<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported)
JUNE 4, 1999
SAFEGUARD HEALTH ENTERPRISES, INC.
(Exact Name of registrant as specified in its charter)
DELAWARE 0-12050 52-1528581
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
95 ENTERPRISE, ALISO VIEJO, CALIFORNIA 92656-2601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 949.425.4110
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ITEM 5. OTHER EVENTS
On May 28, 1999, SafeGuard Health Enterprises, Inc. ("SafeGuard")
executed definitive agreements to restructure its debt. As previously disclosed
in SafeGuard's Annual Report on Form 10-K for the year ended December 31, 1998,
and its Quarterly Report on Form 10-Q for the period ended March 31, 1999,
SafeGuard and its senior note holders, agreed to amend its $32,500,000 senior
notes to provide for an increase in the current interest rate from 7.91% to
9.91% with reductions to 7.91%, when SafeGuard has satisfied certain conditions.
SafeGuard paid all interest due to the holders and received a waiver of all
existing defaults and events of default. Various technical terms, covenants and
provisions of such agreement relating to consolidated net worth, interest
expense coverage and limitations on consolidated total debt, were amended.
Additionally, SafeGuard will issue to the holders, non-transferable, except
under certain circumstances, and cancelable warrants to acquire 382,000 shares
of SafeGuard's common stock, which are exercisable at any time after January 1,
2000 and prior to December 31, 2003, at a price per share of $4.54. If by
December 31, 1999, SafeGuard's debt to the holders is completely satisfied, such
warrants will be automatically canceled. A copy of the form of the definitive
executed agreement by and between SafeGuard and its senior note holders is
attached hereto and marked as EXHIBIT "1".(1)
SafeGuard also executed a definitive agreement with its line of credit
lender for a new $8,000,000 loan maturing January 29, 2000. The initial interest
rate is prime, plus 4% and thereafter decreases to prime plus 1.5%, until paid
in full, when SafeGuard has satisfied certain conditions. SafeGuard is also
required to make certain principal payment reductions and may repay the line of
credit lender in full prior to the new maturity date without penalty. SafeGuard
has paid all interest due to the line of credit lender and has received a waiver
of all existing defaults and events of default. Please find attached hereto and
marked as EXHIBIT "2", a copy of the form of the definitive agreement by and
between SafeGuard and its line of credit lender.(1)
As previously disclosed in its Quarterly Report on Form 10-Q for the
period ended March 31, 1999, SafeGuard also announced that it had received a
letter from NASDAQ indicating that it no longer meets tangible net asset
requirements for continued NASDAQ national market system listing. SafeGuard has
requested a hearing to review this matter and has been advised that its request
for a hearing will prevent any delisting of SafeGuard's stock until such issue
has been determined or resolved with NASDAQ. In the interim, SafeGuard's stock
will continue to be traded on the NASDAQ national market system.
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(1) SafeGuard agrees to furnish a supplemental copy of the schedules and
exhibits to the Securities and Exchange Commission upon request.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description:
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<C> <S>
1 First Waiver And Amendment Agreement To Note Purchase
Agreement.(1)
2 Amended and Restated Loan and Security Agreement by and
between Silicon Valley Bank and SafeGuard Health
Enterprises, Inc., dated May 28, 1999.(1)
</TABLE>
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(1) SafeGuard agrees to furnish a supplemental copy of the schedules and
exhibits to the Securities and Exchange Commission upon request.
[SIGNATURES ON NEXT PAGE]
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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.
SAFEGUARD HEALTH ENTERPRISES, INC.
By: STEVEN J. BAILEYS, D.D.S.
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STEVEN J. BAILEYS, D.D.S.,
Chairman of the Board and Chief
Executive Officer
Date: JUNE 4, 1999 By: RONALD I. BRENDZEL, J.D.
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RONALD I. BRENDZEL, J.D.
Senior Vice President and Secretary
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
1 First Waiver and Amendment to Note Purchase Agreement
2 Loan and Security Agreement
</TABLE>
<PAGE> 1
EXHIBIT 1
SAFEGUARD HEALTH ENTERPRISES, INC.
FIRST WAIVER AND AMENDMENT AGREEMENT
TO
NOTE PURCHASE AGREEMENT
THIS FIRST WAIVER AND AMENDMENT AGREEMENT (the "First Waiver") is
entered into as of May 28, 1999 among SafeGuard Health Enterprises, Inc. (the
"Company") and the institutional investors party hereto (the "Purchasers"). The
Purchasers are collectively the holders of $32,500,000 in aggregate principal
amount of the Company's 7.91% Senior Notes due September 30, 2005 (the "Notes")
issued pursuant to a Note Purchase Agreement dated as of September 30, 1997 (the
"Note Agreement").
The Company has advised the Purchasers that it is not currently in
compliance with certain of its covenants set forth in the Note Agreement and the
Notes. The Company has requested that the Purchasers waive all Defaults and
Events of Default under the Note Agreement and the Notes through the date
hereof.
NOW, THEREFORE, the parties agree:
1. DEFINITIONS. Capitalized terms not otherwise defined in this
Agreement have the meanings given therefor in the Note Agreement.
2. AMENDMENTS TO NOTE AGREEMENT. Upon the Effective Date, the Note
Agreement is hereby amended as follows:
(a) Interest Rate. Paragraph 1A of the Note Agreement and the
Notes are amended to reflect the following:
(i) Accrued interest due and payable on the Notes on
March 30, 1999 and not then paid shall not accrue interest at the
default rate specified in paragraph 1A of the Note Agreement.
(ii) Subject to clauses (A) and (B) below, from and after
the Effective Date, the Notes shall bear interest on the unpaid
principal balance until the principal shall have become due and payable
at the annual rate of 9.91%.
(A) If the Company executes a definitive agreement
with the Investor Group for the acquisition of debt and equity
of the Company which upon consummation would result in
sufficient proceeds to the Company to permit the Company to
repay, at par, (and requiring the Company to so repay) the
outstanding principal balance of the Notes together with all
accrued interest on the Notes and the outstanding principal
amounts of the Credit Extension (as defined in the SVB Credit
Agreement) under the SVB Credit Agreement together with all
accrued interest thereon (such definitive agreement, the
"Investors Purchase Agreement"), then from and after the date
such Investors Purchase Agreement is executed by all parties
thereto, subject
<PAGE> 2
to clause (B) below, interest will accrue on the unpaid
principal balance of the Notes not yet due at the annual rate
of 8.91%
(B) If the transactions contemplated by the
Investors Purchase Agreement are thereafter approved by the
shareholders of the Company, then from and after the date of
such shareholder approval, interest will accrue on the unpaid
principal balance of the Notes at the annual rate of 7.91%.
(iii) From and after the Effective Date, overdue
principal, overdue Make Whole Amount and, to the extent permitted by
law, overdue interest on the Notes shall bear interest at an annual
rate which is 200 basis points over the then applicable rate of
interest under the Notes for principal not overdue.
(b) Interest Payments. All accrued interest on the Notes shall
continue to be due and payable in arrears on September 30 and March 30 of each
year provided, on September 30, 1999 the Company shall be required to pay
accrued and unpaid interest on the Notes only up to an amount equal to the
amount of interest that would have accrued on the Notes if the interest rate on
the Notes for principal not yet due had remained at the annual rate of 7.91%.
The amount of accrued and unpaid interest on the Notes through September 30,
1999 not required to be paid on September 30, 1999 (the "Deferred Interest")
shall be due and payable on the sooner of (x) the date the Notes are repaid in
full pursuant to paragraph 4A(1) or (y) January 29, 2000 and no interest shall
accrue on the Deferred Interest if paid when due.
(c) Repayments of Principal.
(i) Paragraph 4A of the Note Agreement is renamed
"PREPAYMENT OF NOTES".
(ii) The existing paragraph 4A of the Note Agreement is
renumbered paragraph 4A(1) and is amended and restated in its entirety
as follows:
"4A(1) OPTIONAL PREPAYMENT OF NOTES AT ANY TIME. The Company
may prepay the Notes in full at any time or in part from time to time
(provided that any partial prepayment shall be of at least $100,000 in
aggregate principal amount or a larger principal amount which is an
integral multiple of $100,000), at 100% of the principal amount so
prepaid, plus interest accrued thereon to the Settlement Date and,
unless such prepayment is a prepayment in full of the outstanding
principal balance of the Notes together with all accrued interest on or
before December 31, 1999, the Make Whole Amount. The Company shall give
each Holder irrevocable written notice of any prepayment to be made
pursuant to this PARAGRAPH 4A(1) at least 30 days, and not more than 60
days, prior to the Settlement Date, (i) specifying the Settlement Date
and the Called Principal of the Notes held by each such Holder, (ii)
stating that such prepayment is to be made pursuant to this PARAGRAPH
4A(1), (iii) stating the amount of interest to be paid on the
Settlement Date with respect to such Called Principal and (iv)
providing an estimate of the Make Whole Amount payable on the Called
Principal of such Holder's Notes (calculated as if the date of such
notice were the date of prepayment) and
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setting forth the details of such computation. Not later than the close
of business on the second Business Day prior to the Settlement Date,
the Company shall deliver to the Holder of each Note being prepaid an
Officers' Certificate setting forth in detail the calculations used in
determining whether a Make Whole Amount is payable on such prepayment
and the amount of such Make Whole Amount.
Notwithstanding anything in this PARAGRAPH 4A(1) or this
Agreement to the contrary, no Make Whole Amount and (except as
otherwise provided in the First Waiver) no Expenses that may be due
under this Agreement, shall be due in connection with a prepayment of
the outstanding principal balance of the Notes together with all
accrued interest on or before December 31, 1999, provided, the Expenses
of the Holders up to a maximum of $60,000 shall be due if and only if
an Event of Default has occurred and is continuing as a result of: (i)
the Company's nonpayment of the principal amount of the Notes when due;
(ii) the Company's nonpayment of interest on principal amount of the
Notes when due; or (iii) an Event of Default with respect to the
Company or a material Subsidiary under PARAGRAPH 7A(viii)(b), (c)
OR(d), PARAGRAPH 7A(ix) or PARAGRAPH 7A(x). In connection with a
prepayment pursuant to the preceding sentence, the Company shall give
each Holder such notice as it receives under the Investors Purchase
Agreement, but shall not be obliged to comply with the requirements of
the last two sentences of the above paragraph.
(iii) The following paragraph 4A(2) is added to the Note
Agreement immediately after paragraph 4A(1):
"4A(2) MANDATORY PREPAYMENT. Upon a disposition permitted by
PARAGRAPH 6C(3)(v) the Company shall prepay the Notes in the aggregate
principal amount required to be prepaid pursuant to such PARAGRAPH
6C(3)(v) and upon the receipt of the 1998 Tax Refund the Company shall
prepay the Notes in the aggregate principal amount required to be
prepaid pursuant to PARAGRAPH 5R. Notwithstanding anything in this
Agreement to the contrary, no Make Whole Amount shall be payable in
connection with any prepayment of Notes required by this PARAGRAPH
4A(2)."
(d) Reporting. The following clauses (ix), (x) and (xi) are
added to paragraph 5A of the Note Agreement:
"(ix) Promptly, and in any event within 5 days after any Senior
Officer obtains knowledge of the existence thereof, the Company will
provide each Holder with copies of any notice of intent to audit
received from any regulatory authority; correspondence from any
regulator questioning any financial reports and any notices of default
under any statutory and regulatory regime; notices of termination of
authority from any regulatory authority and any Company responses to
any of the foregoing.
(x) On or before the last Business Day of each month, Company
will provide each Holder the prior month's consolidated balance sheet
and consolidated income statement for the Consolidated Group prepared
in accordance with GAAP.
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(xi) On or before Friday of each week commencing with Friday,
May 28, 1999, the Company will provide each Holder with a consolidated
twenty-six (26) week rolling cash flow report, which shall include a
comparison of the budget for the prior week and the actual results for
the prior week."
(e) Other Affirmative Covenants. The following paragraphs 5M,
5N, 5O, 5P, 5Q, 5R and 5S are added to the Note Agreement:
"5M. CHIEF FINANCIAL OFFICER, OUTSIDE CONSULTANT. On or before
the end of the second week following the Effective Date, the Company
will retain an executive search firm to identify candidates for the
position of chief financial officer. The Company will use its best
efforts to hire a chief financial officer. On or before the end of the
second week following the Effective Date, the Company will retain an
outside consultant with healthcare experience, to provide the Company
with financial reporting and financial analysis support. The consultant
will be employed by Company until the Company hires a new chief
financial officer.
5N. SALE OF PCD NOTES. The Company shall use reasonable efforts
to cause the PCD Notes to be offered for sale and if sold, Borrower
shall use reasonable efforts to cause, subject to applicable regulatory
approval, within thirty (30) days of such a sale, the Guards PCD Notes
Proceeds to be received by the Company as a result of a transfer,
distribution, loan or dividend from Guards to the Company; provided,
however, Borrower shall have no obligation to sell the PCD Notes, in
whole or in part, for less than the Minimum Release Price unless SVB,
Purchasers and the Collateral Agent consent in writing to a sale of the
PCD Notes, in whole or in part, for less than the Minimum Release
Price.
