<PAGE> 1
FORM 10-QSB
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) of
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from 4/1/96 to 6/30/96
Commission File Number 0-20222
PRINCETON DENTAL MANAGEMENT CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-3484607
-------- ----------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification Number)
</TABLE>
7421 West 100th Place, Bridgeview, Illinois 60455
(Address of principal executive offices)
(Zip Code)
(708) 974-4000
(Registrant's telephone number, including area code)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 DURING THE PRECEDING 12 MONTHS (OR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS, YES X NO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: 8,169,870 SHARES OF THE
COMPANY'S COMMON STOCK ($.0001 PAR VALUE) PER SHARE OUTSTANDING AS OF JUNE 30,
1996.
<PAGE> 2
PRINCETON DENTAL MANAGEMENT CORPORATION
FORM 10-QSB
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE (S)
CONDENSED CONSOLIDATED BALANCE SHEETS 3-4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7-9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 9-12
PART II - OTHER INFORMATION 12-16
EXHIBITS
2
<PAGE> 3
PRINCETON DENTAL MANAGEMENT
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
ASSETS (Unaudited)
------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 34,173 $ 124,872
Trade accounts receivable, net
of allowances for doubtful
accounts of $394,000 and
$275,000 respectively 1,373,833 1,138,469
Loan receivable - shareholders 2,190 2,190
Current portion of loan
receivable - affiliate 7,272 7,272
Inventories 112,235 111,554
Other current assets 99,231 118,901
--------------- --------------
Total current assets 1,628,934 1,503,258
Property and equipment, net 1,225,711 1,278,632
Goodwill, net of accumulated
amortization of $1,597,159
and $1,293,987, respectively 10,847,559 11,150,730
Loan receivable-affiliate 12,467 12,467
Refinancing costs-net (Note 3) -
529,422
Other assets 49,424 51,846
--------------- ---------------
Total assets $14,293,517 $13,996,933
=========== ===========
</TABLE>
See accompanying notes
3
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PRINCETON DENTAL MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
-------------- -----------------
LIABILITIES AND SHAREHOLDER'S EQUITY (UNAUDITED)
------------------------------------
<S> <C> <C>
Current liabilities
Notes payable $ - $ 18,835
Current portion of long term debt 1,042,909 506,046
Current portion of capital lease obligations 10,487 27,532
Notes payable to shareholders 122,946 1,935,434
Convertible notes payable - Shareholders (Note 3) 2,483,620 -
Accounts payable 1,245,532 671,035
Accrued salaries and wages 634,829 569,383
Other accrued expenses 633,265 455,853
------------- --------------
Total current liabilities 6,173,588 4,184,118
Long-term debt (Note 3) 3,087,122 $ 3,731,963
Capital lease obligations 2,545 6,581
--------------- -----------------
Total liabilities 9,263,255 7,922,662
Shareholder's equity (Note 3)
Convertible preferred stock, Series A,
11.75% cumulative, par value $1.00 per share:
authorized shares-1,000,000;
issued and outstanding - 3,600 3,600 -
Common stock, par value
$0.0001 per share:
authorized shares - 25,000,000;
8,169,870 issued and outstanding
291,667 shares held in Treasury 817 812
Common stock held in Treasury, at cost (331,771) -
Additional paid-in capital 14,482,167 14,055,045
Accumulated deficit (9,124,551) (7,981,586)
------------- -------------
Total shareholders' equity 5,030,262 6,074,271
------------- -------------
Total liabilities and shareholders' equity $14,293,517 $13,996,933
=========== ===========
</TABLE>
See accompanying notes
4
<PAGE> 5
PRINCETON DENTAL MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET REVENUE:
Practice revenue $3,696,578 $3,353,194 $7,439,193 $6,858,839
Laboratory revenue 1,013,830 967,363 1,988,311 1,853,320
----------- ------------ ----------- -----------
Total Net Revenue 4,710,408 4,320,557 9,427,504 8,712,159
EXPENSES:
---------
Practice compensation and benefits 2,543,628 2,089,932 4,966,673 4,254,369
Practice supplies and services 638,721 525,163 1,247,007 1,018,744
Other practice expense 333,146 375,347 685,600 757,495
Cost of laboratory revenue 684,075 616,635 1,276,736 1,256,571
Other laboratory expenses 333,067 168,922 626,694 332,902
General corporate expenses 615,584 209,182 996,212 423,465
Depreciation and amortization 256,250 228,601 487,251 456,251
------------ ------------ ------------ ------------
Total Operating Expenses 5,404,471 4,213,782 10,286,173 8,499,797
Operating income (loss) (694,063) 106,775 (858,669) 212,362
Interest expense (158,674) (109,949) (309,486) (215,631)
Other income 12,319 7,181 25,190 11,892
------------ ------------ ------------ ------------
Net income (loss) $(840,418) $ 4,007 $(1,142,965) $ 8,623
========== ============= ============ ===============
Net income (loss) per share $ (0.10) $ - $ (0.14) $ -
========== ============= ============ ===============
Weighted average number of
Shares outstanding 8,169,870 8,119,870 8,169,870 8,119,870
=========== =========== =========== ===========
</TABLE>
See accompanying notes
5
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PRINCETON DENTAL MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Cash and cash equivalents increase (decrease)
Operating activities
Net Income (loss) ($1,142,965) $8,623
Adjustments to reconcile net cash
provided by (used in) operating activities:
Depreciation and amortization 487,251 466,268
Loss on sale of assets 1,410 6,044
Provision for bad debts 119,000
Stock redemption price in excess of market 18,229 -
Issuance of stock under Incentive Stock Bonus Plan 70,750 -
Changes in operating assets and liabilities:
Accounts receivable (354,364) (190,070)
Inventories (681) 0
Other assets 22,092 10,354
Accounts payable 574,497 (324,358)
Accrued expenses 354,925 70,165
Deferred compensation 67,147 60,396
------------ ------------
Net cash provided by operating activities 217,291 107,422
Investing activities
Purchase of property and equipment (117,275) (22,279)
Debt issuance costs (27,819) (57,416)
Other 7,114
----------------- -------------
Net cash used in investing activities (145,094) (72,581)
Financing activities
Proceeds from issuance of long-term debt 31,826 -
Principal payments on capital
lease obligations (21,081) (23,050)
Draws from revolving demand note - 531,000
Principal payments on notes payable (18,835) (413,647)
Principal payments on long-term debt and
notes payable to shareholders (154,806) (144,493)
----------- -----------
Net cash used in financing activities (162,896) (50,190)
Decrease in cash and cash equivalents (90,699) (15,349)
Cash and cash equivalents at beginning of period 124,872 25,950
----------- ------------
Cash and cash equivalents at end of period $34,173 $10,601
=========== ===========
</TABLE>
See Accompanying notes
6
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PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
Note 1 - SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by Princeton Dental Management Corporation
(the "Company") for quarterly financial reporting purposes are the same as
those disclosed in the Company's annual financial statements. In the opinion of
management, the accompanying condensed consolidated financial statements
reflect all adjustments (which consist only of normal recurring adjustments
other than the transaction disclosed in Note 3) necessary for a fair
presentation of the information presented.
The quarterly condensed consolidated financial statements herein have been
prepared by the Company without audit. Certain information and footnote
disclosures included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
Although the Company's management believes the disclosures are adequate to make
the information not misleading, it is suggested that these quarterly condensed
financial statements be read in conjunction with the audited annual financial
statements and footnotes thereto.
Note 2 - RECLASSIFICATIONS
The accompanying condensed consolidated financial statements contain certain
reclassifications of previously reported information. The reclassifications
have been made to more appropriately reflect the operating results of the
Company.
Note 3 - FINANCING AGREEMENT
On April 22, 1996, the Company entered into a financing arrangement pursuant to
which the Company issued Convertible Debt (the "Convertible Debt") to Amsterdam
Equities Limited in the amount of $2,483,620 and 3,599.77 shares of Series A
11.75% Cumulative Convertible Preferred Stock (the "Preferred Stock") to
Amsterdam Equities Limited (195 shares), to Frank Leonard Laport (1,904.77
shares) and to Beverly Trust Company, as custodian for the Frank Leonard Laport
Rollover Individual Retirement Account No. 75-49990 (1,500 shares) (the
"Investor Group"). The Convertible Debt and Preferred Stock replaces
indebtedness of the Company at April 22, 1996, in the amount of $1,976,700
incurred under that certain letter agreement dated December 7, 1994 ("Letter
Agreement"). Under the terms of the Convertible Debt and Preferred Stock
Agreements (also referred to herein collectively as the "Financing
Arrangements") the Investor Group may lend additional amounts, in increments to
be determined solely by the Group. The funds may be used by the Company
subject to the approval of the Group, to fund certain acquisitions. The
Convertible Debt and Preferred Stock will bear interest and have a coupon rate,
respectively of 11.75%, plus the payment of any withholding taxes which may be
due and owing with respect to any person which is a foreign entity. Payments
on the Convertible Debt are interest only due in quarterly installments
beginning in December, 1996. The Convertible Debt has a maturity of seven
years from the date of closing, subject to acceleration in the event of a
default.
7
<PAGE> 8
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
Note 3 - FINANCING AGREEMENT (Cont'd)
In addition to the amount owed under the Letter Agreement, the terms of the
Convertible Debt and Preferred Stock Agreements called for the conversion of
291,667 share of Regulation D stock held by the Group into $350,000.00 of
Convertible Debt and Preferred Stock. The shares of common stock redeemed are
being held in treasury at June 30, 1996.
An additional provision of the Convertible Debt and Preferred Stock Agreements
include the payment of $300,000.00 as a closing fee and require the Company to
reimburse the legal fees and out-of-pocket costs and expenses of the Group in
connection with the negotiation and the closing of the transaction which
totaled $216,897. The closing fees and reimbursement of the costs and expenses
are payable in the form of Convertible Debt and Preferred Stock. In total, the
Company incurred costs of $544,716 in connection with the refinancing which has
been capitalized and will be amortized over a period of seven years.
Amortization of refinancing fees totaled $15,294 through June 30, 1996.
The terms of the Convertible Debt and Preferred Stock Agreements provides the
Group with certain rights pertaining to the registration of any common stock to
which the Group may convert from Convertible Debt or Preferred Stock,
anti-dilution, and a right of first refusal on any future offering of the
Company's securities.
Under the terms of the transaction, the Company has issued a warrant to
purchase 100 shares of Series B Preferred Stock. The Series B Preferred Stock
entitles Amsterdam Equities Limited, after the occurrence of an event of
default, to elect a Class B director who will have super-majority voting powers
on the Company's Board of Directors. The Convertible Debt and Preferred Stock
may be converted into the common stock of the Company, as the sole option of
the Group, at various conversion rates as set forth in the conversion formula
contained in the Convertible Debt and Preferred Stock Agreement. Conversion
pursuant to such conversion formula would result in a conversion price per
share of the Company's common stock significantly below present market levels.
If the Group were to convert the Convertible Debt and Preferred Stock at the
present time, the conversion would result in the issuance to the Group of
approximately 9,600,000 shares of the Company's common stock, representing
approximately forty-two percent (42%) of the issued and outstanding shares of
the Company's common stock (assuming full conversion and anti-dilution).
In addition, pursuant to the terms of the Financing Arrangement, the Company
has issued to the holders of the Convertible Debt and the Preferred Stock a
warrant to purchase shares of common stock at an exercise price of $.10 per
share. The Group may exercise the warrant only upon the occurrence of an event
of default under the terms of the minimum financial goals of net income of at
least one dollar in the fiscal year ending December 31, 1996, and net income at
least equal to 60% of the dollar amount of Convertible Debt of the Company
outstanding at the end of 1997 for the fiscal year ending December 31, 1997,
increased by 10% each year thereafter, compounded, plus 60% of the additional
Convertible debt outstanding at the end of such year over the immediately
preceding year. The Company can make no assurances that such financial goals
can be achieved by the Company. The cumulative effect of the issuance of
shares pursuant to the default warrant to the Group could result in ownership
by the Group of up to 75% of the Company's total issued and outstanding common
stock.
8
<PAGE> 9
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
Note 3 - FINANCING AGREEMENT (Cont'd)
The Convertible Debt and Preferred Stock may be called by the Company only
during the first year of the Financing Arrangement in accordance with the
following schedule: Up to 120 days after the closing, at the principal amount
of the Convertible Debt and liquidation value ($100.00 per share) of the
Preferred Stock, plus $300,000.00; from the 120th day after the closing to the
240th day after closing, at the principal amount of the Convertible Debt and
liquidation value of the Preferred Stock, plus $500,000.00; and, for the 240th
day after closing to the one year anniversary date of the closing at the
principal amount of the Convertible Debt and liquidation value of the Preferred
Stock, plus $750,000.00. See Note 5 for subsequent event regarding the
Convertible Debt and Preferred Stock Agreement.
Note 4 - CONSULTING AGREEMENT
The Company had entered into an agreement with Stratum Management, Inc. and
certain individual consultants (collectively, the "Consultants") for consulting
services, terminable by either party at any time. The Consultants were to
provide the Company with operations management, provider relations, systems
development, standardization and development of operations manuals, marketing
analysis and development, strategic alliances development and re-acquisition
evaluation services. The board of directors of the Company had final approval
of all actions of the Consultants. In addition to consulting fees
approximating $41,000 per month in 1996, the Consultants were issued warrants
to purchase up to 600,000 shares of the Company's common stock at an exercise
price of $1 per share expiring December 31, 1998. Subsequently, in July 1996
the Warrants Agreement was amended to reduce the number of warrants available
from 600,000 to 388,000 as a condition of the financing agreement disclosed in
Note 5. This consulting agreement was terminated by the Company effective
August 1, 1996.
Dr. Charles R. Mitchell, who was appointed as President of the Company
effective October 26, 1995, was originally affiliated with the consultants.
While Dr. Mitchell has reported to have severed all direct ties with the
Consultants in conjunction with his appointment as President of the Company and
has reported to have received no compensation from the Consultants, Dr.
Mitchell's wife remains a shareholder in, and an employee of, Stratum
Management, Inc., which is directly affiliated with the Consultants. As a
condition of the financing agreement disclosed in Note 5, Dr. Mitchell resigned
as President and CEO of the company and is performing limited functions as a
consultant.
Note 5 - SUBSEQUENT EVENTS
Subsequent to June 30, 1996, the Company entered into a Letter Agreement by and
among the Company; Dr. Charles R. Mitchell, the President of the Company;
Stratum Management, Inc. ("Stratum"), a consultant to the Company; John H.
Hagan, a director of the Company; Dr. Seymour Kessler, a director of the
Company; and Amsterdam Equities, Ltd. ("Amsterdam"), Frank Leonard Laport, and
Beverly Trust Company, as Custodian of the Frank Leonard Laport Rollover
Individual Retirement Account No. 75-49990, each member of the investment group
(the "Investor Group"). Under the Letter Agreement, which became effective on
August 9, 1996, the Series B Preferred Stock referred to in the Convertible
Debt Agreement executed by the Company on April 22, 1996 (see Note 3) was to be
amended to be immediately effective and Class B Preferred Stock was
immediately issued to Amsterdam.
9
<PAGE> 10
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
Note 5 - SUBSEQUENT EVENTS (Cont'd)
The Class B Preferred Stock entitled Amsterdam to elect a Director to the Board
of Directors of the Company who shall have super majority voting powers. In
effect, the Class B director appointed by Amsterdam shall have the number of
votes on the Board of Directors as the current Board currently holds, plus one
vote. The amendment and activation of the Class B Preferred Stock occurred
upon the satisfaction of the following two conditions: (i) delivery to the
Company of a notice, pursuant to which the Investor Group would convert on a
pro rate basis, an aggregate amount of U.S. $700,000 of currently outstanding
Convertible Debt/Preferred Stock into the Company's Common Stock in accordance
with the contractual terms of the Convertible Debt and Preferred Stock
Agreements executed on April 22, 1996, and (ii) upon the advance to the Company
of an additional U.S. $200,000.00 pursuant to the Convertible Debt and the
Preferred Stock Agreements executed April 22, 1996. As of August 9, 1996, the
Investor Group has satisfied these two conditions and the Class B Preferred
Stock has been issued to Amsterdam.
In connection with the activation of the Class B Preferred Stock, the provision
of additional funding and conversion of debt, Stratum, Hagan and Kessler have
agreed to forfeit, on a pro rate basis, an aggregate amount of 300,000
options/warrants to purchase the Company's common stock.
In connection with the above, Dr. Mitchell has resigned as President of the
Company, but will continue to assist the Company in the transition to a new
management team. Dr. Mitchell, Dr. Kessler, and John Hagan will stay as
directors until the Company's annual meeting. Gary Lockwood, Dr. Richard
Staller, Frank Leonard Laport, Esq. and George Collins, Esq., who also acts as
attorney in fact for Amsterdam Equities Limited, have been appointed to the
Board to fill vacancies created by an increase in the number of directors.
Gary Lockwood, President of Mason Dental Laboratories, a subsidiary of the
Company, has been appointed as President of the Company. Frank Leonard Laport
has been elected as Chairman of the Board of Directors of the Company. Frank
Leonard Laport has also been elected as the Series B director by Amsterdam
Equities Limited.
Effective September 16, 1996, the Company relocated its corporate offices to
7421 West 100th Place, Bridgeview, Illinois.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto, and with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1995.
Results of Operations
Revenue for the six month period ended June 30, 1996 was $9,427,504 compared
with $8,712,159 for the six month period ended June 30, 1995, an increase of
$715,345. The change in revenue is due to an increase in production throughout
the Company.
10
<PAGE> 11
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
Operating expenses increased $1,786,376 to $10,286,173 for the six month period
ended June 30, 1996 from $8,499,797. This increase is attributable primarily
to the increased production previously mentioned.
Interest expense increased $93,855 to $309,486 for the six month period ended
June 30, 1996 versus $215,631 incurred in the comparable six month period last
year. The increase is primarily the result of additional advances during 1995
under the Revolving Demand Note which was subsequently rolled into the
Convertible Debt and Preferred Stock Agreement.
The net loss for the six month period ended June 30,1996 of $1,142,965 is
primarily the result of the increase in payroll cost to provide patient
services as well as costs incurred for outside consulting services.
The Company is currently in the process of developing revenue enhancement
programs for the practices and laboratories. The Company is also working to
improve the operating results of the various operations by reducing costs of
patient services and laboratory costs. The Company has begun steps to reduce
general and administrative expenses by eliminating substantially all outside
consulting arrangements which totaled approximately $302,000 for the six months
ended June 30, 1996. However, the Company can make no assurances in regards
to the results of these programs.
Financial Condition
Changes in the Company's financial condition at June 30, 1996 as compared with
December 31, 1995 resulted primarily from the Company's results of operations
for the six month period ended June 30, 1996.
During the first and second quarters of 1996, the Company did not deposit
certain state payroll tax liabilities totaling approximately $53,000. The
company is currently negotiating with the State to pay the payroll obligations
in monthly installments and to abate penalties associated with the late
payment. In addition, during 1994 the Company did not make certain federal
payroll tax deposits on a timely basis and is in the process of negotiating
with the IRS to abate penalties associated with these late filings. Management
has provided a reserve of approximately $60,000 for the state tax liability and
penalties and $70,000 to cover the IRS penalties should the IRS ruling be
unfavorable. Management believes these reserves are sufficient to cover these
obligations.
Liquidity and Capital Resources
As of June 30, 1996, the Company has a working capital deficit of $4,544,654
and a financial accumulated deficit of $9,124,551. Goodwill and other
intangibles comprise approximately 80% of total assets, leaving tangible assets
of approximately $2,916,536 and negative tangible net worth of ($6,346,719).
11
<PAGE> 12
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
During the six month period ended June 30, 1996, the Company's cash and cash
equivalents decreased $90,699. Cash provided by operations was $217,291
resulting primarily from the Company's increase in accounts payable and accrued
expenses for the period of $996,569 of which this increase was partially offset
by depreciation and amortization of $487,251, $88,979 of costs associated with
the issuance and redemption of the Company's common stock, and a net increase
in accounts receivable of $235,364.
Investing activities utilized $145,094 of cash primarily related to the
acquisition of property and equipment for $117,275 and debt issuance costs of
$27,819. Cash of $162,896 was used by financing activities primarily as a
result of debt principal payments of $194,722, net of proceeds from issuance of
debt of $31,826.
As disclosed in Note 3 and Note 5, the Company's primary source of outside
financing is from the Investor Group, which has agreed to lend up to $15
million if certain conditions are met. Given the Company's working capital
deficit and negative tangible net worth, the company is heavily reliant on the
Investor Group's financing to continue the Company's expansion plans and to
some extent, provide working capital to fund the operations. The Company can
make no assurances the Company will be able to meet the requirements to obtain
the additional financing in the increments required.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
a. On June 14, 1995, the Company filed a complaint for declaratory
relief against Messrs. Terry D. Gingle and Oscar L. Hausdorff (the "Gingle
Group"), certain former members of senior management, regarding an alleged
pledge of shares of Company Common Stock to the Group. While the Gingle Group
is contesting such pledge, the Company and the Gingle Group have entered into a
temporary standstill agreement whereby neither party will take any immediate
action while attempting to negotiate settlement with respect to this issue.
b. The Company is involved in a number of legal proceedings related
to malpractice, worker's compensation, general employment and contract disputes
all in various stages of proceedings, most of which will be covered by
insurance. Management believes settlements, if any, in excess of insurance
coverage would be immaterial.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
The following documents are filed as an exhibit to this
Report:
(10.1) Employment Agreement by and between the Company and
Dr. Charles R. Mitchell, D.D.S. dated March,
1996, with an effective date of January 1,
1996.
12
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PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
(10.2) Consulting Agreement by and between the
Company and Stratum Management, Inc. dated
January 1, 1996.
(10.3) Amendment to the Warrant Agreement by and
between the Company and Stratum Management,
Inc., dated July 17, 1996. This Warrant
Agreement was part and parcel to the
Consulting Agreement dated January 1, 1996.
(10.4) Non-Statutory Stock option agreement by and
between the Company and John H. Hagan, dated
March 21, 1996.
(10.5) Amendment to the Non-Statutory Stock Option
Agreement by and between the Company and John
H. Hagan dated July 17, 1996.
(10.6) Non-Statutory Stock Option Agreement by and
between the Company and Dr. Seymour Kessler
dated March 21, 1996.
(10.7) Amendment to the Non-Statutory Stock Option
Agreement dated July 17, 1996, by and between
the Company and Dr. Seymour Kessler.
(10.8) Series A 11.75% Cumulative Convertible
Preferred Stock Purchase Agreement by and
between Frank Leonard Laport, Beverly Trust
Company, as Custodian of the Frank Leonard
Laport Rollover Individual Retirement Account
Number 75-49990, and Amsterdam Equities
Limited, dated April 22, 1996.
(10.9) Convertible Debt Agreement by and between the
Company and Amsterdam Equitites Limited,
dated April 22, 1996.
(10.10) Letter of Agreement dated July 15, 1996 and
effective August 9, 1996, by and between the
Company, Dr. Charles R. Mitchell, Stratum
Management Inc., John H. Hagan, Dr. Seymour
Kessler, Amsterdam Equities Limited, Frank
Leonard Laport, and Beverly Trust Company, as
custodian of the Frank Leonard Laport
Rollover Individual Retirement Account Number
75-49990.
b. Reports on Form 8-K
The Registrant filed the following Form 8-Ks during the period
from January 1, 1996 through August 15, 1996:
(9) On March 4, 1996, the Registrant filed with the Securities and
Exchange Commission a current report on Form 8-K relating to the extension of
warrants to October 14, 1996; the ratification of an Employment Contract for
Dr. Charles R. Mitchell; the ratification of a Management Consulting Agreement
for Stratum Management; and the lawsuit filed against the Company by Frank
Leonard Laport.
13
<PAGE> 14
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
(10) On March 21, 1996, the Registrant filed with the Securities and
Exchange Commission a current report on Form 8- K regarding the Board of
Director's ratification of the grant of non-statutory stock options to John
Hagan and Seymour Kessler for past services to the Board of Directors.
(11) On May 9, 1996, the Registrant filed with the Securities and Exchange
Commission a current report on an amended Form 8-K regarding a financing
arrangement pursuant to which the Company issued Convertible Debt (the
"Convertible Debt") to Amsterdam Equities Limited in the amount of
$2,483,620.15 and 3,599.77 shares of Series A 11.75 Cumulative Convertible
Preferred Stock (the "Preferred Stock") to Amsterdam Equities Limited (195), to
Frank Leonard Laport (1,904.77) and to Beverly Trust Company, as custodian for
the Frank Leonard Laport Rollover Individual Retirement Account No. 75-4990
(1,500) (the "Investor Group").
The Convertible Debt and Preferred Stock replaces indebtedness of the Company
in the amount of $1,976,699.99 incurred under that certain letter agreement
dated December 7, 1994 ("Letter Agreement"). Under the terms of the
Convertible Debt and Preferred Stock Agreements (also referred to herein
collectively as the "Financing Arrangements") the Investor Group will lend up
to $15 million, in increments to be determined solely by the Group. The funds
may be used by the Company, subject to the approval of the Group, to fund
certain acquisitions. The Convertible Debt and Preferred Stock will bear
interest and have a coupon rate, respectively of 11.75%, plus the payment of
any withholding taxes which may be due and owing with respect to any person
which is a foreign entity. The Convertible Debt has a maturity of seven years
from the date of closing, subject to acceleration in the event of a default.
In addition to the amount owed under the Letter of Agreement, the terms of the
Convertible Debt and Preferred Stock Agreements call for the conversion of
Regulation D stock held by the Group into $350,000.00 of Convertible Debt and
Preferred Stock.
In addition to the amount owed to the Group under the Letter Agreement, the
terms of the Convertible Debt and Preferred Stock Agreements include the
payment of $300,000.00 as a closing fee in the form of fully paid Convertible
Debt and Preferred Stock. The terms of the Convertible Debt and Preferred
Stock Agreements also require the Company to reimburse the legal fees and
out-of-pocket costs and expenses of the Group in connection with the
negotiation and the closing of the transaction, payable in the form of
Convertible Debt and Preferred Stock in the aggregate amount of $216,896.74.
(12) On August 15, 1996, The Registrant filed with the Securities and
Exchange Commission current Report on Form 8-K regarding a Letter Agreement by
and among the Company; Dr. Charles R. Mitchell, the President of the Company;
Stratum Management, Inc. ("Stratum"), a consultant to the Company; John H.
Hagan, a director of the Company; Dr. Seymour Kessler, a director of the
Company; and Amsterdam Equities, Ltd. ("Amsterdam"), Frank Leonard Laport, and
Beverly Trust Company, as Custodian of the Frank Leonard Laport Rollover
Individual Retirement Account No. 75-49990, each members of the investment group
(the "Investment Group").
14
<PAGE> 15
PRINCETON DENTAL MANAGEMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
Under the Letter Agreement, which became effective on August 9, 1996, the
Series B Preferred Stock referred to in the Convertible Debt Agreement executed
by the Company on April 22, 1996 was to be amended to be immediately effective
and was to be immediately issued to Amsterdam. The Class B Preferred Stock
entitles Amsterdam to elect a Director to the Board of Directors of the Company
who shall have super majority voting powers. In effect, the Class B Director
appointed by Amsterdam shall have the number of votes on the Board of Directors
as the Board currently holds, plus one vote.
The amendment and activation of the Class B Preferred Stock was to occur upon
the satisfaction of the following two conditions: (i) delivery to the Company
of a notice, pursuant to which the Investment Group would convert on a pro rate
basis, an aggregate amount of U.S. $700,000.00 of currently outstanding
convertible debt/preferred stock into the Company's common stock in accordance
with the contractual terms of the Convertible Debt and Preferred Stock
Agreements executed on April 22, 1996, and (ii) upon the advance to the Company
of an additional U.S. $200,000.00 pursuant to the Convertible Debt and the
Preferred Stock Agreements executed April 22, 1996. As of August 9, 1996, the
Investment Group has satisfied these two conditions and the Class B Preferred
Stock has been issued to Amsterdam.
In connection with the activation of the Class B Preferred Stock, the provision
of additional funding, and conversion of debt, Stratum, Hagan and Kessler have
agreed to forfeit, on a pro rate basis, an aggregate amount of 300,000
options/warrants to purchase the Company's common stock.
In connection with the above, Dr. Mitchell has resigned as Chief Executive
Officer and President of the Company, but will continue to assist the Company
in the transition to a new management team. Dr. Mitchell will stay on as a
director until the Company's next annual meeting is held, which is scheduled to
take place on September 27, 1996. Hagan and Kessler would also continue to
serve as directors until the Company's next annual meeting. Gary Lockwood, Dr.
Richard Staller, Frank Leonard Laport, Esq. and George Collins, Esq. have been
appointed to the Board to fill vacancies created by an increase in the number
of directors.
Gary Lockwood, President of Mason Dental Laboratories, a subsidiary of the
Company, has been appointed as President of the Company. Mr. Lockwood will
continue to serve in his role as President of Mason Dental in addition to his
new duties as President of the Company. Frank Leonard Laport has been elected
as Chairman of the Board of Directors of the Company.
In connection with the letter agreement transaction, the Company shall relocate
its principal offices to another location in the Chicago metropolitan area on
or about September 30, 1996.
15
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this quarterly report of Form 10-QSB for the quarter
ended June 30, 1996, to be signed on its behalf, by the undersigned there unto
duly authorized.
DATED: Princeton Dental Management Corporation
By: __________________________
Steven M. Sierakowski
Chief Financial Officer
and Head Accounting Officer
16
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of this
____ day of March, 1996 and effective as of January 1, 1996, by and between
PRINCETON DENTAL MANAGEMENT CORPORATION, a Delaware corporation (the
"Company"), and Charles R. Mitchell, D.D.S. ("Employee").
RECITALS
WHEREAS, the Company is engaged in the management of dental practices
and other related businesses; and
WHEREAS, the Company desires to employ Employee and Employee desires
to serve the Company on the terms and conditions set forth in this Agreement;
and
WHEREAS, the Company and Employee mutually agree that this agreement
shall be effective January 1, 1996.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises set forth
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company and Employee hereby agree as
follows:
1. TERM.
The term of this Agreement ("Term") shall continue for three
(3) years unless sooner terminated by either party in
accordance with the provisions of this Agreement. This
Agreement shall continue in effect and be automatically
renewed (and the term shall be extended) for subsequent one
year periods from year to year thereafter unless either party
gives the other party ninety (90) days written notice prior to
the termination date of its intent not to extend the Term of
this Agreement.
2. DUTIES AND EXTENT OF SERVICES.
Employee shall abide by the Certificate of Incorporation and
Bylaws of the Company (which Employee has reviewed and hereby
acknowledges) and with all rules and regulations established
from time to time by or under the authority of the Board of
Directors of the Company. Employee shall have the title of
President. The Employee's duties shall include those duties
which are customarily attendant to his position as President
of the Company. Employee shall use his best efforts to
promote the business of the Company.
Page 1 of 8
<PAGE> 2
3. COMPENSATION.
(a) Salary. The Company shall pay to Employee as
compensation for all services rendered by Employee
under this Agreement during the Term, a base salary
("Salary") of Ninety-Six Thousand Dollars ($96,000)
payable semi-monthly.
(b) Stock. The Company shall issue to Employee,
effective upon the signing of this Agreement, 50,000
shares of Company stock under the Company's 1993
Incentive Stock Plan.
(c) Fringe Benefits. Employee, (including Employee's
spouse and minor children) shall be entitled to
participate in the Company's regular medical and life
insurance plan coverage. If Employee chooses not to
participate in the Company's life insurance or
medical plans, the Company shall reimburse Employee
for his cost in obtaining such coverage; provided
that the reimbursement of such costs shall not exceed
the amount paid on behalf of Employees participating
in such plans.
4. REIMBURSEMENT OF EXPENSES.
In addition to compensation, Employee shall be entitled to
reimbursement for ordinary and necessary out-of-pocket trade
or business expenses reasonably incurred in the ordinary
course of employment duties and paid by Employee on behalf of
the Company; such reimbursement shall not be deemed to be
compensation. Reimbursement shall be made following
submission by Employee to the Company of such vouchers as may
be reasonably satisfactory to the Company. In the event
Employee is issued a Company credit card, Employee agrees to
use same for Company business only, and not for any other
business or personal use. Employee shall complete a report of
accounting on a timely basis with respect to any and all of
the charges incurred under such credit card. In the event
Employee breaches this Agreement and uses a Company credit
card for personal use, Company shall have the right to
withhold such amount directly from Employee's paycheck or any
other amounts due and payable to Employee, in cash or in kind.
5. VACATION.
Employee shall be entitled to four (4) weeks of paid vacation.
The timing and term of any vacation shall be made only with
the mutual agreement of the Company and, during the first year
of this Agreement, the number of continuous days of vacation
shall not exceed ten (10) days.
6. RESTRICTIVE COVENANT; PROPRIETARY RIGHTS; CONFIDENTIALITY
DUTIES.
Page 2 of 8
<PAGE> 3
(a) Employee shall not, directly or indirectly, during
the Term and (i) for a period of one (1) year after
the termination of this Agreement, maintain a dental
office, clinic, laboratory or other similar facility
within any of the areas located within ten (10) miles
of any such currently existing facility of the
company ("Area"), or (ii) for a period of six (6)
months after the termination of this Agreement, shall
not, directly or indirectly, become a consultant,
partner, member, employee, agent, advisor or
investor, or participate in any manner, with or in
any sole proprietorship, partnership, corporation or
any other entity, which, whether directly or
indirectly, competes with the Company in any fashion
whatsoever in the Area; provided, however, that
nothing in this paragraph or this Agreement shall be
construed to prohibit or limit in any way Employee
from investing in the Company or any class of
securities of any corporation that are listed on a
national securities exchange or registered pursuant
to Section 12(g) of the Securities Exchange Act of
1934 and traded in the over-the-counter market, if
Employee shall beneficially own less than three
percent of any class of securities of such
corporation.
(b) Employee shall not, directly or indirectly, upon the
termination of Employee's employment hereunder and
(i) for a period of two (2) years after such
termination, solicit the patients, employees, agents,
or affiliates of the Company for any business purpose
currently competitive with the business of the
Company in the Area, or (ii) for a period of six (6)
months after such termination, become a consultant,
partner, member, employee, agent, advisor or
investor, or participate in any manner, with or in
any sole proprietorship, partnership, corporation or
any other entity, which, whether directly or
indirectly, makes any such solicitations in any
fashion whatsoever in the Area; provided, however,
that nothing in this paragraph or this Agreement
shall be construed to prohibit or limit in any way
Employee from investing in the Company or any class
of securities of any corporation that are listed on a
national securities exchange or registered pursuant
to Section 12(g) of the Securities Exchange Act of
1934 and traded in the over-the-counter market, if
Employee shall beneficially own less than three
percent of any class of securities of such
corporation.
(c) At the request of the Company made at any time or
from time to time after the termination of this
Agreement, Employee shall make, execute and deliver
all applications, papers, assignments, conveyances,
instruments or other documents and shall perform or
cause to be performed such other acts as the Company
deems necessary or desirable to implement any of the
provisions of this Agreement, and shall give
testimony and cooperate with the Company or its
representatives in any controversy or legal
proceedings involving the Company but not involving
Employee.
Page 3 of 8
<PAGE> 4
(d) Employee acknowledges the Company's exclusive
ownership of all information useful in the Company's
business (including it's dealings with suppliers,
customers, and other third parties, whether or not a
true "trade secret"), which at the time are not
generally known to persons engaged in businesses
similar to those conducted by the Company, and which
has been or is from time to time disclosed to, or
otherwise known by Employee as a consequence of
employment at any time by the Company (collectively,
"Confidential Information").
(e) Employee further acknowledges the Company's exclusive
ownership of all business records, documents,
drawings, writings, software, programs, and other
tangible things which were or are created or received
by or for the Company in furtherance of its business,
including, but not limited to, those which contain
Confidential Information (collectively, "Proprietary
Materials"). While some of the information contained
in Proprietary Materials may have been known to
Employee prior to employment with the Company, or now
or in the future be in the public domain, Employ
acknowledges that the compilation of that information
in Proprietary Materials has or will cost the Company
a great effort and expense, and affords persons with
whom Proprietary Materials are disclosed, including
Employee, a competitive advantage over persons who do
not know the information or have the compilation of
the Proprietary Materials.
(f) Employee shall during the Term and thereafter for the
longest time permitted by applicable law ensure that
the Confidentiality Information and Proprietary
Materials of the Company are not disclosed to any
person, except as permitted by policies and
procedures adopted by the Board of Directors of the
Company.
(g) Upon the expiration of the Term or termination for
whatever reasons, Employee (or in the event of death,
Employee's personal representative) shall promptly
surrender the Company the original and all copies of
Proprietary Materials (including all notes, memoranda
and the like concerning it derived therefore) whether
prepared by Employee or others, which are then in
Employee's possession or control. Records of
payments made by the Company to or for the benefit of
Employee, Employee's copy of this Agreement and other
such things, lawfully possessed by Employee which
relate solely to taxes payable by Employee, employee
benefits due to Employee or the terms of Employee's
employment with the Company, shall not be deemed
Proprietary Materials for purposes of this section.
(h) Consultants understand that the Company would not
have an adequate remedy at law for the breach or
threatened breach by the Employee of any one or more
of the covenants set forth in Section 6 of this
Agreement, and agree that, in the event of such a
breach or threatened
Page 4 of 8
<PAGE> 5
breach, whether before or after the expiration or
termination of this Agreement, the Company may, in
addition to any other remedies which it may have
available to it, at its option (a) enjoin Employee
from breach or threatened breach of such covenants,
or (b) seek damages from the Employee.
7. TERMINATION OF AGREEMENT.
(a) The Company may terminate this Agreement and the
employment of Employee immediately upon the
occurrence of any of the following (which events
shall constitute "cause"):
(I) Employee's performing services for or taking
actions intended to further the business of a
competitor of the Company or taking action
which intentionally damage the business of
the Company;
(II) commission of a felony;
(III) substance abuse; or
(IV) death or mental or physical incapacity which
prevents Employee from performing the duties
required hereunder for period of ninety (90)
days.
(b) This Agreement may be terminated by the Company upon
giving thirty (30) days' written notice to the
Employee of the occurrence of any of the following
events, and after failure by the Employee to cure or
diligently commence to cure such breach within such
thirty (30) days (which events shall constitute
"cause"):
(I) violation of any of the provisions of this
Agreement by Employee other than those which
would permit Company to terminate this
Agreement immediately; or
(II) willful or negligent failure to perform in any
material respect the duties required of
Employee hereunder.
(c) The Company may terminate this Agreement and the
employment of Employee without cause upon ninety (90)
days' written notice to the Employee provided,
however, that if the termination is given in
connection with or as a result of a merger, transfer
of assets, consolidation or other combination,
Employee's compensation hereunder shall continue for
a period of one hundred eighty (180) days after
notice is given to Employee.
(d) This Agreement may be terminated by Employee with
cause upon thirty (30) days' written notice to the
Company of any material breach by the Company of any
material covenant of this Agreement to be observed or
performed by the Company and after failure by the
Company to cure or diligently commence to cure such
breach within such thirty (30) days. Termination by
Employee for any other reasons will be considered a
Page 5 of 8
<PAGE> 6
termination by Employee without cause and Employee
shall give the Company written notice at least
thirty (30) days prior to such termination.
(e) If this Agreement is terminated by the Company with
cause or by the Employee without cause, Employee or
his estate, as the case may be, shall be entitled to,
and the Company shall pay to him or it, only:
(I) the unpaid portions of accrued Salary and
bonus (if any) declared prior to termination,
together with accrued vacation pay for the
period through the date of termination; and
(II) reimbursement owed but unpaid from
reimbursable expenses incurred by Employee
prior to the date of termination.
(f) If this Agreement is terminated by Employee with
cause or the Company without cause, Employee shall be
entitled to, and the Company shall pay to him, only:
(I) the unpaid portions of accrued Salary and
bonus (if any) declared prior to termination,
together with accrued vacation pay for the
period through the date of termination and;
(II) reimbursements owed but unpaid from
reimbursable expenses incurred by Employee
prior to the date of termination.
(III) Salary for a period of ninety days.
8. NO PARTNERSHIP NOR JOINT VENTURE.
Nothing in this Agreement shall be construed as giving
Employee any rights as a partner in, joint venture with
respect to, or owner of, the business of the Company;
provided, however, that this Section 8 shall not be construed
as a limitation in any respect on Employee's rights under any
other written agreement.
Page 6 of 8
<PAGE> 7
9. MISCELLANEOUS.
(a) All notices hereunder shall be given in writing and
sent to the party for whom such notice is intended by
hand delivery or United States Mail, postage prepaid,
addressed to the party for whom intended or such
other persons and/or at such addresses as may be
designated by written notice served in accordance
with the provisions hereof, such notices shall be
deemed to have been served, if hand delivered, on the
day delivered, and if mailed, on the third (3rd)
business day following the date deposited in the
mail. Urgent notices shall be given by Telex or
cable to the same addresses and confirmed by mail as
provided above. All notices sent by Telex or cable
shall be deemed to have been served upon receipt of
the Telex or cable, but only if in fact confirmed by
mail promptly after dispatch of the Telex or cable.
(b) This Agreement shall be binding upon and inure to the
benefit of the parties and their respective heirs,
personal representatives, successors and permitted
assigns.
(c) As of the commencement date, this Agreement will
constitute the entire agreement between the parties
hereto and contains all the agreements between such
parties with respect to the subject matter hereof.
This Agreement will supersede all other agreements,
oral or in writing, between the parties hereto with
respect to the subject matter hereof.
(d) No change or modifications of this Agreement shall be
valid unless the same shall be in writing and signed
by Employee and an authorized representative of the
Company other than Employee. No waiver of any
provisions of this Agreement shall be valid unless in
writing and signed by the person or party granting
such waiver.
(e) If any provisions of this Agreement (or portions
thereof) shall, for any reason, be invalid or
unenforceable, such provisions (or portions thereof)
shall be ineffective only to the extent of such
invalidity or unenforceability, and the remaining
provisions or portions shall nevertheless be valid,
enforceable and of full force and effect.
(f) The section or paragraph headings or titles herein
are for convenience only and shall not be deemed a
part of this Agreement.
(g) This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an
original and all of which taken together shall
constitute a single instrument.
Page 7 of 8
<PAGE> 8
(h) No provision of this agreement shall require the
Employee to relocate his residence. Any relocation
desired by the Company shall be solely at the
Employee's option.
(i) Employee hereby represents and warrants that he is
not in violation of, and the execution, delivery and
performance of this Agreement by Employee will not
result in any violation of, or be in conflict with,
any term or provision of any judgment, decree,
contract or other instrument applicable to Employee.
(j) The Company agrees to indemnify Employee in the
manner specified therefor in the Bylaws of the
Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
in multiple counterparts, as of the date first above written.
EMPLOYER:
PRINCETON DENTAL MANAGEMENT CORPORATION
By:__________________________________
Chairman of the Board
Date:_______________
EMPLOYEE:
By:__________________________________
Charles R. Mitchell, D.D.S.
Date:_______________
Page 8 of 8
<PAGE> 1
EXHIBIT 10.2 OF FORM 10-QSB
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is executed as of January 1,
1996, by and among Princeton Dental Management Corporation, a Delaware
corporation (together with all subsidiaries and affiliates, the "Company"),
Stratum Management, Inc., an Illinois corporation ("Stratum"), and the
individuals listed on Exhibit A attached hereto (each an "Individual
Consultant" or "Consultant" and collectively the "Consultants").
RECITALS
A. Stratum is engaged in the business of providing consulting
services to the dental industry. The Individual Consultants are employees of
Stratum and have extensive experience in the dental business and/or computer
information systems business.
B. The Company desires to retain Stratum to provide consulting
services to the Company, and Stratum desires to be so retained by the Company,
all on the terms and subject to the conditions herein contained.
AGREEMENTS
NOW, THEREFORE, in consideration of the promises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Adoption of Recitals. The parties hereto adopt the foregoing
Recitals and agree and affirm that construction of this Agreement shall be
guided thereby.
2. Engagement of Stratum. The Company agrees to retain Stratum
to advise the Company and to perform the services set forth on Exhibit B
attached hereto and incorporated herein. Stratum agrees to be so retained and
to render such advice and to perform such services.
3. Stratum Duties. During the term of this Agreement, Stratum
shall perform (a) the services, duties and responsibilities described on
Exhibit B and (b) such other services, duties and responsibilities as shall be
mutually agreed upon by Stratum and the Company. In furtherance thereof,
Stratum shall provide to the Company the services of the Individual
Consultants, who shall devote their business time and attention to the duties
of Stratum hereunder on either a part time or full time basis as specified on
Exhibit A. Any additional Consultant provided by Stratum pursuant to this
Agreement shall, prior to performing services, execute a counterpart of this
Agreement and thereby become bound to its terms. "Part time basis" shall mean
such amount of business time and attention that is less than full time and
otherwise is mutually acceptable to the Company and the Individual Consultant
that is providing services to the Company on behalf of Stratum. In addition to
providing the services of the Individual Consultants, Stratum shall provide to
the Company the services of
Page 1 of 23
<PAGE> 2
those individuals chosen by Stratum to fill the positions stated on Exhibit
A and not identified thereon by name, on the basis (full time or part time)
identified for such positions on Exhibit A. The scope of services and the
Consultants performing such services may be amended from time to time upon the
mutual agreement of Stratum and the Company. In the event of any change in the
scope or the Consultants, the Company shall amend the Compensation provided
pursuant to Section 5 of this Agreement.
4. Term. Unless sooner terminated pursuant to Section 8 hereof,
the initial term of this Agreement shall commence on the date hereof and shall
continue until the first (1st) anniversary thereof ("Initial Term"). This
Agreement shall be automatically renewed for additional periods of one (1) year
each (each a "Renewal Term") unless either party gives written notice to the
other party at least ninety (90) days prior to the end of the Initial Term or
of any Renewal Term or unless otherwise terminated pursuant to the terms
hereof.
5. Compensation. As compensation for the services to be rendered
to the Company by Stratum and in consideration of the covenants made by the
Consultants in Section 9 hereof, the Company provide compensation (the
"Compensation") as follows:
(i) to Stratum, the amount of $42,000 per month, payable in
two installments due on the first and fifteenth day of each month.
The amount of monthly compensation shall be adjusted from time to time
by the Company and Consultant in accordance with the scope of the
Consultants' duties, as described in Section 3 of this Agreement.
(ii) to Stratum, or to an entity specified for such purpose by
Stratum, on the date hereof a warrant (the "Warrant" or "Warrants"),
entitling the holder to purchase Six Hundred Thousand (600,000)
shares at the price of One Dollar ($1.00) per share, in the form of
Exhibit D attached hereto. The Warrants shall be subject to
registration rights provided in Section of this Agreement.
Stratum shall be solely responsible for compensating its employees and for
paying any and all expenses incurred by its employees and/or Stratum in
performing the services set forth in Section 3 hereof. The Company shall have
no obligations of any kind whatsoever with respect to the compensation of the
Individual Consultants or with respect to the payment of any expenses incurred
by the Individual Consultants and/or Stratum in connection with the actions
contemplated to be performed pursuant to this Agreement.
6. No Partnership or Joint Venture: Independent Contractors. The
Company and the Consultants agree that:
(a) the parties hereto intend by this Agreement solely to
effect the appointment of Stratum as an independent contractor. No other
relationship is intended to be created between the parties hereto. Nothing in
this Agreement shall be construed as (i) giving the Consultants any rights as a
partner of the Company, (ii) giving the Company any rights as a partner or
owner of Stratum, (iii) entitling the Consultants to control in any manner the
conduct of the Company's business, or (iv) entitling the Company to control in
any
Page 2 of 23
<PAGE> 3
manner the Consultants' business other than the duties and responsibilities
assigned to Stratum hereunder; and
(b) in performing the services described in this
Agreement, the Consultants shall at all times operate as independent
contractors, each maintaining his own organization as a distinct and separate
legal entity from that of the Company. The Consultants and the Company hereby
acknowledge and agree that (i) the Consultants shall be solely responsible for
and shall pay all taxes in respect of their income and engagement hereunder,
and (ii) the Consultants shall in no event be entitled to any benefits accruing
to any employees of the Company pursuant to contract or state or federal law.
(c) in rendering services to the Company, the Consultants
shall be independent contractors, and the Consultants shall have no power to
bind the Company with respect to any matter whatsoever.
7. Representations and Warranties of Consultants. Consultants
represent and warrant to the Company that:
(a) Stratum is a corporation duly organized, existing and
in good standing under the laws of the State of Illinois. Stratum has all
necessary corporate power and authority to conduct its business as such
business is now or proposed to be conducted.
(b) Stratum has qualified as a foreign corporation, and
is in good standing, under the laws of all jurisdictions where the nature of
its business requires its qualification, including its responsibilities and
duties hereunder.
(c) Stratum has full corporate power and authority to
enter into and deliver this Agreement. The execution and delivery of this
Agreement by Stratum and the performance by Stratum of all of its obligations
under this Agreement have been duly authorized and approved prior to the date
hereof by Stratum's Board of Directors. This Agreement has been duly executed
and delivered by duly authorized officers of Stratum.
(d) neither the execution and delivery of this Agreement
by Stratum, nor the performance by Stratum of the services contemplated
hereunder will conflict with, or result in a breach of, the terms, conditions
or provisions of Stratum's Articles of Incorporation or By-laws, or of any
statute or administrative regulations applicable to Stratum, or of any order,
writ, injunction, judgment or decree by any court or any governmental authority
applicable to Stratum, or of any arbitration award applicable to Stratum.
Page 3 of 23
<PAGE> 4
8. Termination of Consulting Arrangement.
(a) The Company may terminate this Agreement at any time
upon thirty (30) days notice for Just Cause (as herein defined) or upon a
material breach (other than a breach constituting Just Cause) by the
Consultants, or any of them, of the provisions of this Agreement to be
performed by the Consultants, including, without limitation, a breach of
Section 9 hereof. For purposes hereof, the occurrence of any of the following
events with respect to the Consultants or any Consultant shall constitute "Just
Cause": (i) conviction of a felony, (ii) dishonesty or fraud, (iii)
embezzlement or theft, (iv) the performance of services for or the taking of
actions intended to further the business of a competitor of the Company or the
taking of any action which intentionally damages the business of the Company,
(v) material breach of the terms of this Agreement, (vi) death or any mental or
physical incapacity which prevents any Consultant from performing the duties
required hereunder for a period of fifteen (15) days, which Consultant is not
replaced by a Consultant satisfactory to the Company within fifteen (15) days,
and (vii) termination of the Company's Employment Agreement with Charles
Mitchell, D.D.S. for any reason.
(b) Stratum may terminate this Agreement upon a material
breach by the Company of the provisions of this Agreement to be performed by
the Company.
9. Disclosure of Information: Non-Competition, Non-Solicitation,
Cooperation. The Company and each Consultant acknowledges and agrees that, as
a result of this Agreement, each Consultant will occupy a position of trust
with respect to information of a secret or confidential nature belonging to the
Company. As an inducement for the Company to enter into this Agreement, each
Consultant agrees that:
(a) he shall not at any time, whether in the course of
his engagement with the Company or thereafter, use or disclose directly or
indirectly to any person outside of the Company or Stratum any information of a
secret or confidential nature, provided, however, that any disclosure of any
such information may be made in response to a validly issued subpoena or other
process of law or to enforce Consultant's rights hereunder. For purposes of
this Agreement, the term "information of a secret or confidential nature" shall
mean information of any nature and in any form:
(i) which is the property of or used by the
Company;
(ii) which has been or will be imparted by the
Company to, or otherwise received by, any
Consultant during the term of this Agreement;
and
(iii) which at the time or times concerned is not
generally known to other persons engaged in
businesses similar to those conducted by the
Company (other than by reason of the act or
acts of any person or entity not authorized
by the Company to disclose such information).
Page 4 of 23
<PAGE> 5
Information of a secret or confidential nature includes, without limitation,
proprietary trade secrets and proprietary customer and marketing data and any
and all work product of any kind whatsoever produced and/or created by the
Consultants for the Company during Stratum's engagement hereunder.
(b) Promptly upon the termination of Stratum's engagement
hereunder for whatever reason, each Consultant shall return to the Company
originals and all copies (whether prepared by the Company or by the
Consultants), of all books, records, computer data, notes, materials, memoranda
and other data pertaining to information of a secret or confidential nature,
which are in his possession at the time of termination of this Agreement or
such Consultant's engagement hereunder. Consultants acknowledge that they do
not have, nor can they acquire, any property rights or claims in or to any
materials or the underlying data.
(c) Upon the termination by the Company of Stratum's
engagement hereunder for Just Cause or upon termination of Stratum's engagement
hereunder by Stratum other than pursuant to Section 8(b), each Consultant
hereby agrees that he shall not, directly or indirectly: (i) for a period of
one (1) year after such termination, maintain a dental office, clinic,
laboratory or other similar facility within any of the areas located within ten
(10) miles of any such currently existing facility of the company ("Area"), or
(ii) for a period of six (6) months after such termination, become a
consultant, partner, member, employee, agent, advisor or investor, or
participate in any manner, with or in any sole proprietorship, partnership,
corporation or any other entity, which, whether directly or indirectly,
competes with the Company in any fashion whatsoever in the Area; provided,
however, that this restrictive covenant shall not be construed to prohibit any
activity of a Consultant described on Exhibit C attached hereto, and further
provided, however, that nothing in this paragraph or this Agreement shall be
construed to prohibit or limit in any way any Consultant from investing in the
Company or any class of securities of any corporation that are listed on a
national securities exchange or registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934 and traded in the over-the-counter market, if
such Consultant shall beneficially own less than three percent of any class of
securities of such corporation.
(d) Upon the termination of Stratum's engagement
hereunder for Just Cause, each Consultant hereby agrees that he will not,
directly or indirectly: (i) for a period of two (2) years after such
termination, solicit the patients, employees, agents, or affiliates of the
Company for any business purpose currently competitive with the business of the
Company in the Area, or (ii) for a period of six (6) months after such
termination, become a consultant, partner, member, employee, agent, advisor or
investor, or participate in any manner, with or in any sole proprietorship,
partnership, corporation or any other entity, which, whether directly or
indirectly, makes any such solicitations in any fashion whatsoever in the Area;
provided, however, that this restrictive covenant shall not be construed to
prohibit any activity of a Consultant described on Exhibit C attached hereto,
and further provided, however, that nothing in this paragraph or this Agreement
shall be construed to prohibit or limit in any way any Consultant from
investing in the Company or any class of securities of any corporation that are
listed on a national securities exchange or registered pursuant to Section
12(g) of the Securities Exchange Act of 1934 and traded in the over-the-counter
market, if such
Page 5 of 23
<PAGE> 6
Consultant shall beneficially own less than three percent of any class of
securities of such corporation.
(e) At the request of the Company made at any time or
from time to time hereafter (but only time after the expiration or termination
of Stratum's engagement hereunder by Stratum (other than pursuant to Section
8(c)) or by the Company for Just Cause), each Consultant hereby agrees to make,
execute and deliver all applications, papers, assignments, conveyances,
instruments or other documents and shall perform or cause to be performed such
other acts as the Company deems necessary or desirable to implement any of the
provisions of this Agreement, and shall give testimony and cooperate with the
Company or its representatives in any controversy or legal proceeding involving
the Company but not involving Stratum or any Individual Consultant.
(f) Each Consultant hereby acknowledges and agrees that
the Company would not have an adequate remedy at law for the breach or
threatened breach by the Consultants of any one or more of the covenants set
forth in this Section 9, and agree that, in the event of such a breach or
threatened breach, whether before or after the expiration or termination of
this Agreement, the Company may, in addition to any other remedies which it may
have available to it, at its option (a) enjoin any Consultant from breach or
threatened breach of such covenants, or (b) seek damages from any Consultant.
10. Modification. This Agreement constitutes the full and
complete understanding and agreement of the parties with respect to the subject
matter hereof, supersedes any prior understanding or agreements, and cannot be
changed or terminated other than by mutual consent in writing.
11. Assignment. The rights and benefits of the Company and its
permitted assigns under this Agreement shall be freely transferable to any
other entity to which it has sold all of its voting equity securities or to
which it has sold all or substantially all of its assets and, in either case,
which has assumed the Company's liabilities under this Agreement, or with which
it has merged or consolidated under applicable law and in which merger the
Company is not surviving entity, or to whom the rights and benefits of this
Agreement have been assigned pursuant to a security agreement (at the option of
such secured party), and in the event of any such assignment or transfer, all
covenants and agreements hereunder shall inure to the benefit of, and be
enforceable by or against the successors and assigns of the Company. This
Agreement is a personal service contract and shall not be assignable by Stratum
(insofar as applicable), but all obligations and agreements of Stratum shall be
binding upon and enforceable against the successors of Stratum.
12. Notices. Any and all notices, elections and communications
required or permitted under this Agreement shall be made or given in writing
and shall be: (a) delivered in person; or (b) sent by postage, pre-paid United
States Mail, certified or registered mail, return receipt requested; or (c) by
Express Mail; or (d) by Federal Express, United Parcel Service, or a bonded and
licensed national courier, to the other party at the addresses set forth below,
and such address or addresses for a party, not to exceed three (3), as may be
furnished by notice in accordance with this paragraph. The date of notice
given by personal
Page 6 of 23
<PAGE> 7
delivery shall be the date of such delivery, as evidenced by the date set forth
on the receipt signed by the party receiving notice, and the effective date of
notice by mail, Express Mail, Federal Express, United Parcel Service or a
bonded and licensed national courier shall be the date of delivery to the party
receiving such notice, as evidenced by the date set forth on the receipt signed
by the party receiving such notice. Any notice attempted to be given by mail,
Express Mail, Federal Express, United Parcel Service or a bonded and licensed
national courier which is refused by or for the party to whom the same is
attempted to be given, shall be deemed to have been given on the date of
mailing, if mailed, or the date of receipt by Federal Express or Untied Parcel
Service or a bonded and licensed national courier, if sent by Federal Express
or United Parcel Service or a bonded and licensed national courier.
If intended for Stratum or any of the Individual Consultants:
Stratum, Inc.
2358 Hassell Road
Hoffman Estates, IL 60195
Attn.: William J. Maricondia, D.D.S.
If intended for the Company:
Princeton Dental Management Corporation
2358 Hassell Road
Hoffman Estates, IL 60195
Attn.: President
With a copy to:
Chuhak & Tecson, P.C.
225 West Washington, Suite 1300
Chicago, IL 60606
Attn.: Edwin I. Josephson, Esq.
In the event that the last day for giving notice hereunder falls upon a
Saturday, Sunday or a legal holiday, the last day shall be deemed to be the
next day which is neither a Saturday, Sunday nor a legal holiday.
13. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, and each such counterpart
shall constitute one instrument.
14. Construction. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective or valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
Page 7 of 23
<PAGE> 8
15. Non-Waiver. The failure in any one or more instances of a
party to insist upon performance of any of the terms, covenants or conditions
of this Agreement, to exercise any right or privilege in this Agreement
conferred, or the waiver by said party of any breach of any of the terms,
covenants or conditions of this Agreement, shall not be construed as a
subsequent waiver of any such terms, covenants, conditions, rights or
privileges but the same shall continue and remain in full force and effect as
if no forbearance or waiver had occurred. Any provision of this Agreement may
be waived by the party for whose benefit it is made, but no waiver shall be
effective unless it is in writing and signed by an authorized representative of
the waiving party.
16. Applicable Law, Venue. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Illinois applicable
to contracts made in that State. This Agreement is made and entered into in
Chicago, Illinois and each party hereto hereby irrevocably agrees to submit
itself or himself to the jurisdiction of the Circuit Court of Cook County,
Illinois in the event of any dispute regarding this Agreement.
[END OF TEXT ON THIS PAGE]
Page 8 of 23
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
PRINCETON DENTAL MANAGEMENT CORPORATION
By:_____________________________________
Its:___________________________
STRATUM MANAGEMENT, INC.
By:_____________________________________
William J. Maricondia, D.D.S.
________________________________________
William J. Maricondia, D.D.S.
________________________________________
Michael P. Mitchell
________________________________________
Javier Limones
Page 9 of 23
<PAGE> 10
EXHIBIT A
List of Consultants
1. Michael P. Mitchell Part Time
2. William J. Maricondia, D.D.S. Part Time
3. Javier Limones Part Time
4. Dental Director Full Time
5. Human Resources Part Time
6. Marketing Part Time
7. Financial Full Time
8. Dental Administration Full Time
9. Administrative Assistant Full Time
<PAGE> 11
EXHIBIT B
Description of Consulting Services
Stratum shall be responsible for consulting with and making
recommendations to the Company with respect to the management of all operations
of the Company other than public company reporting activities, legal services,
and accounting and other financial reporting activities; provided that all such
management and operations shall in all cases be undertaken by the directors,
officers and employees of the Company and not by Stratum and its employees, and
Stratum may not take any action with respect to the Company that legally binds
the Company without the prior written approval of the Board of Directors of the
Company.
Page 10 of 23
<PAGE> 12
EXHIBIT C
The principals of Stratum Management, William J. Maricondia, D.D.S.,
Michael P. Mitchell and Javier Limones, are currently involved in consulting in
the dental industry. The business that the principles have been engaged in
prior to the signing of this contract should be excluded from any and all non
compete clause of this contract.
Consulting with insurance companies nationwide.
Development of dental office management systems and software.
Development of insurance claims processing software.
The practice of dentistry in Chicago, and its Southern Suburbs.
The operation of a commercial dental laboratory in Chicago.
The operation of a dental supply business in Chicago.
Development of dental preferred provider networks, (P.P.O.'s).
Any and all business with JCPenney Financial Services, Inc.
Any and all business with American Dental Corp., Dallas, TX.
Management and operation of prepaid, capitated, dental plans.
Any and all business presently being transacted by Strategic Computer Support,
Inc. and Unicare, Inc.
Except from the above, any direct dental office purchasing and management other
than the dental offices located in the Chicago area at the following addresses
___________________ and ___________________.
Page 11 of 23
<PAGE> 13
EXHIBIT D
TO
CONSULTING AGREEMENT
This Warrant and the Common Stock issuable upon exercise hereof have not been
registered or qualified for sale under the Securities Act of 1933, as amended,
and may not be offered, sold or transferred in the absence of such registration
or an exemption therefrom under said Act.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
PRINCETON DENTAL MANAGEMENT CORPORATION
VOID AFTER JANUARY 1, 2006
THIS IS TO CERTIFY that, for value received and subject to the
provisions hereinafter set forth, [STRATUM MANAGEMENT, INC.] [LIMITED LIABILITY
COMPANY], or registered assigns, is entitled to purchase from PRINCETON DENTAL
MANAGEMENT CORPORATION, a Delaware corporation (the "Corporation"), prior to
the expiration of this Warrant established pursuant to Paragraph 2 hereof, the
Number of Warrant Shares (as hereinafter defined), as applicable, of Common
Stock of the Corporation, of the par value of $.001 per share, subject to the
provisions and adjustments and upon the terms and conditions hereinafter set
forth, at the Purchase Price (as hereinafter defined) payable in cash.
1. Definitions. In addition to the terms defined elsewhere in
this Warrant, the following terms have the following respective meanings:
"Commission" means the Securities and Exchange Commission.
"Common Stock" as used herein shall mean the Common Stock of the
Corporation, $.001 par value per share.
"Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable for
Additional Shares of Common Stock, either immediately or upon the arrival of a
specified date or the happening of a specified event.
Page 12 of 23
<PAGE> 14
"Holders" means the holders of the Registrable Shares who are parties
to this Agreement or successors or assigns or subsequent holders contemplated
by Section 13 hereof.
"Market Price" shall mean with respect to any security the average of
the closing prices of such security's sale on all recognized securities
exchanges on which such security may at the time be listed, or, if there has
been no sale on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if on
any day such security is not so listed, the average of the representative bid
and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time,
or, if on any day such security is not quoted in the NASDAQ System, the average
of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which "Market Price" is
being determined and the 20 consecutive business days prior to such day. If at
any time such security is not listed on any securities exchange or quoted in
the NASDAQ System or the over-the-counter market, the "Market Price" will be
the fair value thereof as reasonably determined by the Board of Directors of
the Corporation acting in good faith.
"Number of Warrant Shares" shall mean, at the time of any exercise of
the Warrants (a) if no adjustments have theretofore been made pursuant to the
provisions of Paragraph 4 hereof, the Original Number of Warrant Shares and (b)
if any one or more such adjustments have been so made, the amount to which the
Original Number of Warrant Shares shall have been so adjusted pursuant to the
terms of this Warrant, in each case reduced appropriately by the Number of
Warrant Shares theretofore purchased pursuant to the exercise of the Warrants.
"Options" shall mean any rights or options to subscribe for or to
purchase Common Stock or Convertible Securities.
"Original Number of Warrant Shares" shall mean _________ fully paid
and non-assessable shares of Common Stock of the Corporation.
"Person" means a natural person, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or other entity, or a
governmental entity or any department, agency or political subdivision thereof.
"Piggyback Registration" shall have the meaning ascribed to such term
in Paragraph 12A.
"Purchase Price" shall mean $1.00 per Warrant Share, as adjusted
pursuant to the terms and conditions thereof.
"Registrable Shares" means, at any time, any shares of Common Stock
issued or issuable upon exercise of the Warrant, and any shares of Common Stock
issued as, or
Page 13 of 23
<PAGE> 15
issued or issuable directly or indirectly upon the conversion or exercise of
other securities issued as, a dividend or other distribution with respect to or
in replacement of the Warrant, the shares issuable upon exercise of the
Warrant, or other Registrable Shares; provided, however, that Registrable
Shares shall not include any shares the sale of which has been registered
pursuant to the Securities Act or which have been sold to the public pursuant
to Rule 144 of the Commission under the Securities Act. For purposes of this
Agreement, a Person will be deemed to be a holder of Registrable Shares
whenever such Person has the right to acquire such Registrable Shares (by
conversion, exercise or otherwise), whether or not such acquisition has
actually been effected.
"Registration Expenses" has the meaning ascribed to it in Paragraph
12G of this Agreement.
"Restricted Stock" shall mean the shares of Common Stock issued upon
the exercise of the Warrants and evidenced by a certificate required to bear
the legend specified in Paragraph 11 hereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Subsidiary" means any Person of which securities or other ownership
interests representing more than fifty percent (50%) of the ordinary voting
power are, at the time as of which any determination is being made, owned or
controlled by the Corporation or one or more Subsidiaries of the Corporation or
by the Corporation and one or more Subsidiaries of the Corporation.
"Underlying Shares" shall mean the shares of Common Stock issuable
upon exercise of any of the Warrants.
"Warrant Shares" shall mean shares of Common Stock purchased or
purchasable by the holder of this Warrant upon the exercise hereof.
"Warrants" as used herein shall mean this Warrant and any other
Warrants issued pursuant to the terms and provisions of Paragraphs 13 or 14
hereof.
2. Accrual of Warrants; Exercise of Warrant. Subject to the
conditions hereinafter set forth, the holder may exercise the Warrant to
purchase Warrant Shares prior to expiration pursuant to the following schedule:
(1) a number equal to the fraction of the number of Warrant Shares having the
number five (5) as its numerator and the number seven (7) as its denominator,
upon the execution of this Warrant by the Company; and (2) a number equal to
the fraction of the number of Warrant Shares having the number two (2) as its
numerator and the number seven (7) as its denominator upon the earlier to occur
of the termination of the Consulting Agreement or December 31, 1996. If this
Warrant is exercised in respect of less than all of the shares of Common Stock
at the time purchasable hereunder, the holder hereof shall be entitled to
receive a new Warrant covering the number of shares in respect
Page 14 of 23
<PAGE> 16
of which this Warrant shall not have been exercised; provided, however, that
this Warrant and all rights and options hereunder shall expire at the close of
business on December 31, 1998. This Warrant and all options and rights
hereunder shall be wholly void to the extent that this Warrant is not exercised
before it expires.
3. Reservation of Common Stock. The Corporation covenants and
agrees that during the period within which the rights represented by this
Warrant may be exercised, the Corporation will at all times have authorized,
and in reserve, a sufficient number of shares of its Common Stock to provide
for the exercise of the rights represented by this Warrant.
4. Protection Against Dilution. The Number of Warrant Shares
deliverable hereunder shall be adjusted as hereinafter set forth:
A. Stock Dividends, Subdivisions and Combinations. In
case after the date hereof the Corporation shall:
(1) take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend
payable in, or other distribution of, Common Stock, or
(2) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock, or
(3) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock,
then the number of Warrant Shares shall be adjusted to that Number of
Warrant Shares determined by multiplying the Number of Warrant Shares
which could be purchased hereunder immediately prior to such event by
a fraction (i) the numerator of which shall be the total number of
outstanding shares of Common Stock of the Corporation immediately
after such event, and (ii) the denominator of which shall be the total
number of outstanding shares of Common Stock of the Corporation
immediately prior to such event.
B. Other Provisions, Applicable to Adjustments Under
this Section. The following provisions shall be applicable to the
making of adjustments in the Number of Warrant Shares hereinbefore
provided in this paragraph:
(1) Record Date. If the Corporation takes a
record of the holders of common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution
payable in Common Stock, or (ii) to subscribe for or purchase
Common Stock, then for purposes of this paragraph such record
date will be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon
the declaration of such dividend or upon the making of such
other distribution or the date of the granting of such right
of subscription or purchase, as the case may be. If
thereafter the
Page 15 of 23
<PAGE> 17
Corporation shall have legally abandoned its plan to make such
dividend or distribution without having made such dividend or
distribution, then the number of shares of Common Stock deemed
to have been issued and outstanding shall no longer be computed
as set forth in Paragraph 4A above and the Number of Warrant
Shares shall forthwith be readjusted and thereafter be the
Number of Warrant Shares which it would have been had the
adjustment of the Number of Warrant Shares been made upon the
issuance of such stock dividend rather than the taking of the
record of holders with respect thereto.
(2) Treasury Shares. The number of shares of
Common Stock outstanding at any given time does not include
shares owned or held by or for the account of the Corporation
or any subsidiary, and the disposition of any shares so owned
or held will be considered an issue or sale of Common Stock.
C. Adjustment of Purchase Price. Whenever the Number of
Warrant Shares hereunder shall be adjusted as set forth in this
Paragraph 4, the Purchase Price shall be correspondingly adjusted by
multiplying the Purchase Price then in effect by a fraction, (i) the
numerator of which shall be the total number of outstanding shares of
Common Stock of the Corporation prior to such adjustment, and (ii) the
denominator of which shall be the total number of outstanding shares
of Common Stock of the Corporation immediately after such adjustment.
D. Notice of Adjustments. Whenever the Number of
Warrant Shares purchasable and the Purchase Price shall be required to
be adjusted pursuant to this Paragraph 4, the Corporation shall
promptly prepare a certificate signed by the President or a Vice
President and by the Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated
(including a description of the basis on which the Board of Directors
of the Corporation made any determination hereunder), and shall
promptly cause copies of such certificate to be mailed (by first
class mail postage prepaid) to each of the holders of the Warrants.
5. Mergers, Consolidations, Sales. In the case of any
consolidation or merger of the Corporation with another entity, or the sale of
all or substantially all of its assets to another entity, or any reorganization
or reclassification of the Common Stock or other equity securities of the
Corporation (except a subdivision or combination of the Common Stock provision
for which is made in Paragraph 4A), then, as a condition of such consolidation,
merger, sale, reorganization or reclassification, lawful and adequate provision
shall be made whereby the holders of the Warrants shall thereafter have the
right to receive upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
purchasable hereunder, such shares of stock, securities or assets as may (by
virtue of such consolidation, merger, sale, reorganization or reclassification)
be issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock equal to the number of shares of Common
Stock immediately theretofore so purchasable hereunder had such consolidation,
merger, sale, reorganization or reclassification not taken place, and in any
such case appropriate
Page 16 of 23
<PAGE> 18
provisions shall be made with respect to the rights and interests of the
holders of the Warrants to the end that the provisions hereof (including, but
not limited to, provisions for adjustment of the Number of Warrant Shares and
Purchase Price) shall thereafter be applicable as nearly as may be, in relation
to any shares of stock, securities or assets thereafter deliverable upon
exercise of this Warrant. The Corporation shall not affect any such
consolidation, merger or sale, unless prior to or simultaneously with the
consummation thereof, the successor entity (if other than the Corporation)
resulting from such consolidation or merger or the entity purchasing such
assets shall assume by written instrument executed and mailed or delivered to
each holder of the Warrants, the obligation to deliver to such holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to receive.
6. Dissolution or Liquidation. In the event of any proposed
distribution of the assets of the Corporation in dissolution or liquidation
(except under circumstances when the foregoing Paragraph 5 shall be applicable)
the Corporation shall mail notice thereof to the holders of the Warrants and
shall make no distribution to stockholders until the expiration of 30 days from
the date of mailing of the aforesaid notice and, in any such case, the holders
of the Warrants may exercise the conversion rights with respect to the Warrants
within 30 days from the date of mailing such notice and all rights herein
granted not so exercised within such 30 day period shall thereafter become null
and void.
