise
or income taxes in any such jurisdiction;
(v) use its reasonable best efforts to cause all Holder
Securities covered by such registration statement to be registered with
or approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Holder Securities;
(vi) furnish to each seller of Holder Securities a signed
counterpart, addressed to such seller of:
(x) an opinion of counsel for the Company, dated
the date of the closing under the underwriting agreement,
reasonably satisfactory in form and substance to such
underwriter, and
(y) a "comfort" letter, dated the effective date of
such registration statement and dated the date of the closing
under the underwriting agreement, signed by the independent
public accountants who have certified the Company's financial
statements included in such registration statement, addressed to
each seller, to the extent the same can be reasonably obtained,
and addressed to the underwriters, covering substantially the
same matters with respect to such registration statement (and the
prospectus included therein) and, in the case of the accountants'
letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in accountants'
letters delivered to the underwriters in underwritten public
offerings of securities and such other financial matters as such
seller or the underwriters may reasonably request;
-5-
<PAGE>
(vii) notify each seller of Holder Securities covered by
such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of which,
the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request of any such
seller or Holder promptly prepare and furnish to such seller or Holder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
sellers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made;
(viii) otherwise use its reasonable best efforts to comply
with all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least 12 months, but not
more than 18 months, beginning with the first full calendar month after
the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section ll(a) of the
Securities Act;
(ix) provide and cause to be maintained a transfer agent
and registrar for all Holder Securities covered by such registration
statement from and after a date not later than the effective date of
such registration statement; and
(x) use its best efforts to list all Holder Securities
covered by such registration statement on any securities exchange on
which any of the Company's Common Stock is then listed.
Notwithstanding the foregoing, the Company may defer its obligations under
Section 2.1 for a period of no more than 90 days in any 365-day period, if the
Company's Board of Directors determines in good faith based upon a written
opinion of counsel that filing such a registration statement would require a
public disclosure by the Company, which disclosure would interfere with a
material transaction then under consideration by the Company, provided that once
such information has been publicly disclosed or such transaction terminated in
all material respects, the Company shall promptly proceed to fulfill its
obligations under Section 2.1.
The Company may require each proposed seller of Holder Securities
as to which any registration is being effected to promptly furnish the Company,
as a condition precedent to including such Holder's Holder Securities in any
registration, such information regarding such seller and the distribution of
such securities as the Company may from time to time reasonably request in
writing
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<PAGE>
Each Holder of Holder Securities agrees by acquisition of such
Holder Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (vii) of this
Section 2.3, such Holder will forthwith discontinue its disposition of Holder
Securities pursuant to the registration statement relating to such Holder
Securities until such Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by subdivision (vii) of this Section 2.3 and, if
so directed by the Company, will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the prospectus relating to such Holder Securities at the time of
receipt of such notice.
2.4. UNDERWRITTEN OFFERINGS.
If requested by the underwriters for any offering by Holders of Call
Securities pursuant to a registration requested under Section 2.1, the Company
will enter into an underwriting agreement with such underwriters for such
offering, such agreement to be satisfactory in substance and form to the
Company, to Holders of more than 50% of the Call Securities included in such
registration and the underwriters and to contain such representations and
warranties by the Company and such other terms as are generally prevailing in
agreements of this type, including, without limitation, indemnities to the
effect and to the extent provided in Section 2.6. The Holders of the Call
Securities will cooperate with the Company in the negotiation of the
underwriting agreement and will give consideration to the reasonable requests of
the Company regarding the form thereof, provided that nothing herein contained
shall diminish the foregoing obligations of the Company or rights of such
Holders. The Holders of Call Securities to be distributed by such underwriters
shall be parties to such underwriting agreement and may, at their option,
require that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such Holders of Call
Securities and that any or all of the conditions precedent to the obligations of
such underwriters under such underwriting agreement be conditions precedent to
the obligations of such Holders of Call Securities. Other than as required under
Section 2.3 hereof, any such Holder of Call Securities shall not be required to
make any representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements typical in an
offering of this type, including those regarding such Holder, such Holder's Call
Securities, and such Holder's intended method of distribution, any other
information supplied by such Holder to the Company for use in the Registration
Statement and any other representation required by law.
2.5 PREPARATION: REASONABLE INVESTIGATION. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the Holders of Holder
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel (such counsel representing Holders to be
appointed by the holders of more than 50% by number of shares of Common Stock
being registered other than shares being registered by the Company) the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each of them such access
to its books and records and such opportunities to discuss the business of the
Company with its officers and the
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<PAGE>
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of such Holders' and such underwriters'
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.
2.6 INDEMNIFICATION.
(a) INDEMNIFICATION BY COMPANY. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will indemnify and hold harmless the seller of any Holder Securities
covered by such registration statement, its directors and officers, and each
other Person, if any, who controls such seller within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such seller or any such director or officer or controlling
Person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or 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, and
the Company will reimburse such seller and each such director, officer and
controlling Person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding; PROVIDED, HOWEVER, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon (a) an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement, said preliminary or final prospectus or said amendment or supplement
in reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such seller, specifically for use in
the preparation thereof or (b) an untrue statement or alleged untrue statement,
omission or alleged omission in a prospectus if such untrue statement or alleged
untrue statement, omission or alleged omission is corrected in an amendment or
supplement to the prospectus or in the final prospectus, which amendment,
supplement or final prospectus is delivered to such seller and such seller
thereafter fails to deliver such prospectus as so amended or supplemented prior
to or concurrently with the sale of registered Holder Securities to the Person
asserting such loss, claim, damage, liability or expense. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such seller or any such director, officer or controlling Person and
shall survive the transfer of such securities by such seller.
(b) INDEMNIFICATION BY THE HOLDERS. The Holders will, and
hereby do, indemnify and hold harmless (in the same manner and to the same
extent as set forth in subdivision (a) of this Section 2.6) the Company, each
director of the Company, each officer of the Company and each other Person, if
any, who controls the Company within the meaning of the Securities Act with
respect to any untrue statement or alleged untrue statement of any material
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<PAGE>
fact in such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or 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, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Holder specifically for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect, regardless of any investigation made by or on
behalf of the Company or any such director, officer or controlling Person and
shall survive the transfer of such securities by such Holder.
(c) NOTICE. Promptly after receipt by an indemnified party
of notice of the commencement of any action or proceeding involving a claim
referred to in the preceding subdivisions of this Section 2.6, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action,
provided that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 2.6, except to the extent that the
indemnifying party is prejudiced by such failure to give notice. In case any
such action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
party and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) INDEMNIFICATION PAYMENTS. The indemnification
required by this Section 2.6 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
2.7 ADJUSTMENTS AFFECTING HOLDER SECURITIES. The Company will not effect
or permit to occur any combination or subdivision of shares which would
adversely affect the ability of the holders of Holder Securities to include such
Holder Securities in any registration of its
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securities contemplated by this Section 2 or the marketability of such Holder
Securities under any such registration.
3. DEFINITIONS. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
CALL SECURITIES: Holder Securities acquired by a Holder upon conversion of the
Class C Interest (as defined in the Master Agreement) upon the exercise by CDC
of California, Inc., of CDC's Call Option (as defined in the Master Agreement").
COMMISSION: The Securities and Exchange Commission or any other federal agency
at the time administering the Securities Act.
COMMON STOCK: Common Stock of the Company, $.001 par value per share, and stock
of any other class with which such shares may hereafter have been exchanged or
reclassified.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
HOLDERS: The Holder and any permitted successors or assigns.
GULFSTAR WARRANT: The warrant to purchase 113,158 shares of the Company's Common
Stock issued to GulfStar Investments, Ltd.
HOLDER SECURITIES: The Common Stock (a) issued to the Holders upon the
conversion of the Class B Interests or Class C Interests (as defined in the
Master Agreement) in Castle Dental Centers of California, L.L.C. pursuant to the
B Merger or C Merger (as defined in the Master Agreement) in accordance with the
terms of the Master Agreement and (b) issued to the Holders with respect to such
Common Stock by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise upon any required adjustments.
As to any particular Holder Securities, such securities shall cease to
be Holder Securities when (a) a registration statement with respect to the sale
of such securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been distributed to the public pursuant to Rule
144 (or any successor provision) under the Securities Act, (c) they are eligible
for distribution to the public under Rule 144(k), or (d) they shall have ceased
to be outstanding.
INSIDE SHAREHOLDERS: Jack H. Castle, Jr., as Trustee of the Castle 1995 Gift
Trust f/b/o Jack H. Castle, Jr., Castle Interests, Ltd., Lisa G. Castle Donnell,
as Trustee of the Castle 1995 Gift Trust
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f/b/o Lisa G. Castle Donnell, Jack H. Castle, D.D.S., Loretta M. Castle and
GulfStar Investments, Ltd.
PERSON: A corporation, an association, a partnership, a business or other
business entity, an individual, a governmental or political sub-division thereof
or a governmental agency.
REGISTRABLE INSIDE SHAREHOLDER SECURITIES: All shares of Common Stock held by
the Inside Shareholders on the date hereof and any shares of Common Stock
issuable upon exercise of the GulfStar Warrant or (b) securities issued or
issuable with respect to such GulfStar Warrant or Common Stock by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise
upon any required adjustments.
REGISTRABLE SECURITIES: The Common Stock issuable upon the conversion of the
Company's Series A Convertible Preferred Stock, par value $.001 per share (the
"Convertible Preferred Stock") and any (a) Convertible Preferred Stock or (b)
securities issued or issuable with respect to such Convertible Preferred Stock
or Common Stock by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise upon any required adjustments.
REGISTRATION EXPENSES: All expenses incident to the Company's performance of or
compliance with Section 2, including, without limitation, all registration,
filing and National Association of Securities Dealers, Inc. fees, all fees and
expenses of complying with securities or blue sky laws, all word processing,
duplicating and printing expenses, messenger and delivery expenses, the
reasonable fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special audits or
"comfort" letters required by or incident to such performance and compliance,
the reasonable fees and disbursements of one counsel (except in the event of a
conflict of interest, then such number of counsel as is appropriate to resolve
such conflict) retained by the holder or holders of more than 50% by number of
shares of Common Stock being registered other than shares registered by the
Company, premiums and other costs of policies of insurance obtained by the
Company against liabilities arising out of the public offering of the
Registrable Securities and the Holder Securities being registered and any fees
and disbursements of underwriters customarily paid by issuers or sellers of
securities, including reasonable fees of underwriters counsel including
qualification of securities under blue sky laws, but excluding all agency fees
and commissions, underwriting discounts and commissions and transfer taxes, if
any, applicable to the Holders Securities.
