<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. __)*
GENTLE DENTAL SERVICE CORPORATION
(Name of Issuer)
Common Stock, no par value
(Title of Class of Securities)
37245B
(CUSIP Number)
Harvey M. Eisenberg, Esq.
O'Sullivan, Graev & Karabell, LLP
30 Rockefeller Plaza
24th Floor
New York, New York 10112
(212) 408-2400
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
May 18, 1998
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject to this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) and (4), check the following
box. / /
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
Page 1 of 12
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CUSIP No. 37245B
SCHEDULE 13D
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Chase Venture Capital Associates, L.P.
13-337-6808
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
3 SEC USE ONLY
4 SOURCE OF FUNDS*
WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(D) OR 2(E) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
7 SOLE VOTING POWER
NUMBER OF $15,000,000.00 in aggregate principal
amount of 7.0% Convertible Subordinated
SHARES Notes initially convertible into
1,628,664 shares of Common Stock and
BENEFICIALLY 1,085,767 shares of unregistered Series
D Preferred Stockinitially convertible
OWNED BY into 1,085,767 shares of Common Stock
EACH 8 SHARED VOTING POWER
REPORTING Not applicable
PERSON 9 SOLE DISPOSITIVE POWER
WITH
$15,000,000.00 in aggregate principal
amount of 7.0% Convertible Subordinated
Notes initially convertible into
1,628,664 shares of Common Stock and
1,085,767 shares of unregistered Series
D Preferred Stock initially convertible
into 1,085,767 shares of Common Stock
10 SHARED DISPOSITIVE POWER
Not applicable
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
$15,000,000.00 in aggregate principal amount of 7.0% Convertible
Subordinated Notes initially convertible into 1,628,664 shares of
Common Stock and 1,085,767 shares of unregistered Series D
Preferred Stock initially convertible into 1,085,767 shares of
Common Stock
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* / /
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
58.82% of the 7.0% Convertible Subordinated Notes
74.07% of unregistered Series D Preferred Stock
25.79% of Common Stock
14 TYPE OF REPORTING PERSON*
PN
Page 2 of 12 Pages
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SCHEDULE 13D
Company: Gentle Dental Service Corporation CUSIP Number: 37245B
Item 1. Security and Company.
This statement relates to the Common Stock, no par value (the "Common Stock"),
of Gentle Dental Service Corporation, a Washington corporation (the
"Company"), whose principal executive offices are located at 222 North
Sepulveda Boulevard, El Segundo, California 90245.
Item 2. Identity and Background.
This statement is being filed by Chase Venture Capital
Associates, L.P., a California limited partnership (hereinafter referred to as
"CVCA"), whose principal business office is located at 380 Madison Avenue,
12th Floor, New York, New York 10017. The general partner of CVCA is Chase
Capital Partners, a New York general partnership ("CCP"), whose principal
business office is located at the same address as CVCA.
Set forth below are the names of each general partner of CCP
who is a natural person. Each such general partner is a U.S. citizen, whose
principal occupation is general partner of CCP and whose principal business
office address (except for Mr. Soghikian) is c/o Chase Capital Partners, 380
Madison Avenue, 12th Floor, New York, New York 10017.
John R.Baron
Mitchell J. Blutt, M.D.
Arnold L. Chavkin
Michael R. Hannon
Donald J. Hofmann
Stephen P. Murray
John M.B. O'Connor
Brian J. Richmand
Shahan D. Soghikian
Jeffrey C. Walker
Damion E. Wicker, M.D.
Mr. Soghikian's principal business office address is c/o
Chase Capital Partners, 125 London Wall, London EC2Y5AJ, England.
Jeffrey C. Walker is the managing general partner of CCP.
The remaining general partners of CCP are Chase Capital Corporation, a New
York corporation ("Chase Capital"), CCP Principals, L.P., a Delaware limited
partnership ("Principals") and CCP European Principals, L.P., a Delaware
limited partnership ("European Principals"), each of whose principal business
office is located at the same address as CVCA. Chase Capital is a wholly owned
subsidiary of The Chase Manhattan Corporation, a Delaware corporation
("Chase"), whose principal business office is located at the same address as
CVCA. The general partner of each of Principals and European Principals is
Chase Capital. Set forth in Schedule A hereto and incorporated herein by
reference are the names, business addresses, principal occupations of each
executive officer of Chase Capital, each of whom is a U.S. citizen.