7. Notice of Extraordinary Dividends. If the Board of Directors
of the Corporation shall declare any dividend or other distribution on its
common Stock except out of earned surplus or by way of a stock dividend payable
on its Common Stock, the Corporation shall mail notice thereof to the holders
of the Warrants not less than 30 days prior to the record date fixed for
determining stockholders entitled to participate in such dividend or other
distribution or be entitled to any rights on account or as a result thereof
unless and to the extent that the Warrants are exercised prior to such record
date.
8. Fractional Shares. Fractional shares shall not be issued upon
the exercise of this Warrant but in any case where the holder hereof would,
except for the provisions of this paragraph, be entitled under the terms hereof
to receive a fractional share upon the complete exercise of this Warrant, the
Corporation shall, upon the exercise of this Warrant for the largest number of
whole shares then called for, pay a sum in cash equal to the Market Price of
such fractional share.
9. Fully Paid Stock; Taxes. The Corporation covenants and agrees
that the shares of stock represented by each and every certificate for its
Common Stock to be delivered on the exercise of the conversion rights herein
provided for shall, at the time of such delivery, be validly issued and
outstanding and be fully paid and nonassessable. The Corporation further
covenants and agrees that it will pay when due and payable any and all federal
and state taxes (other than Income taxes) which may be payable in respect of
the Warrants or any Common Stock or certificates therefor upon the exercise of
the conversion rights herein provided for pursuant to the provisions hereof.
Page 17 of 23
<PAGE> 19
10. Closing of Transfer Books. The right to exercise any Warrant
shall not be suspended during any period while the stock transfer books of the
Corporation for its Common Stock may be closed. The Corporation shall not be
required, however, to deliver certificates of its Common Stock upon such
exercise while such books are duly closed for any purpose, but the Corporation
may postpone the delivery of the certificates for such Common Stock until the
opening of such books, and they shall, in such case, be delivered forthwith
upon the opening thereof, or as soon as practicable thereafter.
11. Restrictions on Transferability of Warrants and Common Stock;
Compliance with Laws. This Warrant and the Common Stock issued upon the
exercise hereof shall not be transferable except upon the conditions
hereinafter specified, which conditions are intended to insure compliance with
the provisions of the Securities Act of 1933 (or any similar federal statute at
the time in effect) in respect of the transfer of any Warrant or any such
Common Stock.
A. Restrictive Legends. Each Warrant shall bear on the
face thereof a legend substantially in the form of the notice endorsed
on the first page of this Warrant. Each certificate for shares of
Common Stock initially issued upon the exercise of any Warrant and
each certificate for shares of Common Stock issued to a subsequent
transferee of such certificate shall, unless otherwise permitted by
the provisions of this paragraph, bear on the face thereof a legend
reading substantially as follows:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as amended,
and may not be offered, sold or transferred in the absence of
such registration or an exemption therefrom under said Act,
and are transferable only upon the conditions specified in the
Warrant pursuant to which such shares were issued."
B. Removal of Legend. In the event that a registration
statement covering the Underlying Shares or the Restricted Stock shall
become effective under the Securities Act or in the event that the
Corporation shall receive an opinion of its counsel that, in the
opinion of such counsel, such legend is not, or is no longer,
necessary or required (including, but not limited to, because of the
availability of the exemption afforded by Rule 144 of the General
Rules and Regulations of the Commission), the Corporation shall, or
shall instruct its transfer agents and registrars to, remove such
legend from the certificates evidencing the Restricted Stock or issue
new certificates without such legend in lieu thereof. Upon the
written request of the holder or holders of any Warrant or any
Restricted Stock the Corporation covenants and agrees forthwith to
request its counsel to render an opinion with respect to the matters
covered by this paragraph and to bear all expenses in connection with
the same.
12. Registration Rights.
Page 18 of 23
<PAGE> 20
A. Right to Piggyback. Whenever securities of
the Corporation are to be registered under the Securities Act, and the
registration form to be used may be used for the registration of
Registrable Shares (a "Piggyback Registration"), the Corporation will
give prompt written notice (and in any event within three business
days after its receipt of notice of any exercise of demand
registration rights by holders of the Corporation's securities other
than the Registrable Shares) to all Holders of Registrable Shares of
its intention to effect such a registration and will include in such
registration all Registrable Shares with respect to which the
Corporation has received written requests for inclusion therein within
21 days after the Corporation's notice has been given.
B. Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the
Corporation, and the managing underwriters advise the Corporation in
writing that in their opinion the number of securities requested to be
included in such offering in the registration creates a substantial
risk that the price per share of Common Stock will be reduced, the
Corporation will include in such registration (i) first, the
securities the Corporation proposes to sell, (ii) second, the
Registrable Shares requested to be included in such registration which
in the opinion of such underwriters can be sold in such offering
without creating such a risk, pro rata among the Holders of such
Registrable Shares on the basis of the number of Registrable Shares
owned by such holders, with further successive pro rata allocations
among the Holders of Registrable Shares if any such holder has
requested the registration of less than all the Registrable Shares
such Person is entitled to register, and (iii) third, other securities
requested to be included in such registration.
C. Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of
holders of the Corporation's securities, and the managing
underwriters advise the Corporation in writing that in their opinion
the inclusion of the number of securities requested to be included in
such offering creates a substantial risk that the price per share of
Common Stock will be reduced, the Corporation will include in such
registration the Registrable Shares requested to be included in such
registration and the securities requested to be included therein by
the holders of the Corporation's securities requesting such
registration (all such Registrable Shares and other securities
requesting such registration being collectively referred to as the
"Secondary Shares") which in the opinion of such underwriters can be
sold in such offering without creating such a risk, pro rata among the
holders of such Secondary Shares on the basis of the number of
Secondary Shares owned or deemed to be owned by such holders, with
further successive pro rata allocations among the holders of Secondary
Shares if any such holder of Secondary Shares has requested the
registration of less than all such Secondary Shares such Person is
entitled to register.
D. Other Registrations. If the Corporation has
previously filed a registration statement which includes Registrable
Shares, and if such previous registration has not been withdrawn or
abandoned, the Corporation will not file or cause to be effected any
other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity
securities under the Securities Act (except on Form S-4 or Form S-8),
whether on its own behalf or at the request of any holder or holders
of such securities,
Page 19 of 23
<PAGE> 21
until a period of 90 days has elapsed from the effective date of such
previous registration.
E. Limitations on Registrations. The Corporation shall
not register any of its securities for sale for its own account (other
than securities issued to employees of the Corporation under an
employee benefit plan or securities issued to effect a business
combination pursuant to Rule 145 promulgated under the Securities Act
and other than a registration on Form S-3) except as a firm commitment
underwriting.
F. Compliance with Rule 144 and Rule 144A. At any time
and from time to time after (a) the Corporation registers a class of
securities under Section 12 of the Securities Exchange Act, or (b)
the expiration of 90 days following the close of business on the
earlier of such date as the Corporation commences to file reports under
Section 13 or Section 15(d) of the Securities Exchange Act, then at the
request of any holder who proposes to sell securities in compliance
with Rule 144 promulgated by the Commission, the Corporation will (i)
forthwith furnish to such holder a written statement of compliance with
the filing requirements of the Commission as set forth in Rule 144 as
such rule may be amended form time to time and (ii) make available to
the public and such holders such information as will enable the Holders
to make sales pursuant to Rule 144. Unless the Corporation is subject
to Section 13 or Section 15(d) of the Securities Exchange Act, the
Corporation will provide to any Holder of Registrable Shares and to any
prospective purchaser of Registrable Shares under Rule 144 promulgated
by the Commission, the information described in Rule 144A(d)(4)
promulgated by the Commission.
G. Registration Expenses.
(1) All expenses incident to the Corporation's
performance of or compliance with this Agreement, including, but not
limited to, all registration and filing fees, fees and expenses
of compliance with federal, state and foreign securities laws, printing
expenses, messenger and delivery expenses, and fees and disbursements
of counsel for the Corporation and its independent certified public
accountants, underwriters (excluding discounts and commissions
attributable to the Registrable Shares included in such registration)
and other Persons retained by the Corporation (all such expenses being
herein called "Registration Expenses"), will be borne by the
Corporation. In addition, the Corporation will pay its internal
expenses (including, but not limited to, all salaries and expenses of
its officers and employees performing legal or accounting duties), the
expense of any annual audit or quarterly review, the expense of any
liability insurance obtained by the Corporation and the expenses and
fees for listing the securities to be registered on each securities
exchange.
(2) In connection with any registration statement in
which Registrable Shares are included, the Corporation will reimburse
the Holders of Registrable Shares covered by such registration for
the reasonable cost and expenses incurred by such holders in connection
with such registration, including, but not limited to, reasonable fees
and disbursements of one counsel chosen by the Holders of a majority of
such Registrable Shares.
Page 20 of 23
<PAGE> 22
H. Holdback Agreements. Each of the Holders of
Registrable Shares agrees not to effect any public sale of equity
securities of the Corporation, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days
prior to and the 90-day period beginning on the effective date of any
underwritten Demand Registration (except as part of such underwritten
registration), unless the underwriters managing the registered public
offering otherwise agree.
13. Partial Exercise and Partial Assignment. If this Warrant is
exercised in part only, the holder hereof shall be entitled to receive a new
Warrant covering the number of shares in respect of which this Warrant shall
not have been exercised as provided in Paragraph 2 hereof. If this Warrant is
partially assigned, this Warrant shall be surrendered at the principal office
of the Corporation in Schaumburg, Illinois, and thereupon a new Warrant shall
be issued to the holder hereof covering the number of shares not assigned. The
assignee of such partial assignment of this Warrant shall also be entitled to
receive a new Warrant covering the number of shares so assigned.
14. Warrant Denominations. Warrants are issuable or transferable
in the denomination of 100 shares or any integral multiple thereof (as nearly
as may be practicable and subject to required adjustments hereunder), and the
Warrants of each denomination are interchangeable upon surrender thereof at the
office of the Corporation for Warrants of other denominations, but aggregating
the same number of shares as the Warrants so surrendered. All Warrants will be
dated the same date as this Warrant.
15. Lost, Stolen, destroyed or Mutilated Warrants. In case any
Warrant shall be mutilated, lost, stolen or destroyed, the Corporation may
issue a new Warrant of like date, tenor and denomination and deliver the same
in exchange and substitution for and upon surrender and cancellation of any
mutilated Warrant, or in lieu of any Warrant lost, stolen or destroyed, upon
receipt of evidence satisfactory to the Corporation of the loss, theft or
destruction of such Warrant, and upon receipt of indemnity satisfactory to the
Corporation.
16. Warrant Holder Not Stockholder. This Warrant does not confer
upon the holder hereof any right to vote or to consent or to receive notice as
a stockholder of the Corporation, as such, in respect of any matters
whatsoever, or any other rights or liabilities as a stockholder, prior to the
exercise hereof as hereinbefore provided.
17. Severability. Should any part of this Warrant for any reason
be declared invalid, such decision shall not affect the validity of any
remaining portion, which remaining portion shall remain in full force and
effect as if this Warrant had been executed with the invalid portion thereof
eliminated, and it is hereby declared the intention of the parties hereto that
they would have executed and accepted the remaining portion of this Warrant
without including therein any such part, parts or portion which may, for any
reason, be hereafter declared invalid.
IN WITNESS WHEREOF, PRINCETON DENTAL MANAGEMENT CORPORATION has caused
this Warrant to be signed by its President or one of its Vice Presidents and
Page 21 of 23
<PAGE> 23
attested by its Secretary or one of its Assistant Secretaries and this Warrant
to be dated as of January 1, 1996.
PRINCETON DENTAL MANAGEMENT CORPORATION
By: _____________________________
Its: _______________________
Page 22 of 23
<PAGE> 24
SUBSCRIPTION
PRINCETON DENTAL MANAGEMENT CORPORATION
The undersigned, ______________________________, pursuant to the
provisions of the within Warrant, hereby elects to purchase ____________ shares
of Common Stock of PRINCETON DENTAL MANAGEMENT CORPORATION covered by the
within Warrant.
Signature ______________________
Address _____________________
Dated: __________________
Page 23 of 23
<PAGE> 1
EXHIBIT 10.3 OF FORM 10-QSB
AMENDMENT OF WARRANT AGREEMENT
THIS FIRST AMENDMENT, made this 17th day of July, 1996 (this
"Amendment"), is made to the Stratum Warrant dated March 4, 1996 (the "Stratum
Warrant" or "Warrant Agreement") by and between PRINCETON DENTAL MANAGEMENT
CORPORATION, a Delaware corporation ("Princeton") and STRATUM MANAGEMENT, INC.
RECITALS:
A. Princeton has issued the Stratum Warrant to Stratum giving
Stratum the right to purchase up to 600,000 shares of Princeton common stock.
B. Certain lenders of Princeton have required that Stratum forfeit
its rights to certain of the Warrants as a condition of a certain Letter
Agreement.
NOW, THEREFORE, for the reasons stated above and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Bank and the Borrower hereby agree as follows.
AGREEMENTS:
SECTION 1 Amendments to Stratum Warrant. The Stratum Warrant shall be
amended by striking the term "600,000 shares" wherever it appears and
substituting in its place the term "388,000 shares." Stratum acknowledges and
agrees that the Warrant shall remain in effect except that it shall only have
the right to purchase 388,000 shares upon the terms and conditions stated
therein. Stratum agrees to execute a replacement Warrant Agreement and cancel
the existing Warrant Agreement upon the request of Princeton.
Page 1 of 2
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the date first written above.
PRINCETON DENTAL MANAGEMENT CORPORATION
By:______________________
Title:_____________________
By:_______________________
Title:______________________
Page 2 of 2
<PAGE> 1
EXHIBIT 10.4 OF FORM 10-QSB
NON-STATUTORY STOCK OPTIONS TO PURCHASE
125,000 SHARES OF COMMON STOCK
OF
PRINCETON DENTAL MANAGEMENT CORPORATION
VOID AFTER MARCH 20, 1999
THIS IS TO CERTIFY that, for value received and subject to the
provisions hereinafter set forth, JOHN H. HAGAN, or registered assigns, is
entitled to purchase from PRINCETON DENTAL MANAGEMENT CORPORATION, a Delaware
corporation (the "Corporation"), prior to the expiration of this Option
established pursuant to Paragraph 2 hereof, the Number of Option Shares (as
hereinafter defined), as applicable, of Common Stock of the Corporation, of the
par value of $.0001 per share, subject to the provisions and adjustments and
upon the terms and conditions hereinafter set forth, at the Purchase Price (as
hereinafter defined) payable in cash.
1. Definitions. In addition to the terms defined elsewhere in
this Option, the following terms have the following respective meanings:
"Commission" means the Securities and Exchange Commission.
"Common Stock" as used herein shall mean the Common Stock of the
Corporation, $.0001 par value per share.
"Holders" means the holders of the Registrable Shares who are parties
to this Agreement or successors or assigns or subsequent holders contemplated
by Section 13 hereof.
"Market Price" shall mean with respect to any security the average of
the closing prices of such security's sale on all recognized securities
exchanges on which such security may at the time be listed, or, if there has
been no sale on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if on
any day such security is not so listed, the average of the representative bid
and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time,
or, if on any day such security is not quoted in the NASDAQ System, the average
of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which "Market Price" is
being determined and the 20 consecutive business days prior to such day. If at
any time such security is not listed on any securities exchange or quoted in
the NASDAQ System or
Page 1 of 11
<PAGE> 2
the over-the-counter market, the "Market Price" will be the fair value
thereof as reasonably determined by the Board of Directors of the
Corporation acting in good faith.
"Number of Option Shares" shall mean, at the time of any exercise of
the Options (a) if no adjustments have theretofore been made pursuant to the
provisions of Paragraph 4 hereof, the Original Number of Option Shares and (b)
if any one or more such adjustments have been so made, the amount to which the
Original Number of Option Shares shall have been so adjusted pursuant to the
terms of this Option, in each case reduced appropriately by the Number of
Option Shares theretofore purchased pursuant to the exercise of the Options.
"Option Shares" shall mean shares of Common Stock purchased or
purchasable by the holder of this Option upon the exercise hereof.
"Original Number of Option Shares" shall mean 125,000 fully paid and
non-assessable shares of Common Stock of the Corporation.
"Person" means a natural person, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or other entity, or a
governmental entity or any department, agency or political subdivision thereof.
"Piggyback Registration" shall have the meaning ascribed to such term
in Paragraph 12A.
"Purchase Price" shall mean $1 and 3/16 Dollars per Option Share, as
adjusted pursuant to the terms and conditions thereof.
"Registrable Shares" means, at any time, any shares of Common Stock
issued or issuable upon exercise of the Option, and any shares of Common Stock
issued as, or issued or issuable directly or indirectly upon the conversion or
exercise of other securities issued as, a dividend or other distribution with
respect to or in replacement of the Option, the shares issuable upon exercise
of the Option, or other Registrable Shares; provided, however, that Registrable
Shares shall not include any shares the sale of which has been registered
pursuant to the Securities Act or which have been sold to the public pursuant
to Rule 144 of the Commission under the Securities Act. For purposes of this
Agreement, a Person will be deemed to be a holder of Registrable Shares
whenever such Person has the right to acquire such Registrable Shares (by
conversion, exercise or otherwise), whether or not such acquisition has
actually been effected.
"Registration Expenses" has the meaning ascribed to it in ___ of this
Agreement.
"Restricted Stock" shall mean the shares of Common Stock issued upon
the exercise of the Options and evidenced by a certificate required to bear the
legend specified in Paragraph 11 hereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
Page 2 of 11
<PAGE> 3
"Subsidiary" means any Person of which securities or other ownership
interests representing more than fifty percent (50%) of the ordinary voting
power are, at the time as of which any determination is being made, owned or
controlled by the Corporation or one or more Subsidiaries of the Corporation or
by the Corporation and one or more Subsidiaries of the Corporation.
"Underlying Shares" shall mean the shares of Common Stock issuable
upon exercise of any of the Options.
2. Accrual of Options; Exercise of Option. This Option and all
rights and options hereunder shall expire at the close of business on March 20,
1999. This Option and all options and rights hereunder shall be wholly void to
the extent that this Option is not exercised before it expires.
3. Reservation of Common Stock. The Corporation covenants and
agrees that during the period within which the rights represented by this
Option may be exercised, the Corporation will at all times have authorized, and
in reserve, a sufficient number of shares of its Common Stock to provide for
the exercise of the rights represented by this Option.
4. Protection Against Dilution. The Number of Option Shares
deliverable hereunder shall be adjusted as hereinafter set forth:
A. Stock Dividends, Subdivisions and Combinations. In
case after the date hereof the Corporation shall:
(1) take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend
payable in, or other distribution of, Common Stock, or
(2) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock, or
(3) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock,
then the number of Option Shares shall be adjusted to that Number of
Option Shares determined by multiplying the Number of Option Shares
which could be purchased hereunder immediately prior to such event by
a fraction (i) the numerator of which shall be the total number of
outstanding shares of Common Stock of the Corporation immediately
after such event, and (ii) the denominator of which shall be the total
number of outstanding shares of Common Stock of the Corporation
immediately prior to such event.
B. Other Provisions, Applicable to Adjustments
Under this Section. The following provisions shall be
applicable to the making of adjustments in the Number of
Option Shares hereinbefore provided in this paragraph:
Page 3 of 11
<PAGE> 4
(1) Record Date. If the Corporation takes a
record of the holders of Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution
payable in Common Stock, or (ii) to subscribe for or purchase
Common Stock, then for purposes of this paragraph such record
date will be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon
the declaration of such dividend or upon the making of such
other distribution or the date of the granting of such right
of subscription or purchase, as the case may be. If
thereafter the Corporation shall have legally abandoned its
plan to make such dividend or distribution without having made
such dividend or distribution, then the number of shares of
Common Stock deemed to have been issued and outstanding shall
no longer be computed as set forth in Paragraph 4A above and
the Number of Option Shares shall forthwith be readjusted and
thereafter be the Number of Option Shares which it would have
been had the adjustment of the Number of Option Shares been
made upon the issuance of such stock dividend rather than the
taking of the record of holders with respect thereto.
(2) Treasury Shares. The number of shares of
Common Stock outstanding at any given time does not include
shares owned or held by or for the account of the Corporation
or any subsidiary, and the disposition of any shares so owned
or held will be considered an issue or sale of Common Stock.
C. Adjustment of Purchase Price. Whenever the Number of
Option Shares hereunder shall be adjusted as set forth in this
Paragraph 4, the Purchase Price shall be correspondingly adjusted by
multiplying the Purchase Price then in effect by a fraction, (i) the
numerator of which shall be the total number of outstanding shares of
Common Stock of the Corporation prior to such adjustment, and (ii) the
denominator of which shall be the total number of outstanding shares
of Common Stock of the Corporation immediately after such adjustment.
D. Notice of Adjustments. Whenever the Number of Option
Shares purchasable and the Purchase Price shall be required to be
adjusted pursuant to this Paragraph 4, the Corporation shall promptly
prepare a certificate signed by the President or a Vice President and
by the Chief Financial Officer setting forth, in reasonable detail,
the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a
description of the basis on which the Board of Directors of the
Corporation made any determination hereunder), and shall promptly
cause copies of such certificate to be mailed (by first class mail
postage prepaid) to each of the holders of the Options.
5. Mergers, Consolidations, Sales. In the case of any
consolidation or merger of the Corporation with another entity, or the sale of
all or substantially all of its assets to another entity, or any reorganization
or reclassification of the Common Stock or other equity securities of the
Corporation (except a subdivision or combination of the Common Stock provision
for which is made in Paragraph 4A), then, as a condition of such consolidation,
merger, sale, reorganization or reclassification, lawful and adequate provision
shall be made
Page 4 of 11
<PAGE> 5
whereby the holders of the Options shall thereafter have the right to
receive upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock immediately theretofore purchasable
hereunder, such shares of stock, securities or assets as may (by virtue of such
consolidation, merger, sale, reorganization or reclassification) be issued or
payable with respect to or in exchange for a number of outstanding shares of
Common Stock equal to the number of shares of Common Stock immediately
theretofore so purchasable hereunder had such consolidation, merger, sale,
reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests
of the holders of the Options to the end that the provisions hereof (including,
but not limited to, provisions for adjustment of the Number of Option Shares
and Purchase Price) shall thereafter be applicable as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon exercise of this Option. The Corporation shall not affect any such
consolidation, merger or sale, unless prior to or simultaneously with the
consummation thereof, the successor entity (if other than the Corporation)
resulting from such consolidation or merger or the entity purchasing such
assets shall assume by written instrument executed and mailed or delivered to
each holder of the Options, the obligation to deliver to such holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to receive.
6. Dissolution or Liquidation. In the event of any proposed
distribution of the assets of the Corporation in dissolution or liquidation
(except under circumstances when the foregoing Paragraph 5 shall be applicable)
the Corporation shall mail notice thereof to the holders of the Options and
shall make no distribution to stockholders until the expiration of 30 days from
the date of mailing of the aforesaid notice and, in any such case, the holders
of the Options may exercise the conversion rights with respect to the Options
within 30 days from the date of mailing such notice and all rights herein
granted not so exercised within such 30 day period shall thereafter become null
and void.
7. Notice of Extraordinary Dividends. If the Board of Directors
of the Corporation shall declare any dividend or other distribution on its
common Stock except out of earned surplus or by way of a stock dividend payable
on its Common Stock, the Corporation shall mail notice thereof to the holders
of the Options not less than 30 days prior to the record date fixed for
determining stockholders entitled to participate in such dividend or other
distribution or be entitled to any rights on account or as a result thereof
unless and to the extent that the Options are exercised prior to such record
date.
8. Fractional Shares. Fractional shares shall not be issued upon
the exercise of this Option but in any case where the holder hereof would,
except for the provisions of this paragraph, be entitled under the terms hereof
to receive a fractional share upon the complete exercise of this Option, the
Corporation shall, upon the exercise of this Option for the largest
number of whole shares then called for, pay a sum in cash equal to the Market
Price of such fractional share.
9. Fully Paid Stock; Taxes. The Corporation covenants and agrees
that the shares of stock represented by each and every certificate for its
Common Stock to be delivered on
Page 5 of 11
<PAGE> 6
the exercise of the conversion rights herein provided for shall, at the
time of such delivery, be validly issued and outstanding and be fully paid and
nonassessable. The Corporation further covenants and agrees that it will pay
when due and payable any and all federal and state taxes (other than Income
taxes) which may be payable in respect of the Options or any Common Stock or
certificates therefor upon the exercise of the conversion rights herein
provided for pursuant to the provisions hereof.
10. Closing of Transfer Books. The right to exercise any Option
shall not be suspended during any period while the stock transfer books of the
Corporation for its Common Stock may be closed. The Corporation shall not be
required, however, to deliver certificates of its Common Stock upon such
exercise while such books are duly closed for any purpose, but the Corporation
may postpone the delivery of the certificates for such Common Stock until the
opening of such books, and they shall, in such case, be delivered forthwith
upon the opening thereof, or as soon as practicable thereafter.
11. Restrictions on Transferability of Options and Common Stock;
Compliance with Laws. This Option and the Common Stock issued upon the
exercise hereof shall not be transferable except upon the conditions
hereinafter specified, which conditions are intended to insure compliance with
the provisions of the Securities Act of 1933 (or any similar federal statute at
the time in effect) in respect of the transfer of any Option or any such Common
Stock.
A. Restrictive Legends. Each Option shall bear on the
face thereof a legend substantially in the form of the notice endorsed
on the first page of this Option. Each certificate for shares of
Common Stock initially issued upon the exercise of any Option and each
certificate for shares of Common Stock issued to a subsequent
transferee of such certificate shall, unless otherwise permitted by
the provisions of this paragraph, bear on the face thereof a legend
reading substantially as follows:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as amended,
and may not be offered, sold or transferred in the absence of
such registration or an exemption therefrom under said Act,
and are transferable only upon the conditions specified in the
Option pursuant to which such shares were issued."
B. Removal of Legend. In the event that a registration
statement covering the Underlying Shares or the Restricted
Stock shall become effective under the Securities Act or in the event
that the Corporation shall receive an opinion of its counsel that, in
the opinion of such counsel, such legend is not, or is no longer,
necessary or required (including, but not limited to, because of the
availability of the exemption afforded by Rule 144 of the General
Rules and Regulations of the Commission), the Corporation shall, or
shall instruct its transfer agents and registrars to, remove such
legend from the certificates evidencing the Restricted Stock or issue
new certificates without such legend in lieu thereof. Upon the
written request of the holder or holders of any Option or any
Restricted Stock the Corporation covenants and
Page 6 of 11
<PAGE> 7
agrees forthwith to request its counsel to render an
opinion with respect to the matters covered by this paragraph and to
bear all expenses in connection with the same.
12. Registration Rights.
A. Right to Piggyback. Whenever securities of the
Corporation are to be registered under the Securities Act, and the registration
form to be used may be used for the registration of Registrable Shares (a
"Piggyback Registration"), the Corporation will give prompt written notice (and
in any event within three business days after its receipt of notice of any
exercise of demand registration rights by holders of the Corporation's
securities other than the Registrable Shares) to all Holders of Registrable
Shares of its intention to effect such a registration and will include in such
registration all Registrable Shares with respect to which the Corporation has
received written requests for inclusion therein within 21 days after the
Corporation's notice has been given.
B. Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the
Corporation, and the managing underwriters advise the Corporation in writing
that in their opinion the number of securities requested to be included in such
offering in the registration creates a substantial risk that the price per
share of Common Stock will be reduced, the Corporation will include in such
registration (i) first, the securities the Corporation proposes to sell, (ii)
second, the Registrable Shares requested to be included in such registration
which in the opinion of such underwriters can be sold in such offering without
creating such a risk, pro rata among the Holders of such Registrable Shares on
the basis of the number of Registrable Shares owned by such holders, with
further successive pro rata allocations among the Holders of Registrable Shares
if any such holder has requested the registration of less than all the
Registrable Shares such Person is entitled to register, and (iii) third, other
securities requested to be included in such registration.
C. Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Corporation's securities, and the managing underwriters advise the
Corporation in writing that in their opinion the inclusion of the number of
securities requested to be included in such offering creates a substantial risk
that the price per share of Common Stock will be reduced, the Corporation will
include in such registration the Registrable Shares requested to be included in
such registration and the securities requested to be included therein by the
holders of the Corporation's securities requesting such registration (all such
Registrable Shares and other securities requesting such registration being
collectively referred to as the "Secondary Shares") which in the opinion of
such underwriters can be sold in such offering without creating such a risk,
pro rata among the holders of such Secondary Shares on the basis of the number
of Secondary Shares owned or deemed to be owned by such holders, with further
successive pro rata allocations among the holders of Secondary Shares if any
such holder of Secondary Shares has requested the registration of less than all
such Secondary Shares such Person is entitled to register.
Page 7 of 11
<PAGE> 8
D. Other Registrations. If the Corporation has
previously filed a registration statement which includes Registrable Shares,
and if such previous registration has not been withdrawn or abandoned, the
Corporation will not file or cause to be effected any other registration of any
of its equity securities or securities convertible or exchangeable into or
exercisable for its equity securities under the Securities Act (except on Form
S-4 or Form S-8), whether on its own behalf or at the request of any holder or
holders of such securities, until a period of 90 days has elapsed from the
effective date of such previous registration.
E. Limitations on Registrations. The Corporation shall
not register any of its securities for sale for its own account (other than
securities issued to employees of the Corporation under an employee benefit
plan or securities issued to effect a business combination pursuant to Rule 145
promulgated under the Securities Act and other than a registration on Form S-3)
except as a firm commitment underwriting.
F. Compliance with Rule 144 and Rule 144A. At any time
and from time to time after (a) the Corporation registers a class of securities
under Section 12 of the Securities Exchange Act, or (b) the expiration of 90
days following the close of business on the earlier of such date as the
Corporation commences to file reports under Section 13 or Section 15(d) of the
Securities Exchange Act, then at the request of any holder who proposes to sell
securities in compliance with Rule 144 promulgated by the Commission, the
Corporation will (i) forthwith furnish to such holder a written statement of
compliance with the filing requirements of the Commission as set forth in Rule
144 as such rule may be amended form time to time and (ii) make available to
the public and such holders such information as will enable the Holders to make
sales pursuant to Rule 144. Unless the Corporation is subject to Section 13 or
Section 15(d) of the Securities Exchange Act, the Corporation will provide to
any Holder of Registrable Shares and to any prospective purchaser of
Registrable Shares under Rule 144 promulgated by the Commission, the
information described in Rule 144A(d)(4) promulgated by the Commission.
G. Registration Expenses.
(1) All expenses incident to the Corporation's
performance of or compliance with this Agreement, including, but not limited
to, all registration and filing fees, fees and expenses of compliance with
federal, state and foreign securities laws, printing expenses, messenger and
delivery expenses, and fees and disbursements of counsel for the Corporation
and its independent certified public accountants, underwriters (excluding
discounts and commissions attributable to the Registrable Shares included in
such registration) and other Persons retained by the Corporation (all such
expenses being herein called "Registration Expenses"), will be borne by the
Corporation. In addition, the Corporation will pay its internal expenses
(including, but not limited to, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review, the expense of any liability insurance obtained by
the Corporation and the expenses and fees for listing the securities to be
registered on each securities exchange.
Page 8 of 11
<PAGE> 9
(2) In connection with any registration statement in
which Registrable Shares are included, the Corporation will reimburse the
Holders of Registrable Shares covered by such registration for the reasonable
cost and expenses incurred by such holders in connection with such
registration, including, but not limited to, reasonable fees and disbursements
of one counsel chosen by the Holders of a majority of such Registrable Shares.
H. Holdback Agreements. Each of the Holders of
Registrable Shares agrees not to effect any public sale of equity securities of
the Corporation, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the 90-day
period beginning on the effective date of any underwritten Demand Registration
(except as part of such underwritten registration), unless the underwriters
managing the registered public offering otherwise agree.
13. Partial Exercise and Partial Assignment. If this Option is
exercised in part only, the holder hereof shall be entitled to receive a new
Option covering the number of shares in respect of which this Option shall not
have been exercised as provided in Paragraph 2 hereof.
14. Option Denominations. Options are issuable or transferable in
the denomination of 100 shares or any integral multiple thereof (as nearly as
may be practicable and subject to required adjustments hereunder), and the
Options of each denomination are interchangeable upon surrender thereof at the
office of the Corporation for Options of other denominations, but aggregating
the same number of shares as the Options so surrendered. All Options will be
dated the same date as this Option.
15. Lost, Stolen, destroyed or Mutilated Options. In case any
Option shall be mutilated, lost, stolen or destroyed, the Corporation may issue
a new Option of like date, tenor and denomination and deliver the same in
exchange and substitution for and upon surrender and cancellation of any
mutilated Option, or in lieu of any Option lost, stolen or destroyed, upon
receipt of evidence satisfactory to the Corporation of the loss, theft or
destruction of such Option, and upon receipt of indemnity satisfactory to the
Corporation.
16. Option Holder Not Stockholder. This Option does not confer
upon the holder hereof any right to vote or to consent or to receive notice as
a stockholder of the Corporation, as such, in respect of any matters
whatsoever, or any other rights or liabilities as a stockholder, prior to the
exercise hereof as hereinbefore provided.
17. Severability. Should any part of this Option for any reason
be declared invalid, such decision shall not affect the validity of any
remaining portion, which remaining portion shall remain in full force and
effect as if this Option had been executed with the invalid portion thereof
eliminated, and it is hereby declared the intention of the parties hereto that
they would have executed and accepted the remaining portion of this Option
without including therein any such part, parts or portion which may, for any
reason, be hereafter declared invalid.
Page 9 of 11
<PAGE> 10
IN WITNESS WHEREOF, PRINCETON DENTAL MANAGEMENT CORPORATION has caused
this Option to be signed by its President or one of its Vice Presidents and
this Option to be dated as of March 21, 1996.
PRINCETON DENTAL MANAGEMENT
CORPORATION
By: ________________________
Its: _______________________
Page 10 of 11
<PAGE> 11
SUBSCRIPTION
PRINCETON DENTAL MANAGEMENT CORPORATION
The undersigned, ______________________________, pursuant to the
provisions of the within Option, hereby elects to purchase ____________ shares
of Common Stock of PRINCETON DENTAL MANAGEMENT CORPORATION covered by the
within Option.
Signature _____________________
Address _____________________
Dated: __________________
Page 11 of 11
<PAGE> 1
EXHIBIT 10.5 OF FORM 10-QSB
AMENDMENT OF OPTION AGREEMENT
THIS FIRST AMENDMENT, made this 17th day of July, 1996 (this
"Amendment"), is made to the Hagan Option dated March 21, 1996 (the "Option" or
"Option Agreement") by and between PRINCETON DENTAL MANAGEMENT CORPORATION, a
Delaware corporation ("Princeton") and John H. Hagan ("Optionee").
RECITALS:
C. Princeton has issued the Option to Optionee giving
Optionee the right to purchase up to 125,000 shares of Princeton common stock.
D. Certain lenders of Princeton have required that forfeit its
rights to certain of the Options as a condition of a certain Letter Agreement.
NOW, THEREFORE, for the reasons stated above and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Bank and the Borrower hereby agree as follows.
AGREEMENTS:
SECTION 1 Amendments to Option. The Option shall be amended by
striking the term "125,000 shares" wherever it appears and substituting in its
place the term "81,000 shares." Optionee acknowledges and agrees that the
Option shall remain in effect except that Optionee shall only have the right to
purchase 81,000 shares upon the terms and conditions stated therein.
Optionee agrees to execute a replacement Option Agreement and cancel the
existing Option Agreement upon the request of Princeton.
Page 1 of 2
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the date first written above.
PRINCETON DENTAL MANAGEMENT CORPORATION
By:______________________
Title:_____________________
By:_______________________
Title: John H. Hagan
Page 2 of 2
<PAGE> 1
EXHIBIT 10.6 OF FORM 10-QSB
NON-STATUTORY STOCK OPTIONS TO PURCHASE
125,000 SHARES OF COMMON STOCK
OF
PRINCETON DENTAL MANAGEMENT CORPORATION
VOID AFTER MARCH 20, 1999
THIS IS TO CERTIFY that, for value received and subject to the
provisions hereinafter set forth, DR. SEYMOUR KESSLER, or registered assigns,
is entitled to purchase from PRINCETON DENTAL MANAGEMENT CORPORATION, a
Delaware corporation (the "Corporation"), prior to the expiration of this
Option established pursuant to Paragraph 2 hereof, the Number of Option Shares
(as hereinafter defined), as applicable, of Common Stock of the Corporation, of
the par value of $.0001 per share, subject to the provisions and adjustments
and upon the terms and conditions hereinafter set forth, at the Purchase Price
(as hereinafter defined) payable in cash.
1. Definitions. In addition to the terms defined elsewhere in
this Option, the following terms have the following respective meanings:
"Commission" means the Securities and Exchange Commission.
"Common Stock as used herein shall mean the Common Stock of the
Corporation, $.0001 par value per share.
"Holders" means the holders of the Registrable Shares who are parties
to this Agreement or successors or assigns or subsequent holders contemplated
by Section 13 hereof.
"Market Price" shall mean with respect to any security the average of
the closing prices of such security's sale on all recognized securities
exchanges on which such security may at the time be listed, or, if there has
been no sale on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if on
any day such security is not so listed, the average of the representative bid
and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time,
or, if on any day such security is not quoted in the NASDAQ System, the average
of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which "Market Price" is
being determined and the 20 consecutive business days prior to such day. If at
any time such security is not listed on any securities exchange or quoted in
the NASDAQ System or
Page 1 of 11
<PAGE> 2
the over-the-counter market, the "Market Price" will be the fair value
thereof as reasonably determined by the Board of Directors of the Corporation
acting in good faith.
"Number of Option Shares" shall mean, at the time of any exercise of
the Options (a) if no adjustments have theretofore been made pursuant to the
provisions of Paragraph 4 hereof, the Original Number of Option Shares and (b)
if any one or more such adjustments have been so made, the amount to which the
Original Number of Option Shares shall have been so adjusted pursuant to the
terms of this Option, in each case reduced appropriately by the Number of
Option Shares theretofore purchased pursuant to the exercise of the Options.
"Option Shares" shall mean shares of Common Stock purchased or
purchasable by the holder of this Option upon the exercise hereof.
"Original Number of Option Shares" shall mean 125,000 fully paid and
non-assessable shares of Common Stock of the Corporation.
"Person" means a natural person, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or other entity, or a
governmental entity or any department, agency or political subdivision thereof.
"Piggyback Registration" shall have the meaning ascribed to such term
in Paragraph 12A.
"Purchase Price" shall mean $1 and 3/16 Dollars per Option Share, as
adjusted pursuant to the terms and conditions thereof.
"Registrable Shares" means, at any time, any shares of Common Stock
issued or issuable upon exercise of the Option, and any shares of Common Stock
issued as, or issued or issuable directly or indirectly upon the conversion or
exercise of other securities issued as, a dividend or other distribution with
respect to or in replacement of the Option, the shares issuable upon exercise
of the Option, or other Registrable Shares; provided, however, that Registrable
Shares shall not include any shares the sale of which has been registered
pursuant to the Securities Act or which have been sold to the public pursuant
to Rule 144 of the Commission under the Securities Act. For purposes of this
Agreement, a Person will be deemed to be a holder of Registrable Shares
whenever such Person has the right to acquire such Registrable Shares (by
conversion, exercise or otherwise), whether or not such acquisition has
actually been effected.
"Registration Expenses" has the meaning ascribed to it in ___ of this
Agreement.
"Restricted Stock" shall mean the shares of Common Stock issued upon
the exercise of the Options and evidenced by a certificate required to bear the
legend specified in Paragraph 11 hereof.
"Securities Act" means the Securities Act of 1933, as amended.
Page 2 of 11
<PAGE> 3
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Subsidiary" means any Person of which securities or other ownership
interests representing more than fifty percent (50%) of the ordinary voting
power are, at the time as of which any determination is being made, owned or
controlled by the Corporation or one or more Subsidiaries of the Corporation or
by the Corporation and one or more Subsidiaries of the Corporation.
"Underlying Shares" shall mean the shares of common Stock issuable
upon exercise of any of the Options.
2. Accrual of Options; Exercise of Option. This Option and all
rights and options hereunder shall expire at the close of business on March 20,
1999. This Option and all options and rights hereunder shall be wholly void to
the extent that this Option is not exercised before it expires.
3. Reservation of Common Stock. The Corporation covenants and
agrees that during the period within which the rights represented by this
Option may be exercised, the Corporation will at all times have authorized, and
in reserve, a sufficient number of shares of its Common Stock to provide for
the exercise of the rights represented by this Option.
4. Protection Against Dilution. The Number of Option Shares
deliverable hereunder shall be adjusted as hereinafter set forth:
A. Stock Dividends, Subdivisions and Combinations. In
case after the date hereof the Corporation shall:
(1) take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend
payable in, or other distribution of, Common Stock, or
(2) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock, or
(3) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock,
then the number of Option Shares shall be adjusted to that Number of
Option Shares determined by multiplying the Number of Option Shares
which could be purchased hereunder immediately prior to such event by
a fraction (i) the numerator of which shall be the total number of
outstanding shares of Common Stock of the Corporation immediately
after such event, and (ii) the denominator of which shall be the total
number of outstanding shares of Common Stock of the Corporation
immediately prior to such event.
Page 3 of 11
<PAGE> 4
B. Other Provisions, Applicable to Adjustments Under this
Section. The following provisions shall be applicable to the making
of adjustments in the Number of Option Shares hereinbefore provided in
this paragraph:
(1) Record Date. If the Corporation takes a
record of the holders of common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution
payable in Common Stock, or (ii) to subscribe for or purchase
Common Stock, then for purposes of this paragraph such record
date will be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon
the declaration of such dividend or upon the making of such
other distribution or the date of the granting of such right
of subscription or purchase, as the case may be. If
thereafter the Corporation shall have legally abandoned its
plan to make such dividend or distribution without having made
such dividend or distribution, then the number of shares of
Common Stock deemed to have been issued and outstanding shall
no longer be computed as set forth in Paragraph 4A above and
the Number of Option Shares shall forthwith be readjusted and
thereafter be the Number of Option Shares which it would have
been had the adjustment of the Number of Option Shares been
made upon the issuance of such stock dividend rather than the
taking of the record of holders with respect thereto.
(2) Treasury Shares. The number of shares of
Common Stock outstanding at any given time does not include
shares owned or held by or for the account of the Corporation
or any subsidiary, and the disposition of any shares so owned
or held will be considered an issue or sale of Common Stock.
C. Adjustment of Purchase Price. Whenever the Number of
Option Shares hereunder shall be adjusted as set forth in this
Paragraph 4, the Purchase Price shall be correspondingly adjusted by
multiplying the Purchase Price then in effect by a fraction, (i) the
numerator of which shall be the total number of outstanding shares of
Common Stock of the Corporation prior to such adjustment, and (ii) the
denominator of which shall be the total number of outstanding shares
of Common Stock of the Corporation immediately after such adjustment.
D. Notice of Adjustments. Whenever the Number of Option
Shares purchasable and the Purchase Price shall be required to be
adjusted pursuant to this Paragraph 4, the Corporation shall promptly
prepare a certificate signed by the President or a Vice President and
by the Chief Financial Officer setting forth, in reasonable detail,
the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a
description of the basis on which the Board of Directors of the
Corporation made any determination hereunder), and shall promptly
cause copies of such certificate to be mailed (by first class mail
postage prepaid) to each of the holders of the Options.
5. Mergers, Consolidations, Sales. In the case of any
consolidation or merger of the Corporation with another entity, or the sale of
all or substantially all of its assets to
Page 4 of 11
<PAGE> 5
another entity, or any reorganization or reclassification of the
Common Stock or other equity securities of the Corporation (except a
subdivision or combination of the Common Stock provision for which is
made in Paragraph 4A), then, as a condition of such consolidation,
merger, sale, reorganization or reclassification, lawful and adequate
provision shall be made whereby the holders of the Options shall
thereafter have the right to receive upon the basis and upon the terms
and conditions specified herein and in lieu of the shares of Common
Stock immediately theretofore purchasable hereunder, such shares of
stock, securities or assets as may (by virtue of such consolidation,
merger, sale, reorganization or reclassification) be issued or payable
with respect to or in exchange for a number of outstanding shares of
Common Stock equal to the number of shares of Common Stock immediately
theretofore so purchasable hereunder had such consolidation, merger,
sale, reorganization or reclassification not taken place, and in any
such case appropriate provisions shall be made with respect to the
rights and interests of the holders of the Options to the end that the
provisions hereof (including, but not limited to, provisions for
adjustment of the Number of Option Shares and Purchase Price) shall
thereafter be applicable as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon
exercise of this Option. The Corporation shall not affect any such
consolidation, merger or sale, unless prior to or simultaneously with
the consummation thereof, the successor entity (if other than the
Corporation) resulting from such consolidation or merger or the entity
purchasing such assets shall assume by written instrument executed and
mailed or delivered to each holder of the Options, the obligation to
deliver to such holder such shares of stock, securities or assets as,
in accordance with the foregoing provisions, such holder may be
entitled to receive.
6. Dissolution or Liquidation. In the event of any proposed
distribution of the assets of the Corporation in dissolution or liquidation
(except under circumstances when the foregoing Paragraph 5 shall be applicable)
the Corporation shall mail notice thereof to the holders of the Options and
shall make no distribution to stockholders until the expiration of 30 days from
the date of mailing of the aforesaid notice and, in any such case, the holders
of the Options may exercise the conversion rights with respect to the Options
within 30 days from the date of mailing such notice and all rights herein
granted not so exercised within such 30 day period shall thereafter become null
and void.
7. Notice of Extraordinary Dividends. If the Board of Directors
of the Corporation shall declare any dividend or other distribution on its
common Stock except out of earned surplus or by way of a stock dividend payable
on its Common Stock, the Corporation shall mail notice thereof to the holders
of the Options not less than 30 days prior to the record date fixed for
determining stockholders entitled to participate in such dividend or other
distribution or be entitled to any rights on account or as a result thereof
unless and to the extent that the Options are exercised prior to such record
date.
8. Fractional Shares. Fractional shares shall not be issued upon
the exercise of this Option but in any case where the holder hereof would,
except for the provisions of this paragraph, be entitled under the terms hereof
to receive a fractional share upon the complete exercise of this Option, the
Corporation shall, upon the exercise of this Option for the largest
Page 5 of 11
<PAGE> 6
number of whole shares then called for, pay a sum in cash equal to the Market
Price of such fractional share.
9. Fully Paid Stock; Taxes. The Corporation covenants and agrees
that the shares of stock represented by each and every certificate for its
Common Stock to be delivered on the exercise of the conversion rights herein
provided for shall, at the time of such delivery, be validly issued and
outstanding and be fully paid and nonassessable. The Corporation further
covenants and agrees that it will pay when due and payable any and all federal
and state taxes (other than Income taxes) which may be payable in respect of
the Options or any Common Stock or certificates therefor upon the exercise of
the conversion rights herein provided for pursuant to the provisions hereof.
10. Closing of Transfer Books. The right to exercise any Option
shall not be suspended during any period while the stock transfer books of the
Corporation for its Common Stock may be closed. The Corporation shall not be
required, however, to deliver certificates of its Common Stock upon such
exercise while such books are duly closed for any purpose, but the Corporation
may postpone the delivery of the certificates for such Common Stock until the
opening of such books, and they shall, in such case, be delivered forthwith
upon the opening thereof, or as soon as practicable thereafter.
11. Restrictions on Transferability of Options and Common Stock;
Compliance with Laws. This Option and the Common Stock issued upon the
exercise hereof shall not be transferable except upon the conditions
hereinafter specified, which conditions are intended to insure compliance with
the provisions of the Securities Act of 1933 (or any similar federal statute at
the time in effect) in respect of the transfer of any Option or any such Common
Stock.
A. Restrictive Legends. Each Option shall bear on the
face thereof a legend substantially in the form of the notice endorsed
on the first page of this Option. Each certificate for shares of
Common Stock initially issued upon the exercise of any Option and each
certificate for shares of Common Stock issued to a subsequent
transferee of such certificate shall, unless otherwise permitted by
the provisions of this paragraph, bear on the face thereof a legend
reading substantially as follows:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as amended,
and may not be offered, sold or transferred in the absence of
such registration or an exemption therefrom under said Act,
and are transferable only upon the conditions specified in the
Option pursuant to which such shares were issued."
B. Removal of Legend. In the event that a registration
statement covering the Underlying Shares or the Restricted Stock shall
become effective under the Securities Act or in the event that the
Corporation shall receive an opinion of its counsel that, in the
opinion of such counsel, such legend is not, or is no longer,
necessary or required (including, but not limited to, because of the
availability of the
Page 6 of 11
<PAGE> 7
exemption afforded by Rule 144 of the General Rules and Regulations of
the Commission), the Corporation shall, or shall instruct its transfer
agents and registrars to, remove such legend from the certificates
evidencing the Restricted Stock or issue new certificates without such
legend in lieu thereof. Upon the written request of the holder or
holders of any Option or any Restricted Stock the Corporation
covenants and agrees forthwith to request its counsel to render an
opinion with respect to the matters covered by this paragraph and to
bear all expenses in connection with the same.
12. Registration Rights.
A. Right to Piggyback. Whenever securities of the
Corporation are to be registered under the Securities Act, and the registration
form to be used may be used for the registration of Registrable Shares (a
"Piggyback Registration"), the Corporation will give prompt written notice (and
in any event within three business days after its receipt of notice of any
exercise of demand registration rights by holders of the Corporation's
securities other than the Registrable Shares) to all Holders of Registrable
Shares of its intention to effect such a registration and will include in such
registration all Registrable Shares with respect to which the Corporation has
received written requests for inclusion therein within 21 days after the
Corporation's notice has been given.
B. Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the
Corporation, and the managing underwriters advise the Corporation in writing
that in their opinion the number of securities requested to be included in such
offering in the registration creates a substantial risk that the price per
share of Common Stock will be reduced, the Corporation will include in such
registration (i) first, the securities the Corporation proposes to sell, (ii)
second, the Registrable Shares requested to be included in such registration
which in the opinion of such underwriters can be sold in such offering without
creating such a risk, pro rata among the Holders of such Registrable Shares on
the basis of the number of Registrable Shares owned by such holders, with
further successive pro rata allocations among the Holders of Registrable Shares
if any such holder has requested the registration of less than all the
Registrable Shares such Person is entitled to register, and (iii) third, other
securities requested to be included in such registration.
C. Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Corporation's securities, and the managing underwriters advise the
Corporation in writing that in their opinion the inclusion of the number of
securities requested to be included in such offering creates a substantial risk
that the price per share of Common Stock will be reduced, the Corporation will
include in such registration the Registrable Shares requested to be included in
such registration and the securities requested to be included therein by the
holders of the Corporation's securities requesting such registration (all such
Registrable Shares and other securities requesting such registration being
collectively referred to as the "Secondary Shares") which in the opinion of
such underwriters can be sold in such offering without creating such a risk,
pro rata among the holders of such Secondary Shares on the basis of the number
of Secondary Shares owned or deemed to be owned by such holders, with further
successive pro rata
Page 7 of 11
<PAGE> 8
allocations among the holders of Secondary Shares if any such holder of
Secondary Shares has requested the registration of less than all such Secondary
Shares such Person is entitled to register.
D. Other Registrations. If the Corporation has
previously filed a registration statement which includes Registrable Shares,
and if such previous registration has not been withdrawn or abandoned, the
Corporation will not file or cause to be effected any other registration of any
of its equity securities or securities convertible or exchangeable into or
exercisable for its equity securities under the Securities Act (except on Form
S-4 or Form S-8), whether on its own behalf or at the request of any holder or
holders of such securities, until a period of 90 days has elapsed from the
effective date of such previous registration.
E. Limitations on Registrations. The Corporation shall
not register any of its securities for sale for its own account (other than
securities issued to employees of the Corporation under an employee benefit
plan or securities issued to effect a business combination pursuant to Rule 145
promulgated under the Securities Act and other than a registration on Form S-3)
except as a firm commitment underwriting.
F. Compliance with Rule 144 and Rule 144A. At any time
and from time to time after (a) the Corporation registers a class of securities
under Section 12 of the Securities Exchange Act, or (b) the expiration of 90
days following the close of business on the earlier of such date as the
Corporation commences to file reports under Section 13 or Section 15(d) of the
Securities Exchange Act, then at the request of any holder who proposes to sell
securities in compliance with Rule 144 promulgated by the Commission, the
Corporation will (i) forthwith furnish to such holder a written statement of
compliance with the filing requirements of the Commission as set forth in Rule
144 as such rule may be amended form time to time and (ii) make available to
the public and such holders such information as will enable the Holders to make
sales pursuant to Rule 144. Unless the Corporation is subject to Section 13 or
Section 15(d) of the Securities Exchange Act, the Corporation will provide to
any Holder of Registrable Shares and to any prospective purchaser of
Registrable Shares under Rule 144 promulgated by the Commission, the
information described in Rule 144A(d)(4) promulgated by the Commission.
G. Registration Expenses.
(1) All expenses incident to the Corporation's
performance of or compliance with this Agreement, including, but not limited
to, all registration and filing fees, fees and expenses of compliance with
federal, state and foreign securities laws, printing expenses, messenger and
delivery expenses, and fees and disbursements of counsel for the Corporation
and its independent certified public accountants, underwriters (excluding
discounts and commissions attributable to the Registrable Shares included in
such registration) and other Persons retained by the Corporation (all such
expenses being herein called "Registration Expenses"), will be borne by the
Corporation. In addition, the Corporation will pay its internal expenses
(including, but not limited to, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review, the expense of any liability insurance obtained by
the
Page 8 of 11
<PAGE> 9
Corporation and the expenses and fees for listing the securities to be
registered on each securities exchange.
(2) In connection with any registration statement in
which Registrable Shares are included, the Corporation will reimburse the
Holders of Registrable Shares covered by such registration for the reasonable
cost and expenses incurred by such holders in connection with such
registration, including, but not limited to, reasonable fees and disbursements
of one counsel chosen by the Holders of a majority of such Registrable Shares.
H. Holdback Agreements. Each of the Holders of
Registrable Shares agrees not to effect any public sale of equity securities of
the Corporation, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the 90-day
period beginning on the effective date of any underwritten Demand Registration
(except as part of such underwritten registration), unless the underwriters
managing the registered public offering otherwise agree.
13. Partial Exercise and Partial Assignment. If this Option is
exercised in part only, the holder hereof shall be entitled to receive a new
Option covering the number of shares in respect of which this Option shall not
have been exercised as provided in Paragraph 2 hereof.
14. Option Denominations. Options are issuable or transferable in
the denomination of 100 shares or any integral multiple thereof (as nearly as
may be practicable and subject to required adjustments hereunder), and the
Options of each denomination are interchangeable upon surrender thereof at the
office of the Corporation for Options of other denominations, but aggregating
the same number of shares as the Options so surrendered. All Options will be
dated the same date as this Option.
15. Lost, Stolen, destroyed or Mutilated Options. In case any
Option shall be mutilated, lost, stolen or destroyed, the Corporation may issue
a new Option of like date, tenor and denomination and deliver the same in
exchange and substitution for and upon surrender and cancellation of any
mutilated Option, or in lieu of any Option lost, stolen or destroyed, upon
receipt of evidence satisfactory to the Corporation of the loss, theft or
destruction of such Option, and upon receipt of indemnity satisfactory to the
Corporation.
16. Option Holder Not Stockholder. This Option does not confer
upon the holder hereof any right to vote or to consent or to receive notice as
a stockholder of the Corporation, as such, in respect of any matters
whatsoever, or any other rights or liabilities as a stockholder, prior to the
exercise hereof as hereinbefore provided.
17. Severability. Should any part of this Option for any reason
be declared invalid, such decision shall not affect the validity of any
remaining portion, which remaining portion shall remain in full force and
effect as if this Option had been executed with the invalid portion thereof
eliminated, and it is hereby declared the intention of the parties hereto that
they would
Page 9 of 11
<PAGE> 10
have executed and accepted the remaining portion of this Option without
including therein any such part, parts or portion which may, for any reason, be
hereafter declared invalid.
IN WITNESS WHEREOF, PRINCETON DENTAL MANAGEMENT CORPORATION has caused
this Option to be signed by its President or one of its Vice Presidents and
this Option to be dated as of March 21, 1996.
PRINCETON DENTAL MANAGEMENT
CORPORATION
By: _____________________________
Its: _______________________
Page 10 of 11
<PAGE> 11
SUBSCRIPTION
PRINCETON DENTAL MANAGEMENT CORPORATION
The undersigned, ______________________________, pursuant to the
provisions of the within Option, hereby elects to purchase ____________ shares
of Common Stock of PRINCETON DENTAL MANAGEMENT CORPORATION covered by the
within Option.
Signature _____________________
Address _____________________
Dated: __________________
Page 11 of 11
<PAGE> 1
EXHIBIT 10.7 OF FORM 10-QSB
AMENDMENT OF OPTION AGREEMENT
THIS FIRST AMENDMENT, made this 17th day of July, 1996 (this
"Amendment"), is made to the Kessler Option dated March 21, 1996 (the "Option"
or "Option Agreement") by and between PRINCETON DENTAL MANAGEMENT CORPORATION,
a Delaware corporation ("Princeton") and Dr. Seymour Kessler ("Optionee").
RECITALS:
E. Princeton has issued the Option to Optionee giving
Optionee the right to purchase up to 125,000 shares of Princeton common stock.
F. Certain lenders of Princeton have required that Optionee forfeit
its rights to certain of the Options as a condition of a certain Letter
Agreement.
NOW, THEREFORE, for the reasons stated above and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Bank and the Borrower hereby agree as follows.
AGREEMENTS:
SECTION 1 Amendments to Option. The Option shall be amended by
striking the term "125,000 shares" wherever it appears and substituting in its
place the term "81,000 shares." Optionee acknowledges and agrees that the
Option shall remain in effect except that Optionee shall only have the right to
purchase 81,000 shares upon the terms and conditions stated therein.
Optionee agrees to execute a replacement Option Agreement and cancel the
existing Option Agreement upon the request of Princeton.
Page 1 of 2
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the date first written above.
PRINCETON DENTAL MANAGEMENT CORPORATION
By:______________________
Title:_____________________
By:_______________________
Title: Dr. Seymour Kessler
Page 2 of 2
<PAGE> 1
EXHIBIT 10.8 OF FORM 10-QSB
PRINCETON DENTAL MANAGEMENT CORPORATION
SERIES A 11.75% CUMULATIVE CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
This SERIES A 11.75% CUMULATIVE CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT (the "Agreement"), consists of 37 pages, and is made and entered into
as of April 22, 1996 between PRINCETON DENTAL MANAGEMENT CORPORATION, a
Delaware corporation (the "Company"), FRANK LEONARD LAPORT ("FLL"), BEVERLY
TRUST COMPANY, AS CUSTODIAN OF THE FRANK LEONARD LAPORT ROLLOVER INDIVIDUAL
RETIREMENT ACCOUNT NUMBER 75-49990 (the "Laport IRA" and, collectively with
FLL, "Laport") and AMSTERDAM EQUITIES LIMITED ("Amsterdam") (collectively,
"Purchasers").
R E C I T A L S:
WHEREAS, the Company is involved in the acquisition, consolidation and
management of dental practices and dental laboratories throughout the United
States; and
WHEREAS, Purchasers desire to purchase and the Company desires to
issue and sell to Purchasers up to $1,950,000 of Series A 11.75% Cumulative
Convertible Preferred Stock of the Company, $1.00 par value per share, on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, Purchasers and the
Company hereby agree as follows:
ARTICLE VII
GENERAL; DEFINITIONS
7.1 Recitals. The parties hereto adopt the foregoing Recitals and
agree and affirm that construction of this Agreement shall be guided thereby.
7.2 Certain Definitions. In addition to the terms defined
elsewhere in this Agreement, the following terms shall have the meanings
indicated for purposes of this Agreement:
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<PAGE> 2
Agent means a bank, trust company, title company, or law
firm designated by the Purchasers by written notice to the Company,
who shall act as escrow agent under the terms of this Agreement and
the Certificate of Designation.
Affiliate as applied to any Person means (a) any other Person
directly or indirectly controlling, controlled by, or under common
control with, that Person or (b) any other Person that owns or
controls 5% or more of any class of equity securities of that Person.
For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlling," "controlled by," and
"under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether
through the ownership of voting securities or by contract or
otherwise. Notwithstanding the foregoing, the holders of the
Preferred Shares or their affiliates shall not be deemed to be
Affiliates of the Company for purposes of this Agreement solely by
virtue of its ownership of the Preferred Shares.
Agreement is defined in the Preamble.
Amsterdam Warrant No. 1 means a Warrant to Purchase up to
3,588,750 Unregistered Shares of Common Stock, dated the Closing Date
and issued in the name of Lender.
Amsterdam Warrant No. 2 means a Warrant to Purchase up to
268,125 Unregistered Shares of Common Stock in the form attached
hereto as Exhibit F, dated the Closing Date and issued in the name of
Amsterdam.
Assignees is defined in Article VIII.
Assignment is defined in Article VIII.
Authorized Representative means the President of the Company
or such other officers of the Company as are designated in writing by
the Company to the Purchasers.
Blue Sky Laws is defined in Section 4.2.3.
Business Day means any day other than a Saturday, Sunday,
holiday or other day on which banking institutions in Chicago,
Illinois or the Bahamas are authorized or required by law to close or
are otherwise closed.
Capital Lease Obligation means, with respect to any Person,
the obligations of such Person under a lease of property which, in
accordance with GAAP, should be capitalized on the lessee's balance
sheet where such Person is the lessee.
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<PAGE> 3
Certificate of Designation means the Company's Certificate of
Designation setting forth the preferences, conversion and other rights
of the Preferred Shares which is attached hereto as Exhibit E.
Closing Date means the date hereof.
Code means the Internal Revenue Code of 1986 (or any successor
legislation thereto), as amended from time to time.
Contingent Liability means any agreement, undertaking or
arrangement by which any Person guarantees, endorses or otherwise
becomes or is contingently liable (by direct or indirect agreement,
contingent or otherwise) to provide funds for payment, to supply funds
to, or otherwise to invest in a debtor or otherwise to assure a
creditor against loss, the debt, obligation or other liability of any
other Person (other than by endorsements of instruments in the course
of collection), or for the payment of dividends or other distributions
upon the shares of any other Person or undertakes or agrees
(contingently or otherwise) to purchase, repurchase, or otherwise
acquire or become responsible for any Indebtedness, obligation or
liability or any security therefor, or to provide funds for the
payment or discharge thereof (whether in form of loans, advances,
stock purchases, capital contributions or otherwise), or to maintain
solvency, assets, level of income, or other financial condition of any
other Person, or to make payment or transfer property to any other
Person other than for value received. The amount of any Person's
obligation under any Contingent Liability shall (subject to any
limitation set forth therein) be deemed to be the outstanding
principal amount (or maximum permitted principal amount, if larger) of
the debt, obligation or other liability guaranteed or supported
thereby.
Convertible Debt Agreement means that certain Convertible Debt
Agreement of even date herewith between the Company and Amsterdam.
Convertible Loan has the meaning set forth in the Convertible
Debt Agreement.
Convertible Secured Notes mean a convertible secured note of
the Company delivered by the Company to Lender pursuant to Section 2.1
of the Convertible Debt Agreement.
Default means any Event of Default, defined in Section 7.1 or
Unmatured Event of Default.
ERISA means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute.
ERISA Affiliate means any corporation, partnership, trade or
business or other entity which is a member of the same controlled
group as the Company under common control with the Company, a member
of the same affiliated service group or otherwise
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<PAGE> 4
treated as a single employer with the Company under Sections 414(b),
(c), (m), (n), or (o) of the Code.
Existing Group Indebtedness means the Existing Amsterdam
Indebtedness, the Existing Laport Indebtedness and the Existing
Kessler Indebtedness.
Existing Kessler Indebtedness means that portion of the Reg D
Indebtedness and all Indebtedness due to Romajo Partners Limited
Partnership under the Letter of Agreement, including all principal and
interest due under the Secured Revolving Demand Note.
Existing Laport Indebtedness means Laport's portion of the Reg
D Indebtedness and all Indebtedness due to Laport under the Letter of
Agreement, including all principal and interest due under the Secured
Revolving Demand Note.
Existing Amsterdam Indebtedness means the amount defined as
Existing Amsterdam Indebtedness under the Convertible Debt Agreement.
Final Maturity Date means the earlier of (i) the date on which
the Liabilities are paid in full and this Agreement has terminated
pursuant to its terms or (ii) the date on which all of the Preferred
Shares have been converted to Shares.
FLL Warrant means a Warrant to Purchase up to 134,063
Unregistered Shares of Common Stock in the form attached hereto as
Exhibit G, dated the Closing Date and issued in the name of FLL.
Fully Diluted Shares means the total number of Shares,
calculated on a fully diluted basis, as though all warrants, stock
options, rights under stock benefit plans, securities convertible or
exchangeable into Shares or other securities of the Company or other
similar rights to acquire Shares or other securities in the Company
had been exercised; including, without limitation, all Shares issuable
upon conversion of the Preferred Shares, the Convertible Secured
Notes, the FLL Warrant, the Laport Warrant, the Amsterdam Warrant No.
1 and the Amsterdam Warrant No. 2; provided, however, that when used
to determine the number of Shares into which the Preferred Shares and
the Convertible Secured Notes are being converted at a particular
time, the term Fully Diluted Shares shall include only those Shares
into which the Convertible Secured Notes and the Preferred Shares are
then being converted.
GAAP means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards
Board or in such other statements by such other entity as may be
approved by significant segments of the accounting profession, applied
on a basis consistent with prior years or periods.
Page 4 of 37
<PAGE> 5
Governmental Authority means any federal, state, local,
foreign (including Bahamian) or other governmental administrative
body, instrumentality, department agency, court, tribunal,
administrative hearing body, arbitration panel, commission or other
similar dispute-resolving panel or body.
Indebtedness means, with respect to any Person, without
duplication, (a) all indebtedness of such Person for borrowed money or
for the deferred purchase price of property or services (including,
without limitation, all obligations, contingent or otherwise, of such
Person in connection with any letters of credit, letter of credit
facilities, acceptance facilities, or other similar facilities) but
excluding trade payables that are incurred in the ordinary course of
business (b) all Interest Rate Protection Obligations of such Person,
(c) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, (d) all indebtedness created
or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale
of such property), (e) all Capital Lease Obligations of such Person,
(f) all indebtedness of the type referred to in clause (a), (b), (c),
(d) or (e) above secured by (or for which the holder of such
indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien upon or in property (including, without
limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of
such indebtedness, (g) all Indebtedness of others guaranteed by such
Person, and (h) all accrued but unpaid interest on the foregoing types
of Indebtedness.
Interest Rate Protection Obligations means, with respect to
any Person, the obligations of such Person pursuant to any interest
rate swap agreement, interest rate collar agreement or other similar
arrangement whereby, directly or indirectly, such Person intends to
protect itself or any of its Affiliates against fluctuations in
interest rates.
IRS means the Internal Revenue Service.
Laport Warrant means a Warrant to Purchase up to 134,062
Unregistered Shares of Common Stock in the form attached hereto as
Exhibit G, dated the Closing Date and issued in the name of Beverly
Trust Company, as Custodian of the Frank Leonard Laport Rollover
Individual Retirement Account Number 75- 49990.
Lender is defined in the Convertible Debt Agreement.
Letter of Agreement is defined in the Convertible
Debt Agreement.
Liabilities means all obligations, liabilities and
indebtedness of the Company to Purchasers, howsoever created, arising
or evidenced, whether direct or indirect, absolute or contingent,
primary or secondary, joint or several, recourse or non-recourse or
now or hereafter existing or due or to become due, whether for
dividends, fees, expenses, lease obligations, indemnities or
otherwise, under or in connection with this Agreement,
Page 5 of 37
<PAGE> 6
the Letter of Agreement, the Certificate of Designation and the
Related Documents (including interest accruing on or after the
occurrence of any event, or institution of any proceeding, described
in Section 7.1.7, whether or not allowed in such proceeding).
Liens means, with respect to any Person, any interest in real
or personal property, asset or other right held, owned or being
purchased or acquired by such Person for its own use, consumption or
enjoyment which secures payment, observance or performance of any
obligation and shall include any mortgage, lien, pledge, charge,
claim, security interest, encumbrance, retained title of conditional
vendor or lessor or any other security agreement, mortgage, deed of
trust, chattel mortgage, assignment, pledge, retention of title
financing or similar statement or notice, or arising as a matter of
law, judicial process or otherwise.
Margin Stock means "margin stock" as such term is defined in
Regulation U in of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
Material Adverse Effect means a material adverse effect on or
change in the business, operations, prospects, condition (financial or
otherwise), properties or assets of the Company or any of its
Subsidiaries, or on the Company's ability to (i) fully pay principal
and interest when due on the Convertible Secured Notes and dividends
on and Liquidation Value of the Preferred Shares, (ii) to be able to
effect the conversion of the Convertible Secured Notes and the
Preferred Shares into Shares pursuant to the conversion rights under
the Certificate of Designation and the Convertible Debt Agreement, or
(iii) on the ability of the Purchasers to enforce or collect any
Liabilities.
Maturity Date means the day which is the seventh anniversary
of the Closing Date.
Multiemployer Plan means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which either the Company or any ERISA
Affiliate is making, or is obligated to make, contributions, or within
the immediately preceding six (6) years was making or had been
obligated to make contributions, or with respect to which Borrower or
any ERISA Affiliate otherwise has (or could have) any Liability.
Permitted Liens means (1) Liens for taxes, assessments or
governmental charges or claims the payment of which is not at the time
required by Section 6.1.5; (2) statutory Liens of landlords and Liens
of carriers, warehousemen, mechanics, materialmen and other Liens
imposed by law incurred in the ordinary course of business for sums
not yet delinquent or being contested in good faith, if such reserve
or other appropriate provision, if any, as shall be required by GAAP
shall have been made therefor; (3) Liens or deposits (other than any
Lien imposed by ERISA) not exceeding $25,000.00 in the aggregate
incurred or made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of
social security, or to secure the performance of tenders, statutory
obligations, bids, leases, government
Page 6 of 37
<PAGE> 7
contracts, performance, surety and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of
borrowed money); (4) easements, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or
encumbrances on real property and improvements owned by the Company or
its Subsidiaries not interfering in any material respect with the
ordinary conduct of the business of the Company or its Subsidiaries,
or with the use of any such property or improvements; (5) purchase
money mortgages or other purchase money liens or security interests
(and extensions thereof) not exceeding $25,000.00 in the aggregate
granted by the Company or its subsidiaries upon any fixed or capital
assets hereafter acquired or constructed, so long as (a) any such
mortgage, lien or security interest does not extend to or cover any
other asset of the Company or its Subsidiaries, and (b) such security
interest, mortgage or lien secures the obligation to pay the purchase
price of such asset only; and (6) Liens with respect to the
Indebtedness described on Schedule 4.28.
Person means an individual, partnership, corporation
(including business trust), limited liability company, joint stock
company, trust, unincorporated association, financial institution,
joint venture or other entity, or a government or any political
subdivision or agency thereof.
Plan means an employee benefit plan defined in Section 3(2) of
ERISA (including a Multi-employer Plan) in respect of which the
Company or any ERISA Affiliate is, or within the immediately preceding
six (6) years was, an "employer" as defined in Section 3(5) of ERISA
or with respect to which Borrower or any ERISA Affiliate otherwise has
(or could have) any Liability.
Preferred Shares mean shares of the Company's Series A 11.75%
Cumulative Convertible Preferred Stock, par value $1.00 per share, to
be sold to Purchasers pursuant to this Agreement.
Preferred Stockholders mean holders of the Preferred Shares.
Preferred Stock Warrant is defined in the Convertible Debt
Agreement.
Purchase Price means the purchase price per share of Preferred
Shares which shall be $100.00.
Reg D Indebtedness means the $300,000 owed by the Company to
Purchasers pursuant to the Reg D Redemption Documents.
Reg D Redemption Documents means the documents necessary to
purchase and redeem all Shares and warrants to purchase Shares issued
pursuant to the private placement by the Company dated July 7, 1994.
Registration Agreement shall mean that certain Registration
Agreement of even date herewith between Purchasers and the Company
which entitles Purchasers to require
Page 7 of 37
<PAGE> 8
registration of Shares which they obtain pursuant to the
Amsterdam Warrant No. 2, the FLL Warrant, the Laport Warrant or the
conversion of the Preferred Shares.
Related Documents means all security documents and all written
agreements, instruments and documents, including, without limitation,
notes, guaranties, warrants, mortgages, deeds of trust, chattel
mortgages, pledges, powers of attorney, consents, assignments,
contracts, notices, security agreements, leases, financing statements,
subordination agreements, trust account agreements and all other
written matter whether heretofore, now, or hereafter executed by or on
behalf of the Company, its Subsidiaries or any other Person or
delivered to Purchasers or any Assignee with respect to this Agreement
or any such agreement or document or the transactions contemplated
hereby or thereby, including, without limitation, the Collateral
Documents, the Laport Warrant, the Amsterdam Warrant No. 2 and the
Registration Agreement, in each case as amended, modified,
supplemented or restated from time to time and in effect.