SECURITIES ACT: The Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
4. RULE 144. The Company will file the reports required to be filed by
it, and in the manner required to be filed by it, under the Securities Act and
the Exchange Act (or, if the
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Company is not required to file such reports, will, upon the request of any
Holder of Holder Securities, make publicly available other information) and will
take such further action as any Holder of Holder Securities may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Holder 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 ("Rule 144"). Upon the request of
any Holder of Holder Securities, the Company will deliver to such Holder a
written statement certifying whether it has complied with such requirements.
5. AMENDMENTS AND WAIVERS. This Agreement may be amended and the Company
may take any action herein prohibited or omit to perform any act herein required
to be performed by it, only if the Company shall have obtained the written
consent to such amendment, action or omission to act, of the holder or holders
of 66-2/3% or more (by number of shares) of Holder Securities. Each holder of
any Holder Securities at the time or thereafter outstanding shall be bound by
any consent authorized by this Section 5, whether or not such Holder Securities
shall have been marked to indicate such consent.
6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any Holder
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may upon the giving of written notice to the Company,
at its election, be treated as the Holder of such Holder Securities for purposes
of any request or other action by any Holder or Holders of Holder Securities
pursuant to this Agreement or any determination of any number or percentage of
shares of Holder Securities held by any Holder or Holders of Holder Securities
contemplated by this Agreement. The Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Holder
Securities.
7. NOTICES. All communications provided for hereunder shall be sent by
first-class mail, overnight courier or personal delivery and (a) if addressed to
a party other than the Company, addressed to such party at the address set forth
on the signature page hereof, or at such other address as such party shall have
furnished to the Company in writing, or (b) if addressed to any other Holder of
Holder Securities, at the address that such Holder shall have furnished to the
Company in writing, or, until any such other holder so furnishes to the Company
an address, then to and at the address of the last holder of such Holder
Securities who has furnished an address to the Company with a copy to: Barry H.
Lawrence, Esq., Kaye, Scholer, Fierman, Hayes & Handler, LLP, 1999 Avenue of the
Stars, Suite 1600, Los Angeles, California 90067, or (c) if addressed to the
Company, at 1360 Post Oak Boulevard, Suite 1300, Houston, Texas 77056, to the
attention of its President, or to the attention of such other officer, as the
Company shall have furnished to each Holder of Securities at the time
outstanding.
8. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for
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the benefit of the parties hereto other than the Company shall also be for the
benefit of and enforceable by any subsequent Holder of any Holder Securities.
9. DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
10. GOVERNING LAW. This agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the state of Delaware.
11. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
12. EXTENSION OF ADDITIONAL REGISTRATION RIGHTS. The Holders acknowledge
that the Company retains the right to extend the same or similar registration
rights to other holders of its securities, and that such action by the Company
shall not constitute a breach of or a default under this Agreement. It is the
intent of the parties hereto that this Agreement be read consistently with the
Original Registration Rights Agreement, but in the event of a conflict
therewith, except as provided in Section 2.1 hereof, the provisions of the
Original Registration Rights Agreement shall control.
13. LOCK-UP AGREEMENT. If requested in writing by the underwriters for
any underwritten public offering of securities of the Company, the Holders shall
agree not to sell publicly any shares of Common Stock (other than Common Stock
being registered in such offering), without the consent of such underwriters,
for a period of not more than 180 days following the effective date of the
registration statement relating to such offering.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized as
of the date first above written.
CASTLE DENTAL CENTERS, INC.
By:________________________
John M. Slack, Vice President and
Chief Financial Officer
HOLDERS:
____________________________________________
Jeffrey D. Schechter, D.D.S., Individually
____________________________________________
S. Alexander Soleimani, D.M.D., Individually
____________________________________________
Martin Schechter, D.D.S., Individually
____________________________________________
Elliot Schlang, D.D.S., Individually
DENTAL ADVISORY GROUP, LLC
a California limited liability company
By:______________________________________
Name:___________________________________
Title:____________________________________
____________________________________________
Julie D'Aguanno, Individually
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EXHIBIT 99.6
SHAREHOLDERS' AGREEMENT
THIS AGREEMENT dated as of March 30, 1998, is by and among Castle
Dental Centers of California, L.L.C., a Delaware limited liability company
("Castle West"), CDC of California, Inc., a Delaware corporation ("CDC"), Dental
Consulting Services, LLC, a California limited liability company ("DCS"), Castle
West Holdings, L.L.C., a Delaware limited liability company ("Holdings"), each
of the corporations listed on Schedule A hereto as a member of DCS (the
"Corporate B Members"), each of the stockholders listed on Schedule A hereto of
the Corporate B Members (the "Corporate B Stockholders"), each of the
corporations listed on Schedule A hereto as a member of Holdings (the "Corporate
C Members"), and each of the stockholders listed on Schedule A hereto of the
Corporate C Members (the "Corporate C Stockholders");
WITNESSETH:
WHEREAS, on January 30, 1998, Castle West, Castle Dental Centers, Inc.,
a Delaware corporation ("Castle"), CDC, DCS, Holdings, the Corporate B Members,
the Corporate B Stockholders, the Corporate C Members and the Corporate C
Stockholders entered into that certain Master Contribution and Combination
Agreement ("Combination Agreement") providing for, among other things, the
organization of Castle West; and
WHEREAS, the Corporate B Members collectively own all of the
outstanding membership interests in DCS (the "DCS Interest"), the Corporate B
Stockholders own all of the outstanding capital stock of each of their
respective Corporate B Members (collectively, the "Corporate B Stock"), the
Corporate C Members collectively own all of the outstanding membership interests
in Holdings (the "Holdings Interest"), the Corporate C Stockholders own all of
the outstanding capital stock of each of their respective Corporate C Members
(collectively, the "Corporate C Stock"), Holdings owns all of the outstanding
Class C Interest in Castle West (the "Class C Interests"), and DCS owns all of
the outstanding Class B Interest in Castle West (the "Class B Interest"); and
WHEREAS, pursuant to Article VII of the Combination Agreement, CDC and
Castle granted the Corporate B Members as a group the option ("Corporate B
Members' Merger Option") to cause all of the Corporate B Stock to be converted
into Castle common stock, $.001 par value per share ("Castle Common Stock")
pursuant to a merger of all of the Corporate B Members with and into CDC; and
WHEREAS, pursuant to Article VIII of the Combination Agreement, (a)
each Corporate C Member was granted the one-time right ("Corporate C Members'
Merger Option") to convert its Corporate C Stock into shares of Castle Common
Stock and/or cash through a merger of the Corporate C Members into CDC and (b)
CDC was granted the one-time right ("CDC's Call Option")
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to convert the Corporate C Stock into shares of Castle Common Stock and/or cash
through a merger of the Corporate C Members into CDC; and
WHEREAS, at the date hereof, the DCS Interest, Holdings Interest, the
Corporate B Stock and the Corporate C Stock are owned by the Corporate B
Members, the Corporate C Members, the Corporate B Stockholders and the Corporate
C Stockholders, respectively, in the amounts set forth on EXHIBIT B hereto; and
WHEREAS, the undersigned desire to promote their mutual interests
imposing certain restrictions and obligations on themselves and the Securities
(as defined below);
NOW, THEREFORE, in consideration of the premises, the mutual promises
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" means (i) with respect to any individual, such
individual's spouse, parents, children, siblings, mothers and
fathers-in-law, sons and daughters-in-law and brothers and
sisters-in-law, any direct descendant of such individual or any Person
established for the benefit of any of the foregoing and (ii) with
respect to a Person, any person which controls, is controlled by or
under common control with such Person.
(b) "B Merger" the merger of each Corporate B Member with and
into CDC in accordance with the terms of the Combination Agreement.
(c) "B Merger Consideration" means the aggregate amount of
merger consideration payable to the Corporate B Stockholders upon
consummation of the B Merger, determined in accordance with Article VII
of the Combination Agreement.
(d) "C Merger" the merger of a Corporate C Member with and
into CDC in accordance with the terms of the Combination Agreement.
(e) "C Merger Consideration" means the aggregate amount of
consideration payable to the Corporate C Members upon consummation of
CDC's Call Option, determined in accordance with Article VIII of the
Combination Agreement.
(f) "Castle West Interests" means the Class B Interest and the
Class C Interest.
(g) "CDC's Call Option" is as defined in the preamble.
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(h) "Companies" means Castle West, DCS, Holdings, the
Corporate B Members and the Corporate C Members, collectively, and
"Company" refers to any of the Companies, singularly.
(i) "Corporate C Members' Merger Option" is as defined in the
preamble.
(j) "Determination Date" means the last day of the calendar
month immediately preceding the calendar month during which:
(i) for purposes of Section 6, a Shareholder dies;
and
(ii) for purposes of Section 8, an Offering Notice is
delivered to CDC or a Shareholder.
(k) "Disposition" means any sale, passage, assignment, gift,
exchange, distribution, transfer, pledge, mortgage or other
encumbrance, or any other disposition of Securities whatsoever, whether
voluntary or involuntary, and each and every transaction, whether
voluntary or involuntary, occurring by operation of law or otherwise,
which has the purpose or effect of making one or more of the following
changes:
(i) a change in the beneficial or record ownership of
any of the Securities covered by this Agreement or any stock
certificate or certificates representing such Securities; or
(ii) a change in the identity, ownership or control
of the holder or owner of the legal, equitable or beneficial
title of or to any of the Securities covered by this Agreement
or any stock certificate or certificates representing such
Securities;
and shall include the failure of a Shareholder to succeed to any
interest, community or otherwise, of such Shareholder's spouse in the
Securities upon termination of the marital relationship of such
Shareholder by reason of death; provided, however, that such term shall
not include (i) the acquisition by a Shareholder of all or any part of
any interest, community or otherwise, of such Shareholder's spouse, in
any Securities covered by this Agreement, (ii) any Disposition of
Securities by a Shareholder to any other Shareholder who is a party to
this Agreement which, but for this provision, would constitute a
Disposition, (iii) the conversion of any Securities owned or held by a
Shareholder pursuant to a C Merger upon the exercise of CDC's Call
Option or a Corporate C Members' Merger Option, (iv) the conversion of
any Securities owned or held by a Shareholder pursuant to the B Merger,
(v) any pledge, mortgage, encumbrance or other grant of a security
interest in accordance with the provisions of Section 5(b) hereof or
(vi) any Disposition to an Affiliate in accordance with the provisions
of Section 5(c).
