<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
AMENDMENT NO. 3
SAFEGUARD HEALTH ENTERPRISES, INC.
(Name of Issuer)
COMMON STOCK, $.01 PAR VALUE
(Title of Class of Securities)
786444109
(CUSIP Number)
DAVID K. MEYERCORD, ESQ.
STRASBURGER & PRICE, L.L.P.
901 MAIN STREET, SUITE 4300
DALLAS, TEXAS 75202
(214) 651-4300
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
MARCH 1, 2000
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check
the following box [ ].
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Section 240.13d-7(b) for
other parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE> 2
SCHEDULE 13D
CUSIP NO. 786444109
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
JACK R. ANDERSON
- --------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [X]
- --------------------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- --------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR [ ]
2(e)
- --------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
U.S.A.
- --------------------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 2,683,000
BENEFICIALLY ------------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH 100,000
REPORTING ------------------------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH: 2,683,000
------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
100,000
- --------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,783,000
- --------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [X]
- --------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.0%
- --------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------------------
</TABLE>
Page 2 of 8
<PAGE> 3
ITEM 1. SECURITY AND ISSUER.
Common Stock, $.01 par value.
SafeGuard Health Enterprises, Inc.
95 Enterprise
Aliso Viejo, California 92656
ITEM 2. IDENTITY AND BACKGROUND.
This amendment is filed by Jack R. Anderson. On March 1, 2000,
SafeGuard Health Enterprises, Inc. (the "Issuer") entered into a Term Sheet
Agreement, dated March 1, 2000 (the "Agreement') with CAI Partners & Company II,
Limited Partnership ("Partners"), CAI Capital Partners & Company II, Limited
Partnership ("Capital Partners"), Jack R. Anderson ("Mr. Anderson"), Silicon
Valley Bank ("Bank"), John Hancock Mutual Life Insurance Company and the other
holders of the 7.91% Senior Notes of the Issuer due September 30, 2005
(collectively, "Hancock"), and Steven J. Baileys, D.D.S. ("Baileys") (Partners,
Capital Partners, CAI Capital Partners & Company II-C, Limited Partnership, an
affiliate of Partners and Capital Partners which has acquired certain rights of
Partners and Capital Partners under the Agreement by an assignment ("CP II-C"),
Mr. Anderson and Baileys being collectively referred to herein as the
"Investors") relating to the lending of funds by the Investors to the Issuer and
the subsequent conversion of such loans and other loans to the Company into
Convertible Preferred Stock and Convertible Notes of the Issuer. This amendment
is filed because of the voting securities of the Issuer that Mr. Anderson has a
right to acquire pursuant to the Agreement as set forth below in this report.
(a) Name of Reporting Person -- Jack R. Anderson
(b) Business Address --
16475 Dallas Parkway, Suite 735
Addison, Texas 77001
(c) Principal occupation --
Private investor
(d) Criminal Convictions -- none
(e) Injunctions with respect to federal or state securities laws
-- none
(f) Citizenship -- U.S.A.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
This amendment is filed because of the execution of the Agreement
described in Item 2 above and covers shares of Common Stock of the Issuer
issuable upon the full conversion of all loans, preferred stock and notes to be
acquired pursuant to the Agreement by Mr. Anderson. The shares of Common Stock
reflected on this amendment as beneficially owned by Jack R. Anderson were
acquired with personal funds.
Page 3 of 8
<PAGE> 4
ITEM 4. PURPOSE OF TRANSACTION.
On March 1, 2000, Partners, Capital Partners, Mr. Anderson, Bank,
Hancock and Baileys entered into a Term Sheet Agreement dated March 1, 2000 (the
"Agreement"), with SafeGuard Health Enterprises, Inc., a Delaware corporation
(the "Issuer").
The purpose of the transaction is an investment by and refinancing of
the debt of the Issuer owed to Partners, Capital Partners, CP II-C, Mr.
Anderson, Baileys, Bank and Hancock. As a result of the consummation of the
transactions contemplated by the Agreement, Partners, Capital Partners, CP II-C,
Mr. Anderson and Baileys loaned the Issuer a collective $8,000,000 (the
"Investor Senior Loan") on March 1, 2000, as evidenced by five separate
promissory notes dated March 1, 2000. CP II-C received its rights under the
Agreement and is participating in the Investor Senior Loan as a result of an
assignment from Partners and Capital Partners of a portion of their rights under
the Agreement. Upon the satisfaction of all conditions precedent in the
Agreement, the Investor Senior Loan shall convert into a collective $6.4 million
of Convertible Series A Preferred Stock (64,000 shares at $100 per share) and
$1.6 million of Series A Convertible Notes. The Series A Convertible Notes will
automatically convert into 16,000 shares of Series A Preferred Stock ($100 per
share) upon the approval by the stockholders of the Issuer of an amendment to
its certificate of incorporation increasing the number of authorized shares of
the Issuer's Common Stock sufficient for the issuance of the Common Stock upon
the conversion of the shares of the Series A Preferred Stock and the Series B, C
and D Preferred Stock issuable upon the automatic conversion of the Series A
Convertible Notes and the Series B, C and D Convertible Notes. The Series A
Preferred Stock will be convertible into 8,000,000 (assuming full conversion of
the Series A Convertible Notes into Series A Preferred Stock) shares of Common
Stock of the Issuer at a conversion price of $1.00 per share. The Series A
Preferred Stock will be convertible upon its issuance.