The Chase Manhattan Corporation is a Delaware corporation
engaged (primarily through subsidiaries) in the commercial banking business
with its principal office located at 270 Park Avenue,
Page 3 of 12 Pages
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Company: Gentle Dental Service Corporation CUSIP Number: 37245B
New York, New York 10017. Set forth in Schedule B hereto and incorporated
herein by reference are the names, business addresses, principal occupations
and employments of each executive officer and director of Chase, each of whom
is a U.S. citizen.
To CVCA's knowledge, the response to Items 2(d) and (e) of
Schedule 13D is negative with respect to CVCA and all persons regarding whom
information is required hereunder by virtue of CVCA's response to Item 2.
Insofar as the requirements of Items 3-6 inclusive of this
Schedule 13D Statement require that, in addition to CVCA, the information
called for therein should be given with respect to each of the persons listed
in this Item 2, including CCP, CCP's individual general partners, Chase
Capital, Chase Capital's executive officers and directors, Principals, and
Principals' controlling partner, European Principals and European Principals'
controlling partner, Chase and Chase's executive officers and directors, the
information provided in Items 3-6 with respect to CVCA should also be
considered fully responsive with respect to the aforementioned persons who
have no separate interests in the Common Stock which is required to be
reported thereunder. Although the definition of "beneficial ownership" in Rule
13d-3 under the Securities and Exchange Act of 1934, as amended (the "Exchange
Act"), might also be deemed to constitute these persons beneficial owners of
the Common Stock acquired by CVCA, neither the filing of this statement nor
any of its contents shall be deemed an admission that any of such persons is a
beneficial owner of the Common Stock acquired by CVCA or a member of a group
together with CVCA either for the purpose of Schedule 13D of the Exchange Act
or for any other purpose with respect to the Common Stock.
Item 3. Source and Amount of Funds or Other Consideration.
The source of funds for CVCA's acquisition was money held for
investment by CVCA. The aggregate amount of funds used by CVCA in making the
acquisition was $25,000,000.00.
Item 4. Purpose of Transaction.
As more fully described in Item 6, pursuant to the
Securities Purchase Agreement (the "Purchase Agreement"), dated May 12, 1998,
by and among the Company, CVCA and Sprout Capital VII, L.P. and certain of its
affiliated entities ("Sprout", and collectively with CVCA, the "Investors"),
CVCA acquired from the Company $15,000,000.00 in aggregate principal amount of
7.0% Convertible Subordinated Notes (the "Notes"), 100 shares of Series A
Preferred Stock, no par value (the "Series A Preferred Stock"), of the
Company, and 1,085,767 shares of Series D Preferred Stock, no par value (the
"Series D Preferred Stock"), of the Company. It is not currently anticipated
that CVCA will purchase securities at the second closing of the Purchase
Agreement (not to occur later than June 30, 1998, the "Second Closing").
In order to create the Series A Preferred Stock, the Series
B Preferred Stock, no par value (the "Series B Preferred Stock"), of the
Company, the Series C Preferred Stock, no par value (the "Series C Preferred
Stock"), of the Company, and the Series D Preferred Stock, the Company filed
the Amendment to Restated Articles of Incorporation (the "Amendment") on May
14, 1998, incorporated herein by reference as Exhibit B.
Pursuant to the Purchase Agreement, the Notes are initially
convertible into 1,628,664 shares of the Common Stock and, as described in the
Amendment, the Series D Preferred Stock is initially convertible into
1,085,767 shares of the Common Stock. The number of shares of the Common Stock
issuable upon conversion of such securities increases by one share for every
$9.21 of accrued
Page 4 of 12 Pages
<PAGE>
Company: Gentle Dental Service Corporation CUSIP Number: 37245B
interest or dividends which the Company elects not to pay in cash. Also,
pursuant to customary anti-dilution provisions contained in the Notes and the
Series D Preferred Stock, the number of shares of the Common Stock issuable
upon conversion of such securities shall be adjusted with respect to stock
splits and combinations, stock dividends, below market sales, distributions,
mergers, consolidations, reorganizations or preferred or convertible security
sales. Upon the satisfaction of certain conditions precedent set forth in the
Purchase Agreement, the Notes shall automatically be deemed to convert into
shares of the Series B Preferred Stock or exchanged for new notes of a new
holding company that owns all of the outstanding capital stock of the Company.
The terms of such Series B Preferred Stock and new notes shall be
substantially similar to that of the Notes.
The holders of Series A Preferred Stock have the right to
appoint one member to the Board of Directors (the "Board") of the Company.