(l) "Disqualified Securities" has the meaning provided in
Section 6.
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(m) "Non-Affiliate" has the meaning provided in Section 6.
(n) "Offering Notice" means a notice from the party obligated
to offer Securities, offering such Securities to CDC or to the
Shareholders other than the one with respect to which such Offering
Notice is being sent, as the case may be, and specifying the Section of
this Agreement pursuant to which such offer is being made and the
nature and details of the circumstances under which such offer is being
made.
(o) The term "Person" shall mean an individual, a corporation,
limited liability company, a trust, a partnership, a joint stock
association, a business trust or a government or agency or subdivision
thereof, as the case may be, and, as applicable, shall include the
singular and the plural.
(p) "Pro Rata Share" means, (a) with respect to a
stockholder's interest in a corporation, the number of shares of
capital stock of such corporation owned by such stockholder divided by
the number of shares of capital stock of such corporation owned by all
stockholders of such corporation and (b) with respect to a
corporation's interest in a limited liability company, the percentage
ownership interest in such limited liability company owned by such
corporation.
(q) "Reply Notice" means a notice from CDC or from any
Shareholder receiving an Offering Notice, stating whether CDC or such
Shareholder, as the case may be, accepts or rejects the offer made by
an Offering Notice.
(r) "Resulting Shareholder" has the meaning provided in
Section 6.
(s) "Securities" means the DCS Interest, Holdings Interest,
the Corporate B Stock, the Corporate C Stock and the Castle West
Interests.
(t) "Securities Act" means the Securities Act of 1933, as
amended, or any successor Federal statute, and the rules and
regulations of the Securities and Exchange Commission promulgated
thereunder, as in effect from time to time.
(u) "Securities Value" as of the applicable Determination Date
shall mean an amount equal to, (i) with respect to a DCS Interest, the
Pro Rata Share of the B Merger Consideration that would be received by
the Corporate B Stockholder(s) owning the Corporate B Member owning
such DCS Interest upon consummation of the B Merger, (ii) with respect
to a Holdings Interest, the Pro Rata Share of the C Merger
Consideration that would be received by the Corporate C Member owning
such Holdings Interest upon consummation of CDC's Call Option, (iii)
with respect to any Corporate B Stock, the Pro Rata Share of the B
Merger Consideration that would be received by the Corporate B
Stockholder(s) owning such Corporate B Stock upon consummation of the B
Merger, (iv) with respect to any Corporate C Stock, the Pro Rata Share
of the C Merger Consideration
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that would be received by the Corporate C Member owned by such
Corporate C Stockholder upon consummation of CDC's Call Option, (v)
with respect to the Class B Interest, the B Merger Consideration that
would be received by the Corporate B Stockholder(s) upon consummation
of the B Merger, and (vi) with respect to the Class C Interest, the C
Merger Consideration that would be received by the Corporate C Members
upon consummation of CDC's Call Option.
(v) "Shareholders" means DCS, Holdings, the Corporate B
Members, the Corporate C Members, the Corporate B Stockholders, the
Corporate C Stockholders, and all other Persons who from time to time
hereafter may be the holders of Securities.
2. PROVISIONS OF GENERAL APPLICABILITY. For purposes of this Agreement:
(a) If at any time any Securities owned or held by a
Shareholder are required by this Agreement to be offered to the other
Shareholders, such offer shall be deemed to be made only to the other
Shareholders who hold similar securities (e.g., DCS Interest shall only
be offered to other Corporate B Members, Holdings Interest shall only
be offered to other Corporate C Members, Corporate B Stock shall only
be offered to other Corporate B Stockholders, Corporate C Stock shall
only be offered to other Corporate C Stockholders, the Class B Interest
shall only be offered to Holdings, and the Class C Interest shall only
be offered to DCS), both pro rata in accordance with their respective
holdings at the time of the offer of Securities, and in such other
proportions as such other Shareholders may agree upon among themselves.
Except as may otherwise be agreed upon among such other Shareholders,
each such other Shareholder to whom such Securities are so offered
shall have the right to purchase that portion of Securities offered
which the Securities Value of the Securities of similar kind owned by
such other Shareholders bears to the total Securities Value of
Securities of similar kind owned by all such other Shareholders who
have elected to accept the offer.
(b) Reply Notices accepting an offer made by an Offering
Notice may accept such offer as to all Securities offered by the
Offering Notice or any portion thereof. If any Shareholder or CDC
receives an Offering Notice and fails to deliver a Reply Notice to the
offering party within 30 days from the receipt of such Offering Notice,
the party who fails to so deliver a Reply Notice shall be deemed
conclusively to have delivered a Reply Notice stating that such party
does not accept the offer made by such Offering Notice.
(c) Each transaction of purchase and sale of Securities
pursuant to this Agreement shall be completed by delivery of the
certificates representing such Securities endorsed in blank and by
actual registration of the transfer of such Securities on the books of
the appropriate Company upon payment of the purchase price to the
seller of such Securities as hereinafter set forth. The purchase price
of purchases made pursuant to Section 8 shall be payable in cash. Any
such transaction pursuant to Section 8 shall be closed at such time and
place as shall be agreed upon by the parties thereto, or, if no such
agreement is reached, at
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<PAGE>
the principal office of CDC on the 30th day following the date of
delivery of the last Reply Notice given in connection with such
transaction or, if such day shall not be a business day, in the first
business day thereafter during normal business hours.
(d) Whenever the context requires, the gender of all words
used herein shall include the masculine, feminine and neuter, and the
number of all words shall include the singular and the plural.
3. INVESTMENT REPRESENTATION. Each of the Shareholders hereby
represents that as of the dates any Securities were acquired or are hereafter
acquired by such Shareholder, such Securities were or will be acquired for such
Shareholder's own account, for investment and not with a view to the
distribution thereof. Each of the Shareholders understands that the Securities
which have been or will be acquired by such Shareholder have not been registered
under the Securities Act or any applicable state securities laws pursuant to
exemptions from the registration provisions thereof. Each of the Shareholders
hereby agrees that the Securities which have been acquired by such Shareholder,
and any other Securities hereafter acquired by such Shareholder, pursuant to
exemptions from the registration provisions of the Securities Act and applicable
state securities laws, shall not be sold, transferred, pledged or hypothecated
unless the sale of such Securities is registered under the Securities Act and
all applicable state securities laws or unless there is furnished an opinion of
counsel reasonably satisfactory in form and substance to CDC that registration
of such Securities is not required. Each Shareholder understands that no Company
is under any obligation to register the Securities under the Securities Act or
any applicable state securities laws, and that Rule 144 under the Securities Act
may not be available in connection with any resale of Securities. The provisions
of this Section 3 and the provisions of the following Section 4 shall remain in
effect until, in the opinion of counsel for CDC, they are no longer required.
4. LEGEND ON SECURITIES CERTIFICATES. Each of the Shareholders hereby
agrees that the following legend shall be written, printed or stamped on all
certificates representing Securities owned by such Shareholder or, if such
Securities are not represented by certificates, on the first page of the
agreement pursuant to which such Securities are created:
"The transfer of the Securities represented by this
certificate is restricted by the terms and conditions of a
Shareholders' Agreement (the "Agreement") dated as of ______________,
1998, among Castle Dental Centers, L.L.C. ("Castle West"), CDC of
California, Inc., Dental Consulting Services, LLC ("DCS"), Castle West
Holdings, L.L.C. ("Holdings"), all of the members in DCS and Holdings
and all of the stockholders of the members in DCS and Holdings. A copy
of the Agreement is on file at the registered office of the company
issuing this certificate, and the company shall furnish a copy thereof
to the record holder hereof without charge upon written request."
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5. DISPOSITION OF SECURITIES BY SHAREHOLDERS.
(a) No Shareholder shall make, cause or allow any Disposition
of any Securities owned or held by such Shareholder except with the
written consent of CDC, the Company and all other Shareholders or
except pursuant to the provisions of this Agreement.
(b) Any Shareholder may pledge, mortgage, encumber or
otherwise grant a security interest in any Securities owned or held by
such Shareholder in connection with a bona fide transaction and to
secure the performance or payment of any obligation or indebtedness of
such Shareholder which such Shareholder fully intends to perform or pay
if and only so long as such Shareholder is entitled to vote such
Securities with respect to any and all matters presented to the holders
of such class of Securities for consideration and action; provided,
however, in the event that the legal or equitable title to any of such
Securities should be divested from such Shareholder as a consequence of
any default in the payment or performance of such indebtedness or
obligation, such divestiture shall constitute an involuntary
Disposition to which the provisions of Section 8 shall apply; provided,
however, that notwithstanding the foregoing, neither DCS nor Holdings
may pledge, mortgage, encumber or otherwise grant a security interest
in the Class B Interest or the Class C Interest.
(c) Any Corporate B Stockholder or Corporate C Stockholder may
make a Disposition of any of the Corporate B Stock or Corporate C Stock
owned or held by such Shareholder to an Affiliate of such Shareholder
provided that such Affiliate is competent to enter into and perform the
obligations of a Shareholder under this Agreement and contemporaneously
with such Disposition such Affiliate agrees to become a party to this
Agreement and the Combination Agreement by entering into an Addendum
Agreement as required by Section 13 (g) of this Agreement.
6. DEATH OF A SHAREHOLDER. If any Shareholder dies, then his or her
executor, administra tor or similar person, or heirs and, with respect to any
Securities owned by such Shareholder in which, at the time of such Shareholder's
death, the spouse of such Shareholder had an interest, community or otherwise,
immediately prior to the date of death, the spouse of such Shareholder, as the
case may be (in any event, the "Resulting Shareholder"), shall be deemed to be a
Shareholder and all the provisions of this Agreement shall apply to any future
Disposition of Securities held by such Resulting Shareholder. If the Resulting
Shareholder (i) is an heir who, prior to the Shareholder's death, was not an
Affiliate of the Shareholder (a "Non-Affiliate") or (ii) intends or is required
by law or the last will and testament of the deceased Shareholder to deliver any
portion of the deceased Shareholder's Securities to any Non-Affiliate, the
Resulting Shareholder shall, within 90 days after such death, offer or cause to
be offered (x) in the case of (i) above, all of the Securities acquired by such
heir or (ii) in the case of (ii) above, the Securities to be delivered to a
Non-Affiliate (in either event, the "Disqualified Securities") first to the
other Shareholders, and if such offer is not accepted in full by the other
Shareholders, then to CDC, at a price equal to the Securities Value of such
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Securities as of the Determination Date, all in accordance with the following
provisions of this Section 6.