5O. SALE OF OTHER NOTES. The Company shall use reasonable
efforts to cause the Other Notes to be offered for sale and if sold,
the Company shall use reasonable efforts to cause, subject to
applicable regulatory approval, within thirty (30) days of such a sale,
the Other Notes Proceeds to be received by the Company as a result of a
transfer, distribution, loan or dividend from Guards to the Company;
provided, however, Borrower shall have no obligation to sell the Other
Notes, in whole or in part, for less than the Minimum Release Price
unless SVB, Purchasers and the Collateral Agent consent in writing to a
sale of the Other Notes, in whole or in part, for less than the Minimum
Release Price.
5P. TRANSFER OF GUARDS' PCD NOTES. After the Closing Date, the
Company will use reasonable efforts under the facts and circumstances
then presented, including, without limitation, whether it is
appropriate to the financial affairs of the Company and its
Subsidiaries to attempt to obtain regulatory approval for the transfer
to the Company of the PCD Notes or the Other Notes made payable to
Guards, to attempt to obtain regulatory approval of such a transfer. If
the Company obtains such regulatory approval, upon the receipt by the
Company of the PCD Notes or the Other Notes made payable to Guards, the
Company will deliver such notes to the Collateral Agent, endorsed to
the Collateral Agent as security, and such notes will constitute
Collateral hereunder.
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<PAGE> 5
5Q. SECURITY. As security for the payments provided for in
PARAGRAPH 6C(3)(v), the Company grants to the Holders a security
interest in the following:
(i) The Anaheim Property, subordinated to the interest in the
Anaheim Property in favor of SafeHealth Life Insurance Company, a
California corporation, in the amount of $2.5 million (the "SAFEHEALTH
PRIORITY CLAIM"), which security interest will be evidenced by a first
priority deed of trust on the Anaheim Property in favor of the
Collateral Agent for the benefit of the Holders and SVB in accordance
with the Intercreditor Agreement, in the form of Exhibit E (the "Deed
of Trust");
(ii) Any and all PCD Notes that are payable to the Company,
which PCD Notes will be endorsed and delivered to the Collateral Agent
for the benefit of the Holders and SVB in accordance with the
Intercreditor Agreement; and
(iii) The Pledged Collateral arising from the sale of the
Anaheim Property, endorsed to the Collateral Agent for the benefit of
Purchasers and SVB in accordance with the Intercreditor Agreement.
5R. TAX REFUND. After payment of any amounts required to be paid
therefrom pursuant to CLAUSE (C) of PARAGRAPH 6C(3)(v), upon receipt by
the Company of any 1998 Tax Refund, the Company shall pay fifty (50%)
of such amount to the Holders as a prepayment of outstanding principal
of the Notes pursuant to PARAGRAPH 4A(2) and fifty (50%) of such amount
to SVB as a prepayment of outstanding principal amounts of the Credit
Extension under the SVB Credit Agreement in accordance with the SVB
Credit Agreement.
5S. PAYMENT OF EXPENSES. Not later than July 9, 1999, the
Company shall reimburse the Purchasers for the reasonable fees, charges
and disbursements of Nightingale Associates LLC, the outside
consultants engaged by the Purchasers in connection with the First
Waiver and incurred through the date hereof, in the amount of $200,000.
On the sooner to occur of (x) the date the Notes are repaid in full
pursuant to PARAGRAPH 4A(l) or (y) December 31, 1999, the Company shall
reimburse the Purchasers an additional sum of $96,001.40 reflecting
additional fees, charges and disbursements of Nightingale Associates
LLC incurred through the date hereof, and no interest shall accrue or
be due in connection with the payment of such additional amount.
(f) Financial Covenants.
(i) Paragraph 6A(1) of the Note Agreement is amended and
restated in its entirety and as follows:
"6A(1). CONSOLIDATED NET WORTH. Consolidated Net Worth shall
not, as of the last day of any fiscal quarter commencing with the
fiscal quarter ending June 30, 1999, be less than $20,000,000 plus, if
such amount is greater than zero, an amount equal to the sum of 50% of
Consolidated Net Income for the period since December 31, 1998 taken as
a single accounting
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period. For the purposes of this PARAGRAPH 6A(1), Consolidated Net
Worth shall be increased by (i) the aggregate amount of interest on the
Notes then paid which, as a result of the First Waiver, is in excess of
the amount of interest which would have been then been paid on the
Notes if the Notes had continued to accrue interest on amounts not then
due at an annual rate of 7.91% and by the aggregate amount of Deferred
Interest and Deferred Current Interest (as those terms are defined in
the SVB Credit Agreement) and (ii) the aggregate amount of expenses of
the Holders incurred in connection with the First Waiver then paid by
the Company pursuant to paragraph 5S of the Note Agreement and
paragraph 5(f) of the First Waiver and by the Closing Expenses (as that
term is defined in the SVB Credit Agreement)."
(ii) Paragraph 6A(2) of the Note Agreement is hereby amended and
restated in its entirety as follows:
"6A(2). INTEREST EXPENSE COVERAGE. As of the last day of any
fiscal quarter commencing with the fiscal quarter ending June 30, 1999,
the ratio of (A) Consolidated EBITA to (B) Consolidated Interest
Expense, measured for the four most recently ended fiscal quarters
taken as a single accounting period, shall not be less than 1 to 1;
provided, however for the fiscal quarter end June 30, 1999 the
measuring period shall be the two most recently ended fiscal quarters
taken as a single accounting period and for the fiscal quarter end
September 31, 1999 the measuring period shall be the most recently
ended three fiscal quarters, taken as a single accounting period. For
the purposes of this PARAGRAPH 6A(2), Consolidated Interest Expense
shall be reduced by the aggregate amount of interest paid on the Notes
in such period which, as a result of the First Waiver, is in excess of
the amount of interest which would have been paid on the Notes in such
period if the Notes had continued to accrue interest on amounts not
then due at an annual rate of 7.91% and by the aggregate amount of
Deferred Interest and Deferred Current Interest due SVB and
Consolidated EBITA shall be increased by the aggregate amount of
expenses of the Holders incurred in connection with the First Waiver
paid by the Company in such period pursuant to paragraph 5S of the Note
Agreement and paragraph 5(f) of the First Waiver and by the Closing
Expenses of SVB."
(iii) Paragraph 6A(3) of the Note Agreement is hereby amended to
change the reference in the paragraph 6A(3) from "60%" to "70%" and to
add the following paragraph:
"For the purposes of this PARAGRAPH 6A(3), Consolidated Total
Capitalization will be reduced by the amount of any increase in
Consolidated Net Worth after December 31, 1998 as a result of issuances
of Equity Interests of the Company after December 31, 1998 and
Consolidated Net Worth will be calculated as provided in PARAGRAPH
6A(1) provided nothing in this paragraph shall be construed to reduce
Consolidated Total Capitalization as a result of the issuance of Equity
Interests of the Company for Equity Interests of another Person as
consideration for a merger or consolidation after the date of the First
Waiver permitted by under PARAGRAPH 6C(3)."
(iv) Paragraph 6A(4) of the Note Agreement is amended to add the
following paragraph:
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"Notwithstanding anything in this PARAGRAPH 6A(4) or this
Agreement to the contrary, neither the Company nor any Subsidiary shall
incur, create, issue, assume, guarantee or otherwise become liable in
respect of any Priority Debt after the Effective Date other than (i)
any extension, renewal or refinancing of the SVB Debt ("REFINANCING
DEBT") provided (a) the principal amount of such Refinancing Debt shall
not exceed the principal amount of SVB Debt outstanding at the time of
such extension, renewal, or refinancing plus $500,000; (b) the terms
and conditions of such Refinancing Debt shall not be more restrictive
or burdensome on the Company or more disadvantageous to the Holders in
any material respect than those in the SVB Credit Agreement and (c) the
lender(s) under such Refinancing Debt shall become a party to the
Intercreditor Agreement on the same terms and conditions as SVB; (ii)
Priority Debt which could be incurred in compliance with PARAGRAPH
6A(3) and is secured by liens permitted under CLAUSE (ix) or (x) of
PARAGRAPH 6C(1); and (iii) to the extent the obligations described in
CLAUSES (i) through (iv) of PARAGRAPH 6C(1) would constitute Debt,
Priority Debt which is secured by Liens permitted by such clauses."
(v) The following PARAGRAPH 6A(5) is added to the Note
Agreement:
"6A(5). SALE OF PCD NOTES AND/OR OTHER NOTES. For purposes of
determining Borrower's compliance with the financial covenant tests set
forth in PARAGRAPHS 6A(1), 6A(2) and 6A(3), if the PCD Notes or the
Other Notes are sold, in whole or in part, (i) in compliance with the
Minimum Release Price; or (ii) with the written consent of the
Purchasers, SVB and the Collateral Agent, then the effect of such sale
of the PCD Notes or Other Notes shall not be taken into account and the
calculations and measurements required to determine Borrower's
compliance with PARAGRAPHS 6A(1), 6A(2) and 6A(3) shall be made as if
the PCD Notes or the Other Notes had not been sold."
(g) Restricted Payments. The following paragraph is added to the end of
paragraph 6B of the Note Agreement:
"Notwithstanding anything to the contrary in this PARAGRAPH 6B
or elsewhere in this Agreement, after the Effective Date the Company
shall not declare, pay or make, directly or indirectly, any dividend,
payment or other distribution to a holder of any Equity Interest of the
Company (including any payment on account of the purchase, redemption,
retirement or other acquisition, direct or indirect, of any Equity
Interest)."
(h) Liens. (i) The following paragraph is added to the end of paragraph
6C(1) of the Note Agreement:
"Notwithstanding anything in this PARAGRAPH 6C(1) or elsewhere in this
Agreement to the contrary, (x) the Company will not create, incur,
assume or suffer to exist any Lien with respect to the Voting Stock of
any Subsidiary of the Company and (y) in no event will the Company or
any Subsidiary create or assume any Liens on their properties or assets
or upon any income or profits therefrom or transfer any property for
the purpose of subjecting the same to the payment of obligations in
priority to the payment of its general creditors from and after
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<PAGE> 8
the Effective Date except (1) pursuant to clauses (i), (ii), (iii),
(iv), (v), (ix) and (x) of this PARAGRAPH 6C(1); (2) in favor of the
Holders; (3) in favor of SVB as contemplated by the SVB Amendment and
the Intercreditor Agreement, (4) in favor of any Refinancing Debt
permitted by clause (i) of the second paragraph of PARAGRAPH 6(A)4
provided any such Lien does not extend to any property other than that
securing the SVB Debt as of the date such Refinancing Debt is incurred,
(5) permitted by clause (ii) of the second paragraph of 6(A)4, (6) and
any Lien resulting from renewing, extending or refinancing of the SVB
Debt (if permitted under PARAGRAPH 6(A)4), provided that (a) such Lien
does not extend to any other property, and (b) immediately after such
extension, renewal or refunding, no Default or Event of Default would
exist or could be reasonably anticipated to result therefrom and (7)
any Lien resulting from renewing, extending or refinancing the Liens
permitted by clauses (vii), (ix) or (x) of PARAGRAPH 6C(1), provided
that (a) the principal amount of the Debt secured thereby is not
increased or the maturity thereof accelerated, (b) such Lien does not
extend to any other property, and (c) immediately after such extension,
renewal or refunding, no Default or Event of Default would exist or
could be reasonably anticipated to result therefrom ."
(ii) SCHEDULE 6C(1) to the Note Agreement is deleted and
SCHEDULE 6(C)1 to this Agreement shall be substituted therefor.
(i) Dispositions of Assets. PARAGRAPH 6C(3)(V) is deleted and the
following is substituted therefor:
"(v) (a) The Company may sell the Anaheim Property to Roberto
Brutoco ("Buyer") on the terms set forth on SCHEDULE III or to another
buyer on terms not less favorable to the Company; provided, upon the
closing of the sale of the Anaheim Property, Company shall
contemporaneously with such sale, after making the payments required by
CLAUSE (c) of this PARAGRAPH 6C(3)(v): (1) cause fifty percent (50%) of
the remaining cash proceeds from such sale to be paid to the Holders as
a prepayment of outstanding principal of the Notes pursuant to
PARAGRAPH 4A(2) and fifty percent (50%) of the remaining cash proceeds
from such sale to be paid to SVB as a prepayment of outstanding
principal amounts of the Credit Extension under the SVB Credit
Agreement; and (2) endorse and deliver to the Collateral Agent, as
additional Collateral under the Intercreditor Agreement, the promissory
note of Buyer in the amount of $500,000 to be received as proceeds from
such sale, or if such sale is to a buyer other than Buyer, any non-cash
proceeds from such sale (such note or non-cash proceeds, the "PLEDGED
PROCEEDS"). All payments of principal and interest or other proceeds on
any Pledged Proceeds will be paid directly to the Collateral Agent and
distributed fifty percent (50%) to the Holders as a prepayment of
outstanding principal of the Notes in accordance with PARAGRAPH 4A(2)
and fifty percent (50%) to SVB as a prepayment of outstanding principal
amounts of the Credit Extension under the SVB Credit Agreement;
provided the first $2.5 million of cash proceeds (or cash and non-cash
proceeds if cash proceeds are insufficient) from any sale of the
Anaheim Property shall be used to satisfy the SafeHealth Priority
Claim.