Requirement of Law means, as to any Person, any law, rule or
regulation, or order, decree or other determination of an arbitrator
or a court or other Governmental Authority, including, without
limitation, the requirements of federal, state or local environmental
laws, in each case applicable to or binding upon such Person or any of
its property or to which such Person or any of its property is
subject.
Senior Management Settlement Agreements means the settlement
agreements with Terry D. Gingle, Vicki Gingle and Oscar L. Hausdorff.
Shares means the issued and outstanding shares of common stock,
of the Company.
Sole and Exclusive Discretion means the sole and exclusive
discretion of the Purchasers, whether or not unreasonable.
Solvent means, with respect to any Person on a particular
date, that on such date (a) the fair value of the property of such
Person is greater than the total amount of liabilities, including,
without limitation, Contingent Liabilities, of such Person, (b) the
present fair salable value of the assets of such Person is not less
than the amount that will be required to pay the probable liability of
such Person on its debts as they become absolute and matured, (c) such
Person is able to realize upon its assets and pay its debts and other
liabilities, Contingent Liabilities and other commitments as
they mature in the normal course of business, (d) such Person does not
intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and
liabilities mature, and (e) such Person is not engaged in business or
a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to the
prevailing practice in the industry in which such Person is engaged.
In computing the amount of Contingent Liabilities of any Person at any
time, it is intended that such liabilities will be computed at the
amount that, in light of all the facts and circumstances existing at
such
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<PAGE> 9
time, represents the amount that can reasonably be expected to
become an actual and matured liability.
Subsidiary of any Person means any corporation of which more
than 50% of the outstanding capital stock having ordinary voting power
to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time stock of any other class or
classes of such corporation shall or might have voting power upon the
occurrence of any contingency) is at the time directly or indirectly
owned by such Person, by such Person and one or more of such Person's
other Subsidiaries or by one or more of such Person's other
Subsidiaries.
Unmatured Event of Default means any condition or event which,
after notice or lapse of time or both, would constitute an Event of
Default.
Welfare Plan means an "employee welfare benefit plan," as such
term is defined in Section 3(1) of ERISA.
7.3 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all financial
statements required to be delivered hereunder shall be prepared in accordance
with GAAP.
7.4 Computation of Time Periods. In this Agreement, in the
computation of a period of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each means "to but excluding."
7.5 Currency. All sums of money referred to in this Agreement are
stated in United States dollars.
ARTICLE VIII
AUTHORIZATION AND SALE OF PREFERRED SHARES
8.1 Sale of Preferred Shares to Purchasers. Provided there does
not exist a Default hereunder, and subject to the terms and conditions of this
Agreement, including, without limitation, the provisions of Section 2.3 hereof,
the Purchasers shall, up to and including the Business Day before the Maturity
Date, upon the Company's request made in the manner set forth in Section 2.3.1
hereof, purchase from the Company an aggregate number of Preferred Shares (the
"Maximum Amount") equal to the quotient of (a) 14.94253% of the aggregate
principal amount of the loans made by Lender pursuant to the Convertible Debt
Agreement, divided by (b) the Purchase Price, but in no event shall the
Purchasers be obligated to purchase more than the quotient of $1,950,000
divided by the Purchase Price. It is understood that the Purchasers'
obligation to purchase Preferred Shares hereunder is contingent upon the making
of loans by Lender and it is not optional with the Company. Each request by
the Company for the purchase of the Preferred Shares by the Purchasers under
this Section 2.1 shall only be made upon the satisfaction of all the conditions
contained in this Agreement, and the Purchase Price
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<PAGE> 10
for the Preferred Shares shall be paid by wire transfer of immediately
available funds, in such account or accounts as the Company may, from time to
time, designate in a notice to be delivered to the Purchasers no later than
seven (7) Business Days prior to the sale of the Preferred Shares (the "Wire
Transfer Instructions"); provided, however, that the purchase of Preferred
Shares hereunder shall not be deemed an acknowledgment by Purchasers that all
the conditions in this Agreement have been satisfied. The Company agrees that
if at any time the aggregate purchase price of the Preferred Shares sold
pursuant to this Agreement shall exceed the purchase price for the Maximum
Amount, the Company shall promptly redeem such number of Preferred Shares
necessary to eliminate such excess.
8.2 Initial Preferred Shares. Upon the Company's execution of
this Agreement, the Company shall issue (i) to each of Laport and the Laport
IRA, that number of Preferred Shares that equals the quotient of such
Purchaser's portion of the Existing Laport Indebtedness presently owed by the
Company to such Purchaser divided by the Purchase Price, and (ii) to each of
FLL and Amsterdam 195 shares of Preferred Shares. The Preferred Shares to be
issued pursuant to this Section 2.2 shall be referred to as the "Initial
Preferred Shares."
8.3 Conditions of Purchases. Notwithstanding any other provisions
contained in this Agreement, the purchase of any Preferred Shares provided for
in this Agreement shall be conditioned upon each of the following:
8.3.1 Request for Purchase. The Company shall make an
irrevocable offer to FLL and Amsterdam, not later than 10:00 a.m.
Chicago time on the date 30 Business Days prior to the date the
Company proposes to issue the Preferred Shares (which must be a
Business Day), to sell an aggregate number of Preferred Shares equal
to 14.94253% of the amount requested by the Company from the Lender
under Section 2.1 of the Convertible Debt Agreement divided by the
Purchase Price. If the Purchasers make purchases of Preferred Shares
pursuant to an offer made under this Section 2.3.1 upon less than 30
Business Days' prior notice by the Company, the Company shall pay the
Purchasers an aggregate fee equal to 2.5% of the Purchase Price times
the number of Preferred Shares purchased, which fee may be deducted
from the Purchase Price. The offer to sell Preferred Shares must be
made in writing by an Authorized Representative pursuant to the notice
provisions of Section 10.2 hereof, and shall specify the number of
Preferred Shares offered and the date on which such shares are to be
sold. Any such offer which the Purchasers believe to come from an
Authorized Representative shall be irrevocable and binding on the
Company. Before 10:00 a.m. Chicago time on the date the Preferred
Shares are to be sold, the Company shall deliver to Purchasers a duly
executed and completed certificate specifying the date the Preferred
Shares are to be sold, the number of Preferred Shares to be sold, and
containing a certification by an Authorized Representative on behalf
of the Company, in form and substance satisfactory to the Company,
that prior to and after giving effect to the sale of such Preferred
Shares, the Company is and will be in compliance with the terms and
conditions of this Agreement, that no Default does or will exist
hereunder, that all of the representations and warranties contained in
this Agreement shall be true and correct as of the date the offer to
sell the Preferred Shares is made, and including a specific
calculation and certification of compliance with all financial
covenants before and after giving effect to the sale of such Preferred
Shares.
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<PAGE> 11
8.3.2 Financial Condition. No material adverse change, as
determined by each Purchaser in its Sole and Exclusive Discretion, in
the financial condition or operations of the Company or its
Subsidiaries shall have occurred at any time or times subsequent to
the most recent Financial Statements provided pursuant to Section 6.1
of this Agreement.
8.3.3 No Default. No Default shall have occurred and be
continuing.
8.3.4 Other Requirements. Each Purchaser shall have
received, in form and substance satisfactory to the Purchaser in its
Sole and Exclusive Discretion, all certificates, orders, authorities,
consents, affidavits, schedules, instruments, security agreements,
financing statements, mortgages and other documents which are provided
for hereunder, or which a Purchaser may at any time reasonably
request.
8.3.5 Representations and Warranties. All of the
representations and warranties contained in this Agreement and in the
Related Documents shall be true and correct as of each of the dates an
offer to sell Preferred Shares is made pursuant to Section 2.3.1 and
as of each of the dates a Purchaser purchases Preferred Shares
hereunder, as though made on and as of such dates.
8.3.6 Purchases of Preferred Shares. Each of FLL and
Amsterdam shall purchase one-half (1/2) of the number of Preferred
Shares offered by the Company pursuant to Section 2.3.1.
8.4 Use of Proceeds. The Company agrees that the proceeds of the
sale of Preferred Shares pursuant to this Agreement shall be used only for the
purpose of (i) paying related fees and expenses incurred in connection
therewith and herewith, (ii) for working capital purposes, (iii) for
refinancing the Existing Group Indebtedness, and (iv) as otherwise specifically
permitted in writing by the Purchasers.
8.5 Several Liability.The obligations of Laport and Amsterdam
under this Agreement shall be several and not joint, and a breach by one of
said parties shall not relieve the Company from its obligations to the other.
8.6 Failure of a Purchaser to Execute. Notwithstanding anything in
this Agreement, or in any related agreement, to the contrary, if either
Amsterdam or Laport, for any reason whatsoever, fails to execute this
Agreement by the time it has been executed and delivered by the remaining
Purchaser and the Company and the Convertible Debt Agreement has been executed
and delivered by Lender to the Company, (a) such non-executing Purchaser shall
be deemed by the Company and the executing Purchaser not to be a party to this
Agreement, (b) this Agreement, and the terms and conditions hereof, shall be
deemed to be in full force and effect as between the Company and the executing
Purchaser, and (c) the executing Purchaser shall have the option at the time of
execution to (i) be the sole Purchaser having only the obligations hereunder of
the executing Purchaser, (ii) be the sole Purchaser having the obligations
hereunder of both Purchasers, or (iii) cause any other party to execute this
Agreement in lieu of the non-executing Purchaser; provided, however, that, in
such event, the Company and the executing Purchaser or Purchasers agree to
promptly execute such additional documentation, if any, deemed helpful or
advisable by counsel to the executing Purchaser or Purchasers to reflect the
intention of the parties under this section.
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<PAGE> 12
ARTICLE IX
CONDITIONS PRECEDENT
9.1 Conditions Precedent to the Purchaser's Obligations. The
obligation of the Purchasers to purchase Preferred Shares provided for in this
Agreement is subject to the satisfaction of each of the following conditions
precedent:
9.1.1 Documents Delivered. Purchasers shall have received
on or prior to 10:00 a.m. Chicago time on the Closing Date (except as
noted or waived by the Purchasers in writing) the following documents,
in form and substance satisfactory to the Purchasers and their
respective legal counsel:
(i) certificates for the Initial Preferred Shares
duly executed and registered in the names of Laport [AND
AMSTERDAM,] as appropriate.
(ii) the Reg D Redemption Documents, executed by the
Company and any other necessary parties;
(iii) copies, certified by the Chief Executive Officer
of the Company, of each of the Collateral Documents which are
on the Closing Date in full force and effect and without
amendment or modification;
(iv) the Amsterdam Warrant No. 2, the FLL Warrant and
the Laport Warrant, each executed by the Company;
(v) fully executed counterparts of the Registration
Agreement;
(vi) an opinion of Chuhak & Tecson, P.C., counsel for
the Company and the Subsidiaries, substantially in the form of
Exhibit B, and as to such other matters as Purchasers may
request;
(vii) certified copies of the Certificate of
Incorporation and By-laws of the Company and each of the
Subsidiaries, each as amended or restated (where applicable)
as of the Closing Date, dated not earlier than ten days prior
to the Closing Date, by the Secretaries of their respective
states of incorporation, respectively, and copies of
certificates of appropriate Secretaries of State, each dated
not earlier than ten days prior to the Closing Date, as to the
good standing of the Company and the Subsidiaries in the
States of Delaware, Florida, Pennsylvania and Michigan, and
any other state where the failure to so qualify would have a
Material Adverse Effect; and copies of the Certificate of
Incorporation and the By-laws of each other Subsidiary of the
Company, each as amended or restated (where applicable) as of
the Closing Date, certified by the Secretary of State of its
state of organization dated not earlier than ten days prior to
the Closing Date, and copies of certificates, dated not
earlier than ten days prior to the Closing Date,
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<PAGE> 13
as to the good standing of each Subsidiary in the state of its
incorporation and any other state where the failure to so
qualify would have a Material Adverse Effect;
(viii) a certificate of the Company, signed by the
Secretary on behalf of the Company, as to (a) resolutions of
the Company and, as applicable, its Subsidiaries, adopting and
approving all agreements relating to documents referred to
herein to which the Company or any of its Subsidiaries is a
party (including, without limitation, the Company Transaction
Documents and this Agreement) (b) the names, offices and
specimen signatures of its and its Subsidiaries' officers
executing any such documents in connection with this Agreement
or the documents referred to herein and (c) resolutions
authorizing the transactions contemplated hereby and thereby,
including the issuance and sale of Preferred Shares.
(ix) a certificate signed by the Chief Executive
Officer of the Company, with respect to the matters set forth
in Sections 2.3.2, 2.3.3 and 2.3.4;
(x) the most recent pro forma consolidated balance
sheet of the Company, taking account of the issuance of
Preferred Shares and the Convertible Loan and all transactions
to occur on the Closing Date certified by the Chief Financial
Officer of the Company which certifies that the Company will
be Solvent after the transactions contemplated hereby;
(xi) an officers' certificate, signed by the Chief
Executive Officer on behalf of the Company, certifying that to
the best of the Chief Executive Officer's knowledge after due
inquiry, since the date of the balance sheet described in
clause (x) above, there has not occurred a Material Adverse
Effect;
(xii) such other approvals, opinions or documents as
Purchasers may request;
(xiii) evidence of the execution and delivery of the
Convertible Debt Agreement, together with all other
agreements, instruments and documents required thereunder;
(xiv) a certified copy of the Certificate of
Designation and evidence of its filing with the Secretary of
State of Delaware;
(xv) the Wire Transfer Instructions (to be delivered
at least twenty-four (24) hours prior to the Closing Date);
and
(xvi) evidence of consummation of the Senior Management
Settlement Agreements to the satisfaction of the Purchasers,
together with all other agreements, instruments and documents
required thereunder.
9.1.2 Representations and Warranties True. (i) The
representations and warranties made by the Company herein and in the
Related Documents shall be true and correct in all material respects
on the Closing Date and (ii) all covenants contained herein and in
such other
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<PAGE> 14
agreements to be performed by each of such parties prior to
the Closing Date shall have been performed or waived by
Purchasers in writing.
9.1.3 No Default. No Default shall have occurred and be
continuing; no event of default, or event that with notice or lapse of
time or both would become an event of default, shall have occurred and
be continuing under any of this Agreement or the Related Documents;
and none of the foregoing shall occur as a result of the issuance of
Preferred Shares, or any other transaction in conjunction therewith
unless such covenant has been waived in writing by Purchasers.
9.1.4 No Material Adverse Change. Since September 30,
1995, in the judgment of the Purchasers, no event shall have occurred
which could reasonably be expected to have a Material Adverse Effect,
including, without limitation, any event which could reasonably be
expected to have a material adverse effect on the ability of the
Company to effect (including hindering or unduly delaying) the
transactions contemplated by this Agreement and the Related Documents,
or to satisfy its obligations hereunder or thereunder.
9.1.5 Expenses. The Company shall have paid or caused to
be paid to Laport all amounts due to Laport for Laport's own out of
pocket expenses in the amount of $29,617.30 incurred in due diligence
and investigation of collateral, together with all fees and expenses
of all and any counsel to Purchasers engaged by Purchasers in
connection with its due diligence, the preparation, negotiation,
review, execution and delivery of this Agreement and the Related
Documents, or the consummation of the transactions contemplated hereby
and thereby, or otherwise consulted by the Purchasers in connection
with this Agreement; provided, however, that if such amounts are not
paid by the Closing Date, they shall be treated as amounts advanced to
the Company by the applicable Purchaser and added to the Existing
Laport Indebtedness for purposes of the issuance of Initial Preferred
Shares under Section 2.2.
9.1.6 Absence of Litigation, Etc. No action, suit,
investigation, proceeding or counterclaim of or before any
Governmental Authority or other Person shall be pending or threatened
against the Company challenging the transactions contemplated by this
Agreement or the Related Documents or seeking any material damages in
connection therewith or any judgment, order, or injunction that would
restrain, prohibit or impose materially adverse conditions on the
consummation of the transactions contemplated hereby or by the Related
Documents.
9.1.7 Legal Investment. As of the Closing Date, the purchase
of Preferred Shares by the Purchasers hereunder shall be legally
permitted by all laws and regulations to which the Purchasers and the
Company are subject.
9.1.8 Qualifications. As of the Closing, all authorizations,
approvals or permits of, or filings with, any governmental authority,
including state securities or "Blue Sky" offices, that are required by
law in connection with the lawful offer, sale and issuance of the
Preferred Shares shall have been duly obtained by the Corporation, and
shall be effective as of the Closing.
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<PAGE> 15
ARTICLE X
REPRESENTATIONS AND WARRANTIES
As of the Closing Date, each date an offer to sell Preferred Shares
pursuant to Section 2.3.1 is made and each date Preferred Shares are purchased
hereunder, the Company represents and warrants, to Purchasers that, except as
specifically and fairly disclosed in the Company's Annual Report on Form 10-K
for its fiscal year ended December 31, 1994 and its Quarterly Reports on Form
10-Q for its quarters ended September 30, 1995 or in a schedule specifically
referred to herein:
10.1 Existence and Power. The Company is (a) a corporation duly
formed, validly existing and in good standing in the jurisdiction of its
formation, and has all powers and all governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted and
as proposed to be conducted, except where the failure to do any of the above
could not, singly or in the aggregate, reasonably be expected to have a
Material Adverse Effect and (b) duly qualified and authorized to do business
and in good standing in all jurisdictions where the failure to do so could not,
singly or in the aggregate, reasonably be expected to have a Material Adverse
Effect.
10.2 Subsidiaries. Each Subsidiary of the Company is (a) a
corporation duly formed, validly existing and in good standing in the
jurisdiction of its formation, and has all powers and all governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted and as proposed to be conducted, except where the
failure to do any of the above could not, singly or in the aggregate,
reasonably be expected to have a Material Adverse Effect and (b) duly qualified
and authorized to do business and in good standing in all jurisdictions where
the failure to do so could not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
10.3 Authority, Execution, Delivery and Enforceability. The
Company has the necessary corporate authority to execute, deliver and perform
its obligations under this Agreement and the Related Documents to which it is a
party, and to issue the Preferred Shares and the other transactions
contemplated by this Agreement and the Related Documents. The Company has
taken all necessary corporate action to authorize the execution, delivery and
performance of this Agreement, the Related Documents to which it is a party,
and any other documents related thereto. This Agreement and each of the
Related Documents to which it is a party are, or when executed and delivered by
the Company will constitute, the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with their respective
terms.
10.4 Authorization and Validity Re: Subsidiaries. Each Subsidiary
of the Company has the necessary corporate authority to execute, deliver and
perform its obligations under the Related Documents to which it is a party, and
to consummate the transactions contemplated by the Related Documents. Each
subsidiary of the Company has taken all necessary corporate action to authorize
the execution, delivery and performance of the Related Documents to which it is
a party and any other documents related thereto. The Related Documents to
which each Subsidiary of the Company is a party are (or, when duly executed and
delivered will be) the legal, valid, and binding obligations of such
Subsidiary, enforceable against such Subsidiary in accordance with their
respective terms.
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<PAGE> 16
10.5 No Conflicts. Neither the execution, delivery or performance
by the Company of this Agreement, the Related Documents to which it is a party,
and any other documents related thereto nor the compliance by the Company with
any of its obligations thereunder, nor the consummation of any of the
transactions contemplated thereby will (i) conflict with the Certificate of
Incorporation or the By-laws of the Company or any Subsidiary or (ii) conflict
with or result in a breach of, or constitute a default under, or result in the
creation or imposition of, any Lien upon any of the Company's or its
Subsidiaries' property or assets under (a) any indenture, mortgage, deed of
trust or other instrument or agreement to which the Company or its Subsidiaries
may be or become bound or to which any of the Company's property or assets may
be or become subject (other than this Agreement) or (b) any applicable law,
rule, regulation, judgment, writ, order or decree of any Governmental Authority
having jurisdiction over the Company's or its Subsidiaries' properties or
assets.
10.6 Use of Proceeds; Margin Regulations. Upon receipt thereof,
the Company will use the proceeds of the sale of Preferred Shares only for the
purposes permitted under Section 2.4. No part of the proceeds of sale of
Preferred Shares will be used for any purpose that violates the provisions of
any of Regulation G, T, U or X of the Board of Governors of the Federal Reserve
System or any other regulation of such Board of Governors.
10.7 No Consents. No order, license, consent, authorization or
approval of, or exception by, or notice to or registration with, any
Governmental Authority or any other Person, and no filing, recording,
publication or registration of any kind, is necessary or advisable in
connection with the execution, delivery and performance by the Company or its
Subsidiaries of this Agreement or the Related Documents or for the legality,
validity, binding effect or enforceability thereof.
10.8 Investment Company Act, Etc. Neither the Company nor any
Subsidiary is, or will be, after giving effect to the transactions contemplated
hereby, (a) an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended
or (b) subject to regulation under the Public Utility Holding Company Act of
1935, the Federal Power Act or any foreign, federal, state or local statute or
regulation limiting its ability to incur indebtedness for money borrowed or
guarantee such indebtedness as contemplated hereby.
10.9 Financial Matters. All financial information heretofore or
contemporaneously furnished by or on behalf of the Company, and all other such
information hereafter furnished by or on behalf of the Company to the
Purchasers will be, correct and complete in all material respects on the date
as of which such information is dated or certified (except for any projections
included therein, which projections shall have provided reasonable estimations
of future performance for the periods covered thereby based on assumptions
which are reasonable when made, subject to the uncertainty and approximation
inherent in any projections) and fairly present or will fairly present the
financial condition, results of operations and cash flows of the Company and
its Subsidiaries, as applicable, in accordance with GAAP and without omitting
anything necessary to make such information not misleading at such time.
10.10 Representations and Warranties in Other Agreements. There
have been delivered to Purchasers complete and correct copies of each of the
Company Transaction Documents, as amended to the date hereof, and all exhibits
and schedules delivered in connection therewith. The terms of each
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<PAGE> 17
of the Company Transaction Documents have not changed in any material respect
from the terms reflected in the copies thereof delivered to Purchasers on or
before the date of this Agreement. Each of the representations and warranties
given by the Company or its Subsidiaries, and the other parties to such
agreements in such documents were true and correct in all material respects as
of the date made and on the date hereof. Each of such documents is in full
force and effect, and each party thereto has performed all its obligations
thereunder required to be performed on or prior to the date hereof.
10.11 Tax Returns and Payments. Except as set forth on Schedule
4.11, the Company and each of its Subsidiaries has filed all federal income tax
returns and all other tax returns and reports, domestic and foreign, required
to be filed by it and has paid all taxes, assessments, fees and other
governmental charges payable by it which have become due, other than those not
yet delinquent or those which in the aggregate (including all fees and
penalties associated therewith) do not exceed $5,000.00. The Company and each
of its Subsidiaries has paid, or has provided adequate reserves for the payment
of, all federal, state and foreign income taxes applicable for all prior fiscal
years and for the current fiscal year to the date hereof. There is no proposed
tax assessment against the Company or against any of its Subsidiaries which, if
the assessment were made, could, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
10.12 Litigation and Adverse Facts. Except as set forth in Schedule
4.12, there is no claim, action, suit, proceeding, investigation or
administrative proceeding or arbitration by any Governmental Authority or other
Person (including, without limitation, derivative actions) pending or known by
the Company to be threatened with respect to the Company, any of its
Subsidiaries, or any of its Affiliates or assets of any of the foregoing, or
any officer, director or other person who would be entitled to be
indemnified by the Company or any Subsidiaries, or any of the transactions
contemplated hereby which could, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect and there is no basis for such
action, suit, proceeding, investigation or arbitration and there has occurred
no development in any action, suit, proceeding, investigation or arbitration
previously disclosed to Purchasers, which could, singly or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
10.13 [Intentionally Omitted].
10.14 No Defaults. Except as set forth on Schedule 4.14, there does
not exist (i) any event of default, or any event that with notice or lapse of
time or both would constitute an event of default, under any agreement or
obligation of the Company or its Subsidiaries, including, without limitation:
(a) the Company Transaction Documents or (b) any mortgage, deed of trust,
indenture or other instrument or agreement to which the Company is a party or
by which the Company may be bound or any of its property or assets may be
subject which, in either clause (a) or (b) above, would have a Material Adverse
Effect, or (ii) any Unmatured Event of Default.
10.15 Authorization. All corporate action on the part of the
Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this Agreement and the
Related Documents, and the consummation of the transactions contemplated hereby
and thereby, and for the authorization, issuance and delivery of the Preferred
Shares, has been taken. This Agreement and the Related Documents are legal,
valid and binding obligations of the
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<PAGE> 18
Company, enforceable against the Corporation in accordance with their
terms except as enforceability may be limited by bankruptcy and other similar
laws and general principals of equity.
10.16 Validity of Stock. The Preferred Shares, when issued, sold
and delivered in accordance with the terms of this Agreement, will be duly and
validly issued, fully paid, nonassessable and free and clear of all Liens. The
Shares issuable upon conversion of the Preferred Shares have been duly and
validly reserved and, upon issuance in accordance with the conversion
provisions of the Preferred Shares, will be duly and validly issued, fully
paid, non-assessable and free and clear of all Liens.
10.17 Capitalization. Since July 7, 1994, except as set forth in
Schedule 4.17, the Company has not offered, placed or sold, or caused to be
offered, placed or sold, any securities or other obligations. Except for
Shares which may be issued pursuant to this Agreement, the Warrant, the
Convertible Debt Agreement or the Amsterdam Warrant No. 1, immediately after
the Closing Date, the Company will have no more than 13,493,205 Fully Diluted
Shares (including all Shares issuable at any time upon the conversion, exercise
or exchange of all options or convertible securities outstanding or to be
issued on the Closing Date). The number of Fully Diluted Shares held by each
record holder of Fully Diluted Shares is set forth in Schedule 4.17.
10.18 Good Title to Properties. The Company and each of its
Subsidiaries has good and marketable title to all its material properties and
assets free and clear of all Liens (except for Permitted Liens).
10.19 ERISA. Neither the Company nor any ERISA Affiliate maintains
or contributes to or has or could have any liability under, any Plan which is
subject to Title IV of ERISA or Section 412 of the Code. Neither the Company
nor any ERISA Affiliate maintains or contributes to or has any liability under,
any Welfare Plan which provides, or has any liability under, benefits to
employees after termination of employment other than as required by Section 601
of ERISA or state compensation coverage laws which liability could singly or in
the aggregate reasonably be expected to have a Material Adverse Effect.
Neither the Company nor any ERISA Affiliate has breached any of the
responsibilities, obligations or duties imposed on it by ERISA, the Code or any
other applicable federal or state law or regulations promulgated thereunder
with respect to a Plan or any Welfare Plan in any manner which could singly or
in the aggregate reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any ERISA Affiliate nor any fiduciary of a Plan or any
Welfare Plan has engaged in a nonexempt prohibited transaction described in
Sections 406 of ERISA or 4975 of the Code in any manner which could singly or
in the aggregate could reasonably be expected to result in a Material Adverse
Effect.
10.20 Insurance. The Company has previously delivered to Purchasers
a summary of the property, casualty and liability insurance program carried by
the Company and its Subsidiaries (including, without limitation, dental
malpractice, products liability and director's and officer's liability
insurance) and such summary is complete and accurate in all material respects.
The Company has caused Purchasers to be named jointly with the Lender as
additional insureds and loss payees under any or all of the Company's insurance
policies. The Company and its Subsidiaries are adequately insured for their
benefit under such policies. No notice of any pending or threatened
cancellation or premium increase
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<PAGE> 19
has been received by the Company with respect to any of such insurance
policies. The Company and its Subsidiaries are in substantial compliance with
all conditions contained in such insurance policies.
10.21 Compliance with Laws. Neither the Company nor the
Subsidiaries are in violation of any law, ordinance, rule, regulation, order,
policy, guideline or other requirement of any Governmental Authority, which
violation could singly or in the aggregate be reasonably be expected to subject
the Company or the Subsidiaries or any of their officers to criminal liability
or have a Material Adverse Effect on the Company and no such violation has been
alleged, and the Company and the Subsidiaries (i) have filed in a timely manner
all reports, documents and other materials required to be filed by it with any
Governmental Authority and the information contained in each of such filings is
true, correct and complete in all respects, except where failure to make such
filings could not reasonably be expected to have a Material Adverse Effect and
(ii) have retained all records and documentary evidence required to be retained
by it pursuant to any law, ordinance, rule, regulation, order, policy,
guideline or other requirement of any Governmental Authority, except where
failure to retain such records could not reasonably expected to subject the
Company or any of its officers to criminal liability or have a Material Adverse
Effect.
10.22 Absence of Default. Unless consistent with past practices or
disclosed on Schedule 4.22, the Company or its Subsidiaries is not in material
default under any material contract or contracts (a) to which it is a party or
by which it is bound, and (b) (i) pursuant to which the Company or its
Subsidiaries provides goods or material services to a customer which
contributed more than $10,000.00 of gross revenue during the prior fiscal year
of the Company, (ii) pursuant to which the Company or its Subsidiaries incurs
lease obligations in excess of $10,000.00 during any fiscal year of the Company
or its Subsidiaries, or (iii) which cannot be replaced without material
expense, delay or interruption of business.
10.23 Securities Laws. Neither the Company nor any Affiliate, nor
anyone acting on behalf of any such Person, has taken any action (including,
without limitation, offering, or soliciting any offer to acquire, the Preferred
Shares or any similar security of the Company to or from any other party) that
would subject the issuance or sale of the Preferred Shares or the issuance of
the Shares issuable upon their conversion to registration under the Securities
Act of 1933, as amended (the "Securities Act") or registration or qualification
under the Blue Sky laws of any state ( the "Blue Sky Laws").
10.24 Employees and Labor. There is no unfair labor practice
complaint against the Company or its Subsidiaries pending before the National
Labor Relations Board or any state or local agency nor is there a labor strike
or other labor dispute, pending or, to the best of the Company's knowledge
after due inquiry, threatened, affecting any of the foregoing which if
adversely resolved could singly or in the aggregate reasonably be expected to
have a Material Adverse Effect; to the best knowledge of the Company after due
inquiry, there is no existing representation question respecting the employees
of the Company or its Subsidiaries, nor are there organizational attempts
affecting any of the employees of any of the foregoing which could singly or in
the aggregate reasonably be expected to have a Material Adverse Effect; there
is no grievance pending or, to the best of the Company's knowledge after due
inquiry, threatened affecting the Company or its Subsidiaries which singularly
or in the aggregate with other grievances could singly or in the aggregate
reasonably be expected to have a Material Adverse Effect; and no labor disputes
or work stoppages involving the Company or its Subsidiaries, to the best
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<PAGE> 20
of the Company's knowledge after due inquiry, are pending or threatened
which could singly or in the aggregate reasonably be expected to have a
Material Adverse Effect. To the best of the Company's knowledge after due
inquiry, no customer or supplier of the Company or its Subsidiaries is involved
in, or threatened with or affected by, any labor dispute, arbitration, lawsuit
or administrative proceeding which could singly or in the aggregate reasonably
be expected to have a Material Adverse Effect.
10.25 Finder's Fees. Except for fees payable under the Letter of
Agreement or hereunder, no agent, broker, investment banker, Person, or firm
acting on behalf of the Company or any Affiliate of the Company, or under the
authority of any such Person, is or will be entitled to any broker's or
finder's fee or any other similar commission or similar fee, directly or
indirectly, from any of the parties hereto in connection with any of the
transactions contemplated herein.
10.26 Material Adverse Effect. There is nothing of which the
Company is aware that could singly or in the aggregate reasonably be expected
to have a Material Adverse Effect which has not been disclosed to Purchasers in
a schedule to this Agreement.
10.27 Subsidiaries. The Company has no Subsidiaries other than
those identified on Schedule 4.27. The Company owns one hundred percent of the
equity and other ownership interests in its Subsidiaries.
10.28 Indebtedness. Except as set forth on Schedule 4.28, neither
the Company nor any of its Subsidiaries has any Indebtedness other than the
Existing Group Indebtedness.
ARTICLE XI
PURCHASERS' REPRESENTATIONS AND WARRANTIES
11.1 Acquisition for Investment. Each of the Purchasers represents
and warrants to the Company that Purchaser (i) is acquiring the Preferred
Shares for its own account for investment purposes with no present intention of
offering, selling, transferring or otherwise disposing of the same, any part
thereof, or any interest therein, unless such offer, sale, transfer or other
disposition would not result in a violation of the Securities Act and all
applicable Blue Sky Laws, (ii) has no reason to anticipate any particular
occasion or event which would cause, necessitate or require them to offer,
sell, transfer or otherwise dispose of the Preferred Shares (other than
pursuant to this Agreement) or any interest therein and is able to financially
bear the risks of the investments and (iii) has no need for liquidity in this
investment.
ARTICLE XII
COVENANTS
12.1 Affirmative Covenants. So long as Preferred Shares are
outstanding, the Company shall, and shall cause its Subsidiaries to, unless
otherwise expressly consented to in writing by the Purchasers:
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<PAGE> 21
12.1.1 Financial Statements. Furnish to Purchasers the
following:
(i) Monthly and quarterly net unaudited consolidated
and consolidating financial statements including, without
limitation, statements of profit and loss, statements of cash
flow and balance sheets, certified by the Company's Chief
Financial Officer on behalf of the Company, as soon as
available and, in any event, within twenty-five (25) days
after the end of each month and quarter (respectively), which
financial statements shall be prepared on a basis consistent
with such statements prepared in prior months, shall be in
accordance with GAAP (except for changes therein with which
the Company's independent certified public accountants have
previously concurred in writing), subject to the absence of
footnotes and normal year-end adjustments.
(ii) Annual audited unqualified consolidated and,
if available, consolidating financial statements,
certified by Kirkland, Brakeman, Russ, Murphy &
Tapp or by independent certified public accountants
from a "Big Six" national accounting firm other
than Ernst & Young, or other accountants acceptable
to Purchasers, as soon as available and, in any
event, within 120 days after the end of each of the
Company's fiscal years, which statements shall be
prepared in accordance with GAAP and on a
consistent basis.
(iii) Annual consolidated and consolidating forecasts,
for the calendar year and each month of the calendar year of
the next twelve (12) months' balance sheet, income statements
and cash flow statements of the Company, prepared by the
Company's Chief Financial Officer on behalf of the Company as
the annual budget of the Company and delivered not less than
30 days before the first day of the applicable fiscal year of
the Company, and deliver forecasts updating the remaining
portion of any such annual forecast as, when and if prepared.
(iv) In addition to the reports and statements
described in clauses (i) through (iii), the Company shall
provide Purchasers with such other financial reports and
information relating to the Company as Purchasers may from
time to time request.
(v) Concurrently with the delivery of the financial
statements in clause (ii) above, a certificate of the auditor
as selected pursuant to clause (ii), that such auditor (in the
course of such auditor's review) has not obtained any
knowledge of a financial covenant Default under this
Agreement.
(vi) Concurrently with the delivery of the financial
statements described in clauses (i) and (ii) above, a
certificate of the Chief Financial Officer of the Company to
the effect that no event of default, or event which with the
lapse of time or notice or both, would constitute an event of
default under the Company Transaction Documents.
(vii) Concurrently with the delivery of the financial
statements described in clause (ii) above, copies of all
management letters and other correspondence and/or documents
sent and/or otherwise provided to the Company by the Company's
accountant or accountants in the prior year.
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<PAGE> 22
(viii) Copies of all documents filed with the Securities
and Exchange Commission ("SEC"), when and as they are so
filed.
(ix) Copies of all documents sent to the holders of
Shares, when and as they are so sent.
12.1.2 Maintenance of Property; Insurance. Except as
otherwise permitted under this Agreement, preserve and maintain all of
its material properties, owned or leased, used or useful in the
conduct of its business in good working order and condition, ordinary
wear and tear excepted; and insure and keep insured, with financially
sound and reputable insurers, so much of its properties, in such
amounts and against such risks, as are, to the best of the Company's
knowledge after due inquiry, usually and customarily insured by
companies engaged in a similar business with respect to properties of
a similar character.
12.1.3 Compliance with Law. Comply in all material
respects with all applicable laws, rules, regulations and requirements
of Governmental Authorities (including, without limitation, OSHA, ERISA
and the rules and regulations thereunder) except where the necessity
of compliance therewith is contested in good faith by appropriate
proceedings or the failure to comply with which could not, singly or
in the aggregate reasonably be expected to have a Material Adverse
Effect.
12.1.4 Keeping of Books. Keep proper books of record and
accounts, in which complete and correct entries shall be made of all
financial transactions and the assets and business of the Company and
its Subsidiaries.
12.1.5 Payment of Obligations, Taxes, Etc. Pay and
discharge, at or before maturity, or before the same shall become
delinquent, all of its material obligations and liabilities, including
(i) all taxes, assessments and governmental charges imposed upon each
of the Company or any of its Subsidiaries or upon its property and
(ii) all lawful claims that, if unpaid, might by law become a Lien
upon each of the Company's or its Subsidiaries' property; provided,
however, that the Company and its Subsidiaries shall not be required
to pay or discharge any such obligations or liabilities that are being
contested in good faith by appropriate proceedings properly instituted
and diligently conducted and in respect of which appropriate reserves
are being maintained in accordance with GAAP.
12.1.6 Access to Records; Financial Statements. Provide
Purchasers and its authorized representatives full and complete access
to all books, records, offices and other facilities and properties,
and allow Purchasers and such representatives to make such inspections
thereof and copies of and abstracts from such books and records, as
Purchasers may request, and cause the Company's officers to furnish
Purchasers and such representatives with such financial and operating
data, including all quarterly financial statements prepared or used by
the management of the Company, and other information with respect to
the financial condition, business and property of the Company and its
Subsidiaries, as each Purchaser may from time to time in its Sole and
Exclusive Discretion request. The Company shall also provide Laport,
at the
Page 22 of 37
<PAGE> 23
Company's expense, with direct computer access by modem to the
Company's financial data, which shall be down-loaded on a daily basis
to a computer at such location as FLL designates.
12.1.7 Notice of Certain Events. Promptly upon the
Company knowledge thereof, give notice to Purchasers of (i) the
occurrence of any Default, (ii) the occurrence of any event of
default, or event that with notice or lapse of time or both would
become an event of default under the Company Transaction Documents,
(iii) any litigation, investigation or proceeding affecting the
Company or its Subsidiaries that could reasonably be expected to have
a Material Adverse Effect, or (iv) any event or matter that has
resulted in or could reasonably be expected to have a Material Adverse
Effect; and, in each case, promptly deliver to Purchasers an officer's
certificate, signed by the Chief Executive Officer of the Company,
specifying the nature of such event and the actions that the Company
has taken or proposes to take with respect thereto; provided, however,
that should any Default be cured by the Company within the applicable
period hereunder, such cure of any underlying Default shall also cure
any default arising under this Section 6.1.7 for failure to give
notice with respect to such Default.
12.1.8 Waiver of Stay, Extension or Usury Laws. To the
extent that it may lawfully do so, refrain at all times from insisting
upon, or pleading, or in any manner whatsoever claiming, and resist
any and all efforts to be compelled to take the benefit or advantage
of, any stay or extension law or any usury law or other law which
would prohibit or forgive the Company from paying all or any portion
of the dividends on the Preferred Shares as set forth in the
Certificate of Designation, wherever enacted, now or at any time
hereafter in force; and (to the extent, now or at any time hereafter
in force; and to the extent that it may lawfully do so) the Company
hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not hinder, delay or impede the execution of
any right herein granted to Purchasers, but will suffer and permit the
execution of every such right as though no such law had been enacted.
12.1.9 Covenants in Agreement. (i) Comply in all material
respects and take such actions to have its Subsidiaries comply in all
material respects with its obligations under this Agreement and the
Related Documents to which they are a party (waivers from compliance
by any party with the obligations specified in this Agreement or any
of the Related Documents shall not be effective as waivers hereunder
unless consented to in writing by the Purchasers), and (ii) refrain
from entering into any amendment of this Agreement or the Related
Documents without the consent of the Purchasers.
12.2 Negative Covenants. So long as the Company has any
Liabilities outstanding (other than Liabilities solely as to Shares which have
been previously converted), the Company shall not, and shall not permit its
Subsidiaries to, without the written consent of the Purchasers:
12.2.1 [Intentionally Omitted].
12.2.2 [Intentionally Omitted].
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<PAGE> 24
12.2.3 Additional Debt. Incur any indebtedness or other
additional debt or obligation of any kind other than that specifically
permitted pursuant to this Agreement or the Convertable Debt
Agreement.
12.2.4 Acquisition or Sale of Business; Merger or
Reorganization. Purchase or otherwise acquire the stock, shares, or
other securities, or the assets or business of any Person or other
entity; or liquidate, dissolve, merge, consolidate, reorganize,
recapitalize or otherwise alter its legal status or commence any
proceedings therefor, or sell, lease, transfer or dispose of, in
any way, any personal or real property assets, except assets sold or
leased in the ordinary and normal course of business; or assign or
transfer any substantial part of its intangible business rights
necessary for the continuation of its business as now conducted
or planned.
12.2.5 Equity. Issue any additional Shares (or instruments
convertible into Shares or other equity) in the Company or the
Subsidiaries, except as specifically required pursuant to this
Agreement, the Amsterdam Warrant No. 2, the Laport Warrant, the
Convertible Debt Agreement or the Amsterdam Warrant No. 1.
12.2.6 Charter and By-Laws. Amend, breach or violate the
By-Laws or Certificate of Incorporation of the Company or any of its
Subsidiaries.
12.2.7 Compliance with Securities Laws. Directly or
indirectly sell or offer, or attempt to offer or dispose of, any stock
or other securities of the Company or any Subsidiary (except as
specifically required pursuant to this Agreement), solicit any offer
to buy any shares or other securities of the Company or any
Subsidiary, or otherwise approach or negotiate in respect thereof with
any Person in violation of the Securities Act or any other federal,
state or other securities law or in such circumstances or in such
manner as to bring the issue and sale of the Shares pursuant to this
Agreement or the Related Documents into violation of the Securities
Act or any other federal, state or other securities law.
12.2.8 Dividends. Declare, accrue or pay any dividends, or
make any other distributions in cash, property or stock, with respect
to any Shares or any other equity securities of the Company, or
purchase or redeem any Shares or any other equity securities of the
Company other than with respect to Preferred Shares.
12.2.9 Capital Expenditures. Expend or contract to expend,
on a consolidated basis, in any fiscal year of the Company in the
aggregate for the lease, purchase or other acquisition of any capital
asset in an aggregate amount more than $100,000.
12.2.10 Changes in Management or Business. Change the
nature of its business in any material respect from that engaged in on
the Closing Date or enter into any agreements which would restrict its
right to perform under this Agreement or the Related Documents.
12.2.11 Changes in Accounting Periods or Methods. Change
the Company's fiscal year from the year end of December 31 or make or
institute any change in accounting method employed in the preparation
of the financial statements described in Section 6.1.1 hereof.
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<PAGE> 25
12.2.12 Benefits and Compensation. Increase by more than
3.5% during any one-year period the salaries, benefits, or compensation
of any kind or nature of the officers, directors or employees of the
Company or the Subsidiaries.
12.2.13 Loans and Advances. Except as required by law, pay any
past loans, advances, or deferred or outstanding salaries or benefits
of any kind or nature made by, or due to, any past or present officer,
director or employee of the Company or the Subsidiaries until such
time as the Company and Subsidiaries collectively generate positive
net income, determined in accordance with GAAP, for a period of at
least one (1) year.
12.3 Legend. Until (a) the Preferred Shares represented by such
certificate are effectively registered under the Securities Act of 1933, as
amended ("Securities Act") or (b) the holder of Preferred Shares delivers to
the Company a written opinion of counsel to such holder to the effect that such
legend is no longer necessary under the Securities Act, the Company will cause
each certificate representing Preferred Shares to be stamped or otherwise
imprinted with a legend to substantially the following effect:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and thus may
not be transferred unless so registered or unless an exemption from
registration is available."
ARTICLE XIII
DEFAULT
13.1 Events of Default. Each of the following events shall
constitute an "Event of Default" hereunder (whatever the reason for such Event
of Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree, order, rule or regulation
of any Governmental Authority or otherwise):
13.1.1 there shall be a Dividend Default as defined in the
Certificate of Designation; or
13.1.2 the Company fails to redeem the Preferred Shares as
provided in the Certificate of Designation; or
13.1.3 any representation or warranty by the Company (or
any of its officers) under this Agreement or any of the Related
Documents shall prove to have been incorrect in any material respect
when made; or
13.1.4 Company shall fail to perform or observe any of the
terms, covenants or agreements contained in this Agreement or any of
the Related Documents on its part to be performed or observed if, in
the case of the covenants in Sections 6.1.1, 6.1.2 and 6.1.4 only,
such failure shall remain unremedied for a period of twenty (20) days
after written notice thereof shall have been given to the Company by
Purchasers; or
Page 25 of 37
<PAGE> 26
13.1.5 [INTENTIONALLY OMITTED]; or
13.1.6 an event of default occurs and is continuing under
the Convertibel Debt Agreement; or
13.1.7 Company shall generally fail to pay its debts
as such debts become due, shall admit in writing its inability to pay
its debts generally, or shall make a general assignment for the
benefit of its creditors; or any proceeding shall be instituted by or
against the Company seeking to adjudicate it bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under
any law relating to bankruptcy, insolvency, reorganization or relief
of debtor, or seeking the entry of an order for relief or the
appointment of a receiver, trustee or other similar official for it or
for any substantial part of its property and, in the case of any
such proceeding instituted against it (but not instituted by it),
either such proceeding shall remain undismissed or unstayed for a
period of 30 days or any of the actions sought in such proceeding
(including, without limitation, the entry of an order for relief
against it or the appointment of a receiver, trustee, custodian or
other similar official for it or for any substantial part of its
property) shall occur; or the Company shall take any action to
authorize any of the actions set forth above in this Section 7.1.7; or
13.1.8 any Person entitled to take the actions described in
this Section 7.1.8, after the occurrence of any default or event of
default under any agreement, mortgage, indenture or instrument
evidencing any Indebtedness of the Company which is outstanding in a
principal amount of at least $10,000.00 in the aggregate, shall notify
the Company of the intended sale or disposition of any assets of the
Company that have been pledged to or for the benefit of such Person to
secure such Indebtedness or shall commence proceedings or take any
action (including by way of set-off) to retain in satisfaction of any
such Indebtedness, or to collect on, seize, dispose of, or apply, any
assets of the Company (including funds on deposit or held pursuant to
lock box and other similar arrangements), pursuant to the terms of any
agreement or instrument evidencing any such Indebtedness or in
accordance with applicable law; or
13.1.9 there remains unpaid and unstayed pending appeals for
more than thirty (30) consecutive days, one or more judgments or
decrees against the Company, any Subsidiary or any guarantor of any of
the Liabilities involving an aggregate liability of $25,000.00 or more
(other than a money judgment covered by insurance, but only if the
insurer has admitted, in writing, liability with respect to such
judgment); or
13.1.10 if any of the present executive officers of the
Company are no longer personally and actively involved in the
management and supervision of the Company or any of its Subsidiaries,
at least substantially to the same extent as of the date hereof,
except that, if any of them is no longer so involved due to his death
or disability, such event shall not be an Event of Default if he is
replaced within 45 days by another person acceptable to Lender in its
Sole and Exclusive Discretion (which must be evidenced in writing by
Lender).
Notwithstanding the foregoing, the mere failure to pay interest under
the Convertible Secured Notes which is due in June 1996 or September 1996 or
the mere failure to pay dividends on the
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<PAGE> 27
Preferred Shares which is due on june 30, 1996 or September 30, 1996 shall not
be an Event of Default for any purpose hereunder, except that (1) such failure
to pay in September 1996 shall trigger interest at the Default Rate under the
Convertible Debt Agreement and dividents at the Default Rate under the
Certificate of Designation, and (2) interest which is unpaid in June 1996 shall
be added to principal.
13.2 Remedies. If an Event of Default (other than an Event of
Default specified in Section 7.1.7) occurs and is continuing, Lender may, by
notice to the Company (the "Default Notice"), demand immediate redemption of
the outstanding Preferred Shares. If an Event of Default specified in Section
7.1.7 occurs, the Company shall be immediately obligated to redeem the
outstanding Preferred Shares ipso facto and without any demand or other action
on the part of Lender. The redemption price to be paid to the Purchasers for
such Preferred Shares shall be the aggregate Liquidation Value (as defined in
the Certificate of Designation) thereof, plus all unpaid, accumulated dividends
thereon. Lender by notice to the Company may rescind any demand for redemption
and its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default hereunder have been cured or
waived except nonpayment of the amounts that has become due solely because of
the demand for redemption.
ARTICLE XIV
ASSIGNMENTS
14.1 Assignments. Assignments by Purchasers of its rights and
obligations arising under and with respect to this Agreement and the Related
Documents shall be subject to the following terms and conditions:
14.1.1 The Purchasers may assign and delegate (the
"Assignment") to one or more assignees (the "Assignees") all or a
portion or its rights and obligations under this Agreement or the
Related Documents subject only to the conditions set forth in Section
8.1.2; provided, however, that the Purchasers may not delegate its
obligations to purchase the Preferred Shares as required under Section
2.3.6. After any Assignment permitted under this Section 8.1.1, the
Purchasers shall have no further obligations with respect to the
portion of the rights and obligations so assigned that may arise after
the date of such Assignment.
14.1.2 Any Assignment shall identify the party to whom the
Agreement is being assigned.
14.2 Appointment. Purchasers hereby irrevocably authorize Lender,
and Lender hereby agrees to act, as agent for Purchasers and any Assignee for
the purpose of exercising all of Purchasers' rights of enforcement hereunder
and Purchasers and each Assignee agree to be bound by any actions taken by said
agent on their behalf and to take no actions in the enforcement of such rights
independently of said agent.
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<PAGE> 28
ARTICLE XV
THE AGENT
15.1 Appointment. Purchasers may appoint an Agent to act as escrow
agent hereunder and under the Certification of Designation by written notice to
the Company. In the event of such appointment, the Agent shall be authorized
to take such action on behalf of Purchasers and the Company under the
provisions of this Agreement and the Certificate of Designation, the Related
Documents and any other instruments and agreements referred to herein or
therein and to exercise such powers and to perform such duties hereunder and
thereunder as are specifically delegated to or required of the Agent by the
terms hereof and thereof and such other powers as are reasonably incidental
thereto. The Agent may perform any of its duties hereunder by or through its
officers, directors, agents or employees.
15.2 Nature of Duties. The Agent shall not have any duties or
responsibilities except those expressly set forth in this Agreement. Neither
the Agent nor any of its officers, directors, agents or employees shall be
liable for any action taken or omitted by it or them hereunder or under any
Related Document or in connection herewith or therewith, unless caused by its
or their gross negligence or willful misconduct. The duties of the Agent shall
be mechanical and administrative in nature; the Agent shall not have by reason
of this Agreement or any Related Document a fiduciary relationship in respect
of the Purchasers or the Company and nothing in this Agreement or any Related
Document, expressed or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of this Agreement or any
Related Document except as expressly set forth herein.
15.3 Lack of Reliance on the Agent. In acting as Agent hereunder,
the Agent shall not be responsible to the Purchasers or the Company for any
recitals, statements, information, representations or warranties herein or in
any document, certificate or other writing delivered in connection herewith or
for the execution, effectiveness, genuineness, validity, enforceability,
perfection, collectibility, priority or sufficiency of this Agreement or any
Related Document or the financial condition of the Company or any of its
Subsidiaries or be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of this
Agreement or any Related Document, or the financial condition of the Company or
any of its Subsidiaries or the existence or possible existence of any Default
or Event of Default.
15.4 Certain Rights of the Agent. The Agent shall act only in
accordance with (a) the terms of this Agreement, (b) the written instructions
executed by both the Company and the Purchasers, or (c) an order of a court
which is no longer subject to appeal and which Agent is advised by counsel is
binding upon it. If the Agent shall request instructions from the Purchasers
and the Company with respect to any act or action (including failure to act) in
connection with this Agreement or any Related Document which is not expressly
provided for herein, the Agent shall be entitled to refrain from such act or
taking such action unless and until the Agent shall have received instructions
from the Purchasers, the Company and the Agent shall not incur any liability to
any Person by reason of so refraining. Without limiting the foregoing, neither
the Purchasers nor the Company shall have any right of action whatsoever
against the Agent as a result of the Agent acting or refraining from acting
hereunder or under any Related Document in accordance with the instructions of
the Purchasers and the Company.
Page 28 of 37
<PAGE> 29
15.5 Reliance. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, telecopier message, cablegram, radiogram, order
or other document or telephone message signed, sent or made by any Person that
the Agent believed to be the proper Person and, with respect to all legal
matters pertaining to this Agreement and any Related Document and its duties
hereunder and thereunder, upon advice of counsel selected by it in good faith.
15.6 Indemnification. The Company will reimburse and indemnify the
Agent for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Agent in performing its duties hereunder (except to the extent
based upon acts or omissions constituting gross negligence or willful
misconduct in the performance of such duties) in his capacity as Agent or under
any Related Document, in any way relating to or arising out of this Agreement
or any Related Document.
15.7 Holders. The Agent may deem and treat the holders of any
Preferred Shares as the owner thereof for all purposes hereof unless and until
a written notice of the assignment, transfer or endorsement thereof, as the
case may be, shall have been filed with the Agent. Any request, authority or
consent of any Person or entity who, at the time of making such request or
giving such authority or consent is the holder of any Preferred Shares shall be
conclusive and binding on any subsequent holder, transferee, assignee or
indorsee, as the case may be, of such Preferred Share or of any Preferred
Shares issued in exchange therefor.
15.8 Resignation.
(a) The Agent may resign from the performance of all its
functions and duties hereunder and/or under the Related Documents at
any time by giving 15 Business Days' prior written notice to the
Company and the Purchasers. Each such resignation shall take effect
upon the expiration of such 15-day period, provided that the
resignation of the last remaining Agent shall take effect upon the
appointment of a successor Agent, pursuant to clauses (b) and (c)
below or as otherwise provided below.
(b) Upon any such notice of resignation of the last
remaining Agent, the Purchasers shall appoint a successor Agent.
(c) Following any notice of resignation by any Agent, if
a successor Agent shall not have been so appointed within said 15
Business Days, such Agent shall then appoint a successor Agent who
shall serve as Agent hereunder or thereunder until such time, if any,
as the Purchasers appoint a successor Agent as provided above.
(d) If no successor Agent has been appointed pursuant to
clause (b) or (c) above by the 29th Business Day after the date such
notice of resignation was given by the Agent, Agent's resignation
shall become effective and the Purchasers shall thereafter perform all
the duties of the Agent hereunder and/or under any Related Document
until such time, if any, as the Purchasers appoint a successor Agent
as provided above.
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<PAGE> 30
ARTICLE XVI
MISCELLANEOUS
16.1 Amendments, Etc. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by the Company therefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Purchasers, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
16.2 Notices, Etc. All notices, requests and other communications
provided for hereunder shall be in writing and sent by first class mail,
registered or certified, postage prepaid and return receipt requested or
delivered personally or by courier against written acknowledgement of receipt
(a) if to the Company, at its address set forth on the signature pages hereof
with a copy to John F. Mahoney, Chuhak & Tecson, P.C., 225 West Washington
Street, Suite 1300, Chicago, Illinois, 60606, (b) if to Purchasers, at their
addresses set forth on the signature pages hereof with a copy to such persons
(not to exceed two) as they designate by notice to the Company, and (c) if to
successors or assigns of Purchasers, at their respective addresses provided to
the Company, Purchasers or to such other addresses as any such party may
hereafter specify for such purpose by notice to Purchasers and the Company.
All such notices and other communications shall be effective on the date of
delivery to the party receiving such notice, as evidenced by the date set forth
on the receipt signed by the party receiving such notice.
16.3 No Waiver; Remedies. No failure on the part of Purchasers to
exercise, and no delay in exercising, any right hereunder or under the Related
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
16.4 Costs and Expenses; Indemnity.
16.4.1 Company shall pay on demand (i) all reasonable
costs and expenses of Purchasers in connection with the preparation,
execution, delivery, administration, modification and amendment of
this Agreement and the Related Documents, including, without
limitation, the fees and out-of-pocket expenses of counsel for
Purchasers with respect thereto and other legal counsel advising any
successors or assigns of Purchasers as to their respective rights and
responsibilities under this Agreement, and due diligence,
transportation, lodging, meals, computer, duplication, appraisal,
audit, insurance, consultant, search and filing fees, costs and
expenses of Purchasers, and (ii) all reasonable costs and expenses, if
any, of Purchasers and any Assignees (including, without limitation,
counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of
their respective rights under this Agreement and the Related Documents
or as shareholders of the Company.
16.4.2 Company shall idemnify and hold harmless Purchasers
and any Assignees and their respective Affiliates (each such Person
being an "Indemnified Party") from and against any and all losses,
claims, damages, liabilities and expenses (including, without
limitation, fees and
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<PAGE> 31
disbursements of counsel and out of pocket expenses of Purchasers and
their agents), which may be incurred by or asserted or awarded against
any Indemnified Party, in each case in connection with, relating to or
arising out of or by reason of, or in connection with the preparation
for or defense of, joint or several, any investigation, inquiry,
litigation or proceeding (i) relating to or arising out of the
transactions contemplated herein or the execution, delivery,
enforcement and performance of this Agreement or the Related
Documents, (ii) any claim of a party (other than an Indemnified Party)
relating to any act, omission or obligation of the Company or its
stockholders, directors, officers, agents, employees, creditors or
Affiliates or (iii) any breach of any written obligation of the
Company or its Affiliates to Purchasers, whether or not such
Indemnified Party is a party thereto and whether or not the
transactions contemplated herein are consummated. The Company will
not be liable to any Indemnified Party under the foregoing
indemnification provision to the extent that any loss, claim, damage,
liability or expense incurred by or asserted or awarded against such
Indemnified Party is found to have resulted from the willful
misconduct or gross negligence of such Indemnified Party as determined
by a final judgment of a court of competent jurisdiction. The
agreements in this Section 10.4.2 shall survive the Final Maturity
Date.
16.5 Right of Set-off. Subject to Article VII, upon the occurrence
and during the continuance of any Event of Default, Purchasers and any
Assignees are hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other Indebtedness at any time owing by Purchasers and any Assignees and
Participants to or for the credit or the account of the Company against any and
all of the Liabilities irrespective of whether or not the Purchasers and any
such Assignees shall have made any demand under this Agreement or the Preferred
Shares and although such obligations may be unmatured. Purchasers and any
Assignees agree promptly to notify the Company after any such set-off and
application made by Purchasers or any Assignees, provided that the failure to
give such notice shall not affect the validity of such set-off and application.
The rights of Purchasers or any Assignee under this Section 10.5 are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which such Purchasers or such Assignee may have hereunder,
under the Related Documents, or pursuant to applicable law.
16.6 Construction. The use of the singular or plural or masculine
or neuter gender shall not be given an exclusionary meaning and, where
applicable, shall be intended to include the appropriate number or gender, as
the case may be. The failure of this Agreement to use the term "Sole and
Exclusive Discretion" in connection with any act or failure to act of the
Purchasers hereunder shall not be deemed to imply any obligation on the part of
Purchasers to act or fail to act except in their Sole and Exclusive Discretion.
16.7 Execution in Counterparts. This Agreement may be executed in
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
16.8 Binding Effect; Governing Law. This Agreement shall be binding
upon and inure to the benefit of the Company and Purchasers and their
respective successors and assigns, except that the Company shall not have the
right to assign its rights hereunder or any interest herein without the prior
Page 31 of 37
<PAGE> 32
written consent of Purchasers. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Illinois without regard
to its principles of conflicts of law.
16.9 Severability. The invalidity of any provision of this
Agreement or portion of a provision shall not affect the validity of any other
portion of this Agreement or the remaining portion of the applicable provision.
16.10 Submission to Jurisdiction. THE COMPANY HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION AND EXCLUSIVE VENUE OF ANY STATE OR FEDERAL COURT
LOCATED IN CHICAGO, ILLINOIS, OVER ANY ACTION OR PROCEEDING (i) TO ENFORCE OR
DEFEND ANY RIGHT UNDER THIS AGREEMENT, THE RELATED DOCUMENTS, OR UNDER ANY
AMENDMENT, INSTRUMENT, DOCUMENT, OR AGREEMENT DELIVERED, OR THAT MAY IN THE
FUTURE BE DELIVERED, IN CONNECTION HEREWITH OR THEREWITH, OR (ii) ARISING FROM
ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND THE
COMPANY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION
OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE OR FEDERAL COURT. THE
COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO
SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION
OR PROCEEDING. THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
PURCHASERS DESIGNATE AND APPOINT CT CORPORATION SYSTEM, 208 SOUTH
LASALLE STREET, CHICAGO, ILLINOIS 60604, AND SUCH OTHER PERSONS AS MAY
HEREAFTER BE SELECTED BY THE COMPANY WHICH IRREVOCABLY AGREE IN WRITING TO SO
SERVE AS ITS AGENT TO RECEIVE AND FORWARD ON ITS BEHALF SERVICE OF ALL PROCESS
IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY
ACKNOWLEDGED BY THE COMPANY TO BE EFFECTIVE AND BINDING SERVICE IN EVERY
RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED
MAIL TO THE COMPANY AT ITS ADDRESS PROVIDED IN SECTION 10.2 EXCEPT THAT UNLESS
OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT
AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY THE
COMPANY REFUSES TO ACCEPT SERVICE, THE COMPANY HEREBY AGREES THAT SERVICE UPON
IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE
RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT OF AGENT OR PURCHASERS TO BRING PROCEEDINGS AGAINST THE COMPANY IN THE
COURTS OF ANY OTHER JURISDICTION.
COMPANY AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING
AGAINST PURCHASERS OR ANY ASSIGNEE OR PARTICIPANT OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR PROPERTIES, ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE DOCUMENTS REFERRED TO
Page 32 of 37
<PAGE> 33
ABOVE, IN ANY COURT OTHER THAN ONE HEREINABOVE SPECIFIED IN THIS SECTION
10.10. NOTHING IN THIS SECTION 10.10 SHALL AFFECT THE RIGHT OF PURCHASERS OR
ANY ASSIGNEE OR PARTICIPANT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW, OR THE RIGHT OF PURCHASERS OR ANY ASSIGNEE OR PARTICIPANT TO
BRING ANY ACTION OR PROCEEDING AGAINST THE COMPANY OR THE PROPERTY OF THE
COMPANY IN THE COURTS OF ANY OTHER JURISDICTIONS.
16.11 Waiver of Jury Trial. THE COMPANY WAIVES ANY RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHT UNDER THIS
AGREEMENT, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT, OR AGREEMENT
DELIVERED, OR THAT MAY IN THE FUTURE BE DELIVERED, IN CONNECTION HEREWITH AND
THE COMPANY AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
Page 33 of 37
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
COMPANY:
PRINCETON DENTAL MANAGEMENT CORPORATION
By:__________________________________________
Its:_________________________________________
Address and telecopy:
2358 Hassell Road
Hoffman Estates, Illinois 60195
Telecopy: 708-834-2697
PURCHASERS:
____________________________________________
FRANK LEONARD LAPORT
Address and telecopy:
____________________________________________
____________________________________________
Telecopy:___________________________________
BEVERLY TRUST COMPANY, AS CUSTODIAN OF
THE FRANK LEONARD LAPORT ROLLOVER INDIVIDUAL
RETIREMENT ACCOUNT NUMBER 75-49990
By:_____________________________________
Its:____________________________________
Address and telecopy:
________________________________________
________________________________________
Telecopy: ______________________________
Page 34 of 37
<PAGE> 35
AMSTERDAM EQUITIES LIMITED
By:_____________________________________
Its:____________________________________
Address and telecopy:
404 East Bay Street
P.O. Box SS-5539
Nassau, New Providence,
Bahamas Islands
Telecopy:_______________________________
Page 35 of 37
<PAGE> 36
STATE OF ILLINOIS )
) SS
COUNTY OF __________ )
I, ___________________________________, a Notary Public in and for the
County and State aforesaid, do hereby certify that Charles Mitchell, D.D.S.,
personally known to me to be the President and Chief Executive Officer of
Princeton Dental Management Corporation, a Delaware corporation, appeared
before me this day in person and acknowledged that as such officer he signed
and delivered such instrument as his free and voluntary act and with due
authorization, and as the free and voluntary act of such corporation for the
uses and purposes herein set forth.
Given under my hand and seal this _____ day of _______________, 1996.
SEAL:
______________________________
NOTARY PUBLIC
My commission expires _____________.
Page 36 of 37
<PAGE> 37
SCHEDULE 4.11
TAX RETURNS AND PAYMENTS
None.
Page 37 of 37
<PAGE> 38
216273.11
CERTIFICATE OF DESIGNATION
OF
SERIES A 11.75% CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
PRINCETON DENTAL MANAGEMENT CORPORATION
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware.
Princeton Dental Management Corporation, a Delaware corporation (the
"Corporation"), certifies that pursuant to the authority contained in its
Certificate of Incorporation and in accordance with the provisions of Section
151 of the General Corporation Law of the State of Delaware, its Board of
Directors has adopted the following resolution, creating a series of its
Preferred Stock, $1.00 par value per share, designated as Series A 11.75%
Cumulative Convertible Preferred Stock (the "Preferred Stock"):
RESOLVED, that the Preferred Stock be hereby created, and that the
designation and amount thereof, preferences and other special rights of the
shares of such series, and the qualifications, limitations and restrictions
thereof are as follows:
SECTION 1. DESIGNATION AND AMOUNT. The shares of such Preferred
Stock shall be designated as the "11.75% Cumulative Convertible Preferred
Stock" and the number of shares constituting such series shall be 10,000, which
number may be increased or decreased, subject to Section 12, by the Board of
Directors of the Corporation without a vote of the holders of Common Stock;
provided, however, that such number may not be decreased below the number of
then currently outstanding shares of Preferred Stock.
SECTION 2. DEFINITIONS. For purposes of the Preferred Stock, in
addition to those terms otherwise defined herein, the following terms shall
have the meanings indicated:
"Agent" is defined in the Preferred Stock Purchase Agreement.
"Affiliate" as applied to any Person means (a) any other
Person directly or indirectly controlling, controlled by, or under
common control with, that Person or (b) any other Person that owns or
controls 5% or more of any class of equity securities of that Person.
For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlling," "controlled by," and
"under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether
through the ownership of voting securities or by contract or
otherwise. Notwithstanding the foregoing, the holders of the
Page 1 of 17
<PAGE> 39
Preferred Stock or their affiliates shall not be deemed to be
Affiliates of the Borrower for purposes of this Certificate of
Designation solely by virtue of their ownership of Preferred Stock.
"Amsterdam Warrant No. 1" means that certain warrant to
purchase up to 3,588,750 unregistered Shares executed and delivered by
Company to Lender, pursuant to the Convertible Debt Agreement.
"Amsterdam Warrant No. 2" means that certain Warrant to
Purchase up to 268,125 unregistered Shares executed and delivered by
the Corporation to Lender, pursuant to the Preferred Stock Purchase
Agreement.
"Authorized Representative" means the President of the
Corporation or such other officers of the Corporation as are
designated in writing by the Corporation to the Preferred
Stockholders.
"Business Day" means any day other than a Saturday, Sunday, a
U.S. federal holiday or other day on which banking institutions in
Chicago, Illinois or the Bahamas are authorized or required by law to
close or are otherwise closed.
"Certificate of Designation" means this Certificate of
Designation of Series A 11.75% Cumulative Convertible Preferred Stock.
"Common Stock" means the Common Stock of the Corporation,
$0.0001 par value per share.
"Convertible Debt Agreement" means that certain Convertible
Debt Agreement dated April 22, 1996, between the Corporation, as
borrower and Amsterdam Equities Limited, as lender.
"Convertible Secured Notes" mean the convertible secured notes
of the Corporation delivered by the Corporation to Lender pursuant to
the Convertible Debt Agreement.
"Default Rate" means at any time the greater of (i) twenty-one
and seventy-five one-hundredths percent (21.75%) and (ii) eleven and
seventy-five one-hundredths percent (11.75%) over the then current
Prime Rate, computed on the basis of a three-hundred and sixty (360)
day year based on the actual number of days elapsed.
"Dividend Payment Date" means each March 31, June 30,
September 30 and December 31, beginning on June 30, 1996, provided if
any such date is not a Business Day, the Dividend Payment Date will be
the next succeeding Business Day.
"Dividend Payment Record Date" means, with respect to each
Dividend Payment Date, a date fixed by the Board which will be not
more than sixty (60) days nor less than ten (10) days prior to the
corresponding Dividend Payment Date.
Page 2 of 17
<PAGE> 40
"Dividend Periods" means the interval beginning on the most
recent Dividend Payment Date and ending on and including the day
immediately preceding the next succeeding Dividend Payment Date.
"Event of Default" is defined in the Preferred Stock Purchase
Agreement.
"Final Maturity Date" means the earlier of (i) the date on
which the Liabilities are paid in full and the Preferred Stock
Purchase Agreement has terminated pursuant to its terms, or (ii) the
date on which all of the shares of Preferred Stock have been converted
to Shares.
FLL Warrant means that certain Warrant to Purchase up to
134,063 unregistered Shares executed and delivered by the Corporation
to Frank Leonard Laport.
"Fully Diluted Shares" means the total number of Shares,
calculated on a fully diluted basis, as though all warrants, stock
options, rights under stock benefit plans, securities convertible or
exchangeable into Shares or other securities of Company or other
similar rights to acquire Shares or other securities in the Company
had been exercised, including, without limitation, all Shares issuable
upon conversion of the Convertible Secured Notes, the Preferred Stock,
the Amsterdam Warrant No. 2, the Laport Warrant, the FLL Warrant and
the Amsterdam Warrant No. 1; provided, however, that when used to
determine the number of Shares into which the Convertible Secured
Notes and the Preferred Stock are being converted at a particular
time, the term Fully Diluted Shares shall include, with respect to the
Shares issuable upon conversion of the Convertible Secured Notes and
the Preferred Stock, only those Shares into which the Convertible
Secured Notes and the Preferred Stock are then being converted.
"Initial Dividend Period" means the interval beginning on the
Issue Date to and including the next Dividend Payment Date.
"Issue Date" means, with respect to each share of Preferred
Stock, the date on which such share of Preferred Stock is issued.
"Junior Securities" means any shares of Common Stock or any
other class or series of a class of capital stock of the Corporation
ranking junior to the Preferred Stock.
"Laport Warrant" means that certain Warrant to Purchase up to
134,062 unregistered Shares executed and delivered by the Corporation
to Beverly Trust Company, as Custodian of the Frank Leonard Laport
Rollover Individual Retirement Account Number 75-49990, pursuant to
the Preferred Stock Purchase Agreement.
"Lender" is defined in the Convertible Debt Agreement.
"Letter of Agreement" is defined in the Convertible Debt
Agreement.
Page 3 of 17
<PAGE> 41
"Liabilities" means all obligations, liabilities and
indebtedness of the Corporation to the Preferred Stockholders,
howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, primary or secondary, joint or several,
recourse or non-recourse or now or hereafter existing or due or to
become due, whether for dividends, fees, expenses, lease obligations,
indemnities or otherwise, under or in connection with the Preferred
Stock Purchase Agreement, the Letter of Agreement and the Related
Documents.
"Liquidation Value" means $100.00 per share of Preferred Stock.
"Maturity Date" is defined as the day which is the seventh
anniversary of the Closing Date, as defined in the Preferred Stock
Purchase Agreement.
"Person" means an individual, partnership, corporation
(including business trust), limited liability company, joint stock
company, trust, unincorporated association, financial institution,
joint venture or other entity, or a government or any political
subdivision or agency thereof.
"Preferred Stockholder" means a holder of Preferred Stock.
"Purchase Price" means the purchase price per share of
Preferred Stock, which is $100.00.
"Preferred Stock Purchase Agreement" means that certain Series
A 11.75% Cumulative Convertible Preferred Stock Purchase Agreement
dated as of April 22, 1996, between the Corporation and Frank Leonard
Laport, Beverly Trust Company, as Custodian of the Frank Leonard
Laport Rollover Individual Retirement Account Number 74-49990, and
Lender.
"Prime Rate" for each calendar quarter means that rate of
interest published as the prime rate in the Chicago Tribune, the
Investors Business Daily or the Wall Street Journal on the last
publication date immediately preceding the first day of such calendar
quarter, and if such rate of interest is not the same in all such
publications, or is not published in all such publications, the
highest of such interest rates.
"Related Documents" means all security documents and all
written agreements, instruments and documents, including, without
limitation, notes, guaranties, warrants, mortgages, deeds of trust,
chattel mortgages, pledges, powers of attorney, consents, assignments,
contracts, notices, security agreements, leases, financing statements,
subordination agreements, trust account agreements and all other
written matter whether heretofore, now, or hereafter executed by or on
behalf of the Corporation, its Subsidiaries or any other Person or
delivered to the Preferred Stockholders or any assignee or any such
agreement or document or the transactions contemplated hereby or
thereby, including, without limitation, the FLL Warrant, the Laport
Warrant, the Amsterdam Warrant No. 2 and the Registration Agreement,
in each case as amended, modified, supplemented or restated from time
to time and in effect.