(a) Within 90 days after the date of death of such
Shareholder, the Resulting Shareholder shall deliver an Offering Notice
to each of the other Shareholders, and within 30 days from the receipt
of such Offering Notice, the other Shareholders shall deliver Reply
Notices to the Resulting Shareholder. If by their Reply Notices the
other Shareholders accept the offer of the Resulting Shareholder, such
Reply Notices shall constitute an agreement binding on the Resulting
Shareholder and the other Shareholders to sell and purchase the offered
and accepted Securities at the price and upon the terms stated in this
Agreement, the Offering Notice of the Resulting Shareholder and in such
Reply Notices.
(b) If the other Shareholders shall not have accepted in full
the offer of the Resulting Shareholder pursuant to the foregoing
paragraph (a), the Resulting Shareholder shall, upon receipt of the
Reply Notices from the other Shareholders or upon the expiration of the
30-day period referred to in the foregoing paragraph (a), whichever
shall first occur, deliver an Offering Notice to CDC with respect to
the remaining Securities. If by its Reply Notice delivered within 30
days from the receipt of such Offering Notice CDC accepts the offer of
the Resulting Shareholder, such Reply Notice shall constitute an
agreement binding on the Resulting Shareholder and CDC to sell and
purchase the offered and accepted Securities at the price and upon the
terms stated in this Agreement, the Offering Notice of the Resulting
Shareholder and in such Reply Notice.
(c) If neither the other Shareholders nor CDC timely accepts
an offer of the Resulting Shareholder pursuant to the foregoing
provisions of this Section 6 for all of the applicable Securities, then
(i) in the case of an intended transfer to a Non-Affiliate, the
Resulting Shareholder shall be allowed to make such a transfer of the
Disqualified Securities not so purchased to the Non-Affiliate and the
Non-Affiliate shall be deemed to be a Shareholder and all the
provisions of this Agreement shall apply to any future Disposition of
Securities held by the Non-Affiliate and (ii) in the case of an heir
who is a Non-Affiliate, the Resulting Shareholder shall be deemed to be
a Shareholder and all the provisions of this Agreement shall apply to
any future Disposition of Securities held by the Resulting Shareholder.
7. SALE OF SECURITIES UPON TERMINATION OF MARRIAGE OF A SHAREHOLDER. If
the marriage of a Shareholder is terminated by the death of his or her spouse or
by divorce, and such Shareholder does not succeed to all of his or her spouse's
interest, if any, in the Securities held by him or her at the time of such
termination, then his or her former spouse or the executor, administrator or
similar person or heirs of his or her spouse, as the case may be, shall, be
deemed to be a Shareholder and all the provisions of this Agreement shall apply
to any future Disposition of Securities held by such Shareholder.
8
<PAGE>
8. INVOLUNTARY DISPOSITION OF SECURITIES. Upon the reasonable belief of
a Shareholder that any of the Securities of such Shareholder are or will be
subject to an involuntary Disposition, and in any event, as permitted by law,
upon or prior to any involuntary Disposition of such Securities, the Shareholder
who owns such Securities or his or her representative shall offer such
Securities to the other Shareholders, and if such offer is not accepted in full
by the other Shareholders, then the remainder to CDC, at a price equal to the
Securities Value of such Securities as of the Determination Date, in accordance
with the following provisions of this Section 8. For purposes of this Section 8,
"involuntary Disposition" shall include, without limitation, any Disposition or
other transfer of Securities pursuant to or by reason of or under judicial
order, legal or equitable process, execution, attachment or enforcement of a
pledge, trust or other security interest or encumbrance. Also, for the purposes
of this Section 8, the term "Selling Shareholder" shall mean the Shareholder who
owns such Securities subject to the involuntary Disposition, or his or her
representative, as the case may be.
(a) The Selling Shareholder shall deliver an Offering Notice
to each of the other Shareholders, and within 30 days from the receipt
of such Offering Notice, the other Shareholders shall deliver Reply
Notices to the Selling Shareholder. If by their Reply Notices the other
Shareholders accept the offer of the Selling Shareholder, such Reply
Notices shall constitute an agreement binding on the Selling
Shareholder and the other Shareholders to sell and purchase the offered
and accepted Securities at the price and upon the terms stated in this
Agreement, the Offering Notice of such Selling Shareholder and such
Reply Notices.
(b) If the other Shareholders shall not have accepted in full
the offer of the Selling Shareholder pursuant to the foregoing
paragraph (a), the Selling Shareholder shall, upon receipt of the Reply
Notices from the other Shareholders or upon the expiration of the
30-day period referred to in the foregoing paragraph (a), whichever
shall first occur, deliver an Offering Notice to CDC with respect to
the remaining Securities. Within 30 days from the receipt of such
Offering Notice, CDC shall deliver a Reply Notice to the Selling
Shareholder. If by its Reply Notice, CDC accepts the offer of the
Selling Shareholder, such Reply Notice shall constitute an agreement
binding on the Selling Shareholder and CDC to sell and purchase the
offered and accepted Securities at the price and upon the terms stated
in this Agreement, the Offering Notice of such Selling Shareholder and
such Reply Notice.
(c) If neither the other Shareholders nor CDC timely accepts
the offer of the Selling Shareholder pursuant to the foregoing
provisions of this Section 8 for all of the applicable Securities, the
Selling Shareholder shall not be freed and discharged, except as
hereinafter stated, from all obligations under the terms of this
Agreement other than to cause, through action or inaction on the part
of the Selling Shareholder, the involuntary Disposition described in
the Offering Notice to occur. If such involuntary Disposition has not
been affected within six months after the date the Offering Notice is
delivered to the other Shareholders, all the provisions of this
Agreement, including the provisions of this Section 8, shall apply to
any future Disposition of Securities owned by the Selling Shareholder.
9
<PAGE>
9. BUSINESS ACTIVITIES; ISSUANCE OF ADDITIONAL SECURITIES. DCS, each
Corporate B Member and each Corporate C Member hereby agrees that the only
business activities it shall conduct following the execution of this Agreement
and prior to the consummation of the C Merger contemplated by the Corporate C
Members' Merger Option or CDC's Call Option shall relate to the ownership of the
Securities currently owned by it or acquired by it under the terms of this
Agreement. Each Company hereby agrees that for so long as such Company remains a
party to this Agreement, without the prior consent of CDC and each Shareholder
then a party to this Agreement, it shall not issue or agree to issue (a) any
shares of capital stock or membership interests in such Company, (b) any
securities convertible into or exchangeable for shares of capital stock or
membership interests in such Company or (c) any other securities that would, in
each case, be entitled to vote upon a merger of such Company into any other
Person. Each of the Shareholders who owns Securities issued by each such Company
agrees to take all corporate action necessary to implement the agreements set
forth in the preceding two sentences.
10. POWER OF ATTORNEY. Each of the Shareholders and each of the parties
who becomes obligated as a Shareholder hereunder does hereby irrevocably make,
constitute and appoint Jack H. Castle, Jr. and John M. Slack, or either of them,
with full power of substitution and resubstitution to each, the true and lawful
attorneys and proxies of such Shareholder, (a) upon receipt of a notice of
exercise of the Corporate B Members' Merger Option executed by the holders of a
majority in interest of the DCS Interest, to vote the Corporate B Stock of such
Shareholder standing in the name of such Shareholder on the books of any
Corporate B Member in favor of the B Merger if such Shareholder does not
promptly do so, (b) upon receipt of a notice of exercise of a Corporate C
Members' Merger Option, to vote the Corporate C Stock of such Shareholder
standing in the name of such Shareholder on the books of the Corporate C Member
in favor of the C Merger contemplated by that Corporate C Members' Merger Option
if such Shareholder does not promptly do so, (c) upon exercise by CDC of CDC's
Call Option, to vote the Corporate C Stock of such Shareholder standing in the
name of such Shareholder on the books of any Corporate C Member in favor of the
C Merger contemplated by CDC's Call Option if such Shareholder does not promptly
do so, (d) upon the termination of the Management Agreement entered into between
Holdings and Castle West concurrently herewith ("Management Agreement") by
Holdings (other than a termination because of a breach by Castle West which
gives Holdings the right to terminate the Management Agreement) or a breach of
the Management Agreement by Holdings in such a manner as to give Castle West the
right to terminate the Management Agreement, to vote the Corporate C Stock of
such Shareholder standing in the name of such Shareholder on the books of any
Corporate C Member in favor of the C Merger contemplated by CDC's Call Option if
such Shareholder does not promptly do so and to vote the Corporate B Stock of
such Shareholder standing in the name of such Shareholder on the books of any
Corporate B Member in favor of the B Merger if such Shareholder does not
promptly do so and (e) in the event such proxies vote any Securities in
accordance with any of (a) through (d) above and the board of directors of any
such Company fails to cause such Company to comply with such vote, to vote to
elect a replacement board of directors for such Company for such purpose only.
The Shareholders hereby agree that the power of attorney granted herein is
irrevocable and a power of attorney coupled with an interest, shall survive the
death, disability or bankruptcy of a Shareholder, if an individual, or the
bankruptcy, dissolution or any other termination of a
10
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Shareholder, if a corporation, trust or partnership or other association, and
shall extend and be binding upon each Shareholder's heirs, successors, personal
representatives and assigns.
11. NOTICES. All notices (including Offering Notices and Reply
Notices), requests, consents and other communications under this Agreement shall
be in writing and shall be deemed to have been delivered on the third day after
the date mailed, postage prepaid, by certified mail, return receipt requested,
on the day after deposited with a recognized overnight courier, or on the date
personally delivered:
(a) if to CDC to Castle Dental Centers, Inc., 1360 Post Oak
Boulevard, Suite 1300, Houston, Texas 77056, with a copy to: John W.