(b) The Company and its Subsidiaries may sell, for fair value,
all or any part of the Other Notes or PCD Notes provided, after the
payments required by CLAUSE (c) of this
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PARAGRAPH 6C(c)(v), the Guards PCD Notes Proceeds, the Company PCD
Notes Proceeds and the other Notes Proceeds, in each case actually
received by the Company (whether as a result of a transfer,
distribution, loan or dividend from Guards to the Company or
otherwise); (2) shall be paid, upon receipt by the Company fifty
percent (50%), to the Holders as a prepayment of outstanding principal
of the Notes pursuant to PARAGRAPH 4A(2) and fifty percent (50%) to SVB
as prepayment of outstanding principal amounts of the Credit Extension
under the SVB Credit Agreement.
(c) Notwithstanding anything to the contrary in CLAUSES (a) and
(b) of this PARAGRAPH 6C(3)(v), Company shall pay to SVB the first
$500,000 of cash proceeds available from the sale of the Anaheim
Property (after satisfaction of the SafeHealth Priority Claim), the
1998 Tax Refund, the PCD Notes Proceeds or the Other Notes Proceeds as
a prepayment of outstanding principal amounts of the Credit Extension
under the SVB Debt in accordance with the SVB Credit Agreement.
(j) Notices. Paragraph 11H of the Note Agreement is hereby amended to
change the address of the Company to: SafeGuard Health Enterprises, Inc., 95
Enterprise, Aliso Viejo, CA 92656, Attn: Ronald I. Brendzel, Esq., Fax:
949-425-4586.
(k) Definitions.
(a) The following definition to the Note Agreement is amended
and restated as follows:
"TRANSACTION DOCUMENTS" means the Agreement, the Notes
(including any allonges thereto), the First Waiver, the Warrants, the
Intercreditor Agreement, the Deed of Trust, the Pledge Agreement and
the Registration Rights Agreement.
(b) The following definitions are added to paragraph 10 of the
Note Agreement in the appropriate alphabetical order:
"ANAHEIM PROPERTY" means the real property located at 505 North Euclid
Street, Anaheim, California 92801.
"COLLATERAL" has the meaning given in the Intercreditor Agreement.
"COLLATERAL AGENT" means that Person identified in the Intercreditor
Agreement as the Collateral Agent for the Holders and SVB.
"COMPANY PCD NOTES PROCEEDS" means PCD Notes Proceeds from PCD Notes
payable to the Company.
"DEED OF TRUST" has the meaning given in PARAGRAPH 5Q.
-9-
<PAGE> 10
"EFFECTIVE DATE" means the date that the conditions to the
effectiveness of the First Waiver set forth in Section 5 thereof were satisfied.
"FIRST WAIVER DOCUMENTS" means the First Waiver, the Allonges, the Deed
of Trust, the Pledge Agreement, Warrants and the Registration Rights Agreement
and the Intercreditor Agreement.
"GUARDS" means Guards Dental, Inc., a California corporation and a
Subsidiary of the Company.
"GUARDS PCD NOTES PROCEEDS" means PCD Notes Proceeds from PCD Notes
payable to Guards.
"INTERCREDITOR AGREEMENT" means that certain Intercreditor Agreement
dated as of May 28, 1999 executed by the Purchasers, SVB, the Company and the
Collateral Agreement as amended from time to time.
"INVESTOR GROUP" means the financial group identified in writing by the
Company to Purchasers, or such other financial group that consummates an
Investors Purchase Agreement.
"MINIMUM RELEASE PRICE" means with respect to sale of the PCD Notes or
the Other Notes, net proceeds from a sale equal to either: (x) $5 million in the
aggregate with respect to a sale of the PCD Notes and the Other Notes; or (y)
with respect to a sale of one or more of the notes (each a "Sale Note") which
comprise either the PCD Notes or the other Notes, thirty-four and six-tenths
percent (34.6%) of the book value of the Sale Note.
"OTHER NOTES" means those certain promissory notes identified in
SCHEDULE I in the original aggregate principal amount of $6,125,000.
"OTHER NOTES PROCEEDS" means the net cash proceeds received from the
sale of the Other Notes less the sum of: (x) such amount that, for regulatory
purposes, is required to be retained by (or for the benefit of) SafeGuard Health
Plans, Inc., a California corporation in light of its admitted assets; and (y)
without duplication (with respect to clause (y) of the definition of PCD Notes
Proceeds), $2.0 million minus the amount by which the PCD Notes Proceeds has
then been reduced as a result of clause (y) of the definition PCD Notes
Proceeds. Other Notes Proceeds shall not include amounts paid on account of
principal or interest on the Other Notes.
"PCD NOTES" means those certain promissory notes identified in SCHEDULE
II in the original aggregate principal amount of $27,271,000.
"PCD NOTES PROCEEDS" means the net cash proceeds received from the sale
of the PCD Notes; provided, however, in the case of Guards PCD Notes Proceeds,
such Guards PCD Notes Proceeds shall be reduced by the sum of: (x) such amount
that, for regulatory purposes, is required to be retained by (or for the benefit
of) SafeGuard Health Plans, Inc., a California corporation, in light of its
admitted assets; and (y) without duplication (with respect to clause (y) of the
definition of Other
-10-
<PAGE> 11
Notes Proceeds), $2.0 million minus the amount by which the Other Notes Proceeds
has then been reduced as a result of clause (y) of the definition of Other Notes
Proceeds. PCD Notes Proceeds shall not include amounts paid on account of
principal or interest on the PCD Notes.
"PLEDGE AGREEMENT" means the Pledge Agreement dated May 28, 1999 among
the Company and the Collateral Agent, as amended from time to time.
"PLEDGED PROCEEDS" has the meaning given in PARAGRAPH 6C(3)(v).
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
between the Company and the Purchasers dated May 28, 1999, as amended from time
to time.
"SAFEHEALTH PRIORITY CLAIM" has the meaning specified in PARAGRAPH 5Q.
"SVB" means Silicon Valley Bank.
"SVB AMENDMENT" means the Amended and Restated Loan and Security
Agreement by and between SVB as lender and the Company as borrower dated May 28,
1999.
"SVB CREDIT AGREEMENT" means that certain Loan and Security Agreement
by and between SVB as lender and the Company, as borrower, dated January 29,
1998, as amended by the Amendment to Loan and Security Agreement and Consent
Agreement dated as of March 23, 1998, the Amendment to Loan and Security
Agreement and Consent Agreement dated as of June 22, 1998, and the Amendment to
Loan and Security Agreement and Consent Agreement, dated as of November 19, 1998
and, after the Effective Date, as amended and restated by the SVB Amendment.
"1998 TAX REFUND" means any refund received by the Consolidated Group
on account of amounts paid on its federal income tax liability for its 1998
fiscal year.
"WARRANTS" means the Warrants for an aggregate of 382,000 shares of the
Company's common stock, $.01 par value per share issued to the Purchasers on the
Effective Date.
(l) Schedules. SCHEDULES I, II and III in the form of SCHEDULES I, II
and III to this Agreement are added to the Note Agreement.
3. WAIVERS. On the Effective Date, the Purchasers hereby waive all
Defaults and Events of Default under the Note Agreement and the Notes and all
Defaults and Events of Default resulting from any default under the SVB Credit
Agreement prior to the date hereof; provided such waiver shall not constitute a
waiver of any Default or Event of Default first occurring on or after the date
hereof under the Note Agreement, after giving effect to the amendments
contemplated hereby and the SVB Amendment.
4. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
that:
-11-
<PAGE> 12
(a) ORGANIZATION, ETC.
(i) The Company and each Subsidiary is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization and is qualified and in good standing in each jurisdiction in which
it is required to be qualified to do business (other than those jurisdictions in
which the failure to be so qualified, individually and in the aggregate, could
not reasonably be expected to have a Material Adverse Effect) and has all
requisite corporate power and authority to own, operate and lease its property
and to carry on its business as now being conducted and which it proposes to
conduct. The Company has all requisite power and authority to execute, deliver
and perform each First Waiver Document and to issue and sell the Warrants and
the shares of the Company's common stock issuable thereunder. SCHEDULE 4(a)
correctly identifies the correct legal name, the jurisdiction of organization,
the jurisdictions in which qualified to do business, the officers and directors
of each Subsidiary and identifies those Subsidiaries which are "significant
subsidiaries" within the meaning of Regulation S-X under the Exchange Act.
(ii) Each First Waiver Document has been duly authorized
by all necessary corporate action on the part of the Company and has been (or
will have been as of the Effective Date) duly executed and delivered by an
authorized officer of the Company and constitutes (or will constitute upon
execution thereof by the Company) the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms, except as affected by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally and
general equitable principles (whether considered in a proceeding in equity or at
law).
(b) STOCK OWNERSHIP.
(i) All of the outstanding capital stock, or other
equity interest, of each Subsidiary is validly issued, fully paid and
non-assessable and is now owned and will be owned immediately prior to the
Effective Date, of record and beneficially, in the amounts and by the Persons as
set forth in SCHEDULE 4(b), free and clear of any Lien of any kind, except as
set forth in SCHEDULE 4(b).
(ii) No Subsidiary is a party to, or otherwise subject
to any legal restriction or any agreement (other than this Agreement and
customary limitations imposed by corporate laws and statutes) restricting the
ability of such Subsidiary to pay dividends out of profits or make any other
similar distributions of profits to the Company or to any other Subsidiary of
the Company.
(iii) Except as set forth in SCHEDULE 4(b), no
Subsidiary has any outstanding rights, options, warrants or other agreements
which would require it to issue any additional shares of its capital stock after
the Effective Date.
(c) ACTIONS PENDING. Other than the review currently being
conducted by the California Department of Corporation and except for the letter
from NASDAQ dated April 29, 1999, there are no actions, suits, investigations or
proceedings pending, or to the knowledge of the Company threatened, against the
Company or any Subsidiary, or any of their properties or rights, by or before
any
-12-
<PAGE> 13
court, arbitrator or administrative body or other Governmental Authority other
than those which individually and in the aggregate do not and are not reasonably
expected to have a Material Adverse Effect.
(d) TITLE TO PROPERTIES.
(i) The Company and each Subsidiary has good and
marketable title to the real estate of which it is the record owner and the
Company or a Subsidiary has good title to all of the properties and assets
reflected in the most recent balance sheet for the Consolidated Group included
in the Financial Statements or purported to have been acquired by them after
such date (other than properties and assets disposed of since such date in the
ordinary course of business), subject to no Lien of any kind except Liens
permitted by PARAGRAPH 6C(1) of the Note Agreement;
(ii) The Company and each Subsidiary enjoys peaceful and
undisturbed possession under all leases necessary in any material respect for
the conduct of its businesses and all such leases are valid and subsisting and
are in full force and effect; and
(iii) The Company and each Subsidiary owns or has the
right to use (under agreements or licenses which are in full force and effect)
all Intellectual Property necessary for it to conduct its business as currently
conducted, without any known conflict with the rights of others. Neither the
Company nor any Subsidiary to its knowledge is infringing upon any Intellectual
Property owned by any other Person and there is no violation by any Person of
any right of the Company or any Subsidiary with respect to any Intellectual
Property owned or used by the Company or any Subsidiary which is Material.
(e) TAX RETURNS AND PAYMENTS. The Company and each Subsidiary
has filed all Federal, State, local and foreign income tax returns, franchise
tax returns, real and personal property tax returns and other tax returns
required by law to be filed by or on its behalf, or with respect to its
properties or assets, and all Taxes, assessments and other governmental charges
imposed upon the Company and any Subsidiary and the Company's or any
Subsidiary's properties, assets, income or franchises which are due and payable
have been paid, other than those presently being contested in good faith by
appropriate proceedings diligently conducted and for which such reserves or
other appropriate provisions, if any, as may be required by GAAP have been made
and those the amount of which, individually and in the aggregate, are not
Material. The charges, accruals and reserves on the books of the Consolidated
Group in respect of Taxes for all fiscal periods are adequate and the Company
knows of no unpaid assessment on the Company or any Subsidiary for additional
Taxes for any period or any basis for any such assessment that individually or
in the aggregate could reasonably be expected to have a Material Adverse Effect.
No charges or Taxes will be imposed by any Governmental Authority on the Company
or any Subsidiary on the execution, delivery or enforcement of the First Waiver
Documents.
(f) CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the
Company nor any Subsidiary is in violation of any term of its charter or by-laws
or other organizational documents, or in violation or breach of any term of any
agreement (including any agreement with stockholders),
-13-
<PAGE> 14
instrument, order, judgment, decree, statute, law, rule or regulation (including
any Environmental Law) to which it is a party or to which it is subject which
default or violation (except for the letter from NASDAQ dated April 29, 1999),
individually or in the aggregate, has or could reasonably be expected to have, a
Material Adverse Effect. The execution and delivery of the First Waiver
Documents and the offering, issuance and sale of the Warrants and the shares of
the Company's common stock issuable thereunder and fulfillment of and compliance
with the terms and provisions of the First Waiver Documents do not and will not
(i) contravene, result in any breach of, or constitute a default under, or
result in the creation of any Lien in respect of any property of the Company or
any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or
credit agreement, lease, corporate charter or by-laws or similar organizational
documentation, or any other agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any of their
respective properties are bound or affected, (ii) conflict with or result in a
breach of any of the terms, conditions or provisions of any order, judgment,
decree, or ruling of any court, arbitrator or Governmental Authority applicable
to the Company or any Subsidiary or (iii) violate any provision of any statute
or other rule or regulation of any Governmental Authority applicable to the
Company or any Subsidiary.