The Issuer currently has outstanding indebtedness owed to Hancock and
to Bank. As a result of the consummation of the transactions contemplated by the
Agreement and after the satisfaction of all conditions precedent to the
Agreement, Hancock will receive $3.2 million of Series B Preferred Stock (32,000
shares at $100 per share) and $800,000 of Series B Convertible Notes of the
Issuer and $8.8 million of Series D Preferred Stock (88,000 shares at $100 per
share) and $2.2 million of Series D Convertible Notes of the Issuer. As a result
of the consummation of the transactions contemplated by the Agreement, Bank will
receive $3.2 million in Series B Preferred Stock (32,000 shares at $100 per
share) and $800,000 of Series B Convertible Notes of the Issuer and $2.4 million
of Series C Preferred Stock (24,000 shares at $100 per share) and $600,000 of
Series C Convertible Notes of the Issuer. The consideration paid by Hancock and
Bank for such preferred stock and convertible notes is the cancellation of all
indebtedness owed by the Issuer to Hancock and Bank.
The Series B, C and D Convertible Notes will automatically convert into
Series B, C and D Preferred Stock respectively (at $100 per share) upon the
approval by the Issuer's shareholders of the amendment to the certificate of
incorporation of the Issuer described above. The Series B, C and D Preferred
Stock will be convertible into a collective 22,000,000 shares of Common Stock of
the Issuer at a conversion price of $1.00 per share. The Series B, C and D
Preferred Stock will be convertible upon its issuance.
Page 4 of 8
<PAGE> 5
In addition, Bank and Hancock agreed to not demand or accept any
payment principal or interest or accelerate or take any enforcement action with
respect to the Bank loan and Hancock notes until April 30, 2001, and agreed to
subordinate the Bank Loan and Hancock Notes to the $8 million Investor Senior
Loan.
The holders of Series A Preferred Stock (Partners, Capital Partners, CP
II-C, Mr. Anderson and Baileys) voting as a single class will have the right to
elect four out of the seven directors of the Issuer's board. The holders of
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
voting together as a single class will have the right to elect one director on
the board of directors of the Issuer. The holders of Common Stock of the Issuer
will have the right to elect the remaining two directors on the board of
directors of the Issuer.
In the event that Partners, Capital Partners, CP II-C and Mr. Anderson
at any time sell 50% or more of their respective Investor Senior Loan or their
respective Series A Preferred Stock and Series A Convertible Notes, then, with
respect to the election of directors, the Series A, B, C and D Preferred Stock
will be entitled to vote together as a single class to elect five directors to
the board of directors of the Issuer.
(a) Mr. Anderson does not have any plans or proposals to acquire any
additional securities of the Issuer or to dispose of any securities of the
Issuer.
(b) Mr. Anderson does not have any plans or proposals involving any
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving the Issuer or any of its subsidiaries.
(c) Mr. Anderson does not have any plans or proposals involving the
sale or transfer of a material amount of the assets of the Issuer and of its
subsidiaries.
(d) The board of directors of the Issuer presently consists of six
members. Pursuant to the Agreement, at the closing, the board of directors of
the Issuer is to consist of seven members, of which four will be individuals
designated by the owners of the Investor Senior Loan, the Series A Preferred
Stock and Series A Convertible Notes, as applicable. In addition, Mr. Anderson
is currently on the Board of Directors of the Issuer.
(e) Mr. Anderson has no plans or proposals to make any material change
in the present capitalization of the Issuer or dividend policy of the Issuer.
(f) Mr. Anderson does not have any plans or proposals to make any other
material change in the Issuer's business or corporate structure.
(g) Mr. Anderson does not have any plans or proposals to make any
changes in the Issuer's charter, bylaws or instruments corresponding thereto
which may impede the acquisition of control of the Issuer by any person.
(h) Mr. Anderson does not have any plans or proposals to cause a class
of securities of the Issuer to be delisted from a national securities exchange
or to cease to be authorized to be quoted in an inter-dealer quotation system of
a registered national securities association.
Page 5 of 8
<PAGE> 6
(i) Mr. Anderson does not have any plans or proposals to cause any
class of equity securities of the Issuer to become eligible for termination of
registration pursuant to Section 12(g)(4) of the Securities Act of 1934.
(j) Mr. Anderson does not have any plans or proposals to take any
action similar to any of the items discussed above.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
This amendment covers shares of Common Stock of the Issuer issuable
upon the full conversion of all loans, preferred stock and notes to be acquired
pursuant to the Agreement by Mr. Anderson.
As of October 19, 1999, the Issuer had 4,747,498 shares of common stock
outstanding. In the transactions contemplated by the Agreement, assuming full
conversion of the Investor Senior Loan and Series A, B, and D Convertible Notes,
the Series A, B, C and D Preferred Stock to be issued will collectively be
convertible into 30,000,000 shares of Common Stock of the Issuer. As a result,
after the purchase transaction and assuming the conversion of all such preferred
stock to be issued in the purchase transaction, there will be 34,747,498 shares
of Common Stock outstanding (based on the number of shares of common stock of
the Issuer outstanding as of October 19, 1999).