Menke, Esq., Boyer, Ewing & Harris, Nine Greenway Plaza, Suite 3100,
Houston, Texas 77046; and
(b) if to any Shareholder, to the address of such shareholder
as it appears opposite the signature of such Shareholder at the end of
this Agreement, with a copy to: Barry H. Lawrence, Esq., Kaye, Scholer,
Fierman, Hayes & Handler, LLP, 1999 Avenue of the Stars, Suite 1600,
Los Angeles, California 90067.
Any party hereto may designate a different address by delivering notice thereof
to the other parties hereto.
12. JOINDER OF SPOUSE. Each spouse of a Shareholder is fully aware of,
understands, and fully consents and agrees to the provisions of this Agreement
and its binding effect upon any interest, community or otherwise, she may now or
hereafter own in any Securities, and agrees that the termination of his or her
marriage to such Shareholder for any reason shall not have the effect of
removing any Securities otherwise subject to this Agreement from the coverage
hereof. Each spouse of a Shareholder hereby evidences such awareness,
understanding, consent and agreement by joining in this Agreement and by
executing this Agreement beneath such Shareholder's signature on the signature
pages hereto.
13. MISCELLANEOUS PROVISIONS.
(a) GOVERNING LAW. This Agreement shall be subject to and
governed by the laws of the State of Delaware.
(b) BINDING EFFECT. This Agreement shall be binding upon the
Companies, the Shareholders, and their successors and assigns. Any
Shareholder who makes a Disposition of his or her entire interest in
all of the Securities owned and held by such Shareholder in accordance
with the terms hereof shall cease to have any rights or obligations
under this Agreement.
11
<PAGE>
(c) AMENDMENT. This Agreement may be amended from time to time
only by an instrument in writing signed by CDC, the Companies and the
Shareholders who are parties to this Agreement at the time of such
amendment.
(d) TERMINATION. This Agreement shall terminate automatically
upon the consummation of the C Merger contemplated by CDC's Call
Option, provided, however, that the provisions of Section 3 hereof
shall survive the termination of this Agreement under the foregoing
provisions of this sentence and shall thereafter continue in effect as
provided in such Section, subject to the limitations set forth in the
Combination Agreement. This Agreement may also be terminated by an
instrument in writing to such effect signed by CDC, the Companies and
the Shareholders who are parties to this Agreement at the time of the
signing of such instrument.
(e) SPECIFIC PERFORMANCE. Any attempted Disposition in breach
of this Agreement shall constitute an offer made by the Shareholder
attempting or making any such Disposition, and the provisions of this
Agreement, whichever shall be applicable, shall be deemed to be in
effect upon such attempted Disposition, and an Offering Notice shall be
deemed to have been delivered in connection therewith; provided,
however, that the date of delivery of the first Offering Notice for
purposes of any such section shall be deemed to be the date as of which
the party to whom such Offering Notice shall have been deemed to be
sent has actual knowledge of such attempted Disposition. The party to
whom such Offering Notice shall have been deemed to be sent shall, upon
obtaining actual knowledge of such attempted Disposition, deliver a
notice of such attempted Disposition to CDC, and CDC shall thereupon
deliver a notice of such attempted Disposition to each Person to whom
the Securities covered by such attempted Disposition may thereafter be
required to be offered pursuant to the section of this Agreement
governing such attempted Disposition. Each party hereto acknowledges
that a remedy at law for any breach or attempted breach of Section 3 or
any of Sections 8 through 10 shall be inadequate, agrees that each
other party hereto shall be entitled to specific performance and
injunctive and other equitable relief in case of any such breach or
attempted breach and further agrees to waive any requirement for the
securing or posting of any bond in connection with the obtaining of any
such injunctive or other equitable relief.
(f) SEPARABILITY. If any term or provision contained in this
Agreement is or is hereafter found to be inconsistent with, contrary to
or invalid or unenforceable under any applicable law or official rule,
regulation or order, this Agreement shall be deemed to be modified
accordingly and the remaining terms and provisions of this Agreement
shall not be affected thereby and shall continue in full force and
effect.
(g) ADDENDUM AGREEMENT. No Shareholder shall sell or dispose
of any Securities to any Person who is not already a party hereto
unless such Person and the spouse of such Person, if any, agree to
become parties to this Agreement and the Combination Agreement
contemporaneously with the sale of such Securities. Any such Person and
the spouse of such
12
<PAGE>
Person shall become parties to this Agreement and the Combination
Agreement by the execution of an Addendum Agreement substantially in
the form attached hereto as Exhibit A, which Addendum Agreement shall
bind them to, and grant them the benefits of, this Agreement and the
Combination Agreement as though they were original parties hereto. For
this purpose, all the Shareholders hereby appoint CDC as their agent
and attorney-in-fact to execute such Addendum Agreement on their behalf
and expressly bind themselves to the Addendum Agreement by CDC's
execution of that Addendum Agreement without further action on their
part.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement in multiple counterparts, each of which shall be deemed an original,
but all of which shall constitute the same instrument, as of the day and year
first above written.
CDC OF CALIFORNIA, INC.
By:______________________________________
John M. Slack, Vice President and Chief
Financial Officer
CASTLE DENTAL CENTERS OF CALIFORNIA,
L.L.C.
By:______________________________________
John M. Slack, Vice President and Chief
Financial Officer
DENTAL CONSULTING SERVICES, LLC
By:______________________________________
Jeffrey D. Schechter, D.D.S., a Manager
CASTLE WEST HOLDINGS, L.L.C.
By:______________________________________
Jeffrey D. Schechter, D.D.S., a Manager
14
<PAGE>
DCS MEMBERS
_________________________________________
Jeffrey D. Schechter, D.D.S.,
Individually
_________________________________________
S. Alexander Soleimani, D.M.D.,
Individually
_________________________________________
Martin Schechter, D.D.S., Individually
_________________________________________
Elliot Schlang, D.D.S., Individually
DENTAL ADVISORY GROUP, LLC
a California limited liability company
By:_____________________________________
Name:___________________________________
Title:__________________________________
15
<PAGE>
HOLDINGS MEMBERS
_________________________________________
Jeffrey D. Schechter, D.D.S.,
Individually
_________________________________________
S. Alexander Soleimani, D.M.D.,
Individually
_________________________________________
Martin Schechter, D.D.S., Individually
_________________________________________
Elliot Schlang, D.D.S., Individually
DENTAL ADVISORY GROUP, LLC
a California limited liability company
By:_____________________________________
Name:___________________________________
Title:__________________________________
________________________________________
Julie D'Aguanno, Individually
16
<PAGE>
CORPORATE B MEMBERS
JDS-B CORPORATION
By:_____________________________________
Jeffrey D. Schechter, D.D.S., President
SAS-B CORPORATION
By:_____________________________________
S. Alexander Soleimani, D.M.D., President
MART-B CORPORATION
By:_____________________________________
Martin Schechter, D.D.S., President
ES-B CORPORATION
By:_____________________________________
Elliot Schlang, D.D.S., President
DAG-B CORPORATION
By:_____________________________________
Timothy Regas, President
17
<PAGE>
CORPORATE C MEMBERS
JDS-C CORPORATION
By:_____________________________________
Jeffrey D. Schechter, D.D.S., President
SAS-C CORPORATION
By:_____________________________________
S. Alexander Soleimani, D.M.D., President
MART-C CORPORATION
By:_____________________________________
Martin Schechter, D.D.S., President
EL-S-C CORPORATION
By:_____________________________________
Elliot Schlang, D.D.S., President
DAG-C CORPORATION
By:_____________________________________
Timothy Regas, President
JUL-C CORPORATION
________________________________________
Julie D'Aguanno, President
18
<PAGE>
EXHIBIT A
ADDENDUM AGREEMENT
TO
SHAREHOLDERS' AGREEMENT
THIS AGREEMENT made this ____ day of _________, 19__, by and
among ____________ (the "Proposed Shareholder"), and Castle Dental Centers of
California, L.L.C. ("Castle West"), CDC of California, Inc., a Delaware
corporation ("CDC"), Dental Consulting Services, LLC, a California limited
liability company ("DCS"), Castle West Holdings, L.L.C., a Delaware limited
liability company ("Holdings"), each of the members of DCS (the "Corporate B
Members"), each of the stockholders of the Corporate B Members (the "Corporate B
Stockholders"), each of the members of Holdings (the "Corporate C Members"), and
each of the stockholders of the Corporate C Members (the "Corporate C
Stockholders");
WITNESSETH:
WHEREAS, Castle West, CDC, DCS, Holdings, the Corporate B
Members, the Corporate B Stockholders, the Corporate C Members and the Corporate
C Stockholders and the Shareholders are parties to a Shareholders' Agreement
dated ___________, 1998 (the "Agreement"), pertaining to the ownership and
transferability of Securities (as defined in the Agreement) by the Shareholders
(as defined in the Agreement) and other matters; and
WHEREAS, Castle West, CDC, DCS, Holdings, the Corporate B
Members, the Corporate B Stockholders, the Corporate C Members and the Corporate
C Stockholders and the Shareholders are parties to a Master Contribution and
Combination Agreement dated ___________, 1998 (the "Combination Agreement"),
pertaining, among other things, to the ownership and transferability of
Securities by the Shareholders; and
WHEREAS, [_____________], a Shareholder, proposes to transfer
an aggregate of _______ Securities; and
WHEREAS, Section 13(g) of the Agreement requires the Proposed
Shareholder to execute an Addendum Agreement in substantially the form of this
instrument;
NOW, THEREFORE, in consideration of the premises, the Proposed
Shareholder hereby agrees as follows:
1. The Proposed Shareholder agrees that upon the transfer to
(it) (him) (her) of the Securities specified above, the Proposed Shareholder
shall become bound by and shall observe and perform and be entitled to the
benefits of, all of the terms and conditions of the Agreement and the
Combination Agreement, and such Securities, along with all Securities hereafter
acquired, shall
1
<PAGE>
continue to be subject to all of the terms and conditions of the Agreement and
the Combination Agreement.
2. The address to which all notices, requests, consents and
other communications under the Agreement shall be sent to the Proposed
Shareholder as provided in Section 11 of the Agreement, is
_________________________________________________________________.
3. This Addendum Agreement shall be attached to and become
part of the Agreement.