(g) ERISA.
(i) The Company, each Subsidiary and each ERISA
Affiliate has operated and administered each Plan operated and administered by
it in compliance with all applicable laws except for such instances of
noncompliance as have not resulted in and are not reasonably expected to result
in a Material Adverse Effect. Neither the Company, any Subsidiary nor any ERISA
Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to employee benefit plans
(as defined in Section 3 of ERISA), and no event, transaction or condition has
occurred or exists that could reasonably be expected to result in the incurrence
of any such liability by the Company, any Subsidiary or any ERISA Affiliate, or
in the imposition of any Lien on any of the rights, properties or assets of the
Company, any Subsidiary or any ERISA Affiliate, in either case pursuant to Title
I or IV of ERISA or to such penalty or excise tax provisions or to Section
401(a)(29) or 412 of the Code, other than such liabilities or Liens as
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect.
(ii) The present value of the aggregate benefit
liabilities under each of the Plans (other than Multiemployer Plans), determined
as of the end of such Plan's most recently ended plan year on the basis of the
actuarial assumptions specified for funding purposes in such Plan's most recent
actuarial valuation report, did not exceed the aggregate current value of the
assets of such Plan allocable to such benefit liabilities. The term "benefit
liabilities" has the meaning specified in section 4001 of ERISA and the terms
"current value" and "present value" have the meaning specified in Section 3 of
ERISA.
(iii) The Company, its Subsidiaries and its ERISA
Affiliates have not incurred withdrawal liabilities (and are not subject to
contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in
respect of Multiemployer Plans that individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect.
-14-
<PAGE> 15
(iv) The expected postretirement benefit obligation
(determined as of the last day of the Company's most recently ended fiscal year
in accordance with Financial Accounting Standards Board Statement No. 106,
without regard to liabilities attributable to continuation coverage mandated by
section 498B of the Code) of the Consolidated Group is not Material.
(h) GOVERNMENTAL AND OTHER CONSENTS. Except for the consent of
SVB, no consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority or any other Person (including
without limitation, any creditor, lessor, or stockholder of the Company or any
Subsidiary) is required in connection with the execution, delivery or
performance by the Company of this Agreement or the other First Waiver Documents
or the Company's offer, issuance and sale of the Warrants and the shares of the
Company's common stock issuable thereunder.
(i) ENVIRONMENTAL MATTERS. To the knowledge of the Company,
there are no claims and the Company has not received any notice of any claim,
and no proceeding has been instituted raising any claim, against the Company or
any Subsidiary or any real properties now or formerly owned, leased or operated
by the Company or any Subsidiary or other assets, alleging any damage to the
environment or violation of any Environmental Laws, except, as could not,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect. Except as otherwise disclosed in SCHEDULE 4(i) to this
Agreement:
(i) to the knowledge of the Company, there are no facts
which would give rise to any claim, public or private, of violation of
Environmental Laws or damage to the environment emanating from, occurring on or
in any way related to real properties now or formerly owned, leased or operated
by the Company or any Subsidiary or relating to the Company's or any
Subsidiary's other assets or their use, except, as could not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect;
(ii) neither the Company nor any Subsidiary has stored
any Hazardous Materials on real properties now or formerly owned, leased or
operated by the Company or any Subsidiary or disposed of any Hazardous Materials
in violation of any Environmental Laws, except as could not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect;
and
(iii) all buildings and operations conducted on all real
properties now owned, leased or operated by the Company or any Subsidiary are in
compliance with applicable Environmental Laws, except where such failure to
comply could not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect.
(j) LABOR RELATIONS. There is not now pending, or to the
knowledge of the Company, threatened, any strike, work stoppage, work slow down,
or material grievance or other material dispute between the Company or any
Subsidiary and any bargaining unit or significant number of the Company's or
such Subsidiary's employees.
-15-
<PAGE> 16
(k) FINANCIAL CONDITION. After giving effect to the transactions
contemplated hereby, (i) the aggregate present fair saleable value of the assets
of the Company will be greater than the amount that will be required to pay the
probable liabilities of the Company on its debts, including contingent
liabilities, as they become absolute and mature; (ii) the Company has (and has
no reason to believe that it will not have) sufficient capital for the conduct
of its business; and (iii) the Company does not intend to incur, or believe it
has incurred, debts beyond its ability to pay as they mature.
(l) DISCLOSURE. The First Waiver Documents and the other
documents, certificates and statements furnished to the Purchasers by or on
behalf of the Company or any Subsidiary in connection herewith do not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein and therein, in light
of the circumstances under which they were made, not misleading. To the
knowledge of the Company, there is no fact with respect to its business which is
reasonably expected to have a Material Adverse Effect and which has not been
described in this Agreement or otherwise disclosed in writing to the Purchasers
by the Company.
(m) STATUS UNDER CERTAIN FEDERAL STATUTES. Neither the Company
nor any Subsidiary is subject to regulation under the Investment Company Act of
1940, as amended, the Public Utility Holding Company Act of 1935, as amended,
the Interstate Commerce Act, as amended, or the Federal Power Act, as amended.
Neither the sale of the Notes hereunder nor the use of the proceeds thereof will
violate the Trading with the Enemy Act, as amended, or any of the foreign assets
control regulations of the United States Treasury Department (31 CFR, Subtitle
B, Chapter V, as amended) or any enabling legislation or executive order
relating thereto.
(n) EXISTING INDEBTEDNESS; FUTURE LIENS. SCHEDULE 4(n) sets
forth a complete and correct list of all outstanding Debt which individually or
in the aggregate to any single lender or group of lenders in a related
transaction is in excess of $100,000 of the Company and each Subsidiary as of
the Closing Date. Except as set forth on SCHEDULE 4(n) neither the Company nor
any Subsidiary is in default and no waiver of default is currently in effect, in
the payment of any principal or interest on any such Debt of the Company and
each Subsidiary and no event or condition exists with respect to any such Debt
of the Company and each Subsidiary that would permit (or that with notice or the
lapse of time, or both, would permit) one or more Persons to cause such Debt to
become due and payable before its stated maturity or before its regularly
scheduled dates of payment. Neither the Company nor any Subsidiary has agreed or
consented to cause or permit in the future (upon the happening of a contingency
or otherwise) any of its property, whether now owned or hereafter acquired, to
be subject to a Lien not permitted by PARAGRAPH 6C(1) of the Note Agreement.
(o) COMPLIANCE WITH LAWS, ETC. The Company and each Subsidiary
are in compliance with the requirements of all applicable laws, rules,
regulations and orders of any Governmental Authority (including, without
limitation, the Occupational Safety and Health Act of 1970, as amended, ERISA
and any Environmental Laws), and has in effect all licenses, certificates,
permits, franchises and other governmental authorizations necessary to the
ownership of its properties or to the conduct of its businesses, in each case to
the extent necessary to reasonably ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failure to have in effect
-16-
<PAGE> 17
such licenses, permits, franchises and other governmental authorizations do not,
and could not reasonably expected to, individually and in the aggregate, have a
Material Adverse Effect.
(p) Since December 31, 1998 through the date hereof, neither the
Company nor any Subsidiary has entered into any transaction that would have been
prohibited by the amendments to the Note Agreement contemplated by Sections 2(g)
and (h) hereof had such amendments then been in effect.
(q) The representations and warranties set forth in PARAGRAPHS
8A(ii), 8I, 8N AND 8O of the Note Agreement were true and correct when made.
5. CONDITIONS TO EFFECTIVENESS, DELIVERIES. The effectiveness of this
Agreement is conditioned upon the concurrent delivery to the Purchasers:
(a) Interest. By wire transfer of immediately available funds in
accordance with the instructions set forth on Exhibit A to the Note
Agreement, payment of $1,285,375 constituting all interest accrued on
the Notes through March 30, 1999.
(b) Warrants. Warrants in the form attached as EXHIBIT A for an
aggregate of 382,000 shares of the Company's common stock, $.01 par
value per share (collectively, the "WARRANTS"). Such Warrants are to be
allocated among the Purchasers in proportion to the aggregate principal
amount of the Notes held by each. Each Purchaser's Warrants shall be
registered in such Purchaser's name or the name of its nominee as
specified in Exhibit A to the Note Agreement.
(c) Registration Rights Agreement. The Registration Rights
Agreement in the form of EXHIBIT B.
(d) Allonges to Notes. An allonge to each Purchasers Notes in
the form of EXHIBIT C (collectively, the "ALLONGES").
(e) Opinion of Counsel. An opinion of Ronald I. Brendzel, the
Company's Senior Vice President and General Counsel as to (i) the legal
existence and corporate power and authority of the Company, (ii) the
due authorization, execution, delivery and enforceability the First
Waiver Documents, (iii) the absence of conflicts with or creation of
liens under applicable law in connection therewith and (iv) the absence
of any required governmental consents in connection therewith, in form
and substance satisfactory to the Purchasers.
(f) Payment of Expenses. Payment of the reasonable fees, charges
and disbursements of Sullivan & Worcester LLP and Orrick, Herrington &
Sutcliff LLP, as set forth in invoices delivered to the Company prior
to the date hereof, in the estimated amount of $100,000 (the "Fee
Amount"). The Fee Amount includes an estimate of attorneys' fees
incurred. Promptly after the execution hereof, Purchasers shall provide
the Company with a reconciliation of the Fee Amount paid and the actual
Fee Amount. Purchasers shall refund to
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<PAGE> 18
the Company the amount, if any, that the estimated Fee Amount paid
exceeded the actual Fee Amount. The Company shall pay to Purchaser the
amount, if any, that the estimated Fee Amount paid was less than the
actual Fee Amount.
(g) SVB Amendment. An executed copy of the SVB Amendment in form
and substance satisfactory to the Required Holders, together with
confirmation from SVB satisfactory to the Purchasers that all
conditions to the effectiveness of the SVB Amendment have been
satisfied.
(h) Intercreditor Agreement, Pledge Agreement and Deed of Trust.
A Collateral Agency and Intercreditor Agreement in the form of EXHIBIT
D executed by the Company and SVB, a Pledge Agreement in the form of
EXHIBIT E executed by the Company and SVB and a Deed of Trust in the
form of EXHIBIT F executed by the Company.
(i) Officers' Certificate. An Officers' Certificate from the
Company dated the Effective Date in the form of EXHIBIT G certifying as
to certain corporate matters and the continued accuracy of the
representations of the Company in Section 4 hereof.
(j) Secretary's Certificate. A Secretary's Certificate from the
Company dated the Effective Date in the form of EXHIBIT H certifying as
to certain corporate matters.
(k) Collateral Deliveries. All deliveries from the Company
required by paragraph 5Q(i) of the Note Agreement as amended hereby and
the Intercreditor Agreement.
6. NO OTHER WAIVERS. Except as expressly set forth herein or as
previously amended, the Note Agreement shall continue in full force and effect
without alteration or amendment and except as expressly set forth herein no
other waiver of any Default or Event of Default is hereby granted.
7. GOVERNING LAW. THIS AGREEMENT IS TO BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ANY LAWS OR RULES RELATING TO
CONFLICTS OF LAWS THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK).
8. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, and it shall
not be necessary in making proof of this Agreement to produce or account for
more than one such counterpart.
-18-
<PAGE> 19
This Agreement is executed under seal.
SAFEGUARD HEALTH ENTERPRISES, INC.