"Share" means a share of Common Stock.
Page 4 of 17
<PAGE> 42
"Sole and Exclusive Discretion" means the sole and exclusive
discretion of the holders of a majority of the Preferred Stock,
whether or not unreasonable.
"Stated Rate" means at any time the greater of (i) eleven and
seventy-five one-hundredths percent (11.75%) or (ii) one and
seventy-five one-hundredths percent (1.75%) over the then current
Prime Rate, computed on the basis of a three-hundred and sixty (360)
day year based on the actual number of days elapsed.
SECTION 3. REDEMPTION.
On the Maturity Date, unless otherwise paid earlier in accordance with
the provisions hereof, the Corporation shall purchase and redeem the Preferred
Stock for a purchase price equal to the aggregate Liquidation Value of all
shares of Preferred Stock then outstanding, which purchase price shall be
payable in United States dollars by wire transfer for immediate credit pursuant
to wiring instructions which the Corporation will obtain from the Preferred
Stockholders, or, at the election of the Preferred Stockholders, by certified
check or cashier's check to each holder at his address or addresses as it
appears in the stock records of the Corporation (unless otherwise indicated by
any such holder).
SECTION 4. LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, the Preferred Stockholders will be entitled to be paid,
before any distribution or payment is made in respect of any Junior Securities
as to distribution on liquidation, dissolution or winding up, an amount in cash
equal to the aggregate Liquidation Value of all shares of Preferred Stock
outstanding plus all accumulated dividends. The Corporation will mail written
notice of such liquidation, dissolution or winding up, not less than sixty (60)
days prior to the payment date stated therein, to each record holder of
Preferred Stock.
SECTION 5. DIVIDENDS.
(a) General Obligation. When, as and if declared by the Board and
to the extent legally permissible and contractually available therefor, the
Corporation will pay dividends as provided in this Section 5 to the holders of
the Preferred Stock. Except as otherwise provided herein, dividends on each
share of Preferred Stock will accrue cumulatively, based upon a three-hundred
sixty (360) day year for the actual number of days occurring in the appropriate
Dividend Period, from and including the corresponding Issue Date for the
Initial Dividend Period and for each Dividend Period thereafter, at the Stated
Rate of the Liquidation Value thereof; provided, however, that, if the
Corporation fails to pay dividends on the Preferred Stock within five (5) days
of a Dividend Payment Date ("Dividend Default"), dividends shall accrue at the
Default Rate from the date on which such amount is due until the date on which
such is paid in full or such Dividend Default is otherwise cured or waived
Page 5 of 17
<PAGE> 43
by the Preferred Stockholders in their Sole and Exclusive Discretion. Such
dividends will accrue and accumulate whether or not they have been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends. Dividends will be payable on
each Dividend Payment Date to holders of record as they appear on the stock
books of the Corporation on the corresponding Dividend Payment Record Date.
Dividends on the Preferred Stock shall be paid before any dividends or
distribution is made in respect of any Junior Securities.
(b) Distribution of Partial Dividend Payments. If at any
time the Corporation declares less than the total amount of dividends
then accrued with respect to the Preferred Stock as to dividends, such
dividends will be payable to the holders of the Preferred Stock,
ratably per share in proportion to the full per share amounts to which
they respectively are entitled.
SECTION 6. BOARD OF DIRECTORS. For so long as a Preferred
Stockholder or its Affiliates continue to hold any Preferred Stock or Shares,
the Preferred Stockholders shall be entitled to advance written notice of any
and all meetings of any kind or nature of the Board of Directors of the
Corporation as follows: (a) 60 days' advance notice in the case of meetings to
be held outside of Cook County, Illinois, (b) 14 days' advance notice in the
case of meetings to be held in Cook County, Illinois, and (c) such lesser
notice as may be required as a result of an emergency, but in no event less
than five days' advance notice. In addition, any Preferred Stockholder, at its
sole option, shall be entitled to attend, or to have its agents or designees
attend, any or all such meetings in order to ensure continuing compliance with
the terms and conditions contained herein and in the other Related Documents.
The Corporation shall be responsible for paying all fees and expenses
(including, without limitation, travel, lodging, meals and other related
expenses) incurred in connection with attending meetings of the Board of
Directors by any of the above-referenced agents, designees or members of the
Board of Directors designated by the Preferred Stockholders pursuant to this
Section 7, who shall in addition be paid by the Corporation compensation equal
to that paid by the Corporation to Directors who are officers of the
Corporation but who are not paid an annual salary by the Corporation.
SECTION 7. CONVERSION. The Preferred Stock shall be converted
into Shares as follows:
(a) Conversion Right. Subject to the terms and
conditions of this Section 7, shares of Preferred Stock owned by
Preferred Stockholders shall be automatically converted into Shares
(with full voting rights no less than those of any other Shares) as
follows:
(i) The total convertible amount represented by
the aggregate Purchase Price of the Preferred Stock ("Total
Convertible Amount") shall automatically be converted into
Shares upon the conversion of the Convertible Secured Notes
pursuant to the Convertible Debt Agreement;
(ii) for the purpose of determining the number of
Shares into which the Total Convertible Amount may be
converted, the principal owed and any other Liabilities
(excluding contingent Liabilities the amount of which are not
reasonably
Page 6 of 17
<PAGE> 44
ascertainable) under Convertible Secured Notes shall be deemed to be included
in the Total Convertible Amount for purposes of this Section 7;
(iii) the Lender and the holders of the Preferred
Stock shall be entitled to convert the Total Convertible
Amount represented by such Convertible Secured Notes and
Preferred Stock based on the following formula: (1) Every
one dollar of Total Convertible Amount through and including
One Million Five Hundred Thousand dollars ($1,500,000.00)
shall be directly convertible into Shares representing 0.0018
percent of the Fully Diluted Shares with the result that, in
the instance of the issuance of One Million Five Hundred
Thousand dollars ($1,500,000.00) of Total Convertible Amount
and upon the conversion thereof into Shares, the holder
thereof shall own twenty-seven percent (27%) of the Fully
Diluted Shares (.000018 X $1,500,000.00 = 27%); (2) Every one
dollar of Total Convertible Amount above One Million Five
Hundred Thousand dollars ($1,500,000.00) through and including
Three Million dollars ($3,000,000.00) shall be directly
convertible into Shares representing 0.00108333333 percent of
the Fully Diluted Shares with the result that, in the instance
of the issuance of Three Million dollars ($3,000,000.00) of
Total Convertible Amount and upon the conversion thereof into
Shares, the holder thereof shall own forty-three and
twenty-five one-hundredths percent (43.25%) of the Fully
Diluted Shares ((.000018 X $1,500,000.00 = 27%) +
(.0000108333333 X $1,500,000.00 = 16.25%) = 43.25%); (3) Every
one dollar of Total Convertible Amount above Three Million
dollars ($3,000,000.00) through and including Four Million
Five Hundred Thousand dollars ($4,500,000.00) shall be
directly convertible into Shares representing 0.00065 percent
of the Fully Diluted Shares with the result that, in the
instance of the issuance of Four Million Five Hundred Thousand
dollars ($4,500,000.00) of Total Convertible Amount and upon
the conversion thereof into Shares, the holder thereof shall
own fifty-three percent (53%) of the Fully Diluted Shares
((.000018 X $1,500,000.00 = 27%) + (.0000108333333 X
$1,500,000.00 = 16.25%) + (.0000065 X $1,500,000.00 = 9.75%) =
53%); (4) Every one dollar of Total Convertible Amount above
Four Million Five Hundred Thousand dollars ($4,500,000.00)
through and including Eight Million dollars ($8,000,000.00)
shall be directly convertible into Shares representing
0.0003143 percent of the Fully Diluted Shares with the result
that, in the instance of the issuance of Eight Million dollars
($8,000,000.00) of Total Convertible Amount and upon the
conversion thereof into Shares, the holder thereof shall own
sixty-four and five ten-thousandths percent (64.0005%) of the
Fully Diluted Shares ((.000018 X $1,500,000.00 = 27%) +
(.0000108333333 X $1,500,000.00 = 16.25%) + (.0000065 X
$1,500,000.00 = 9.75%) + (.000003143 X $3,500,000.00 =
11.0005%) = 64.0005%); (5) Every one dollar of Total
Convertible Amount above Eight Million dollars ($8,000,000.00)
through and including Eleven Million Five Hundred Thousand
dollars ($11,500,000.00) shall be directly convertible into
Shares representing 0.0002143 percent of the Fully Diluted
Shares with the result that, in the instance of the issuance
of Eleven Million Five Hundred Thousand dollars
($11,500,000.00) of Total Convertible Amount and upon the
conversion thereof into Shares, the holder thereof shall own
seventy-one and five hundred one one-thousandths percent
(71.501%) of
Page 7 of 17
<PAGE> 45
the Fully Diluted Shares ((.000018 X $1,500,000.00 = 27%) + (.0000108333333 X
$1,500,000.00 = 16.25%) + (.0000065 X $1,500,000.00 = 9.75%) + (.000003143 X
$3,500,000.00 = 11.0005%) + (.000002143 X $3,500,000.00 = 7.5005%) = 71.501%);
and (6) Every one dollar of Total Convertible Amount above Eleven Million Five
Hundred Thousand dollars ($11,500,000.00) through and including Fifteen Million
dollars ($15,000,000.00) shall be directly convertible into Shares representing
0.0001 percent of the Fully Diluted Shares with the result that, in the
instance of the issuance of Fifteen Million dollars ($15,000,000.00) of Total
Convertible Amount and upon the conversion thereof into Shares, the holder
thereof shall own seventy-five and one one-thousandths percent (75.001%) of the
Fully Diluted Shares ((.000018 X $1,500,000.00 = 27%) + (.0000108333333 X
$1,500,000.00 = 16.25%) + (.0000065 X $1,500,000.00 = 9.75%) + (.000003143 X
$3,500,000.00 = 11.0005%) + (.000002143 X $3,500,000.00 = 7.5005%) + (.000001 X
$3,500,000.00 = 3.5%) = 75.001%);
Solely for the purposes of clarification and without
limiting the immediately preceding paragraph in any fashion
and assuming that the Corporation has 12,200,000 outstanding
Shares on a fully diluted basis, each One dollar ($1.00) of
Total Convertible Amount shall be convertible into Shares as
follows: (a) each and every One dollar ($1.00) of Total
Convertible Amount through and including One Million Five
Hundred Thousand dollars ($1,500,000.00) converted pursuant to
subsection 7(a)(iii)(1) shall be directly convertible into a
number of Shares on a pro-rata basis, assuming that, for the
purposes of such pro-ration, in the instance of the issuance
of One Million Five Hundred Thousand dollars ($1,500,000.00)
of Total Convertible Amount and upon the conversion thereof
into Shares, the holder thereof shall own 4,512,329 Shares,
i.e. (1.00 - .27) X = 12,200,000, .73 X = 12,200,000, X =
16,712,329, .27(16,712,329) = 4,512,329 Shares; (b) each and
every One dollar ($1.00) of Total Convertible Amount above One
Million Five Hundred Thousand dollars ($1,500,000.00) through
and including Three Million dollars ($3,000,000.00) converted
pursuant to subsection 7(a)(iii)(2) shall be directly
convertible into a number of Shares on a pro-rata basis,
assuming that, for the purposes of such pro-ration, in the
instance of the issuance of Three Million dollars
($3,000,000.00) of Total Convertible Amount and upon the
conversion thereof into Shares, the holder thereof shall own
9,297,797 Shares, i.e. (1.00 - .4325)X = 12,200,000, .5675 X =
12,200,000, X = 21,497,797, .4325(21,497,797) = 9,297,797
Shares; (c) each and every One dollar ($1.00) of Total
Convertible Amount above Three Million dollars ($3,000,000.00)
through and including Four Million Five Hundred Thousand
dollars ($4,500,000.00) converted pursuant to subsection
7(a)(iii)(3) shall be directly convertible into a number of
Shares on a pro-rata basis, assuming that, for the purposes of
such pro-ration, in the instance of the issuance of Four
Million Five Hundred Thousand dollars ($4,500,000.00) of Total
Convertible Amount and upon the conversion thereof into
Shares, the holder thereof shall own 13,757,447 Shares, i.e.
(1.00 - .53)X = 12,200,000,
Page 8 of 17
<PAGE> 46
.47 X = 12,200,000, X = 25,957,447, .53(25,957,447) =
13,757,447 Shares; (d) each and every One dollar ($1.00) of
Total Convertible Amount above Four Million Five Hundred
Thousand dollars ($4,500,000.00) through and including Eight
Million dollars ($8,000,000.00) converted pursuant to
subsection 7(a)(iii)(4) shall be directly convertible into a
number of Shares on a pro-rata basis, assuming that, for the
purposes of such pro-ration, in the instance of the issuance
of Eight Million dollars ($8,000,000.00) of Total Convertible
Amount and upon the conversion thereof into Shares, the holder
thereof shall own 21,689,360 Shares, i.e. (1.00 -.640005)X =
12,200,000, .359995 X = 12,200,000, X = 33,889,360,
.640005(33,889,360) = 21,689,360 Shares; (e) each and every
One dollar ($1.00) of Total Convertible Amount above Eight
Million dollars ($8,000,000.00) through and including Eleven
Million Five Hundred Thousand dollars ($11,500,000.00)
converted pursuant to subsection 7(a)(iii)(5) shall be
directly convertible into a number of Shares on a pro-rata
basis, assuming that, for the purposes of such pro-ration, in
the instance of the issuance of Eleven Million Five Hundred
Thousand dollars ($11,500,000.00) of Total Convertible Amount
and upon the conversion thereof into Shares, the holder
thereof shall own 30,608,520 Shares, i.e. (1.00 - .71501)X =
12,200,000, .28499X = 12,200,000, X = 42,808,520,
.71501(42,808,520) = 30,608,520 Shares; and (f) each and every
One dollar ($1.00) of Total Convertible Amount above Eleven
Million Five Hundred Thousand dollars ($11,500,000.00) through
and including Fifteen Million dollars ($15,000,000.00)
converted pursuant to subsection 7(a)(iii)(6) shall be
directly convertible into a number of Shares on a pro-rata
basis, assuming that, for the purposes of such pro- ration, in
the instance of the issuance of Fifteen Million dollars
($15,000,000.00) of Total Convertible Amount and upon the
conversion thereof into Shares, the holder thereof shall own
36,601,952 Shares, i.e. (1.00 - .75001)X = 12,200,000, .24999X
= 12,200,000, X = 48,801,952, .75001(48,801,952) = 36,601,952
Shares;
Each holder of Convertible Secured Notes and
Preferred Stock shall be entitled to receive upon conversion
thereof that portion of the Fully Diluted Shares issuable
under each of the applicable subsections (1) through (6) of
the first paragraph of this Section 8(a)(iii) which is equal
to a fraction (a) of which the numerator is the Total
Convertible Amount represented by the Convertible Secured
Notes and Preferred Stock held by such holder immediately
prior to such conversion and (b) of which the denominator is
the Total Convertible Amount represented by the Convertible
Secured Notes and Preferred Stock held by all holders of
Convertible Secured Notes and Preferred Stock immediately
prior to such conversion;
(b) Upon conversion, the Preferred Stockholders shall
surrencer its stock certificate for such converted Preferred Stock, duly
endorsed or assigned to the Corporation, to the Agent,
Page 9 of 17
<PAGE> 47
to be held in escrow to be delivered in accordance with Section 7(c)
hereof. For convenience, the conversion of any portion of the Total
Convertible Amount represented by the Preferred Stock into Shares is
hereinafter sometimes referred to as the "conversion" of the Preferred
Stock; and
(c) Not later than ten (10) Business Days after the
surrender of the Preferred Stock for conversion, the Corporation shall
issue in the name of such Preferred Stockholder and deliver to Agent a
certificate or certificates for the number of Shares issuable upon the
conversion in the name of the then registered holder of the Preferred
Stock. Such conversion shall be deemed to have been effected as of
the start of business on the date the conversion of the Convertible
Secured Notes is effective pursuant to the Convertible Debt Agreement
(the "Conversion Date") and the Preferred Stock shall have been
surrendered for conversion as aforesaid, and at such time the Person
in whose name or names any certificate or certificates for Shares
shall be issuable upon such conversion shall be deemed to have become
at such time the holder or holders of record of the Shares represented
thereby. In the event that only a portion of shares of Preferred
Stock held by a Preferred Stockholder is converted, the Corporation
shall execute and deliver to the Agent, at the expense of the
Corporation, a reissued Preferred Stock certificate in the name of the
Preferred Stockholders equal to the number of unconverted shares of
Preferred Stock. Upon receipt of such Shares, the original
certificate for the Preferred Stock and the reissued certificate, if
any, Agent shall deliver to the Corporation for cancellation the
original certificate and shall deliver to the holder of the converted
Preferred Stock such Shares and the reissued certificate, if any.
(d) Reservation. The Corporation will at all times
reserve and keep available such number of authorized Shares, solely
for the purpose of issue upon the conversion of the Preferred Stock as
herein provided for and the exercise of the conversion rights pursuant
to the Convertible Debt Agreement, as may at any time be issuable
(based upon the number of Shares outstanding at any such time) upon
the conversion of Preferred Stock and the conversion of any
Convertible Secured Notes, and such Shares issuable upon the exercise
of the conversion rights of the Preferred Stock and the Convertible
Secured Notes shall at no time have an aggregate par value which is in
excess of the portion of the Total Convertible Amount that will be
converted into one Share upon the conversion of the Preferred Stock
and the conversion of any Convertible Secured Notes.
Notwithstanding the foregoing, the Corporation and Preferred
Stockholders acknowledge that as of the Closing Date, the Corporation
has 16,880,130 authorized Shares available for the purpose of issuing
upon the conversion of the Preferred Stock and the Convertible Secured
Notes. Based on the Corporation's representation that there are
13,493,205 Fully Diluted Shares, the 16,880,130 Shares available for
issue upon the conversion described in the previous sentence may be
issued in exchange for approximately $4,508,234.00 of the Total
Convertible Amount represented by the Preferred Stock and the
Convertible Secured Notes. If the Total Convertible Amount
represented by the Preferred Stock and the Convertible Secured Notes
rises above said amount, and if the Preferred Stock
Page 10 of 17
<PAGE> 48
or the Convertible Secured Notes are converted, or the Corporation
otherwise issues additional Shares, then unless additional Shares have
been authorized, the Preferred Stockholders would be unable to effect
the conversion of all of their shares of Preferred Stock and Lender
would be unable to effect the conversion of the total amount of the
convertible secured notes issued pursuant to the Convertible Debt
Agreement. In such an event, the Corporation will take all actions
necessary to increase the number of its authorized Shares in an amount
sufficient to issue all Shares issuable upon the conversion of the
Preferred Stock and the Convertible Secured Notes and, to the extent
that approval of the stockholders of the Corporation is required for
such increase, will use its best efforts to secure such approval.
Furthermore, in the event that there are insufficient authorized
Shares, the Corporation will not issue or commit to issue any Shares
other than pursuant to the conversion of Preferred Stock pursuant to
this Section 7 and pursuant to the conversion of the Convertible
Secured Notes until a sufficient number of Shares are authorized.
(e) Mergers, Consolidations, Sales. In the case of any
consolidation or merger of the Corporation with another entity, or the
sale of all or substantially all of its assets to another entity, or
any reorganization or reclassification of the Shares or other equity
securities of the Corporation, then, as a condition of such
consolidation, merger, sale, reorganization or reclassification,
lawful and adequate provision shall be made whereby the Preferred
Stockholders shall thereafter have the right to receive upon the basis
and upon the terms and conditions specified herein and in lieu of the
Shares that theretofore would have been received upon conversion of
the Preferred Stock, such shares of stock, securities or assets as may
be (by virtue of such consolidation, merger, sale, reorganization or
reclassification) be issued or payable with respect to or in exchange
for a number of outstanding Shares equal to the number of Shares
immediately theretofore so purchasable by conversion hereunder had
such consolidation, merger, sale, reorganization or reclassification
not taken place, and in any such case appropriate provisions shall be
made with respect to the rights and interests of the Preferred
Stockholders to the end that the provisions hereof shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon exercise of the
conversion rights of the Preferred Stock. The Corporation shall not
effect any such consolidation, merger or sale, unless prior to or
simultaneously with the consummation thereof, the successor entity (if
other than the Corporation) resulting from such consolidation or
merger or the entity purchasing such assets shall assume by written
instrument executed and mailed or delivered to the Preferred
Stockholders, the obligation to deliver to such holder such shares of
stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to receive. Nothing contained
in this Section 7(e) shall permit the Corporation to take any action
or enter into any transaction which is prevented or prohibited by any
other provision of this Certificate of Designation, the Preferred
Stock Purchase Agreement or the other Related Documents.
Page 11 of 17
<PAGE> 49
(f) Dissolution or Liquidation. In the event of any
proposed distribution of the assets of the Corporation in complete
dissolution or liquidation except under circumstances when the
foregoing Section 7(e) shall be applicable, the Corporation shall give
notice thereof to the Preferred Stockholders and shall make no
distribution to shareholders until the expiration of one-hundred
twenty (120) days from the date of giving of the aforesaid notice and,
in any such case, the Preferred Stockholders may exercise the
conversion rights, if and when the holders of the Convertible Secured
Notes have exercised their conversion rights, with respect to
Preferred Stock within one-hundred (120) days from the date of giving
such notice and, upon the timely completion of such distribution or
liquidation, all conversion rights herein granted not so exercised
within such 120-day period shall thereafter become null and void.
(g) Notice of Dividends. If the Board of Directors of
the Corporation shall declare any dividend or other distribution on
the Shares, the Corporation shall give notice thereof to the Preferred
Stockholders not less than one-hundred twenty (120) days prior to the
record date fixed for determining shareholders entitled to participate
in such dividend or other distribution and the Preferred Stockholders
may exercise the conversion rights of the Preferred Stock, if and when
the holders of the Convertible Secured Notes have exercised their
conversion rights. The provisions of this section shall not apply to
distributions made in connection with transactions covered by Section
7(e).
(h) Fractional Shares. Fractional Shares may be issued
upon the exercise of the conversion rights of the Preferred Stock in
any case where the holder hereof would be entitled to receive a
fractional Share upon the exercise of the conversion rights of the
Preferred Stock in order to receive the appropriate percentage of
Fully Diluted Shares; provided, that at its election, any holder may
elect to receive in lieu of any fractional Share that it would
otherwise receive cash in the amount of such fraction of the fair
market value of a Share.
(i) Fully Paid Stock; Taxes. The Corporation covenants
and agrees that the shares of stock represented by each and every
certificate for Shares to be delivered on the exercise of the
conversion rights herein provided for shall, at the time of such
delivery, be validly issued and outstanding and be fully paid and
nonassessable. The Corporation further covenants and agrees that it
will pay when due and payable any and all federal and state taxes
(other than income taxes) which may be payable in respect of the
exercise of conversion rights by Preferred Stockholders or any Shares
or certificates therefor upon the exercise of the conversion rights
herein provided for pursuant to the provisions hereof.
SECTION 8. LIMITED CALL RIGHT. During the period commencing on
the date that the sum of (a) the aggregate Purchase Price paid for Preferred
Stock purchased pursuant to the Preferred Stock Purchase Agreement and (b) the
aggregate initial principal amount of Convertible Secured Notes issued pursuant
to the Convertible Debt Agreement amounts to One Dollar ($1.00) or more and
ending on the earlier to occur of one (1) year after the Closing Date under the
Preferred Stock Purchase Agreement or when no Preferred Stock remains
outstanding and no Indebtedness remains outstanding under the Convertible
Secured Notes, the Corporation may give the Preferred Stockholders (or their
transferees) notice of its intention to purchase and redeem ("Call") all (but
not
Page 12 of 17
<PAGE> 50
less than all) of the outstanding shares of Preferred Stock (collectively, the
"Called Stock") if the conditions described in Section 8(a) hereof have been
complied with at and prior to the time of the Corporation's exercise of the
Call, and thereupon Preferred Stockholders (or its transferees) shall sell to
the Company the Called Stock as provided in this Section 8.
(a) CONDITIONS TO CALL. The Call may be exercised and
consummated only if: (i) no Event of Default has occurred and is
continuing nor any Event of Default would occur, after giving effect
to the exercise of the Call, with the passage of time, the giving of
notice, or both; (ii) the exercise of the Call is not prohibited by
applicable corporate or other law or pursuant to the terms or
covenants of any loan agreement, note, security agreement or other
instrument binding upon the Company; (iii) concurrently therewith, the
Corporation calls for redemption that portion of the Convertible
Secured Notes (the "Called Debt") which bears the same percentage of
the total outstanding indebtedness under the Convertible Secured Notes
as the Called Stock bears to the total outstanding shares of Preferred
Stock; (iv) all accumulated dividends on the Preferred Stock have been
paid; (v) concurrently therewith, the Corporation either (A) deposits
in escrow with Agent an amount in cash equal to five percent of the
Call Price (the "Deposit") or (B) delivers to the Preferred
Stockholders a written, unconditional commitment from a third party to
provide funds sufficient to consummate the Call and evidence
satisfactory to the holders of a majority of the Preferred Stock that
such third party has sufficient liquid assets available for that
purpose; and (vi) the Preferred Stockholders do not exercise their
right to convert the Called Stock within ninety (90) Business Days
after the Call is made. At the closing of the Call, the Deposit, if
made under clause (A) above, shall be paid by Agent to the Preferred
Stockholders and applied against the Call Price. If the Call fails to
close in accordance with or within the time period provided in Section
8(d) (other than due to the Preferred Stockholders' default or to the
conversion of the Called Stock), the Deposit, if made under clause (A)
above, shall be paid by Agent to the Preferred Stockholders as
liquidated damages, such failure to close shall constitute an Event of
Default and the Corporation shall not be entitled to close the Call or
to make any subsequent Call.
(b) [INTENTIONALLY DELETED].
(c) CALL PRICE. The purchase price ("Call Price") of the
Called Stock shall be equal to the Liquidation Value thereof plus (a)
if the Call is made within one-hundred eighty (180) days after the
Closing Date, a premium of $375,000, (b) if the Call is made more than
one-hundred eighty (180) days but within two-hundred seventy (270)
days after the Closing Date, a premium of $500,000, and (c) if the
call is made more than two-hundred seventy (270) days but within
three-hundred sixty (360) days after the Closing Date, a premium of
$750,000. The portion of the Call Price determined under clause (a),
(b) or (c) of the preceding sentence (the "Premium") shall be
allocated among the Preferred Stockholders and the holders of the
Convertible Secured Notes in proportion to the ratio that the
Liquidation Value of the Called Stock bears to the amount of the
Indebtedness (as defined in the Convertible Debt Agreement)
represented by the Called Debt. The portion of the Premium allocable
to the Preferred Stockholders shall be allocated among the Preferred
Stockholders in accordance with the amount of Preferred Stock of each
Preferred Stockholder being Called.
Page 13 of 17
<PAGE> 51
(d) EXERCISE OF CALL. The Corporation may exercise the
Call (subject to the terms and conditions hereinabove set forth) by
delivery to the Preferred Stockholders during the period of the
effectiveness of the Call of written notice of exercise of the Call,
which notice shall specify the number of shares of the Preferred Stock
which the Corporation elects to Call and shall contain a statement,
certified by the Chief Executive Officer of the Corporation, that each
of the conditions to the exercise and to the closing of the Call
hereinabove set forth has been fulfilled. The closing of the Call
shall take place at the principal offices of the Preferred
Stockholders on or before one-hundred ten (110) Business Days after
the exercise of the Call and shall take place concurrently with the
redemption of the Called Debt; provided, however, that if any
Preferred Stockholder agrees by written notice to the Corporation to
accept the Call as to any portion of the Called Stock and to waive its
right to convert such portion of the Called Stock prior to the
expiration of such conversion right, the closing of the Call as to
such portion of the Called Stock shall take place within 20 Business
Days after such notice is given. At the closing, Agent (a) shall
receive from the Corporation by wire transfer immediately available
funds in an amount equal to the Call Price, plus all unpaid,
accumulated dividends thereon, and (b) shall receive from the
Preferred Stockholders the stock certificate for the Preferred Stock
Called duly endorsed or assigned to the Corporation. Upon receipt of
all of such items, Agent shall deliver to the Corporation the stock
certificate for the Called Stock for cancellation and shall deliver to
the Preferred Stockholders the above funds.
(e) NO OTHER CALL RIGHTS. Except as permitted in this
Section 8, the Corporation shall not be entitled to call the
outstanding Preferred Stock.
SECTION 9. PREEMPTIVE RIGHTS UPON THE ISSUANCE OF CAPITAL STOCK
BY COMPANY. At any time that shares of Preferred Stock are outstanding or a
Preferred Stockholder or its transferees own any Shares or other securities in
the Corporation, if the Corporation proposes to issue any Shares or any
security or obligation which by its terms is convertible into Shares or any
warrant, option or other subscription or purchase right with respect to Shares
other than pursuant to the Warrant, Other Warrant, or pursuant to the
conversion rights granted under the Convertible Debt Agreement or the Preferred
Stock, the Corporation shall first deliver to the Preferred Stockholder a
notice with respect to such proposed issuance which sets forth the price and
number of Shares or other such securities which it proposes to issue. The
Preferred Stockholders shall have the right to purchase such offered securities
at the proposed issuance price (or, if such securities are to be issued in
consideration of services rendered or upon the conversion or exercise of
convertible securities, warrants or options heretofore issued by the
Corporation, a sufficient amount of newly issued securities such that the
Preferred Stockholders would suffer no dilution, at an amount equal to the fair
value of such services or the actual consideration received by the Corporation
upon such conversion or exercise), which right shall be exercisable by the
Preferred Stockholders by written notice to the Corporation given on or before
ninety (90) days after receipt by Preferred Stockholders of written notice of
such proposed issuance. Such right shall accrue to Lender and all holders of
the Preferred Stock. If only the Preferred Stockholders exercise such right,
they may exercise such right as to any or all of such Shares or other
securities. If Lender and one or more Preferred Stockholders exercise such
right, such Preferred Stockholders shall have the right to purchase that
portion of the Shares or other securities purchasable under this section as the
aggregate Purchase Price of the Preferred Stock held by all holders exercising
such right bears to the sum of the unpaid principal amount of Lender's
Convertible Secured Notes and the aggregate purchase price of Preferred Stock
held by all holders exercising such right (unless Lender and such exercising
holders
Page 14 of 17
<PAGE> 52
agree otherwise). In the event Preferred Stockholders do not exercise the
option under this Section 9, the Corporation may issue the offered securities
in the amount and at the price set forth in such notice to the Preferred
Stockholders within one-hundred eighty (180) days of the date of such notice.
The closing of any purchase by the Preferred Stockholders under this Section 9
shall be held at the principal office of the Preferred Stockholders at
11:00 a.m. local time on the one-hundred fiftieth (150th) day after the date
on which the Preferred Stockholders first shall have received notice of the
proposed issuance, or at such other time and place as the parties to the
transaction may agree. Notwithstanding the foregoing, nothing contained in
this Section 9 will waive the Preferred Stockholders' right to prevent or
object to the issuance of Shares or any other securities by the Corporation or
its Subsidiaries.
SECTION 10. REGISTRATION OF TRANSFER. The Corporation will keep at
its principal office a register for the registration of Preferred Stock. Upon
the surrender of any certificate representing Preferred Stock at such place,
the Corporation will, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
shares represented by the surrendered certificate. Each such new certificate
will be registered in such name and will represent such number of shares as is
requested by the holder of the surrendered certificate and will be
substantially identical in form to the surrendered certificate, and dividends
will accrue on the Preferred Stock represented by such new certificate from the
date to which dividends have been fully paid on such Preferred Stock
represented by the surrendered certificate.
SECTION 11. REPLACEMENT. Upon receipt of the evidence reasonably
satisfactory to the Corporation (an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction or mutilation
of any certificate evidencing shares of Preferred Stock, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation, or, in the case of any such mutilation upon
surrender of such certificate, the Corporation will (at its expense) execute
and deliver in lieu of such certificate a new certificate of like kind
representing the number of shares represented by such lost, stolen, or
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate, and dividends will accrue on the Preferred
Stock represented by such new certificate from the date to which dividends have
been fully paid on such lost, stolen, destroyed or mutilated certificate.
SECTION 12. AMENDMENT. No amendment, modification or waiver will be
binding or effective with respect to any provision of this Certificate of
Designation without the prior written consent of the holders of at least a
majority of the then outstanding shares of Preferred Stock. The Corporation
shall not take any action which may have the effect of diluting the rights of
the Preferred Stockholders, including, without limitation, authorizing a stock
split or combination with respect to the Preferred Stock, changing the number
of shares of Preferred Stock authorized or issuing Preferred Stock to any
person or entity other than the purchasers under the Preferred Stock Purchase
Agreement, without the prior written consent of the holders of at least a
majority of the then outstanding shares of Preferred Stock.
SECTION 13. NOTICE. All notices, requests and other communications
provided for hereunder shall be in writing and sent by first class mail
registered or certified, postage prepaid and return receipt requested or
delivered personally or by courier against written acknowledgement of receipt
(i) if to the Corporation, at 2358 Hassell Road, Hoffman Estates, Illinois
60195, with a copy to John F. Mahoney,
Page 15 of 17
<PAGE> 53
Esq., Chuhak & Tecson, P.C., 225 West Washington Street, Suite 1300, Chicago,
Illinois, 60606, (ii) if to a Preferred Stockholder, at such holder's address
as it appears in the stock records of the Corporation (unless otherwise
indicated by such holder). All such notices and other communications shall be
effective on the date of delivery to the party receiving such notice, as
evidenced by the date set forth on the receipt signed by the party receiving
such notice.
SECTION 14. OBLIGATION TO SELL PREFERRED STOCK. If at any time the
holders of a majority of the Indebtedness evidenced by the Convertible Secured
Notes receive a bona fide, arm's length written offer from a party which is not
an Affiliate of such holders to purchase all of the Convertible Secured Notes
for monetary consideration, and wish to accept such offer, (a) they shall give
prompt written notice of such offer to the Preferred Stockholders, including a
copy of all documents relating thereto, (b) they shall not accept such offer
unless the offeror agrees, simultaneously with such sale, to purchase all of
the outstanding Preferred Stock on the same terms and conditions and at the
same proportional price as is being paid for the Convertible Secured Notes, and
(c) the Preferred Stockholders shall be required to sell their Preferred Stock
on such terms and conditions. Any Preferred Stockholder in breach of this
Section shall pay the holders of the Convertible Secured Notes, on demand, all
costs and expenses, including attorneys' fees, incurred by such holders in
enforcing their rights under this section.
Page 16 of 17
<PAGE> 54
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation of Series A 11.75% Cumulative Convertible Preferred Stock to be
duly executed by its Chairman and attested to by its Secretary this 22nd day of
April, 1996.
PRINCETON DENTAL MANAGEMENT
CORPORATION
By: ________________________
Chairman
ATTEST:
___________________________________________
Secretary
Page 17 of 17
<PAGE> 55
THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION
AND ANY TRANSFER THEREOF IS SUBJECT TO COMPLIANCE WITH SUCH LAWS AND
THE TERMS OF THIS WARRANT.
WARRANT TO PURCHASE UP TO
268,125 UNREGISTERED SHARES OF COMMON STOCK OF
PRINCETON DENTAL MANAGEMENT CORPORATION
NO. __
FOR VALUE RECEIVED, Princeton Dental Management Corporation, a
Delaware corporation located at 2358 Hassell Road, Hoffman Estates, Illinois
60195 (the "Company"), promises to issue in the name of, and sell and deliver
to the party identified on Exhibit A attached hereto and incorporated herein,
together with its successors, transferees and assigns (the "Holder") (when the
context requires, the Company and the Holder shall be collectively referred to
as the "Parties"), a certificate or certificates for an aggregate of Two
Hundred Sixty Eight Thousand One Hundred Twenty Five (268,125) unregistered
shares of Common Stock, One Ten Thousandth of One United States Dollar
(U.S.$.0001) par value per share (the "Shares"), of the Company, upon payment
therefor of Ten United States Cents ($0.10) per Share in lawful funds of the
United States of America (the "Exercise Price") pursuant to the terms hereof.
1. Definitions. Unless defined otherwise, any term used herein
which has the first letters thereof capitalized, exclusive of prepositions and
articles, shall be defined as such capitalized term is defined in that certain
Series A 11.75% Cumulative Convertible Preferred Stock Purchase Agreement,
dated as of April 22, 1996 ("Purchase Agreement"), by and between the Parties
(which such Purchase Agreement is hereby incorporated herein and made a part
hereof by this reference thereto).
2. Exercise of Warrant. The Holder of this Warrant shall be
entitled to purchase such numbers of Shares at any time over approximately a
ten (10) year period commencing on the effective date of this Warrant and
ending at 6:01 P.M. Eastern Standard Time on the date ten (10) years after such
date.
In case the Holder of this Warrant shall desire from time to time to
exercise this Warrant in whole or in part, the Holder shall surrender a copy of
this Warrant, with a copy of the form of
Page 1 of 8
<PAGE> 56
exercise notice marked Exhibit B, which is attached hereto, incorporated herein
and made a part hereof by this reference thereto, duly executed by the Holder
(said exercise notice shall bear an original signature of the Holder), to the
Company, accompanied by payment of the Exercise Price.
This Warrant may be exercised in whole or in part but not for
fractional Shares. In case of the exercise in part only, the Company shall
immediately deliver to the Holder a new Warrant of like tenor for the remaining
Shares. This Warrant, at any time prior to the exercise hereof, upon
presentation and surrender to the Company may be exchanged for another Warrant
or other Warrants of like tenor in the name of such Holder exercisable for the
same aggregate number of Shares as the Warrant or Warrants surrendered.
3. No Voting Rights. This Warrant shall not entitle the Holder
hereof to any voting right (except as required by law) or to other rights as a
shareholder of the Company. However, Holders of Shares received upon exercise
of this Warrant shall have such voting rights and all other rights as other
shareholders of the Company.
4. Covenants of the Company. The Company hereby covenants and
agrees that prior to the expiration of this Warrant by exercise or by its
terms:
a. The Company will not by amendment of its Certificate
of Incorporation or through reorganization, consolidation, merger, dissolution,
or sale of assets, or by any other voluntary act or deed, avoid or seek to
avoid the observance or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by the Company, but will at
all times in good faith assist in the carrying out of all provisions of this
Warrant and in the taking of all other actions that may be necessary in order
to protect the rights of the Holder against dilution.
b. The Company shall not issue any shares of common
stock or any other equity of the Company without the prior written consent of
Holder, and upon any such issuance, this Warrant shall be modified so that the
number of shares issuable hereunder shall represent the same percentage of the
fully diluted equity of the Company as before such issuance.
c. The Company shall at all times reserve and keep
available, out of its authorized and unissued share capital, solely for the
purpose of providing for the exercise of the Warrant, forthwith upon the
request of the Holder of the Warrants then outstanding and in effect, such
numbers of Shares as shall, from time to time, be sufficient for the exercise
in full of the Warrants. The Company shall, from time to time, in accordance
with the laws of the State of Delaware, increase the authorized amount of its
share capital if at any time the number of Shares remaining unissued and
unreserved for other purposes shall not be sufficient to permit the exercise of
the Warrants then outstanding and in effect.
Notwithstanding the foregoing, the Company and the Holder acknowledge
that as of the date of this Warrant, the Company has 16,880,130 shares of
authorized and unissued shares of its common
Page 2 of 8
<PAGE> 57
stock available for the purpose of issue upon (1) the exercise, in whole, of
the conversion rights of the Series A 11.75% Cumulative Convertible Preferred
Stock of the Company (the "Series A Preferred Stock") and the convertible
secured notes issued pursuant to that certain Convertible Debt Agreement dated
as of April 22, 1996 by and between the Company and Amsterdam Equities Limited
("Convertible Debt Agreement") and (2) the exercise, in whole, of this Warrant,
the FLL Warrant, Laport Warrant and the Amsterdam Warrant No. 1 (collectively,
the "Other Warrants"). If the amount, of shares authorized and unissued is
insufficient, to effect, in whole, the conversion and/or exercise in whole, of
the Preferred Stock, the convertible secured notes issued pursuant to the
Convertible Debt Agreement, this Warrant and the Other Warrants, (2) then, upon
the request of the Holder, the Company shall take all actions necessary to
increase the number of authorized shares in an amount sufficient to issue all
shares issuable pursuant to the conversion rights represented by the
Convertible Secured Notes, the Series A Preferred Stock, and the exercise of
this Warrant and the Other Warrants.
5. Loss, Theft, Destruction or Mutilation. In case this Warrant
shall become mutilated or defaced or be destroyed, lost or stolen, the Company
shall execute and deliver a new Warrant in exchange for and upon surrender and
cancellation of such mutilated or defaced Warrant or in lieu of and
substitution for such Warrant so destroyed, lost or stolen, upon the Holder of
such Warrant filing with the Company such reasonable evidence (an affidavit
shall suffice) that such Warrant has been so mutilated, defaced, destroyed,
lost or stolen and of the ownership thereof by the Holder; provided, however,
that the Company shall be entitled, as a condition to the execution and
delivery of such new Warrant, to demand reasonable indemnity and payment of
expenses and charges incurred in connection with the delivery of such new
Warrant, and may, if reasonable under the circumstances, request a bond from
the Holder. All Warrants so surrendered to the Company shall be canceled.
6. Record Owner. At the time of the surrender of this Warrant,
together with the payment of the Exercise Price, the person exercising this
Warrant shall be deemed to be the Holder of record of the Warrants deliverable
upon such exercise, in whole or in part, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such securities shall not then be actually delivered to such
person.
7. Fractional Securities. No fractional Shares, fractional
warrants, fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. With respect to any fraction of a
share called for on such exercise, the Holder may elect to remit to the Company
an amount in cash equal to the difference between such fraction and one,
multiplied by the Exercise Price, and the Company will issue the Holder one
Share in addition to the number of whole shares required by the exercise of the
Warrant.
8. Original Issue Taxes. The Company shall pay all United
States, state, local and any other original issue taxes, if any, upon the
issuance of this Warrant or the Shares deliverable upon exercise hereof.
Page 3 of 8
<PAGE> 58
9. Notices. All notices, requests and other communications
provided for hereunder shall be in writing and sent by first class or
equivalent mail of the country of origin, registered or certified, postage
prepaid and return receipt requested or delivered personally or by courier
against written acknowledgement of receipt (i) if to the Company, at 2358
Hassell Road, Hoffman Estates, Illinois 60195, with a copy to John F. Mahoney,
Esq., Chuhak & Tecson, 225 West Washington Street, Suite 1300, Chicago,
Illinois, 60606, (ii) if to the Holder, at the address designated for such
Holder on Exhibit A (unless otherwise indicated by Holder). All such notices
and other communications shall be effective on the date of delivery to the
party receiving such notice, as evidenced by the date set forth on the receipt
signed by the party receiving such notice.
10. Restrictions on Transferability. The Warrant and the Shares
issuable upon exercise of this Warrant may be transferred by the Holder
pursuant to any applicable exemption from registration under the Securities Act
of 1933, as amended, or applicable state securities laws.
Further, this Warrant, and the Shares issuable upon exercise of this
Warrant, have not yet been registered under the Securities Act. Accordingly,
this Warrant, all replacement Warrants and the stock certificates representing
the Shares shall, prior to registration pursuant to the Registration Agreement,
bear the following legend:
THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT, HAVE NOT BEEN REGISTERED EITHER UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAW AND ANY TRANSFER THEREOF IS SUBJECT
TO COMPLIANCE WITH SUCH LAWS AND THE TERMS OF THIS WARRANT.
11. Entire Agreement and Modification. The Company and the Holder
of this Warrant hereby represent and warrant that, except for the provisions of
the Purchase Agreement and that certain Registration Agreement, dated as of
April 22, 1996 by and between the Company and the Holder (which such
Registration Agreement is hereby incorporated herein and made a part hereof by
this reference thereto) this Warrant is intended to and does contain and embody
all of the understandings and agreements, both written and oral, of the Parties
with respect to the subject matter of this Warrant, and that there exists no
oral agreement or understanding, express or implied, whereby the absolute,
final and unconditional character and nature of this Warrant shall be in any
way invalidated, empowered or affected. A modification or waiver of any of the
terms, conditions or provisions of this Warrant shall be effective only if made
in writing and executed with the same formality as this Warrant.
12. Authorization. The undersigned have been duly authorized by
the Company to execute this Warrant, and any related agreements between the
Company and the Holder, the signatures of the undersigned are binding upon the
Company, and their execution of this Warrant does not constitute a breach of
any existing agreement to which the Company is a party.
Page 4 of 8
<PAGE> 59
13. Effective Date. Warrants granted hereunder shall become
effective immediately upon the earliest to occur, for any reason whatsoever, of
any one or more of the following events: (i) an Event of Default other than the
mere failure to pay interest under the Convertible Secured Notes which is due
in June 1996 or September 1996 or the mere failure to pay dividends on the
Preferred Shares which is due on June 30, 1996 or September 30, 1996 (it being
acknowledged that that failure to pay interest on the Convertible Secured Notes
or dividends on Preferred Shares due at any other time shall be deemed an Event
of Default hereunder and thereunder), (ii) the failure of net income of the
Company for 1996, determined in accordance with generally accepted accounting
principles applied on a basis consistent with past periods, to be at least One
United States Dollar ($1.00), (iii) the failure of net income of the Company
for 1997, determined in accordance with generally accepted accounting
principles applied on a basis consistent with past periods, to be at least
equal to Sixty Percent (60.0%) of the dollar amount of the principal and
interest owed under the Convertible Secured Notes outstanding at the end of
1997, and/or (iv) for every year after 1997, the failure of net income of the
Company, determined in accordance with generally accepted accounting principles
applied on a basis consistent with past periods, to increase no less than the
total of Ten Percent (10.0%) per year, on a compounded basis, plus Sixty
Percent (60.0%) of the increase in dollar amount of principal and interest owed
under the Convertible Secured Notes outstanding at the end of any such year
over the immediately preceding year. The Company must provide written notice
to the Holder of the occurrence of any of events set forth in the immediately
preceding sentence no later that thirty (30) days after any such occurrence.
The Warrants granted hereunder shall be wholly void and of no effect and the
rights evidenced hereby will terminate unless exercised in accordance with the
terms and provisions hereof before the date set forth in Section 2.
IN WITNESS WHEREOF, the Company by its duly authorized officer has
executed this Warrant as of the 22nd day of April, 1996.
PRINCETON DENTAL MANAGEMENT CORPORATION,
a Delaware corporation, by:
______________________________
Charles Mitchell, D.D.S.
President and CEO
Attest:
Corporate Seal
_______________________________
Secretary
Page 5 of 8
<PAGE> 60
STATE OF ILLINOIS )
) SS
COUNTY OF _______ )
I, _____________________________, a Notary Public in and for the
County and State aforesaid, do hereby certify that Charles Mitchell, D.D.S.,
personally known to me to be the President and Chief Executive Officer of
Princeton Dental Management Corporation, a Delaware corporation, appeared
before me this day in person and acknowledged that as such officer he signed
and delivered such instrument as his free and voluntary act and with due
authorization, and as the free and voluntary act of the Company, for the uses
and purposes herein set forth.
Given under my hand and seal this ________ day of _____________, 1996.
SEAL:
_______________________________________
NOTARY PUBLIC
My commission expires ______________.
STATE OF ILLINOIS )
) SS
COUNTY OF _________ )
I, ______________________________, a Notary Public in and for the
County and State aforesaid, do hereby certify that ___________________,
personally known to me to be the Secretary of Princeton Dental Management
Corporation, a Delaware corporation, appeared before me this day in person and
acknowledged that as such officer he signed and delivered such instrument as
his free and voluntary act and with due authorization, and as the free and
voluntary act of the Company, for the uses and purposes herein set forth.
Given under my hand and seal this ____ day of ________________, 1996.
SEAL:
_______________________________________
NOTARY PUBLIC
Page 6 of 8
<PAGE> 61
My commission expires ________________.
EXHIBIT "A"
AMSTERDAM EQUITIES LIMITED
NOTICE TO:
404 East Bay Street
P.O. Box SS-3539
Nassau, New Providence
Bahamas Islands
Page 7 of 8
<PAGE> 62
EXHIBIT "B"
FORM OF EXERCISE
The undersigned hereby irrevocably elects to exercise a purchase right
pursuant to the terms of this Warrant for, and to purchase thereunder,
___________________________ ___________________________________ Shares of
Princeton Dental Management Corporation, a Delaware corporation, and herewith
makes payment of $________________________ per Share, or a total of
$____________________________ therefor, and requests that such Shares be issued
to:
_________________________________
_________________________________
(Title)
_________________________________
(Print Name)
_________________________________
(Address)
_________________________________
_________________________________
Dated:___________________________ _________________________________
(Identification Number, if assigned by
a Governing Authority)
Page 8 of 8
<PAGE> 63
THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION
AND ANY TRANSFER THEREOF IS SUBJECT TO COMPLIANCE WITH SUCH LAWS AND
THE TERMS OF THIS WARRANT.
WARRANT TO PURCHASE UP TO
134,063 UNREGISTERED SHARES OF COMMON STOCK OF
PRINCETON DENTAL MANAGEMENT CORPORATION
NO. __
FOR VALUE RECEIVED, Princeton Dental Management Corporation, a
Delaware corporation located at 2358 Hassell Road, Hoffman Estates, Illinois
60195 (the "Company"), promises to issue in the name of, and sell and deliver
to the party identified on Exhibit A attached hereto and incorporated herein,
together with its successors, transferees and assigns (the "Holder") (when the
context requires, the Company and the Holder shall be collectively referred to
as the "Parties"), a certificate or certificates for an aggregate of One
Hundred Thirty Four Thousand Sixty Three (134,063) unregistered shares of
Common Stock, One Ten Thousandth of One United States Dollar (U.S.$.0001) par
value per share (the "Shares"), of the Company, upon payment therefor of Ten
United States Cents ($0.10) per Share in lawful funds of the United States of
America (the "Exercise Price") pursuant to the terms hereof.
1. Definitions. Unless defined otherwise, any term used herein
which has the first letters thereof capitalized, exclusive of prepositions and
articles, shall be defined as such capitalized term is defined in that certain
Series A 11.75% Cumulative Convertible Preferred Stock Purchase Agreement,
dated as of April 22, 1996 ("Purchase Agreement"), by and between the Parties
(which such Purchase Agreement is hereby incorporated herein and made a part
hereof by this reference thereto).
2. Exercise of Warrant. The Holder of this Warrant shall be
entitled to purchase such numbers of Shares at any time over approximately a
ten (10) year period commencing on the effective date of this Warrant and
ending at 6:01 P.M. Eastern Standard Time on the date ten (10) years after such
date.
In case the Holder of this Warrant shall desire from time to time to
exercise this Warrant in whole or in part, the Holder shall surrender a copy of
this Warrant, with a copy of the form
Page 1 of 8
<PAGE> 64
of exercise notice marked Exhibit B, which is attached hereto, incorporated
herein and made a part hereof by this reference thereto, duly executed by the
Holder (said exercise notice shall bear an original signature of the Holder),
to the Company, accompanied by payment of the Exercise Price.
This Warrant may be exercised in whole or in part but not for
fractional Shares. In case of the exercise in part only, the Company shall
immediately deliver to the Holder a new Warrant of like tenor for the remaining
Shares. This Warrant, at any time prior to the exercise hereof, upon
presentation and surrender to the Company may be exchanged for another Warrant
or other Warrants of like tenor in the name of such Holder exercisable for the
same aggregate number of Shares as the Warrant or Warrants surrendered.
3. No Voting Rights. This Warrant shall not entitle the Holder
hereof to any voting right (except as required by law) or to other rights as a
shareholder of the Company. However, Holders of Shares received upon exercise
of this Warrant shall have such voting rights and all other rights as other
shareholders of the Company.
4. Covenants of the Company. The Company hereby covenants and
agrees that prior to the expiration of this Warrant by exercise or by its
terms:
a. The Company will not by amendment of its Certificate
of Incorporation or through reorganization, consolidation, merger, dissolution,
or sale of assets, or by any other voluntary act or deed, avoid or seek to
avoid the observance or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by the Company, but will at
all times in good faith assist in the carrying out of all provisions of this
Warrant and in the taking of all other actions that may be necessary in order
to protect the rights of the Holder against dilution.
b. The Company shall not issue any shares of common
stock or any other equity of the Company without the prior written consent of
Holder, and upon any such issuance, this Warrant shall be modified so that the
number of shares issuable hereunder shall represent the same percentage of the
fully diluted equity of the Company as before such issuance.
c. The Company shall at all times reserve and keep
available, out of its authorized and unissued share capital, solely for the
purpose of providing for the exercise of the Warrant, forthwith upon the
request of the Holder of the Warrants then outstanding and in effect, such
numbers of Shares as shall, from time to time, be sufficient for the exercise
in full of the Warrants. The Company shall, from time to time, in accordance
with the laws of the State of Delaware, increase the authorized amount of its
share capital if at any time the number of Shares remaining unissued and
unreserved for other purposes shall not be sufficient to permit the exercise of
the Warrants then outstanding and in effect.
Page 2 of 8
<PAGE> 65
Notwithstanding the foregoing, the Company and the Holder acknowledge
that as of the date of this Warrant, the Company has 16,880,130 shares of
authorized and unissued shares of its common stock available for the purpose of
issue upon (1) the exercise, in whole, of the conversion rights of the Series A
11.75% Cumulative Convertible Preferred Stock of the Company (the "Series A
Preferred Stock") and the convertible secured notes issued pursuant to that
certain Convertible Debt Agreement dated as of April 22, 1996 by and between
the Company and Amsterdam Equities Limited ("Convertible Debt Agreement") and
(2) the exercise, in whole, of this Warrant, the Laport Warrant, the Amsterdam
Warrant No. 1 and the Amsterdam Warrant No. 2 (collectively, the "Other
Warrants"). If the amount, of shares authorized and unissued is insufficient,
to effect, in whole, the conversion and/or exercise in whole, of the Preferred
Stock, the convertible secured notes issued pursuant to the Convertible Debt
Agreement, this Warrant and the Other Warrants, (2) then, upon the request of
the Holder, the Company shall take all actions necessary to increase the number
of authorized shares in an amount sufficient to issue all shares issuable
pursuant to the conversion rights represented by the Convertible Secured Notes,
the Series A Preferred Stock, and the exercise of this Warrant and the Other
Warrants.
5. Loss, Theft, Destruction or Mutilation. In case this Warrant
shall become mutilated or defaced or be destroyed, lost or stolen, the Company
shall execute and deliver a new Warrant in exchange for and upon surrender and
cancellation of such mutilated or defaced Warrant or in lieu of and
substitution for such Warrant so destroyed, lost or stolen, upon the Holder of
such Warrant filing with the Company such reasonable evidence (an affidavit
shall suffice) that such Warrant has been so mutilated, defaced, destroyed,
lost or stolen and of the ownership thereof by the Holder; provided, however,
that the Company shall be entitled, as a condition to the execution and
delivery of such new Warrant, to demand reasonable indemnity and payment of
expenses and charges incurred in connection with the delivery of such new
Warrant, and may, if reasonable under the circumstances, request a bond from
the Holder. All Warrants so surrendered to the Company shall be canceled.
6. Record Owner. At the time of the surrender of this Warrant,
together with the payment of the Exercise Price, the person exercising this
Warrant shall be deemed to be the Holder of record of the Warrants deliverable
upon such exercise, in whole or in part, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such securities shall not then be actually delivered to such
person.
7. Fractional Securities. No fractional Shares, fractional
warrants, fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. With respect to any fraction of a
share called for on such exercise, the Holder may elect to remit to the Company
an amount in cash equal to the difference between such fraction and one,
multiplied by the Exercise Price, and the Company will issue the Holder one
Share in addition to the number of whole shares required by the exercise of the
Warrant.
8. Original Issue Taxes. The Company shall pay all United
States, state, local and any other original issue taxes, if any, upon the
issuance of this Warrant or the Shares deliverable upon exercise hereof.
Page 3 of 8
<PAGE> 66
9. Notices. All notices, requests and other communications
provided for hereunder shall be in writing and sent by first class or
equivalent mail of the country of origin, registered or certified, postage
prepaid and return receipt requested or delivered personally or by courier
against written acknowledgement of receipt (i) if to the Company, at 2358
Hassell Road, Hoffman Estates, Illinois 60195, with a copy to John F. Mahoney,
Esq., Chuhak & Tecson, 225 West Washington Street, Suite 1300, Chicago,
Illinois, 60606, (ii) if to the Holder, to the persons at the addresses
designated for such Holder on Exhibit A (unless otherwise indicated by Holder).
All such notices and other communications shall be effective on the date of
delivery to the party receiving such notice, as evidenced by the date set forth
on the receipt signed by the party receiving such notice.
10. Restrictions on Transferability. The Warrant and the Shares
issuable upon exercise of this Warrant may be transferred by the Holder
pursuant to any applicable exemption from registration under the Securities Act
of 1933, as amended, or applicable state securities laws.
Further, this Warrant, and the Shares issuable upon exercise of this
Warrant, have not yet been registered under the Securities Act. Accordingly,
this Warrant, all replacement Warrants and the stock certificates representing
the Shares shall, prior to registration pursuant to the Registration Agreement,
bear the following legend:
THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT, HAVE NOT BEEN REGISTERED EITHER UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAW AND ANY TRANSFER THEREOF IS SUBJECT
TO COMPLIANCE WITH SUCH LAWS AND THE TERMS OF THIS WARRANT.
11. Entire Agreement and Modification. The Company and the Holder
of this Warrant hereby represent and warrant that, except for the provisions of
the Purchase Agreement and that certain Registration Agreement, dated as of
April 22, 1996 by and between the Company and the Holder (which such
Registration Agreement is hereby incorporated herein and made a part hereof by
this reference thereto) this Warrant is intended to and does contain and embody
all of the understandings and agreements, both written and oral, of the Parties
with respect to the subject matter of this Warrant, and that there exists no
oral agreement or understanding, express or implied, whereby the absolute,
final and unconditional character and nature of this Warrant shall be in any
way invalidated, empowered or affected. A modification or waiver of any of the
terms, conditions or provisions of this Warrant shall be effective only if made
in writing and executed with the same formality as this Warrant.
12. Authorization. The undersigned have been duly authorized by
the Company to execute this Warrant, and any related agreements between the
Company and the Holder, the signatures of the undersigned are binding upon the
Company, and their execution of this Warrant does not constitute a breach of
any existing agreement to which the Company is a party.
Page 4 of 8
<PAGE> 67
13. Effective Date. Warrants granted hereunder shall become
effective immediately upon the earliest to occur, for any reason whatsoever, of
any one or more of the following events: (i) an Event of Default other than the
mere failure to pay interest under the Convertible Secured Notes which is due
in June 1996 or September 1996 or the mere failure to pay dividends on the
Preferred Shares which is due on June 30, 1996 or September 30, 1996 (it being
acknowledged that failure to pay interest on the Convertible Secured Notes due
at any other time shall be deemed an Event of Default hereunder and
thereunder), (ii) the failure of net income of the Company for 1996, determined
in accordance with generally accepted accounting principles applied on a basis
consistent with past periods, to be at least One United States Dollar ($1.00),
(iii) the failure of net income of the Company for 1997, determined in
accordance with generally accepted accounting principles applied on a basis
consistent with past periods, to be at least equal to Sixty Percent (60.0%) of
the dollar amount of the principal and interest owed under the Convertible
Secured Notes outstanding at the end of 1997, and/or (iv) for every year after
1997, the failure of net income of the Company, determined in accordance with
generally accepted accounting principles applied on a basis consistent with
past periods, to increase no less than the total of Ten Percent (10.0%) per
year, on a compounded basis, plus Sixty Percent (60.0%) of the increase in
dollar amount of principal and interest owed under the Convertible Secured
Notes outstanding at the end of any such year over the immediately preceding
year. The Company must provide written notice to the Holder of the occurrence
of any of events set forth in the immediately preceding sentence no later that
thirty (30) days after any such occurrence. The Warrants granted hereunder
shall be wholly void and of no effect and the rights evidenced hereby will
terminate unless exercised in accordance with the terms and provisions hereof
before the date set forth in Section 2.
IN WITNESS WHEREOF, the Company by its duly authorized officer has
executed this Warrant as of the 22nd day of April, 1996.
PRINCETON DENTAL MANAGEMENT CORPORATION,
a Delaware corporation, by:
______________________________
Charles Mitchell, D.D.S.
President and CEO
Attest:
Corporate Seal
______________________________
Secretary
Page 5 of 8
<PAGE> 68
STATE OF ILLINOIS )
) SS
COUNTY OF _______ )
I, _____________________________, a Notary Public in and for the
County and State aforesaid, do hereby certify that Charles Mitchell, D.D.S.,
personally known to me to be the President and Chief Executive Officer of
Princeton Dental Management Corporation, a Delaware corporation, appeared
before me this day in person and acknowledged that as such officer he signed
and delivered such instrument as his free and voluntary act and with due
authorization, and as the free and voluntary act of the Company, for the uses
and purposes herein set forth.
Given under my hand and seal this ________ day of _____________, 1996.
SEAL:
_______________________________________
NOTARY PUBLIC
My commission expires ______________.
STATE OF ILLINOIS )
) SS
COUNTY OF _________ )
I, ______________________________, a Notary Public in and for the
County and State aforesaid, do hereby certify that ___________________,
personally known to me to be the Secretary of Princeton Dental Management
Corporation, a Delaware corporation, appeared before me this day in person and
acknowledged that as such officer he signed and delivered such instrument as
his free and voluntary act and with due authorization, and as the free and
voluntary act of the Company, for the uses and purposes herein set forth.
Given under my hand and seal this ____ day of ________________, 1996.
SEAL:
_______________________________________
NOTARY PUBLIC
My commission expires ________________.
Page 6 of 8
<PAGE> 69
EXHIBIT "A"
FRANK LEONARD LAPORT
Notice to:
Frank Leonard Laport
7421 West 100th Place
Bridgeview, Illinois 60455-2442
with a copy to:
Kevin Cahill, Esq.
Brooks & Cahill
208 S. LaSalle Street, Suite 1855
Chicago, Illinois 60604
Page 7 of 8
<PAGE> 70
EXHIBIT "B"
FORM OF EXERCISE
The undersigned hereby irrevocably elects to exercise a purchase right
pursuant to the terms of this Warrant for, and to purchase thereunder,
___________________________ ___________________________________ Shares of
Princeton Dental Management Corporation, a Delaware corporation, and herewith
makes payment of $________________________ per Share, or a total of
$____________________________ therefor, and requests that such Shares be issued
to:
________________________________
_________________________________
(Title)
_________________________________
(Print Name)
_________________________________
(Address)
_________________________________
_________________________________
Dated:_________________________ _________________________________
(Identification Number, if assigned by
a Governing Authority)
Page 8 of 8
<PAGE> 71
THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION
AND ANY TRANSFER THEREOF IS SUBJECT TO COMPLIANCE WITH SUCH LAWS AND
THE TERMS OF THIS WARRANT.
WARRANT TO PURCHASE UP TO
134,062 UNREGISTERED SHARES OF COMMON STOCK OF
PRINCETON DENTAL MANAGEMENT CORPORATION
NO. __
FOR VALUE RECEIVED, Princeton Dental Management Corporation, a
Delaware corporation located at 2358 Hassell Road, Hoffman Estates, Illinois
60195 (the "Company"), promises to issue in the name of, and sell and deliver
to the party identified on Exhibit A attached hereto and incorporated herein,
together with its successors, transferees and assigns (the "Holder") (when the
context requires, the Company and the Holder shall be collectively referred to
as the "Parties"), a certificate or certificates for an aggregate of One
Hundred Thirty Four Thousand Sixty Two (134,062) unregistered shares of Common
Stock, One Ten Thousandth of One United States Dollar (U.S.$.0001) par value
per share (the "Shares"), of the Company, upon payment therefor of Ten United
States Cents ($0.10) per Share in lawful funds of the United States of America
(the "Exercise Price") pursuant to the terms hereof.
1. Definitions. Unless defined otherwise, any term used herein
which has the first letters thereof capitalized, exclusive of prepositions and
articles, shall be defined as such capitalized term is defined in that certain
Series A 11.75% Cumulative Convertible Preferred Stock Purchase Agreement,
dated as of April 22, 1996 ("Purchase Agreement"), by and between the Parties
(which such Purchase Agreement is hereby incorporated herein and made a part
hereof by this reference thereto).
2. Exercise of Warrant. The Holder of this Warrant shall be
entitled to purchase such numbers of Shares at any time over approximately a
ten (10) year period commencing on the effective date of this Warrant and
ending at 6:01 P.M. Eastern Standard Time on the date ten (10) years after such
date.
In case the Holder of this Warrant shall desire from time to time to
exercise this Warrant in whole or in part, the Holder shall surrender a copy of
this Warrant, with a copy of the form
Page 1 of 8
<PAGE> 72
of exercise notice marked Exhibit B, which is attached hereto, incorporated
herein and made a part hereof by this reference thereto, duly executed by the
Holder (said exercise notice shall bear an original signature of the Holder),
to the Company, accompanied by payment of the Exercise Price.
This Warrant may be exercised in whole or in part but not for
fractional Shares. In case of the exercise in part only, the Company shall
immediately deliver to the Holder a new Warrant of like tenor for the remaining
Shares. This Warrant, at any time prior to the exercise hereof, upon
presentation and surrender to the Company may be exchanged for another Warrant
or other Warrants of like tenor in the name of such Holder exercisable for the
same aggregate number of Shares as the Warrant or Warrants surrendered.
3. No Voting Rights. This Warrant shall not entitle the Holder
hereof to any voting right (except as required by law) or to other rights as a
shareholder of the Company. However, Holders of Shares received upon exercise
of this Warrant shall have such voting rights and all other rights as other
shareholders of the Company.
4. Covenants of the Company. The Company hereby covenants and
agrees that prior to the expiration of this Warrant by exercise or by its
terms:
a. The Company will not by amendment of its Certificate
of Incorporation or through reorganization, consolidation, merger, dissolution,
or sale of assets, or by any other voluntary act or deed, avoid or seek to
avoid the observance or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by the Company, but will at
all times in good faith assist in the carrying out of all provisions of this
Warrant and in the taking of all other actions that may be necessary in order
to protect the rights of the Holder against dilution.
b. The Company shall not issue any shares of common
stock or any other equity of the Company without the prior written consent of
Holder, and upon any such issuance, this Warrant shall be modified so that the
number of shares issuable hereunder shall represent the same percentage of the
fully diluted equity of the Company as before such issuance.
c. The Company shall at all times reserve and keep
available, out of its authorized and unissued share capital, solely for the
purpose of providing for the exercise of the Warrant, forthwith upon the
request of the Holder of the Warrants then outstanding and in effect, such
numbers of Shares as shall, from time to time, be sufficient for the exercise
in full of the Warrants. The Company shall, from time to time, in accordance
with the laws of the State of Delaware, increase the authorized amount of its
share capital if at any time the number of Shares remaining unissued and
unreserved for other purposes shall not be sufficient to permit the exercise of
the Warrants then outstanding and in effect.
Page 2 of 8
<PAGE> 73
Notwithstanding the foregoing, the Company and the Holder acknowledge
that as of the date of this Warrant, the Company has 16,880,130 shares of
authorized and unissued shares of its common stock available for the purpose of
issue upon (1) the exercise, in whole, of the conversion rights of the Series A
11.75% Cumulative Convertible Preferred Stock of the Company (the "Series A
Preferred Stock") and the convertible secured notes issued pursuant to that
certain Convertible Debt Agreement dated as of April 22, 1996 by and between
the Company and Amsterdam Equities Limited ("Convertible Debt Agreement") and
(2) the exercise, in whole, of this Warrant, the FLL Warrant, the Amsterdam
Warrant No. 1 and the Amsterdam Warrant No. 2 (collectively, the "Other
Warrants"). If the amount, of shares authorized and unissued is insufficient,
to effect, in whole, the conversion and/or exercise in whole, of the Preferred
Stock, the convertible secured notes issued pursuant to the Convertible Debt
Agreement, this Warrant and the Other Warrants, (2) then, upon the request of
the Holder, the Company shall take all actions necessary to increase the number
of authorized shares in an amount sufficient to issue all shares issuable
pursuant to the conversion rights represented by the Convertible Secured Notes,
the Series A Preferred Stock, and the exercise of this Warrant and the Other
Warrants.
5. Loss, Theft, Destruction or Mutilation. In case this Warrant
shall become mutilated or defaced or be destroyed, lost or stolen, the Company
shall execute and deliver a new Warrant in exchange for and upon surrender and
cancellation of such mutilated or defaced Warrant or in lieu of and
substitution for such Warrant so destroyed, lost or stolen, upon the Holder of
such Warrant filing with the Company such reasonable evidence (an affidavit
shall suffice) that such Warrant has been so mutilated, defaced, destroyed,
lost or stolen and of the ownership thereof by the Holder; provided, however,
that the Company shall be entitled, as a condition to the execution and
delivery of such new Warrant, to demand reasonable indemnity and payment of
expenses and charges incurred in connection with the delivery of such new
Warrant, and may, if reasonable under the circumstances, request a bond from
the Holder. All Warrants so surrendered to the Company shall be canceled.
6. Record Owner. At the time of the surrender of this Warrant,
together with the payment of the Exercise Price, the person exercising this
Warrant shall be deemed to be the Holder of record of the Warrants deliverable
upon such exercise, in whole or in part, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such securities shall not then be actually delivered to such
person.
7. Fractional Securities. No fractional Shares, fractional
warrants, fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. With respect to any fraction of a
share called for on such exercise, the Holder may elect to remit to the Company
an amount in cash equal to the difference between such fraction and one,
multiplied by the Exercise Price, and the Company will issue the Holder one
Share in addition to the number of whole shares required by the exercise of the
Warrant.
8. Original Issue Taxes. The Company shall pay all United
States, state, local and any other original issue taxes, if any, upon the
issuance of this Warrant or the Shares deliverable upon exercise hereof.
Page 3 of 8
<PAGE> 74
9. Notices. All notices, requests and other communications
provided for hereunder shall be in writing and sent by first class or
equivalent mail of the country of origin, registered or certified, postage
prepaid and return receipt requested or delivered personally or by courier
against written acknowledgement of receipt (i) if to the Company, at 2358
Hassell Road, Hoffman Estates, Illinois 60195, with a copy to John F. Mahoney,
Esq., Chuhak & Tecson, 225 West Washington Street, Suite 1300, Chicago,
Illinois, 60606, (ii) if to the Holder, at the address designated for such
Holder on Exhibit A (unless otherwise indicated by Holder). All such notices
and other communications shall be effective on the date of delivery to the
party receiving such notice, as evidenced by the date set forth on the receipt
signed by the party receiving such notice.
10. Restrictions on Transferability. The Warrant and the Shares
issuable upon exercise of this Warrant may be transferred by the Holder
pursuant to any applicable exemption from registration under the Securities Act
of 1933, as amended, or applicable state securities laws.
Further, this Warrant, and the Shares issuable upon exercise of this
Warrant, have not yet been registered under the Securities Act. Accordingly,
this Warrant, all replacement Warrants and the stock certificates representing
the Shares shall, prior to registration pursuant to the Registration Agreement,
bear the following legend:
THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT, HAVE NOT BEEN REGISTERED EITHER UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAW AND ANY TRANSFER THEREOF IS SUBJECT
TO COMPLIANCE WITH SUCH LAWS AND THE TERMS OF THIS WARRANT.
11. Entire Agreement and Modification. The Company and the Holder
of this Warrant hereby represent and warrant that, except for the provisions of
the Purchase Agreement and that certain Registration Agreement, dated as of
April 22, 1996 by and between the Company and the Holder (which such
Registration Agreement is hereby incorporated herein and made a part hereof by
this reference thereto) this Warrant is intended to and does contain and embody
all of the understandings and agreements, both written and oral, of the Parties
with respect to the subject matter of this Warrant, and that there exists no
oral agreement or understanding, express or implied, whereby the absolute,
final and unconditional character and nature of this Warrant shall be in any
way invalidated, empowered or affected. A modification or waiver of any of the
terms, conditions or provisions of this Warrant shall be effective only if made
in writing and executed with the same formality as this Warrant.
12. Authorization. The undersigned have been duly authorized by
the Company to execute this Warrant, and any related agreements between the
Company and the Holder, the signatures of the undersigned are binding upon the
Company, and their execution of this Warrant does not constitute a breach of
any existing agreement to which the Company is a party.