Mr. Anderson currently beneficially owns 283,000 shares of common stock
of the Issuer of which (a) 183,000 shares are owned directly by Mr. Anderson of
which he has sole voting and dispositive power and (b) 100,000 shares owned by
his spouse as separate property as to which Mr. Anderson disclaims beneficial
ownership but which are reflected in this report as beneficially owned with
shared voting and dispositive power. The 283,000 shares shown as currently
beneficially owned by Mr. Anderson represent approximately 5.96% of the
currently issued and outstanding shares of common stock of the Issuer.
After the consummation of the transactions contemplated by the
Agreement and assuming full conversion of all loans, preferred stock and notes,
Mr. Anderson will own an additional 2,500,000 shares of Common Stock of the
Issuer. These 2,500,000 shares, along with the 283,000 shares already
beneficially owned by Mr. Anderson, would aggregate to 2,783,000 shares of
Common Stock, which would represent approximately 8.0% of the shares of Common
Stock of the Issuer outstanding after full conversion of all the loans,
preferred stock and notes described in the Agreement.
Mr. Anderson has not effected any transaction involving shares of
common stock of the Issuer at any time since more than 60 days prior to the date
of this report.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
There are no contracts, agreements, understandings or relationships
among the persons named in Item 2 or between such persons and any person with
respect to any securities of the Issuer, except for a Shareholders' Agreement to
be executed by the Investors, Bank, Hancock and the Issuer upon consummation of
the transactions contemplated by the Agreement. The Shareholders' Agreement
relates to a voting
Page 6 of 8
<PAGE> 7
agreement consistent with the terms of the Agreement and
certain drag-along rights for Partners, Capital Partners, CP II-C and Mr.
Anderson.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
The following document is filed as an exhibit to this report:
1. Term Sheet Agreement dated March 1, 2000, by and among the Issuer, the
Investors, Bank and Hancock.
Page 7 of 8
<PAGE> 8
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Date March 29, 2000 /s/ Jack R. Anderson
-------------------------
Signature
Jack R. Anderson
-------------------------
Name/Title
Page 8 of 8
<PAGE> 9
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
1 Term Sheet Agreement dated March 1, 2000, by and among the Issuer, the
Investors, Bank and Hancock.
</TABLE>
<PAGE> 1
EXHIBIT 1
SAFEGUARD HEALTH ENTERPRISES, INC.
---------------------
TERM SHEET AGREEMENT
---------------------
DATE: March 1, 2000 (the "Effective Date")
PARTIES: 1. SafeGuard Health Enterprises, Inc. (the "Company")
2. CAI Partners and Company II, L.P. and CAI Capital Partners and
Company II, L.P. (collectively "CAI")
3. Jack R. Anderson ("Anderson")
4. Silicon Valley Bank ("Bank")
5. John Hancock Mutual Life Insurance Company and the other holders
of the 7.91% Senior Notes of the Company due September 30, 2005
(collectively "Hancock")
6. Steven J. Baileys, D.D.S. ("Baileys")
---------------
This Term Sheet Agreement (the "Agreement") summarizes various binding
agreements between the parties. It is not a letter of intent. The parties
contemplate that the agreements evidenced by this Agreement will be memorialized
in further documentation which may include a Shareholders Agreement, to be
prepared and executed by the parties at a later date. However, the agreements
evidenced by this Agreement are not subject to or conditioned upon the execution
and delivery of such further documentation.
1. Investor Senior Loan. On the Effective Date hereof, CAI, Anderson, and
Baileys (collectively the "Investors"), severally and not jointly, shall loan
the Company the aggregate amount of $8,000,000 (the "Investor Senior Loan") in
the following amounts: CAI -- $5,000,000; Anderson -- $2,500,000; and Baileys --
$500,000. The Investor Senior Loan shall bear interest at the rate of ten
percent (10%) per annum. Interest is payable quarterly and at maturity. The
maturity date of the Investor Senior Loan is April 30, 2001. The maturity date
of the Investor Senior Loan shall be accelerated in the event of a liquidation
or dissolution of the Company. The Investor Senior Loan is unsecured but the
Company agrees with the Investors to comply with the same negative pledges with
respect to liens on its assets as is contained in the Loan Documents between the
Company and the Bank and the Note Purchase Agreement between the Company and
Hancock. The Company shall not incur any other indebtedness senior or equal to
the Investor Senior Loan. Repayment of the Investor Senior Loan in full shall be
prior to repayment of the Bank Loan and the Hancock Notes according to the
subordination agreement set forth below. In the event of the closing of the sale
of the Preferred Stock and Convertible Notes described below, the principal
balance of the Investor Senior Loan shall be cancelled as consideration for the
purchase of the Series A Preferred Stock and Series A Convertible Notes by the
Investors.