By: /s/
---------------------------------
Title:
By: /s/
---------------------------------
Title:
Purchasers:
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By: /s/
---------------------------------
Name:
Title:
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY
By: /s/
---------------------------------
Name:
Title:
INVESTORS PARTNER LIFE INSURANCE
COMPANY (f/k/a John Hancock Life
Insurance Company of America)
By: /s/
---------------------------------
Name:
Title:
Mellon Bank, N.A., solely in its
capacity as Trustee for BellAtlantic
Master Trust (f/k/a Nynex Master
Pension Trust), (as directed by John
Hancock Mutual Life Insurance
Company), and not in its individual
capacity
By: /s/
---------------------------------
Name:
Title:
-19-
<PAGE> 1
EXHIBIT 2
SILICON VALLEY BANK
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
by and between
SILICON VALLEY BANK
as Lender
and
SAFEGUARD HEALTH ENTERPRISES, INC.
as Borrower
Dated: May 28, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. DEFINITIONS AND CONSTRUCTION.......................................................-1-
1.1 Definitions..........................................................-1-
1.2 Accounting and Other Terms...........................................-9-
2. LOAN AND TERMS OF PAYMENT..........................................................-9-
2.1 Credit Extensions....................................................-9-
2.2 Interest Rates, Payments and Calculations............................-9-
2.3 Principal Payments..................................................-11-
2.4 Crediting Payments..................................................-12-
2.5 Fees................................................................-12-
2.6 Additional Costs....................................................-12-
2.7 Term................................................................-13-
2.8 Take-Out............................................................-13-
3. CONDITIONS OF LOANS...............................................................-14-
3.1 Conditions Precedent to Effectiveness of Agreement..................-14-
4. CREATION OF SECURITY INTEREST.....................................................-15-
4.1 Grant of Security Interest..........................................-15-
4.2 Delivery of Additional Documentation Required.......................-15-
4.3 Right to Inspect....................................................-15-
5. REPRESENTATIONS AND WARRANTIES....................................................-15-
5.1 Due Organization and Qualification..................................-15-
5.2 Due Authorization; No Conflict......................................-15-
5.3 No Prior Encumbrances...............................................-15-
5.4 [Reserved]..........................................................-16-
5.5 Merchantable Inventory..............................................-16-
5.6 [Reserved]..........................................................-16-
5.7 Name; Location of Chief Executive Office............................-16-
5.8 Litigation..........................................................-16-
5.9 No Material Adverse Change in Financial Statements..................-16-
5.10 Solvency............................................................-16-
5.11 Regulatory Compliance...............................................-16-
5.12 Environmental Condition.............................................-17-
5.13 Taxes...............................................................-17-
5.14 Subsidiaries........................................................-17-
5.15 Government Consents.................................................-17-
5.16 Full Disclosure.....................................................-17-
6. AFFIRMATIVE COVENANTS.............................................................-17-
6.1 Good Standing.......................................................-17-
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
6.2 Government Compliance...............................................-18-
6.3 Financial Statements, Reports and Certificates......................-18-
6.4 Inventory; Returns..................................................-19-
6.5 Taxes...............................................................-19-
6.6 Insurance...........................................................-19-
6.7 [Reserved]..........................................................-19-
6.8 Current Ratio.......................................................-20-
6.9 Debt-Net Worth Ratio................................................-20-
6.10 Stated Net Worth....................................................-20-
6.11 EBITA/Interest Expense Ratio........................................-20-
6.12 Treatment of Deferred Current Interest and
Attorneys' Fees and Sale of PCD Notes and/or Other Notes............-20-
6.13 Further Assurances..................................................-20-
7. NEGATIVE COVENANTS................................................................-22-
7.1 Dispositions........................................................-22-
7.2 Changes in Business, Ownership, Management or
Business Locations..................................................-22-
7.3 Mergers or Acquisitions.............................................-22-
7.4 Indebtedness........................................................-23-
7.5 Encumbrances........................................................-23-
7.6 Distributions.......................................................-23-
7.7 Investments; Loans; Guarantees......................................-23-
7.8 Transactions with Affiliates........................................-23-
7.9 [Reserved]..........................................................-23-
7.10 Subordinated Debt...................................................-23-
7.11 Inventory...........................................................-23-
7.12 Compliance..........................................................-23-
8. EVENTS OF DEFAULT.................................................................-24-
8.1 Payment Default.....................................................-24-
8.2 Covenant Default....................................................-24-
8.3 Material Adverse Change.............................................-24-
8.4 Attachment..........................................................-24-
8.5 Insolvency..........................................................-25-
8.6 Other Agreements....................................................-25-
8.7 Subordinated Debt...................................................-25-
8.8 Judgments...........................................................-25-
8.9 Misrepresentations..................................................-25-
8.10 Guaranty............................................................-25-
9. BANK'S RIGHTS AND REMEDIES........................................................-26-
9.1 Rights and Remedies.................................................-26-
9.2 Power of Attorney...................................................-27-
9.3 Accounts Collection.................................................-27-
9.4 Bank Expenses.......................................................-27-
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
9.5 Bank's Liability for Collateral.....................................-28-
9.6 Remedies Cumulative.................................................-28-
9.7 Demand; Protest.....................................................-28-
10. NOTICES...........................................................................-28-
11. CHOICE OF LAW AND VENUE; JURY WAIVER..............................................-29-
12. GENERAL PROVISIONS................................................................-29-
12.1 Successors and Assigns..............................................-29-
12.2 Indemnification.....................................................-29-
12.3 Time of Essence.....................................................-30-
12.4 Severability of Provisions..........................................-30-
12.5 Amendments in Writing; Integration..................................-30-
12.6 Counterparts........................................................-30-
12.7 Survival............................................................-30-
12.8 Waiver of Existing Defaults.........................................-30-
</TABLE>
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<PAGE> 5
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT ("Agreement") is
entered into as of May 28, 1999 by and between SILICON VALLEY BANK ("Bank") and
SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware corporation ("Borrower").
RECITALS
Borrower and Bank are party to that certain Loan and Security Agreement
dated as of January 29, 1998, as amended by those certain Amendments to Loan and
Security Agreement and Consent Agreements dated as of March 23, 1998, June 22,
1998 and November 19, 1998, respectively (as amended, "Original Agreement"),
pursuant to which Bank has advanced credit from time to time to Borrower upon
the terms and conditions contained therein.
The Original Agreement matured by its terms and certain "Events of
Default" (as defined therein) have occurred and are continuing thereunder.
Borrower has requested Bank to extend the maturity of the Original Agreement and
to waive any and all "Events of Default."
Bank is willing to extend such maturity and waive any and all "Events of
Default" upon the terms and conditions set forth below.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms shall
have the following definitions:
"Accounts" means all presently existing and hereafter arising accounts,
contract rights and all other forms of obligations owing to Borrower arising out
of the sale or lease of goods (including, without limitation, the licensing of
software and other technology) or the rendering of services by Borrower, whether
or not earned by performance, and any and all credit insurance, guaranties and
other security therefor, as well as all merchandise returned to or reclaimed by
Borrower and Borrower's Books relating to any of the foregoing.
"Advance" or "Advances" means a loan previously advanced to Borrower
under the Original Agreement.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Persons, managers and members.
-1-
<PAGE> 6
"Anaheim Property" means that certain real property commonly known as
505 North Euclid Street, Anaheim, California, and more particularly described in
Exhibit "A" hereto.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration and enforcement of the Loan Documents;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents (including fees and expenses of appeal
or review, or those incurred in any Insolvency Proceeding), whether or not suit
is brought.
"Borrower PCD Notes Proceeds" means the proceeds received by Borrower
from the sale of the PCD Notes payable to the Borrower.
"Borrower's Books" means all of Borrower's books and records, including,
without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs or tape files and the equipment containing such information.
"Business Day" means any day that is not a Saturday, Sunday or other day
on which banks in the State of California are authorized or required to close.
"Closing Date" means the date of this Agreement.
"Closing Expenses" has the meaning set forth in Section 2.5.
"Code" means the California Uniform Commercial Code.
"Collateral" means the Anaheim Property described on Exhibit "A"
attached hereto and the personal property described on Exhibit "B" attached
hereto.
"Collateral Agent" means the person identified as such in the
Intercreditor Agreement.
"Consolidated EBITA" means for any period, the amount of which is to be
determined, Consolidated Net Income for such period plus (but only to the extent
such amounts were deducted in the computation of Consolidated Net Income) (a)
Consolidated Interest Expense; (b) income tax expense (including deferred income
tax expense); and (c) amortization expense of the Consolidated Group for such
period, determined on a consolidated basis in accordance with GAAP, consistently
applied.
"Consolidated Group" means Borrower and each of its Subsidiaries and if
the context so requires, Borrower and its Subsidiaries, taken as a whole.
"Consolidated Interest Expense" means for any period, the amount of
which is to be determined, the aggregate interest charges of the Consolidated
Group (including, without limitation, that portion of any obligation under
capitalized leases allocable to interest expense) on any Obligations for such
period (without regard to any limitation on the payment thereof) as determined
in accordance with GAAP, consistently applied.
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<PAGE> 7
"Consolidated Net Income" means for any period, the amount of which is
to be determined, the net income of the Consolidated Group determined on a
consolidated basis in accordance with GAAP, consistently applied.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (a)
any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (b) any obligations with respect to undrawn letters of credit
issued for the account of that Person; and (c) all obligations arising under any
interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Credit Extension" means each Advance, any other extension of credit by
Bank for the benefit of Borrower hereunder, the Deferred Interest and the
Deferred Current Interest.
"Current Assets" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Credit
Extensions made under this Agreement, including all Indebtedness that is payable
upon demand or within one (1) year from the date of determination thereof unless
such Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Deed of Trust" means that certain Deed of Trust, Assignment of Leases
and Rents, Security Agreement, Fixture Filing and Subordination of even date
herewith made by Borrower, as trustor, in favor of Collateral Agent, as
beneficiary, encumbering the Anaheim Property.
"Deferred Interest" has the meaning set forth in Section 2.2(a)(ii).
"Deferred Current Interest" has the meaning set forth in 2.2(d)(ii).
-3-
<PAGE> 8
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"Guards" means Guards Dental, Inc.
"Guards PCD Notes Proceeds" means the proceeds received by Guards from
the sale of the PCD Notes payable to Guards.
"Hancock" means collectively John Hancock Mutual Life Insurance Company,
John Hancock Variable Life Insurance Company, Investors Partner Insurance Co.,
formerly known as John Hancock Life Insurance Company Of America, and Mellon
Bank, N.A., solely in its capacity as Trustee for the Bell Atlantic Master
Trust, formerly known as NYNEX Master Trust, (as directed by John Hancock Mutual
Life Insurance Company), and not in its individual capacity.
"Hancock Amendment" means that certain First Waiver and Amendment
Agreement to Note Purchase Agreement of even date herewith among Borrower and
Hancock.
"Hancock Debt" means Borrower's principal indebtedness pursuant to those
certain $32,500,000 7.91% Senior Notes Due September 30, 2005, issued pursuant
to that certain Note Purchase Agreement, dated as of September 30, 1997, as
amended.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including, without limitation,
reimbursement and other obligations with respect to surety bonds and letters of
credit; (b) all obligations evidenced by notes, bonds, debentures or similar
instruments; (c) all capital lease obligations; and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against any
person or entity under any provision of the United States Bankruptcy Code, as
amended, or under any other bankruptcy or insolvency law, including assignments
for the benefit of creditors, receiverships, liquidations, formal or informal
moratoria, compositions, extension generally with its creditors or proceedings
seeking reorganization, arrangement or other relief.
"Intercreditor Agreement" means that certain Collateral Agency and
Intercreditor Agreement of even date executed by Borrower, Hancock and the Bank
describing their relative rights as they relate to collateral specified therein.
"Interest Rate" shall have the meaning set forth in Section 2.2 hereof.
"Inventory" means all present and future inventory in which Borrower has
any interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in
-4-
<PAGE> 9
process and finished products intended for sale or lease or to be furnished
under a contract of service, of every kind and description now or at any time
hereafter owned by or in the custody or possession, actual or constructive, of
Borrower, including such inventory as is temporarily out of its custody or
possession or in transit and including any returns upon any accounts or other
proceeds, including insurance proceeds, resulting from the sale or disposition
of any of the foregoing and any documents of title representing any of the
above.
"Investment" means any beneficial ownership (including stock,
partnership interest or other securities) of any Person, or any loan, advance or
capital contribution to any Person.
"Investor Group" means the financial group as disclosed in writing by
Borrower to the Lender, or such other financial group that consummates an
Investor Group Transaction.
"Investor Group Transaction" means the transaction evidenced by a
definitive document among Borrower and the Investor Group for the acquisition of
debt and equity of the Borrower, the consummation of which acquisition would
result in sufficient proceeds to the Borrower to permit the Borrower to repay,
at par (and requiring the Borrower to so repay) the outstanding principal
balance of the Hancock Debt, together with all accrued and unpaid interest
thereon, together with payment to the Bank of the outstanding principal amount
of Credit Extensions hereunder, together with all accrued and unpaid interest
thereon.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance, including the Deed of Trust.
"Loan Documents" means, collectively, this Agreement, the Deed of Trust,
the Security Agreement, the Negative Pledge, any note or notes executed by
Borrower and any other present or future agreement entered into between Borrower
and/or for the benefit of Bank in connection with the Original Agreement or this
Agreement, all as amended, extended or restated from time to time.
"Material Adverse Effect" means a material adverse effect on (a) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole; or (b) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means January 29, 2000.
"Minimum Release Price" means with respect to sale of the PCD Notes or
the Other Notes, net proceeds from a sale equal to either: (x) $5 million in the
aggregate with respect to a sale of the PCD Notes and the Other Notes; or (y)
with respect to a sale of one or more of the notes (each a "Sale Note") which
comprise either the PCD Notes or the Other Notes 34.6% of the book value of the
Sale Note.
"Negative Pledge" means the Negative Pledge Agreement of even date
herewith made by Borrower in favor of Bank with respect to the Other Notes and
PCD Notes payable to Guards.
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<PAGE> 10
"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title and chattel paper.
"Net Insurance Company Merger Proceeds" means the net cash proceeds
available to be transferred to Borrower from SafeHealth Life Insurance Company,
a California corporation ("SafeHealth"), after the merger of SafeHealth Life
Insurance Company, Inc., a Texas corporation, into SafeHealth.