PROPOSED SHAREHOLDER:
_____________________________
_____________________________
Spouse of Proposed Shareholder
AGREED to on behalf of the Shareholders, CDC and the Companies pursuant to
Section 13(g) of the Agreement.
CDC of California, Inc.
By_______________________
Name:____________________
Title:___________________
2
SECOND AMENDMENT TO
CREDIT AGREEMENT
BY AND AMONG
CASTLE DENTAL CENTERS, INC.,
as Borrower,
CASTLE DENTAL CENTERS OF FLORIDA, INC.,
CASTLE DENTAL CENTERS OF TENNESSEE, INC.,
CASTLE DENTAL CENTERS OF TEXAS, INC.,
CDC OF CALIFORNIA, INC.
CASTLE DENTAL CENTERS OF CALIFORNIA, L.L.C.
DENTAL WORLD, INC.
and
JHCDDS, INC.
as Guarantors,
NATIONSBANK OF TEXAS, N.A.,
as Agent,
and
THE LENDERS SIGNATORY HERETO
Effective as of March __, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS
Section 1.01 TERMS DEFINED ABOVE.............................................1
Section 1.02 TERMS DEFINED IN CREDIT AGREEMENT...............................1
Section 1.03 OTHER DEFINITIONAL PROVISIONS...................................2
ARTICLE II. AMENDMENTS TO CREDIT AGREEMENT
Section 2.01 AMENDMENTS AND SUPPLEMENTS TO DEFINITIONS.......................2
Section 2.02 AMENDMENT TO ARTICLE II ........................................6
Section 2.03 SUPPLEMENT TO ARTICLE VI .......................................7
Section 2.04 SUPPLEMENT TO ARTICLE VIII .....................................7
Section 2.05 AMENDMENT TO ARTICLE IX.........................................8
ARTICLE III. CONDITIONS
Section 3.01 LOAN DOCUMENTS..................................................8
Section 3.02 CORPORATE PROCEEDINGS OF LOAN PARTIES...........................9
Section 3.03 REPRESENTATIONS AND WARRANTIES..................................9
Section 3.04 NO DEFAULT......................................................9
Section 3.05 NO CHANGE.......................................................9
Section 3.06 SECURITY INSTRUMENTS............................................9
Section 3.07 OTHER INSTRUMENTS OR DOCUMENTS..................................9
ARTICLE IV. MISCELLANEOUS
Section 4.01 ADOPTION, RATIFICATION AND CONFIRMATION OF CREDIT AGREEMENT.....9
Section 4.02 RATIFICATION AND AFFIRMATION OF GUARANTY.......................10
Section 4.03 SUCCESSORS AND ASSIGNS.........................................10
Section 4.04 COUNTERPARTS...................................................10
Section 4.05 NUMBER AND GENDER..............................................10
Section 4.06 ENTIRE AGREEMENT...............................................10
Section 4.07 INVALIDITY.....................................................10
Section 4.08 TITLES OF ARTICLES, SECTIONS AND SUBSECTIONS...................10
Section 4.09 GOVERNING LAW..................................................11
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<PAGE>
SECOND AMENDMENT TO
CREDIT AGREEMENT
This SECOND AMENDMENT TO CREDIT AGREEMENT (this "SECOND AMENDMENT")
executed effective as of the ___ day of March, 1998 (the "EFFECTIVE DATE"), is
by and among CASTLE DENTAL CENTERS, INC., a Delaware corporation ("BORROWER"),
CASTLE DENTAL CENTERS OF FLORIDA, INC., a Florida corporation, CASTLE DENTAL
CENTERS OF TENNESSEE, INC., a Tennessee corporation, CASTLE DENTAL CENTERS OF
TEXAS, INC., a Texas corporation, DENTAL WORLD, INC., a Texas corporation, CDC
OF CALIFORNIA, INC., a Delaware corporation, CASTLE DENTAL CENTERS OF
CALIFORNIA, L.L.C., a Delaware limited liability company, and JHCDDS, INC., a
Texas corporation (individually, "GUARANTOR", and collectively, "GUARANTORS");
NATIONSBANK OF TEXAS, N.A., a national banking association (in its individual
capacity, "NATIONSBANK"), as agent (in such capacity, "AGENT") for each of the
lenders that is a signatory hereto or which becomes a signatory hereto and to
the hereinafter described Credit Agreement as provided in Section 12.06 of the
Credit Agreement (individually, together with its successors and assigns,
"LENDER" and collectively, "LENDERS").
W I T N E S S E T H:
WHEREAS, the Borrower, Agent and Lenders are parties to that certain
Credit Agreement dated as of November 7, 1997 (as the same may be amended from
time to time, including without limitation that certain First Amendment to
Credit Agreement, effective as of February 11, 1998, the "CREDIT AGREEMENT"),
pursuant to which the Lenders agreed to make loans to and extensions of credit
on behalf of the Borrower; and
WHEREAS, the Borrower and Lenders desire to amend the Credit Agreement
in the particulars hereinafter provided.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS
Section 1.01 TERMS DEFINED ABOVE. As used in this Second Amendment, each
of the terms "BORROWER", "CREDIT AGREEMENT", "EFFECTIVE DATE", "SECOND
AMENDMENT", "GUARANTORS", "NATIONSBANK", and "LENDERS" shall have the meaning
assigned to such term hereinabove.
Section 1.02 TERMS DEFINED IN CREDIT AGREEMENT. Each term defined in the
Credit Agreement and used herein without definition shall have the meaning
assigned to such term in the Credit Agreement, unless expressly provided to the
contrary.
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<PAGE>
Section 1.03 OTHER DEFINITIONAL PROVISIONS.
(a) The words "hereby", "herein", "hereinafter", "hereof",
"hereto" and "hereunder" when used in this Second Amendment shall refer
to this Second Amendment as a whole and not to any particular Article,
Section, subsection or provision of this Second Amendment.
(b) Section, subsection and Exhibit references herein are to such
Sections, subsections and Exhibits to this Second Amendment unless
otherwise specified.
ARTICLE II. AMENDMENTS TO CREDIT AGREEMENT
Borrower, Guarantors, Agent and Lenders agree that the Credit Agreement
is hereby amended, effective as of the Effective Date, in the following
particulars.
Section 2.01 AMENDMENTS AND SUPPLEMENTS TO DEFINITIONS.
(a) The following terms, which are defined in Section 1.02 of the Credit
Agreement, are hereby amended in their entirety to read as follows:
"AGREEMENT" shall mean this Credit Agreement, as amended and
supplemented by the First Amendment, the Second Amendment, and as the
same may from time to time be further amended or supplemented.
(b) Section 1.02 of the Credit Agreement is hereby further amended and
supplemented by adding the following new definitions where alphabetically
appropriate, which read in their entirety as follows:
"ADJUSTED AGGREGATE CASTLE WEST EBITDA" shall mean Aggregate
Castle West EBITDA plus the Pro Forma MSO Fees of the Castle West
Acquired Clinics; PROVIDED, HOWEVER, that the Adjusted Aggregate Castle
West EBITDA shall not include the results of operations, cost of capital
and Castle West Debt arising from any CDC Approved Expansion.
"AGGREGATE CASTLE WEST EBITDA" shall be equal to (a) the pro
forma aggregate earnings of DCS and the Existing PCs for the year ended
December 31, 1997, adjusted to reverse charges thereto made for
interest, federal and state income and franchise taxes, depreciation and
amortization (such amounts to be determined based upon actual 1997
performance as if any portion of any Existing PC not owned by DCS on
January 1, 1997, were acquired by DCS on January 1, 1997), PLUS (b) an
amount equal to the unusual and non-recurring expenses incurred during
1997 in connection with the transactions contemplated by the Master
Contribution Agreement, and an adjustment for (c) any difference between
the 1997 operations of DCS and anticipated Castle West employees or
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<PAGE>
increased expenses related to additional staffing necessary to operate
the Castle West Acquired Clinics (with any increase in 1998 levels to
reduce Aggregate Castle West EBITDA and any decrease in 1998 levels to
increase Aggregate Castle West EBITDA) as agreed upon by the Borrower
and DCS; PROVIDED, HOWEVER, that for purposes of calculating Aggregate
Castle West EBITDA, the 1997 pro forma EBITDA for Burbank shall be
deemed to be $300,000, regardless of Burbank's actual results of
operations.
"BURBANK" shall mean S.A. Soliemani, DMD, Inc., a California
professional corporation d.b.a. Burbank Dental.
"BURBANK ADJUSTMENT" shall have the definition ascribed thereto
in the Master Contribution Agreement.
"CAPITAL COST RATE" shall mean, with respect to any Loan, (i) if
such Loan is a Base Rate Loan, the Base Rate PLUS the Applicable Margin
PLUS .25%, or (ii) if such Loan is a Eurodollar Loan, the Eurodollar
Rate PLUS the Applicable Margin PLUS .25%.
"CASTLE WEST" shall mean Castle Dental Centers of California,
L.L.C., a Delaware limited liability company and a Subsidiary of the
Borrower.
"CASTLE WEST ACQUIRED CLINICS" shall mean each business (or
allocated portion thereof) with which Castle West enters into an MSO
agreement during the 12-month period following the Closing Date (as
defined in the Master Contribution Agreement) and with respect to which
an Acquisition Purchase Price Adjustment (as defined in the Master
Contribution Agreement) is required to be made.
"CASTLE WEST DEBT" shall mean the debt of the Borrower and Castle
West that is directly related to Castle West's business and operations
(excluding debt related to the acquisition of DCS, the Existing PCs, the
Castle West Acquired Clinics and any CDC Approved Expansion).
"CASTLE WEST EBITDA" shall only be used in calculating the
Put/Call Reserve Amount, and shall, for any period, be equal to Castle
West's earnings for such period, determined in accordance with GAAP
adjusted to reverse charges thereto made for interest, federal and state
income and franchise taxes, depreciation and amortization, to the extent
included in the calculation of earnings; PROVIDED, HOWEVER, that Castle
West EBITDA shall be determined prior to any deduction of the Incentive
Payment from earnings and without any deduction for overhead,
management, or similar fees paid by Castle West to any Affiliate of the
Borrower or otherwise allocated to Castle West.