-1-
<PAGE> 2
2. Sale of Series A Preferred Stock and Series A Convertible Notes to the
Investors. The Investors, severally and not jointly, agree to purchase from the
Company (a) 64,000 shares of Series A Preferred Stock for an aggregate purchase
price of $6.4 million and (b) Series A Convertible Notes having an aggregate
principal amount of $1.6 million. The consideration for the Series A Preferred
Stock and the Series A Convertible Notes shall be cancellation of the
outstanding principal balance of the Investor Senior Loan. Accrued interest due
under the Investor Senior Loan shall be payable in cash to the Investors on the
date of closing.
a. Series A Preferred Stock. The Series A Preferred Stock shall have
the following rights, preferences and limitations:
i. The Series A Preferred Stock shall have a liquidation preference of
$100 per share or an aggregate liquidation preference of $6.4 million. The
liquidation preference shall be senior to all other securities of the
Company including the Series B, C and D Preferred Stock described below and
the Common Stock.
ii. The Series A Preferred Stock shall not have specified dividends
but shall be entitled to participate on an as-converted basis in any
dividends paid on the Common Stock of the Company or the Series B, C or D
Preferred Stock.
iii. The Series A Preferred Stock shall not be subject to mandatory
redemption at the election of the Investors but shall be subject to
redemption at a redemption price of $100 per share by the Company at any
time on or after ten (10) years after the original date of issuance.
iv. The Series A Preferred Stock shall be convertible into shares of
Common Stock at a conversion price of $1.00 per share. Each share of Series
A Preferred Stock shall be initially convertible into 100 shares of Common
Stock based on the $100 liquidation preferential amount thereof. The
conversion price and number of shares will be subject to customary
anti-dilution adjustments for stock splits, share dividends,
recapitalizations, stock issuances, etc., with the anti-dilution adjustment
for the issuance of shares at less than the conversion price being
determined on the "weighted average method."
v. Subject to the provisions of Section 3A hereof, the Series A
Preferred Stock, voting as a single class, shall be entitled to elect a
majority (4) of the Board of Directors. On all other matters, the holders
of the Series A Preferred Stock shall vote together with the holders of the
Common Stock and the Series B, C and D Preferred Stock and shall be
entitled to cast one vote for each share of Common Stock into which the
Series A Preferred Stock is convertible.
vi. The approval of the Series A Preferred Stock, voting as a separate
class, shall be required for the issuance of any securities having
liquidation or other rights senior or superior or equal in any respect to
the rights of the Series A Preferred Stock.
-2-
<PAGE> 3
b. Series A Convertible Notes. The Series A Convertible Notes shall
have the following terms.
i. The Series A Convertible Notes shall bear interest at the rate of
ten percent (10%) per annum from the date of issuance, payable quarterly
and at maturity.
ii. The Series A Convertible Notes shall be automatically converted
into shares of Series A Preferred Stock upon the approval by the
stockholders of the Company of an amendment to its certificate of
incorporation increasing the number of authorized shares of Common Stock
sufficient for the issuance of Common Stock upon the conversion of the
shares of Series A Preferred Stock and the Series B, C and D Preferred
Stock issuable upon the automatic conversion of the Series A Convertible
Notes and the Series B, C and D Convertible Notes. The conversion price
will be $100 per share and subject to the same anti- dilution protection as
the Series A Preferred Stock. Initially the Series A Convertible Note will
be convertible into an aggregate of 16,000 shares of Series A Preferred
Stock.
iii. The Series A Convertible Notes shall have no voting rights.
iv. The Series A Convertible Notes and the payment thereof shall be
senior and superior to the Series B, C and D Convertible Notes.
3. Sale of Series B, C and D Preferred Stock and Series B, C and D
Convertible Notes. The Bank and Hancock agree to purchase an aggregate of
176,000 shares of Series B, C and D Preferred Stock and Series B, C and D
Convertible Notes having an aggregate principal balance of $4.4 million. The
consideration for the Series B Preferred Stock and Series B Convertible Notes
shall be the cancellation of all indebtedness and obligations of any kind of the
Company, whether principal, interest, costs, expenses or other, to the Bank and
Hancock, respectively. The amount of shares of Series B, C and D Preferred Stock
and principal amount of the Series B, C and D Convertible Notes shall be
allocated to the Bank and Hancock, respectively, as follows: (i) the Bank and
Hancock shall each purchase 32,000 shares of Series B Preferred Stock (in the
aggregate 64,000 shares) and a Series B Convertible Note with a principal
balance of $.8 million (in the aggregate $1.6 million); (ii) the Bank shall
purchase 24,000 shares of Series C Preferred Stock and a Series C Convertible
Note with the principal balance of $.6 million, and (iii) Hancock shall purchase
88,000 shares of Series D Preferred Stock and a Series D Convertible Note with
the principal balance of $2.2 million.
a. Series B, C and D Preferred Stock. The rights, preferences and
limitations of the Series B, C and D Preferred Stock shall be identical except
as set forth below:
i. The Series B, C and D shall have a liquidation preference of $100
per share. The Series B Preferred Stock liquidation preference shall be
senior to the Series C Preferred Stock liquidation preference. The Series C
Preferred Stock liquidation preference shall be senior to the Series D
Preferred Stock liquidation preference. The Series B, C and D Preferred
Stock liquidation preferences shall be secondary to the Series A Preferred
Stock but prior to any liquidation rights of the Common Stock.