"Obligations" means all debt, principal, interest, Bank Expenses and
other amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.
"Other Notes" means those certain promissory notes identified in
Schedule I annexed hereto in the original aggregate principal amount of
$6,125,000.
"Other Notes Proceeds" means the net cash proceeds received from the
sale of the Other Notes less the sum of: (x) such amount that, for regulatory
purposes, must be retained by (or for the benefit of) SafeGuard Health Plans,
Inc., a California corporation, in light of its admitted assets; and (y) $2.0
million (less that portion of the $2.0 million funded from the PCD Notes
Proceeds) which shall be used only for the general corporate purposes
of the Borrower or any Subsidiary. Other Notes Proceeds shall not include
payments of principal or interest on the Other Notes paid on account of the
Other Notes.
"PCD Notes" means those certain promissory notes identified in Schedule
II annexed hereto in the original aggregate principal amount of $27,271,000.
"PCD Notes Proceeds" means the net cash proceeds received from the sale
of the PCD Notes; provided, however, in the case of the Guards PCD Notes
Proceeds, the PCD Notes Proceeds shall be reduced by the sum of: (x) such amount
that, for regulatory purposes, must be retained by (or for the benefit of)
SafeGuard Health Plans, Inc., a California corporation, in light of its admitted
assets; and (y) $2.0 million (less that portion of the $2.0 million funded from
the Other Notes Proceeds), which shall be used only for the general
corporate purposes of the Borrower or any Subsidiary. PCD Notes Proceeds shall
not include payments of principal or interest on the PCD Notes paid on account
of the PCD Notes.
"Payment Date" means the first calendar day of each month commencing on
the first such date after the Closing Date and ending on the Maturity Date.
"Permitted Indebtedness" means:
(1) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
-6-
<PAGE> 11
(2) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(3) Subordinated Debt;
(4) Indebtedness to trade creditors incurred in the ordinary
course of business;
(5) the Hancock Debt; and
(6) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State
thereof maturing within one (1) year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from
the date of creation thereof and currently having the highest rating
obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Inc. and (iii) certificates of deposit maturing no
more than one (1) year from the date of investment therein issued by
Bank; and
(c) those Investments set forth on Exhibit D attached hereto.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents,
including the Deed of Trust;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings and as to which adequate reserves are
maintained on Borrower's Books in accordance with GAAP, provided the
same have no priority over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing
the acquisition of such Equipment or (ii) existing on such equipment at
the time of its acquisition, provided that the Lien is confined solely
to the property so acquired and improvements thereon, and the proceeds
of such equipment; and
(d) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described
in clauses (a) through (c) above, provided that any extension, renewal
or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being
extended, renewed or refinanced does not increase.
-7-
<PAGE> 12
"Person" means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Responsible Officer" means each of the Chief Executive Officer, the
President and the Chief Financial Officer.
"SafeHealth" means SafeHealth Life Insurance Company, a California
corporation.
"Schedule" means the schedule of exceptions attached hereto as Exhibit
F, if any.
"SEC Reports" shall have the meaning set forth in Section 6.3.1 hereof.
"Security Agreement" means that certain Pledge Agreement of even date
herewith made by Borrower in favor of Collateral Agent.
"Stated Net Worth" means as of any applicable date, the stated net worth
of Borrower determined in accordance with GAAP, consistently applied.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation, partnership,
company, association, joint venture or any other business entity of which more
than fifty percent (50%) of the voting stock or other equity interests are owned
or controlled, directly or indirectly, by such Person or one or more Affiliates
of such Person.
"Total Liabilities" means as of any applicable date, any date as of
which the amount thereof shall be determined, all obligations that should, in
accordance with GAAP, be classified as liabilities on the consolidated balance
sheet of Borrower, including in any event all Indebtedness, but specifically
excluding Subordinated Debt.
1.2 Accounting and Other Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including"/ "includes" shall always be read as
meaning "including (or includes) without limitation," when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
-8-
<PAGE> 13
2.1 Credit Extensions. Borrower promises to pay to the order of Bank, in
lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of all Credit Extensions
at rates in accordance with the terms hereof.
2.1.1 Outstanding Advances. As of the Closing Date, the
outstanding principal amount of all Credit Extensions made by Bank to Borrower
hereunder totaled in the aggregate $7,994,824.68 prior to application of the
payment specified in Section 2.3(a) hereof, and exclusive of any amounts due to
Bank pursuant to Section 2.5(b).
2.2 Interest Rates, Payments and Calculations.
(a) Payment of Accrued and Outstanding Interest as of Closing
Date.
(i) Concurrently with the execution of this Agreement,
Borrower shall pay to Bank all accrued and unpaid
interest owing on Advances outstanding through the
Closing Date at a per annum rate equal to one and
one-half percent (1.5%) above the Prime Rate which
amounts total $170,576.27.
(ii) Borrower shall pay to Bank on the earlier to occur
of: (x) such date as the outstanding principal
amount of Credit Extensions is paid in accordance
with Section 2.8 or (y) the Maturity Date, a sum
equal to accrued and unpaid interest owing on
Advances outstanding from January 28, 1999 through
the Closing Date at a per annum rate equal to five
percent (5%) ("Deferred Interest") which amounts
total $133,247.17. No interest shall accrue on the
Deferred Interest.
(b) Interest Rate. Except as set forth in Section 2.2(c) and
subject to subparagraphs (x) and (y) below, Advances shall bear interest
from and after the Closing Date, on the average daily balance thereof,
at a per annum rate equal to four percent (4%) above the Prime Rate;
provided, however,
(x) except as provided in subparagraph (b)(y) hereof,
from and after such date as Borrower has executed,
and provided a copy thereof to the Bank, a
definitive document evidencing the Investor Group
Transaction, interest will accrue on outstanding
Advances at a per annum rate equal to three percent
(3%) above the Prime Rate; and
(y) from and after such date thereafter as Borrower has
obtained shareholder approval of the Investor Group
Transaction, interest shall accrue on outstanding
Advances at a per annum rate equal to one and
one-half percent (1.5%) above the Prime Rate.
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<PAGE> 14
(c) Default Rate. All Obligations shall bear interest, from and
after the occurrence of an Event of Default, at a per annum rate equal
to six and one-half percent (6.5%) above the Prime Rate.
(d) Payments of Current Interest.
(i) So long as no Event of Default has occurred under
any of the Loan Documents, interest hereunder shall
be due and payable from and after the Closing Date
and through the Maturity Date on each Payment Date
at a per annum pay rate equal to one and one-half
percent (1.5%) above the Prime Rate,
notwithstanding the higher rates provided in
subsections (b) and (c) above, to the extent
applicable. Except as provided in Section
2.2(a)(ii) and Section 2.2(d)(ii), any interest not
paid when due shall be compounded by becoming a
part of the Obligations, and such interest shall
thereafter accrue interest at the rate then
applicable hereunder.
(ii) On the earlier to occur of (x) such date as the
outstanding principal amount of the Credit
Extensions is paid in accordance with Section 2.8,
and (y) the Maturity Date, Borrower shall pay to
Lender interest in an amount equal to the
difference, if any, between the amount paid under
Section 2.2(d)(i) and the Interest Rate applicable
under Section 2.2(b) hereof ("Deferred Current
Interest"). No interest shall accrue on the
Deferred Current Interest.
(e) Computation. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest with respect to
outstanding Advances shall be increased or decreased effective as of
12:01 a.m. on the day the Prime Rate is changed, by an amount equal to
such change in the Prime Rate. All interest chargeable under the Loan
Documents shall be computed on the basis of a three hundred sixty (360)
day year for the actual number of days elapsed.
2.3 Principal Payments. Subject to the acceleration provisions hereof,
the aggregate unpaid principal sum of the Credit Extensions hereunder shall be
due and payable on the Maturity Date.
(a) Payment of Net Insurance Company Merger Proceeds.
Concurrently with the execution of this Agreement, Borrower shall pay,
or cause to be paid, to Bank $450,000 from the Net Insurance Company
Merger Proceeds, which shall be applied to reduce the outstanding
principal amount of Credit Extensions hereunder.
(b) Payment Upon Sale of Anaheim Property. Subject to
subparagraph (f) of this Section 2.3, upon the sale of the Anaheim
Property, Borrower shall pay, or caused to be paid, to Bank fifty
percent (50%) of the net cash proceeds from the sale of the Anaheim
Property in excess of $2.5 million (the "SafeHealth Priority Payment"),
which shall be applied to reduce the outstanding principal amount of
Credit Extensions hereunder, and will cause the
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<PAGE> 15
non-cash proceeds (in excess of the first $2.5 million of proceeds) from
such sale to be delivered to the Collateral Agent. All payments of
principal and interest paid on the non-cash proceeds delivered to the
Collateral Agent will be applied fifty percent (50%) to Bank and fifty
percent (50%) to Hancock to reduce the outstanding principal Credit
Extensions hereunder and the Hancock Debt, respectively.
(c) Payment Upon Sale of PCD Notes. Subject to subparagraph (f)
of this Section 2.3, upon the transfer, distribution, loan or dividend
to Borrower of all or part of the PCD Notes Proceeds, Borrower shall pay
to Bank fifty percent (50%) of the PCD Notes Proceeds, which shall be
applied to reduce the outstanding principal amount of Credit Extensions
hereunder.
(d) Payment Upon Sale of Other Notes. Subject to subparagraph (f)
of this Section 2.3, upon the transfer, distribution, loan or dividend
to Borrower of all or part of the Other Notes Proceeds, Borrower shall
pay to Bank fifty percent (50%) of the Other Notes Proceeds, which shall
be applied to reduce the outstanding principal amount of Credit
Extensions hereunder.
(e) Payment Upon Receipt of Federal Tax Refund. Subject to
subparagraph (f) of this Section 2.3, upon receipt by Borrower of its
1998 Federal tax refund, if any, Borrower shall pay to Bank fifty
percent (50%) of such amount, which shall be applied to reduce the
outstanding principal amount of Credit Extensions hereunder.
(f) Priority Payment. Notwithstanding anything to the contrary in
subparagraphs (b), (c), (d) and (e) of this Section 2.3: (x) Borrower
shall pay to Bank the first $500,000 of the cash proceeds available from
the sale of the Anaheim Property (after satisfying the Safe Health
Priority Payment), the 1998 Federal tax refund, the PCD Notes Proceeds
or the Other Notes Proceeds (the "SVB $500,000 Priority Payment"), which
shall be applied to reduce the outstanding principal amount of Credit
Extensions hereunder.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds, check
or other item of payment, whether directed to Borrower's deposit account with
Bank or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Pacific
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
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(1) Financial Examination and Appraisal Fees. Bank's customary
fees and reasonable out-of-pocket expenses for Bank's audits and
appraisals of Collateral and financial analysis and examination of
Borrower performed from time to time by Bank or its agents; and
(2) Bank Expenses. Concurrently with the execution hereof, Bank
Expenses incurred through the Closing Date, including reasonable
attorneys' fees and expenses, in the amount estimated to be $144,299.73
("Closing Expenses"). The Closing Expenses include an estimate of
attorneys' fees incurred. Promptly after the execution hereof, Lender
shall provide Borrower with a reconciliation of the estimated Closing
Expenses paid and the actual Closing Expenses. Lender shall refund to
Borrower the amount, if any, that the estimated Closing Expenses paid
exceeded the actual Closing Expenses. Borrower shall pay to Lender the
amount, if any, that the estimated Closing Expenses paid was less than
the actual Closing Expenses. After the Closing Date, all reasonable Bank
Expenses, including reasonable attorneys' fees and expenses, as and when
they become due.
2.6 Additional Costs. In case any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the compliance
with any guideline or request of any central bank or other governmental
authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower
or otherwise with respect to the transactions contemplated hereby
(except for taxes on the overall net income of Bank imposed by the
United States of America or any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by,
or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term. Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of
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this Agreement, Bank's lien on the Collateral shall remain in effect for so long
as any Obligations are outstanding, or until Borrower has made the payment
provided for in Section 2.8 hereof.