"CASTLE WEST INCREMENTAL EBITDA" shall be equal to the amount by
which the Castle West EBITDA for the prior four fiscal quarters ending
immediately prior to delivery of a C Merger Notice or the CDC Call
Notice exceeds the Adjusted Aggregate Castle West EBITDA; PROVIDED,
HOWEVER, that the Projected Castle West Incremental
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<PAGE>
EBITDA shall exclude the Castle West EBITDA, Castle West Debt, and
Common Stock capital costs relating to any acquisitions completed in the
three-month period immediately preceding the delivery of either the C
Merger Notice or the CDC Call Notice.
"C MERGER CONSIDERATION" shall be equal to the aggregate Pro Rata
Share of the Corporate C Members of the Holdings Old Value PLUS the
aggregate Pro Rata Share of the Corporate C Members of the Holdings New
Value LESS the aggregate Pro Rata Share of the Corporate C Members of
the Holdings Indebtedness.
"C MERGER NOTICE" shall mean the notice given by the Corporate C
Members to the CDC California of their respective intent to exercise the
Corporate C Member's Merger Option.
"CDC APPROVED EXPANSION" shall mean any expansion, acquisition,
or other opportunity that is approved by the Board of Directors of
Castle West if none of the Class C Interest Directors affirmatively
voted to approve such expansion, acquisition, or other opportunity.
"CDC CALIFORNIA" shall mean CDC of California, Inc., a Delaware
corporation and a wholly-owned Subsidiary of the Borrower.
"CDC CALL NOTICE" shall mean the notice given by CDC California
to the Corporate C Members of its intent to exercise the CDC Call
Option.
"CDC CALL OPTION" shall mean the option of CDC California to
cause each of the Corporate C Members to merge with and into CDC
California pursuant to Section 8.2 of the Master Contribution Agreement.
"CLASS III REPURCHASE OBLIGATION" shall mean the amount of any
outstanding obligation, if any, of Holdings to the former holder of the
Class III Interest in Holdings (as defined in the Holdings Limited
Agreement) arising out of the previous exercise of Holding's option to
purchase the Class III Interest pursuant to Section 5.5(c) of the
Holdings Limited Agreement; PROVIDED, HOWEVER, that in no event shall
CDC California, as a Member of Holdings, be deemed to have any interest
in, or direct or indirect obligation to pay, the Class III Repurchase
Obligation.
"COMMON STOCK" the common stock, $.001 par value, of the
Borrower.
"COMMON STOCK MARKET MULTIPLE" shall be determined by multiplying
the average closing price of the Common Stock on the principal exchange
or quotation system therefor over the 30-day period ending on the date
immediately prior to delivery of a C Merger Notice or the CDC Call
Notice by the weighted average fully diluted number of shares of Common
Stock outstanding over the one-year period ending on such date, and
dividing the product by EBITDA for the prior four fiscal quarters
preceding such date.
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"CORPORATE C MEMBERS" shall have the definition ascribed thereto
in the Master Contribution Agreement.
"CORPORATE C MEMBER'S MERGER OPTION" shall mean the option of
each of the Corporate C Members to cause such Corporate C Member to
merge with and into CDC California pursuant to Section 8.1 of the Master
Contribution Agreement.
"DCS" shall mean Dental Consulting Services, L.L.C., a California
limited liability company.
"EXISTING PCS" means Martin Schechter, DDS, Inc., a California
professional corporation d.b.a. Hawthorne Family Dental Group; Martin
Schechter, DDS, Inc., a California professional corporation d.b.a.
Broadway Dental; Elliot Schlang, DDS, Inc., a California professional
corporation d.b.a. South Gate Dental Center; Elliot Schlang, DDS, Inc.,
a California professional corporation d.b.a. Lincoln Dental Center, and
Burbank.
"HOLDINGS" shall mean Castle West Holdings, L.L.C., a California
limited liability company.
"HOLDINGS AGREEMENT" shall mean the limited liability company
agreement of Holdings.
"HOLDINGS INDEBTEDNESS" shall mean, at the time of determination,
all outstanding indebtedness of Holdings to any person, including,
without limitation, the Class III Repurchase Obligation. In no event
shall CDC California, as a member of Holdings, be deemed to have any
interest in or direct or indirect obligation to pay the Holdings
Indebtedness.
"HOLDINGS NEW VALUE" shall be equal to 20% of (A) the Castle West
Incremental EBITDA PLUS the Projected Castle West Incremental EBITDA,
(B) multiplied by the Common Stock Market Multiple (C) multiplied by
90%; PROVIDED, HOWEVER, that the Holdings New Value shall be calculated
subject to the following:
1. The Holdings New Value shall be reduced, without duplication,
by (i) the aggregate capital costs related to Common Stock
invested in Castle West acquisitions or expansions (excluding
DCS, the Existing PCs and the Castle West Acquired Clinics), and
(ii) a percentage of 20% of the Castle West Debt, determined as
follows:
Castle West Annual Growth Rate Percentage of 20% of Castle West Debt
from January 1, 1999 Allocated to the Holdings New Value
Less than 26% 100%
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26% or more but less than 27% 90%
27% or more but less than 28% 80%
28% or more but less than 29% 70%
29% or more but less than 30% 60%
30% or more but less than 31% 50%
31% or more but less than 32% 40%
32% or more but less than 33% 30%
33% or more but less than 34% 20%
34% or more but less than 35% 10%
More than 35% 0%
2. The aggregate capital costs related to Common Stock invested
in Castle West acquisitions or expansions shall be based upon the
valuation given to such Common Stock pursuant to the agreements
pursuant to which such acquisitions or expansions were
consummated multiplied by the Capital Cost Rate; and
3. The outstanding Castle West Debt used to determine the
Holdings New Value shall exclude the Castle West EBITDA, Castle
West Debt, and Common Stock capital costs relating to any
acquisitions completed in the three-month period immediately
preceding the delivery of either the C Merger Notice or the CDC
Call Notice.
"HOLDINGS OLD VALUE" shall be equal to (i) 20% of the Adjusted
Aggregate Castle West EBITDA multiplied by 6.5, LESS (ii) 20% of the
purchase price of the Castle West Acquired Clinics, LESS (iii) 25% of
the Burbank Adjustment:
"MASTER CONTRIBUTION AGREEMENT" shall mean the Master
Contribution and Combination Agreement, dated as of January 30, 1998, by
and among, the Borrower, CDC California, Dental Consulting Services,
L.L.C., Castle Dental Centers of California, L.L.C., Castle West
Holdings, L.L.C., each of the DCS Members listed on Schedule A attached
thereto, each of the Holding Members (as defined therein), each of the
Corporate B Members (as defined therein) and each of the Corporate C
Members.
"MSO" means Management Services Organization.
"PRO FORMA MSO FEES" shall mean, with respect to any Castle West
Acquired Clinic, the MSO fees (determined upon actual operating results)
that would have been paid to Castle West (over the 12-month period
ending prior to the acquisition with respect to which the Castle West
Acquired Clinic was valued by Castle West and the Castle West
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Acquired Clinic for purposes of Castle West's acquisition thereof) if
the MSO agreement with respect to such Castle West Acquired Clinic had
been in effect at the beginning of such period.
"PROJECTED CASTLE WEST INCREMENTAL EBITDA" shall be equal to (A)
the Castle West Incremental EBITDA plus the Adjusted Aggregate Castle
West EBITDA, ADJUSTED to take into consideration a 25% compounded growth
rate for the period from the date of determination to the later to occur
of (i) the first date on which either a Corporate C Member's Merger
Option or the CDC Call Option could be exercised or (ii) the date that
is 365 days from the date of determination, LESS (B) the Adjusted
Aggregate Castle West EBITDA plus the Castle West Incremental EBITDA.
"PRO RATA SHARE" shall have the definition ascribed thereto in
the Master Contribution Agreement.
"PUT/CALL RESERVE AMOUNT" shall be equal to the greater of
$2,698,000 or 25% of the C Merger Consideration.
"SECOND AMENDMENT" shall mean that certain Second Amendment to
Credit Agreement dated as of March __, 1998, by and among the Borrower,
Guarantors, Agent and Lenders.
Section 2.02 AMENDMENT TO ARTICLE II . Article II of the Credit
Agreement is hereby amended by deleting Section 2.01(a) thereof in its entirety
and inserting the following in lieu thereof:
"(a) REVOLVING CREDIT LOANS. Each Lender severally agrees, on the terms
and conditions of this Agreement, to make loans to the Borrower during
the Revolving Credit Period in an aggregate principal amount at any one
time outstanding up to, but not exceeding, the amount of such Lender's
Revolving Credit Commitment as then in effect; PROVIDED, HOWEVER, that
the aggregate principal amount of all such Revolving Credit Loans by all
Lenders hereunder at any one time outstanding, PLUS the LC Exposure,
PLUS the principal balance of the Term Loan at any one time outstanding,
PLUS THE PUT/CALL RESERVE AMOUNT (UNLESS EITHER THE CORPORATE C MERGER
OPTION OR THE CDC CALL OPTION HAS BEEN EXERCISED) shall not exceed the
Aggregate Revolving Credit Commitments. Subject to the terms of this
Agreement, during the Revolving Credit Period, the Borrower may borrow,
repay and reborrow the amount described in this Section 2.01(a)."
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Section 2.03 SUPPLEMENT TO ARTICLE VI . Article VI of the Credit
Agreement is hereby supplemented by adding the following new Sections
6.02(b)(vii) and 6.02(b)(viii):
"(vii) The Agent shall have received a Compliance Certificate in
the form of EXHIBIT C attached hereto.
(viii) The Agent shall have received a completed Put/Call Reserve
Amount Certificate in the form of EXHIBIT I attached hereto, unless each
Corporate C Member has exercised the Corporate C Member's Merger Option
or the CDC Call Option has been exercised."
Section 2.04 SUPPLEMENT TO ARTICLE VIII . Article VIII of the Credit
Agreement is hereby supplemented by adding the following new Section 8.01(o):
"(o) PUT/CALL RESERVE AMOUNT CERTIFICATE Within 45 days after
each June 30 and December 31 of each calendar year until the earlier to
occur of the Final Maturity Date or the exercise of either the last
Corporate C Member's Merger Option or the CDC Call Option, a completed
Put/Call Reserve Certificate in the form of EXHIBIT I attached hereto."
Section 2.05 AMENDMENT AND SUPPLEMENT TO ARTICLE IX.