-3-
<PAGE> 4
ii. The Series B, C and D Preferred Stock shall not have specified
dividends but shall be entitled to participate on an as-converted basis in
any dividends paid on the Common Stock of the Company or the Series A, B, C
or D Preferred Stock as the case may be.
iii. The Series B, C and D Preferred Stock shall not be subject to
mandatory redemption at the election of the Investors but shall be subject
to redemption at a redemption price of $100 per share by the Company at any
time on or after ten (10) years after the original date of issuance.
iv. The Series B, C and D Preferred Stock shall be convertible into
shares of Common Stock at a conversion price of $1.00 per share. Each share
of Series B, C and D Preferred Stock shall be initially convertible into
100 shares of Common Stock based on the $100 liquidation preferential
amount thereof. The conversion price and number of shares will be subject
to customary anti-dilution adjustments for stock splits, share dividends,
recapitalizations, stock issuances, etc., with the anti-dilution adjustment
for the issuance of shares at less than the conversion price being
determined on the "weighted average method."
v. Subject to the provisions of Section 3A hereof, the Series B, C and
D Preferred Stock voting together as a single class, shall be entitled to
elect one director to the Board of Directors. On all other matters, the
holders of the Series B, C and D Preferred Stock shall vote together with
the holders of the Series A Preferred Stock and the Common Stock and shall
be entitled to cast one vote for each share of Common Stock into which the
Series B, C and D Preferred Stock is convertible.
vi. The approval of the Series B, C and D Preferred Stock, voting as a
separate class, shall be required for the issuance of any security of the
Company having liquidation or other rights senior and superior or equal in
any respect to the rights of the Series B, C and D Preferred Stock.
b. Series B, C and D Convertible Notes. The terms of the Series B, C
and D Convertible Notes shall be identical to the Series A Convertible Notes
except that (i) the Series B, C and D Convertible Notes shall be convertible
into Series B, C and D Preferred Stock, respectively and (ii) payment of the
Series B Convertible Note shall be senior and superior to the Series C
Convertible Note, (iii) payment of the Series C Preferred Note shall be senior
and superior to payment of the Series D Convertible Note. Initially the Series
B, C and D Convertible Notes will be convertible into an aggregate of 16,000
shares of Series B Preferred Stock, 6,000 shares of Series C Preferred Stock and
22,000 shares of Series D Preferred Stock, respectively.
3A. Change in Class Vote Applicable to Elections. In the event that CAI and
Anderson at any time sell fifty percent (50%) or more of their respective
Investor Senior Loan or their respective Series A Preferred Stock and Series A
Convertible Notes, then, with respect to the election of directors, the Series
A, B, C and D Preferred Stock shall be entitled to vote together as a single
class to elect five (5) directors to the Board of Directors and the provisions
of Section 2.a.v. and Section 3.a.v. hereof with respect to the election of
directors shall not be applicable.
-4-
<PAGE> 5
4. Closing. The closing of the sale of the Preferred Stock and the
Convertible Notes shall occur on the first calendar day of the calendar month
following the month in which satisfaction of the following conditions occurs
effective immediately prior to the commencement of business on such day:
a. Regulatory Approval. Receipt of all required regulatory approvals
to the transactions contemplated by this Agreement unless otherwise waived by
CAI and Anderson;
b. Performance. The performance by all of the Investors, the Bank and
Hancock of their obligations to purchase the Preferred Stock and the
Convertibles Notes as described above;
c. Bankruptcy. The Company shall not have been placed in bankruptcy,
either voluntary or involuntarily;
d. Receivership. Neither the Company nor any of its subsidiaries shall
have been placed in a receivership or conservatorship by any regulatory agency
unless otherwise waived by CAI and Anderson; and
e. Forbearance. The Banks and Hancock have complied with the
forbearance and subordination agreements set forth in this agreement.
The Closing shall not be subject to any other conditions precedent.
5. Terminated Purchase Agreement. The Company, the Bank and Hancock
acknowledge and agree that CAI and Anderson properly terminated that certain
Debenture and Note Purchase Agreement dated as of June 29, 1999 (the "Terminated
Purchase Agreement") pursuant to Sections 8.4(a) and 8.4(b) thereof and waives
and releases any contrary claim or assertion. This Agreement does not supersede
or extinguish any of the rights of CAI and Anderson under the Terminated
Purchase Agreement that survived the termination thereof including, without
limitation, their rights to be reimbursed costs and expenses as provided
therein. Such costs and expenses which shall not exceed $250,000 in the
aggregate, together with the costs and expenses of CAI and Anderson in
connection with this Agreement, shall be paid immediately after the execution of
this Agreement out of the proceeds of the Investor Senior Loan.
6. Subordination Agreement. The Bank and Hancock agree that the Investor
Senior Loan shall be paid 100% in full in cash before any payment of any kind
shall be made on the Bank Loan or the Hancock Notes. Any distribution which
would otherwise, but for the provision of this Agreement, be payable or
deliverable in respect of the Bank Loan or the Hancock Notes shall be paid or
delivered directly to the Investors in payment of the Investor Senior Loan until
the Investor Senior Loan, principal and interest, is paid 100% in full. For the
purpose thereof "distribution" means, with respect to any indebtedness (a) any
payment or distribution by any person of cash, securities or other property, by
set-off or otherwise, on account of such indebtedness or obligation, (b) any
redemption, purchase or other acquisition of such indebtedness or obligation by
any person or (c) the granting of any lien or security interest to or for the
benefit of the holders of such indebtedness or obligation in or upon any
property of any person. The Investor Senior Loan shall continue to be treated as
debt
-5-
<PAGE> 6
that is senior to the Bank Loan and the Hancock Notes and the provisions of this
Agreement shall continue to govern the relative rights and priorities of the
Investors, the Bank and Hancock even if all or part of the Investor Senior Loan
is subordinated, set aside, voided, invalidated or disallowed in connection with
any proceeding or sale or transfer or other distribution of all or substantially
all of the assets of the Company and this Agreement shall be reinstated if at
any time any payment of the Investor Senior Loan is rescinded or must otherwise
be returned by any holder of the Investor Senior Loan. The Bank and Hancock
agree not to initiate or prosecute any claim, action, or other proceeding
challenging the enforceability or validity of the Investor Senior Loan.