13. Effective Date. Warrants granted hereunder shall become
effective immediately upon the earliest to occur, for any reason whatsoever, of
any one or more of the following events: (i) an Event of Default other than the
mere failure to pay interest under the Convertible Secured Notes which is due
in June 1996 or September 1996 or the mere failure to pay dividends on the
Preferred Shares which is
Page 4 of 8
<PAGE> 75
due on June 30, 1996 or September 30, 1996 (it being acknowledged that failure
to pay interest on the Convertible Secured Notes due at any other time shall be
deemed an Event of Default hereunder and thereunder), (ii) the failure of net
income of the Company for 1996, determined in accordance with generally
accepted accounting principles applied on a basis consistent with past periods,
to be at least One United States Dollar ($1.00), (iii) the failure of net
income of the Company for 1997, determined in accordance with generally
accepted accounting principles applied on a basis consistent with past periods,
to be at least equal to Sixty Percent (60.0%) of the dollar amount of the
principal and interest owed under the Convertible Secured Notes outstanding at
the end of 1997, and/or (iv) for every year after 1997, the failure of net
income of the Company, determined in accordance with generally accepted
accounting principles applied on a basis consistent with past periods, to
increase no less than the total of Ten Percent (10.0%) per year, on a
compounded basis, plus Sixty Percent (60.0%) of the increase in dollar amount
of principal and interest owed under the Convertible Secured Notes outstanding
at the end of any such year over the immediately preceding year. The Company
must provide written notice to the Holder of the occurrence of any of events
set forth in the immediately preceding sentence no later that thirty (30) days
after any such occurrence. The Warrants granted hereunder shall be wholly
void and of no effect and the rights evidenced hereby will terminate unless
exercised in accordance with the terms and provisions hereof before the date
set forth in Section 2.
IN WITNESS WHEREOF, the Company by its duly authorized officer has
executed this Warrant as of the 22nd day of April, 1996.
PRINCETON DENTAL MANAGEMENT CORPORATION,
a Delaware corporation, by:
______________________________
Charles Mitchell, D.D.S.
President and CEO
Attest:
Corporate Seal
______________________________________
Secretary
Page 5 of 8
<PAGE> 76
STATE OF ILLINOIS )
) SS
COUNTY OF _______ )
I, _____________________________, a Notary Public in and for the
County and State aforesaid, do hereby certify that Charles Mitchell, D.D.S.,
personally known to me to be the President and Chief Executive Officer of
Princeton Dental Management Corporation, a Delaware corporation, appeared
before me this day in person and acknowledged that as such officer he signed
and delivered such instrument as his free and voluntary act and with due
authorization, and as the free and voluntary act of the Company, for the uses
and purposes herein set forth.
Given under my hand and seal this ________ day of _____________, 1996.
SEAL:
_______________________________________
NOTARY PUBLIC
My commission expires ______________.
STATE OF ILLINOIS )
) SS
COUNTY OF _________ )
I, ______________________________, a Notary Public in and for the
County and State aforesaid, do hereby certify that ___________________,
personally known to me to be the Secretary of Princeton Dental Management
Corporation, a Delaware corporation, appeared before me this day in person and
acknowledged that as such officer he signed and delivered such instrument as
his free and voluntary act and with due authorization, and as the free and
voluntary act of the Company, for the uses and purposes herein set forth.
Given under my hand and seal this ____ day of ________________, 1996.
SEAL:
_______________________________________
NOTARY PUBLIC
My commission expires _______________.
Page 6 of 8
<PAGE> 77
EXHIBIT "A"
BEVERLY TRUST COMPANY, AS CUSTODIAN OF THE FRANK LEONARD LAPORT
ROLLOVER INDIVIDUAL RETIREMENT ACCOUNT NUMBER 75-49990
Notice to:
10312 South Cicero Avenue
Oak Lawn, Illinois 60453
with copies to:
Kevin Cahill, Esq.
Brooks & Cahill
208 S. LaSalle Street, Suite 1855
Chicago, Illinois 60604
and
Frank Leonard Laport
7421 West 100th Place
Bridgeview, Illinois 60455-2442
Page 7 of 8
<PAGE> 78
EXHIBIT "B"
FORM OF EXERCISE
The undersigned hereby irrevocably elects to exercise a purchase right
pursuant to the terms of this Warrant for, and to purchase thereunder,
___________________________ ___________________________________ Shares of
Princeton Dental Management Corporation, a Delaware corporation, and herewith
makes payment of $________________________ per Share, or a total of
$____________________________ therefor, and requests that such Shares be issued
to:
________________________________
_________________________________
(Title)
_________________________________
(Print Name)
_________________________________
(Address)
_________________________________
_________________________________
Dated:_________________________
_________________________________
(Identification Number, if assigned by
a Governing Authority)
Page 8 of 8
<PAGE> 79
235347.5
REGISTRATION AGREEMENT
This REGISTRATION AGREEMENT ("Agreement") is made as of April 22,
1996, between Princeton Dental Management Corporation, a Delaware corporation
(the "Company"), and Frank Leonard Laport ("FLL"), Beverly Trust Company, as
Custodian of the Frank Leonard Laport Rollover Individual Retirement Account
Number 75-49990 ("Laport IRA") and Amsterdam Equities Limited ("Amsterdam")
(FLL, Laport IRA and Amsterdam, together with their successors, transferees and
assigns, are collectively referred to herein as the "Stockholders") (when the
context requires, the Company and the Stockholders shall be collectively
referred to as the "Parties").
R E C I T A L S:
WHEREAS, the Company has agreed to sell to the Stockholders, and the
Stockholders have agreed to purchase from the Company, certain convertible
preferred stock of the Company pursuant to a certain Series A 11.75% Cumulative
Convertible Preferred Stock Purchase Agreement by and among the Company and the
Stockholders dated as of April 22, 1996 (the "Purchase Agreement").
WHEREAS, the Company has agreed to sell to Amsterdam Equities Limited
("Other Stockholder"), and the Other Stockholder has agreed to purchase from
the Company, certain convertible notes of the Company pursuant to a certain
Convertible Debt Agreement by and among the Company and Amsterdam, dated as of
April 22, 1996 (the "Convertible Debt Agreement").
WHEREAS, concurrently with the execution of this Agreement, the
Company and the Other Stockholder will enter into a Registration Agreement (the
"Other Registration Agreement") in substantially the same form as this
Agreement.
WHEREAS, in partial consideration for such purchase, the Company has
agreed to provide the Stockholders with the registration rights set forth in
this Agreement.
NOW THEREFORE, the Parties hereto agree as follows:
1. Definitions.
(a) Amsterdam Registrable Securities: Amsterdam
Registrable Securities means the Registrable Securities as defined in
the Other Registration Agreement.
(b) Capitalized Terms: Unless otherwise provided in this
Agreement, capitalized terms used herein shall have the meanings set
forth in the Purchase Agreement (which is hereby incorporated herein
and made a part hereof by the reference thereto).
(c) Persons: The term "Person" means an individual, a
partnership, a corporation, a limited liability company or a trust.
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<PAGE> 80
(d) Registrable Securities: The term
"Registrable Securities" shall be defined as: (i) any and all
shares of Common Stock of the Company issued pursuant to the
terms of the Purchase Agreement including, without limitation,
(A) all shares of Common Stock of the Company obtained as a
result of the conversion of the Preferred Stock pursuant to
Section 7 of the Certificate of Designation of the Preferred
Stock, and (B) all shares of Common Stock of the Company
obtained as a result of the provisions set forth in Section 9
of the Certificate of Designation of the Preferred Stock; (ii)
any shares of Common Stock of the Company issued pursuant to
the terms of those certain Warrants To Purchase Up To 268,125
Unregistered Shares, 134,063 Unregistered Shares and 134,062
Unregistered Shares (respectively) Of Common Stock Of
Princeton Dental Management Corporation dated as of April 22,
1996 issued to Amsterdam, FLL and Laport IRA, respectively,
and (iii) any securities issued or issuable in respect to
securities included in foregoing items (i)-(ii) (the "Primary
Securities") by way of any distribution of securities or
pursuant to any stock dividend, stock split or combination,
recapitalization, merger, consolidation, or other
reorganization of the Company affecting the Primary
Securities. For purposes of this Agreement, a Person will be
deemed to be a holder of Registrable Securities whenever such
Person has the right to acquire such Registrable Securities
(upon conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not
such acquisition has actually been effected.
2. Registration Rights. At any time and from time to time after
the date hereof, the Company shall file and use its best efforts to cause to
become effective a registration statement to register any and all Registrable
Securities under the Act (a "Demand Registration") when and as directed by the
then holders of a majority of the Amsterdam Registrable Securities. Each
written request for a registration shall specify the approximate number of
Registrable Securities requested to be registered, the identity of the holders
of Registrable Securities demanding such registration, the form such
registration is to be effected on and the anticipated per share price range for
such offering. Within ten (10) days after receipt of notice of registration,
the Company shall give written notice of such demand to all other holders of
Registrable Securities. The Company will include in such registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within twenty (20) days after the date of the
Company's notice of the registration to holders of Registrable Securities. The
Company shall file and use its best efforts to cause to become effective a
registration statement covering all Registrable Securities to be so registered
under the Act no later than the ninetieth (90th) calendar day from the date of
the original notice to the Company. If the Company is unable to so register
such Registrable Securities within ninety (90) calendar days, then the Company
shall issue pro rata to each holder of Registrable Securities who had requested
such registration additional shares of Common Stock (which shall be Registrable
Securities) in the amount equal to the product of (i) the number of Registrable
Securities requested to be registered by such holder, and (ii) the difference
between the fair market value of a share of Common Stock on the business day
immediately following the ninetieth (90th) calendar day after which the notice
to register was delivered (as determined by the average of the NASDAQ high and
low sales price on such business day (or whatever market quotation as may be
relevant at the time)) and the fair market value of a share of Common Stock on
the business day immediately following the effective date of the registration
statement (as defined in Section 3(l)) covering such shares of Common Stock (as
determined by the average of the NASDAQ high and low sales price per share on
such day (or whatever market quotation as may be relevant at the time));
provided, however, that if the fair market value of such a share has, in such
Page 2 of 13
<PAGE> 81
instance, increased, the Company shall not be required to grant
to the holders of Registrable Securities then registering their shares
any additional shares of Common Stock; further, provided, that in no
event shall any holder of Registrable Securities ever be required to
return any shares of Common Stock to the Company pursuant to the terms
hereof. Once any registration pursuant to this Section 2 is
commenced, the Company shall use its best efforts to complete such
registration as expeditiously as possible. All expenses incurred in
connection with such registration shall be paid by the Company as
provided in Section 4 herein.
In the event any securities to be sold by holders of
Registrable Securities pursuant to a registration under this Section 2 are not
sold in accordance with the plan of distribution set forth in the registration
statement within nine (9) months after the effective date of the registration
statement, then such shares shall be deemed not to have been registered
pursuant to Section 2 and shall remain Registrable Securities.
Nothing in this Agreement shall be deemed to require any
holder of Registrable Securities to exercise its rights of conversion with
respect to, or its rights to acquire, any Registrable Securities, either as a
condition to demanding or requesting registration hereunder or at any other
time.
3. Registration Procedures. No later than the applicable date
referenced in Section 2 herein for registration of the Registrable Securities,
the Company shall register such Registrable Securities in accordance with the
intended method of disposition thereof and pursuant thereto the Company shall:
(a) prepare and file with the Securities and Exchange
Commission ("SEC") a registration statement on such form as the
holders of a majority of the Registrable Securities shall specify and
which the Company shall be permitted to use with respect to such
Registrable Securities and use its best efforts to cause such
registration statement to become effective (provided that before
filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall furnish to the counsel selected
by the holders of a majority of the Registrable Securities copies of
all such documents proposed to be filed a reasonable time prior to
filing, which documents shall be subject to the review and comment of
such counsel and the inclusion of such material as such counsel may
reasonably request);
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to (i) keep such registration
statement effective for a period of not less than nine (9) calendar
months and (ii) comply with the provisions of the Act with respect to
the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods
of disposition by the sellers thereof set forth in such registration
statement;
(c) furnish to each holder of Registrable Securities and
the underwriters, if any, such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary
prospectus) and such other documents as such holder may request in
order to facilitate the disposition of the Registrable Securities
owned by such holder;
Page 3 of 13
<PAGE> 82
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of
such jurisdictions as any holder requests and do any and all other
acts and things which may be reasonably necessary or advisable to
enable such holder to consummate the disposition in such jurisdictions
of the Registrable Securities owned by such holder (provided that the
Company will not be required to (i) qualify generally to do business
in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in
any such jurisdiction or (iii) consent to general service of process
in any such jurisdiction);
(e) notify each holder of such Registrable Securities, at
any time when a prospectus relating thereto is required to be
delivered under the Act, of the receipt by the Company of any
notifications with respect to suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose or of the happening
of any event known to the Company as a result of which the prospectus
included in such registration statement contains an untrue statement
of a material fact or omits any material fact necessary to make the
statements therein not misleading, and, at the request of any such
holder, the Company shall prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on
each securities exchange or quoted on each interdealer quotation
system on which similar securities issued by the Company are then
listed or quoted, or if similar securities are not then listed or
quoted, to cause such securities to become listed or quoted prior to
the sale of Registrable Securities pursuant to the registration
hereunder;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
registration statement and facilitate the timely preparation and
delivery of certificates representing the Registrable Securities to be
sold under the registration statement, in such denominations and
registered in such names as the managing underwriter or underwriters,
if any, or the holders of Registrable Securities may request;
(h) enter into such customary and reasonable agreements
(including underwriting agreements in customary and reasonable form)
and take all such other actions as the holders of a majority of the
Registrable Securities, or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, effecting a
stock split or a combination of shares);
(i) make available for inspection by any holder of
Registrable Securities, any underwriter participating in any
disposition pursuant to such registration statement, and any attorney,
accountant or other agent retained by any such holder or underwriter,
all financial and other records, pertinent corporate documents and
properties of the Company as may be reasonably requested, and cause
the Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such
holder, underwriter, attorney, accountant or agent in connection with
such registration statement;
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<PAGE> 83
(j) use its best efforts to cause such Registrable
Securities covered by such registration statement to be registered
with or approved by such other governmental agencies or authorities as
may be reasonably necessary to enable the holders thereof to
consummate the disposition of such Registrable Securities;
(k) obtain for the benefit of the holders of Registrable
Securities and the underwriters, if any, a comfort letter from the
Company's independent public accountants and a legal opinion from the
Company's counsel, each in customary and reasonable form and covering
such matters of the type customarily and reasonably covered by comfort
letters and legal opinions as the holders of a majority of the
Registrable Securities reasonably request;
(l) otherwise use its reasonable efforts to comply in all
material respects with all applicable rules and regulations of the
SEC, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least
twelve (12) months beginning with the first month after the "effective
date of the registration statement" (as determined in accordance with
the provisions of Rule 158(c) of the Act), which earnings statement
shall satisfy the provisions of Section 11(a) of the Act and Rule 158
thereunder;
(m) permit any holder of Registrable Securities which
holder, in its sole and exclusive judgment, might be deemed to be an
underwriter or a controlling person of the Company, to participate in
the preparation of such registration or comparable statement and to
require the insertion therein of material, furnished to the Company in
writing, which in the reasonable judgment of such holder and its
counsel should be included; and
(n) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any
order suspending or preventing the use of any related prospectus or
suspending the qualification of any Registrable Securities included in
such registration statement for sale in any jurisdiction, the Company
will use its reasonable efforts promptly to obtain the withdrawal of
such order.
If any such registration or comparable statement refers to any holder
of Registrable Securities by name or otherwise as the holder of any securities
of the Company and if in its sole and exclusive judgment, such holder is or
might be deemed to be a controlling person of the Company, such holder shall
have the right to require the insertion therein of language, in form and
substance satisfactory to such holder and presented to the Company in writing,
to the effect that the holding by such holder of such securities is not to be
construed as a recommendation by such holder of the investment quality of the
Company's securities covered thereby and that such holding does not imply that
such holder will assist in meeting any future financial requirements of the
Company.
4. Registration Expenses. All expenses incident to the Company's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery
expenses, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts and
commissions) and other persons retained by the Company (all such expenses being
herein called "Registration Expenses"), shall be borne in their entirety by the
Company; provided, that the Company shall, in addition, pay its internal
expenses (including,
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<PAGE> 84
without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review, the expense of any liability insurance (relating
exclusively to any such liability insurance in effect as of the date hereof)
and the expenses and fees for listing the securities to be registered on each
securities exchange or interdealer quotation system on which similar securities
issued by the Company are then listed.
5. Indemnification.
(a) The Company agrees to indemnify each holder of
Registrable Securities covered by such registration statement, its
officers, directors, partners, stockholders, employees, agents,
trustees and each Person who controls such holder (within the meaning
of the Act) against all losses, claims, damages, liabilities and
expenses or amounts paid in settlement caused by (i) any violation or
alleged violation of federal or state securities laws caused by the
execution or implementation of this Agreement and (ii) any untrue or
alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged
omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished in
writing to the Company by such holder expressly for use therein or by
such holder's failure to deliver a copy of the registration statement
or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with sufficient number of copies of
the same. In connection with an underwritten offering, the Company
will indemnify such underwriters, their officers and directors and
each Person who controls such underwriters (within the meaning of the
Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities. The
payments required by this Section 5(a) will be made periodically
during the course of the investigation or defense, when and as bills
are received or expenses incurred.
(b) In connection with any registration statement in
which a holder of Registrable Securities is participating, each such
holder will furnish to the Company in writing such information and
affidavits as the Company reasonably requests for use in connection
with any such registration statement or prospectus and, to the extent
permitted by law, will indemnify the Company, its director and
officers and each person who controls the Company (within the meaning
of the Securities Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact contained in the registration statement,
prospectus or preliminary prospectus or any amendment thereof or
supplement thereto, or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information or affidavit so
furnished in writing by such holder; provided that such obligation to
indemnify will be several, not joint and several, among such holders
of Registrable Securities and the liability of each such holder will
be in proportion to and limited to the net amount received by such
holder from the sale of Registrable Securities pursuant to such
registration statement.
(c) Any Person (an "Indemnified Person") entitled to
indemnification hereunder will (i) give prompt written notice to the
party against whom indemnification is sought (the "Indemnifying
Person") of any claim with respect to which it seeks indemnification
(but the
Page 6 of 13
<PAGE> 85
failure to provide such notice shall not release the Indemnifying
Person of its indemnification obligations hereunder, unless the
Indemnifying Person has been prejudiced by such failure to provide such
notice and then only to the extent of such prejudice) and (ii) unless
in such Indemnified Person's reasonable judgment, a conflict of
interest between such Indemnified Person and the Indemnifying Person
may exist with respect to such claim, permit the Indemnifying Person
to assume the defense of such claim with counsel reasonably
satisfactory to the Indemnified Person, provided that the Indemnifying
Person does so diligently and in good faith. If such defense is
assumed, the Indemnifying Person will not be subject to any liability
for any settlement made by the Indemnified Person without the
Indemnifying Person's consent (but such consent will not be
unreasonably withheld). An Indemnifying Person who is not entitled to,
or elects not to, assume the defense of a claim will not be obligated
to pay the fees and expenses of more than one (1) counsel for all
parties indemnified by the Indemnifying Person with respect to such
claim, unless in the reasonable judgment of any Indemnified Person, a
conflict of interest may exist between such Indemnified Person and any
other Indemnified Person with respect to such claim.
(d) The indemnification provided for under this Agreement
shall remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer,
director, shareholder or controlling person of such indemnified party
and shall survive the transfer of securities.
(e) The Company also agrees to make such provisions, as
are reasonably requested by any indemnified party, for contribution to
such party in the event the Company's indemnification is unavailable
for any reason.
6. Selection of Underwriters. The holders of a majority of the
Registrable Securities included in any registration shall have the right to
select the investment banker(s) and manager(s) to administer the offering,
subject to the Company's approval which will not be unreasonably withheld.
7. Participation in Underwritten Registrations. No person may
participate in any registration hereunder which is underwritten unless such
person (a) agrees to sell such person's securities on the basis provided in any
underwriting arrangements reasonably suggested by the Company's underwriters
and (b) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements not inconsistent with this
Agreement. The provisions of this Section shall in no way limit any holders of
Registrable Securities rights pursuant to this Agreement to registration
hereunder in a non-underwritten registration.
8. Priority on Demand Registrations. The Company will not
include in any registration hereunder any securities which are not Registrable
Securities without the prior written consent of the holders of a majority of
the Registrable Securities included in such registration. If a registration
hereunder is an underwritten offering and the managing underwriters advise the
Company in writing that in their opinion the number of Registrable Securities
and, if permitted hereunder, other securities requested to be included in such
offering exceeds the number of Registrable Securities and other securities, if
any, which can be sold in such offering, without adversely affecting the
marketability of the offering, the Company will include in such registration in
the case of a registration requested by the
Page 7 of 13
<PAGE> 86
holders of a majority of the Registrable Securities, (x) first, the
Registrable Securities requested to be included in such registration, (y)
second, other securities issued pursuant to the terms and provisions of the
Preferred Stock Purchase Agreement which the Other Stockholder requests to be
included in such registration, and (z) third, other securities requested to be
included in such registration.
Unless otherwise agreed by the Company, any Persons other than holders of
Registrable Securities who participate in Demand Registrations must pay their
share of the Registration Expenses as provided in Section 4.
9. Security Issuance, Other Registration Rights. Except as
provided in this Agreement, the Convertible Debt Agreement, or the Preferred
Stock Purchase Agreement, the Company will not (i) issue or sell any of its
securities of any kind, (ii) register any of its securities for sale under the
Act or any state securities law or (iii) grant to any Persons the right to
request or require the Company to register any equity securities of the
Company, or any securities convertible or exchangeable into or exercisable for
such securities, without the prior written consent of the holders of a majority
of Registrable Securities; provided that the Company may grant rights to other
Persons to (i) participate in Piggyback Registrations so long as such rights
are subordinate to the rights of the holders of Registrable Securities with
respect to such Piggyback Registrations and (ii) request registrations so long
as the holders of Registrable Securities are entitled to participate in any
such registrations with such Persons pro rata on the basis of the number of
shares owned by each such holder and any such registration is subject to the
approval of the holders of a majority of the Registrable Securities.
10. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to
register any of its securities under the Act (other than pursuant to a
registration hereunder) as permitted by Section 9 and the registration
form to be used may be used for the registration of Registrable
Securities (a "Piggyback Registration"), the Company will give prompt
written notice to all holders of Registrable Securities of its
intention to effect such a registration at least thirty (30) days
prior to the anticipated filing date of the registration statement
relating to such registration. Such notice will offer the holders of
Registrable Securities the opportunity to include in such registration
statement such Registrable Securities as each holder may request in
writing within twenty (20) days after the receipt of the Company's
notice. Except as provided in paragraphs 10(c), 10(d) and 10(e) below,
the Company shall include in any such registration statement all such
Registrable Securities requested to be included.
(b) Piggyback Expenses. The Registration Expenses of the
holders of Registrable Securities will be paid by the Company in all
Piggyback Registrations.
(c) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the
Company, and the managing underwriters advise the Company in writing
that in their opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in
such offering without adversely affecting the marketability of the
offering, the Company will include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Registrable
Securities requested to
Page 8 of 13
<PAGE> 87
be included in such registration and (iii) third, other
securities requested to be included in such registration.
(d) Priority on Secondary Registrations. Except as
otherwise provided in Section 8 hereof, if a Piggyback Registration is
an underwritten primary registration other than on behalf of the
Company, and the managing underwriters advise the Company in writing
that in their opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in
such offering without adversely affecting the marketability of the
offering, the Company will include in such registration the securities
requested to be included in such registration reduced pro rata in
accordance with the original number of securities requested to be
included.
(e) Withdrawal by Company. If, at any time after giving
written notice of its intention to register any of its securities as
set forth in Section 10(a) and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such
securities, the Company may, at its election, given written notice of
such determination to each holder of Registrable Securities and
thereupon shall be relieved of its obligation to register any
Registrable Securities in connection with such registration (but not
from its obligation to pay the Registration Expenses in connection
therewith as provided herein).
11. Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
Section 2 or Section 10, and if such previous registration has not been
withdrawn or abandoned, the Company will not file or cause to be effected any
other registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Act
(except on Form S-8 or any successor form), whether on its own behalf or at the
request of any holder or holders of such securities, until a period of at least
nine (9) months has elapsed from the effective date of such previous
registration, unless a shorter period of time is approved by the holders of a
majority of Registrable Securities included in such registration.
12. Holdback Agreements. Notwithstanding the provisions of
Section 9, the Company agrees (i) not to effect any public sale or distribution
of its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the thirty (30) days prior to and during
the 270-day period beginning on the effective date of any underwritten
registration hereunder or any underwritten Piggyback Registration (except as
part of such underwritten registration or pursuant to registrations on Form S-8
or any successor form), unless the underwriters managing the registered public
offering otherwise agree, and (ii) to cause each holder of at least 5% (on a
fully-diluted basis) of its Common Stock, or any securities convertible into or
exchangeable or exercisable for Common Stock, purchased from the Company at any
time after the date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale or distribution (including
sales pursuant to Rule 144) of any such securities during such period (except as
part of such underwritten registration, if otherwise permitted), unless the
underwriters managing the registered public offering otherwise agree.
Page 9 of 13
<PAGE> 88
13. Creditor Standstill. During the 270-day period beginning on
the effective date of any underwritten registration pursuant to Section 2
hereof, the Stockholders shall not make any demands for registration pursuant
to Section 2 hereof. During the 180-day period beginning on the effective date
of any underwritten registration pursuant to Section 2 of the Other
Registration Agreement, the Stockholders shall not make any demand for
registration pursuant to Section 2 hereof.
14. Stock Legends. When and to the extent permitted by the Act,
the Company shall provide to the holders of Registrable Securities, at no cost
or expense to such holders, equivalent stock certificates without restrictive
legends of any kind to evidence that their shares of the Company's Common Stock
are not restricted securities under the Act.
15. Current Public Information. The Company shall use its best
efforts to file the reports required to be filed by it under the Act and the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder, (or, if the Company is not required to file such
reports, it shall, upon the request of the holders of a majority of the
Registrable Securities, use its best efforts to make publicly available
sufficient information, for so long as necessary, to permit sales under Rule
144 under the Act), and it shall use its best efforts to take such further
action as the holders of a majority of the Registrable Securities may
reasonably request, all to the extent required from time to time to enable the
holders of a majority of the Registrable Securities to sell the Registrable
Securities, without registration under the Act within the limitation of the
exemptions provided by (a) Rule 144 under the Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the SEC. Upon the request of the holders of a majority of the Registrable
Securities, the Company will deliver to the holders of a majority of the
Registrable Securities a written statement as to whether it has complied with
such requirements.
16. Miscellaneous.
(a) Remedies. Any person having rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically, to recover damages caused by reason of any breach of any
provision of this Agreement and to exercise all other rights granted
by law.
(b) Amendments and Waivers. The Company may agree to an
amendment of the provisions of this Agreement and the Company may take
any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the
written consent of holders of at least a majority of the Registrable
Securities.
(c) Successors and Assigns. All covenants and agreements
in this Agreement by or on behalf of any of the Parties shall bind and
inure to the benefit of the respective successors and assigns of the
Parties whether so expressed or not.
(d) Notices. Any notice provided for in this Agreement
must be in writing and must be either personally delivered or by
courier against written acknowledgment of receipt or mailed by
registered mail, postage prepaid and return receipt requested, to the
Company at Princeton Dental Management Corporation, 2358 Hassell Road,
Hoffman Estates, Illinois 60195, and to the Stockholders at their
respective business addresses provided by the Stockholders in the
Purchase Agreement, or, if changed by a Stockholder hereafter by
notice from such Stockholder
Page 10 of 13
<PAGE> 89
to the Company in accordance with the provisions set forth
herein, at said new address provided by such Stockholder to the
Company. Notice pursuant to this Section shall be deemed received on
the date of delivery to the party receiving such notice as evidenced
by the date set forth on the receipt signed by the party receiving
such notice.
(e) Governing Law. All questions concerning the
construction, validity and interpretation of this Agreement will be
governed and controlled by the laws of the State of Illinois as to
interpretation, enforcement, validity, construction, effect, choice of
law, without giving effect to principles of conflicts of laws, and in
all other respects. The Parties agree that all actions and proceedings
in any way, manner or respect arising out of or from or related to
this Agreement shall be litigated in courts having situs within the
County of Cook, State of Illinois, and the Parties hereby covenant and
submit to the jurisdiction of any local, state or federal court
located within said county and state.
(f) Severability. If any provision of this Agreement
is held to be invalid, illegal or unenforceable in any respect under
applicable jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision, but this
Agreement will be deemed reformed, construed and enforced as if such
invalid, illegal or unenforceable provision had never been contained
herein.
(g) Authorization. Those persons signing on behalf of
the Company have been duly authorized by the Company to execute this
Agreement, and any related agreements between the Company and the
Stockholders, the signatures of the undersigned are binding upon the
Company, and their execution of this Agreement does not constitute a
breach of any existing agreement to which the Company is a party.
(h) Entire Agreement and Modification. The Company and
the Stockholders hereby represent and warrant that, except for the
provisions of the Purchase Agreement and the Warrants (all of which
are hereby incorporated herein and made a part hereof by these
references thereto) this Agreement is intended to and does contain and
embody all of the understandings and agreements, both written and
oral, of the Parties with respect to the subject matter of this
Agreement, and that there exists no oral agreement or understanding,
express or implied, whereby the absolute, final and unconditional
character and nature of this Agreement shall be in any way
invalidated, empowered or affected. A modification or waiver of any
of the terms, conditions or provisions of this Agreement shall be
effective only if made in writing and executed with the same formality
as this Agreement.
[END OF TEXT THIS PAGE]
Page 11 of 13
<PAGE> 90
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
day and year first above written.
_______________________________________
Frank Leonard Laport
Beverly Trust Company, as Custodian of
the Frank Leonard Laport Rollover
Individual Retirement Account Number
75-49990
By: _______________________________
Name: _______________________________
Title: _______________________________
Amsterdam Equities Limited
By: _______________________________
Name: _______________________________
Title: _______________________________
Princeton Dental Management Corporation,
a Delaware Corporation
By: _______________________________
Name: Charles Mitchell, D.D.S.
Title: President and CEO
Page 12 of 13
<PAGE> 91
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, ___________________________________, a Notary Public in and for the
County and State aforesaid, do hereby certify that Charles Mitchell, D.D.S.,
personally known to me to be the President and Chief Executive Officer of
Princeton Dental Management Corporation, a Delaware corporation, appeared
before me this day in person and acknowledged that as such officer he signed
and delivered such instrument as his free and voluntary act and with due
authorization, and as the free and voluntary act of the Company, for the uses
and purposes herein set forth.
Given under my hand and seal this 22nd day of April, 1996.
SEAL:
_____________________________________
NOTARY PUBLIC
My commission expires _____________.
STATE OF ILLINOIS)
) SS
COUNTY OF COOK )
I, ___________________________________, a Notary Public in and for the
County and State aforesaid, do hereby certify that _________________,
personally known to me to be the Secretary of Princeton Dental Management
Corporation, a Delaware corporation, appeared before me this day in person and
acknowledged that as such officer he signed and delivered such instrument as
his free and voluntary act and with due authorization, and as the free and
voluntary act of the Company, for the uses and purposes herein set forth.
Given under my hand and seal this 22nd day of April, 1996.
SEAL:
_____________________________________
NOTARY PUBLIC
My commission expires _____________.
Page 13 of 13
<PAGE> 92
EXHIBIT A
COLLATERAL DOCUMENTS
DEFINITIONS
DEFINITIONS PARTY
Group The Investor Group
PDMC Princeton Dental Management
Corporation, a Delaware
corporation
Mason Midwest Mason Dental Midwest, Inc.,
a Michigan corporation and a
wholly-owned subsidiary of
PDMC
Mason Southeast Mason Dental Southeast,
Inc., a Florida corporation
and a wholly- owned
subsidiary of PDMC
Midwest Princeton Medical Management
Midwest, Inc., a Michigan
corporation and a
wholly-owned subsidiary of
PDMC
Northeast Princeton Medical
Management Northeast, Inc., a
Pennsylvania corporation and
a wholly-owned subsidiary of
PDMC
Southeast Princeton Medical
Management Southeast, Inc., a
Florida corporation and a
wholly-owned subsidiary of
PDMC
1. Stock Pledge Agreements dated 1/13/95 pledging stock in each of Mason
Midwest, Mason Southeast, Midwest Northeast, and Southeast by PDMC
2. Secured Revolving Demand Note with Allonge dated 1/27/95 and Amendment
dated 3/9/95
3. General Business Security Agreement between PDMC and the Group dated
1/13/95
4. Assignment separate from certificate executed in blank by PDMC
for stock in Mason Midwest
Page 1 of 5
<PAGE> 93
5. Assignment separate from certificate executed in blank by PDMC for
stock in Mason Southeast
6. Assignment separate from certificate executed in blank by PDMC for
stock in Midwest
7. Assignment separate from certificate executed in blank by PDMC for
stock in Northeast
8. Assignment separate from certificate executed in blank by PDMC for
stock in Southeast
9. General Business Security Agreements in favor of the Group securing
the Secured Revolving Demand Note by Mason Midwest dated 1/13/95
10. General Business Security Agreements in favor of the Group securing
the Secured Revolving Demand Note by Mason Southeast dated 1/13/95
11. Collateral Assignment of Rights under Acquisition Agreement by PDMC to
the Group dated 1/13/95
12. Collateral Assignment of Rights under Management Agreement by each of
Midwest dated 1/13/95
13. Collateral Assignment of Rights under Management Agreement by each of
Southeast (2) dated 1/13/95
14. Collateral Assignment of Rights under Acquisition Agreement by each of
Midwest dated 1/13/95
15. Collateral Assignment of Rights under Management Agreement by each of
Northeast dated 1/13/95
16. Consent to Collateral Assignment of Contract Rights by PDMC dated
1/13/95
17. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by Fairfield Dental Center, P.A. dated 1/13/95
18. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by Florida Dental Team, P.A. dated 1/13/95
19. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by Amdent, P.C. dated 12/__/94
20. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by C.D. Nunnelley D.D.S. & Associates, Inc.
Page 2 of 5
<PAGE> 94
21. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by Clement W. Barfield D.D.S.
22. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by Philip A. Payne, D.D.S.
23. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by Dental Laser Center of the Palm Beaches, Inc.
24. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by The Dental Team of Boca Raton, Inc.
25. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by The Dental Team of Boynton Beach, Inc.
26. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by The Dental Team of Coral Springs, Inc.
27. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by The Dental Team of Deerfield Beach, Inc.
28. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by The Dental Team of Delray Beach, Inc.
29. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by The Dental Team of Pompano Beach, Inc.
30. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by Palm Beach Dental Services, Inc.
31. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by PBD Supply, Inc.
32. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by Pompano Square Dental Lab, Inc.
33. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by Jerry I. Bratman, D.D.S. dated 12/__/94
34. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by Theodore M. Strauss, D.D.S. dated 12/__/94
Page 3 of 5
<PAGE> 95
35. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by Richard J. Staller, D.D.S. dated 1/13/95
36. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by Glenn C. Lehr, D.D.S. dated 12/__/94
37. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by Laurence S. Baluch dated 12/31/95
38. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by Lawrence D. Kunze dated 12/31/95
39. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by Gary A. Lockwood dated 12/31/95
40. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by Donnel M. Dickerson dated 12/31/94
41. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by The Island Group dated 12/31/94
42. Consent to the Collateral Assignment of Rights of the Assigned
Agreement by Century Dental Center, I, P.C. dated 1/13/95
43. Consent of Director authorizing the transaction and the documents to
be entered into in connection therewith by PDMC
44. Consent of Director authorizing the transaction and the documents to
be entered into in connection therewith by Mason Midwest
45. Consent of Director authorizing the transaction and the documents to
be entered into in connection therewith by Mason Southeast
46. Consent of Director authorizing the transaction and the documents to
be entered into in connection therewith by Midwest
47. Consent of Director authorizing the transaction and the documents to
be entered into in connection therewith by Northeast
48. Consent of Director authorizing the transaction and the documents to
be entered into in connection therewith by Southeast
Page 4 of 5
<PAGE> 96
49. UCC-1 Financing Statement securing the Group's security interest in
PDMC assets filed 5/16/95
50. Filing Interim PDMC UCC's - 5/15/95 (not filed)
51. UCC-1 Financing Statements perfecting the Group's security interest in
the assets of Mason Midwest filed 5/16/95
52. UCC-1 Financing Statements perfecting the Group's security interest in
the assets of Mason Southeast filed 5/16/95
53. UCC-1 Financing Statements securing the Group's security interest in
the Assignments by Midwest filed 5/16/95
54. UCC-1 Financing Statements securing the Group's security interest in
the Assignments by Northeast (not filed)
55. UCC-1 Financing Statements securing the Group's security interest in
the Assignments by Southeast (not filed)
Page 5 of 5
<PAGE> 1
EXHIBIT 10.9 OF FORM 10-QSB
CONVERTIBLE DEBT AGREEMENT
Dated as of April 22, 1996
between
Princeton Dental Management Corporation
as Borrower
and
Amsterdam Equities Limited
as Lender
Page 1 of 56
<PAGE> 2
CONVERTIBLE DEBT AGREEMENT
This CONVERTIBLE DEBT AGREEMENT, inclusive of schedules, exhibits and
other attachments (the "Agreement"), consists of 57 pages and is made and
entered into this 22nd day of April, 1996 between PRINCETON DENTAL MANAGEMENT
CORPORATION, a Delaware corporation (the "Borrower"), as borrower; and
Amsterdam Equities Limited (the "Lender"), as Lender.
R E C I T A L S:
WHEREAS, Borrower and an Affiliate (any defined terms used in this
Agreement shall have the meanings assigned to them or referred to in Section
1.2 of this Agreement) of the Lender previously entered into a Letter of
Agreement dated December 7, 1994 (referred to herein as the "Letter of
Agreement"), which provided, subject to the terms and conditions thereof, for
the extension of credit by the Lender or its Affiliates to Borrower;
WHEREAS, pursuant to that certain Secured Revolving Demand Note dated
as of January 27, 1995 (the "Secured Revolving Demand Note"), Lender extended
credit to Borrower and its Subsidiaries on an interim demand basis and Borrower
and its Subsidiaries executed various collateral documents listed on Exhibit A
hereto (the "Collateral Documents") that secured such indebtedness and the
obligations of Borrower under the Letter of Agreement by the grant of a
security interest in the assets of Borrower and its Subsidiaries and in the
capital stock of the Subsidiaries owned by Borrower; and
WHEREAS, Borrower and Lender desire to enter into this Agreement and
the other Loan Documents in order to further document the transactions
contemplated under the Letter of Agreement, to confirm that the obligations
provided for in this Agreement and the other Loan Documents are secured by the
grants of security provided for in the Collateral Documents, and to amend and
restate the Security Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, Lender and Borrower
hereby agree as follows:
ARTICLE I
GENERAL; DEFINITIONS
Page 2 of 56
<PAGE> 3
1.1. Recitals. The parties hereto adopt the foregoing Recitals and
agree and affirm that construction of this Agreement shall be guided thereby.
1.2. Certain Definitions. In addition to the terms defined
elsewhere in this Agreement, the following terms shall have the meanings
indicated for purposes of this Agreement:
Affiliate as applied to any Person means (a) any other Person
directly or indirectly controlling, controlled by, or under
common control with, that Person (a "Controlled Affiliate") or
(b) any other Person that owns or controls 5% or more of any
class of equity securities of that Person. For the purposes
of this definition, "control" (including with correlative
meanings, the terms "controlling," "controlled by," and "under
common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that
Person, whether through the ownership of voting securities or
by contract or otherwise. Notwithstanding the foregoing, the
holders of the Convertible Secured Notes or their affiliates
shall not be deemed to be Affiliates of Borrower for purposes
of this Agreement solely by virtue of their ownership of
Convertible Secured Notes.
Agent means a bank, trust company, title company or law firm
designated by Lender by written notice to Borrower, who shall
act as escrow agent under the terms of this Agreement.
Agreement is defined in the Preamble.
Amsterdam Warrant No. 1 means a Warrant to Purchase up to
3,588,750 Unregistered Shares of Common Stock in the form
attached hereto as Exhibit K, dated the Closing Date and
issued in the name of Lender.
Amsterdam Warrant No. 2 means that certain Warrant to Purchase
up to 268,125 unregistered Shares of even date herewith
executed and delivered by the Borrower to Lender.
Assignees are defined in Section 11.1.1.
Assignment is defined in Section 11.1.1.
Authorized Representative means the President of
Borrower or such other officers of Borrower as are designated
in writing by Borrower to the Lender.
Blue Sky Laws is defined in Section 6.21.
Page 3 of 56
<PAGE> 4
Borrower is defined in the Preamble.
Borrower Transaction Documents shall mean the agreements
listed on Exhibit G hereto.
Business Day means any day other than a Saturday, Sunday,
holiday or other day on which banking institutions in Chicago,
Illinois or the Bahamas are authorized or required by law to
close or are otherwise closed.
Call is defined in Section 10.1.
Call Price is defined in Section 10.4.
Called Debt is defined in Section 10.1.
Capital Lease Obligation means, with respect to any Person,
the obligations of such Person under a lease of property
which, in accordance with GAAP, should be capitalized on the
lessee's balance sheet where such Person is the lessee.
Certificate of Designation means the Certificate of
Designation of Series B Preferred Stock of Borrower in the
form attached hereto as Exhibit H.
Closing Date means the date hereof.
Code means the Internal Revenue Code of 1986 (or any successor
legislation thereto), as amended from time to time.
Collateral means all of the property and interests in property
described in the Security Agreement, and all other properties
and interests in properties which shall, from time to time,
secure payment, observance or performance of any part of the
Liabilities.
Contingent Liability means any agreement, undertaking or
arrangement by which any Person guarantees, endorses or
otherwise becomes or is contingently liable (by direct or
indirect agreement, contingent or otherwise) to provide
funds for payment, to supply funds to, or otherwise to invest
in a debtor or otherwise to assure a creditor against loss,
the debt, obligation or other liability of any other Person
(other than by endorsements of instruments in the course of
collection), or for the payment of dividends or other
distributions upon the shares of any other Person or
undertakes or agrees (contingently or otherwise) to purchase,
repurchase, or otherwise acquire or become responsible for any
Indebtedness, obligation or liability or any security
therefor, or to provide funds for the
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<PAGE> 5
payment or discharge thereof (whether in form of loans, advances,
stock purchases, capital contributions or otherwise), or to maintain
solvency, assets, level of income, or other financial condition of any
other Person, or to make payment or transfer property to any other
Person other than for value received. The amount of any Person's
obligation under any Contingent Liability shall be deemed to be the
outstanding principal amount (or maximum permitted principal amount,
if larger) of the debt, obligation or other liability guaranteed or
supported thereby.
Controlled Affiliate has the meaning set forth under clause
(a) of the definition of Affiliate set forth above.
Conversion Date has the meaning set forth in Section 3.1.1(e).
Convertible Loan has the meaning set forth in Section 2.1.
Convertible Secured Notes mean a convertible secured note of
Borrower substantially in the form of Exhibit B hereto delivered by
Borrower to Lender pursuant to Section 2.1 hereof and any convertible
secured notes issued upon transfer and reissue thereof pursuant to the
terms of this Agreement by Lender (each herein, as the same may be
amended, restated, modified or supplemented, from time to time, and
together with any renewals thereof and exchanges or substitutions
therefor).
Default means any Event of Default or Unmatured Event of Default.
Default Rate means at any time (a) the greater of (i) twenty-one and
seventy-five one- hundredths percent (21.75%) and (ii) eleven and
seventy-five one-hundredths percent (11.75%) over the then current
Prime Rate, computed on the basis of a three hundred and sixty (360)
day year based on the actual number of days elapsed, plus (b) an
amount sufficient to pay all U.S. withholding taxes, if any, payable
in respect of such interest (including the portion thereof payable
under this clause (b)), but in no event higher than the highest rate
of interest per annum permitted by law for a loan of the nature of
that being made hereunder.
ERISA means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any successor statute.
ERISA Affiliate means any corporation, partnership, trade or
business or other entity which is a member of the same controlled
group as Borrower, under common control with Borrower, a member of the
same affiliated service group or otherwise treated as a single
employer or required to be
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<PAGE> 6
aggregated with Borrower under Section 414(b), (c), (m), (n), or (o)
of the Code.
Event of Default has the meaning specified in Section 9.1.
Existing Group Indebtedness means the Existing Amsterdam
Indebtedness, the Existing Kessler Indebtedness and the Existing
Laport Indebtedness.
Existing Kessler Indebtedness means the amount defined as
Existing Kessler Indebtedness under the Preferred Stock Purchase
Agreement.
Existing Laport Indebtedness means the amount defined as
Existing Laport Indebtedness under the Preferred Stock Purchase
Agreement.
Existing Amsterdam Indebtedness means Lender's portion of the Reg D
Indebtedness and all Indebtedness due to Lender under the Letter of
Agreement, including all principal and interest due under the Secured
Revolving Demand Note.
Final Maturity Date means the earlier of (i) the date on which the
Liabilities are paid in full and this Agreement has terminated
pursuant to its terms or (ii) the date on which all of the Convertible
Secured Notes have been converted to Shares.
FLL Warrant means that certain Warrant to purchase up to 134,063
unregistered Shares of even date herewith executed and delivered by
the Borrower to Frank Leonard Laport.
Fully Diluted Shares means the total number of Shares, calculated on a
fully diluted basis, as though all warrants, stock options, rights
under stock benefit plans, securities convertible or exchangeable
into Shares or other securities of Borrower or other similar rights to
acquire Shares or other securities in Borrower had been exercised,
including, without limitation, all Shares issuable upon conversion of
the Convertible Secured Notes, the Preferred Stock, the Amsterdam
Warrant No. 2, the FLL Warrant, the Laport Warrant and the Amsterdam
Warrant No. 1; provided, however, that when used to determine the
number of Shares into which the Convertible Secured Notes and the
Preferred Stock are being converted at a particular time, the term
Fully Diluted Shares shall include, with respect to the Shares
issuable upon conversion of the Convertible Secured Notes and the
Preferred Stock, only those Shares into which the Convertible Secured
Notes and the Preferred Stock are then being converted.
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<PAGE> 7
GAAP means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such
other statements by such other entity as may be approved by
significant segments of the accounting profession, applied on basis
consistent with prior years or periods.
Governmental Authority means any federal, state, local, foreign
(including Bahamian) or other governmental administrative body,
instrumentality, department, agency, court, tribunal, administrative
hearing body, arbitration panel, commission or other similar
dispute-resolving panel or body.
IRS means the United States Internal Revenue Service.
Indebtedness means, with respect to any Person, without duplication,
(a) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (including, without
limitation, all obligations, contingent or otherwise, of such Person
in connection with any letters of credit, letter of credit facilities,
acceptance facilities, or other similar facilities) but
excluding trade payables that are incurred in the ordinary course of
business, (b) all Interest Rate Protection Obligations of such Person,
(c) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, (d) all indebtedness created
or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale
of such property), (e) all Capital Lease Obligations of such Person,
(f) all indebtedness of the type referred to in clause (a), (b), (c),
(d) or (e) above secured by (or for which the holder of such
indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien upon or in property (including, without
limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of
such indebtedness, (g) all Indebtedness of others guaranteed by such
Person, and (h) all accrued but unpaid interest on the foregoing types
of Indebtedness.
Indemnified Party has the meaning specified in Section 13.4.2.
Initial Convertible Secured Note means a convertible secured note of
Borrower substantially in the form of Exhibit B hereto delivered by
Borrower to Lender pursuant to Section 2.2 hereof.
Initial Principal Amount has the meaning specified in Section 2.2.
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<PAGE> 8
Interest Rate Protection Obligations means, with respect to any
Person, the obligations of such Person pursuant to any interest rate
swap agreement, interest rate collar agreement or other similar
arrangement whereby, directly or indirectly, such Person intends to
protect itself or any of its Affiliates against fluctuations in
interest rates.
Laport Warrant means that certain Warrant to Purchase up to
134,062 unregistered Shares of even date herewith executed and
delivered by Borrower to Beverly Trust Company, as Custodian of the
Frank Leonard Laport Rollover Individual Retirement Account Number
75-49990.
Lender is defined in the Preamble and includes all Assignees and
Participants under Article XI hereof.
Letter of Agreement is defined in the Preamble.
Liabilities means all obligations, liabilities and indebtedness of
Borrower to Lender, howsoever created, arising or evidenced, whether
direct or indirect, absolute or contingent, primary or
secondary, joint or several, recourse or non-recourse or now or
hereafter existing or due or to become due, whether for principal,
interest, fees, expenses, lease obligations, indemnities or otherwise,
under or in connection with the Letter of Agreement, this Agreement,
the Convertible Secured Notes and the other Loan Documents (including
interest accruing on or after the occurrence of any event, or
institution of any proceeding, described in Section 9.1.6, whether or
not allowed in such proceeding).
Liens means, with respect to any Person, any interest in real or
personal property, asset or other right held, owned or being purchased
or acquired by such Person for its own use, consumption or
enjoyment which secures payment, observance or performance of any
obligation and shall include any mortgage, lien, pledge, charge,
claim, security interest, encumbrance, retained title of conditional
vendor or lessor or any other security agreement, mortgage, deed of
trust, chattel mortgage, assignment, pledge, retention of title
financing or similar statement or notice, or arising as a matter of
law, judicial process or otherwise.
Loan Documents means all security documents and all written
agreements, instruments and documents, including, without
limitation, notes, guaranties, warrants, mortgages, deeds of trust,
chattel mortgages, pledges, powers of attorney, consents, assignments,
contracts, notices, security agreements, leases, financing statements,
subordination agreements, trust account agreements and all other
written matter whether heretofore, now, or hereafter executed by or on
behalf of Borrower, its Subsidiaries or any other Person or delivered
to
Page 8 of 56
<PAGE> 9
Lender or any Assignee or Participant with respect to this Agreement
or any such agreement or document or the transactions contemplated
hereby or thereby, including, without limitation, the Collateral
Documents, the Warrant, the Preferred Stock Warrant, the Certificate
of Designations and the Registration Agreement, and the Letter of
Agreement, in each case as amended, modified, supplemented or restated
from time to time and in effect.
Margin Stock means "margin stock" as such term is defined in
Regulation U in of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
Material Adverse Effect means a material adverse effect on or change
in the business, operations, prospects, condition (financial or
otherwise), properties or assets of Borrower or any of its
Subsidiaries, or on Borrower's ability to fully pay principal and
interest when due on the Convertible Secured Notes or to be able to
effect the conversion of the Convertible Secured Notes into Shares
pursuant to Article 3 or on the ability of the Lender to enforce or
collect any Liabilities.
Maturity Date means the day which is the seventh anniversary of the
Closing Date.
Multiemployer Plan means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which either Borrower or any ERISA
Affiliate is making, or is obligated to make, contributions, or within
the immediately preceding six (6) years was making or had been
obligated to make contributions, or with respect to which Borrower or
any ERISA Affiliate otherwise has (or could have) any Liability.
Non-U.S. Person means a Person other than a U.S. Person.
Participant is defined in Section 11.2.1.
Participation is defined in Section 11.2.1.
Payment Default means any default in the payment of principal of or
interest on or with respect to the agreements with respect to
Indebtedness beyond the applicable grace period, if any, with respect
thereto.
Payment Event of Default means the occurrence of any of the events
specified in Section 9.1.1.
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<PAGE> 10
Permitted Liens means (1) Liens for taxes, assessments or
governmental charges or claims the payment of which is not at the time
required by Section 8.1.5; (2) statutory Liens of landlords and Liens
of carriers, warehousemen, mechanics, materialmen and other Liens
imposed by law incurred in the ordinary course of business for sums
not yet delinquent or being contested in good faith, if such reserve
or other appropriate provision, if any, as shall be required by GAAP
shall have been made therefor; (3) Liens or deposits (other than any
Lien imposed by ERISA) not exceeding $25,000.00 in the aggregate as to
Borrower and its Subsidiaries incurred or made in the ordinary course
of business in connection with workers' compensation, unemployment
insurance and other types of social security, or to secure the
performance of tenders, statutory obligations, bids, leases,
government contracts, performance, surety and return-of-money bonds
and other similar obligations (exclusive of obligations for the
payment of borrowed money); (4) easements, rights-of-way,
restrictions, minor defects or irregularities in title and other
similar charges or encumbrances on real property and improvements
owned by Borrower or its Subsidiaries not interfering in any material
respect with the ordinary conduct of the business of Borrower or its
Subsidiaries, or with the use of any such property or improvements;
(5) purchase money mortgages or other purchase money liens or security
interests (and extensions thereof) not exceeding $25,000.00 in the
aggregate as to Borrower and its Subsidiaries granted by Borrower or
its Subsidiaries upon any fixed or capital assets hereafter acquired
or constructed, so long as (a) any such mortgage, lien or security
interest does not extend to or cover any other asset of Borrower or
its Subsidiaries, and (b) such security interest, mortgage or lien
secures the obligation to pay the purchase price of such asset only;
and (6) Liens with respect to the Indebtedness described on Schedule
6.26.
Person means an individual, partnership, corporation (including
business trust), limited liability company, joint stock company,
trust, unincorporated association, financial institution, joint
venture or other entity, or a government or any political subdivision
or agency thereof.
Plan means an employee benefit plan defined in Section 3(2) of ERISA
(including a Multi-employer Plan) in respect of which Borrower or any
ERISA Affiliate is, or within the immediately preceding six (6) years
was, an "employer" as defined in Section 3(5) of ERISA or with respect
to which Borrower or any ERISA Affiliate otherwise has (or could have)
any Liability.
Preferred Stock Purchase Agreement means that certain Preferred Stock
Purchase Agreement of even date herewith between Frank Leonard Laport,
Beverly Trust Company, as Custodian of the Frank Leonard Laport
Rollover Individual Retirement Account Number 75-49990 and Lender.
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<PAGE> 11
Preferred Stock means the convertible preferred stock issued under
the Preferred Stock Purchase Agreement.
Preferred Stock Warrant means a Warrant to Purchase 100 Unregistered
Stock of Series B Preferred Stock of Borrower in the form
attached hereto as Exhibit I, dated the Closing Date and issued in the
name of Lender.
Prime Rate for each calendar quarter means that rate of
interest published as the prime rate in the Chicago Tribune, the
Investors Business Daily or the Wall Street Journal on the last
publication date immediately preceding the first day of such calendar
quarter, and if such rate of interest is not the same in all such
publications, or is not published in all such publications, the
highest of such interest rates.
Reg D Indebtedness means the $200,000.00 owed by Borrower to
Lender pursuant to the Reg D Redemption Documents.
Reg D Redemption Documents means the documents necessary to purchase
and redeem all Shares and warrants to purchase Shares issued pursuant
to the private placement by Borrower dated August 15, 1994.
Registration Agreement shall mean that certain Registration
Agreement of even date herewith between Lender and Borrower which
entitles Lender to require registration of Shares which it obtains
pursuant to the Warrant or the Convertible Secured Notes.
Requirement of Law means, as to any Person, any law, rule or
regulation, or order, decree or other determination of an
arbitrator or a court or other Governmental Authority, including,
without limitation, the requirements of federal, state or local
environmental laws, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its
property is subject.
Secured Revolving Demand Note has the meaning set forth in the
Preamble.
Security Agreement means the Restated and Amended Security
Agreement referred to in Section 5.1.
Securities Act has the meaning specified in Section 6.21.
Senior Management Settlement Agreements means the settlement
agreements with Terry D. Gingle, Vicki Gingle and Oscar L. Hausdorff.
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<PAGE> 12
Shares means the issued and outstanding shares of common stock of
Borrower.
Sole and Exclusive Discretion means the sole and exclusive
discretion of the Lender, whether or not unreasonable.
Solvent means, with respect to any Person on a particular date,
that on such date (a) the fair value of the property of such Person is
greater than the total amount of liabilities, including, without
limitation, Contingent Liabilities, of such Person, (b) the present
fair salable value of the assets of such Person is not less than the
amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured, (c) such
Person is able to realize upon its assets and pay its debts and other
liabilities, Contingent Liabilities and other commitments as they
mature in the normal course of business, (d) such Person does not
intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and
liabilities mature, and (e) such Person is not engaged in business or
a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to the
prevailing practice in the industry in which such Person is engaged.
In computing the amount of Contingent Liabilities of any Person at any
time, it is intended that such liabilities will be computed at the
amount that, in light of all the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to
become an actual and matured liability.
Stated Rate means at any time (a) the greater of (i) eleven and
seventy-five one-hundredths percent (11.75%) or (ii) one and
seventy-five one-hundredths percent (1.75%) over the then current
Prime Rate, computed on the basis of a three hundred and sixty (360)
day year based on the actual number of days elapsed, plus (b) an
amount sufficient to pay all withholding taxes, if any, payable to any
governmental authority of the United States or any state or territory
thereof in respect of such interest by reason of the holder's status
as a Non-U.S. Person (including the portion thereof payable under this
clause (b), but in no event higher than the highest rate of interest
permitted by law for a loan of the nature of that being made
hereunder.
Subsidiary of any Person means any corporation of which more than 50%
of the outstanding capital stock having ordinary voting power to elect
a majority of the Board of Directors of such corporation
(irrespective of whether at the time stock of any other class or
classes of such corporation shall or might have voting power upon the
occurrence of any contingency) is at the time directly or indirectly
owned by such Person, by such Person and one or more of such Person's
other Subsidiaries or by one or more of such Person's other
Subsidiaries.
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<PAGE> 13
Total Convertible Amount is defined in Section 3.1.1.
Unmatured Event of Default means any condition or event which,
after notice or lapse of time or both, would constitute an Event of
Default.
U.S. Person means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or
under the laws of the United States or any State and an estate or
trust the income of which is subject to United States federal income
tax regardless of its source.
Welfare Planmeans an "employee welfare benefit plan," as such term is
defined in Section 3(1) of ERISA.
Wire Transfer Instructions is defined in Section 2.1.
1.3. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all financial
statements required to be delivered hereunder shall be prepared in accordance
with GAAP.
1.4. Computation of Time Periods. In this Agreement, in the
computation of a period of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each means "to but excluding."
1.5. Currency. All sums of money referred to in this Agreement are
stated in United States dollars.
ARTICLE II
CREDIT; GENERAL TERMS
2.1. Convertible Loan Facility. Provided there does not then exist
a Default hereunder, and subject to the terms and conditions of this Agreement,
including, without limitation, the provisions of Section 2.3 hereof, the Lender
shall, up to and including the Business Day before the Maturity Date, upon
Borrower's request made in the manner set forth in Section 2.3.1 hereof,
advance to Borrower as a convertible secured loan (the "Convertible Loan") an
aggregate amount equal to the lesser of (a) Thirteen Million Fifty Thousand and
00/100 dollars ($13,050,000.00), and (b) such lesser amount as Lender
determines to lend in its Sole and Exclusive Discretion (the "Maximum
Facility"). Each advance shall be in an amount of not less than $50,000.00.
Concurrently with each such request, Borrower shall request that the
purchaser(s) under the Preferred Stock Purchase Agreement purchase Preferred
Stock having a purchase price equal to 14.94253% of the amount requested under
this
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<PAGE> 14
Agreement, and if Borrower fails to so request such amount, such request shall
be automatically deemed to be made by Borrower under the Preferred Stock
Purchase Agreement. Each request by Borrower and each advance by Lender under
this Section 2.1 shall only be made upon the satisfaction of all the conditions
contained in this Agreement and shall be paid by wire transfer of immediately
available funds, in such account or accounts as Borrower may, from time to
time, designate in a notice to be delivered to Lender no later than seven (7)
Business Days prior to its effectiveness (the "Wire Transfer Instructions");
provided, however, that the making of an advance hereunder shall not be deemed
to be an acknowledgment by Lender that any of the conditions contained in this
Agreement have been satisfied. The indebtedness of Borrower pursuant
to each advance under this Section 2.1 shall be evidenced by a Convertible
Secured Note in form attached hereto as Exhibit B, with appropriate insertions,
dated the Closing Date and payable to the order of the Lender in the principal
amount of Thirteen Million Fifty Thousand and 00/100 dollars ($13,050,000.00).
The date and amount of each advance made by the Lender to Borrower and of each
repayment of principal thereon received by the Lender shall be recorded by the
Lender in its records. The aggregate unpaid principal amount so recorded shall
be presumptive evidence of the Principal amount owing and unpaid on such
Convertible Secure Note subject only to manifest error. The failure so to
record any such amount or any error in so recording any such amount, however,
shall not limit or otherwise affect Borrower's obligations hereunder or under
any Convertible Secured Note to repay the principal amount of the Convertible
Loan made to or for the account of such Borrower, together with all interest
accruing thereon. The Convertible Loan shall be due and payable upon the
earlier of (A) the Maturity Date and (B) the acceleration of the liabilities.
Borrower agrees that if at any time the Indebtedness under the Convertible Loan
exceeds the Maximum Facility, Borrower shall promptly pay the Lender such
amount as is necessary to eliminate such excess. The principal amount of the
convertible Loan may not be paid or prepaid except in accordance with and to
the extent permitted under Article 10. Once Called Debt is Called in
accordance with Article 10, it may not be reborrowed.
2.2. Initial Convertible Loan. Upon Borrower's execution of this
Agreement, the Existing Amsterdam Indebtedness presently owed by borrower to
Lender as evidenced by the Secured Revolving Demand Note (the "Initial
Principal Amount") shall be deemed to be an advance under the Convertible Loan
(the "Initial Convertible Loan") and shall be re-evidenced by the Convertible
Secured Note. The Convertible Secured Note shall be an amendment and
restatement of the Secured Revolving Demand Note and shall continue to be
secured pursuant to the provisions of the Collateral Documents, as amended and
restated by the Security Agreement. The amounts owed under the Initial
Convertible Loan shall be deemed to be a portion of and shall be subject to all
of the other rights and obligations applicable to a Convertible Loan made by
the Lender to Borrower pursuant to Section 2.1 hereof.
2.3. Conditions of Advances. Notwithstanding any other provisions
contained in this Agreement, the making of any advance provided for in this
Agreement shall be conditioned upon each of the following:
2.3.1 Borrowing Request. Borrower shall provide the Lender
an irrevocable borrowing request not later than 10:00 a.m. Chicago
time on the date 30 Business Days' prior to the
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<PAGE> 15
proposed borrowing date (which must be a Business Day) of each
borrowing under the Convertible Loan facility. Each borrowing request
shall be in an amount of not less than $50,000.00. If in its Sole and
Exclusive Discretion Lender agrees to make an advance to Borrower
hereunder on less than 30 Business Days' prior notice by Borrower,
Borrower shall pay Lender a fee equal to 2.5% of the amount advanced,
which may be deducted from the amount advanced. Such borrowing notice
must be made in writing by an Authorized Representative pursuant to
Section 13.2 hereof, and shall specify the requested amount and
borrowing date of the Convertible Loan. Any such borrowing request
which the Lender believes to come from an Authorized Representative
shall be irrevocable and binding on Borrower. Before 10:00 a.m.
Chicago time on the requested borrowing date Borrower shall deliver to
the Lender a duly executed and completed Convertible Loan Request
Certificate, in the form attached hereto as Exhibit C, specifying the
requested borrowing date and amount of the Convertible Loan, and
containing a certification by an Authorized Representative on behalf
of Borrower, in form and substance satisfactory to the Lender, that
prior to and after giving effect to the requested borrowing under the
Convertible Loan, Borrower is and will be in compliance with the
terms and conditions of this Agreement, that no Default does or will
exist hereunder, that all of the representations and warranties
contained in this Agreement shall be true and correct as of the date
the request for the borrowing under the Convertible Loan is made.
2.3.2. Financial Condition. No material adverse change, as
determined by the Lender in its Sole and Exclusive Discretion, in the
financial condition or operations of Borrower or its Subsidiaries
shall have occurred at any time or times subsequent to the most recent
Financial Statements provided pursuant to Section 8.1.1 of this
Agreement.
2.3.3. No Default. No Default shall have occurred and be
continuing.
2.3.4. Other Requirements. The Lender shall have received,
in form and substance satisfactory to the Lender in its Sole and
Exclusive Discretion, all certificates, orders, authorities, consents,
affidavits, schedules, instruments, security agreements, financing
statements, mortgages and other documents which are provided for
hereunder, or which the Lender may at any time reasonably request.
2.3.5. Representations and Warranties. All of the
representations and warranties contained in this Agreement and in the
other Loan Documents shall be true and correct as of the date the
request for the Convertible Loan is made, and as of the date the
advance thereunder is made, as though made on and as of such date.
2.3.6. Lender's Sole and Exclusive Discretion. The Lender
shall have determined in its Sole and Exclusive Discretion that it
desires to make the requested advance, it being understood that Lender
has absolutely no obligation under any circumstance to make any such
advance.
2.4. Maturity Date.
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<PAGE> 16
2.4.1. Unless otherwise accelerated in accordance with the
provisions hereof, the Convertible Loan and the Convertible Secured
Notes issued pursuant to this Agreement will mature on the Maturity
Date. On or before 10:00 a.m. (Nassau, Bahamas time) on the Maturity
Date, Borrower shall pay, and Lender shall receive notice of receipt
thereof from Lender's correspondent U.S. bank, by wire transfer of
immediately available funds in United States dollars, the then
outstanding principal amount of the Convertible Secured Notes plus any
then unpaid interest or fees due on the Convertible Secured Notes to
the holders of the Convertible Secured Notes for immediate credit
pursuant to wiring instructions which Borrower will obtain from the
Lender, or, at the election of the Lender, by certified check or
cashier's check to each holder at its address or addresses referred to
in Section 13.2 of this Agreement or at such other address as Lender
may specify by written notice to Borrower. No payment shall be deemed
made until good funds are received by Lender.
2.5. Interest on the Convertible Secured Notes. Borrower shall pay
interest on the unpaid principal amount of the Convertible Secured Notes from
the issuance date of the applicable Convertible Secured Note until such
principal amount shall be paid in full, at a rate equal to the Stated Rate,
payable in accordance with Section 2.6 of this Agreement; provided, however,
that, upon the occurrence of a Payment Event of Default, the unpaid principal
amount of the Convertible Secured Notes together with accrued interest thereon
and any other Liabilities then outstanding shall bear interest from the date on
which such amount is due until the date on which such amount is paid in full or
such Payment Event of Default is otherwise cured or waived by the Lender in its
Sole and Exclusive Discretion, payable on demand, at a rate equal to the
Default Rate. Interest which is not paid when due shall bear interest at the
Default Rate from the date on which such interest is due until the date on
which such interest is paid in full.
2.6 Payments and Computations. All computations of interest under
the Convertible Secured Notes shall be made by Lender on the basis of a year of
360 days for the actual number of days (determined in accordance with Section
1.4 hereof) occurring in the period for which such interest is payable. Except
as otherwise specifically provided, all interest to be paid under the
Convertible Secured Notes shall be paid quarterly in arrears on the last
Business Day of March, June, September and December of each calendar year
beginning with June, 1996.
2.7. Payment on Non-Business Days. Whenever any payment to be made
hereunder or under the Convertible Secured Notes shall be stated to be due on
any day other than a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall in such case be added
to the time period and, thereby, included in the computation of interest due on
such date.
2.8. Use of Proceeds. Borrower agrees that the proceeds of the
Convertible Secured Notes shall be used only for the purpose of (i) paying
related fees and expenses incurred in connection therewith and herewith, (ii)
for working capital purposes, and (iii) as otherwise specifically permitted in
writing by Lender.
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<PAGE> 17
2.9. Fee. Borrower hereby agrees to pay to Lender, upon the
execution of this Agreement, a fee in the amount of $261,000.00, which fee
shall be deemed to be an advance under the Convertible Loan, as if Lender had
advanced said sum on the Closing Date, and shall be evidenced by a Convertible
Secured Note dated as of the Closing Date and delivered to Lender upon the
execution of this Agreement.
2.10 Registration of Transfer and Exchange of Convertible Secured
Notes.
Borrower shall maintain at its office in Hoffman Estates, Illinois, or
at its designated agent, a register ("Register") in which, subject to such
reasonable regulations as it or Lender may prescribe, Borrower shall provide
for the registration of Convertible Secured Notes and of transfers and
exchanges of Convertible Secured Notes as herein provided.
The Convertible Secured Notes have not been registered or qualified
under the Securities Act or any state securities laws. No transfer, sale,
pledge or other disposition of any Convertible Secured Note shall be made
unless that disposition is made pursuant to an effective registration statement
under the Securities Act and effective registration or qualification under
applicable state securities laws, or is made in a transaction which does not
require such registration or qualification. In the event that a disposition is
to be made without registration or qualification, Borrower may require, in
order to assure compliance with such laws, that the holder of a Convertible
Secured Note desiring to effect the disposition, and the prospective
transferee, represent and warrant to Borrower in writing, the facts surrounding
the disposition. In the event that such representation and warranty of facts
does not on its face establish that registration or qualification is not
required, Borrower may require an opinion of counsel reasonably satisfactory to
it that the disposition may be made without such registration or qualification.
Any such opinion of counsel shall be an expense of Borrower. Borrower is not
obligated to register or qualify the Convertible Secured Notes under the
Securities Act or any other securities law or to take any action not otherwise
required under this Agreement to permit the disposition of the Convertible
Secured Notes without registration or qualification.
Subject to the preceding paragraphs, upon surrender for registration
or transfer of any Convertible Secured Note to Borrower, Borrower shall execute
in the name of the designated transferee or transferees, one or more new
Convertible Secured Notes in the same aggregate principal amount of the
surrendered Convertible Secured Note and dated the date to which interest shall
have been paid thereon. Borrower shall reflect such transfer on the Register.
All Convertible Secured Notes surrendered for transfer and exchange
shall be destroyed by Borrower upon issuance of the new Convertible Secured
Notes applicable thereto.
2.11 Mutilated, Destroyed, Lost or Stolen Convertible Secured Note.
If any mutilated Convertible Secured Note is surrendered to Borrower,
or Borrower receives evidence to its reasonable satisfaction (an affidavit of
the Lender shall be deemed satisfactory) of the
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<PAGE> 18
destruction, loss or theft of any Convertible Secured Note then, in the
absence of actual notice to Borrower that such Convertible Secured Note has
been acquired by a bona fide purchaser, the Borrower shall execute and Borrower
shall deliver, in exchange for or in lieu of such mutilated, destroyed, lost or
stolen Convertible Secured Note, a new Convertible Secured Note in the same
principal amount as the such mutilated, destroyed, lost or stolen Convertible
Secured Note. Any duplicate Convertible Secured Note issued pursuant to this
Section 2.11 shall constitute complete and indefeasible evidence of ownership
of the Convertible Secured Note, as if originally issued, whether or not the
mutilated, destroyed, lost or stolen Convertible Secured Note shall be found at
any time.
2.12 Persons Deemed Owners.
Prior to due presentation of a Convertible Secured Note for
registration of transfer, the Borrower shall treat the person in whose name the
Convertible Secured Note is registered as the owner of such Convertible Secured
Note for all purposes and the Borrower shall not be affected by knowledge or
notice to the contrary.
ARTICLE III
CONVERSION OF CONVERTIBLE SECURED NOTES
3.1. Conversion. The holder of a Convertible Secured Note shall
have the following conversion rights:
3.1.1. Conversion Right. Subject to the terms and
conditions of this Section 3.1, the holders of Convertible Secured
Notes shall have the right, at their option, to convert the
outstanding principal owed and any other Liabilities (excluding
contingent Liabilities the amount of which are not reasonably
ascertainable) (the "Total Convertible Amount") under their
Convertible Secured Notes or any portion thereof into Shares (with
full voting rights no less than those of any other Shares) as follows:
(a) The conversion rights provided for in this
Article 3 shall be exercisable at any time or from time to
time (whether before or after an Event of Default,
acceleration or other demand for payment) prior to the payment
in full of the Convertible Secured Notes and any other
Liabilities thereunder in accordance with the terms of this
Agreement.