(a) Article IX of the Credit Agreement is hereby amended by deleting
Section 9.14 thereof in its entirety and inserting the following in lieu
thereof:
"Section 9.14 FIXED CHARGE COVERAGE RATIO. The Borrower will not
permit its Fixed Charge Coverage Ratio as of the end of any fiscal
quarter (calculated on a rolling four quarter basis; PROVIDED, HOWEVER,
the first quarter test shall be for the quarter ended March 31, 1997 and
the following rolling cumulative tests will begin with such quarter
ending March 31, 1997 until a full four quarter test can be achieved) to
be less than 1.25 to 1.0. For purposes of this Section 9.16, "FIXED
CHARGE COVERAGE RATIO" shall mean the ratio for the relevant period of
(i) EBITDA, LESS taxes payable in cash, PLUS lease and rental expense to
(ii) lease and rental expense, PLUS interest (OTHER THAN INTEREST PAID
ON SUBORDINATED DEBT THAT WAS INCURRED BY THE BORROWER PRIOR TO
SEPTEMBER 30, 1997), PLUS, during the Revolving Credit Period, one-fifth
(1/5) of the then-outstanding principal balance of the Revolving Credit
Loans, PLUS, without duplication, current maturities of long-term debt,
PLUS capital leases. For any calculation period which would include one
or more quarters prior to any Stock Purchase or any Asset Purchase or
any other future acquisition of an entity, the "rolling four quarters"
shall include the "pro forma" EBITDA of the applicable Acquired Entity
for such prior periods adjusted to reflect costs and expenses which such
Acquired Entity would have included had the Management Services
Agreements between Borrower and/or any Subsidiary and such Acquired
Entity been in effect (adding back appropriate executive salaries and
non-cash charge offs relating to this transaction)."
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(b) Article IX of the Credit Agreement is hereby supplemented by
inserting the following Section 9.22:
"9.22 AMENDMENT OF CASTLE WEST LLC AGREEMENT. Until such time as each of
the Corporate C Members has exercised its Corporate C Member's Merger Option or
CDC California has exercised the CDC Call Option, neither the Borrower nor any
Subsidiary shall make or permit any material amendment or modification of the
Limited Liability Company Agreement of Castle West without the prior written
consent of the Agent."
ARTICLE III. CONDITIONS
The enforceability of this Second Amendment against the Agent and the
Lenders is subject to the satisfaction of the following conditions precedent:
Section 3.01 LOAN DOCUMENTS. The Agent shall have received the
following:
(a) multiple original counterparts, as requested by the Agent, of
this Second Amendment, executed and delivered by a duly authorized
officer of the Borrower, Guarantors, Agent, and each Lender, as
applicable; and
(b) a favorable written opinion of Bracewell & Patterson L.L.P.,
counsel to the Borrower and the Guarantors (other than CDC of
California, Castle West, and Dental World), in form and substance
satisfactory to the Agent, as to such matters incident to the
transactions herein contemplated as the Agent may reasonably request.
(c) a favorable written opinion of Boyer, Ewing & Harris
Incorporated, counsel to CDC of California, Castle West, and Dental
World, in form and substance satisfactory to the Agent, as to such
matters incident to the transactions herein contemplated as the Agent
may reasonably request.
Section 3.02 CORPORATE PROCEEDINGS OF LOAN PARTIES. The Agent shall have
received multiple copies, as requested by the Agent, of the resolutions, in form
and substance reasonably satisfactory to the Agent, of the Boards of Directors
of CDC of California, Castle West, and Dental World, authorizing the execution,
delivery and performance of this Second Amendment, each such copy being attached
to an original certificate of the Secretary or an Assistant Secretary of CDC of
California, Castle West, and Dental World, as applicable, dated as of the
Effective Date, certifying (i) that the resolutions attached thereto are true,
correct and complete copies of resolutions duly adopted by written consents or
at meetings of the Boards of Directors, (ii) that such resolutions constitute
all resolutions adopted with respect to the transactions contemplated hereby,
(iii) that such resolutions have not been amended, modified, revoked or
rescinded as of the Effective Date, (iv) that attached thereto are the
respective articles of incorporation and bylaws of CDC of California, Castle
West, and Dental World, as applicable, and that such articles of incorporation
and bylaws have not been amended or otherwise modified since the effective date
of the Credit Agreement, except pursuant to any amendments attached thereto, and
(v) as to the
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incumbency and signature of the officers of CDC of California, Castle West, and
Dental World, as applicable, executing this Second Amendment.
Section 3.03 REPRESENTATIONS AND WARRANTIES. Except as affected by the
transactions contemplated in the Credit Agreement and this Second Amendment,
each of the representations and warranties made by the Borrower and the
Guarantors in or pursuant to the Credit Agreement and the Security Instruments
shall be true and correct in all material respects as of the Effective Date, as
if made on and as of such date (except to the extent such representations and
warranties are expressly limited to an earlier date).
Section 3.04 NO DEFAULT. No Default or Event of Default shall have
occurred and be continuing as of the Effective Date.
Section 3.05 NO CHANGE. No event shall have occurred since June 30,
1997, which, in the reasonable opinion of the Lenders, could have a Material
Adverse Effect.
Section 3.06 SECURITY INSTRUMENTS. All of the Security Instruments shall
be in full force and effect and provide to the Agent the security intended
thereby to secure the Indebtedness, as amended and supplemented hereby.
Section 3.07 OTHER INSTRUMENTS OR DOCUMENTS. The Agent or any Lender or
counsel to the Agent shall receive such other instruments or documents as they
may reasonably request.
ARTICLE IV. MISCELLANEOUS
Section 4.01 ADOPTION, RATIFICATION AND CONFIRMATION OF CREDIT
AGREEMENT. Each of the Borrower, the Guarantors, the Agent, and the Lenders does
hereby adopt, ratify and confirm the Credit Agreement, as amended hereby, and
acknowledges and agrees that the Credit Agreement, as amended hereby, is and
remains in full force and effect.
Section 4.02 RATIFICATION AND AFFIRMATION OF GUARANTY. Each of the
Guarantors hereby expressly (i) acknowledges the terms of this Second Amendment,
(ii) ratifies and affirms its obligations under its Guaranty Agreement, in favor
of the Agent and the Lenders, as amended, supplemented or otherwise modified,
(iii) acknowledges, renews and extends its continued liability under its
Guaranty Agreement and agrees that said Guaranty Agreement remains in full force
and effect; and (iv) guarantees to the Agent and each Lender to promptly pay
when due all amounts owing or to be owing by it under its Guaranty Agreement
pursuant to the terms and conditions thereof.
Section 4.03 SUCCESSORS AND ASSIGNS. This Second Amendment shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns permitted pursuant to the Credit Agreement.
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Section 4.04 COUNTERPARTS. This Second Amendment may be executed by one
or more of the parties hereto in any number of separate counterparts, and all of
such counterparts taken together shall be deemed to constitute one and the same
instrument and shall be enforceable as of the Effective Date upon the execution
of one or more counterparts hereof by the Borrower, the Guarantors, the Agent
and the Lenders. In this regard, each of the parties hereto acknowledges that a
counterpart of this Second Amendment containing a set of counterpart execution
pages reflecting the execution of each party hereto shall be sufficient to
reflect the execution of this Second Amendment by each necessary party hereto
and shall constitute one instrument.
Section 4.05 NUMBER AND GENDER. Whenever the context requires,
reference herein made to the single number shall be understood to include the
plural; and likewise, the plural shall be understood to include the singular.
Words denoting sex shall be construed to include the masculine, feminine and
neuter, when such construction is appropriate; and specific enumeration shall
not exclude the general but shall be construed as cumulative. Definitions of
terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated.
Section 4.06 ENTIRE AGREEMENT. This Second Amendment constitutes the
entire agreement among the parties hereto with respect to the subject hereof.
All prior understandings, statements and agreements, whether written or oral,
relating to the subject hereof are superseded by this Second Amendment.
Section 4.07 INVALIDITY. In the event that any one or more of the
provisions contained in this Second Amendment shall for any reason be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Second Amendment.
Section 4.08 TITLES OF ARTICLES, SECTIONS AND SUBSECTIONS. All titles or
headings to Articles, Sections, subsections or other divisions of this Second
Amendment or the exhibits hereto, if any, are only for the convenience of the
parties and shall not be construed to have any effect or meaning with respect to
the other content of such Articles, Sections, subsections, other divisions or
exhibits, such other content being controlling as the agreement among the
parties hereto.
Section 4.09 GOVERNING LAW. This Second Amendment shall be deemed to be
a contract made under and shall be governed by and construed in accordance with
the internal laws of the State of Texas.
THIS SECOND AMENDMENT, THE CREDIT AGREEMENT, AS SUPPLEMENTED AND AMENDED
HEREBY, THE NOTES, AND THE OTHER SECURITY INSTRUMENTS REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES.
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THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
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IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be duly executed and delivered by their proper and duly authorized officers
as of the Effective Date.
BORROWER: CASTLE DENTAL CENTERS, INC.
By:
Name:
Title:
GUARANTORS: CASTLE DENTAL CENTERS OF FLORIDA, INC.
By:
Name:
Title:
CASTLE DENTAL CENTERS OF TENNESSEE, INC.
By:
Name:
Title:
CASTLE DENTAL CENTERS OF TEXAS, INC.
By:
Name:
Title:
CDC OF CALIFORNIA, INC.
By:
Name:
Title:
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CASTLE DENTAL CENTERS OF CALIFORNIA,
L.L.C.
By: CAPITAL WEST HOLDINGS, L.L.C., it
Managing Member
By:__________________________________
Name: ______________________________
Title: ___________________________
DENTAL WORLD, INC.
By:__________________________________
Name: ______________________________
Title: ___________________________
JHCDDS, INC.
By:__________________________________
Name: ______________________________
Title: ___________________________
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LENDER AND AGENT: NATIONSBANK OF TEXAS, N.A.
By:_________________________________
Margaret H. Barradas
Senior Vice President
LENDERS: THE SUMITOMO BANK, LIMITED
By:_________________________________
Richard Menchaca
Vice President
By:_________________________________
Bruce Portillo
Vice President & Manager
BANKBOSTON, N.A.
By:_________________________________
William Rogers
Vice President
AMSOUTH BANK
By:_________________________________
Shannon O. Clark
Assistant Vice President
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