7. Forbearance Agreement. Until April 30, 2001, the Bank and Hancock shall
not demand or accept any payment, principal or interest, or accelerate or take
any enforcement action with respect to the Bank Loan and the Hancock Notes. For
the purposes hereof "enforcement action" means any of the following: (a) to take
from or for the account of the Company by set-off or in any other manner the
whole or any part of any monies which may now or after be owing by the Company
with respect to the Bank Loan or the Hancock Notes; (b) to sue for payment of,
or initiate or participate in any other suit, action or proceeding against the
Company (i) to enforce payment of or to collect the whole or any part of the
Bank Loan or the Hancock Notes or (ii) to enforce any other rights, powers,
privileges or remedies under the Bank Loan Documents or the Hancock Note
Agreement; or (c) to take any action under the provisions of any state or
federal law to enforce, foreclose upon, take possession of or sell any property
or assets of the Company. In addition, the Bank and Hancock shall agree to
cooperate to the extent commercially reasonable with respect to any other
forbearance matters which shall be required in order for the Company to receive
a "clean" audit report in its financial statements without any qualifications or
exceptions.
8. Shareholders Agreement. The Investors, the Bank and Hancock agree to an
agreement among such parties having the following provisions:
a. Voting. Such parties agree to vote all shares of voting securities
of the Company now or hereafter held by such parties (i) to approve an amendment
to the certificate of incorporation of the Company increasing the authorized
number of shares of Common Stock of the Company to a number sufficient to permit
the conversion of the Series A Preferred Stock and the Series B Preferred Stock
issuable upon conversion of the Convertible Notes as specified above, and (ii)
to maintain the size of the Board of Directors at seven (7), and (iii) to take
and authorize any such further actions as may be necessary or required to fully
effectuate this Agreement. The holders of the Series A Preferred Stock shall
elect as a director an individual designated by the Bank and Hancock and
reasonably approved by the holders of the Series A Preferred Stock. Upon the
closing, the director designated by the Bank and Hancock shall be elected to the
Board of Directors to fill the vacant position as contemplated by Section 9(d)
below.
b. Drag-Along Rights. CAI and Anderson shall have drag-along rights
with respect to the shares owned by the Bank and Hancock in connection with a
sale of the Company in a transaction approved by the Board of Directors of the
Company; provided that if the value of the securities of the Company in such
sale is less than $30 million, a fairness opinion by an investment banker shall
be provided.
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<PAGE> 7
9. Certain Representations. SafeGuard, acting by and through its duly
authorized officers, and Baileys, individually, hereby represent and warrant to
the Investors, the Bank and Hancock as follows:
a. Material Events. To the best knowledge of the Company and Baileys,
there is no event or claim of any kind whatsoever that has occurred, is pending
or is threatened that has had or could have a material adverse effect on the
Company or would be considered a material event as such term is defined under
federal securities laws (including court decisions interpreting the same) which
event or claim has not been publicly disclosed in a report filed by the Company
with the Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934, as amended, or otherwise publically disclosed in a press release
issued by the Company or that certain press release dated December 17, 1999
issued by Berman, Devalerio & Pease, L.L.P. related to a class action lawsuit
against the Company. For the purpose hereof, any notice of termination or
non-renewal, notice of intent to terminate or non-renew or termination or
non-renewal of any group or individual customer contracts which either
individually or in the aggregate represent a material number of the members of
the plan of the Company shall constitute a material adverse event.
b. Regulatory Compliance. Up to $5 million of the proceeds of the
Investor Senior Loan will be used immediately for a capital contribution to Safe
Health Life Company, the insurance subsidiary of the Company, required to be
made on the Effective Date by applicable governmental regulations. Except for
such capital infusion, all the other subsidiaries of the Company are in
compliance with all material provisions of the laws, rules and regulations
applicable to the certificate of authority or license held by such subsidiary
and none of the subsidiaries has any deficit in any required reserves, capital
or other funds required to be maintained by such subsidiary under applicable
regulatory requirements.
c. Board Approval. This Agreement and the transactions provided in
this Agreement, including, without limitation, the issuance of the Investor
Senior Loan, the Preferred Stock, the Convertible Notes and the approval of the
amendment to the certificate of incorporation as contemplated herein, have been
approved by the affirmative vote of not less than seventy-five percent (75%) of
the current members of the Board of Directors of the Company at a meeting duly
called and held in accordance with the Bylaws of the Company. The Board of
Directors have taken all action and adopted all approvals necessary in order
that the transactions contemplated by this Agreement do not and shall not cause
the rights issued to the stockholders of the Company pursuant to that certain
Rights Agreement, dated as of March 22, 1996 between the Company and American
Stock Transfer and Trust Company, as Rights Agent, to become exercisable or any
similar rights under any other rights agreement applicable to the stockholders
of the Company to become exercisable.
d. Board of Directors. The following changes with respect to the Board
of Directors of the Company have occurred or have been duly authorized and
approved by the Board of Directors of the Company in accordance with the Bylaws
of the Company:
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<PAGE> 8
i. After the Board approvals described in Section 9(c) above, Messrs.