(b) For the purpose of determining under this
Article 3 the number of Shares into which the Total
Convertible Amount of the Convertible Secured Notes may be
converted, the purchase price of and any other Liabilities
under the Preferred Stock issued pursuant to the Preferred
Stock Purchase Agreement shall
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<PAGE> 19
be deemed to be included in the Total Convertible
Amount owed under Convertible Secured Notes (unless otherwise
required by the context), the outstanding principal amounts
owed under the Convertible Secured Notes shall be deemed
advanced on the date such funds are received by Borrower, and
the balance of the Total Convertible Amount under the
Convertible Secured Notes shall be deemed advanced on the date
that the Lender notifies Borrower that it desires to convert
such amounts pursuant to the provisions of this Article 3;
(c) The Lender and the holders of the Preferred
Stock shall be entitled to convert the Total Convertible
Amount represented by such Convertible Secured Notes and
Preferred Stock based on the following formula: (i) Every
one dollar of Total Convertible Amount through and including
One Million Five Hundred Thousand dollars ($1,500,000.00)
shall be directly convertible into Shares representing 0.0018
percent of the Fully Diluted Shares with the result that, in
the instance of the issuance of One Million Five Hundred
Thousand dollars ($1,500,000.00) of Total Convertible Amount
and upon the conversion thereof into Shares, the holder
thereof shall own twenty-seven percent (27%) of the Fully
Diluted Shares (.000018 X $1,500,000.00 = 27%); (ii) Every
one dollar of Total Convertible Amount above One Million Five
Hundred Thousand dollars ($1,500,000.00) through and including
Three Million dollars ($3,000,000.00) shall be directly
convertible into Shares representing 0.00108333333 percent of
the Fully Diluted Shares with the result that, in the instance
of the issuance of Three Million dollars ($3,000,000.00) of
Total Convertible Amount and upon the conversion thereof into
Shares, the holder thereof shall own forty-three and
twenty-five one-hundredths percent (43.25%) of the Fully
Diluted Shares ((.000018 X $1,500,000.00 = 27%) +
(.0000108333333 X $1,500,000.00 = 16.25%) = 43.25%); (iii)
Every one dollar of Total Convertible Amount above Three
Million dollars ($3,000,000.00) through and including Four
Million Five Hundred Thousand dollars ($4,500,000.00) shall be
directly convertible into Shares representing 0.00065 percent
of the Fully Diluted Shares with the result that, in the
instance of the issuance of Four Million Five Hundred Thousand
dollars ($4,500,000.00) of Total Convertible Amount and upon
the conversion thereof into Shares, the holder thereof shall
own fifty-three percent (53%) of the Fully Diluted Shares
((.000018 X $1,500,000.00 = 27%) + (.0000108333333 X
$1,500,000.00 = 16.25%) + (.0000065 X $1,500,000.00 = 9.75%) =
53%); (iv) Every one dollar of Total Convertible Amount above
Four Million Five Hundred Thousand dollars ($4,500,000.00)
through and including Eight Million dollars ($8,000,000.00)
shall be directly convertible into Shares representing
0.0003143 percent of the Fully Diluted Shares with the result
that, in the instance of the issuance of Eight Million dollars
($8,000,000.00) of Total Convertible Amount
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<PAGE> 20
and upon the conversion thereof into Shares, the holder
thereof shall own sixty-four and five ten-thousandths percent
(64.0005%) of the Fully Diluted Shares ((.000018 X
$1,500,000.00 = 27%) + (.0000108333333 X $1,500,000.00 =
16.25%) + (.0000065 X $1,500,000.00 = 9.75%) + (.000003143 X
$3,500,000.00 = 11.0005%) = 64.0005%); (v) Every one dollar
of Total Convertible Amount above Eight Million dollars
($8,000,000.00) through and including Eleven Million Five
Hundred Thousand dollars ($11,500,000.00) shall be directly
convertible into Shares representing 0.0002143 percent of the
Fully Diluted Shares with the result that, in the instance of
the issuance of Eleven Million Five Hundred Thousand dollars
($11,500,000.00) of Total Convertible Amount and upon the
conversion thereof into Shares, the holder thereof shall own
seventy-one and five hundred one one-thousandths percent
(71.501%) of the Fully Diluted Shares ((.000018 X
$1,500,000.00 = 27%) + (.0000108333333 X $1,500,000.00 =
16.25%) + (.0000065 X $1,500,000.00 = 9.75%) + (.000003143 X
$3,500,000.00 = 11.0005%) + (.000002143 X $3,500,000.00 =
7.5005%) = 71.501%); and (vi) Every one dollar of Total
Convertible Amount above Eleven Million Five Hundred Thousand
dollars ($11,500,000.00) through and including Fifteen Million
dollars ($15,000,000.00) shall be directly convertible into
Shares representing 0.0001 percent of the Fully Diluted Shares
with the result that, in the instance of the issuance of
Fifteen Million dollars ($15,000,000.00) of Total Convertible
Amount and upon the conversion thereof into Shares, the holder
thereof shall own seventy-five and one one-thousandths percent
(75.001%) of the Fully Diluted Shares ((.000018 X
$1,500,000.00 = 27%) + (.0000108333333 X $1,500,000.00 =
16.25%) + (.0000065 X $1,500,000.00 = 9.75%) + (.000003143 X
$3,500,000.00 = 11.0005%) + (.000002143 X $3,500,000.00 =
7.5005%) + (.000001 X $3,500,000.00 = 3.5%) = 75.001%);
Solely for the purposes of clarification and without
limiting the immediately preceding paragraph in any fashion and
assuming that Borrower has 12,200,000 outstanding Shares on a
fully diluted basis, each One dollar ($1.00) of Total
Convertible Amount shall be convertible into Shares as follows:
(a) each and every One dollar ($1.00) of Total
Convertible Amount through and including One Million Five
Hundred Thousand dollars ($1,500,000.00) converted pursuant to
subsection 3.1.1(c)(i) shall be directly convertible into a
number of Shares on a pro-rata basis, assuming that, for the
purposes of such pro-ration, in the instance of the issuance of
One Million Five Hundred Thousand dollars ($1,500,000.00) of
Total Convertible Amount and upon the conversion thereof into
Shares, the holder thereof shall own 4,512,329 Shares, i.e.
(1.00 - .27) X =
Page 20 of 56
<PAGE> 21
12,200,000, .73 X = 12,200,000, X = 16,712,329, .27(16,712,329)
= 4,512,329 Shares; (b) each and every One dollar ($1.00)
of Total Convertible Amount above One Million Five Hundred
Thousand dollars ($1,500,000.00) through and including Three Million
dollars ($3,000,000.00) converted pursuant to subsection 3.1.1(c)(ii)
shall be directly convertible into a number of Shares on a pro-rata
basis, assuming that, for the purposes of such pro-ration, in the
instance of the issuance of Three Million dollars ($3,000,000.00) of
Total Convertible Amount and upon the conversion thereof into Shares,
the holder thereof shall own 9,297,797 Shares, i.e. (1.00 - .4325)X =
12,200,000, .5675 X = 12,200,000, X = 21,497,797, .4325(21,497,797) =
9,297,797 Shares; (c) each and every One dollar ($1.00) of Total
Convertible Amount above Three Million dollars ($3,000,000.00) through
and including Four Million Five Hundred Thousand dollars
($4,500,000.00) converted pursuant to subsection 3.1.1(c)(iii) shall
be directly convertible into a number of Shares on a pro-rata basis,
assuming that, for the purposes of such pro-ration, in the instance of
the issuance of Four Million Five Hundred Thousand dollars
($4,500,000.00) of Total Convertible Amount and upon the conversion
thereof into Shares, the holder thereof shall own 13,757,447 Shares,
i.e. (1.00 - .53)X = 12,200,000, .47 X = 12,200,000, X = 25,957,447,
.53(25,957,447) = 13,757,447 Shares; (d) each and every States dollar
($1.00) of Total Convertible Amount above Four Million Five Hundred
Thousand dollars ($4,500,000.00) through and including Eight Million
dollars ($8,000,000.00) converted pursuant to subsection 3.1.1(c)(iv)
shall be directly convertible into a number of Shares on a pro-rata
basis, assuming that, for the purposes of such pro-ration, in the
instance of the issuance of Eight Million dollars ($8,000,000.00) of
Total Convertible Amount and upon the conversion thereof into Shares,
the holder thereof shall own 21,689,360 Shares, i.e. (1.00 -.640005)X
= 12,200,000, .359995 X = 12,200,000, X = 33,889,360,
.640005(33,889,360) = 21,689,360 Shares; (e) each and every One dollar
($1.00) of Total Convertible Amount above Eight Million dollars
($8,000,000.00) through and including Eleven Million Five Hundred
Thousand dollars ($11,500,000.00) converted pursuant to subsection
3.1.1(c)(v) shall be directly convertible into a number of Shares on a
pro-rata basis, assuming that, for the purposes of such pro-ration, in
the instance of the issuance of Eleven Million Five Hundred Thousand
dollars ($11,500,000.00) of Total Convertible Amount and upon the
conversion thereof into Shares, the holder thereof shall own
30,608,520 Shares, i.e. (1.00 - .71501)X = 12,200,000, .28499X =
12,200,000, X = 42,808,520, .71501(42,808,520) = 30,608,520 Shares;
and (f) each and every One dollar ($1.00) of Total Convertible Amount
Page 21 of 56
<PAGE> 22
above Eleven Million Five Hundred Thousand dollars
($11,500,000.00) through and including Fifteen Million dollars
($15,000,000.00) converted pursuant to subsection 3.1.1(c)(vi)
shall be directly convertible into a number of Shares on a
pro-rata basis, assuming that, for the purposes of such
pro-ration, in the instance of the issuance of Fifteen Million
dollars ($15,000,000.00) of Total Convertible Amount and upon
the conversion thereof into Shares, the holder thereof shall
own 36,601,952 Shares, i.e. (1.00 - .75001)X = 12,200,000,
.24999X = 12,200,000, X = 48,801,952, .75001(48,801,952) =
36,601,952 Shares;
Each holder of Convertible Secured Notes and
Preferred Stock shall be entitled to receive upon conversion
thereof that portion of the Fully Diluted Shares issuable
under each of the applicable subsections (i) through (vi) of
the first paragraph of this Section 3.1.1(c) which is equal to
a fraction (a) of which the numerator is the Total Convertible
Amount represented by the Convertible Secured Notes and
Preferred Stock held by such holder immediately prior to such
conversion and (b) of which the denominator is the Total
Convertible Amount represented by the Convertible Secured
Notes and Preferred Stock held by all holders of Convertible
Secured Notes and Preferred Stock immediately prior to such
conversion;
(d) Such rights of conversion shall be exercised
by Lender (if Lender is then a holder of a Convertible Secured
Note) or by the holders of a majority of the Indebtedness
evidenced by the Convertible Secured Notes by giving written
notice to Borrower in the form attached as Exhibit D hereto
that such holder elects to convert the stated portion of the
Total Convertible Amount, as well as the portions of the
outstanding principal and the other Liabilities under the
Convertible Secured Note which are being converted and if (but
only if) the entire principal amount thereof is being
converted, surrendering such Convertible Secured Note to
Agent, to be held in escrow to be delivered in accordance with
Section 3.1.1.(e) hereof. The exercise of such right of
conversion terminates and supersedes any right of Borrower to
repay the Convertible Secured Notes being so converted. For
convenience, the conversion of any portion of the principal
amount of a Convertible Secured Note into Shares is
hereinafter sometimes referred to as the "conversion" of a
Convertible Secured Note; and
(e) Not later than ten Business Days after the
receipt of the written notice referred to in Section 3.1.1(d),
and (if applicable) surrender of the Convertible Secured Note
for conversion, Borrower shall issue in the name of Lender and
deliver to Lender (or, if the Convertible Secured Note is
being surrendered for conversion, to Agent) a certificate or
certificates for the number of Shares issuable upon the
conversion in the name of the then registered
Page 22 of 56
<PAGE> 23
holder of the Convertible Secured Note.
Such conversion shall be deemed to have been effected
as of the start of business on the date such written
notice shall have been received by Borrower pursuant
to Section 13.2 of this Agreement (the "Conversion
Date"), and (if applicable) the Convertible Secured
Note shall have been surrendered for conversion as
aforesaid, and at such time the Person in whose name
or names any certificate or certificates for Shares
shall be issuable upon such conversion shall be
deemed to have become at such time the holder or
holders of record of the Shares represented thereby.
In the event that only a portion of a Convertible
Secured Note is converted, Lender shall record in its
records as a repayment of principal the amount equal
to the converted portion of the Convertible Secured
Note. In the event the entire principal amount of a
Convertible Secured Note is converted, the holder
shall surrender its Convertible Secured Note
accompanied by a written instrument(s) of transfer in
the form attached hereto as Exhibit K, duly executed
by the holder to Agent. Upon receipt by Agent of the
Shares issuable upon conversion and the original
Convertible Secured Note, if applicable, Agent shall
deliver to Borrower for cancellation the original
Convertible Secured Note, if applicable, and shall
deliver to the holder of the converted Convertible
Secured Note such Shares.
3.1.2. Reservation. Borrower will at all times reserve
and keep available such number of authorized Shares, solely for the
purpose of issue upon the exercise of the conversion rights
represented by the Convertible Secured Notes as herein provided for
and the conversion rights pursuant to the Preferred Stock Purchase
Agreement, as may at any time be issuable (based upon the number of
Shares outstanding at any such time) upon the conversion of such
Convertible Secured Notes and the conversion of any Preferred Stock
issued pursuant to the Preferred Stock Purchase Agreement, and such
Shares issuable upon the exercise of the conversion rights under the
Convertible Secured Notes and the conversion of any Preferred Stock
issued pursuant to the Preferred Stock Purchase Agreement shall at no
time have an aggregate par value which is in excess of the portion of
the Total Convertible Amount that will be converted into one Share
upon the conversion of the Convertible Secured Note and the conversion
of any Preferred Stock issued pursuant to the Preferred Stock Purchase
Agreement.
Notwithstanding the foregoing, Borrower and Lender acknowledge
that as of the Closing Date, Borrower has 16,880,130 authorized Shares
available for the purpose of issue upon the exercise of the conversion
rights represented by the Convertible Secured Notes and the conversion
rights provisions of the Preferred Stock issued pursuant to the
Preferred Stock Purchase Agreement. Based on Borrower's
representation that there are 13,493,205 Fully Diluted Shares, the
16,880,130 Shares available for issue upon the exercise of conversion
rights described in the previous sentence may be issued in exchange
for approximately $4,508,234 of the Total Convertible Amount
represented by the Convertible Secured Notes and the Preferred
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<PAGE> 24
Stock issued pursuant to the Preferred Stock Purchase Agreement. If
the Total Convertible Amount of the Convertible Secured Notes and the
Preferred Stock issued pursuant to the terms and provisions of the
Preferred Stock Purchase Agreement rises above said amount, and if
Lender or any holder of Preferred Stock exercises its conversion
rights with respect to the Convertible Secured Notes or the Preferred
Stock issued pursuant to the terms and provisions of the Preferred
Stock Purchase Agreement, or Borrower otherwise issues additional
Shares, then unless additional Shares have been authorized, the Lender
would be unable to effect the conversion of the total amount of
Convertible Secured Notes or the Preferred Stock issued pursuant to
the terms and provisions of the Preferred Stock Purchase Agreement.
In such an event, Borrower will take all actions necessary to increase
the number of its authorized Shares in an amount sufficient to issue
all Shares issuable upon the exercise of the conversion rights
represented by the Convertible Secured Notes and the Preferred Stock
issued pursuant to the Preferred Stock Purchase Agreement and, to the
extent that approval of the stockholders of Borrower is required for
such increase, will use its best efforts to secure such approval.
Furthermore, in the event that there are insufficient authorized
Shares, Borrower will not issue or commit to issue any Shares other
than pursuant to the conversion of Convertible Secured Notes pursuant
to this Article 3 and pursuant to the exercise of the conversion
rights pursuant to the Preferred Stock Purchase Agreement until a
sufficient number of Shares are authorized.
3.1.3. Mergers, Consolidations, Sales. In the case of any
consolidation or merger of Borrower with another entity, or the sale
of all or substantially all of its assets to another entity, or any
reorganization or reclassification of the Shares or other equity
securities of Borrower, then, as a condition of such consolidation,
merger, sale, reorganization or reclassification, lawful and adequate
provision shall be made whereby the holder of the Convertible Secured
Notes shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein and in lieu of the
Shares that theretofore would have been received upon conversion of
the Convertible Secured Notes, such shares of stock, securities or
assets as may be (by virtue of such consolidation, merger, sale,
reorganization or reclassification) issued or payable with respect to
or in exchange for a number of outstanding Shares equal to the number
of Shares immediately theretofore so purchasable by conversion
hereunder had such consolidation, merger, sale, reorganization or
reclassification not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of
the holder of the Convertible Secured Notes to the end that the
provisions hereof shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities or assets thereafter
deliverable upon exercise of the Convertible Secured Notes. Borrower
shall not effect any such consolidation, merger or sale, unless prior
to or simultaneously with the consummation thereof, the successor
entity (if other than Borrower) resulting from such consolidation or
merger or the entity purchasing such assets shall assume by written
instrument executed and mailed or delivered to the holder of the
Convertible Secured Notes, the obligation to deliver to such holder
such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to receive. Nothing
contained in this Section 3.1.3 shall permit Borrower to take any
action or
Page 24 of 56
<PAGE> 25
enter into any transaction which is prevented or prohibited by
any other provision of this Agreement or the other Loan Documents.
3.1.4. Dissolution or Liquidation. In the event of any
proposed distribution of the assets of Borrower in complete
dissolution or liquidation except under circumstances when the
foregoing Section 3.1.3 shall be applicable, Borrower shall give
notice thereof to the holders of the Convertible Secured Notes and
shall make no distribution to shareholders until the expiration of 120
days from the date of giving of the aforesaid notice and, in any such
case, the holder of the Convertible Secured Notes may exercise the
conversion rights with respect to the Convertible Secured Notes within
120 days from the date of giving such notice and, upon the timely
completion of such distribution or liquidation, all conversion rights
herein granted not so exercised within such 120-day period shall
thereafter become null and void.
3.1.5. Notice of Dividends. If the Board of Directors of
Borrower shall declare any dividend or other distribution on the
Shares, Borrower shall give notice thereof to the holder of the
Convertible Secured Notes not less than 120 days prior to the record
date fixed for determining shareholders entitled to participate in
such dividend or other distribution and the holder of the Convertible
Secured Notes shall not participate in such dividend or other
distribution or be entitled to any rights on account or as a result
thereof except to the extent that the conversion rights under the
Convertible Secured Notes are exercised prior to such record date.
The provisions of this section shall not apply to distributions made
in connection with transactions covered by Section 3.1.3.
3.1.6. Fractional Shares. Fractional Shares may be issued
upon the exercise of the Convertible Secured Notes in any case where
the holder hereof would be entitled to receive a fractional Share upon
the exercise of the Convertible Secured Notes in order to receive the
appropriate percentage of Fully Diluted Shares; provided, that at its
election, any holder may elect to receive in lieu of any fractional
Share that it would otherwise receive cash in the amount of such
fraction of the fair market value of a Share.
3.1.7. Fully Paid Stock; Taxes. Borrower covenants
and agrees that the shares of stock represented by each and every
certificate for Shares to be delivered on the exercise of the
conversion rights herein provided for shall, at the time of such
delivery, be validly issued and outstanding and be fully paid and
nonassessable. Borrower further covenants and agrees that it will pay
when due and payable any and all federal and state taxes (including
withholding taxes imposed on a holder by reason of its status as a
Non-U.S. Person, but not including other income taxes) which may be
payable in respect of the exercise of conversion rights by holders of
Convertible Secured Notes or any Shares or certificates therefor upon
the exercise of the conversion rights herein provided for pursuant to
the provisions hereof.
ARTICLE IV
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<PAGE> 26
CONDITIONS PRECEDENT
4.1. Conditions Precedent to the Lender's Obligations. The
obligation of the Lender to make the Convertible Loan provided for in this
Agreement is subject to the satisfaction of each of the following conditions
precedent:
4.1.1. Documents Delivered. Lender shall have received on
or prior to 10:00 a.m. Chicago time on the Closing Date (except as
noted or waived by the Lender in writing) the following documents, in
form and substance satisfactory to the Lender and its legal counsel:
(i) the Initial Convertible Secured Note, payable
to the order of the Lender in the Initial Principal Amount,
executed by Borrower;
(ii) the Reg D Redemption Documents, executed by
Borrower and any other necessary parties;
(iii) copies, certified by the Chief Executive
Officer of Borrower, of each of the Secured Revolving Demand
Note and the Collateral Documents which are on the Closing
Date in full force and effect and without amendment or
modification;
(iv) the Warrant and the Preferred Stock Warrant,
each executed by Borrower;
(v) the Registration Agreement, executed by
Borrower;
(vi) the Wire Transfer Instructions (to be
delivered at least twenty-four (24) hours prior to the Closing
Date);
(vii) an opinion of Chuhak & Tecson, P.C., counsel
for Borrower and the Subsidiaries, substantially in the form
of Exhibit E, and as to such other matters as Lender may
request;
(viii) certified copies of the Certificate of
Incorporation and By-laws of Borrower and each of the
Subsidiaries, each as amended or restated (where applicable)
as of the Closing Date, dated not earlier than ten days prior
to the Closing Date, by the Secretaries of their respective
states of incorporation, respectively, and copies of
certificates of appropriate Secretaries of State, each dated
not earlier than ten days prior to the Closing Date, as to the
good standing of Borrower and the Subsidiaries in the States
of Delaware, Florida, Pennsylvania and Michigan, and any other
state where the failure to so qualify would have a Material
Adverse Effect; and copies of the Certificate of Incorporation
and the By-laws of each other Subsidiary of Borrower, each as
amended
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<PAGE> 27
or restated (where applicable) as of the Closing Date,
certified by the Secretary of State of its state of
organization dated not earlier than ten days prior to the
Closing Date, and copies of certificates, dated not earlier
than ten days prior to the Closing Date, as to the good
standing of each Subsidiary in the state of its incorporation
and any other state where the failure to so qualify would have
a Material Adverse Effect;
(ix) a certificate of Borrower, signed by the
Secretary on behalf of Borrower, as to (a) resolutions of
Borrower and, as applicable, its Subsidiaries, adopting and
approving all agreements relating to documents referred to
herein to which Borrower or any of its Subsidiaries is a party
(including, without limitation, Borrower Transaction
Documents, this Agreement and the Initial Convertible Secured
Note), and (b) the names, offices and specimen signatures of
its and its Subsidiaries' officers executing any such
documents in connection with this Agreement or the documents
referred to herein;
(x) a certificate signed by the Chief Executive
Officer and Chief Financial Officer of Borrower, with respect
to the matters set forth in Sections 2.3.2, 2.3.3 and 2.3.5;
(xi) the most recent pro-forma consolidated
balance sheet of Borrower, taking account of the Convertible
Loan and all transactions to occur on the Closing Date
certified by the Chief Financial Officer of Borrower which
certifies that Borrower will be Solvent after the transactions
contemplated hereby;
(xii) an officers' certificate, signed by the Chief
Executive Officer on behalf of Borrower, certifying
that to the best of the Chief Executive Officer's knowledge
after due inquiry, since the date of the balance sheet
described in clause (xi), there has not occurred a Material
Adverse Effect;
(xiii) such other approvals, opinions or documents as
Lender may request;
(xiv) evidence of the execution and delivery of the
Preferred Stock Purchase Agreement, together with all other
agreements, instruments and documents required thereunder; and
(xv) evidence of the consummation of the Senior
Management Settlement Agreements in a manner satisfactory to
Lender, together with all other agreements, instruments and
documents required thereunder.
4.1.2. Representations and Warranties True. (i) The
representations and warranties made by Borrower herein and in the
other Loan Documents shall be true and correct in all material
respects on the Closing Date and (ii) all covenants contained herein
and in such other
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<PAGE> 28
agreements to be performed by each of such parties prior to the
Closing Date shall have been performed or waived by Lender in writing.
4.1.3. No Default. No Default shall have occurred and be
continuing; no event of default, or event that with notice or lapse of
time or both would become an event of default, shall have occurred and
be continuing under any of this Agreement or the other Loan Documents;
and none of the foregoing shall occur as a result of the Convertible
Loan, or any other transaction in conjunction therewith unless such
covenant has been waived in writing by Lender.
4.1.4. No Material Adverse Change. Since September 30,
1995, in the judgment of the Lender, no event shall have occurred
which could reasonably be expected to have a Material Adverse Effect,
including, without limitation, any event which could reasonably be
expected to have a material adverse effect on the ability of Borrower
to effect (including hindering or unduly delaying) the transactions
contemplated by this Agreement and the other Loan Documents, or to
satisfy its obligations hereunder or thereunder.
4.1.5. Expenses. Borrower shall have paid or caused to be
paid to under all amounts due to Lender for Lender's own out
of pocket expenses in the amount of $187,279.44 incurred in due
diligence and investigation of collateral, together with all fees and
expenses of all and any counsel to Lender engaged by Lender in
connection with its due diligence, the preparation, negotiation,
review, execution and delivery of this Agreement and the Loan
Documents, or the consummation of the transactions contemplated hereby
and thereby, or otherwise consulted by Lender in connection with this
Agreement; provided, however, that if such amounts are not paid by the
Closing Date, they shall be treated as amounts advanced to Borrower by
Lender as part of the Initial Convertible Loan.
4.1.6. Absence of Litigation, Etc. No action, suit,
investigation, proceeding or counterclaim of or before any
Governmental Authority or other Person shall be pending or threatened
against Borrower challenging the Convertible Loan or the transactions
contemplated by the this Agreement or the other Loan Documents or
seeking any material damages in connection therewith or any judgment,
order or injunction that would restrain, prohibit or impose materially
adverse conditions on the consummation of the transactions
contemplated hereby or by the other Loan Documents.
ARTICLE V
SECURITY INTEREST
5.1. Confirmation of Grant of Security Interest. Borrower shall
execute and deliver to the Lender, concurrently with the execution of this
Agreement, a Restated and Amended Security
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<PAGE> 29
Agreement in the form attached hereto as Exhibit J and a Guaranty and
Security Agreement in the form attached hereto as Exhibit K, together with all
agreements, instruments and documents required thereunder.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
As of the Closing Date, each date a request for the Convertible Loan
is made and each date an advance thereunder is made, Borrower represents and
warrants to Lender that, except as specifically and fairly disclosed in
Borrower's Annual Report on Form 10-K for its fiscal year ended December 31,
1994 and its Quarterly Reports on Form 10-Q for its quarters ended September
30, 1995 or in a schedule specifically referred to herein:
6.1. Existence and Power. Borrower is (a) a corporation duly
formed, validly existing and in good standing in the jurisdiction of
its formation, and has all powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and as proposed to be conducted, except where the failure to do any
of the above could not, singly or in the aggregate, reasonably be expected to
have a Material Adverse Effect and (b) duly qualified and authorized to do
business and in good standing in all jurisdictions where the failure to do so
could, singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
6.2. Subsidiaries. Each Subsidiary of Borrower is (a) a
corporation duly formed, validly existing and in good standing in the
jurisdiction of its formation, and has all powers and all governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted and as proposed to be conducted, except where the
failure to do any of the above could not, singly or in the aggregate,
reasonably be expected to have a Material Adverse Effect and (b) duly qualified
and authorized to do business and in good standing in all jurisdictions where
the failure to do so could, singly or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
6.3. Authority, Execution, Delivery and Enforceability. Borrower
has the necessary corporate authority to execute, deliver and perform
its obligations under this Agreement and the other Loan Documents to which it
is a party, and to consummate the Loan and the other transactions contemplated
by this Agreement and the other Loan Documents. Borrower has taken all
necessary corporate action to authorize the execution, delivery and performance
of this Agreement, the other Loan Documents to which it is a party, and any
other documents related thereto. This Agreement and each of the other Loan
Documents to which it is a party are, or when executed and delivered by
Borrower will constitute, the legal, valid and binding obligation of Borrower,
enforceable against Borrower in accordance with their respective terms.
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<PAGE> 30
6.4. Authorization and Validity Re: Subsidiaries. Each Subsidiary
of Borrower has the necessary corporate authority to execute, deliver and
perform its obligations under the Loan Documents to which it is a party, and to
consummate the transactions contemplated by such Loan Documents. Each
Subsidiary of Borrower has taken all necessary corporate action to authorize
the execution, delivery and performance of the Loan Documents to which it is a
party, and any other documents related thereto. The Loan Documents to which
each Subsidiary of Borrower is a party are (or, when duly executed and
delivered will be) the legal, valid, and binding obligations of such
Subsidiary, enforceable against such Subsidiary in accordance with their
respective terms.
6.5. No Conflicts. Neither the execution, delivery or performance
by Borrower of this Agreement, the other Loan Documents to which it is
a party, and any other documents related thereto nor the compliance by Borrower
with any of its obligations thereunder, nor the consummation of any of the
transactions contemplated thereby will (i) conflict with the Certificate of
Incorporation or the By-laws of Borrower or any Subsidiary or (ii) conflict
with or result in a breach of, or constitute a default under, or result in the
creation or imposition of, any Lien upon any of Borrower's or its Subsidiaries'
property or assets under (a) any indenture, mortgage, deed of trust or other
instrument or agreement (other than the Security Agreement) to which Borrower
or its Subsidiaries may be or become bound or to which any of Borrower's
property or assets may be or become subject or (b) any applicable law, rule,
regulation, judgment, writ, order or decree of any Governmental Authority
having jurisdiction over Borrower's or its Subsidiaries' properties or assets.
6.6. Use of Proceeds; Margin Regulations. Upon receipt thereof,
Borrower will use the proceeds of the Convertible Loan only for the purposes
permitted under Section 2.8. No part of the proceeds of the Loan will be used
for any purpose that violates the provisions of any of Regulation G, T, U or X
of the Board of Governors of the Federal Reserve System or any other regulation
of such Board of Governors.
6.7. No Consents. No order, license, consent, authorization or
approval of, or exception by, or notice to or registration with, any
Governmental Authority or any other Person, and no filing, recording,
publication or registration of any kind, is necessary or advisable in
connection with the execution, delivery and performance by Borrower or its
Subsidiaries of this Agreement or the Loan Documents or for the legality,
validity, binding effect or enforceability thereof.
6.8. Investment Company Act, Etc. Neither Borrower nor any
Subsidiary is, or will be, after giving effect to the transactions contemplated
hereby, (a) an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended
or (b) subject to regulation under the Public Utility Holding Company Act of
1935, the Federal Power Act or any foreign, federal, state or local statute or
regulation limiting its ability to incur indebtedness for money borrowed or
guarantee such indebtedness as contemplated hereby.
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<PAGE> 31
6.9. Financial Matters. All financial information heretofore or
contemporaneously furnished by or on behalf of Borrower, and all other such
information hereafter furnished by or on behalf of Borrower to Lender will be,
correct and complete in all material respects on the date as of which such
information is dated or certified (except for any projections included therein,
which projections shall have provided reasonable estimations of future
performance for the periods covered thereby based on assumptions which are
reasonable when made, subject to the uncertainty and approximation inherent in
any projections) and fairly present or will fairly present the financial
condition, results of operations and cash flows of Borrower and its
Subsidiaries, as applicable, in accordance with GAAP and without omitting
anything necessary to make such information not misleading at such time.
6.10. Representations and Warranties in Other Agreements. There
have been delivered to Lender complete and correct copies of each of Borrower
Transaction Documents, as amended to the date hereof, and all exhibits and
schedules delivered in connection therewith. The terms of each of Borrower
Transaction Documents have not changed in any material respect from the terms
reflected in the copies thereof delivered to Lender on or before the date of
this Agreement. Each of the representations and warranties given by Borrower
or its Subsidiaries, and the other parties to such agreements in such documents
were true and correct in all material respects as of the date made and on the
date hereof. Each of such documents is in full force and effect, and each party
thereto has performed all its obligations thereunder required to be performed on
or prior to the date hereof.
6.11. Tax Returns and Payments. Except as set forth on Schedule
6.11, Borrower and each of its Subsidiaries has filed all federal income tax
returns and all other tax returns and reports, domestic and foreign, required
to be filed by it and has paid all taxes, assessments, fees and other
governmental charges payable by it which have become due, other than those not
yet delinquent or those which in the aggregate (including all fees and
penalties associated therewith) do not exceed $5,000.00. Borrower and each of
its Subsidiaries has paid, or has provided adequate reserves for the payment
of, all federal, state and foreign income taxes applicable for all prior fiscal
years and for the current fiscal year to the date hereof. There is no proposed
tax assessment against Borrower or against any of its Subsidiaries which, if
the assessment were made, could, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
6.12. Litigation and Adverse Facts. Except as set forth in Schedule
6.12, there is no claim, action, suit, proceeding, investigation or
administrative proceeding or arbitration by any Governmental Authority or other
Person (including, without limitation, derivative actions) pending or known by
Borrower to be threatened with respect to Borrower, any of its Subsidiaries, or
any of its Affiliates or assets of any of the foregoing, or any officer,
director or other person who would be entitled to be indemnified by Borrower or
any Subsidiary, or any of the transactions contemplated hereby which could,
singly or in the aggregate, reasonably be expected to have a Material Adverse
Effect and there is no basis for such action, suit, proceeding, investigation
or arbitration and there has occurred no development in any action, suit,
proceeding, investigation or arbitration previously disclosed to Lender, which
could, singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect
Page 31 of 56
<PAGE> 32
6.13. [Intentionally omitted.]
6.14. No Defaults. Except as set forth on Schedule 6.14, there does
not exist (i) any event of default, or any event that with notice or lapse of
time or both would constitute an event of default, under any agreement or
obligation of Borrower or its Subsidiaries, including, without limitation: (a)
Borrower Transaction Documents or (b) any mortgage, deed of trust, indenture or
other instrument or agreement to which Borrower is a party or by which Borrower
may be bound or any of its property or assets may be subject which, in either
clause (a) or (b) above, would have a Material Adverse Effect, or (ii) any
Unmatured Event of Default.
6.15. Capitalization. Since July 7, 1994, except as provided in
Schedule 6.15, Borrower has not offered, placed or sold, or caused to
be offered, placed or sold, any securities or other obligations. Except for
Shares which may be issued pursuant to this Agreement, the Warrant, the
Preferred Stock Purchase Agreement or the Other Warrant, immediately after the
Closing Date, Borrower will have no more than 13,493,205 Fully Diluted Shares
(including all Shares issuable at any time upon the conversion, exercise or
exchange of all options or convertible securities outstanding or to be issued
on the Closing Date). The number of Fully Diluted Shares held by each record
holder of Fully Diluted Shares is set forth in Schedule 6.15.
6.16. Good Title to Properties. Borrower and each Subsidiary has
good and marketable title to all its material properties and assets free and
clear of all Liens (except for Permitted Liens).
6.17. ERISA. Neither Borrower nor any ERISA Affiliate maintains or
contributes to or has or could have any liability under, any Plan which is
subject to Title IV of ERISA or Section 412 of the Code. Neither Borrower nor
any ERISA Affiliate maintains or contributes to or has any liability under, any
Welfare Plan which provides, or has any liability under, benefits to employees
after termination of employment other than as required by Section 601 of ERISA
or state compensation coverage laws, which liability could, singly or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Neither
Borrower nor any ERISA Affiliate has breached any of the responsibilities,
obligations or duties imposed on it by ERISA, the Code or any other applicable
federal or state law or regulations promulgated thereunder with respect to a
Plan or any Welfare Plan in any manner which could, singly or in the aggregate,
reasonably be expected to result in a Material Adverse Effect. Neither
Borrower nor any ERISA Affiliate nor any fiduciary of a Plan or any Welfare
Plan has engaged in a nonexempt prohibited transaction described in Sections
406 of ERISA or 4975 of the Code in any manner which could, singly or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.
6.18. Insurance. Borrower has previously delivered to Lender a
summary of the property, casualty and liability insurance program carried by
Borrower and its Subsidiaries (including, without limitation, dental
malpractice, products liability and director's and officer's liability
insurance) and such summary is complete and accurate in all material respects.
Borrower has caused Lender to be named jointly with the purchaser(s) under the
Preferred Stock Purchase Agreement as additional insureds and loss payees under
any or all of Borrower's insurance policies. Borrower and its Subsidiaries are
Page 32 of 56
<PAGE> 33
adequately insured for their benefit under such policies. No notice of
any pending or threatened cancellation or premium increase has been received by
Borrower with respect to any of such insurance policies. Borrower and its
Subsidiaries are in substantial compliance with all conditions contained in
such insurance policies.
6.19. Compliance with Laws. Neither Borrower nor the Subsidiaries
are in violation of any law, ordinance, rule, regulation, order,
policy, guideline or other requirement of any Governmental Authority, which
violation could, singly or in the aggregate, reasonably be expected to subject
Borrower or the Subsidiaries or any of their officers to criminal liability or
have a Material Adverse Effect on Borrower and no such violation has been
alleged, and Borrower and the Subsidiaries (i) have filed in a timely manner
all reports, documents and other materials required to be filed by it with any
Governmental Authority and the information contained in each of such filings is
true, correct and complete in all respects, except where failure to make such
filings could not reasonably be expected to have a Material Adverse Effect and
(ii) have retained all records and documentary evidence required to be retained
by it pursuant to any law, ordinance, rule, regulation, order, policy,
guideline or other requirement of any Governmental Authority, except where
failure to retain such records could not reasonably be expected to subject
Borrower or any of its officers to criminal liability or have a Material
Adverse Effect.
6.20. Absence of Default. Unless consistent with past practices or
disclosed on Schedule 6.20, Borrower or its Subsidiaries is not in material
default under any material contract or contracts (a) to which it is a party or
by which it is bound, and (b) (i) pursuant to which Borrower or its
Subsidiaries provides goods or material services to a customer which
contributed more than $10,000.00 of gross revenue during the prior fiscal year
of Borrower, (ii) pursuant to which Borrower or its Subsidiaries incurs lease
obligations in excess of $10,000.00 during any fiscal year of Borrower or its
Subsidiaries, or (iii) which cannot be replaced without material expense, delay
or interruption of business.
6.21. Securities Laws. Neither Borrower nor any Affiliate, nor
anyone acting on behalf of any such Person, has directly or indirectly offered
any interest in the Convertible Secured Notes or solicited any offer to acquire
any such interest from, or has taken any action that would subject the issuance
or sale of the Convertible Secured Notes or the issuance of the Shares issuable
upon their conversion to registration under the Securities Act of 1933, as
amended (the "Securities Act") or registration or qualification under the Blue
Sky laws of any state ("Blue Sky Laws").
6.22. Employees and Labor. There is no unfair labor practice
complaint against Borrower or its Subsidiaries pending before the National
Labor Relations Board or any state or local agency nor is there a labor strike
or other labor dispute, pending or, to the best of Borrower's knowledge after
due inquiry, threatened, affecting any of the foregoing which if adversely
resolved could, singly or in the aggregate, reasonably be expected to have a
Material Adverse Effect; to the best knowledge of Borrower after due inquiry,
there is no existing representation question respecting the employees of
Borrower or its Subsidiaries, nor are there organizational attempts affecting
any of the employees of any of the foregoing which could, singly or in the
aggregate, reasonably be expected to have a Material
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<PAGE> 34
Adverse Effect; there is no grievance pending or, to the best of
Borrower's knowledge after due inquiry, threatened affecting Borrower or its
Subsidiaries which singularly or in the aggregate with other grievances could,
singly or in the aggregate, reasonably be expected to have a Material Adverse
Effect; and no labor disputes or work stoppages involving Borrower or its
Subsidiaries, to the best of Borrower's knowledge after due inquiry, are
pending or threatened which could, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect. To the best of Borrower's
knowledge after due inquiry, no customer or supplier of Borrower or its
Subsidiaries is involved in, or threatened with or affected by, any labor
dispute, arbitration, lawsuit or administrative proceeding which could, singly
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
6.23. Finder's Fees. Except for fees payable under the Letter of
Agreement or hereunder, no agent, broker, investment banker, Person, or firm
acting on behalf of Borrower or any Affiliate of Borrower, or under the
authority of any such Person, is or will be entitled to any broker's or
finder's fee or any other similar commission or similar fee, directly or
indirectly, from any of the parties hereto in connection with any of the
transactions contemplated herein.
6.24. Material Adverse Effect. There is nothing of which Borrower
is aware that could, singly or in the aggregate, reasonably be expected to have
a Material Adverse Effect which has not been disclosed to Lender in a schedule
to this Agreement.
6.25. Subsidiaries. Borrower has no Subsidiaries other than those
identified on Schedule 6.25. Borrower owns one hundred percent of the equity
and other ownership interests in its Subsidiaries.
6.26. Indebtedness. Except as set forth on Schedule 6.26, neither
Borrower nor any of its Subsidiaries has any Indebtedness other than the
Existing Group Indebtedness.
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<PAGE> 35
ARTICLE VII
LENDER REPRESENTATIONS AND WARRANTIES
7.1. Acquisition for Investment. Lender represents and warrants to
Borrower that Lender (i) is acquiring the Convertible Secured Notes for its own
account for investment purposes with no present intention of offering, selling,
transferring or otherwise disposing of the same, any part thereof, or any
interest therein, unless such offer, sale, transfer or other disposition would
not result in a violation of the Securities Act and all applicable Blue Sky
Laws, (ii) has no reason to anticipate any particular occasion or event which
would cause, necessitate or require them to offer, sell, transfer or otherwise
dispose of the Convertible Secured Notes or any interest therein (other than
pursuant to this Agreement) and is able to financially bear the risks of the
investments, and (iii) has no need for liquidity in this investment.
7.2. Withholding Certificates. If any deduction or withholding is
required under federal or state tax laws with respect to any payments to or for
the account of holders of Convertible Secured Notes pursuant to this Agreement,
Borrower shall (i) promptly notify each affected holder in writing of such
requirement, (ii) pay the full amount required to be deducted or withheld to
the applicable taxing authority on a timely basis, (iii) promptly furnish an
official receipt (and such other documentation as may be requested by the
holder) evidencing the payment to such taxing authority. Each holder agrees
that it will deliver to Borrower, upon reasonably written demand therefor and
at the expense of Borrower, any form or document it can lawfully provide that
may be reasonably requested in writing by Borrower in order to allow Borrower
or any paying agent to make payments to such holder without deduction or
withholding for or on account of such federal or state taxes or with such
deduction or withholding at a reduced rate.
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<PAGE> 36
ARTICLE VIII
COVENANTS
8.1. Affirmative Covenants. Subject to Section 8.3 of this
Agreement, so long as Borrower has any Liabilities (other than solely for
Liabilities as to Shares which have been previously converted), Borrower shall,
and shall cause its Subsidiaries to, unless otherwise expressly consented to in
writing by the Lender:
8.1.1. Financial Statements. Furnish to Lender the
following:
(i) Monthly and quarterly net unaudited
consolidated and consolidating financial statements including,
without limitation, statements of profit and loss, statements
of cash flow and balance sheets, certified by Borrower's Chief
Financial Officer on behalf of Borrower, as soon as available
and, in any event, within twenty-five (25) days after the end
of each month and quarter (respectively), which financial
statements shall be prepared on a basis consistent with such
statements prepared in prior months, shall be in accordance
with GAAP (except for changes therein with which Borrower's
independent certified public accountants have previously
concurred in writing), subject to the absence of footnotes and
normal year-end adjustments.
(ii) Annual audited unqualified consolidated and,
if available, consolidating financial statements, certified by
Kirkland, Brakeman, Russ, Murphy & Tapp or by independent
certified public accountants from a "Big Six" national
accounting firm other than Ernst & Young, or other accountants
acceptable to Lender, as soon as available and, in any event,
within 120 days after the end of each of Borrower's fiscal
years, which statements shall be prepared in accordance with
GAAP and on a consistent basis.
(iii) Annual consolidated and consolidating
forecasts, for the calendar year and each month of the
calendar year of the next twelve (12) months' balance sheet,
income statements and cash flow statements of Borrower,
prepared by Borrower's Chief Financial Officer on behalf of
Borrower as the annual budget of Borrower and delivered not
less than 30 days before the first day of the applicable
fiscal year of Borrower, and deliver forecasts updating the
remaining portion of any such annual forecast as, when and if
prepared.
(iv) In addition to the reports and statements
described in clauses (i) through (iii), Borrower shall provide
Lender with such other financial reports and information
relating to Borrower as Lender may from time to time request.
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<PAGE> 37
(v) Concurrently with the delivery of the
financial statements in clause (ii) above, a certificate of
the auditor as selected pursuant to clause (ii), that such
auditor (in the course of such auditor's review) has not
obtained any knowledge of a financial covenant Default under
this Agreement.
(vi) Concurrently with the delivery of the
financial statements described in clauses (i) and (ii) above,
a certificate of the Chief Financial Officer of Borrower to
the effect that no event of default, or event which with the
lapse of time or notice or both, would constitute an event of
default under Borrower Transaction Documents.
(vii) Concurrently with the delivery of the
financial statements described in clause (ii) above, copies of
all management letters and other correspondence and/or
documents sent and/or otherwise provided to Borrower by
Borrower's accountant or accountants in the prior year.
(viii) Copies of all documents filed with the
Securities and Exchange Commission ("SEC"), when and as they
are so filed.
(ix) Copies of all documents sent to the holders
of Shares, when and as they are so sent.
8.1.2. Maintenance of Property; Insurance. Except as
otherwise permitted under this Agreement, preserve and maintain all of
its material properties, owned or leased, used or useful in the
conduct of its business in good working order and condition, ordinary
wear and tear excepted; and insure and keep insured, with financially
sound and reputable insurers, so much of its properties, in such
amounts and against such risks, as are, to the best of Borrower's
knowledge after due inquiry, usually and customarily insured by
companies engaged in a similar business with respect to properties of
a similar character.
8.1.3. Compliance with Law. Comply in all material respects
with all applicable laws, rules, regulations and requirements of
Governmental Authorities (including, without limitation, OSHA, ERISA
and the rules and regulations thereunder) except where the necessity
of compliance therewith is contested in good faith by appropriate
proceedings or the failure to comply with which could not, singly or
in the aggregate, reasonably be expected to have a Material Adverse
Effect.
8.1.4. Keeping of Books. Keep proper books of record and
accounts, in which complete and correct entries shall be made of all
financial transactions and the assets and business of Borrower and its
Subsidiaries.
8.1.5. Payment of Obligations, Taxes, Etc. Pay and discharge,
at or before maturity, or before the same shall become delinquent, all
of its material obligations and liabilities, including
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<PAGE> 38
(i) all taxes, assessments and governmental charges imposed upon each
of Borrower or any of its Subsidiaries or upon its property and
(ii) all lawful claims that, if unpaid, might by law become a Lien
upon each of Borrower's or its Subsidiaries' property; provided,
however, that Borrower and its Subsidiaries shall not be required to
pay or discharge any such obligations or liabilities that are being
contested in good faith by appropriate proceedings properly instituted
and diligently conducted and in respect of which appropriate reserves
are being maintained in accordance with GAAP.
8.1.6. Access to Records; Financial Statements. Provide
Lender and its authorized representatives full and complete access to
all books, records, offices and other facilities and properties, and
allow Lender and such representatives to make such inspections thereof
and copies of and abstracts from such books and records, as Lender may
request, and cause Borrower's officers to furnish Lender and such
representatives with such financial and operating data, including all
quarterly financial statements prepared or used by the management of
Borrower, and other information with respect to the financial
condition, business and property of Borrower and its Subsidiaries, as
Lender may from time to time in its Sole and Exclusive Discretion
request. Borrower shall also provide Lender, at Borrower's expense,
with direct computer access by modem to Borrower's financial data,
which shall be down-loaded on a daily basis to a computer at such
location as Lender designates.
8.1.7. Notice of Certain Events. Promptly upon Borrower
obtaining knowledge thereof, give notice to Lender of (i) the
occurrence of any Default, (ii) the occurrence of any event of
default, or event that with notice or lapse of time or both would
become an event of default under Borrower Transaction Documents, (iii)
any litigation, investigation or proceeding affecting Borrower or its
Subsidiaries that could reasonably be expected to have a Material
Adverse Effect, or (iv) any event or matter that has resulted in or
could reasonably be expected to have a Material Adverse Effect; and,
in each case, promptly deliver to Lender an officer's certificate,
signed by the Chief Executive Officer of Borrower, specifying the
nature of such event and the actions that Borrower has taken or
proposes to take with respect thereto; provided, however, that should
any Default be cured by Borrower within the applicable period
hereunder, such cure of any underlying Default shall also cure any
default arising under this Section 8.1.7 for failure to give notice
with respect to such Default.
8.1.8. [Intentionally Omitted].
8.1.9. Waiver of Stay, Extension or Usury Laws. To the
extent that it may lawfully do so, refrain at all times from insisting
upon, or pleading, or in any manner whatsoever claiming, and resist
any and all efforts to be compelled to take the benefit or advantage
of, any stay or extension law or any usury law or other law which
would prohibit or forgive Borrower from paying all or any portion of
the principal of and/or interest on the Convertible Secured Notes as
contemplated herein, wherever enacted, now or at any time hereafter in
force; and (to the extent, now or at any time hereafter in force; and
to the extent that it may lawfully do so) Borrower
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hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not hinder, delay or impede the execution of
any right herein granted to Lender, but will suffer and permit the
execution of every such right as though no such law had been enacted.
8.1.10. Covenants in Agreement. (i) Comply in all material
respects and take such actions to have its Subsidiaries comply in all
material respects with its obligations under this Agreement, the other
Loan Documents and Borrower Transaction Documents to which they are a
party (waivers from compliance by any party with the obligations
specified in this Agreement, the other Loan Documents and Borrower
Transaction Documents shall not be effective as waivers hereunder
unless consented to in writing by the Lender), and (ii) refrain from
entering into any amendment of Borrower Transaction Documents or this
Agreement or the other Loan Documents without the consent of the
Lender.
8.2. Negative Covenants. So long as Borrower has any Liabilities
outstanding (other than Liabilities solely as to Shares which have been
previously converted), Borrower shall not, and shall not permit its
Subsidiaries to, without the written consent of the Lender:
8.2.1. [Intentionally Omitted]
8.2.2. [Intentionally Omitted]
8.2.3. Additional Debt. Incur any Indebtedness or other
additional debt or obligation of any kind other than that specifically
permitted pursuant to this Agreement; provided, however, that if
Borrower makes a borrowing request under Section 2.3.1 and Lender
fails to make an advance hereunder in response to said request within
the 30 Business Day period referred to in said section, Borrower may
borrow the sum requested from another source provided that (a) the
proceeds of said borrowing are used solely for normal operations
(excluding the acquisition of dental practices or the prepayment of
indebtedness), (b) such borrowings do not exceed $750,000 in the
aggregate or $150,000 in any one instance, (c) such borrowing does not
violate any other provision of this Agreement, and (d) such borrowing
is not senior to the Indebtedness due under the Convertible Secured
Notes and ranks in pari passu with such Indebtedness for security
purposes. Lender agrees to execute such documents as are reasonably
requested by Borrower to acknowledge that such borrowings are pari
passu with Indebtedness under the Convertible Secured Note for
security purposes.
8.2.4. Acquisition or Sale of Business; Merger or
Reorganization. Purchase or otherwise acquire the stock, shares, or
other securities, or the assets or business of any Person or other
entity; or liquidate, dissolve, merge, consolidate, reorganize,
recapitalize or otherwise alter its legal status or commence any
proceedings therefor, or sell, lease, transfer or dispose of, in any
way, any personal or real property assets, except assets sold or
leased in the ordinary and normal course of business; or assign or
transfer any substantial part of its intangible business rights
necessary for the continuation of its business as now conducted or
planned.
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8.2.5. Equity. Issue any additional Shares (or instruments
convertible into Shares or other equity) in Borrower or the
Subsidiaries, except as specifically required pursuant to this
Agreement, the Amsterdam Warrant No. 2, the FLL Warrant, the Laport
Warrant, the Preferred Stock Purchase Agreement or the Amsterdam
Warrant No. 1 and except as listed on Schedule 6.15.
8.2.6. Charter and By-Laws. Amend, breach or violate the
By-Laws or Certificate of Incorporation of Borrower or any of the
Subsidiaries.
8.2.7. Compliance with Securities Laws. Directly or
indirectly sell or offer, or attempt to offer or dispose of, any stock
or other securities of Borrower or any Subsidiary (except as
specifically required pursuant to this Agreement), solicit any offer
to buy any shares or other securities of Borrower or any Subsidiary,
or otherwise approach or negotiate in respect thereof with any Person
in a manner which constitutes a material violation of the Securities
Act or any other federal, state or other securities law or in such
circumstances or in such manner as to bring the issue and sale of the
Shares pursuant to this Agreement or the other Loan Documents into
material violation of the Securities Act or any other federal, state
or other securities law.
8.2.8. Dividends. Declare, accrue or pay any dividends, or
make any other distributions in cash, property or stock, with respect
to any Shares or any other equity securities of Borrower, or purchase
or redeem any Shares or any other equity securities of Borrower, other
than with respect to the Preferred Stock.
8.2.9. Capital Expenditures. Expend or contract to expend,
on a consolidated basis, in any fiscal year of Borrower in the
aggregate for the lease, purchase or other acquisition of any capital
asset in an aggregate amount more than $100,000.
8.2.10. Changes in Management or Business. Change the nature
of its business in any material respect from that engaged in on the
Closing Date or enter into any agreements which would restrict its
right to perform under this Agreement or the other Loan Documents.
8.2.11. Changes in Accounting Periods or Methods. Change
Borrower's fiscal year from the year end of December 31 or make or
institute any change in accounting method employed in the preparation
of the financial statements described in Section 8.1 hereof.
8.2.12. Benefits and Compensation. Increase by more than
3.5% during any one-year period the salaries, benefits, or
compensation of any kind or nature of the officers, directors or
employees of Borrower or the Subsidiaries.
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8.2.13. Loans and Advances. Except as required by law, pay
any past loans, advances, or deferred or outstanding salaries or
benefits of any kind or nature made by, or due to, any past or present
officer, director or employee of Borrower or the Subsidiaries until
such time as Borrower and Subsidiaries collectively generate positive
net income, determined in accordance with GAAP, for a period of at
least one (1) year.
8.3. Board of Directors. For so long as the Lender or its
Affiliates or Participants continue to hold any Convertible Secured Notes or
Shares, the Lender shall be entitled to advance written notice of any and all
meetings of any kind or nature of the Board of Directors of Borrower as
follows: (a) sixty (60) days' advance notice in the case of meetings to be held
outside of Cook County, Illinois, (b) fourteen (14) days' advance notice in the
case of meetings to be held in Cook County, Illinois, and (c) such lesser
notice as may be required as a result of an emergency, but in no event less
than five (5) days. In addition, at the Lender's sole option, it shall be
entitled to attend, or to have its agents or designees attend, any or all such
meetings in order to ensure continuing compliance with the terms and conditions
contained herein and in the other Loan Documents. Borrower shall be
responsible for paying all fees and expenses (including, without limitation,
travel, lodging, meals and other related expenses) incurred in connection with
attending meetings of the Board of Directors by any of the above-referenced
agents, designees or members of the Board of Directors designated by the Lender
pursuant to this Section 8.3, who shall in addition be paid by Borrower
compensation equal to that paid by Borrower to Directors who are officers of
Borrower but who are not paid an annual salary by Borrower.
8.4 Preemptive Rights Upon the Issuance of Capital Stock by
Borrower. At any time that the Convertible Secured Notes are outstanding or
the Lender or its transferees own any Shares or other securities in Borrower,
if Borrower proposes to issue any Shares or any security or obligation which by
its terms is convertible into Shares or any warrant, option or other
subscription or purchase right with respect to Shares other than pursuant to
the Warrant or pursuant to the Convertible Secured Notes or the Preferred
Stock, Borrower shall first deliver to the Lender a notice with respect to such
proposed issuance which sets forth the price and number of Shares or other such
securities which it proposes to issue. The Lender shall have the right to
purchase such offered securities at the proposed issuance price (or, if such
securities are to be issued in consideration of services rendered or upon the
conversion or exercise of convertible securities, warrants or options
heretofore issued by Borrower, a sufficient amount of newly issued securities
such that Lender would suffer no dilution, at an amount equal to the fair value
of such services or the actual consideration received by Borrower upon such
conversion or exercise), which right shall be exercisable by the Lender by
written notice to Borrower given on or before ninety (90) days after receipt by
Lender of written notice of such proposed issuance. Such right shall accrue to
Lender and all holders of the Preferred Stock. If only Lender exercises such
right, Lender may exercise such right as to any or all of such Shares or other
securities. If Lender and one or more holders of the Preferred Stock exercise
such right, Lender shall have the right to purchase that portion of the Shares
or other securities purchasable under this section as the unpaid principal
amount of Lender's Convertible Secured Notes bears to the sum of the unpaid
principal amount of Lender's Convertible Secured Notes and the aggregate
purchase price of Preferred Stock held by all holders exercising such right.
In the event Lender does not exercise its option under this Section 8.4,
Borrower may issue the
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offered securities in the amount and at the price set forth in
such notice to the Lender within one-hundred eighty (180) days of the
date of such notice. The closing of any purchase by the Lender under
this Section 8.4 shall be held at the principal office of the Lender
at 11:00 a.m. local time on the one-hundred fiftieth (150th) day after
the date on which the Lender first shall have received notice of the
proposed issuance, or at such other time and place as the parties to
the transaction may agree. Notwithstanding the foregoing, nothing
contained in this Section 8.4 will waive Lender's right to prevent or
object to the issuance of Shares or any other securities by Borrower
or its Subsidiaries.
ARTICLE IX
EVENTS OF DEFAULT
9.1. Events of Default. Each of the following events shall
constitute an "Event of Default" hereunder (whatever the reason for such Event
of Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree, order, rule or regulation
of any Governmental Authority or otherwise):
9.1.1. Borrower shall (i) fail to pay when due any principal
amount of, or (ii) fail to pay within five (5) days after due any
other Liabilities, including interest or any other amount owed under,
the Convertible Secured Notes or under this Agreement or any other
Loan Document; or
9.1.2. any representation or warranty by Borrower (or any of
its officers) under this Agreement or any of the other Loan Documents
or Borrower Transaction Documents shall prove to have been incorrect
in any material respect when made; or
9.1.3. Borrower shall fail to perform or observe any of the
terms, covenants or agreements contained in this Agreement or any of
the other Loan Documents on its part to be performed or observed if,
in the case of the covenants in Sections 8.1.1, 8.1.2 and 8.1.4 only,
or if, in the case of an inadvertent violation of Section 8.1.3 or
8.2.7, such failure or violation shall remain unremedied for a period
of twenty (20) days after written notice thereof shall have been given
to Borrower by Lender; or
9.1.4. an event of default occurs and is continuing under
Borrower Transaction Documents if (i) such event of default, after any
applicable grace period, is an actual payment default on principal or
interest of any Indebtedness, (ii) as a result of such event of
default the maturity of such Indebtedness has been accelerated prior
to its expressed maturity or (iii) such default could reasonably be
expected to materially impair the ability of Borrower or its
Subsidiaries to enforce Borrower Transaction Documents in accordance
with their terms; or
9.1.5. an event of default occurs and is continuing under
the Preferred Stock Purchase Agreement; or
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9.1.6. Borrower shall generally fail to pay its debts as
such debts become due, shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the benefit of
its creditors; or any proceeding shall be instituted by or against
Borrower seeking to adjudicate it bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of
debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee or other similar official for it or
for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), either
such proceeding shall remain undismissed or unstayed for a period of
30 days or any of the actions sought in such proceeding (including,
without limitation, the entry of an order for relief against it or the
appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its property) shall
occur; or Borrower shall take any action to authorize any of the
actions set forth above in this Section 9.1.6; or
9.1.7. any Person entitled to take the actions described in
this Section 9.1.7, after the occurrence of any default or event of
default under any agreement, mortgage, indenture or instrument
evidencing any Indebtedness of Borrower which is outstanding in a
principal amount of at least $10,000.00 in the aggregate, shall notify
Borrower of the intended sale or disposition of any assets of Borrower
that have been pledged to or for the benefit of such Person to secure
such Indebtedness or shall commence proceedings or take any action
(including by way of set-off) to retain in satisfaction of any such
Indebtedness, or to collect on, seize, dispose of, or apply, any
assets of Borrower (including funds on deposit or held pursuant to
lock box and other similar arrangements), pursuant to the terms of any
agreement or instrument evidencing any such Indebtedness or in
accordance with applicable law; or
9.1.8. there remains unpaid and unstayed pending appeals for
more than thirty (30) consecutive days, one or more judgments or
decrees against Borrower, any Subsidiary or any guarantor of any of
the Liabilities involving an aggregate liability of $25,000.00 or
more (other than a money judgment covered by insurance, but only if
the insurer has admitted, in writing, liability with respect to such
judgment); or
9.1.9. if any of the present executive officers of Borrower
are no longer personally and actively involved in the management and
supervision of Borrower or any of its Subsidiaries, at least
substantially to the same extent as of the date hereof, except that,
if any of them is no longer so involved due to his death or
disability, such event shall not be an Event of Default if he is
replaced within 45 days by another person acceptable to the Lender in
its Sole and Exclusive Discretion (which must be evidenced in writing
by Lender).
Notwithstanding the foregoing, the mere failure to pay interest under
the Convertible Secured Notes which is due in June 1996 or September 1996 or
the mere failure to pay dividends on the Preferred Shares which is due on June
30, 1996 or September 30, 1996 shall not be an Event of Default for any purpose
hereunder, except that (1) such failure to pay in September 1996 shall trigger
interest
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at the Default Rate under the Convertible Debt Agreement and dividends
at the Default Rate under the Certificate of Designation, and (2) interest
which is unpaid in June 1996 shall be added to principal.
9.2. Remedies. If an Event of Default (other than an Event of
Default specified in Section 9.1.6) occurs and is continuing, Lender may, by
notice to Borrower (the "Default Notice"), declare the then-outstanding
principal amount and accrued interest on the Convertible Secured Notes to be
immediately due and payable. In the event of a declaration of acceleration
because an Event of Default specified under Section 9.1.4(ii) (whether or not
it also results in an Event of Default under Section 9.1.4(i)) has occurred and
is continuing, such declaration of acceleration shall be automatically annulled
if the underlying event(s) causing such Event of Default is cured or
permanently waived or the holders of the Indebtedness which is the subject of
such underlying event(s) have rescinded their declaration of acceleration in
respect of such Indebtedness within 90 days thereof and Lender has received
written notice of such cure, permanent waiver or rescission and no other Event
of Default has occurred during such period which has not been cured or waived.
If an Event of Default specified in Section 9.1.6 occurs, the amounts referred
to in the first sentence of this Section 9.2 shall ipso facto become and be
immediately due and payable without any declaration or other action on the part
of Lender. The Lender by notice to Borrower may rescind any acceleration and
its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default hereunder have been cured or
waived except nonpayment of principal or interest that has become due solely
because of the acceleration.
ARTICLE X
LIMITED CALL RIGHTS
10.1. Limited Call Right. During the period commencing on the date
that Lender has provided Convertible Loans and the purchasers under the
Preferred Stock Purchase Agreement have purchased Preferred Stock in the
initial aggregate principal amount of One dollar ($1.00) or more and ending on
the earlier to occur of one year after the Closing Date or when no Indebtedness
remains outstanding under the Convertible Secured Notes and no Preferred Stock
remains outstanding, Borrower may give Lender (or its transferees) notice of
its intention to purchase and redeem ("Call") all (but not less than all) of
the Indebtedness then outstanding under the Convertible Secured Notes
(collectively, the "Called Debt") if the conditions described in Section 10.2
hereof have been complied with at and prior to the time of Borrower's exercise
of the Call, and thereupon Lender (or its transferees) shall sell to the
Company the Called Debt as provided in this Article 10.
10.2. Conditions to Call. The Call may be exercised and consummated
only if: (i) no Event of Default has occurred and is continuing nor any Event
of Default would occur, after giving effect to the exercise of the Call, with
the passage of time, the giving of notice, or both; (ii) the exercise of the
Call (and the resulting partial prepayment of the Convertible Secured Note) is
not prohibited by
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applicable corporate or other law or pursuant to the terms or
covenants of any loan agreement, note, security agreement or other instrument
binding upon the Company, (iii) concurrently therewith, Borrower calls for
redemption that portion of the Preferred Stock (the "Called Preferred Stock")
which bears the same percentage of the total outstanding Preferred Stock as the
Called Debt bears to the total outstanding indebtedness under the Convertible
Secured Notes, (iv) concurrently therewith, Borrower either (A) deposits in
escrow with Agent (or, if no Agent has been appointed, with Lender) an amount
in cash equal to five (5) percent of the Call Price (the "Deposit") or (B)
delivers to Lender a written, unconditional commitment from a third party to
provide funds sufficient to consummate the Call and evidence satisfactory to
Lender that such third party has sufficient liquid assets available for that
purpose, and (v) Lender does not exercise its right to convert the Called Debt
within 90 Business Days after the Call is made. At the closing of the Call,
the Deposit shall, if made under Clause (A) above, be paid by Agent to Lender
and applied against the Call Price. If the Call fails to close in accordance
with or within the time period provided in Section 10.5 (other than due to
Lender's default or to the conversion of the Called Debt), the Deposit shall,
if made under clause (A) above, be paid by Agent to Lender as liquidated
damages, such failure to close shall constitute an Event of Default and
Borrower shall not be entitled to close the Call or to make any subsequent
Call.
10.3. [Intentionally Omitted]
10.4. Call Price. The purchase price ("Call Price") of the Called
Debt shall be the amount of such Indebtedness plus (a) if the Call is made
within 180 days after the Closing Date, a premium of $375,000, (b) if the Call
is made more than 180 days but within 270 days after the Closing Date,
a premium of $500,000, and (c) if the Call is made more than 270 days but
within 360 days after the Closing Date, a premium of $750,000. The portion of
the Call Price determined under clause (a), (b) or (c) of the preceding
sentence (the "Premium") shall be allocated among the holders of the Preferred
Stock and Lender in proportion to the ratio that the Liquidation Value (as
defined in the Certificate of Designation) of the Called Stock bears to the
amount of the Indebtedness represented by the Called Debt.
10.5. Exercise of Call. Borrower may exercise the Call (subject to
the terms and conditions hereinabove set forth) by delivery to Lender during
the period of the effectiveness of the Call of written notice of exercise of
the Call, which notice shall specify the amount of the Convertible Secured
Notes which Borrower elects to Call and shall contain a statement, certified by
the Chief Executive Officer of Borrower, that each of the conditions to the
exercise and to the closing of the Call hereinabove set forth has been
fulfilled. The closing of the Call shall take place at the principal offices
of the Lender, or where Lender designates, on or before 110 Business Days after
the exercise of the Call, and shall take place concurrently with the redemption
of the Called Preferred Stock; provided, however, that if Lender agrees by
written notice to Borrower to accept the Call as to any portion of the Called
Debt and to waive its right to convert such portion of the Called Debt prior to
the expiration of such conversion right, the closing of the Call as to such
portion shall take place within 20 Business Days after such notice is given.
At the closing, Agent (a) shall receive from Borrower by wire transfer
immediately available funds in an amount equal to the Call Price, plus all
accrued but unpaid interest in respect of the Called
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Debt, and (b) shall receive from Lender the Convertible Secured Note
being Called. Upon receipt of all of such items, Agent shall deliver to
Borrower the Called Convertible Secured Note for cancellation and shall deliver
to Lender the above funds.
10.6. No Other Call or Prepayment Rights. Except as permitted in
this Article X, the Borrower shall not be entitled to call or prepay the
outstanding Convertible Secured Notes.
ARTICLE XI
ASSIGNMENTS AND PARTICIPATIONS
11.1 Assignments. Assignments or participations by Lender of its
rights and obligations arising under and with respect to this Agreement and the
other Loan Documents shall be subject to the following terms and conditions:
11.1.1. The Lender may assign and delegate (the
"Assignment") to one or more assignees (the "Assignees") all or a
portion of its rights and obligations under this Agreement or the Loan
Documents (including, without limitation, all or any portion of the
Convertible Loan and its interest in the Convertible Secured Notes)
subject only to the conditions set forth in Section 11.1.2. After any
Assignment permitted under this Section 11.1.1, Lender shall have no
further obligations with respect to the portion of its rights and
obligations so assigned arising after the date of such Assignment.
11.1.2. Any Assignment shall identify the party to whom the
Convertible Loan is being assigned and the amount of the Convertible
Loan being assigned. Unless such Assignment is to a Controlled
Affiliate of Lender, such Assignment shall also require the prior
written consent of one of the holders of the Preferred Stock.
11.2. Participations. Participations by any Lender of its rights
and obligations arising under and with respect to this Agreement shall be
subject to the following terms and conditions:
11.2.1. The Lender may sell participations (the
"Participations") to one or more participants (the "Participants") in
or to all or any portion of its rights and obligations under this
Agreement (including, without limitation, all or any portion of the
Convertible Loan and its interest in the Convertible Secured Notes or
the other Loan Documents) subject to such terms and conditions as
Lender may agree to with such Participants. After any such sale
permitted under this Section 11.2, Lender shall have no further
obligations with respect to the portion of its rights and obligations
so sold arising after the date of such sale.
11.2.2. Borrower agrees that if amounts outstanding under
this Agreement and the Convertible Secured Notes are due and unpaid,
or shall have been declared due and payable,
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then, to the extent permitted by applicable law, the
Participant shall be deemed to have the right to set-off in respect of
its participating interest in amounts owing under this Agreement and
the Convertible Secured Notes to the same extent as if the amount of
its participating interest were owing directly to it under this
Agreement or such Convertible Secured Notes; provided, that any
Participant exercising such right shall be obligated to share with the
Lender the amount of any such set-off.
11.2.3. The Lender may, in connection with any Assignment
or Participation or proposed Assignment or Participation pursuant to
Sections 11.1 and 11.2, disclose to the Assignee or Participant or
proposed Assignee or Participant any information relating to Borrower
furnished to such Lender by or on behalf of Borrower.
11.2.4. Borrower hereby irrevocably authorizes Amsterdam
Equities Limited to act, and Amsterdam Equities Limited hereby agrees
to act, as agent for any Assignee or Participant and to exercise all
rights and discharge all obligations of Lender hereunder on behalf of
such Participants or Assignees and Borrower agrees to recognize, be
bound by and consent to such agency relationship as Lender may enter
into in connection with a Participation or Assignment. Each Assignee
and Participant agrees to be bound by any actions taken by said agent
on its behalf and to take no actions independently of said agent.
11.2.5. Unless such Participants are Controlled Affiliates
of Lender, such Participation shall require the prior written consent
of one of the holders of the Preferred Stock.
ARTICLE XII
THE AGENT
12.1. Appointment. Lender may appoint an Agent to act as escrow
agent hereunder by written notice to Borrower. In the event of such
appointment, the Agent shall be authorized to take such action on behalf of
Lender and Borrower under the provisions of this Agreement, the other Loan
Documents and any other instruments and agreements referred to herein or
therein and to exercise such powers and to perform such duties hereunder and
thereunder as are specifically delegated to or required of the Agent by the
terms hereof and thereof and such other powers as are reasonably incidental
thereto. The Agent may perform any of its duties hereunder by or through its
officers, directors, agents or employees.
12.2. Nature of Duties. The Agent shall not have any duties or
responsibilities except those expressly set forth in this Agreement. Neither
the Agent nor any of its officers, directors, agents or employees shall be
liable for any action taken or omitted by it or them hereunder or under any
other Loan Document or in connection herewith or therewith, unless caused by
its or their gross negligence or willful misconduct. However, the Agent will
use reasonable care in the custody of funds deposited
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with it hereunder. The duties of the Agent shall be mechanical and
administrative in nature; the Agent shall not have by reason of this Agreement
or any other Loan Document a fiduciary relationship in respect of the Lender or
Borrower and nothing in this Agreement or any other Loan Document, expressed or
implied, is intended to or shall be so construed as to impose upon the Agent
any obligations in respect of this Agreement or any other Loan Document except
as expressly set forth herein.
12.3. Lack of Reliance on the Agent. In acting as Agent hereunder,
the Agent shall not be responsible to the Lender or Borrower for any recitals,
statements, information, representations or warranties herein or in any
document, certificate or other writing delivered in connection herewith or for
the execution, effectiveness, genuineness, validity, enforceability,
perfection, collectibility, priority or sufficiency of this Agreement or any
other Loan Document or the financial condition of Borrower or any of its
Subsidiaries or be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of this
Agreement or any other Loan Document, or the financial condition of Borrower or
any of its Subsidiaries or the existence or possible existence of any Default
or Event of Default.
12.4. Certain Rights of the Agent. The Agent shall act only in
accordance with (a) the terms of this Agreement, (b) written instructions
executed by both Lender and Borrower, or (c) an order of a court which is no
longer subject to appeal and which Agent is advised by counsel is binding upon
it. If the Agent shall request instructions from the Lender and Borrower with
respect to any act or action (including failure to act) in connection with this
Agreement or any other Loan Document which is not expressly provided for
herein, the Agent shall be entitled to refrain from such act or taking such
action unless and until the Agent shall have received instructions from the
Lender and Borrower, and the Agent shall not incur any liability to any Person
by reason of so refraining. Without limiting the foregoing, neither the Lender
nor Borrower shall have any right of action whatsoever against the Agent as a
result of the Agent acting or refraining from acting hereunder or under any
other Loan Document in accordance with the instructions of the Lender and
Borrower.
12.5. Reliance. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, telecopier message, cablegram, radiogram, order
or other document or telephone message signed, sent or made by any Person that
the Agent believed to be the proper Person and, with respect to all legal
matters pertaining to this Agreement and any other Loan Document and its duties
hereunder and thereunder, upon advice of counsel selected by it in good faith.
12.6. Indemnification. Borrower will reimburse and indemnify the
Agent for and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in performing its duties hereunder (except to the
extent based on acts or omissions constituting gross negligence or wilful
misconduct in the performance of such duties) in his capacity as Agent or under
any other Loan Document, in any way relating to or arising out of this
Agreement or any other Loan Document.
Page 48 of 56
<PAGE> 49
12.7. Holders. The Agent may deem and treat the payee of any
Convertible Secured Note as the owner thereof for all purposes hereof unless
and until a written notice of the assignment, transfer or endorsement thereof,
as the case may be, shall have been filed with the Agent. Any request,
authority or consent of any Person or entity who, at the time of making such
request or giving such authority or consent is the holder of any Convertible
Secured Note shall be conclusive and binding on any subsequent holder,
transferee, assignee or indorsee, as the case may be, of such Convertible
Secured Note or of any Convertible Secured Note or Convertible Secured Notes
issued in exchange therefor.