2.8 Take-Out. Bank agrees that at any time on or before December 31,
1999, notwithstanding anything to the contrary in the Loan Documents, the
Borrower shall have the absolute right to fully and completely satisfy the
entire outstanding Obligations due and owing under the Loan Documents by payment
to the Bank of an amount equal to the sum of: (x) the outstanding principal
amount of the outstanding Credit Extension under the Loan Documents; plus (y)
accrued and unpaid interest on the outstanding Advances at the rates provided
for in Section 2.2(b) hereof accrued through the date of payment, including,
without limitation, the Deferred Interest and the Deferred Current Interest,
plus (z) Bank Expenses up to a maximum of $60,000 if, and only if, an Event of
Default has occurred and is continuing as a result of: (i) the Borrower's
nonpayment of the principal amount of the Credit Extensions when due; (ii) the
Borrower's nonpayment of interest on outstanding Advances when due; (iii) the
commencement by the Borrower or any material Subsidiary of an Insolvency
Proceeding; (iv) the commencement against the Borrower or any material
Subsidiary of an Insolvency Proceeding and such involuntary Insolvency
Proceeding is not dismissed or stayed within thirty (30) days; or (v) any
seizure or takeover by a regulatory agency, receiver, custodian, trustee or
similar entity of Borrower or any material Subsidiary or any material assets of
any of them, and upon such payment the Bank's Lien on the Collateral shall
terminate.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Effectiveness of Agreement. Upon
satisfaction of the conditions precedent set forth below, this Agreement shall
amend and restate the Original Agreement in its entirety. The obligation of Bank
to waive any or all defaults or Events of Default of Borrower existing as of the
date hereof and the effectiveness of this Agreement are subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
its certificate of incorporation, bylaws, incumbency and resolutions
authorizing the execution and delivery of this Agreement;
(c) the Deed of Trust;
(d) the Security Agreement;
(e) review and approval by Bank of the Hancock Amendment;
(f) the Intercreditor Agreement;
(g) the Negative Pledge;
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(h) evidence satisfactory to Bank that the PCD Notes that are
made payable to Borrower have been endorsed and delivered to the
Collateral Agent as security for the benefit of the Bank and Hancock;
(i) financing statements (Forms UCC-1);
(j) insurance certificate;
(k) payment of the principal, interest, and Bank Expenses due
on the Closing Date as specified in Section 2 hereof;
(l) An opinion of Borrower as to (i) the legal existence and
corporate power and authority of the Borrower, (ii) the due
authorization, execution, delivery and enforceability of the Loan
Documents, (iii) the absence of conflicts with or creation of liens
under applicable laws in connection therewith and (iv) the absence of
any required governmental caveat in connection therewith, in form and
substance satisfactory to Lender; and
(m) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Subject to the relative priorities of Bank
and Hancock under the Intercreditor Agreement, such security interest
constitutes a valid, first priority security interest in the presently existing
Collateral, and will constitute a valid, first priority security interest in
Collateral acquired after the date hereof. Borrower acknowledges that Bank may
place a "hold" on any Deposit Account pledged as Collateral to secure the
Obligations. Notwithstanding termination of this Agreement, Bank's Lien on the
Collateral shall remain in effect for so long as any Obligations are outstanding
or until Borrower has made the payment provided in Section 2.8 hereof.
4.2 Delivery of Additional Documentation Required. Borrower shall from
time to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfecting Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test and appraise the Collateral in order to verify
Borrower's financial condition or the amount of, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
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Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is
a corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2 Due Authorization; No Conflict. The execution, delivery and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized and are not in conflict with nor do they constitute a breach of any
provision contained in Borrower's Articles/Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound. Except as
disclosed in the Schedule, Borrower is not in default under any agreement to
which it is a party or by which it is bound, which default could have a Material
Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 [Reserved]
5.5 Merchantable Inventory. All Inventory is in all material respects of
good and marketable quality, free from all material defects.
5.6 [Reserved]
5.7 Name; Location of Chief Executive Office. Except as disclosed in the
Schedule, Borrower has not done business, and will not without at least thirty
(30) days' prior written notice to Bank do business, under any name other than
that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.8 Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency in
which an adverse decision could have a Material Adverse Effect or a material
adverse effect on Borrower's interest or Bank's security interest in the
Collateral.
5.9 No Material Adverse Change in Financial Statements. The consolidated
financial statements related to Borrower and any Subsidiary delivered by
Borrower to Bank for the fiscal year ending December 31, 1998 and the quarter
ending March 31, 1999 fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to Bank
on or about the Closing Date.
5.10 Solvency. The fair saleable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities;
Borrower is not left with unreasonably
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<PAGE> 20
small capital after the transactions contemplated by this Agreement; and
Borrower is able to pay its debts (including trade debts) as they mature.
5.11 Regulatory Compliance. Borrower and each Subsidiary have met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.12 Environmental Condition. None of Borrower's or any Subsidiary's
properties (including with specificity the Anaheim Property) or assets has ever
been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge,
by previous owners or operators, in the disposal of, or to produce, store,
handle, treat, release, or transport, any hazardous waste or hazardous substance
other than in accordance with applicable law; to the best of Borrower's
knowledge, none of Borrower's properties or assets has ever been designated or
identified in any manner pursuant to any environmental protection statute as a
hazardous waste or hazardous substance disposal site, or a candidate for closure
pursuant to any environmental protection statute; no lien arising under any
environmental protection statute has attached to any revenues or to any real or
personal property owned by Borrower or any Subsidiary; and neither Borrower nor
any Subsidiary has received a summons, citation, notice or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the release or other disposition of hazardous waste or
hazardous substances into the environment.
5.13 Taxes. Borrower and each Subsidiary have filed or caused to be
filed all tax returns required to be filed on a timely basis, and have paid, or
have made adequate provision, for the payment of all taxes reflected therein.
5.14 Subsidiaries. Borrower does not own any stock, partnership interest
or other equity securities of any Person, except for Permitted Investments.
5.15 Government Consents. Borrower and each Subsidiary have obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.16 Full Disclosure. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading.
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<PAGE> 21
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports and Certificates.
6.3.1 Borrower shall deliver to Bank: (a) within five (5) days of
filing, copies of all statements, reports and notices sent or made available
generally by Borrower to its security holders or to any holders of Subordinated
Debt and all reports on Forms 10-K, 10-Q and 8-K filed with the Securities and
Exchange Commission (collectively, the "SEC Reports"); (b) promptly upon receipt
of notice thereof, a report of any legal actions pending or threatened against
Borrower or any Subsidiary that could result in damages or costs to Borrower or
any Subsidiary of $100,000 or more; (c) such budgets, sales projections,
operating plans or other financial information as Bank may reasonably request
from time to time; and (d) within thirty (30) days after the end of each month,
company-prepared consolidated financial statements with respect to such month
(the "Monthly Reports").
Within five (5) days after the filing of the SEC Reports and
concurrently with delivery of the Monthly Reports, Borrower shall deliver to
Bank a Compliance Certificate signed by a Responsible Officer in substantially
the form of Exhibit E hereto for the period then ended.
6.3.2 Borrower shall deliver to Bank:
(1) immediately upon receipt copies of: (i) any notice of
intent to audit received from any regulatory authority; (ii)
correspondence from any regulator questioning any financial reports and
any notices of default under any statutory and regulatory regime; and
(iii) any notices of termination of authority from any regulatory
authority and any Borrower responses to any of the foregoing;
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(2) on or before the last business day of each month, the
prior month's consolidated balance sheets and consolidated income
statements prepared in accordance with GAAP; and
(3) on or before Friday of each week commencing with
Friday, May 28, 1999, a consolidated twenty-six (26) week rolling cash
flow report, which shall include a comparison of the budget for the
prior week and the actual results for the prior week.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred and
is continuing.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than $50,000.
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof; and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability and local, state and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is (i) contested in good faith by
appropriate proceedings, (ii) is reserved against (to the extent required by
GAAP) by Borrower and (iii) no lien other than a Permitted Lien results.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers and all
other hazards and risks, and in such amounts, as ordinarily insured
against by other owners in similar businesses conducted in the locations
where Borrower's business is conducted on the date hereof. Borrower
shall also maintain insurance relating to Borrower's ownership and use
of the Collateral in amounts and of a type that are customary to
businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies rated A-1, and in such amounts as are reasonably
satisfactory to Bank, and that the current insurance amount of
$5,000,000 regarding personal property is acceptable as of the date
hereof, with the understanding that future events affecting Borrower may
cause Bank to reevaluate such amount from time to time. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank
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as an additional loss payee thereof, and all liability insurance
policies shall show Bank as an additional insured and shall specify that
the insurer must give at least twenty (20) days' notice to Bank before
canceling its policy for any reason. At Bank's request, Borrower shall
deliver to Bank certified copies of such policies of insurance and
evidence of the payments of all premiums therefor. All proceeds payable
under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 [Reserved].
6.8 Current Ratio. Commencing with the fiscal quarter ending June 30,
1999 and continuing thereafter, Borrower shall, on a consolidated basis,
maintain, as of the last day of each fiscal quarter, a ratio of Current Assets
to Current Liabilities of at least 1.0 to 1.0.
6.9 Debt-Net Worth Ratio. Commencing with the fiscal quarter ending June
30, 1999 and continuing thereafter, Borrower shall, on a consolidated basis,
maintain, as of the last day of each fiscal quarter, a ratio of Total
Liabilities less Subordinated Debt to Stated Net Worth plus Subordinated Debt of
not more than 2.7 to 1.0.
6.10 Stated Net Worth. Commencing with the fiscal quarter ending June
30, 1999 and continuing thereafter, Borrower shall, on a consolidated basis,
maintain, as of the last day of each fiscal quarter, a Stated Net Worth of not
less than $20,000,000 plus fifty percent (50%) of Borrower's positive, quarterly
consolidated net income starting with the period ending March 31, 1999.
6.11 EBITA/Interest Expense Ratio. Commencing with the fiscal quarter
ending June 30, 1999 and continuing thereafter, Borrower shall, on a
consolidated basis, maintain, as of the last day of each fiscal quarter, a ratio
of Consolidated EBITA to Consolidated Interest Expense, with respect to the most
recent four (4) fiscal quarter period [taken as a single accounting period], of
not less than 1.00 to 1.0; provided, however, for the fiscal quarters ending
June 30, 1999 and September 30, 1999 the measuring period shall commence with
the fiscal quarter ending March 31, 1999 and thus will be calculated with
respect to the most recent two (2) fiscal quarter period and the most recent
three (3) fiscal quarter period, respectively.
6.12 Treatment of Deferred Current Interest and Attorneys' Fees and Sale
of PCD Notes and/or Other Notes. For purposes of determining Borrower's
compliance with Sections 6.8, 6.9, 6.10, and 6.11 hereof, all Deferred Interest,
Deferred Current Interest and Closing Expenses, and the expenses and interest
paid to Hancock pursuant to paragraphs 2a(ii), 2(d) and 5(f) of the Hancock
Amendment shall be added back into Consolidated Net Income, Consolidated EBITA
and Stated Net Worth. For purposes of determining Borrower's compliance with
Sections 6.8, 6.9, 6.10 and 6.11 hereof, if the PCD Notes or the Other Notes are
sold, in whole or in part, (i) in compliance with the Minimum Release Price; or
(ii) with the written consent of the Lender, Hancock and the Collateral Agent,
then the effect of such a sale of the PCD Notes or the Other Notes shall not be
taken into account and the calculations and measurements required to determine
Borrower's compliance with Sections 6.8, 6.9, 6.10 and 6.11 hereof shall be made
as if the PCD Notes or the Other Notes had not been sold.
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<PAGE> 24
6.13 Further Assurances. At any time and from time to time Borrower and
Bank shall execute and deliver such further instruments and take such further
action as may reasonably be requested by Bank and Borrower, respectively, to
effect the purposes of this Agreement.
6.14 Sale of PCD Notes. Borrower shall use reasonable efforts to cause
the PCD Notes to be offered for sale and, if sold, Borrower shall use reasonable
efforts to cause, subject to applicable regulatory approval, within thirty (30)
days of such a sale, the Guards PCD Notes Proceeds to be received by Borrower as
a result of a transfer, distribution, loan or dividend from Guards to Borrower;
provided, however, Borrower shall have no obligation to sell the PCD Notes, in
whole or in part, for less than the Minimum Release Price unless Lender, Hancock
and the Collateral Agent consent in writing to a sale of the PCD Notes, in whole
or in part, for less than the Minimum Release Price.
6.15 Sale of Other Notes. Borrower shall use reasonable efforts to cause
the Other Notes to be offered for sale and, if sold, Borrower shall use
reasonable efforts to cause, subject to applicable regulatory approval, within
thirty (30) days of such a sale, the Other Notes Proceeds to be received by
Borrower as a result of a transfer, distribution, loan or dividend from Guards
to Borrower; provided, however, Borrower shall have no obligation to sell the
Other Notes, in whole or in part, for less than the Minimum Release Price unless
Lender, Hancock and the Collateral Agent consent in writing to sale of the Other
Notes, in whole or in part, for less than the Minimum Release Price.
6.16 Sale of Anaheim Property. Borrower has accepted an offer (the
"Offer") from Roberto Brutoco ("Brutoco") to purchase the Anaheim Property.
Subject to paragraph 2.3(f) hereof, upon the closing of the sale of the Anaheim
Property to Brutoco, Borrower shall cause fifty percent (50%) of the $500,000 of
cash to be provided by the Brutoco under the Offer to be paid to Bank to reduce
the outstanding principal Credit Extensions hereunder. In addition, Borrower
will deliver to the Collateral Agent, as security for the benefit of Bank and
Hancock, the $500,000 note to be provided by Brutoco under the Offer and secured
by a first deed of trust against the Anaheim Property. All payments of principal
and interest paid on the $500,000 Note will be paid directly to the Collateral
Agent and applied fifty percent (50%) to Bank and fifty percent (50%) to Hancock
to reduce the outstanding principal Credit Extensions hereunder and the Hancock
Debt, respectively. Upon the closing of the sale of the Anaheim Property to a
buyer other than Brutoco, Borrower shall transfer to the Collateral Agent, as
security for the benefit of Bank and Hancock, the net cash proceeds from the
sale in excess of the first $2.5 million of net cash proceeds, which shall be
applied fifty percent (50%) to Bank and fifty percent (50%) to Hancock to reduce
the outstanding principal Credit Extensions hereunder and the Hancock Debt,
respectively, and will transfer to the Collateral Agent, as security for the
Benefit of Bank and Hancock, all non-cash proceeds, provided Borrower retains
the first $2.5 million of net proceeds.