Cox, McKenna, Mann, Stevens and Boyd resigned from the Board of Directors
of the Company and the incumbent directors of the Company were then
Baileys, Brendzel and Dennis Gates;
ii. Jack R. Anderson, Leslie B. Daniels and James E. Buncher were then
by the Board of Directors appointed as directors of the Company effective
upon execution of this Agreement; and
iii. One vacancy shall remain on the Board of Directors of the Company
to be filled upon the closing by the holders of the Series B, C and D
Preferred Stock as provided in Section 8(a)(iii) above.
e. Employment Agreements. Messrs. Cox, Brendzel and Kaufman have
agreed that any acceleration or vesting of any rights or benefits under his
respective employment agreement with the Company or otherwise resulting from a
change of control, including severance payments, shall not occur by virtue of
the transactions contemplated by this Agreement and have waived any claim that
such is the case.
10. Cancellation of Warrants. Upon the closing of the sale of the Preferred
Stock and the Convertible Notes, Hancock agrees that those certain Warrants for
an aggregate of 382,000 shares of Common Stock of the Company issued pursuant to
that certain First Amendment and Waiver to Note Purchase Agreement dated as of
May 28, 1999 shall be cancelled in all respects.
11. Registration Rights. None of the Investors, the Bank or Hancock shall
have any demand registration rights. The Investors, the Bank and Hancock shall
have piggyback registration rights with respect to any securities offering by
the Company (other than in connection with an acquisition or an employee benefit
plan) on a pro rata basis, subject to any underwriter's cutback on the total
number of shares available to be sold by stockholders of the Company in the
offering. The parties shall have indemnification rights in connection with any
such offering as specified in the Registration Rights Agreement attached as an
Exhibit to the Terminated Purchase Agreement. The Company will pay all
registration expenses but no selling expenses.
12. Certain Covenants.
a. Regulatory Filings. Each party hereto agrees to proceed in good
faith and as soon as practicable to make and pursue all regulatory filings and
to obtain of all regulatory approvals required for the transactions specified in
this Agreement.
b. Stockholder Meeting. Upon the closing of the sale of the Preferred
Stock and the Convertible Notes, SafeGuard shall immediately take all actions
required to call and hold a special meeting of the stockholders for the purposes
of approving an amendment to the certificate of incorporation of the Company to
increase the number of authorized shares of Common Stock of the Company as
contemplated by this Agreement.
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<PAGE> 9
13. Other Understandings.
a. Board of Directors. So long as the Investor Senior Loan is
outstanding, three (3) directors of the Company shall be designees of CAI and
Anderson.
b. Senior Debt. Notwithstanding any provision of this Agreement to the
contrary, the Board of Directors of the Company may borrow up to $3,500,000 for
working capital purposes on a basis senior and superior to the Investor Senior
Loan, the Bank Loan, the Hancock Notes, the Preferred Stock and the Convertible
Notes without the consent of the Investors, the Bank or Hancock.
c. Outstanding Shares. In connection with the transactions provided in
this Agreement, the issued and outstanding shares of Common Stock of the Company
on the Effective Date shall remain issued and outstanding and the stock options
granted to employees and officers of the Company under the stock option plan of
the Company prior to the Effective Date shall remain issued and outstanding in
accordance with their terms.
d. Costs and Expenses. Whether or not the transactions contemplated by
this Agreement are consummated, the Company will pay (or reimburse upon request)
all costs and expenses of CAI and Anderson including, without limitation,
reasonable fees and expenses of their consultants, counsel and accountants, in
connection with or leading to the preparation, negotiation and execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement.
e. Indemnity. The Company will pay and indemnify the Investors, the
Bank and Hancock and their respective stockholders, partners, trustees,
officers, employees and agents, against all liability and loss with respect to
(i) all claims for fees or commissions of brokerage or finders engaged by the
Company with respect to the transactions contemplated by this Agreement, (ii)
all taxes, fees and other public charges payable in connection with the issuance
of any of the Preferred Stock or Convertible Notes or the execution, delivery,
and enforcement of this Agreement for any of the rights of the Preferred Stock
or Convertible Notes, and (iii) all claims and suits, either direct or
derivative, commenced by or on behalf of the Company or the stockholders of the
Company relating to or arising out of this Agreement or the transactions
contemplated herein. Such rights shall survive the termination or consummation
of this Agreement. The Company shall indemnify the three directors designated by
CAI and Anderson to the fullest extent permitted by applicable law.
f. Waiver. Baileys, the Bank and Hancock agree that they shall not
assert, and hereby waive, any claims in their capacity as a shareholder or
creditor of the Company against the three directors designated by CAI and
Anderson for acts or omissions in their capacity as directors of the Company at
any time during the period from the Effective Date through the closing date
except for intentional acts of fraud or dishonesty.
g. Employment Agreement. Baileys agrees that any acceleration or
vesting of any rights or benefits under his employment agreement or otherwise
resulting from a change of control, including severance payments, shall not
occur by virtue of the occurrence of the transactions
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<PAGE> 10
contemplated by this Agreement and waives any claim that such is the case. In
addition, Baileys agrees to voluntarily resign his position as chief executive
officer of the Company as of the Effective Date and the Company shall have no
obligation to make any severance payments of any kind thereunder as a result
thereof. Baileys shall remain as Chairman of the Board of Directors of the
Company. All other provisions of his employment agreement shall remain in full
force and effect.