12.8. Resignation.
(a) The Agent may resign from the performance of all its
functions and duties hereunder and/or under the other Loan Documents
at any time by giving 15 Business Days' prior written notice to
Borrower and the Lender. Each such resignation shall take effect upon
the expiration of such 15-day period, provided that the resignation of
the last remaining Agent shall take effect upon the appointment of a
successor Agent, pursuant to clauses (b) and (c) below or as otherwise
provided below.
(b) Upon any such notice of resignation of the last
remaining Agent, the Lender shall appoint a successor Agent.
(c) Following any notice of resignation by any Agent, if
a successor Agent shall not have been so appointed within said 15
Business Days, such Agent shall then appoint a successor Agent who
shall serve as Agent hereunder or thereunder until such time, if any,
as the Lender appoints a successor Agent as provided above.
(d) If no successor Agent has been appointed pursuant to
clause (b) or (c) above by the 20th Business Day after the date such
notice of resignation was given by the Agent, Agent's resignation
shall become effective and the Lender shall thereafter perform all the
duties of the Agent hereunder and/or under any other Loan Document
until such time, if any, as the Lender appoints a successor Agent as
provided above.
ARTICLE XIII
MISCELLANEOUS
13.1. Amendments, Etc. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by Borrower therefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Lender, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
Page 49 of 56
<PAGE> 50
13.2. Notices, Etc. All notices, requests and other communications
provided for hereunder shall be in writing and sent by first class or
equivalent mail of the country of origin, registered or certified, postage
prepaid and return receipt requested or delivered personally or by courier
against written acknowledgement of receipt (a) if to Borrower, at its address
set forth on the signature pages hereof with a copy to John F. Mahoney, Esq.,
Chuhak & Tecson P.C., 225 West Washington Street, Suite 1300, Chicago,
Illinois, 60606, (b) if to Lender, at its addresses set forth on the signature
pages hereof with a copy to Kevin Cahill, Esq., Brooks & Cahill, 208 South
LaSalle Street, Suite 1855, Chicago, Illinois 60604, and (c) if to successors
or assigns or participants of Lender, at their respective addresses provided to
Borrower and Lender, or to such other addresses as any such party may hereafter
specify for such purpose by notice to Lender and Borrower. All such notices
and other communications shall be effective on the date of delivery to the
party receiving such notice, as evidenced by the date set forth on the receipt
signed by the party receiving such notice.
13.3. No Waiver; Remedies. No failure on the part of Lender to
exercise, and no delay in exercising, any right hereunder or under the other
Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any right hereunder or under the Convertible Secured Notes
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
13.4. Costs and Expenses; Indemnity.
13.4.1. Borrower shall pay on demand (i) all reasonable costs
and expenses of Lender in connection with the preparation, execution,
delivery, administration, modification and amendment of this Agreement
and the Loan Documents, including, without limitation, the fees and
out-of-pocket expenses of counsel for Lender with respect thereto and
other legal counsel advising any successors or assigns of Lender as to
their respective rights and responsibilities under this Agreement, and
due diligence, transportation, lodging, meals, computer, duplication,
appraisal, audit, insurance, consultant, search and filing fees, costs
and expenses of Lender, and (ii) all reasonable costs and expenses, if
any, of Lender and any Assignees and Participants (including, without
limitation, counsel fees and expenses), in connection with the
enforcement (whether through negotiations, legal proceedings or
otherwise) of their respective rights under this Agreement and the
Loan Documents.
13.4.2. Borrower shall indemnify and hold harmless Lender and
any Assignees and Participants and their respective Affiliates (each
such Person being an "Indemnified Party") from and against any and all
losses, claims, damages, liabilities and expenses (including, without
limitation, fees and disbursements of counsel and out of pocket
expenses of Lender and its agents), which may be incurred by or
asserted or awarded against any Indemnified Party, in each case in
connection with, relating to or arising out of or by reason of, or in
connection with the preparation for or defense of, joint or several,
any investigation, inquiry, litigation or proceeding (i) relating to
or arising out of the transactions contemplated herein or the
execution, delivery, enforcement and performance of this Agreement or
the Loan Documents, (ii) any claim of a
Page 50 of 56
<PAGE> 51
party (other than an Indemnified Party) relating to any act,
omission or obligation of Borrower or its stockholders, directors,
officers, agents, employees, creditors or Affiliates or (iii) any
breach of any written obligation of Borrower or its Affiliates to
Lender, whether or not such Indemnified Party is a party thereto and
whether or not the transactions contemplated herein are consummated.
Borrower will not be liable to any Indemnified Party under the
foregoing indemnification provision to the extent that any loss,
claim, damage, liability or expense incurred by or asserted or awarded
against such Indemnified Party is found to have resulted from the
willful misconduct or gross negligence of such Indemnified Party as
determined by a final judgment of a court of competent jurisdiction.
The agreements in this Section 13.4.2 shall survive repayment of the
Convertible Secured Notes and all amounts payable under this
Agreement.
13.5. Right of Set-off. Subject to Article 9, upon the occurrence
and during the continuance of any Event of Default, Lender and any Assignees
and Participants are hereby authorized at any time and from time to time, to
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other Indebtedness at any time owing by Lender and any Assignees and
Participants to or for the credit or the account of Borrower against any and
all of the Liabilities irrespective of whether or not the Lender and any such
Assignees and Participants shall have made any demand under this Agreement or
the Convertible Secured Notes and although such obligations may be unmatured.
Lender and any Assignees and Participants agree promptly to notify Borrower
after any such set-off and application made by Lender or any Assignees or
Participants, provided that the failure to give such notice shall not affect
the validity of such set-off and application. The rights of Lender or any
Assignee or Participants under this Section 13.5 are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
which such Purchaser or such Assignee or Participants may have hereunder, under
the Loan Documents, or pursuant to applicable law.
13.6. Construction. The use of the singular or plural or masculine
or neuter gender shall not be given an exclusionary meaning and, where
applicable, shall be intended to include the appropriate number or gender, as
the case may be. The failure of this Agreement to use the term "Sole and
Exclusive Discretion" in connection with any act or failure to act of Lender
hereunder shall not be deemed to imply any obligation on the part of Lender to
act or fail to act except in its Sole and Exclusive Discretion.
13.7. Execution in Counterparts. This Agreement may be executed in
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
13.8. Binding Effect; Governing Law. This Agreement shall be
binding upon and inure to the benefit of Borrower and Lender and their
respective successors and assigns, except that Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent
Page 51 of 56
<PAGE> 52
of Lender. This Agreement and the Convertible Secured Notes shall be
governed by, and construed in accordance with, the laws of the State of
Illinois, without regard to its principles of conflicts of law.
13.9. Severability. The invalidity of any provision of this
Agreement or portion of a provision shall not affect the validity of any other
portion of this Agreement or the remaining portion of the applicable provision.
13.10. Submission to Jurisdiction. BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION AND EXCLUSIVE VENUE OF ANY STATE OR FEDERAL
COURT LOCATED IN CHICAGO, ILLINOIS, OR ANY COURT LOCATED IN THE BAHAMAS, OVER
ANY ACTION OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHT UNDER THIS
AGREEMENT, THE LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT, OR
AGREEMENT DELIVERED, OR THAT MAY IN THE FUTURE BE DELIVERED, IN CONNECTION
HEREWITH OR THEREWITH, OR (II) ARISING FROM ANY FINANCING RELATIONSHIP EXISTING
IN CONNECTION WITH THIS AGREEMENT, AND BORROWER HEREBY IRREVOCABLY AGREES THAT
ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN SUCH STATE OR FEDERAL COURT. BORROWER HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. BORROWER AGREES
THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER
MANNER PROVIDED BY LAW.
BORROWER DESIGNATES AND APPOINTS CT CORPORATION SYSTEM, 208
SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60604, AND SUCH OTHER PERSONS AS MAY
HEREAFTER BE SELECTED BY BORROWER WHICH IRREVOCABLY AGREE IN WRITING TO SO
SERVE AS ITS AGENT TO RECEIVE AND FORWARD ON ITS BEHALF SERVICE OF ALL PROCESS
IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY
ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT.
A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO
BORROWER AT ITS ADDRESS PROVIDED IN SECTION 13.2 EXCEPT THAT UNLESS OTHERWISE
PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE
VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY BORROWER REFUSES TO
ACCEPT SERVICE, BORROWER HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL
CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF LENDER
TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
Page 52 of 56
<PAGE> 53
BORROWER AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR
PROCEEDING AGAINST LENDER OR ANY ASSIGNEE OR PARTICIPANT OR ANY OF THEIR
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTIES, ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OF THE DOCUMENTS REFERRED TO ABOVE, IN ANY
COURT OTHER THAN ONE HEREINABOVE SPECIFIED IN THIS SECTION 13.10. NOTHING IN
THIS SECTION 13.10 SHALL AFFECT THE RIGHT OF LENDER OR ANY ASSIGNEE OR
PARTICIPANT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR THE
RIGHT OF LENDER OR ANY ASSIGNEE OR PARTICIPANT TO BRING ANY ACTION OR
PROCEEDING AGAINST BORROWER OR THE PROPERTY OF BORROWER IN THE COURTS OF ANY
OTHER JURISDICTIONS.
13.11. Waiver of Jury Trial. BORROWER WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHT UNDER THIS
AGREEMENT, THE LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT, OR
AGREEMENT DELIVERED, OR THAT MAY IN THE FUTURE BE DELIVERED, IN CONNECTION
HEREWITH, OR (II) ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN
CONNECTION WITH THIS AGREEMENT, AND BORROWER AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
[END OF TEXT THIS PAGE]
Page 53 of 56
<PAGE> 54
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
BORROWER:
PRINCETON DENTAL MANAGEMENT CORPORATION
By: ______________________________
Name: ______________________________
Title: ______________________________
Address and telecopy:
2358 Hassell Road
Hoffman Estates, Illinois 60195
Telecopy: (708) 834-2697
LENDER:
AMSTERDAM EQUITIES LIMITED
By: ______________________________
Name: ______________________________
Title: ______________________________
Address and telecopy:
_______________________________________
_______________________________________
Telecopy: _____________________________
Page 54 of 56
<PAGE> 55
STATE OF ILLINOIS )
) SS
COUNTY OF ______ )
I, ___________________________________, a Notary Public in and for the
County and State aforesaid, do hereby certify that Charles Mitchell, D.D.S.,
personally known to me to be the President and Chief Executive Officer of
Princeton Dental Management Corporation, a Delaware corporation, appeared
before me this day in person and acknowledged that as such officer he signed
and delivered such instrument as his free and voluntary act and with due
authorization, and as the free and voluntary act of such corporation, for the
uses and purposes herein set forth.
Given under my hand and seal this _____ day of _______________, 1996.
SEAL:
______________________________
NOTARY PUBLIC
My commission expires _____________.
Page 55 of 56
<PAGE> 56
SCHEDULE 6.11
TAX RETURNS AND PAYMENTS
None.
Page 56 of 56
<PAGE> 57
215094.6
CERTIFICATE OF DESIGNATION
OF
SERIES B PREFERRED STOCK
OF
PRINCETON DENTAL MANAGEMENT CORPORATION
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware.
Princeton Dental Management Corporation, a Delaware corporation (the
"Corporation"), certifies that pursuant to the authority contained in its
Certificate of Incorporation and in accordance with the provisions of Section
151 of the General Corporation Law of the State of Delaware, its Board of
Directors has adopted the following resolution, creating a series of its
Preferred Stock, $1.00 par value per share, designated as Series B Preferred
Stock (the "Series B Preferred Stock"):
RESOLVED, that the Series B Preferred Stock be hereby created, and
that the designation and amount thereof, preferences and other special rights
of the shares of such series, and the qualifications, limitations and
restrictions thereof are as follows:
SECTION 1. DESIGNATION AND AMOUNT. The shares of such Series B
Preferred Stock shall be designated as the "Series B Preferred Stock" and the
number of shares constituting such series shall be 100, which number may be
increased or decreased by the Board of Directors of the Corporation, subject to
Section 6, without a vote of holders of Common Stock; provided, however, that
such number may not be decreased below the number of then currently outstanding
shares of Series B Preferred Stock.
SECTION 2. DEFINITIONS .
"Common Stock" means the Common Stock of the Corporation, $0.0001 par
value per share.
"Convertible Debt Agreement" means that certain Convertible Debt
Agreement dated April 22, 1996 between the Corporation, as borrower,
and Amsterdam Equities Limited as lender.
"Preferred Stock Purchase Agreement" means that certain Series A
11.75% Cumulative Convertible Preferred Stock Purchase Agreement of
even date herewith between Frank Leonard Laport, Beverly Trust
Company, as Custodian of the Frank Leonard Laport Rollover Individual
Account Number 75-49990 and Trust, Amsterdam Equities Limited and the
Corporation.
"Share" means a share of Common Stock.
SECTION 3. ELECTION OF DIRECTOR. Except for the right to elect
a director as set forth herein, the shares of Series B Preferred Stock shall be
nonvoting. The holders of Series B Preferred Stock shall
Page 1 of 4
<PAGE> 58
have the right at any time after the occurrence of an Event of Default (as
defined in the Convertible Debt Agreement) to elect one Class B Director.
(a) Election. The Class B Director shall be nominated by the
holders of a majority of the votes of Series B Preferred Stock
entitled to vote thereon. Once nominated, the Class B Director shall
be elected to the Board of Directors by the holders of a majority of
the votes of Series B Preferred Stock entitled to vote thereon at any
meeting of the holders of Series B Preferred Stock or by written
consent in lieu of a meeting in accordance with the General
Corporation Law of Delaware.
(b) Removal. The Class B Director may be removed with or
without cause at any time by the holders of a majority of the votes of
Series B Preferred Stock entitled to vote thereon.
(c) Vacancies. A vacancy of the Class B Director shall be
filled in the same manner as set forth for the election of the Class B
Director in Section 3(a) above.
(d) Voting. The Class B Director shall be entitled to cast a
number of votes on each matter submitted to the Corporation's Board of
directors for a vote equal to the sum of the number of votes entitled
to be cast by all of the other directors plus one (1).
(e) Quorum, Required Vote and Adjournment. If any shares
of Series B Preferred Stock are outstanding, then at all meetings of the
Corporation's Board of Directors a majority, which shall include the Class B
Director, of the number of directors shall constitute a quorum for the
transaction of business. The act of directors entitled to cast a majority of
the votes present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute or herein. If a quorum shall not be present at any meeting of the
Board of Directors, then the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present. This section supersedes any provision with respect
to quorum, required vote and adjournment contained in the By-Laws of the
Corporation.
SECTION 4. REGISTRATION OF TRANSFER. The Corporation will keep at
its principal office a register for the registration of Series B Preferred
Stock. Upon the surrender of any certificate representing Series B Preferred
Stock at such place, the Corporation will, at the request of the record holder
of such certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of shares represented by the surrendered certificate. Each such new
certificate will be registered in such name and will represent such number of
shares as is requested by the holder of the surrendered certificate and will be
substantially identical in form to the surrendered certificate.
SECTION 5. REPLACEMENT. Upon receipt of the evidence reasonably
satisfactory to the Corporation (an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction or mutilation
of any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the
Page 2 of 4
<PAGE> 59
Corporation, or, in the case of any such mutilation upon surrender of such
certificate, the Corporation will (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares represented by such lost, stolen, or destroyed or mutilated certificate
and dated the date of such lost, stolen, destroyed or mutilated certificate.
SECTION 6. AMENDMENT. No amendment, modification or waiver will be
binding or effective with respect to any provision of this Certificate of
Designation without the prior written consent of the holders of at least a
majority of the then outstanding shares of Series B Preferred Stock. The
Corporation shall not take any action which may have the effect of diluting the
rights of the holders of Series B Preferred Stock, including, without
limitation, authorizing a stock split or combination with respect to the Series
B Preferred Stock, changing the number of authorized shares of Series B
Preferred Stock or issuing Series B Preferred Stock to any person or entity
other than lender under the Convertible Debt Agreement without the prior
written consent of the holders of at least a majority of the then outstanding
shares of Series B Preferred Stock.
SECTION 7. NOTICE. All notices, requests and other communications
provided for hereunder shall be in writing and sent by first class mail (or
equivalent mail of the country of origin) registered or certified, postage
prepaid and return receipt requested or delivered personally or by courier
against written acknowledgement of receipt (i) if to the Corporation, at 2358
Hassell Road, Hoffman Estates, Illinois 60195, with a copy to John F. Mahoney,
Esq., Chuhak & Tecson, P.C., 225 West Washington Street, Suite 1300, Chicago,
Illinois, 60606, (ii) if to a holder of Series B Preferred Stock, at such
holder's address as it appears in the stock records of the Corporation (unless
otherwise indicated by such holder) or (iii) if to successors or assigns, at
their respective addresses provided by them to the Corporation, or to such
other addresses as any party may hereafter specify for such purpose by notice
to the other parties. All such notices and other communications shall be
effective on the date of delivery to the party receiving such notice, as
evidenced by the date set forth on the receipt signed by the party receiving
such notice.
Page 3 of 4
<PAGE> 60
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation of Series B Preferred Stock to be duly executed by its Chairman and
attested to by its Secretary this 22nd day of April, 1996.
PRINCETON DENTAL MANAGEMENT CORPORATION
By: ______________________________
Chairman
ATTEST:
___________________________________________
Secretary
Page 4 of 4
<PAGE> 61
AMENDED AND RESTATED SECURITY AGREEMENT
This AMENDED AND RESTATED SECURITY AGREEMENT is made and entered into
as of the ___ day of April, 1996 by and between PRINCETON DENTAL MANAGEMENT
CORPORATION, a Delaware corporation ("DEBTOR"), and AMSTERDAM EQUITIES LIMITED
("SECURED PARTY").
RECITALS:
A. Debtor is a party to a certain Security Agreement dated as of
January 13, 1995 (the "EXISTING SECURITY AGREEMENT"), executed by Debtor in
favor of certain secured parties (the "PRIOR SECURED PARTIES"), securing, among
other things, the prompt and complete payment and performance of all joint and
several obligations and liabilities of Debtor evidenced by that certain Secured
Revolving Demand Note dated January 27, 1995 in the principal amount of up to
$1,000,000 (as amended, increased, restated, supplemented otherwise modified
from to time, and including all notes issued in replacement thereof or in
substitution therefor, the "REVOLVING NOTE"), executed by Debtor and certain of
its wholly-owned subsidiaries identified therein and payable to the Prior
Secured Parties.
B. The obligations and liabilities of Debtor under the Revolving
Note have been re-evidenced by that certain Convertible Debt Agreement dated as
of April ___, 1996 (as amended, restated, supplemented or otherwise modified
from time to time, the "DEBT AGREEMENT"), pursuant to which Secured Party may
from time to time make additional loans to or for the account of Debtor, all of
which obligations and liabilities and additional loans shall be evidenced by a
certain Convertible Secured Note dated April ___, 1996 in the principal amount
of up to $13,050,000 (as amended, restated, supplemented otherwise modified
from to time, and including all notes issued in replacement thereof or in
substitution therefor, the "CONVERTIBLE NOTE") executed by Debtor and payable
to Secured Party.
C. The obligations and liabilities of Debtor to certain of the
Prior Secured Parties under the Revolving Note are to have been satisfied by
execution and delivery by Debtor of the Series A 11.75% Cumulative Convertible
Preferred Stock Purchase Agreement contemporaneously herewith, and the
agreements and property therein described;
D. Debtor wishes to secure the prompt and complete payment,
performance and observance of all "LIABILITIES" (as defined in the Debt
Agreement), including, without limitation, all Liabilities evidenced by the
Convertible Note.
E. Debtor and Secured Party have agreed to enter into this
Security Agreement in order to, among other things, (I) amend and restate the
Existing Security Agreement in its entirety and (II) secure the Liabilities.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
Page 1 of 16
<PAGE> 62
1. AMENDMENT AND RESTATEMENT OF EXISTING SECURITY AGREEMENT.
Effective as of the date hereof, upon satisfaction of the conditions precedent
set forth in Section 4.1 of the Debt Agreement, the Existing Security Agreement
is hereby amended and restated in its entirety and all references herein to
"hereunder," "hereof," "herein" or words of like import, shall mean and be a
reference to the Existing Security Agreement, as amended and restated hereby.
It is the intention of the parties hereto that this Security Agreement not
constitute a novation.
2. DEFINITIONS. (A) Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings assigned thereto in
the Debt Agreement.
(B) Unless otherwise defined herein, all terms used herein which
are defined in Article 9 and Article 8 of the Uniform Commercial Code as in
effect as of the date hereof in the State of Illinois (the "CODE") are used
herein as therein defined.
3. SECURITY INTERESTS. In order to secure equally and ratably
the prompt and complete payment, performance and observance of all Liabilities,
Debtor hereby grants to Secured Party a security interest in all of the
following property or interests in property of Debtor, whether now owned or
existing or hereafter arising or acquired and wheresoever located:
3.1 All accounts, contract rights, instruments, documents,
chattel paper, and all other forms of obligations owing to Debtor
arising out of the sale or lease of goods or the rendition of services
by Debtor, 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 Debtor and all of Debtor's
books and records (including, but not limited to, ledgers; records
indicating, summarizing or evidencing Debtor's assets, liabilities,
the accounts and inventory of Debtor and all information relating
thereto; records indicating, summarizing or evidencing Debtor's
business operations or financial condition; and all computer programs,
disc or tape files, printouts, runs and other computer prepared
information and the equipment of Debtor containing such information)
("DEBTOR'S BOOKS") (except minute books) relating to any of the
foregoing ("ACCOUNTS").
3.2 All inventory in which Debtor has any interest, including
but not limited to goods held by Debtor for sale or lease or to be
furnished under a contract of service and Debtor's present and future
raw materials, work-in-process, finished goods, supplies and packing
and shipping materials, wherever located, and any documents of title
representing any of the above ("INVENTORY");
3.3 All machinery and equipment of Debtor, including
without limitation, processing equipment, data processing and computer
equipment with software and peripheral equipment, and all engineering,
processing and manufacturing equipment, office machinery, furniture,
materials handling equipment, tools, attachments, accessories,
automotive equipment, trailers, trucks, motor vehicles, and other
equipment of every kind and nature, and fixtures, all whether now
owned or hereafter acquired, and wheresoever situated, together with
all additions and accessions thereto, replacements therefor, all parts
therefor, and all manuals, drawings,
Page 2 of 16
<PAGE> 63
instructions, warranties and rights with respect thereto, and all
products and proceeds thereof and condemnation awards and insurance
proceeds with respect thereto ("EQUIPMENT");
3.4 All general intangibles and other intangible personal
property of Debtor (including, without limitation, any and all rights
of Debtor pursuant to choses or things in action, goodwill, licenses,
patents, trade names, trademarks, rights to royalties, blueprints,
drawings, customer lists, personnel records, patient and advertising
literature, purchase orders, computer programs, computer discs,
computer tapes, literature, reports, catalogs, methods, sales
literature, video tapes, confidential information, consulting
agreements, employment agreements, leasehold interests in real and
personal property, insurance policies, proprietary rights in any
Equipment, deposit accounts, tax refunds, contract rights and
documents) other than goods and Accounts of Debtor, as well as
Debtor's Books relating to any of the foregoing ("GENERAL
INTANGIBLES");
3.5 Any and all letters of credit, advices of credit,
instruments, money, negotiable documents, chattel paper or similar
property ("NEGOTIABLE COLLATERAL");
3.6 Any money, deposit accounts or other assets of Debtor in
which Secured Party obtains a lien or which hereafter comes into the
possession, custody or control of Secured Party;
3.7 All of Debtor's rights under any personal property leases
relating to any and all Equipment;
3.8 All of Debtor's rights under any real property leases
relating to any premises; and
3.9 The proceeds of any of the foregoing, including but not
limited to proceeds of insurance covering any and all Accounts,
Equipment, General Intangibles, Negotiable Collateral, Inventory,
money, deposit accounts or other tangible and intangible property of
Debtor resulting from the sale or other deposition of the above, and
the proceeds thereof.
Such security interest shall be superior and prior to all other Liens except
(I) Liens in favor of Secured Party and (II) Permitted Liens. All of the
property described in this SECTION 3 is hereinafter collectively referred to as
the "COLLATERAL"; the Equipment and Inventory are hereinafter collectively
referred to as the "TANGIBLE COLLATERAL"; and the Accounts, the General
Intangibles and the Negotiable Collateral are hereinafter collectively referred
to as the "INTANGIBLE COLLATERAL."
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. Debtor hereby
represents, warrants and covenants to Secured Party as follows:
4.1 Debtor is the owner of all of the Collateral, free
from any Lien, except (I) Liens in favor of Secured Party and (II)
Permitted Liens.
4.2 There are set forth on EXHIBIT A hereto the location
of the principal place of business and chief executive office of
Debtor, all of the other places of business of Debtor, and all
locations where the Tangible Collateral and the books and records of
Debtor are kept. Without the prior written consent of Secured Party,
Debtor shall not change the location of any
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<PAGE> 64
Tangible Collateral of Debtor except in the ordinary course of
business. Debtor shall give Secured Party not less than five (5) days
prior written notice of any change of any of the places of business of
Debtor or any change of the locations where the books and records of
Debtor are kept.
4.3 All trade or assumed names under which Debtor has
done business during the five years prior to the date hereof are set
forth on EXHIBIT B.
4.4 Except for the financing statements naming Secured
Party as secured party, or financing statements otherwise filed in
connection with Permitted Liens, no financing statement covering any
Collateral or the proceeds thereof is on file in any public office.
5. SALES AND TRANSFER OF COLLATERAL. Except as otherwise
expressly permitted by the Debt Agreement, Debtor agrees that it will not sell,
lease, assign, transfer or otherwise dispose of any of the Collateral.
6. TAXES. Except as otherwise expressly permitted by the Debt
Agreement, Debtor shall pay promptly when due all taxes, levies, assessments
and governmental charges upon and relating to any of the property, income or
receipts or otherwise for which Debtor is or may be liable.
7. INSURANCE. Debtor, at its sole expense, shall maintain
insurance on the Collateral in such form, with such companies and in such
amounts as may be satisfactory to Secured Party.
8. TANGIBLE COLLATERAL.
8.1 Debtor will keep the Tangible Collateral in good
working order and repair (ordinary wear and tear excepted) and make
all necessary replacements of and renewals thereto so that the value
(less depreciation) and operating efficiency thereof at all times
shall be maintained and preserved. Debtor shall not use the Tangible
Collateral in violation of any Requirement of Law.
8.2 All Tangible Collateral at all times shall be
considered personal property. None of the Tangible Collateral is or
will be installed, affixed or attached to the real estate of Debtor or
any other Person so as to become a part thereof or become in any sense
a fixture not otherwise pledged to the Secured.
8.3 Debtor will maintain the Tangible Collateral in
accordance with the terms of all insurance policies which are or may
be in effect with respect thereto so as not to alter or impair any of
the benefits or coverage to which Debtor is entitled under any such
insurance policies.
9. INTANGIBLE COLLATERAL.
9.1 Debtor shall make all payments and perform all acts
necessary to maintain and preserve the Intangible Collateral,
including, without limitation, filing of documents, renewals or other
information with any Governmental Authority.
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9.2 Upon the request of Secured Party, Debtor promptly
shall deliver to Secured Party the original executed copies of all
instruments which constitute part of the Intangible Collateral,
together with such endorsements, assignments and other agreements as
Secured Party may request in order to perfect the security interest of
Secured Party in such instruments.
9.3 Debtor shall take all actions necessary to collect
when due all amounts owing to Debtor with respect to the Intangible
Collateral.
9.4 The Intangible Collateral represents bona fide and
existing indebtedness, obligations, liabilities, rights and privileges
owed or belonging to Debtor to which, to the knowledge of Debtor,
there is no valid defense, set-off or counterclaim in any material
respect has been asserted against Debtor and in connection with which
there is no default with respect to any material payment or
performance on the part of Debtor, or, to the best of Debtor's
knowledge, of any other party.
9.5 Debtor at all times shall keep accurate and complete
records of payment and performance by Debtor or other parties of
Debtor's portion of the Intangible Collateral, and Secured Party or
any of its respective agents shall have the right to call at Debtor's
place of business at all times and upon notice and without hindrance
or delay to inspect, audit, check or make extracts from the books,
records, correspondence or other data relating to the Intangible
Collateral. In addition, Debtor shall provide Secured Party with
direct electronic access on a daily basis to such information as may
be reasonably requested by the Secured Party. Such access shall be
made available to Secured Party by such means and at such electronic
location or locations as shall be satisfactory to Secured Party and
notified by Secured Party to Debtor from time to time.
9.6 Debtor immediately shall inform Secured Party of any
material default in payment or in performance by Debtor or any other
Person, or of any material adverse claim made by any Person, in each
case under or in respect of any Intangible Collateral and shall not
change the terms thereof without the prior written consent of Secured
Party, Debtor shall make all payments and perform when due all acts on
Debtor's part to be paid or performed with respect to the Intangible
Collateral; provided, however, that Debtor may in good faith pursuant
to appropriate actions or proceedings diligently taken or conducted,
contest such payment or performance, if Debtor maintains adequate
reserves for such payment or performance.
9.8 Debtor shall, upon request of Secured Party, and
Secured Party may, in the name of Secured Party or Debtor, verify
directly with the obligors the indebtedness due Debtor on any account
or other item of Intangible Collateral.
10. ADDITIONAL COVENANTS OF DEBTOR.
10.1 Disclosure of Security Interest. Debtor shall make
appropriate entries upon its financial statements and books and
records disclosing Secured Party's security interest in the
Collateral.
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10.2 Special Collateral. Immediately upon Debtor's receipt
of any Collateral which is evidenced or secured by an agreement,
chattel paper, letter of credit, bill of lading, instrument or
document, including, without limitation, promissory notes, documents
of title and warehouse receipts ("SPECIAL COLLATERAL"), Debtor shall
deliver the original and any duplicate originals thereof to Secured
Party or to such agent of Secured Party as Secured Party shall
designate, together with appropriate endorsements, the documents
required to draw thereunder (as may be relevant to letters of credit)
or other specific evidence (in form and substance acceptable to
Secured Party) of assignment thereof to Secured Party.
10.3 Audits. Secured Party or its representatives and
designees shall be allowed to perform a field audit of Debtor's
Accounts, Equipment and Inventory and other Collateral and other books
and records prior to the date hereof and four times per calendar year
thereafter, and after a Default as frequently as Secured Party may in
its Sole and Exclusive Discretion determine. The costs of each of the
audits described in the preceding sentence shall be payable by Debtor
or, alternatively, as the Secured Party in its Sole and Exclusive
Discretion may determine, shall be added to the principal amount owed
by Debtor hereunder. Secured Party shall be allowed to perform
additional periodic field audits at any time prior to a Default, in
Secured Party's Sole and Exclusive Discretion, at Secured Party's
expense.
10.4 Secured Party's Payment of Claims Asserted Against
Debtor. Secured Party may, but shall not be obligated to, at any time
or times hereafter, in its Sole and Exclusive Discretion and without
waiving any Default or waiving or releasing any obligation, liability
or duty of Debtor under this Agreement or the other Loan Documents,
pay, acquire or accept an assignment of any security interest, lien,
claim or other encumbrance asserted by any Person against the
Collateral. All sums paid by Secured Party under this SECTION 10.4,
including all costs, fees (including without limitation, attorney's
and paralegals' fees and court costs), expenses and other charges
relating thereto or in any way in connection therewith, shall be
payable by the Debtor to Secured Party on demand and shall be
additional Liabilities secured by the Collateral.
10.5 Loss of Value of Collateral. Debtor shall
immediately notify the Secured Party of any loss or depreciation in
the value of the Collateral in an amount greater than Ten Thousand and
00/100 Dollars ($10,000.00) per loss or Fifty Thousand and 00/100
Dollars ($50,000.00) in the aggregate during any fiscal year of
Debtor, other than loss or depreciation occurring in the ordinary
course of the Debtor's business.
10.6 Verification of Accounts. Any of Secured Party's
officers, employees or agents shall have the right, at any time or
times hereafter, in Secured Party's or the Debtor's name or in the
name of a firm of independent certified public accountants acceptable
to Secured Party, to verify Account debtors by mail, telephone,
telefax, telegraph or otherwise verify the validity, amount or any
other matters relating to any Accounts.
10.7 Assignments, Records and Borrowing Base Certificates.
Debtor shall keep accurate and complete records of the Accounts and
shall deliver to Secured Party promptly upon its request, a borrowing
base certificate current as of the end of such preceding month, in the
form of and containing the information requested by Secured Party,
executed by an Authorized
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Representative who is an officer of the Debtor that has been duly
authorized by the Board of Directors of Debtor. Debtor shall also
deliver to Secured Party upon the execution of this Agreement and upon
demand of Secured Party thereafter a current report setting forth the
names and addresses of each of the Account debtors and, upon demand by
Secured Party after Default, the original copy of all documents
relating to the Accounts included in any Borrowing Base Certificate
and such other matters and information relating to the status of then
existing Accounts as Secured Party shall request.
10.8 Notice Regarding Disputed Accounts. Debtor shall
give Secured Party prompt notice of (i) any Accounts individually in
excess of two thousand five hundred dollars ($2,500) between any
Account debtor and Debtor, and (ii) any disputes between Debtor and
any Account debtor involving an amount in excess of 10% of the face
value of the aggregate Accounts of such Account debtor. Each
Borrowing Base Certificate shall identify all disputed Accounts and
disclose with respect thereto, in reasonable detail, the reason for
the dispute, all claims related thereto and the amount in controversy.
10.9 Sale or Encumbrance of Accounts. Debtor shall not,
without the prior written consent of Secured Party, sell, transfer,
grant a security interest in or otherwise dispose of or encumber any
of the Accounts to any Person other than Secured Party.
10.10 Records Regarding Collateral. Debtor shall keep correct
and accurate records of the respective locations and values of the
Collateral in accordance with GAAP and shall deliver to Secured Party
promptly following its request a report summarizing and itemizing such
items of Collateral. Debtor shall upon Secured Party's request,
deliver to Secured Party evidence of its ownership of or interest in
the Collateral.
11. PROTECTION OF COLLATERAL. If Debtor fails to, in accordance
with the respective terms and provisions of this Security Agreement and the
Debt Agreement, (I) maintain in force and pay the premium with respect to any
insurance policy or bond which Debtor is required to maintain, (II) keep the
Tangible Collateral in good repair and operating condition, ordinary wear and
tear excepted, (III) keep the Collateral free from all Liens except for Liens
in favor of Secured Party and Permitted Liens, (IV) pay when due all taxes,
levies and assessments on or in respect of the Collateral, except as otherwise
permitted pursuant to the terms of SECTION 6 above, (V) make all payments and
perform all acts on the part of Debtor to be paid or performed with respect to
any of the Collateral, including, without limitation, all expenses of
protecting, storing, warehousing, insuring, handling and maintaining the
Collateral and (VI) keep fully and perform promptly any other of the
obligations of Debtor under this Security Agreement, the Debt Agreement or any
of the Loan Documents, then Secured Party, at its option, may (but shall not be
required to), procure and pay for such insurance policy or bond, place such
Collateral in good repair and operating condition, pay, contest or settle such
Liens or taxes or any judgments based thereon or otherwise make good any other
aforesaid failure of Debtor and Secured Party may direct any insurer of the
Collateral to make any payments to Secured Party that would otherwise be paid
to Debtor. Debtor shall reimburse Secured Party immediately upon demand for
all sums paid or advanced on behalf of Debtor for any such purpose, together
with costs and expenses (including reasonable attorneys' fees) paid or incurred
by Secured Party in connection therewith and interest on all sums advanced from
the date of advancement until repaid at the Default Rate. All such
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sums advanced by Secured Party, with interest thereon, immediately upon
advancement thereof, shall constitute Liabilities secured hereby.
12. FINANCING STATEMENT, FURTHER ASSURANCES. Debtor, concurrently
with the execution of this Security Agreement, and from time to time hereafter
as requested by Secured Party, shall execute and deliver to Secured Party such
financing statements, continuation statements, termination statements and other
documents, in form satisfactory to Secured Party, as Secured Party may require
to perfect and continue in effect the Lien granted pursuant to this Security
Agreement, to carry out the purposes of this Security Agreement, and to protect
the rights of Secured Party hereunder. Debtor, upon demand, shall pay the cost
of filing all such financing statements, continuation statements, termination
statements and other documents.
13. REMEDIES UPON DEFAULT. If an Event of Default shall have
occurred and be continuing:
13.1 Secured Party may exercise in respect of the Collateral,
in addition to all other rights and remedies provided for herein, all
of the rights and remedies of a secured party on default under the
Code (and whether or not the Code applies to the affected Collateral)
and all other rights and remedies accorded to Secured Party at law or
in equity, including, without limitation, the right to apply for and
have a receiver appointed by a court of competent jurisdiction to
manage, protect and preserve all or any part of the Collateral,
continue the operation of Debtor's business and to collect all
revenues therefrom and profits thereof. Debtor acknowledges that any
notice of sale or other disposition of Collateral given not less than
five (5) days prior to such proposed action shall constitute
reasonable and fair notice of such action. Secured Party may postpone
or adjourn any such sale from time to time by announcement at the time
and place of sale stated in the notice of sale or by announcement of
any adjourned sale, without being required to give a further notice of
sale. Any such sale may be for cash or, unless prohibited by
applicable law, upon such credit or installment terms as Secured Party
shall determine. Debtor shall be credited with the net proceeds of
such sale only when such proceeds actually are received by Secured
Party. Despite the consummation of any such sale, Debtor shall remain
liable for any deficiency on Borrower's Obligations which remains
outstanding following any such sale.
13.2 Upon the request of Secured Party, Debtor shall assemble
and make the Collateral available to Secured Party at a place
designated by Secured Party.
13.3 Upon the request of Secured Party, Debtor, at its own
expense, shall execute all applications and other documents and take
all other action requested by Secured Party to (I) enable Secured
Party or its designee to obtain from any Governmental Authority or
other entities any required special temporary authority necessary to
operate Debtor's business and/or (II) to the extent permitted by law,
obtain an approvals of any Governmental Authority or other entities to
the transfer of or granting to Secured Party the temporary right to
utilize all licenses, franchises, trademarks, trade names and permits
issued to Debtor in connection with the operation of Debtor's
business.
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13.4 All proceeds collected by Debtor from any
obligor or account debtor with respect to any account,
contract right, chattel paper or general intangible shall be
held by Debtor in trust for Secured Party and immediately
delivered to Secured Party in the exact form in which such
proceeds were received.
13.5 Secured Party at its election, and without notice to
Debtor, may:
(A) terminate the right of Debtor to collect the proceeds
described in SUBSECTION 13.4,
(B) notify the obligors under any instruments and the
account debtors of any account, contract right,
chattel paper or general intangible to make all
payments directly to Secured Party,
(C) demand, sue for, collect or receive, in the name of
Debtor or Secured Party, any money or property
payable or receivable on any item of Collateral,
(D) settle, release, compromise, adjust, sue upon or
otherwise enforce any item of Collateral as the
Collateral may determine, and
(E) for the purpose of enforcing Secured Party's rights
under this Security Agreement, Secured Party may
receive and open mail addressed to Debtor, and
endorse notes, checks, drafts, money orders,
documents of title or other forms of payment on
behalf and in the name of Debtor.
All cash proceeds received by Secured Party in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral
may, in the discretion of Secured Party, be held by Secured Party as collateral
for, and/or then or at any time thereafter be applied in whole or in part by
Secured Party against, all or any part of the Liabilities in such order as
Secured Party shall elect. Any surplus of such cash or cash proceeds held by
Secured Party and remaining after payment and satisfaction in full of all of
the Liabilities shall be paid over to the Debtor or to whomsoever may be
lawfully entitled to receive such surplus.
14. POWER OF ATTORNEY. To effectuate the rights and remedies of
Secured Party under this Security Agreement, Debtor hereby irrevocably appoints
Secured Party as its attorney-in-fact, with full power of substitution and with
full authority in the place and stead of Debtor and in the name of the Debtor
or otherwise:
(I) to execute and file from time to time financing
statements, continuation statements, termination statements and
amendments thereto, covering the Collateral, in form satisfactory to
Secured Party; and
(II) upon the occurrence of an Event of Default to take
all action and execute all documents referred to in SECTION 12 above,
to the extent permitted by law.
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The power of attorney granted pursuant to this SECTION 14 is coupled with an
interest and shall be irrevocable until all of Borrower's Obligations have
been paid and performed in full.
15. WAIVERS. Debtor hereby waives notice of the acceptance of
this Security Agreement and, all other notices, demands or protests to which
Debtor otherwise might be entitled by law (and which lawfully may be waived),
with respect to this Security Agreement, any of the Liabilities or the
Collateral. Debtor agrees that Party (I) shall have no duty as to the
collection or protection of the Collateral or any income thereon, (II) may
exercise the rights and remedies of Secured Party with respect to the
Collateral without resort or regard to other security or sources for payment
and (III) shall not be deemed to have waived any of the rights or remedies
granted to Secured Party hereunder unless such waiver shall be in writing and
shall be signed by Secured Party. No delay or omission on the part of Secured
Party in exercising any rights or remedies contained herein, in the Debt
Agreement or in any of the Loan Documents shall operate as a waiver of such
right or remedy or of any other right or remedy, and no single or partial
exercise of any right or remedy shall preclude any other or further exercise
thereof, or the exercise of any other right or remedy. A waiver of any right
or remedy on any one occasion shall not be construed as a bar or waiver of any
right or remedy on future occasions, and no delay, omission, waiver or single
or partial exercise shall be deemed to establish a custom or course of dealing
or performance between the parties hereto.
16. RIGHTS CUMULATIVE. All rights and remedies of Secured Party
pursuant to this Security Agreement, the Debt Agreement, any of the Loan
Documents or otherwise, shall be cumulative and non-exclusive, and may be
exercised singularly or concurrently.
17. SEVERABILITY. If any provision of this Security Agreement is
deemed to be invalid by reason of the operation of any law, or by reason of the
interpretation placed thereon by any court or any Governmental Authority, this
Security Agreement shall be construed as not containing such provision and the
invalidity of such provision shall not affect the validity of any other
provisions hereof, and any and all other provisions hereof which otherwise are
lawful and valid shall remain in full force and effect.
18. NOTICES, ETC. All notices, requests and other communications
provided for hereunder shall be in writing and sent by first class or
equivalent mail of the country of origin, registered or certified, postage
prepaid and return receipt requested or delivered personally or by courier
against written acknowledgement of receipt (A) if to Debtor, at its address set
forth on the signature pages hereof with a copy to John F. Mahoney, Chuhak &
Tecson, P.C., 225 West Washington Street, Suite 1300, Chicago, Illinois, 60606,
and (B) if to Secured Party, at its addresses set forth on the signature pages
hereof with a copy to Kevin Cahill, Brooks & Cahill, 208 South LaSalle Street,
Suite 1855, Chicago, Illinois 60604, or to such other addresses as either such
party may hereafter specify for such purpose by notice to Debtor and Secured
Party. All such notices and other communications shall be effective on the
date of delivery to the party receiving such notice, as evidenced by the date
set forth on the receipt signed by the party receiving such notice.
19. CONTINUING SECURITY INTEREST; SUCCESSORS AND ASSIGNS. This
Security Agreement shall create a continuing security interest in the
Collateral and shall (I) remain in full force and effect until payment and
satisfaction in full of all of the Liabilities , (II) be binding upon the
Debtor, its successors and assigns and (III) inure, together with the rights
and remedies of Secured Party, to the benefit of
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<PAGE> 71
Secured Party and its respective successors, transferees and assigns. Without
limiting the generality of the foregoing CLAUSE (III), Secured Party may assign
or otherwise transfer any promissory note or other instrument evidencing all or
any part of the Liabilities to any other person or entity, and such other
person or entity shall thereupon become vested with all of the benefits in
respect thereof granted to or for the benefit of Secured Party hereunder or
otherwise. Debtor's successors and assigns shall include, without limitation,
a receiver, trustee or debtor-in-possession of or for Debtor. Upon the payment
and satisfaction in full of the Liabilities and termination of the Debt
Agreement pursuant to the respective terms and provisions thereof, the security
interest granted hereby shall terminate and all rights to the Collateral shall
revert to the Debtor. Upon any such termination, Secured Party will, upon the
request and at the sole expense of the Debtor execute and deliver to the Debtor
such documents as the Debtor shall reasonably request to evidence such
termination.
20. GOVERNING LAW. This Security Agreement shall be governed by,
and construed in accordance with, the laws of the State of Illinois, without
regard to its principles of conflicts of law.
21. SUBMISSION TO JURISDICTION. DEBTOR HEREBY IRREVOCABLY SUBMITS
TO THE JURISDICTION AND EXCLUSIVE VENUE OF ANY STATE OR FEDERAL COURT LOCATED
IN CHICAGO, ILLINOIS, OVER ANY ACTION OR PROCEEDING (I) TO ENFORCE OR DEFEND
ANY RIGHT UNDER THIS SECURITY AGREEMENT OR THE DEBT AGREEMENT OR ANY OF THE
LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT, OR AGREEMENT
DELIVERED, OR THAT MAY IN THE FUTURE BE DELIVERED, IN CONNECTION HEREWITH OR
THEREWITH, OR (II) ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN
CONNECTION WITH THIS SECURITY AGREEMENT, AND DEBTOR HEREBY IRREVOCABLY AGREES
THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN SUCH STATE OR FEDERAL COURT. DEBTOR HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. DEBTOR AGREES THAT
A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY
BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER
MANNER PROVIDED BY LAW.
DEBTOR DESIGNATES AND APPOINTS CT CORPORATION SYSTEM, 208 SOUTH
LASALLE STREET, CHICAGO, ILLINOIS 60604, AND SUCH OTHER PERSONS AS MAY
HEREAFTER BE SELECTED BY DEBTOR WHICH IRREVOCABLY AGREE IN WRITING TO SO SERVE
AS ITS AGENT, TO RECEIVE AND FORWARD ON ITS BEHALF SERVICE OF ALL PROCESS IN
ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED
BY DEBTOR TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY
SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO DEBTOR AT ITS
ADDRESS PROVIDED IN SECTION 18 EXCEPT THAT UNLESS OTHERWISE PROVIDED BY
APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF
SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY DEBTOR REFUSES TO ACCEPT
SERVICE, DEBTOR HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE
SUFFICIENT NOTICE.
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<PAGE> 72
NOTHING HEREIN SHALL AFFECT THE RIGHT OF SECURED PARTY TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF SECURED PARTY TO
BRING PROCEEDINGS AGAINST DEBTOR IN THE COURTS OF ANY OTHER JURISDICTION.
DEBTOR AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING
AGAINST SECURED PARTY OR ANY ASSIGNEE OR PARTICIPANT OR ANY OF THEIR RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTIES, ARISING OUT OF OR
RELATING TO THIS SECURITY AGREEMENT, THE DEBT AGREEMENT OR ANY OF THE LOAN
DOCUMENTS IN ANY COURT OTHER THAN ONE HEREINABOVE SPECIFIED IN THIS SECTION 21.
NOTHING IN THIS SECTION 21 SHALL AFFECT THE RIGHT OF SECURED LENDER OR ANY
ASSIGNEE OR PARTICIPANT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW, OR THE RIGHT OF SECURED PARTY OR ANY ASSIGNEE OR PARTICIPANT TO BRING ANY
ACTION OR PROCEEDING AGAINST DEBTOR OR THE PROPERTY OF DEBTOR IN THE COURTS OF
ANY OTHER JURISDICTIONS.
22. WAIVER OF JURY TRIAL. DEBTOR WAIVES ANY RIGHT TO A TRIAL BY JURY
IN ANY ACTION OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHT UNDER THIS
SECURITY AGREEMENT, THE DEBT AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR UNDER ANY
AMENDMENT, INSTRUMENT, DOCUMENT, OR AGREEMENT DELIVERED, OR THAT MAY IN THE
FUTURE BE DELIVERED, IN CONNECTION HEREWITH, OR (II) ARISING FROM ANY FINANCING
RELATIONSHIP EXISTING IN CONNECTION WITH THIS SECURITY AGREEMENT, AND DEBTOR
AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
23. CAPTIONS. The headings in this Security Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
24. SURVIVAL OF SECURITY AGREEMENT. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery hereof and shall continue in full force and effect so long as any of
the Liabilities shall remain unpaid or unsatisfied.
25. TIME OF THE ESSENCE. Time for the payment, performance and
observance of the Liabilities is of the essence.
26. COUNTERPARTS. This Security Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original but all
of which taken together shall be one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, this Security Agreement has been executed and
delivered by each party hereto, by a duly authorized officer of each such
party, on the date first set forth above.
PRINCETON DENTAL MANAGEMENT
CORPORATION,
a Delaware corporation
2358 Hassell Road
Hoffman Estates, Illinois 60195
By: ___________________________
Name: Charles Mitchell, D.D.S.
Its: President and CEO
AMSTERDAM EQUITIES LIMITED, as Secured Party
404 East Bay Street
P.O. Box SS-5539
Nassau, New Providence,
Bahamas Islands
By: ___________________________
Name: _________________________
Its: _________________________
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<PAGE> 74
STATE OF ILLINOIS )
)
COUNTY OF COOK )
ACKNOWLEDGMENT
The undersigned, a Notary Public in and for the County and State
aforesaid, DO HEREBY CERTIFY THAT Charles Mitchell, D.D.S., personally known to
me to be the President and CEO of PRINCETON DENTAL MANAGEMENT CORPORATION, a
Delaware corporation, personally known to me to be the same person whose name
is subscribed to the foregoing instrument as such officer, appeared before me
this day in person and acknowledged that he signed and delivered such
instrument as his own free and voluntary act and as the free and voluntary act
of said corporation, for the uses and purposes set forth therein.
Given under my hand this ____ day of April, 1996.
_______________________________
Notary Public
My commission expires:_________
Page 14 of 16
<PAGE> 75
EXHIBIT A
TO
AMENDED AND RESTATED SECURITY AGREEMENT
DATED AS OF APRIL ___, 1996
LOCATIONS OF COLLATERAL, ETC.
A. LOCATIONS OF COLLATERAL:
1. Owned Locations:
2. Leased Locations:
3. Other Locations:
B. LOCATIONS OF RECORDS CONCERNING COLLATERAL:
C. DEBTOR'S PRINCIPAL PLACE OF BUSINESS AND CHIEF EXECUTIVE OFFICE:
2358 HASSELL ROAD, HOFFMAN ESTATES, ILLINOIS 60195
D. DEBTOR'S OTHER PLACES OF BUSINESS:
Page 15 of 16
<PAGE> 76
EXHIBIT B
TO
AMENDED AND RESTATED SECURITY AGREEMENT
DATED AS OF APRIL ___, 1996
TRADE NAMES
None.
Page 16 of 16
<PAGE> 77
235351.1
CONVERTIBLE SECURED NOTE
$13,050,000
CHICAGO, ILLINOIS
APRIL __, 1996
FOR VALUE RECEIVED, the undersigned, Princeton Dental Management
Corporation, a Delaware corporation "BORROWER", promises to pay to the order of
Amsterdam Equities Limited ("LENDER"), at such place or places as the Lender
may from time to time designate to such Borrower in writing, the principal
amount of THIRTEEN MILLION FIFTY 00/100 DOLLARS ($13,050,000), or so much
thereof as may have been disbursed by Lender, PLUS interest thereon as provided
below. The principal amount of this Convertible Secured Note (this "NOTE")
shall be payable in the manner provided in the Convertible Debt Agreement of
even date herewith among the Borrower and Lender (such agreement, as amended,
extended, restated, supplemented or otherwise modified from time to time, the
"CONVERTIBLE DEBT AGREEMENT"). All terms used herein which are not otherwise
defined herein shall have the meanings ascribed to them in the Convertible Debt
Agreement.
The liabilities and obligations of Borrowers to Lender under this Note
(the "Liabilities") which are outstanding and unpaid from time to time (other
than accrued but unpaid interest) shall bear interest at the rate and in
accordance with the Convertible Debt Agreement. If any of the Liabilities are
not paid when due and payable or declared due and payable, interest shall
accrue thereon at the applicable Default Rate set forth in the Convertible Debt
Agreement. Such amounts shall be part of the Liabilities, immediately due and
payable by Borrowers to Lender without notice by the Lender to or demand by the
Lender of the Borrower.
Upon the occurrence of an Event of Default, without notice by the
Lender to or demand by Lender of the Borrower, all of the Liabilities shall be
due and payable, forthwith. The acceptance by the Lender of any partial
payment made hereunder after the time any of the Liabilities becomes due and
payable will not establish a custom, or waive any rights of the Lender to
enforce prompt payment hereof. Borrower and every endorser hereof waive
presentment, demand and protest and notice of presentment, protest, default,
non-payment, maturity, release, compromise, settlement, extension or renewal of
this Note.
This Note and the Liabilities evidenced hereby are secured by the
Liens heretofore, now or hereafter granted to Lender, for its benefit, as
described in the Convertible Debt Agreement and the Loan Documents.
If any provision of this Note or the application thereof to any party
or circumstance is held invalid or unenforceable, the remainder of this Note
and the application of such provision to other parties or circumstances will
not be affected thereby and the provisions of this Note shall be severable in
any such instance.
Page 1 of 2
<PAGE> 78
This Note is submitted by the Borrower to the Lender in Chicago,
Illinois, and shall be governed and controlled by the laws of the State of
Illinois as to interpretation, enforcement, validity, construction, effect and
in all other respects.
PRINCETON DENTAL MANAGEMENT CORPORATION
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
Page 2 of 2
<PAGE> 79
215873.6
THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION
AND ANY TRANSFER THEREOF IS SUBJECT TO COMPLIANCE WITH SUCH LAWS AND
THE TERMS OF THIS WARRANT.
WARRANT TO PURCHASE UP TO
3,588,750 UNREGISTERED SHARES OF COMMON STOCK OF
PRINCETON DENTAL MANAGEMENT CORPORATION
NO. __
FOR VALUE RECEIVED, Princeton Dental Management Corporation, a
Delaware corporation located at 2358 Hassell Road, Hoffman Estates, Illinois
60195 (the "Company"), promises to issue in the name of, and sell and deliver
to the party identified on Exhibit A attached hereto and incorporated herein,
together with its successors, transferees and assigns (the "Holder") (when the
context requires, the Company and the Holder shall be collectively referred to
as the "Parties"), a certificate or certificates for an aggregate of Three
Million Five Hundred Eighty Eight Thousand Seven Hundred Fifty (3,588,750)
unregistered shares of Common Stock, One Ten Thousandth of One United States
Dollar (U.S.$.0001) par value per share (the "Shares"), of the Company, upon
payment therefor of Ten United States Cents ($0.10) per Share in lawful funds
of the United States of America (the "Exercise Price") pursuant to the terms
hereof.
1. Definitions. Unless defined otherwise, any term used herein
which has the first letters thereof capitalized, exclusive of prepositions and
articles, shall be defined as such capitalized term is defined in that certain
Convertible Debt Agreement, dated as of April 22, 1996, by and between the
Parties (which such Convertible Debt Agreement is hereby incorporated herein
and made a part hereof by this reference thereto).
2. Exercise of Warrant. The Holder of this Warrant shall be
entitled to purchase such numbers of Shares at any time over approximately a
ten (10) year period commencing on the effective date of this Warrant and
ending at 6:01 P.M. Eastern Standard Time on the date ten (10) years after such
date.
In case the Holder of this Warrant shall desire from time to time to
exercise this Warrant in whole or in part, the Holder shall surrender a copy of
this Warrant, with a copy of the form of exercise notice marked Exhibit B,
which is attached hereto, incorporated herein and made a part hereof by this
reference thereto, duly executed by the Holder (said exercise notice shall bear
an original signature of the Holder), to the Company, accompanied by payment of
the Exercise Price.
Page 1 of 9
<PAGE> 80
This Warrant may be exercised in whole or in part but not for
fractional Shares. In case of the exercise in part only, the Company shall
immediately deliver to the Holder a new Warrant of like tenor for the remaining
Shares. This Warrant, at any time prior to the exercise hereof, upon
presentation and surrender to the Company may be exchanged for another Warrant
or other Warrants of like tenor in the name of such Holder exercisable for the
same aggregate number of Shares as the Warrant or Warrants surrendered.
3. No Voting Rights. This Warrant shall not entitle the Holder
hereof to any voting right (except as required by law) or to other rights as a
shareholder of the Company. However, Holders of Shares received upon exercise
of this Warrant shall have such voting rights and all other rights as other
shareholders of the Company.
4. Covenants of the Company. The Company hereby covenants and
agrees that prior to the expiration of this Warrant by exercise or by its
terms:
a. The Company will not by amendment of its Certificate
of Incorporation or through reorganization, consolidation, merger, dissolution,
or sale of assets, or by any other voluntary act or deed, avoid or seek to
avoid the observance or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by the Company, but will at
all times in good faith assist in the carrying out of all provisions of this
Warrant and in the taking of all other actions that may be necessary in order
to protect the rights of the Holder against dilution.
b. The Company shall not issue any shares of common
stock or any other equity of the Company without the prior written consent of
Holder, and upon any such issuance, this Warrant shall be modified so that the
number of shares issuable hereunder shall represent the same percentage of the
fully diluted equity of the Company as before such issuance.
c. The Company shall at all times reserve and keep
available, out of its authorized and unissued share capital, solely for the
purpose of providing for the exercise of the Warrant, forthwith upon the
request of the Holder of the Warrants then outstanding and in effect, such
numbers of Shares as shall, from time to time, be sufficient for the exercise
in full of the Warrants. The Company shall, from time to time, in accordance
with the laws of the State of Delaware, increase the authorized amount of its
share capital if at any time the number of Shares remaining unissued and
unreserved for other purposes shall not be sufficient to permit the exercise of
the Warrants then outstanding and in effect.
Notwithstanding the foregoing, the Company and the Holder acknowledge
that as of the date of this Warrant, the Company has 16,880,130 shares of
authorized and unissued shares of its common stock available for the purpose of
issue upon (1) the exercise, in whole, of the conversion rights of the Series A
11.75% Cumulative Convertible Preferred Stock of the Company (the "Series A
Preferred Stock") and the convertible secured notes issued pursuant to the
Convertible Debt Agreement and (2) the exercise, in whole, of this Warrant,
the FLL Warrant, the Laport Warrant and the Amsterdam Warrant No. 2
(collectively, the "Other Warrants"). If the amount, of shares authorized
and unissued is insufficient, to effect, in whole, the conversion and/or
exercise in whole, of the Preferred Stock, the convertible secured notes
issued pursuant to the Convertible Debt Agreement, this Warrant and the
Page 2 of 9
<PAGE> 81
Other Warrants, (2) then, upon the request of the Holder, the Company shall
take all actions necessary to increase the number of authorized shares in an
amount sufficient to issue all shares issuable pursuant to the conversion rights
represented by the Convertible Secured Notes, the Series A Preferred Stock, and
the exercise of this Warrant and the Other Warrants.
5. Loss, Theft, Destruction or Mutilation. In case this Warrant
shall become mutilated or defaced or be destroyed, lost or stolen, the Company
shall execute and deliver a new Warrant in exchange for and upon surrender and
cancellation of such mutilated or defaced Warrant or in lieu of and
substitution for such Warrant so destroyed, lost or stolen, upon the Holder of
such Warrant filing with the Company such reasonable evidence (an affidavit
shall suffice) that such Warrant has been so mutilated, defaced, destroyed,
lost or stolen and of the ownership thereof by the Holder; provided, however,
that the Company shall be entitled, as a condition to the execution and
delivery of such new Warrant, to demand reasonable indemnity and payment of
expenses and charges incurred in connection with the delivery of such new
Warrant, and may, if reasonable under the circumstances, request a bond from
the Holder. All Warrants so surrendered to the Company shall be canceled.
6. Record Owner. At the time of the surrender of this Warrant,
together with the payment of the Exercise Price, the person exercising this
Warrant shall be deemed to be the Holder of record of the Warrants deliverable
upon such exercise, in whole or in part, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such securities shall not then be actually delivered to such
person.
7. Fractional Securities. No fractional Shares, fractional
warrants, fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. With respect to any fraction of a
share called for on such exercise, the Holder may elect to remit to the Company
an amount in cash equal to the difference between such fraction and one,
multiplied by the Exercise Price, and the Company will issue the Holder one
Share in addition to the number of whole shares required by the exercise of the
Warrant.
8. Original Issue Taxes. The Company shall pay all United
States, state, local and any other original issue taxes, if any, upon the
issuance of this Warrant or the Shares deliverable upon exercise hereof.
9. Notices. All notices, requests and other communications
provided for hereunder shall be in writing and sent by first class or
equivalent mail of the country of origin, registered or certified, postage
prepaid and return receipt requested or delivered personally or by courier
against written acknowledgement of receipt (i) if to the Company, at 2358
Hassell Road, Hoffman Estates, Illinois 60195, with a copy to John F. Mahoney,
Esq., Chuhak & Tecson, 225 West Washington Street, Suite 1300, Chicago,
Illinois, 60606, (ii) if to the Holder, at the address designated for such
Holder on Exhibit A (unless otherwise indicated by Holder). All such notices
and other communications shall be effective on the date of delivery to the
party receiving such notice, as evidenced by the date set forth on the receipt
signed by the party receiving such notice.
Page 3 of 9
<PAGE> 82
10. Restrictions on Transferability. The Warrant and the Shares
issuable upon exercise of this Warrant may be transferred by the Holder
pursuant to any applicable exemption from registration under the Securities Act
of 1933, as amended, or applicable state securities laws.
Further, this Warrant, and the Shares issuable upon exercise of this
Warrant, have not yet been registered under the Securities Act. Accordingly,
this Warrant, all replacement Warrants and the stock certificates representing
the Shares shall, prior to registration pursuant to the Registration Agreement,
bear the following legend:
THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT, HAVE NOT BEEN REGISTERED EITHER UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAW AND ANY TRANSFER THEREOF IS SUBJECT
TO COMPLIANCE WITH SUCH LAWS AND THE TERMS OF THIS WARRANT.
11. Entire Agreement and Modification. The Company and the Holder
of this Warrant hereby represent and warrant that, except for the provisions of
the Convertible Debt Agreement and that certain Registration Agreement, dated
as of April 22, 1996 by and between the Company and the Holder (which such
Registration Agreement is hereby incorporated herein and made a part hereof by
this reference thereto) this Warrant is intended to and does contain and embody
all of the understandings and agreements, both written and oral, of the Parties
with respect to the subject matter of this Warrant, and that there exists no
oral agreement or understanding, express or implied, whereby the absolute,
final and unconditional character and nature of this Warrant shall be in any
way invalidated, empowered or affected. A modification or waiver of any of the
terms, conditions or provisions of this Warrant shall be effective only if made
in writing and executed with the same formality as this Warrant.
12. Authorization. The undersigned have been duly authorized by
the Company to execute this Warrant, and any related agreements between the
Company and the Holder, the signatures of the undersigned are binding upon the
Company, and their execution of this Warrant does not constitute a breach of
any existing agreement to which the Company is a party.
13. Effective Date. Warrants granted hereunder shall become
effective immediately upon the earliest to occur, for any reason whatsoever, of
any one or more of the following events: (i) an Event of Default other than the
mere failure to pay interest under the Convertible Secured Note which is due in
June 1996 or September 1996 or the mere failure to pay dividends on the
Preferred Shares which is due on June 30, 1996 or September 30, 1996 or failure
to pay dividends on the Series A Preferred Stock which is due on June 30, 1996
or September 30, 1996 (it being acknowledged that failure to pay interest on
the Convertible Secured Note due at any other time shall be deemed an Event
of Default hereunder and thereunder), (ii) the failure of net income of the
Company for 1996, determined in accordance with generally accepted
accounting principles applied on a basis consistent with past periods, to be
at least One United States Dollar ($1.00), (iii) the failure of net income of
the Company for 1997, determined in accordance with generally accepted
accounting principles applied on a basis consistent with past periods, to be at
least equal to Sixty Percent (60.0%) of the dollar of the principal and
interest
Page 4 of 9
<PAGE> 83
owed under the Convertible Secured Notes outstanding at the end of 1997,
and/or (iv) for every year after 1997, the failure of net income of the
Company, determined in accordance with generally accepted accounting principles
applied on a basis consistent with past periods, to increase no less than the
total of Ten Percent (10.0%) per year, on a compounded basis, plus Sixty
Percent (60.0%) of the increase in dollar amount of principal and interest owed
under the Convertible Secured Notes outstanding at the end of any such year
over the immediately preceding year. The Company must provide written notice
to the Holder of the occurrence of any of events set forth in the immediately
preceding sentence no later that thirty (30) days after any such occurrence.
The Warrants granted hereunder shall be wholly void and of no effect and the
rights evidenced hereby will terminate unless exercised in accordance with the
terms and provisions hereof before the date set forth in Section 2.
[END OF TEXT THIS PAGE]
Page 5 of 9
<PAGE> 84
IN WITNESS WHEREOF, the Company by its duly authorized officer has
executed this Warrant as of the 22nd day of April, 1996.
PRINCETON DENTAL MANAGEMENT CORPORATION,
a Delaware corporation, by:
______________________________
Charles Mitchell, D.D.S.
President and CEO
Attest:
Corporate Seal
_____________________________________
Secretary
Page 6 of 9
<PAGE> 85
STATE OF ILLINOIS )
) SS
COUNTY OF _______ )
I, _____________________________, a Notary Public in and for the
County and State aforesaid, do hereby certify that Charles Mitchell, D.D.S.,
personally known to me to be the President and Chief Executive Officer of
Princeton Dental Management Corporation, a Delaware corporation, appeared
before me this day in person and acknowledged that as such officer he signed
and delivered such instrument as his free and voluntary act and with due
authorization, and as the free and voluntary act of the Company, for the uses
and purposes herein set forth.
Given under my hand and seal this ________ day of _____________, 1996.
SEAL:
_______________________________________
NOTARY PUBLIC
My commission expires ______________.
STATE OF ILLINOIS )
) SS
COUNTY OF _________ )
I, ______________________________, a Notary Public in and for the
County and State aforesaid, do hereby certify that ___________________,
personally known to me to be the Secretary of Princeton Dental Management
Corporation, a Delaware corporation, appeared before me this day in person and
acknowledged that as such officer he signed and delivered such instrument as
his free and voluntary act and with due authorization, and as the free and
voluntary act of the Company, for the uses and purposes herein set forth.
Given under my hand and seal this ____ day of ________________, 1996.
SEAL:
_______________________________________
NOTARY PUBLIC
My commission expires ________________.
Page 7 of 9
<PAGE> 86
EXHIBIT "A"
Amsterdam Equities Limited
404 East Bay Street
P.O. Box SS-3539
Nassau, New Providence
Bahamas Islands
Page 8 of 9
<PAGE> 87
EXHIBIT "B"
FORM OF EXERCISE
The undersigned hereby irrevocably elects to exercise a purchase right
pursuant to the terms of this Warrant for, and to purchase thereunder,
___________________________ ___________________________________ Shares of
Princeton Dental Management Corporation, a Delaware corporation, and herewith
makes payment of $________________________ per Share, or a total of
$____________________________ therefor, and requests that such Shares be issued
to:
_________________________________
_________________________________
(Title)
_________________________________
(Print Name)
_________________________________
(Address)
_________________________________
_________________________________
Dated:_________________________
_______________________________________
(Identification Number, if assigned by
a Governing Authority)
Page 9 of 9
<PAGE> 88
THIS WARRANT, AND THE SHARES OF SERIES B PREFERRED STOCK ISSUABLE UPON
THE EXERCISE OF THIS WARRANT, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS
OF ANY OTHER JURISDICTION AND ANY TRANSFER THEREOF IS SUBJECT TO
COMPLIANCE WITH SUCH LAWS AND THE TERMS OF THIS WARRANT.
WARRANT TO PURCHASE 100
UNREGISTERED SHARES OF SERIES B PREFERRED STOCK OF
PRINCETON DENTAL MANAGEMENT CORPORATION
NO. __
FOR VALUE RECEIVED, Princeton Dental Management Corporation, a
Delaware corporation located at 2358 Hassell Road, Hoffman Estates, Illinois
60195 (the "Company"), promises to issue in the name of, and sell and deliver
to Amsterdam Equities Limited together with its successors, transferees and
assigns (the "Holder") (when the context requires, the Company and the Holder
shall be collectively referred to as the "Parties"), a certificate or
certificates for an aggregate of One Hundred (100) unregistered shares of
Series B Preferred Stock, One United States Dollar (U.S.$1.00) par value per
share (the "Shares"), of the Company, upon payment therefor of One Dollar
($1.00) per Share in lawful funds of the United States of America (the
"Exercise Price") pursuant to the terms hereof.
1. Definitions. Unless defined otherwise, any term used herein
which has the first letters thereof capitalized, exclusive of prepositions and
articles, shall be defined as such capitalized term is defined in that certain
Convertible Debt Agreement, dated as of April ___, 1996, by and between the
Parties (which such Convertible Debt Agreement is hereby incorporated herein
and made a part hereof by this reference thereto).
2. Exercise of Warrant. The Holder of this Warrant shall be
entitled to purchase such numbers of Shares at any time over approximately a
seven (7) year period commencing on the effective date of this Warrant and
ending on the earliest of: (a) 6:00 p.m. (eastern standard time) on the date
seven (7) years after such date; (b) the date on which all liabilities under
the Convertible Debt Agreement are paid in full and such agreement has
terminated pursuant to its terms; and (c) the date on which all of the
convertible secured notes issued pursuant to the Convertible Debt Agreement
have been converted to shares of common stock of the Company.
In case the Holder of this Warrant shall desire from time to time to
exercise this Warrant in whole or in part, the Holder shall surrender a copy of
this Warrant, with a copy of the form of exercise notice marked Exhibit A,
which is attached hereto, incorporated herein and made a part hereof by this
reference thereto, duly executed by the Holder (said exercise notice shall bear
an original signature of the Holder), to the Company, accompanied by payment of
the Exercise Price.
Page 1 of 6
<PAGE> 89
This Warrant may be exercised in whole or in part but not for
fractional Shares. In case of the exercise in part only, the Company shall
immediately deliver to the Holder a new Warrant of like tenor for the remaining
Shares. This Warrant, at any time prior to the exercise hereof, upon
presentation and surrender to the Company may be exchanged for another Warrant
or other Warrants of like tenor in the name of such Holder exercisable for the
same aggregate number of Shares as the Warrant or Warrants surrendered.
3. No Voting Rights. This Warrant shall not entitle the Holder
hereof to any voting right (except as required by law) or to other rights as a
shareholder of the Company. However, Holders of Shares received upon exercise
of this Warrant shall have such voting rights and other rights as are set forth
in the Certificate of Designation of Series B Preferred Stock.
4. Covenants of the Company. The Company hereby covenants and
agrees that prior to the expiration of this Warrant by exercise or by its
terms:
a. The Company will not by amendment of its Certificate
of Incorporation or through reorganization, consolidation, merger, dissolution,
or sale of assets, or by any other voluntary act or deed, avoid or seek to
avoid the observance or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by the Company, but will at
all times in good faith assist in the carrying out of all provisions of this
Warrant and in the taking of all other actions that may be necessary in order
to protect the rights of the Holder against dilution.
b. The Company shall at all times reserve and keep
available, out of its authorized and unissued share capital solely for the
purpose of providing for the exercise of the Warrant, forthwith upon the
request of the Holder of the Warrants then outstanding and in effect, such
numbers of Shares as shall, from time to time, be sufficient for the exercise
in full of this Warrant. The Company shall, from time to time, in accordance
with the laws of the State of Delaware, increase the authorized amount of its
share capital if at any time the number of Shares remaining unissued and
unreserved for other purposes shall not be sufficient to permit the exercise of
this Warrant then outstanding and in effect.
Notwithstanding the foregoing, the Company and the Holder acknowledge
that as of the date of this Warrant, the Company has 100 shares of authorized
and unissued shares of its Series B Preferred Stock available for the purpose
of issue upon (1) the exercise, in whole, of this Warrant.
5. Loss, Theft, Destruction or Mutilation. In case this Warrant
shall become mutilated or defaced or be destroyed, lost or stolen, the
Company shall execute and deliver a new Warrant in exchange for and upon
surrender and cancellation of such mutilated or defaced Warrant or in lieu of
and substitution for such Warrant so destroyed, lost or stolen, upon the Holder
of such Warrant filing with the Company such reasonable evidence (an affidavit
shall suffice) that such Warrant has been so mutilated, defaced, destroyed,
lost or stolen and of the ownership thereof by the Holder; provided, however,
that the Company shall be entitled, as a condition to the execution and
delivery of such new Warrant, to demand reasonable indemnity and payment of
expenses and charges incurred in connection with the delivery of such new
Warrant, and may, if reasonable under the circumstances, request a bond from
the Holder. All Warrants so surrendered to the Company shall be canceled.
Page 2 of 6
<PAGE> 90
6. Record Owner. At the time of the surrender of this Warrant,
together with the payment of the Exercise Price, the person exercising this
Warrant shall be deemed to be the Holder of record of the Warrants deliverable
upon such exercise, in whole or in part, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such securities shall not then be actually delivered to such
person.
7. Original Issue Taxes. The Company shall pay all United
States, state, local and any other original issue taxes, if any, upon the
issuance of this Warrant or the Shares deliverable upon exercise hereof.