6.17 Chief Financial Officer, Outside Consultant. Within two weeks of
the effective date of this Agreement, Borrower shall retain an executive search
firm to identify candidates for the position of Chief Financial Officer.
Borrower will use its best efforts to hire a Chief Financial Officer. Within two
weeks of the effective date of this Agreement, Borrower shall retain an outside
consultant with healthcare experience to provide the Borrower with financial
reporting and financial
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analysis support. The consultant will be employed by Borrower through the date a
new Chief Financial Officer commences employment with Borrower.
6.18 Regulatory Approvals. After the Closing Date, Borrower shall use
reasonable efforts under the facts and circumstances then presented, including,
without limitation, whether it is appropriate to the financial affairs of the
Borrower and its Subsidiaries to attempt to obtain regulatory approval for the
transfer to Borrower of the PCD Notes or the Other Notes made payable to Guards,
to attempt to obtain regulatory approval of such a transfer. If Borrower obtains
such regulatory approval, upon the receipt by Borrower of the PCD Notes or the
Other Notes made payable to Guards, Borrower shall deliver such notes to the
Collateral Agent, endorsed to the Collateral Agent as security for the benefit
of the Bank and Hancock, and such notes will constitute additional Collateral
hereunder.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following without the written consent of Bank
(and, in connection therewith, Bank agrees to use reasonable efforts to respond
to any such consent request by Borrower within a reasonable time period with the
understanding that such agreement does not mean or imply that such consent will
be granted).
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than Transfers: (a) of inventory
in the ordinary course of business; (b) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; (c) that constitute payment of normal and usual
operating expenses in the ordinary course of business; (d) of worn-out or
obsolete Equipment; or (e) of the Anaheim Property, the PCD Notes and the Other
Notes and the distribution of the proceeds from any such Transfer pursuant to
Sections 6.14, 6.15 and 6.16 hereof to the Bank and Hancock, and the retention
by Borrower of any balance thereto, pursuant to Section 2.3 hereof.
7.2 Changes in Business, Ownership, Management or Business Locations.
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a change in Borrower's ownership of greater than forty percent (40%) or
the Chairman of the Board, the President and Chief Executive Officer of Borrower
change after the date hereof. Borrower will not, without at least thirty (30)
days' prior written notification to Bank, relocate its chief executive office,
any new offices or business locations.
7.3 Mergers or Acquisitions. Except as set forth in the Schedule, merge
or consolidate, or permit any of its Subsidiaries to merge or consolidate, with
or into any other business organization, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except that Borrower or any of its Subsidiaries may
merge or consolidate with another corporation if Borrower or Borrower's
Subsidiary is the surviving corporation in the merger and the aggregate value of
the assets acquired in the merger does not
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exceed twenty-five (25%) of Borrower's tangible net worth or the Subsidiary's
tangible net worth, as applicable, as of the end of the month prior to the
effective date of the merger, and the assets of the corporation acquired in the
merger are not subject to any liens or encumbrances, except Permitted Liens.
Tangible net worth shall be determined in accordance with GAAP, consistently
applied.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with
respect to any of its property, including, without limitation, (a) the real
property of Borrower commonly known as 505 North Euclid Street, Anaheim,
California 92801 except as provided in Section 6.16 hereof and except for the
SafeHealth Priority Payment; or (b) any stock or other equity interest of any of
the Subsidiaries of Borrower; or assign or otherwise convey any right to receive
income, including the sale of any Accounts, or permit any of its Subsidiaries so
to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock.
7.7 Investments; Loans; Guarantees. Directly or indirectly acquire or
own, or make any Investment in or to any Person, or permit any of its
Subsidiaries so to do, other than Permitted Investments, or make any loans of
any money or any other assets to any Person, or guarantee or otherwise become
liable with respect to the obligations of any other Person.
7.8 Transactions with Affiliates. Except for the transactions described
in Sections 6.14, 6.15 and 6.16 hereof, directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a non-affiliated Person.
7.9 [Reserved]
7.10 Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.11 Inventory. Store the Inventory with a bailee, warehouseman or
similar party unless Bank has received a pledge of any warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.12 Compliance. Become an "investment company" or a company controlled
by an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending
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<PAGE> 27
credit for the purpose of purchasing or carrying margin stock, or use the
proceeds of any Advance for such purpose; fail to meet the minimum funding
requirements of ERISA; permit a Reportable Event or Prohibited Transaction, as
defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards
Act or violate any other law or regulation, which violation could have a
Material Adverse Effect or a material adverse effect on the Collateral or the
priority of Bank's Lien on the Collateral; or permit any of its Subsidiaries to
do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of the
Obligations;
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under Sections
6.3, 6.6, 6.8, 6.9, 6.10, 6.11, 6.13, 6.14, 6.15, 6.16, 6.17, or 6.18 or
violates any of the covenants contained in Article 7 of this Agreement,
or
(b) If Borrower fails or neglects to perform, keep or observe any
other material term, provision, condition, covenant or agreement
contained in this Agreement, in any of the Loan Documents or in any
other present or future agreement between Borrower and Bank and as to
any default under such other term, provision, condition, covenant or
agreement that can be cured, has failed to cure such default within ten
(10) days after the occurrence thereof; provided, however, that if the
default cannot by its nature be cured within the ten (10) day period or
cannot after diligent attempts by Borrower be cured within such ten (10)
day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to have
cured such default shall not be deemed an Event of Default;
8.3 Material Adverse Change. If after the date hereof there (a) occurs a
material adverse change in the business, operations or condition (financial or
otherwise) of Borrower or a material Subsidiary; (b) is a material impairment of
the prospect of repayment of any portion of the Obligations; or (c) is a
material impairment of the value or priority of Bank's security interests in the
Collateral;
8.4 Attachment. If any material portion of Borrower's or a material
Subsidiaries' assets is attached, seized, subjected to a writ or distress
warrant, is levied upon or comes into the possession of any trustee, receiver or
person acting in a similar capacity and such attachment, seizure, writ or
distress warrant or levy has not been removed, discharged or rescinded within
ten (10) days, or if Borrower or any material Subsidiary is enjoined, restrained
or in any way prevented by court order from continuing to conduct all or any
material part of its business affairs, or if a judgment or other claim becomes a
lien or encumbrance upon any material portion of Borrower's or a material
Subsidiaries' assets, or if a notice of lien, levy or assessment is filed of
record with respect to any of
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<PAGE> 28
Borrower's or a material Subsidiaries' assets by the United States Government,
or any department, agency or instrumentality thereof, or by any state, county,
municipal or governmental agency, and the same is not paid within ten (10) days
after Borrower or a material Subsidiary receives notice thereof, provided that
none of the foregoing shall constitute an Event of Default where such action or
event is stayed or an adequate bond has been posted pending a good faith contest
by Borrower or a material Subsidiary;
8.5 Insolvency. If Borrower or any material Subsidiary becomes
insolvent, or if an Insolvency Proceeding is commenced by Borrower or any
material Subsidiary, or if an Insolvency Proceeding is commenced against
Borrower or any material Subsidiary and is not dismissed or stayed within thirty
(30) days;
8.6 Other Agreements. Except for the agreements specified in the
Schedule, if there is a default in any agreement to which Borrower or a material
Subsidiary is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness (including without limitation the Hancock Debt) in an amount in
excess of $500,000 or that could have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least $250,000 shall be rendered
against Borrower or a material Subsidiary and shall remain unsatisfied and
unstayed for a period of ten (10) days;
8.9 Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document; or
8.10 Guaranty. Any guaranty of all or a portion of the Obligations
ceases for any reason to be in full force and effect, or any Guarantor fails to
perform any obligation under any guaranty of all or a portion of the
Obligations, or any material misrepresentation or material misstatement exists
now or hereafter in any warranty or representation set forth in any guaranty of
all or a portion of the Obligations or in any certificate delivered to Bank in
connection with such guaranty, or any of the circumstances described in Sections
8.4, 8.5 or 8.8 occur with respect to any Guarantor.
8.11 Seizure. Any seizure or takeover by a regulatory agency, receiver,
custodian, trustee or similar entity of Borrower or any material Subsidiary or
any material asset(s) of any of them.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the continuance
of an Event of Default, Bank may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrower:
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<PAGE> 29
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default
described in Section 8.5 all Obligations shall become immediately due
and payable without any action by Bank);
(b) [RESERVED]
(c) Demand that Borrower (i) deposit cash with Bank in an amount
equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such
Letters of Credit, and Borrower shall forthwith deposit and pay such
amounts and (ii) pay in advance all Letters of Credit fees scheduled to
be paid or payable over the remaining term of the Letters of Credit;
(d) [Reserved];
(e) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(f) Without notice to or demand upon Borrower, make such payments
and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to
Bank as Bank may designate. Borrower authorizes Bank to enter the
premises where the Collateral is located, to take and maintain
possession of the Collateral, or any part of it, and to pay, purchase,
contest or compromise any encumbrance, charge or lien which in Bank's
determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect
to any of Borrower's premises, Borrower hereby grants Bank a license to
enter such premises and to occupy the same, without charge, in order to
exercise any of Bank's rights or remedies provided herein, at law, in
equity or otherwise;
(g) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by
Bank or (ii) indebtedness at any time owing to or for the credit or the
account of Borrower held by Bank;
(h) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale and sell (in the manner provided
for herein) the Collateral. Bank is hereby granted a non-exclusive,
royalty-free license or other right, solely pursuant to the provisions
of this Section 9.1, to use, without charge, Borrower's labels, patents,
copyrights, mask works, rights of use of any name, trade secrets, trade
names, trademarks, service marks and advertising matter, or any property
of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1,
Borrower's rights under all licenses and all franchise agreements shall
inure to Bank's benefit;
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<PAGE> 30
(i) Sell the Collateral, at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's
premises), as Bank determines is commercially reasonable, and apply the
proceeds thereof to the Obligations in whatever manner or order it deems
appropriate;
(j) Bank may credit bid and purchase at any public sale or at
any private sale as permitted by law; and
(k) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts and notices to account
debtors; (d) make, settle and adjust all claims under, and decisions with
respect to, Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the Accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated, or until
Borrower has made the payment provided for in Section 2.8 hereof.
9.3 Accounts Collection. Upon the occurrence and during the continuance
of an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee and if requested or required by Bank, immediately
deliver such payments to Bank in their original form as received from the
account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement,. then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
shall bear interest at the then applicable rate hereinabove provided and shall
be secured by the Collateral. Any payments made by Bank shall not constitute an
agreement by Bank to make similar payments in the future or a waiver by Bank of
any Event of Default under this Agreement.
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<PAGE> 31
9.5 Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents and all other agreements shall be cumulative. Bank
shall have all other rights and remedies not expressly set forth herein as
provided under the Code, by law or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension or
renewal of accounts, documents, instruments, chattel paper and guarantees at any
time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower SafeGuard Health Enterprises, Inc.
95 Enterprise
Aliso Viejo, California 92656
Attn: Ronald I. Brendzel, Esq.
FAX: 949-425-4586
If to Bank Silicon Valley Bank
18872 MacArthur Boulevard, Suite 100
Irvine, California 92715
Attn: Manager
FAX: 949-474-7892
The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.
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<PAGE> 32
11. CHOICE OF LAW AND VENUE; JURY WAIVER
The Loan Documents shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Orange,
State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY
OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall indemnify, defend, protect and hold
harmless Bank and its officers, employees and agents against: (a) all
obligations, demands, claims and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred or paid by
Bank as a result of or in any way arising out of, following or consequential to
transactions between Bank and Borrower whether under the Loan Documents or
otherwise (including, without limitation, reasonable attorneys' fees and
expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
12.3 Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 Amendments in Writing; Integration. This Agreement cannot be
amended or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties and negotiations between
the parties hereto with respect to the subject matter of this Agreement, if any,
are merged into this Agreement and the Loan Documents.
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<PAGE> 33
12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding or until Borrower has made the payment provided
for in Section 2.8 hereof. The obligations of Borrower to indemnify Bank with
respect to the expenses, damages, losses, costs and liabilities described in
Section 12.2 shall survive until all applicable statute of limitations periods
with respect to actions that may be brought against Bank have run.
12.8 Waiver of Existing Defaults. Bank hereby waives any and all
defaults or "Events of Default" (as defined in the Original Agreement) existing
on the date hereof.
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<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
SAFEGUARD HEALTH ENTERPRISES, INC.
By: /s/
---------------------------------
Title:
---------------------------------
By: /s/
---------------------------------
Title:
---------------------------------
SILICON VALLEY BANK
By: /s/
---------------------------------
Title:
---------------------------------
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