14. Miscellaneous.
a. Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given upon (i) confirmation or receipt
of a facsimile transmission (ii) confirmed delivered by standard overnight
carrier, (iii) when delivered by hand or (iv) the expiration of five (5)
business days after the date when mailed by registered or certified mail
(postage prepaid, return receipt requested), addressed to respective parties as
set forth in the prior Purchase Agreement, the Bank Loan Documents or the
Hancock Note Agreement, as applicable.
b. Entire Agreement. This Agreement constitutes the entire agreement
and supersedes all prior agreements and understandings (other than the
provisions of the Terminated Purchase Agreement that survive termination
thereof), both written or oral, among the parties or any of them, with respect
to the subject matter hereof.
c. Assignment. This Agreement shall not be assigned by operation in
law or otherwise, except that (i) Anderson may assign part of his respective
rights and obligations hereunder to up to two third parties and (ii) CAI may
assign all or any part of its respective rights and obligations hereunder to any
affiliated investment partnership.
d. Amendment. This Agreement may not be amended except by instrument
in writing signed on behalf of each of the parties hereto.
e. Binding Effect. This Agreement shall be binding upon the parties
hereto, their respective heirs, representatives, successors and permitted
assigns specifically including any transferees of the Bank Loan, the Hancock
Notes, the Investor Senior Loan, the Preferred Stock and the Convertible Notes.
f. Exculpation. Among Investors, Bank and Hancock. Each of the
Investors, the Bank and Hancock acknowledges that such party is not relying upon
any person, firm or corporation, other than the representations of the Company
contained herein, in making its investment or decision to invest in the Investor
Senior Loan, the Preferred Stock or the Convertible Notes and specifically each
such party has not relied on any representation or warranty of any of such other
parties in making such investment or decision. The Company acknowledges that it
is not relying upon any representation or warranty of the Investors, the Bank
and Hancock in entering into this Agreement.
g. Arbitration. In the event of any dispute between any one or more or
all of the parties to this Agreement with respect to the respective rights and
obligations of the parties under
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<PAGE> 11
this Agreement, such dispute shall be settled by arbitration in accordance with
the arbitration procedures set forth in the Terminated Purchase Agreement.
h. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
provisions thereof relating to conflicts of laws.
i. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Term Sheet
Agreement as of the Effective Date.
<TABLE>
<S> <C>
CAI PARTNERS AND COMPANY II, L.P. JOHN HANCOCK LIFE INSURANCE
COMPANY f/k/a JOHN HANCOCK MUTUAL
By: CAI PARTNERS G.P. AND COMPANY, LIFE INSURANCE COMPANY
L.P., GENERAL PARTNER
By: /s/ Stephen J. Blewitt
By: /s/ Leslie B. Daniels ----------------------------------
---------------------------- Name:
Leslie B. Daniels --------------------------------
Title:
-------------------------------
CAI CAPITAL PARTNERS AND COMPANY JOHN HANCOCK VARIABLE LIFE
II, L.P. INSURANCE COMPANY
By: CAI CAPITAL PARTNERS G.P. AND By: /s/ Stephen J. Blewitt
COMPANY, L.P., GENERAL PARTNER ----------------------------------
Name:
By: /s/ Leslie B. Daniels --------------------------------
---------------------------- Title:
Leslie B. Daniels -------------------------------
INVESTORS PARTNER LIFE INSURANCE
COMPANY (f/k/a JOHN HANCOCK LIFE
/s/ Jack R. Anderson INSURANCE COMPANY OF AMERICA)
- -------------------------------------
Jack R. Anderson By: /s/ Stephen J. Blewitt
----------------------------------
/s/ Steven J. Baileys Name:
- ------------------------------------- --------------------------------
Steven J. Baileys, D.D.S., Trustee Title:
-------------------------------
SAFEGUARD HEALTH ENTERPRISES, INC. MELLON BANK, N.A., solely in its capacity as
Trustee for Bell Atlantic Master Trust
By: /s/ Steven J. Baileys (f/k/a Nynex Master Pension Trust), (as directed
------------------------------- by John Hancock Mutual Life Insurance
Steven J. Baileys, D.D.S., Company) and not in its individual capacity
Chairman and Chief Executive Officer
By: /s/ Carole Bruno
By: /s/ Ronald I. Brendzel ----------------------------------
------------------------------- Name: Carole Bruno
Ronald I. Brendzel, Secretary --------------------------------
Title: Authorized Signatory
-------------------------------
SILICON VALLEY BANK
By: /s/ Nido Paras
----------------------------------
Name: Nido Paras
--------------------------------
Title: Senior Vice President
-------------------------------
</TABLE>
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