8. Notices. All notices, requests and other communications
provided for hereunder shall be in writing and sent by first class or
equivalent mail of the country of origin, registered or certified, postage
prepaid and return receipt requested or delivered personally or by courier
against written acknowledgement of receipt (i) if to the Company, at 2358
Hassell Road, Hoffman Estates, Illinois 60195, with a copy to John F. Mahoney,
Esq., Chuhak & Tecson P.C., 225 West Washington Street, Suite 1300, Chicago,
Illinois, 60606, (ii) if to the Holder, at 404 East Bay Street, P.O. Box
SS-5539, Nassau, New Providence, Bahamas Islands, with a copy to Kevin Cahill,
Brooks & Cahill, 208 S. LaSalle Street, Suite 1855, Chicago, Illinois 60604
(unless otherwise indicated by Holder). All such notices and other
communications shall be effective on the date of delivery to the party
receiving such notice, as evidenced by the date set forth on the receipt signed
by the party receiving such notice.
9. Restrictions on Transferability. The Warrant and the Shares
issuable upon exercise of this Warrant may be transferred by the Holder
pursuant to any applicable exemption from registration under the Securities Act
of 1933, as amended, or applicable state securities laws.
Further, this Warrant, and the Shares issuable upon exercise of this
Warrant, have not yet been registered under the Securities Act. Accordingly,
this Warrant, all replacement Warrants and the stock certificates representing
the Shares shall, prior to registration pursuant to the Registration Agreement,
bear the following legend:
THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT, HAVE NOT BEEN REGISTERED EITHER UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAW AND ANY TRANSFER THEREOF IS SUBJECT
TO COMPLIANCE WITH SUCH LAWS AND THE TERMS OF THIS WARRANT.
10. Entire Agreement and Modification. The Company and the Holder
of this Warrant hereby represent and warrant that, except for the provisions of
the Convertible Debt Agreement and a Registration Agreement of even date
herewith, this Warrant is intended to and does contain and embody all of the
understandings and agreements, both written and oral, of the Parties with
respect to the subject matter of this Warrant, and that there exists no oral
agreement or understanding, express or implied, whereby the absolute, final and
unconditional character and nature of this Warrant shall be in any way
invalidated, empowered or affected. A modification or waiver of any of the
terms, conditions or
Page 3 of 6
<PAGE> 91
provisions of this Warrant shall be effective only if made in writing and
executed with the same formality as this Warrant.
11. Authorization. The undersigned have been duly authorized by
the Company to execute this Warrant, and any related agreements between the
Company and the Holder, the signatures of the undersigned are binding upon the
Company, and their execution of this Warrant does not constitute a breach of
any existing agreement to which the Company is a party.
12. Effective Date. Warrants granted hereunder shall become
effective immediately. The Warrants granted hereunder shall be wholly void and
of no effect and the rights evidenced hereby will terminate unless exercised in
accordance with the terms and provisions hereof before the dates set forth in
Section 2.
IN WITNESS WHEREOF, the Company by its duly authorized officer has
executed this Warrant as of the ___ day of April, 1996.
PRINCETON DENTAL MANAGEMENT CORPORATION,
a Delaware corporation, by:
______________________________
Charles Mitchell, D.D.S.,
President and CEO
Attest:
Corporate Seal
______________________________
______________________________
Secretary
Page 4 of 6
<PAGE> 92
STATE OF ILLINOIS )
) SS
COUNTY OF ________ )
I, _____________________________, a Notary Public in and for the
County and State aforesaid, do hereby certify that Charles Mitchell, D.D.S.
personally known to me to be the President and Chief Executive Officer of
Princeton Dental Management Corporation, a Delaware corporation, appeared
before me this day in person and acknowledged that as such officer he signed
and delivered such instrument as his free and voluntary act and with due
authorization, and as the free and voluntary act of the Company, for the uses
and purposes herein set forth.
Given under my hand and seal this ________ day of ___________, 1996.
SEAL:
_______________________________________
NOTARY PUBLIC
My commission expires ______________.
STATE OF ILLINOIS )
) SS
COUNTY OF __________ )
I, ______________________________, a Notary Public in and for the
County and State aforesaid, do hereby certify that ___________________,
personally known to me to be the Secretary of Princeton Dental Management
Corporation, a Delaware corporation, appeared before me this day in person and
acknowledged that as such officer he signed and delivered such instrument as
his free and voluntary act and with due authorization, and as the free and
voluntary act of the Company, for the uses and purposes herein set forth.
Given under my hand and seal this ____ day of ____________, 1996.
SEAL:
_______________________________________
NOTARY PUBLIC
My commission expires ________________.
Page 5 of 6
<PAGE> 93
EXHIBIT "A"
FORM OF EXERCISE
The undersigned hereby irrevocably elects to exercise a purchase right
pursuant to the terms of this Warrant for, and to purchase thereunder,
______________________________________________________________ Shares of
Princeton Dental Management Corporation, a Delaware corporation, and herewith
makes payment of $________________________ per Share, or a total of
$____________________________ therefor, and requests that such Shares be issued
to:
_________________________________
_________________________________
(Title)
_________________________________
(Print Name)
_________________________________
(Address)
_________________________________
_________________________________
Dated:_________________________
(Identification Number, if assigned by
a Governing Authority)
Page 6 of 6
<PAGE> 94
REGISTRATION AGREEMENT
This REGISTRATION AGREEMENT ("Agreement") is made as of April 22,
1996, between Princeton Dental Management Corporation, a Delaware corporation
(the "Company"), and Amsterdam Equities Limited (together with its successors,
transferees and assigns, the "Stockholder") (when the context requires, the
Company and the Stockholder shall be collectively referred to as the
"Parties").
R E C I T A L S:
WHEREAS, the Company has agreed to sell to the Stockholder, and the
Stockholder has agreed to purchase from the Company, certain convertible notes
of the Company pursuant to a certain Convertible Debt Agreement by and among
the Parties, dated as of April 22, 1996 (the "Convertible Debt Agreement").
WHEREAS, the Company has agreed to sell to Frank Leonard Laport,
Beverly Trust Company, as Custodian of the Frank Leonard Laport Rollover
Individual Retirement Account Number 75-49990 and the Stockholder (the "Other
Stockholders"), and the Other Stockholders have agreed to purchase from the
Company, certain convertible preferred stock of the Company pursuant to a
certain Series A 11.75% Cumulative Convertible Preferred Stock Purchase
Agreement by and among the Company and the Other Stockholders dated as of April
22, 1996 (the "Preferred Stock Purchase Agreement").
WHEREAS, concurrently with the execution of this Agreement, the
Company and the Other Stockholders will enter into a Registration Agreement
(the "Other Registration Agreement") in substantially the same form as this
Agreement.
WHEREAS, in partial consideration for such purchase, the Company has
agreed to provide the Stockholder with the registration rights set forth in
this Agreement.
NOW THEREFORE, the Parties hereto agree as follows:
1. Definitions.
(a) Capitalized Terms: Unless otherwise provided in this
Agreement, capitalized terms used herein shall have the meanings set
forth in the Convertible Debt Agreement (which is hereby incorporated
herein and made a part hereof by the reference thereto).
(b) Persons: The term "Person" means an individual, a
partnership, a corporation, a limited liability company or a trust.
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<PAGE> 95
(c) Registrable Securities: The term
"Registrable Securities" shall be defined as: (i) any and all
shares of Common Stock of the Company issued pursuant to the
terms of the Convertible Debt Agreement including, without
limitation, (A) all shares of Common Stock of the Company
obtained as a result of the conversion of convertible debt
pursuant to the terms of Section 3.1 of the Convertible Debt
Agreement, and (B) all shares of Common Stock of the Company
obtained as a result of the provisions set forth in Section
8.4 of the Convertible Debt Agreement; (ii) any shares of
Common Stock of the Company issued pursuant to the terms of
that certain Warrant To Purchase Up To 3,588,750 Unregistered
Shares Of Common Stock Of Princeton Dental Management
Corporation dated as of April 22, 1996; and (iii) any
securities issued or issuable in respect to securities
included in foregoing items (i)-(ii) (the "Primary
Securities") by way of any distribution of securities or
pursuant to any stock dividend, stock split or combination,
recapitalization, merger, consolidation, or other
reorganization of the Company affecting the Primary
Securities. For purposes of this Agreement, a Person will be
deemed to be a holder of Registrable Securities whenever such
Person has the right to acquire such Registrable Securities
(upon conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not
such acquisition has actually been effected.
2. Registration Rights. At any time and from time to time after
the date hereof, the Company shall file and use its best efforts to
cause to become effective a registration statement to register any and all
Registrable Securities under the Act (a "Demand Registration") when and as
directed by the then holders of a majority of the Registrable Securities. Each
written request for a registration shall specify the approximate number of
Registrable Securities requested to be registered, the identity of the holders
of Registrable Securities demanding such registration, the form such
registration is to be effected on and the anticipated per share price range for
such offering. Within ten (10) days after receipt of notice of registration,
the Company shall give written notice of such demand to all other holders of
Registrable Securities. The Company will include in such registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within twenty (20) days after the date of the
Company's notice of the registration to holders of Registrable Securities. The
Company shall file and use its best efforts to cause to become effective a
registration statement covering all Registrable Securities to be so registered
under the Act no later than the ninetieth (90th) calendar day from the date of
the original notice to the Company. If the Company is unable to so register
such Registrable Securities within ninety (90) calendar days, then the Company
shall issue pro rata to each holder of Registrable Securities who had requested
such registration additional shares of Common Stock (which shall be Registrable
Securities) in the amount equal to the product of (i) the number of Registrable
Securities requested to be registered by such holder, and (ii) the difference
between the fair market value of a share of Common Stock on the business day
immediately following the ninetieth (90th) calendar day after which the notice
to register was delivered (as determined by the average of the NASDAQ high and
low sales price on such business day (or whatever market quotation as may be
relevant at the time)) and the fair market value of a share of Common Stock on
the business day immediately following the effective date of the registration
statement (as defined in Section 3(l)) covering such shares of Common Stock (as
determined by the average of the NASDAQ high and low sales price per share on
such day (or whatever market quotation as may be relevant at the time));
provided, however, that if the fair market value of such a share has, in such
instance, increased, the Company shall not be required to grant to the holders
of Registrable Securities then registering their
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<PAGE> 96
shares any additional shares of Common Stock; further, provided, that
in no event shall any holder of Registrable Securities ever be required to
return any shares of Common Stock to the Company pursuant to the terms hereof.
Once any registration pursuant to this Section 2 is commenced, the Company
shall use its best efforts to complete such registration as expeditiously as
possible. All expenses incurred in connection with such registration shall be
paid by the Company as provided in Section 4 herein.
In the event any securities to be sold by holders of
Registrable Securities pursuant to a registration under this Section 2 are not
sold in accordance with the plan of distribution set forth in the registration
statement within nine (9) months after the effective date of the registration
statement, then such shares shall be deemed not to have been registered
pursuant to Section 2 and shall remain Registrable Securities.
Nothing in this Agreement shall be deemed to require any
holder of Registrable Securities to exercise its rights of conversion with
respect to, or its rights to acquire, any Registrable Securities, either as a
condition to demanding or requesting registration hereunder or at any other
time.
3. Registration Procedures. No later than the applicable date
referenced in Section 2 herein for registration of the Registrable Securities,
the Company shall register such Registrable Securities in accordance with the
intended method of disposition thereof and pursuant thereto the Company shall:
(a) prepare and file with the Securities and Exchange
Commission ("SEC") a registration statement on such form as the
holders of a majority of the Registrable Securities shall specify and
which the Company shall be permitted to use with respect to such
Registrable Securities and use its best efforts to cause such
registration statement to become effective (provided that before
filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall furnish to the counsel selected
by the holders of a majority of the Registrable Securities copies of
all such documents proposed to be filed a reasonable time prior to
filing, which documents shall be subject to the review and comment of
such counsel and the inclusion of such material as such counsel may
reasonably request);
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to (i) keep such registration
statement effective for a period of not less than nine (9) calendar
months and (ii) comply with the provisions of the Act with respect to
the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods
of disposition by the sellers thereof set forth in such registration
statement;
(c) furnish to each holder of Registrable
Securities and the underwriters, if any, such number of copies
of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such holder may
request in order to facilitate the disposition of the Registrable
Securities owned by such holder;
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of
such jurisdictions as any holder requests and do any and all
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<PAGE> 97
other acts and things which may be reasonably necessary or advisable to
enable such holder to consummate the disposition in such jurisdictions
of the Registrable Securities owned by such holder (provided that the
Company will not be required to (i) qualify generally to do business
in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in
any such jurisdiction or (iii) consent to general service of process
in any such jurisdiction);
(e) notify each holder of such Registrable Securities, at
any time when a prospectus relating thereto is required to be
delivered under the Act, of the receipt by the Company of any
notifications with respect to suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose or of the happening
of any event known to the Company as a result of which the prospectus
included in such registration statement contains an untrue statement
of a material fact or omits any material fact necessary to make the
statements therein not misleading, and, at the request of any such
holder, the Company shall prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on
each securities exchange or quoted on each interdealer quotation
system on which similar securities issued by the Company are then
listed or quoted, or if similar securities are not then listed or
quoted, to cause such securities to become listed or quoted prior to
the sale of Registrable Securities pursuant to the registration
hereunder;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
registration statement and facilitate the timely preparation and
delivery of certificates representing the Registrable Securities to be
sold under the registration statement, in such denominations and
registered in such names as the managing underwriter or underwriters,
if any, or the holders of Registrable Securities may request;
(h) enter into such customary and reasonable agreements
(including underwriting agreements in customary and reasonable form)
and take all such other actions as the holders of a majority of the
Registrable Securities, or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, effecting a
stock split or a combination of shares);
(i) make available for inspection by any holder of
Registrable Securities, any underwriter participating in any
disposition pursuant to such registration statement, and any attorney,
accountant or other agent retained by any such holder or underwriter,
all financial and other records, pertinent corporate documents and
properties of the Company as may be reasonably requested, and cause
the Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such
holder, underwriter, attorney, accountant or agent in connection with
such registration statement;
Page 4 of 13
<PAGE> 98
(j) use its best efforts to cause such Registrable
Securities covered by such registration statement to be registered
with or approved by such other governmental agencies or authorities as
may be reasonably necessary to enable the holders thereof to
consummate the disposition of such Registrable Securities;
(k) obtain for the benefit of the holders of Registrable
Securities and the underwriters, if any, a comfort letter from the
Company's independent public accountants and a legal opinion from the
Company's counsel, each in customary and reasonable form and covering
such matters of the type customarily and reasonably covered by comfort
letters and legal opinions as the holders of a majority of the
Registrable Securities reasonably request;
(l) otherwise use its reasonable efforts to comply in all
material respects with all applicable rules and regulations of the
SEC, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least
twelve (12) months beginning with the first month after the "effective
date of the registration statement" (as determined in accordance with
the provisions of Rule 158(c) of the Act), which earnings statement
shall satisfy the provisions of Section 11(a) of the Act and Rule 158
thereunder;
(m) permit any holder of Registrable Securities which
holder, in its sole and exclusive judgment, might be deemed to be an
underwriter or a controlling person of the Company, to participate in
the preparation of such registration or comparable statement and to
require the insertion therein of material, furnished to the Company in
writing, which in the reasonable judgment of such holder and its
counsel should be included; and
(n) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any
order suspending or preventing the use of any related prospectus or
suspending the qualification of any Registrable Securities included in
such registration statement for sale in any jurisdiction, the Company
will use its reasonable efforts promptly to obtain the withdrawal of
such order.
If any such registration or comparable statement refers to any holder
of Registrable Securities by name or otherwise as the holder of any securities
of the Company and if in its sole and exclusive judgment, such holder is or
might be deemed to be a controlling person of the Company, such holder shall
have the right to require the insertion therein of language, in form and
substance satisfactory to such holder and presented to the Company in writing,
to the effect that the holding by such holder of such securities is not to be
construed as a recommendation by such holder of the investment quality of the
Company's securities covered thereby and that such holding does not imply that
such holder will assist in meeting any future financial requirements of the
Company.
4. Registration Expenses. All expenses incident to the Company's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery
expenses, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts and
commissions) and other persons retained by the Company (all such expenses being
herein called "Registration Expenses"), shall be borne in their entirety
Page 5 of 13
<PAGE> 99
by the Company; provided, that the Company shall, in addition, pay its
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit or quarterly review, the expense of any liability insurance
(relating exclusively to any such liability insurance in effect as of the date
hereof) and the expenses and fees for listing the securities to be registered
on each securities exchange or interdealer quotation system on which similar
securities issued by the Company are then listed.
5. Indemnification.
(a) The Company agrees to indemnify each holder of
Registrable Securities covered by such registration statement, its
officers, directors, partners, stockholders, employees, agents,
trustees and each Person who controls such holder (within the meaning
of the Act) against all losses, claims, damages, liabilities and
expenses or amounts paid in settlement caused by (i) any violation or
alleged violation of federal or state securities laws caused by the
execution or implementation of this Agreement and (ii) any untrue or
alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged
omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished in
writing to the Company by such holder expressly for use therein or by
such holder's failure to deliver a copy of the registration statement
or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with sufficient number of copies of
the same. In connection with an underwritten offering, the Company
will indemnify such underwriters, their officers and directors and
each Person who controls such underwriters (within the meaning of the
Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities. The
payments required by this Section 5(a) will be made periodically
during the course of the investigation or defense, when and as bills
are received or expenses incurred.
(b) In connection with any registration statement in
which a holder of Registrable Securities is participating, each
such holder will furnish to the Company in writing such information
and affidavits as the Company reasonably requests for use in
connection with any such registration statement or prospectus and, to
the extent permitted by law, will indemnify the Company, its director
and officers and each person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact contained in the egistration statement,
prospectus or preliminary prospectus or any amendment thereof or
supplement thereto, or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information or affidavit so
furnished in writing by such holder; provided that such obligation to
indemnify will be several, not joint and several, among such holders
of Registrable Securities and the liability of each such holder will
be in proportion to and limited to the net amount received by such
holder from the sale of Registrable Securities pursuant to such
registration statement.
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<PAGE> 100
(c) Any Person (an "Indemnified Person") entitled to
indemnification hereunder will (i) give prompt written notice to the
party against whom indemnification is sought (the "Indemnifying
Person") of any claim with respect to which it seeks indemnification
(but the failure to provide such notice shall not release the
Indemnifying Person of its indemnification obligations hereunder,
unless the Indemnifying Person has been prejudiced by such failure to
provide such notice and then only to the extent of such prejudice) and
(ii) unless in such Indemnified Person's reasonable judgment, a
conflict of interest between such Indemnified Person and the
Indemnifying Person may exist with respect to such claim, permit the
Indemnifying Person to assume the defense of such claim with counsel
reasonably satisfactory to the Indemnified Person, provided that the
Indemnifying Person does so diligently and in good faith. If such
defense is assumed, the Indemnifying Person will not be subject to any
liability for any settlement made by the Indemnified Person without
the Indemnifying Person's consent (but such consent will not be
unreasonably withheld). An Indemnifying Person who is not entitled
to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one (1) counsel
for all parties indemnified by the Indemnifying Person with respect to
such claim, unless in the reasonable judgment of any Indemnified
Person, a conflict of interest may exist between such Indemnified
Person and any other Indemnified Person with respect to such claim.
(d) The indemnification provided for under this Agreement
shall remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer,
director, shareholder or controlling person of such indemnified party
and shall survive the transfer of securities.
(e) The Company also agrees to make such provisions, as
are reasonably requested by any indemnified party, for contribution to
such party in the event the Company's indemnification is unavailable
for any reason.
6. Selection of Underwriters. The holders of a majority of the
Registrable Securities included in any registration shall have the right to
select the investment banker(s) and manager(s) to administer the offering,
subject to the Company's approval which will not be unreasonably withheld.
7. Participation in Underwritten Registrations. No person may
participate in any registration hereunder which is underwritten unless
such person (a) agrees to sell such person's securities on the basis provided
in any underwriting arrangements reasonably suggested by the Company's
underwriters and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements not inconsistent
with this Agreement. The provisions of this Section shall in no way limit any
holder's of Registrable Securities rights pursuant to this Agreement to
registration hereunder in a non-underwritten registration.
8. Priority on Demand Registrations. The Company will not
include in any registration hereunder any securities which are not Registrable
Securities without the prior written consent of the holders of a majority of
the Registrable Securities included in such registration. If a registration
hereunder is an underwritten offering and the managing underwriters advise the
Company in writing that
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<PAGE> 101
in their opinion the number of Registrable Securities and, if permitted
hereunder, other securities requested to be included in such offering exceeds
the number of Registrable Securities and other securities, if any, which can be
sold in such offering, without adversely affecting the marketability of the
offering, the Company will include in such registration in the case of a
registration requested by the holders of a majority of the Registrable
Securities, (x) first, the Registrable Securities requested to be included in
such registration, (y) second, other securities issued pursuant to the terms
and provisions of the Preferred Stock Purchase Agreement which any of the Other
Stockholders requests to be included in such registration, and (z) third, other
securities requested to be included in such registration.
Unless otherwise agreed by the Company, any Persons other than holders of
Registrable Securities who participate in Demand Registrations must pay their
share of the Registration Expenses as provided in Section 4.
9. Security Issuance, Other Registration Rights. Except as
provided in this Agreement, the Convertible Debt Agreement, or the Preferred
Stock Purchase Agreement, the Company will not (i) issue or sell any of its
securities of any kind, (ii) register any of its securities for sale under the
Act or any state securities law or (iii) grant to any Persons the right to
request or require the Company to register any equity securities of the
Company, or any securities convertible or exchangeable into or exercisable for
such securities, without the prior written consent of the holders of a majority
of Registrable Securities; provided that the Company may grant rights to other
Persons to (i) participate in Piggyback Registrations so long as such rights
are subordinate to the rights of the holders of Registrable Securities with
respect to such Piggyback Registrations and (ii) request registrations so long
as the holders of Registrable Securities are entitled to participate in any
such registrations with such Persons pro rata on the basis of the number of
shares owned by each such holder and any such registration is subject to the
approval of the holders of a majority of the Registrable Securities.
10. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to
register any of its securities under the Act (other than
pursuant to a registration hereunder) as permitted by Section 9 and
the registration form to be used may be used for the registration of
Registrable Securities (a "Piggyback Registration"), the Company will
give prompt written notice to all holders of Registrable Securities of
its intention to effect such a registration at least thirty (30) days
prior to the anticipated filing date of the registration statement
relating to such registration. Such notice will offer the holders of
Registrable Securities the opportunity to include in such registration
statement such Registrable Securities as each holder may request in
writing within twenty (20) days after the receipt of the Company's
notice. Except as provided in paragraphs 10(c), 10(d) and 10(e) below,
the Company shall include in any such registration statement all such
Registrable Securities requested to be included.
(b) Piggyback Expenses. The Registration Expenses of the
holders of Registrable Securities will be paid by the Company in all
Piggyback Registrations.
(c) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the
Company, and the managing underwriters advise the
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<PAGE> 102
Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the
number which can be sold in such offering without adversely affecting
the marketability of the offering, the Company will include in such
registration (i) first, the securities the Company proposes to sell,
(ii) second, the Registrable Securities requested to be included in
such registration and (iii) third, other securities requested to be
included in such registration.
(d) Priority on Secondary Registrations. Except as
otherwise provided in Section 8 hereof, if a Piggyback Registration is
an underwritten primary registration other than on behalf of the
Company, and the managing underwriters advise the Company in writing
that in their opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in
such offering without adversely affecting the marketability of the
offering, the Company will include in such registration the securities
requested to be included in such registration reduced pro rata in
accordance with the original number of securities requested to be
included.
(e) Withdrawal by Company. If, at any time after giving
written notice of its intention to register any of its securities as
set forth in Section 10(a) and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such
securities, the Company may, at its election, given written notice of
such determination to each holder of Registrable Securities and
thereupon shall be relieved of its obligation to register any
Registrable Securities in connection with such registration (but not
from its obligation to pay the Registration Expenses in connection
therewith as provided herein).
11. Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
Section 2 or Section 10, and if such previous registration has not been
withdrawn or abandoned, the Company will not file or cause to be effected any
other registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Act
(except on Form S-8 or any successor form), whether on its own behalf or at the
request of any holder or holders of such securities, until a period of at least
nine (9) months has elapsed from the effective date of such previous
registration, unless a shorter period of time is approved by the holders of a
majority of Registrable Securities included in such registration.
12. Holdback Agreements. Notwithstanding the provisions of
Section 9, the Company agrees (i) not to effect any public sale or distribution
of its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the thirty (30) days prior to and
during the 270-day period beginning on the effective date of any underwritten
registration hereunder or any underwritten Piggyback Registration (except as
part of such underwritten registration or pursuant to registrations on Form S-8
or any successor form), unless the underwriters managing the registered public
offering otherwise agree, and (ii) to cause each holder of at least 5% (on a
fully- diluted basis) of its Common Stock, or any securities convertible into
or exchangeable or exercisable for Common Stock, purchased from the Company at
any time after the date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale or distribution (including
sales pursuant to Rule
Page 9 of 13
<PAGE> 103
144) of any such securities during such period (except as part of such
underwritten registration, if otherwise permitted), unless the underwriters
managing the registered public offering otherwise agree.
13. Creditor Standstill. During the 270-day period beginning on
the effective date of any underwritten registration pursuant to Section 2
hereof, the Stockholder shall not make any demands for registration pursuant to
Section 2 hereof. During the 180-day period beginning on the effective date of
any underwritten registration pursuant to Section 2 of the Other Registration
Agreement, the Stockholder shall not make any demand for registration pursuant
to Section 2 hereof.
14. Stock Legends. When and to the extent permitted by the Act,
the Company shall provide to the holders of Registrable Securities, at no cost
or expense to such holders, equivalent stock certificates without restrictive
legends of any kind to evidence that their shares of the Company's Common Stock
are not restricted securities under the Act.
15. Current Public Information. The Company shall use its best
efforts to file the reports required to be filed by it under the Act and the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder, (or, if the Company is not required to file such
reports, it shall, upon the request of the holders of a majority of the
Registrable Securities, use its best efforts to make publicly available
sufficient information, for so long as necessary, to permit sales under Rule
144 under the Act), and it shall use its best efforts to take such further
action as the holders of a majority of the Registrable Securities may
reasonably request, all to the extent required from time to time to enable the
holders of a majority of the Registrable Securities to sell the Registrable
Securities, without registration under the Act within the limitation of the
exemptions provided by (a) Rule 144 under the Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the SEC. Upon the request of the holders of a majority of the Registrable
Securities, the Company will deliver to the holders of a majority of the
Registrable Securities a written statement as to whether it has complied with
such requirements.
16. Miscellaneous.
(a) Remedies. Any person having rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically, to recover damages caused by reason of any breach of any
provision of this Agreement and to exercise all other rights granted
by law.
(b) Amendments and Waivers. The Company may agree to an
amendment of the provisions of this Agreement and the Company may take
any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the
written consent of holders of at least a majority of the Registrable
Securities.
(c) Successors and Assigns. All covenants and agreements
in this Agreement by or on behalf of any of the Parties shall bind and
inure to the benefit of the respective successors and assigns of the
Parties whether so expressed or not.
(d) Notices. Any notice provided for in this Agreement
must be in writing and must be either personally delivered or by
courier against written acknowledgment of receipt or mailed
Page 10 of 13
<PAGE> 104
by registered mail, postage prepaid and return receipt
requested, to the Company at Princeton Dental Management Corporation,
2358 Hassell Road, Hoffman Estates, Illinois 60195, and to the
Stockholder at its business address provided by the Stockholder in the
Convertible Debt Agreement, or, if changed by the Stockholder
hereafter by notice from such Stockholder to the Company in accordance
with the provisions set forth herein, at said new address provided by
such Stockholder to the Company. Notice pursuant to this Section
shall be deemed received on the date of delivery to the party
receiving such notice as evidenced by the date set forth on the
receipt signed by the party receiving such notice.
(e) Governing Law. All questions concerning the
construction, validity and interpretation of this Agreement will be
governed and controlled by the laws of the State of Illinois as to
interpretation, enforcement, validity, construction, effect, choice of
law, without giving effect to principles of conflicts of laws, and in
all other respects. The Parties agree that all actions and proceedings
in any way, manner or respect arising out of or from or related to
this Agreement shall be litigated in courts having situs within the
County of Cook, State of Illinois, and the Parties hereby covenant and
submit to the jurisdiction of any local, state or federal court
located within said county and state.
(f) Severability. If any provision of this Agreement
is held to be invalid, illegal or unenforceable in any respect under
applicable jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision, but this
Agreement will be deemed reformed, construed and enforced as if such
invalid, illegal or unenforceable provision had never been contained
herein.
(g) Authorization. Those persons signing on behalf of
the Company have been duly authorized by the Company to execute this
Agreement, and any related agreements between the Company and the
Stockholder, the signatures of the undersigned are binding upon the
Company, and their execution of this Agreement does not constitute a
breach of any existing agreement to which the Company is a party.
(h) Entire Agreement and Modification. The Company and
the Stockholder hereby represent and warrant that, except for the
provisions of the Convertible Debt Agreement and that certain Warrant
To Purchase Up To 3,588,750 Unregistered Shares Of Common Stock Of
Princeton Dental Management Corporation dated as of April 22, 1996
(each of which are hereby incorporated herein and made a part hereof
by these references thereto) this Agreement is intended to and does
contain and embody all of the understandings and agreements, both
written and oral, of the Parties with respect to the subject matter of
this Agreement, and that there exists no oral agreement or
understanding, express or implied, whereby the absolute, final and
unconditional character and nature of this Agreement shall be in any
way invalidated, empowered or affected. A modification or waiver of
any of the terms, conditions or provisions of this Agreement shall be
effective only if made in writing and executed with the same formality
as this Agreement.
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<PAGE> 105
IN WITNESS WHEREOF, the Parties have executed this Agreement as of
the day and year first above written.
Amsterdam Equities Limited
By: _______________________________
Name: _______________________________
Title: _______________________________
Princeton Dental Management
Corporation, a Delaware Corporation
By: _______________________________
Name: Charles Mitchell, D.D.S.
Title: President and CEO
Page 12 of 13
<PAGE> 106
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, ___________________________________, a Notary Public in and for the
County and State aforesaid, do hereby certify that Charles Mitchell, D.D.S.,
personally known to me to be the President and Chief Executive Officer of
Princeton Dental Management Corporation, a Delaware corporation, appeared
before me this day in person and acknowledged that as such officer he signed
and delivered such instrument as his free and voluntary act and with due
authorization, and as the free and voluntary act of the Company, for the uses
and purposes herein set forth.
Given under my hand and seal this _______ day of April, 1996.
SEAL:
_____________________________________
NOTARY PUBLIC
My commission expires _____________.
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, ___________________________________, a Notary Public in and for the
County and State aforesaid, do hereby certify that _________________,
personally known to me to be the Secretary of Princeton Dental Management
Corporation, a Delaware corporation, appeared before me this day in person and
acknowledged that as such officer he signed and delivered such instrument as
his free and voluntary act and with due authorization, and as the free and
voluntary act of the Company, for the uses and purposes herein set forth.
Given under my hand and seal this _______ day of April, 1996.
SEAL:
_____________________________________
NOTARY PUBLIC
My commission expires _____________.
Page 13 of 13
<PAGE> 107
ASSIGNMENT
MeesPierson (Bahamas) Limited ("MeesPierson") hereby assigns to
Amsterdam Equities Limited ("Amsterdam") all of its rights under that certain
Secured Revolving Demand Note dated as of January 27, 1995 ("Note") issued to
MeesPierson by Princeton Dental Management Corporation ("Company").
MeesPierson, Frank Leonard Laport, Frank Leonard Laport & Associates Money
Purchase Pension Plan and Trust, ROMAJO Partners Limited Partnership and Dr.
Seymour Kessler hereby assign to Amsterdam any and all rights they have under
the Security Documents (as defined in the Note).
MEESPIERSON (BAHAMAS) LIMITED
_____________________________________
By:__________________________________
Its:_________________________________
____________________________________
FRANK LEONARD LAPORT
FRANK LEONARD LAPORT & ASSOCIATES MONEY
PURCHASE PENSION PLAN AND TRUST
______________________________________
By:___________________________________
Its:__________________________________
ROMAJO PARTNERS LIMITED PARTNERSHIP
_______________________________________
By:____________________________________
Its:___________________________________
________________________________________
DR. SEYMOUR KESSLER
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<PAGE> 108
ACKNOWLEDGMENT AND CONSENT
The Company hereby acknowledges and consents to the foregoing
Assignment.
PRINCETON DENTAL MANAGEMENT CORPORATION
________________________________________
By: Charles Mitchell D.D.S.
Its: President and Chief Executive Officer
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<PAGE> 109
GUARANTY AND SECURITY AGREEMENT
THIS GUARANTY AND SECURITY AGREEMENT ("GUARANTY") is made and entered
into as of April __, 1996 by each of MASON DENTAL MIDWEST, INC., a Michigan
corporation ("MASON MIDWEST"), MASON DENTAL SOUTHEAST, INC., a Florida
corporation ("MASON SOUTHEAST"), PRINCETON MEDICAL MANAGEMENT MIDWEST, INC., a
Michigan corporation ("MIDWEST"), PRINCETON MEDICAL MANAGEMENT NORTHEAST, INC.,
a Pennsylvania corporation ("NORTHEAST") and PRINCETON MEDICAL MANAGEMENT
SOUTHEAST, INC., a Florida corporation ("SOUTHEAST"), in favor of AMSTERDAM
EQUITIES LIMITED (the "LENDER").
PRELIMINARY STATEMENTS:
A. Concurrently with the execution and delivery of this Guaranty,
Princeton Dental Management Corporation, a Delaware corporation ("BORROWER") is
entering into that certain Convertible Debt Agreement dated as of April ___,
1996 (as the same may hereafter be amended, restated, supplemented or otherwise
modified from time to time, the "DEBT AGREEMENT"). Capitalized terms used
herein and not otherwise defined herein shall have the respective meanings
assigned to such terms in the Debt Agreement.
B. It is a condition precedent to Lender's entering into the Debt
Agreement and extending credit to Borrower pursuant thereto that Mason Midwest,
Mason Southeast, Midwest, Northeast and Southwest (each a "GUARANTOR" and,
collectively, the "GUARANTORS") execute and deliver this Guaranty.
C. Each Guarantor acknowledges that, in view of the business and
economic relationship that exists between Borrower and such Guarantor, (I) the
financial accommodations from Lender to Borrower contemplated under the Debt
Agreement will inure to the benefit of such Guarantor, and (II) it is in the
direct interest and to the direct advantage of such Guarantor that it execute
and deliver this Guaranty.
In consideration of the foregoing premises and any loan, advance or
financial accommodation now or hereafter made by Lender to Borrower, and in
order to induce Lender to make or extend the same, each Guarantor hereby agrees
as follows:
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<PAGE> 110
SECTION 1. GUARANTY. Guarantors unconditionally and absolutely,
jointly and severally, guarantee the full and prompt payment, performance and
observance when due, whether at maturity or earlier by reason of acceleration
or otherwise, and at all times thereafter, of all of the Liabilities
(including, without limitation, interest accruing thereon following the filing
by or against Borrower of any bankruptcy or similar insolvency proceedings,
whether or not allowed as a claim in any such proceeding). At any time after
the occurrence of an Event of Default, and during the continuance thereof,
Guarantors shall jointly and severally pay to Lender, on demand and in
immediately available funds, the full amount of the Liabilities which are due
and payable at such time. Guarantors, jointly and severally, further agree to
pay all costs and expenses, including, without limitation, all court costs and
reasonable attorneys' and paralegals' fees and expenses, paid or incurred by
Lender in endeavoring to collect all or any part of the Liabilities from, or in
prosecuting any action against, any Guarantor. This Guaranty is an absolute
guaranty of payment and performance and not a guaranty of collection.
SECTION 2. GUARANTY ABSOLUTE. Each Guarantor hereby agrees that its
obligations under this Guaranty shall be unconditional, irrespective of (I) the
validity or enforceability of all or any part of the Liabilities or of any
promissory note or other agreement, document or instrument evidencing all or
any part of the Liabilities, (II) the absence of any attempt to collect the
Liabilities from Borrower, any Guarantor or any other guarantor or other action
to enforce the same, (III) the waiver or consent by Lender with respect to any
provision of any instrument evidencing the Liabilities, or any part thereof, or
any other agreement or document now or hereafter executed by Borrower and
delivered to Lender, (IV) failure by Lender to take any steps to perfect and
maintain its security interest in, or to preserve its rights to, any collateral
security for the Liabilities, (V) Lender's election, in any proceeding
instituted under Chapter 11 of the United States Bankruptcy Code, as amended,
11 U.S.C. Section 101 et. seq. (the "BANKRUPTCY CODE") of the application of
Section 1111(b)(2) of the Bankruptcy Code, (VI) any borrowing or grant of a
security interest by Borrower, as a debtor-in-possession, under Section 364 of
the Bankruptcy Code, (VII) the disallowance, under Section 502 of the
Bankruptcy Code, of all or any portion of Lender's claim(s) for repayment of
the Liabilities, (VIII) the election of any remedy by, or on behalf of, Lender
with respect to all or any part of the Liabilities, (IX) any act or omission of
Lender which changes the scope of such Guarantor's risk, (X) any errors or
omissions in connection with Lender's administration of the Liabilities, or
(XI) any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a guarantor or surety of or for Borrower.
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<PAGE> 111
SECTION 3. GRANT OF SECURITY. To secure the prompt payment,
observance and performance of the Liabilities, each Guarantor hereby grants to
Lender a continuing security interest in and to the following property and
interests in property of such Guarantor, whether now owned and existing or
hereafter acquired or arising, and wheresoever located: accounts, contract
rights, chattel paper, instruments, documents, inventory (including, without
limitation, work-in-process), general intangibles (including, without
limitation, general or limited partnership interests, inventions, designs,
patents, patent applications, trademarks, trademark applications, trade names,
trade secrets, goodwill, licenses, franchises, tax refund claims, guaranty
claims, rights and claims against shippers and carriers, and security interests
or other collateral security held by such Guarantor), tax refunds, rights to
other refunds and indemnification, equipment, machinery, tools, spare parts,
furniture and fixtures together with all accessions and additions to, products,
replacements and proceeds of (including, without limitation, proceeds of
insurance policies insuring the same), and substitutions for any of the
foregoing property and interests in property and all of such Guarantor's books
and records related to any of the foregoing property (all such property and
interests in property of any Guarantor being the "COLLATERAL" of such
Guarantor); provided, however, that, notwithstanding the foregoing, the
Collateral of each Guarantor shall not include any rights or interest of such
Guarantor Management Agreement (as defined below) if (and solely to the extent
and for so long as) such Management Agreement expressly prohibits such
Guarantor from granting to the Lender any Lien on any rights or interests of
such Guarantor thereunder. For purposes hereof, "EXISTING MANAGEMENT
AGREEMENTS" means the agreements set forth on ANNEX 1 hereto. The security
interest granted hereinabove by each Guarantor shall be a continuing security
interest in the Collateral of such Guarantor and shall remain in full force and
effect until indefeasible payment and satisfaction in full of the Liabilities
and termination of the Debt Agreement and this Guaranty pursuant to the
respective terms and provisions thereof and hereof.
SECTION 4. FURTHER ASSURANCES. Each Guarantor hereby agrees to
execute and deliver to Lender such financing statements and amendments and
supplements thereto, and such other instruments as Lender may from time to time
request (and will pay all costs and expenses of recording the same) in order to
perfect, preserve, protect and maintain the security interest hereby granted by
such Guarantor. Each Guarantor further agrees that a carbon, photographic,
photostatic or other reproduction of this Guaranty or of a financing statement
is sufficient as a financing statement with respect to the Collateral of such
Guarantor.
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<PAGE> 112
SECTION 5. WAIVER; DISCHARGE ONLY BY COMPLETE PERFORMANCE;
ENFORCEMENT; APPLICATION OF PAYMENTS. Each Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of
receivership or bankruptcy of Borrower, protest or notice with respect to the
Liabilities and all other demands whatsoever. Each Guarantor also waives all
setoffs and counterclaims and all presentments, demands for performance,
notices of nonperformance, protests, notices of protest, notices of dishonor,
notices of acceptance of this Guaranty, and the benefits of all statutes of
limitation. Each Guarantor further waives all notices of the existence,
creation or incurring of new or additional Liabilities, arising either from
additional loans extended to Borrower or otherwise, and also waives all notices
that the principal amount, or any portion thereof, and/or any interest on, any
instrument or document evidencing all or any part of the Liabilities is due,
notices of any and all proceedings to collect from the maker, any endorser or
any other guarantor of all or any part of the Liabilities, including any other
Guarantor, or from any other Person, and, to the extent permitted by law,
notices of exchange, sales, surrender or other handling of any collateral
security given to Lender to secure payment of all or any part of the
Liabilities. Each Guarantor still further waives all defenses based on lack of
consideration, breach of warranty, statute of frauds, accord and satisfaction,
and usury. EACH GUARANTOR COVENANTS AND EXPRESSLY AGREES THAT THIS GUARANTY
WILL NOT BE DISCHARGED, EXCEPT BY COMPLETE PAYMENT AND PERFORMANCE OF THE
OBLIGATIONS SET FORTH HEREIN. Upon the occurrence and during the continuance
of an Event of Default, Lender may proceed directly and at once, without
notice, against any or all of the Guarantors to collect and recover the full
amount or any portion of the Liabilities, without first proceeding against
Borrower or any other Person, or against any collateral security for the
Liabilities. Lender shall have the exclusive right to determine the
application of payments and credits, if any, from each Guarantor, Borrower or
from any other Person on account of the Liabilities or of any other liability
of Borrower or any Guarantor to Lender.
SECTION 6. COLLECTION FROM EACH GUARANTOR; SALE OF COLLATERAL. Upon
the occurrence and during the continuance of an Event of Default, each
Guarantor shall be deemed to be in default hereunder and Lender shall have the
rights and remedies of a secured party under the Uniform Commercial Code in
effect on the date hereof in the State of Illinois ("CODE") with respect to the
Collateral of such Guarantor, which rights and remedies shall be cumulative and
not exclusive to the extent permitted by law. Without notice, demand or legal
process of any kind, Lender, and its nominee, designee or agent, may take
possession of any or all of the Collateral of any or all of the Guarantors (in
addition to the Collateral of any Guarantor of which it already has
possession), wherever it may be found, and for that purpose may pursue the same
wherever it may be found, and may, without a breach of the peace, enter onto
any premises of any Guarantor (with respect to each
Page 4 of 15
<PAGE> 113
Guarantor, such Guarantor's "PREMISES") where any of the Collateral of such
Guarantor is or may be located, and search for, and take possession of, any or
all of such Collateral until the same shall be sold or otherwise disposed of in
accordance with the Code. Lender, its nominee, designee or agent, shall have
the right to remove any or all of the Collateral of any Guarantor from the
Premises of any Guarantor and/or to assemble and store such Collateral on such
Premises, and otherwise to operate, occupy and use such Premises, in connection
with public or private sales of Collateral of any Guarantor, all without cost
to Lender, its nominee, designee or agent. If an Event of Default exists, at
Lender's request, each Guarantor will, at such Guarantor's expense, assemble
the Collateral at one or more places reasonably convenient to both parties,
where the Collateral may remain at such Guarantor's expense, pending sale or
other disposition thereof. Each Guarantor acknowledges that any breach by such
Guarantor of any of the provisions of this paragraph will cause irreparable
injury to Lender and that there is no adequate remedy at law for a breach of
the provisions of this paragraph. Each Guarantor agrees that Lender will have
the immediate right, upon such breach, to obtain injunctive and other equitable
relief in any court of competent jurisdiction without any requirement of
notice, and that the granting of any such relief shall not preclude Lender from
pursuing any other available relief or remedies for such breach.
At any time after maturity of the Liabilities, by acceleration or
otherwise, Lender may without notice to any Guarantor and regardless of the
acceptance of any collateral security for the payment hereof, appropriate and
apply toward the payment of the Liabilities (I) any indebtedness due or to
become due from Lender to such Guarantor, and (II) any moneys, credits or other
property belonging to such Guarantor, at any time held by or coming into the
possession of Lender.
Any notification required by law of intended sale, lease or other
disposition by or on behalf of Lender of any of the Collateral of any Guarantor
shall be deemed reasonably and properly given if mailed, postage prepaid, to
such Guarantor at such Guarantor's address set forth below such Guarantor's
signature hereon at least five (5) days before such sale, lease or other
disposition. Any proceeds of any sale, lease or other disposition by or on
behalf of Lender of any of the Collateral of any Guarantor may be applied by
Lender to the payment of expenses in connection with the acquisition,
possession, protection, custody, preparation for sale, lease or disposition and
sole, lease or disposition of such Collateral, including, without limitation,
reasonable attorneys' and paralegals' fees and expenses. Any balance of such
proceeds shall be applied by Lender toward the payment of the Liabilities.
Each Guarantor shall remain liable for any deficiency, and Lender shall account
for any surplus.
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<PAGE> 114
IN AN EVENT OF DEFAULT EXISTS AS AFORESAID, EACH GUARANTOR (PURSUANT
TO AUTHORITY GRANTED BY ITS BOARD OF DIRECTORS) HEREBY WAIVES ALL RIGHTS TO
NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE BY LENDER OF ITS RIGHTS TO
REPOSSESS THE COLLATERAL OF SUCH GUARANTOR WITHOUT JUDICIAL PROCESS OR TO
REPLEVY, ATTACH OR LEVY UPON SUCH COLLATERAL WITHOUT PRIOR NOTICE OR HEARING.
EACH GUARANTOR ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE
WITH RESPECT TO THIS TRANSACTION AND THIS AGREEMENT.
SECTION 7. AMENDMENTS, EXTENSIONS, MODIFICATIONS, PARTIAL PAYMENTS,
RELEASES, ETC.; FINANCIAL CONDITION OF BORROWER. Lender is hereby authorized,
without notice or demand and without affecting the liability of any Guarantor
hereunder, to, from time to time, (I) renew, extend, accelerate or otherwise
change the time for payment of, or other terms relating to, the Liabilities, or
otherwise modify, amend or change the terms of any promissory note or other
agreement, document or instrument now or hereafter executed by Borrower or any
other Person and delivered to Lender; (II) accept partial payments on the
Liabilities; (III) take and hold collateral security for the payment of the
Liabilities guaranteed hereby, or for the payment of this Guaranty, or for the
payment of any other guaranties of the Liabilities or other liabilities of
Borrower, and exchange, enforce, waive and release any such collateral
security; (IV) apply such collateral security and direct the order or manner of
sale thereof as in its discretion it may determine; and (V) settle, release,
compromise, collect or otherwise liquidate any or all of the Liabilities, any
other guarantor of the Liabilities, including any Guarantor, and any collateral
security therefor in any manner, in each case without affecting or impairing
the obligations of any Guarantor hereunder.
Each Guarantor hereby assumes responsibility for keeping itself
informed of the financial condition of Borrower, and any and all endorsers
and/or other guarantors of any instrument or document evidencing all or any
part of the Liabilities, including any other Guarantor, and of all other
circumstances bearing upon the risk of nonpayment of the Liabilities or any
part thereof that diligent inquiry would reveal, and each Guarantor hereby
agrees that Lender shall not have any duty to advise such Guarantor of
information known to Lender regarding such condition or any such circumstances.
In the event Lender, in its sole discretion, undertakes at any time or from
time to time to provide any such information to any Guarantor, Lender shall be
under no obligation (I) to undertake any investigation not a part of its regular
business routine, (II) to disclose any information which, pursuant to accepted
or reasonable business practices, Lender wishes to maintain confidential, or
(III) to make any other or future disclosures of such information or any other
information to such Guarantor.
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<PAGE> 115
SECTION 8. NO OBLIGATION TO MARSHALL ASSETS; REVERSAL OF PAYMENTS.
Each Guarantor consents and agrees that Lender shall be under no obligation to
marshall any assets in favor of such Guarantor or against or in payment of any
or all of the Liabilities. Each Guarantor further agrees that, to the extent
that Borrower make a payment or payments to Lender, or Lender receives any
proceeds of the Collateral, which payment or payments or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to Borrower, its estate, trustee, receiver or any
other Person, including, without limitation, any Guarantor, under any
bankruptcy law, state or federal law, common law or equitable cause, then to
the extent of such payment or repayment, the Liabilities or part thereof which
has been paid, reduced or satisfied by such amount shall be reinstated and
continued in full force and effect as if such initial payment, reduction or
satisfaction had not occurred.
SECTION 9. SUBROGATION, REIMBURSEMENT, CONTRIBUTION AND INDEMNITY;
SUBORDINATION. Each Guarantor hereby waives all rights of subrogation (whether
contractual, under Section 509 of the Bankruptcy Code, or otherwise) to the
claims of Lender against Borrower and all contractual, statutory or common law
rights of reimbursement, contribution or indemnity which may arise in
connection with this Guaranty. Each Guarantor further agrees that any and all
claims of such Guarantor against Borrower, any endorser or any other guarantor
of all or any part of the Liabilities, or against any of their respective
properties shall be subordinate and subject in right of payment to the prior
indefeasible payment and satisfaction in full of all Liabilities.
SECTION 10. WAIVER BY LENDER. No delay on the part of Lender in the
exercise of any right or remedy shall operate as a waiver thereof, and no
single or partial exercise by Lender of any right or remedy shall preclude any
further exercise thereof; nor shall any modification or waiver of any of the
provisions of this Guaranty be binding upon Lender, except as expressly set
forth in a writing duly signed and delivered on Lender's behalf by an
authorized officer or agent of Lender. The failure of Lender at any time or
times hereafter to require strict performance by Borrower, any Guarantor or any
other guarantor of the Liabilities of any of the provisions, warranties, terms
and conditions contained in the Debt Agreement or any promissory note, security
agreement, agreement, guaranty, instrument or document now or at any time or
times hereafter executed by Borrower, any Guarantor or any other guarantor of
the Liabilities and delivered to Lender shall not waive, affect or diminish any
right of Lender at any time or times thereafter to demand strict performance
thereof and such right shall not be deemed to have been waived by any act or
knowledge of Lender, its agents, officers or employees, unless such waiver is
contained in an instrument in writing signed by an officer or agent of Lender
and directed to each Guarantor specifying such waiver. No waiver by Lender of
any default shall operate as a waiver of any other default or the same default
on a future occasion,
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<PAGE> 116
and no action by Lender permitted hereunder shall in any way affect or
impair Lender's rights or the obligations of any Guarantor under this Guaranty.
Any determination by a court of competent jurisdiction of the amount of any
principal and/or interest owing by Borrower to Lender shall be conclusive and
binding on each Guarantor irrespective of whether such Guarantor was a party to
the suit or action in which such determination was made.
SECTION 11. CONTINUING GUARANTY. Each Guarantor agrees that this
Guaranty shall continue in full force and effect and may not be terminated or
otherwise revoked until all Liabilities shall have been indefeasibly paid and
satisfied in full and the financing arrangements between Borrower and Lender,
whether evidenced by the Debt Agreement, promissory notes, or any other
instrument or document executed by Borrower and delivered to Lender pursuant to
the terms of the Debt Agreement, have been terminated pursuant to the
respective terms and provisions thereof. In the event that any Guarantor shall
have any right under applicable law to otherwise terminate or revoke this
Guaranty, which right cannot be waived, each Guarantor agrees that such
termination or revocation shall not be effective until a written notice of such
revocation or termination, specifically referring hereto, signed by each
Guarantor, is actually received by Lender. Such notice shall not affect the
right and power of Lender to enforce rights arising prior to receipt thereof.
If, in reliance on this Guaranty, Lender grants loans or takes other action
after the termination or revocation by any Guarantor but prior to the receipt
by Lender of said written notice, the rights of Lender with respect thereto
shall be the same as if such termination or revocation had not occurred.
SECTION 12. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding
upon each Guarantor and upon the respective successors and assigns of such
Guarantor and shall inure to the benefit of Lender's respective successors and
assigns; all references herein to Borrower and to any Guarantor shall be deemed
to include their respective successors and assigns. The respective successors
and assigns of Borrower and of each Guarantor shall include, without
limitation, a receiver, trustee or debtor-in-possession of or for such Person.
All references to the singular shall be deemed to include the plural where the
context so requires and vice-a-versa.
SECTION 13. AUTHORIZATION FOR OFFICERS TO ACT. Each Guarantor hereby
certifies that it has all necessary power and authority to grant and execute
this Guaranty and to perform its respective obligations hereunder. Each
Guarantor authorizes its Chairman, President and each of its Vice Presidents,
severally and not jointly, on behalf and in the name of such Guarantor from
time to time in the discretion of such officer, to take or omit to take any and
all actions and to execute and deliver any and all documents and instruments
which such officer may determine to be necessary or desirable in relation to,
and perform any obligations arising in connection with, this Guaranty and any
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<PAGE> 117
of the transactions contemplated hereby, and, without limiting the generality
of the foregoing, hereby gives to each such officer severally the power and
right on behalf of such Guarantor, without notice to or assent by such
Guarantor, to do the following: (I) to execute and deliver any amendment,
waiver, consent, supplement, other modification, or reaffirmation of this
Guaranty or any document covering any of the collateral security for this
Guaranty, and to perform any obligation arising in connection herewith or
therewith; (II) to sell, transfer, assign, encumber or otherwise deal in or
with the security for this Guaranty or any part hereof; (III) to grant liens,
security interests or other encumbrances on or in respect of any property or
assets of such Guarantor, whether now owned or hereafter acquired, in favor of
Lender; (IV) to send notices, directions, orders and other communications to
any Person relating to this Guaranty, any collateral security for this Guaranty
or to any document covering any security for this Guaranty; (V) to take or omit
to take any other action contemplated by or referred to in this Guaranty or any
document covering any of the collateral security for this Guaranty; and (VI) to
take or omit to take any other action with respect to this Guaranty, any of the
collateral security for this Guaranty or any document covering any of the
collateral security for this Guaranty, all as such officer may determine in
his/her sole discretion.
SECTION 14. GOVERNING LAW; CONSENT TO JURISDICTION; SERVICE OF
PROCESS. THIS AGREEMENT AND THE CONVERTIBLE SECURED NOTES SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS,
WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW. BORROWER HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION AND EXCLUSIVE VENUE OF ANY STATE OF
FEDERAL COURT LOCATED IN CHICAGO, ILLINOIS, OVER ANY ACTION OR PROCEEDING (I)
TO ENFORCE OR DEFEND ANY RIGHT UNDER THIS AGREEMENT, THE LOAN DOCUMENTS, OR
UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT, OR AGREEMENT DELIVERED, OR THAT MAY
IN THE FUTURE BE DELIVERED, IN CONNECTION HEREWITH OR THEREWITH, OR (II)
ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT, AND BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF
ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE OR
FEDERAL COURT. BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT
MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE
OF ANY SUCH ACTION OR PROCEEDING. BORROWER AGREES THAT A FINAL JUDGMENT IN ANY
SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN
Page 9 of 15
<PAGE> 118
OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED
BY LAW.
EACH GUARANTOR DESIGNATES AND APPOINTS CT CORPORATION SYSTEM, 208
SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60604, AND SUCH OTHER PERSONS AS MAY
HEREAFTER BE SELECTED BY SUCH GUARANTOR WHICH IRREVOCABLY AGREE IN WRITING TO
SO SERVE AS ITS AGENT, TO RECEIVE AND FORWARD ON ITS BEHALF SERVICE OF ALL
PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING
ACKNOWLEDGED BY SUCH GUARANTOR TO BE EFFECTIVE AND BINDING SERVICE IN EVERY
RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED
MAIL TO EACH GUARANTOR AT ITS ADDRESS SET FORTH BELOW ITS SIGNATURE HEREON,
EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL
SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT
APPOINTED BY ANY GUARANTOR REFUSES TO ACCEPT SERVICE, SUCH GUARANTOR HEREBY
AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF LENDER TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF LENDER TO BRING PROCEEDINGS
AGAINST ANY GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION.
SECTION 15. JURY TRIAL WAIVER. EACH GUARANTOR WAIVES ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHT
UNDER THIS GUARANTY, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED, OR THAT MAY IN THE FUTURE BE DELIVERED, IN CONNECTION HEREWITH, OR
(II) ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS GUARANTY,
AND EACH GUARANTOR AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A COURT AND NOT BEFORE A JURY.
SECTION 16. WAIVER OF BOND. EACH GUARANTOR WAIVES THE POSTING OF ANY
BOND OTHERWISE REQUIRED OF LENDER IN CONNECTION WITH ANY JUDICIAL PROCESS OR
PROCEEDING TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF
LENDER, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER, OR
Page 10 of 15
<PAGE> 119
PRELIMINARY OR PERMANENT INJUNCTION, THIS GUARANTY OR ANY OTHER AGREEMENT,
DOCUMENT OR INSTRUMENT BETWEEN LENDER AND SUCH GUARANTOR.
SECTION 17. ADVICE OF COUNSEL. Each Guarantor represents and
warrants to Lender that it has discussed this Guaranty and, specifically, the
provisions of SECTIONS 14 through 16 hereof, with such Guarantor's lawyers.
SECTION 18. SECTION HEADINGS. The section headings in this Guaranty
are for convenience of reference only, and shall not affect in any way the
interpretation of any of the provisions of this Guaranty.
SECTION 19. SEVERABILITY. Wherever possible each provision of this
Guaranty shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Guaranty shall be prohibited by or
invalid under such law, such provision shall be ineffective only to the extent
of such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Guaranty.
SECTION 20. MERGER; NO CONDITIONS TO EFFECTIVENESS. This Guaranty
represents the final agreement of each Guarantor with respect to the matters
contained herein and may not be contradicted by evidence of prior or
contemporaneous agreements, or subsequent oral agreements, between such
Guarantor and Lender. No course of dealing, course of performance or trade
usage shall be used to supplement or modify any terms herein. There are no
conditions to the effectiveness of this Guaranty.
SECTION 21. EXECUTION IN COUNTERPARTS. This Guaranty may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
[END OF TEXT THIS PAGE]
[SIGNATURE PAGE FOLLOWS]
Page 11 of 15
<PAGE> 120
IN WITNESS WHEREOF, this Guaranty has been duly executed by each
Guarantor as of the day and year first above written.
MASON DENTAL MIDWEST, INC., a Michigan corporation
By:_________________________________
Title:______________________________
Notice Address:
____________________________________
____________________________________
____________________________________
Attention: ________________________
MASON DENTAL SOUTHEAST, INC., a Florida corporation
By:________________________________
Title:_____________________________
Notice Address:
___________________________________
___________________________________
___________________________________
Attention: ________________________
PRINCETON MEDICAL MANAGEMENT MIDWEST,
INC., a Michigan corporation
By:_________________________________
Title:______________________________
Notice Address:
____________________________________
____________________________________
____________________________________
Attention: ________________________
Page 12 of 15
<PAGE> 121
PRINCETON MEDICAL MANAGEMENT
NORTHEAST, INC., a Pennsylvania corporation
By:________________________________
Title:_____________________________
Notice Address:
___________________________________
___________________________________
___________________________________
Attention: _________________________
PRINCETON MEDICAL MANAGEMENT
SOUTHEAST, INC., a Florida corporation
By:___________________________________
Title:_________________________________
Notice Address:
___________________________________
___________________________________
___________________________________
Attention: ________________________
Page 13 of 15
<PAGE> 122
ACKNOWLEDGED AND AGREED TO AS OF
THE ___ DAY OF APRIL, 1996:
AMSTERDAM EQUITIES LIMITED
By:_______________________________
Title:____________________________
Notice Address:
___________________________________
___________________________________
___________________________________
Attention: ________________________
Page 14 of 15
<PAGE> 123
ANNEX 1
TO
GUARANTY AND SECURITY AGREEMENT
DATED AS OF APRIL ___, 1996
EXISTING MANAGEMENT AGREEMENTS
------------------------------
Page 15 of 15
<PAGE> 124
SIDE AGREEMENT
--------------
Reference is made to a Series A 11.75% Cumulative Convertible
Preferred Stock Purchase Agreement dated April 22, 1996 (the "Agreement").
The undersigned are parties to the Agreement and wish to set forth
certain additional agreements that they have reached in connection with the
transactions contemplated by the Agreement.
1. The Agreement, as prepared, contemplated that it would be
entered into by Seymour Kessler ("Kessler") on behalf of Romajo Partners
Limited Partnership ("Romajo"). It is acknowledged by the undersigned parties
that Kessler, who was present at the closing of the above agreements and was
represented and accompanied by counsel, refused to enter into the Agreement or
to proceed with the transactions contemplated thereby. The parties further
acknowledge that Laport (as defined in the Agreement) exercised his option
under Section 2.6 of the Agreement to be the sole Purchaser thereunder having
the rights and obligations of Romajo. Laport hereby assigns his rights
thereunder to Amsterdam Equities Limited ("Amsterdam"). The parties agree, as
promptly as possible after the date hereof, to enter into revised documents to
reflect the foregoing and to eliminate the name of Romajo from the Agreement
and from any related agreements and documents, and to substitute therefor the
name of Amsterdam.
2. Laport hereby agrees to provide a summary break-down of all
expenses included in Section 3.1.5 of the Agreement to Princeton within thirty
(30) days following the date hereof. Laport further agrees to use reasonable
efforts to obtain a summary break-down of the expenses of Amsterdam set forth
in Section 4.1.5 of the Convertible Debt Agreement.
PRINCETON DENTAL MANAGEMENT CORPORATION
By:___________________________________
FRANK LEONARD LAPORT, INDIVIDUALLY
AND ON BEHALF OF THE FRANK LEONARD
LAPORT ROLLOVER IRA
By:___________________________________
Page 1 of 1
<PAGE> 1
EXHIBIT 10.10 OF FORM 10-QSB
July 15, 1996
VIA TELECOPY
Dr. Charles R. Mitchell
President
Princeton Dental Management Corporation
2358 Hassell Road
Hoffman Estates, IL 60195
Re: PRINCETON DENTAL MANAGEMENT CORPORATION ("PDMC")
Dear Dr. Mitchell:
The following represents an agreement by and among PDMC, Dr. Charles
R. Mitchell ("Mitchell"), Stratum Management, Inc. ("Stratum"), John H. Hagan
("Hagan"), Dr. Seymour Kessler ("Kessler"), Amsterdam Equities Limited
("Amsterdam"), Frank Leonard Laport ("Laport"), and Beverly Trust Company, as
Custodian of the Frank Leonard Laport Rollover Individual Retirement Account
Number 75-49990 ("Laport IRA").
1. Series B Activation. Effective immediately, the PDMC Series B
Preferred Stock for which Amsterdam currently holds a Warrant to Purchase (the
"Series B Stock"), will be issued to Amsterdam and activated. PDMC will
immediately execute any documentation, including without limitation, amending
the Certificate of Designation of the Series B Stock filed with the Secretary
of State of Delaware, to ensure that the holder of the Series B Stock has the
immediate and unconditional right (subject only to the provisions of Item 8
hereof) to appoint the Series B Director called for by the Series B Certificate
of Designation.
2. Orderly Transition. All parties agree to use their best efforts to
ensure that the transition in current management and the move of the PDMC
headquarters to another Chicagoland location will be as orderly as possible.
Towards this end, Hagan and Kessler would agree to stay on as PDMC Directors
until the next PDMC shareholder's meeting, which is scheduled to take place on
September 13, 1996. Mitchell would resign as President of PDMC, but would agree
to stay on as a PDMC Director and as an independent consultant until the next
PDMC shareholder's meeting, which is scheduled to take place on September 13,
1996. At PDMC's sole option, during such time period Mitchell would either (i)
continue to work full time for PDMC at his current compensation level, or (ii)
work part time for PDMC as PDMC shall deem necessary, in which case Mitchell's
compensation as a consultant would be reduced proportionately.
Page 1 of 7
<PAGE> 2
Dr. Charles R. Mitchell
July 15, 1996
Page 2
3. Certification. Mitchell would, to the best of his knowledge based
upon investigation in his capacity as an officer and director of PDMC, certify
that the PDMC financial statements for the quarter ended June 30, 1996 were
true and accurate. In this regard, I would note that, as of yesterday,
Amsterdam had not yet received these financial statements.
4. Option/Warrant Forfeiture. Stratum, Hagan and Kessler would
forfeit, on a pro-rata basis, an aggregate amount of 300,000 options/warrants
for PDMC stock, to PDMC, to be cancelled by PDMC or reallocated to the PDMC
employee stock option plan; provided, however, that if Kessler refuses to
execute this letter agreement, the aggregate number of options/warrants to be
forfeited by Stratum and Hagan shall be 200,000. Stratum, Hagan, Mitchell and
Kessler would agree to immediately execute any documentation which might be
required to effectuate the forfeiture of such options/warrants.
5. Kessler Debt. Kessler shall agree that he will not call or demand
payment on any debt which may be due him or any affiliated entity by PDMC until
after the next PDMC shareholder's meeting. Kessler shall execute any required
documentation in this regard.
6. Additional Funding. Contingent upon the actions contemplated in
Items 1 through 5 being completed, Amsterdam would agree to advance PDMC an
additional U.S.$200,000.00 pursuant to the convertible debt agreement, to be
used by PDMC solely for the payment of specifically designated PDMC accounts
payable which are critical to the continued and uninterrupted operation of
PDMC's dental practices and laboratory operations. Any such payments shall
require the prior, specific written authorization of Amsterdam or its
designated representative.
7. Conversion. Contingent upon the actions contemplated in Items 1
through 5 being completed, Amsterdam, Laport and the Laport IRA would agree to
convert, on a pro-rata basis, an aggregate amount of U.S.$700,000.00 of
currently outstanding convertible debt/preferred stock into PDMC common stock
in accordance with the contractual terms of the convertible debt/preferred
stock.
8. Timing. As we have repeatedly advised, time is absolutely of the
essence if this matter is to be resolved. Accordingly, all of the actions
contemplated in Items 1 through 5 must take place as soon as possible and in no
event later than July 15, 1996. Upon the timely completion of all of the
actions contemplated in Items 1 through 5, the actions contemplated in Items 6
and 7 would be completed no later than fourteen (14) business days
Page 2 of 7
<PAGE> 3
Dr. Charles R. Mitchell
July 15, 1996
Page 3
following such timely completion. If Amsterdam, Laport and Laport IRA fail to
take any action which is within their sole and exclusive control and is
reasonably required to be taken by them in order to effectuate the actions
contemplated in Items 6 and 7 within the above-referenced fourteen (14)
business days, and PDMC provides written notice of such failure to Amsterdam,
Laport and Laport IRA, Amsterdam agrees that it shall not exercise its right to
appoint a Series B Director until such actions have been taken, and if any such
actions are not taken by July 31, 1996, this letter of agreement shall be null
and void upon written notice by PDMC to Amsterdam on or before August 5, 1996.
9. Litigation. There is no pending or, to the best knowledge of the
undersigned, threatened litigation against PDMC except as set forth on Exhibit
A attached hereto and incorporated herein.
If this letter, which is intended to be a binding and enforceable
agreement among the parties signing hereto, reflects your understanding of the
agreement among the parties, please sign where indicated, and arrange to have
this agreement signed by Stratum, Hagan, and Kessler. Upon execution, please
return 5 original copies to my attention no later than the close of business on
July 15, 1996, and I will arrange for this agreement to be signed by Amsterdam,
Laport and the Laport IRA.
This letter of agreement may be signed in counterparts. It is further
agreed that, irrespective of whether Kessler executes this letter agreement in
any capacity, this letter agreement shall be entirely binding upon the other
signing parties hereto.
Sincerely,
BROOKS & CAHILL
AGREED AND ACCEPTED:
Princeton Dental Management Corporation
By: __________________________________
Dr. Charles R. Mitchell, President
Stratum Management, Inc.
By:__________________________________
Its:________________________________
[SIGNATURES CONTINUED ON NEXT PAGE]
Page 3 of 7
<PAGE> 4
_____________________________________
Dr. Charles R. Mitchell, individually
and as a PDMC Board Member.
______________________________________
Mr. John H. Hagan, individually and as
a PDMC Board Member.
_____________________________________
Dr. Seymour Kessler, individually,
as a PDMC Board Member, and as General
Partner of ROMAJO Partners Limited
Partnership.
Amsterdam Equities Limited
By: _______________________________
Patrick H. Thomson, Director
___________________________________
Frank Leonard Laport
Beverly Trust Company, as Custodian
of the Frank Leonard Laport
Rollover Individual Retirement
Account No. 75-49990
By: _____________________________
Its: _____________________________
Page 4 of 7
<PAGE> 5
STATE OF ILLINOIS )
COUNTY OF COOK )
I, __________________________, a Notary Public in and for the County
and State aforesaid, DO HEREBY CERTIFY that Dr. Charles R. Mitchell, personally
known to me individually and to be the President and a Director of Princeton
Dental Management Corporation, appeared before me this day in person and
acknowledged that individually and as such officer and director he signed and
delivered such instrument as his free and voluntary act individually and with
due authorization, and as the free and voluntary act of the Company, for the
uses and purposes therein set forth.
Given under my hand and seal this ____ day of July, 1996.
______________________________
NOTARY PUBLIC
My Commission expires __________.
STATE OF ILLINOIS )
COUNTY OF COOK )
I, __________________________, a Notary Public in and for the County
and State aforesaid, DO HEREBY CERTIFY that Mr. John H. Hagan, personally known
to me individually and to be a Director of Princeton Dental Management
Corporation, appeared before me this day in person and acknowledged that
individually and as such director he signed and delivered such instrument as
his free and voluntary act individually and with due authorization, and as the
free and voluntary act of the Company, for the uses and purposes therein set
forth.
Given under my hand and seal this ____ day of July, 1996.
______________________________
NOTARY PUBLIC
My Commission expires __________.
Page 5 of 7
<PAGE> 6
STATE OF ILLINOIS )
COUNTY OF COOK )
I, __________________________, a Notary Public in and for the County
and State aforesaid, DO HEREBY CERTIFY that _________________, personally known
to me to be the _____________ of Stratum Management, Inc., appeared before me
this day in person and acknowledged that as such officer he signed and
delivered such instrument as his free and voluntary act individually and with
due authorization, and as the free and voluntary act of the Company, for the
uses and purposes therein set forth.
Given under my hand and seal this ____ day of July, 1996.
______________________________
NOTARY PUBLIC
My Commission expires __________.
STATE OF ILLINOIS )
COUNTY OF COOK )
I, __________________________, a Notary Public in and for the County
and State aforesaid, DO HEREBY CERTIFY that Dr. Seymour Kessler, personally
known to me individually and to be a Director of Princeton Dental Management
Corporation and the general partner of ROMAJO Partners Limited Partnership,
appeared before me this day in person and acknowledged that individually and as
such director he signed and delivered such instrument as his free and voluntary
act individually and with due authorization, and as the free and voluntary act
of the Company and the Partnership, for the uses and purposes therein set
forth.
Given under my hand and seal this ____ day of July, 1996.
______________________________
NOTARY PUBLIC
My Commission expires __________.
Page 6 of 7
<PAGE> 7
STATE OF ILLINOIS )
COUNTY OF COOK )
I, __________________________, a Notary Public in and for the County
and State aforesaid, DO HEREBY CERTIFY that _________________, personally known
to me to be the _____________ of Beverly Trust Company, appeared before me this
day in person and acknowledged that as such officer he signed and delivered
such instrument with due authorization, and as the free and voluntary act of
the Company, for the uses and purposes therein set forth.
Given under my hand and seal this ____ day of July, 1996.
______________________________
NOTARY PUBLIC
My Commission expires __________.
STATE OF ILLINOIS )
COUNTY OF COOK )
I, __________________________, a Notary Public in and for the County
and State aforesaid, DO HEREBY CERTIFY that Frank Leonard Laport, personally
known to me individually, appeared before me this day in person and
acknowledged that individually he signed and delivered such instrument as his
free and voluntary act individually, for the uses and purposes therein set
forth.
Given under my hand and seal this ____ day of July, 1996.
______________________________
NOTARY PUBLIC
My Commission expires __________.
Page 7 of 7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from June 30,
1996 unaudited financial statements prepared by management and is qualified in
its entirety by reference to such June 30, 1996 unaudited financial statements
prepared by management.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 34,173
<SECURITIES> 0
<RECEIVABLES> 1,373,833
<ALLOWANCES> 394,000
<INVENTORY> 112,235
<CURRENT-ASSETS> 1,628,934
<PP&E> 2,088,565
<DEPRECIATION> 862,854
<TOTAL-ASSETS> 14,293,517
<CURRENT-LIABILITIES> 6,173,588
<BONDS> 6,613,651
<COMMON> 817
0
3,600
<OTHER-SE> 5,025,845
<TOTAL-LIABILITY-AND-EQUITY> 14,293,517
<SALES> 1,988,311
<TOTAL-REVENUES> 9,427,504
<CGS> 1,903,430
<TOTAL-COSTS> 10,286,173
<OTHER-EXPENSES> (284,296)
<LOSS-PROVISION> 119,000
<INTEREST-EXPENSE> 309,486
<INCOME-PRETAX> (1,142,965)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,142,965)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,142,965)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