CVCA appointed Eric Green to the Board. In addition, if an event of default
shall occur under the terms of the Purchase Agreement or related documents,
then the holders of the Series A Preferred Stock shall have the right to elect
one additional individual to the Board. Such an event of default shall occur
if the Company defaults in the payment of interest on the Notes, a bankruptcy
proceeding shall be commenced with respect to the Company, a final judgment in
excess of $5,000,000.00 shall be rendered against the Company, indebtedness of
the Company in excess of $5,000,000.00 is accelerated, a material breach of
any of the representations, warranties or covenants contained in the documents
related to the transaction occurs or a change in control occurs.
The acquisition of the Company's securities has been made by
CVCA for investment purposes. Although CVCA has no present intention to do so,
CVCA may make additional purchases of the Company's securities either in the
open market or in privately negotiated transactions, including transactions
with the Company, depending on an evaluation of the Company's business
prospects and financial condition, the market for the securities, other
available investment opportunities, money and stock market conditions and
other future developments. Depending on these factors, CVCA may decide to sell
all or part of its holdings of the Notes, the Series A Preferred Stock and the
Series D Preferred Stock in one or more public or private transactions.
Except as set forth in this Item 4, CVCA has no present
plans or proposals that relate to or would result in any of the actions
specified in clauses (a) through (j) of Item 4 of Schedule 13D. However, CVCA
reserves the right to propose or participate in future transactions which may
result in one or more of such actions, including but not limited to, an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, of a material amount of assets of the Company or its
subsidiaries, or other transactions which might have the effect of causing the
Company's Common Stock to cease to be listed on the NASDAQ or causing the
Common Stock to become eligible for termination of registration, under Section
12(g) of the Exchange Act.
Item 5. Interest in Securities of the Company.
CVCA is deemed to be the beneficial owner of 2,714,429
shares of the Company's Common Stock. CVCA's deemed beneficial ownership
represents 25.79% of the Company's Common Stock on a fully diluted basis.
Except as set forth in Item 4, CVCA has sole voting power and dispositive
power with respect to its shares of Common Stock. CVCA is the record holder of
$15,000,000.00 in aggregate principal amount of the Notes, 100 shares of the
Series A Preferred Stock and 1,085,767 shares of the Series D Preferred Stock.
Except as reported in Item 6 below and incorporated herein
by reference, there have been no transactions with regards to the Notes, the
Series A Preferred Stock or the Series D Preferred Stock
Page 5 of 12 Pages
<PAGE>
Company: Gentle Dental Service Corporation CUSIP Number: 37245B
during the past sixty days which are required to be reported in this
Statement. No person other than CVCA has the right to receive or the power to
direct the receipt of (i) interest from or the proceeds from the sale of the
Notes owned beneficially by CVCA, (ii) the proceeds from the sale of the
Series A Preferred Stock owned beneficially by CVCA or (iii) dividends from or
the proceeds from the sale of the Series D Preferred Stock owned beneficially
by CVCA.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Company.
Reference is made to the information disclosed under Items 3
and 4 of this Statement which is incorporated by reference in response to this
Item. In addition to such information, the following contracts, arrangements,
understandings or relationships are reported hereunder.
CVCA acquired beneficial ownership of the Notes, the Series
A Preferred Stock and the Series D Preferred Stock pursuant to the Purchase
Agreement, attached hereto as Exhibit A and incorporated by reference. Under
the Purchase Agreement, the Investors are permitted to purchase up to
$30,000,000 in aggregate principal amount of the Notes, 100 shares of the
Series A Preferred Stock, 100 shares of the Series C Preferred Stock and
2,000,000 shares of the Series D Preferred Stock. As of the first closing on
May 18, 1998 (the "First Closing"), the Investors were obligated to purchase
$25,500,000.00 in aggregate principal amount of the Notes, of which CVCA
purchased $15,000,000.00 in aggregate principal amount, $100.00 of the Series
A Preferred Stock, or 100 shares, of which CVCA purchased 100 shares, $100.00
of the Series C Preferred Stock, or 100 shares, and $13,500,003.93 of the
Series D Preferred Stock, or 1,465,800 shares, of which CVCA purchased
1,085,767 shares. Sprout may be obligated to purchase the additional
$4,500,000 in aggregate principal amount of the Notes and 534,200 shares of
the Series D Preferred Stock at the Second Closing.
The Purchase Agreement contains covenants regarding the
transfer of securities. No Investor shall transfer its securities, without the
prior written consent of the Company, to any competitor of the Company.
Additionally, the Series A Preferred Stock and the Series C Preferred Stock
may only be transferred to affiliates of the Investors. Moreover the Company
has the right to repurchase the Series A Preferred Stock from CVCA if (i) CVCA
sells 65% or more of its common stock equivalents before the Second Closing or
(ii) CVCA converts all of its common stock equivalents.
The Purchase Agreement provides that the Investors shall
have access to the records of the Company and that the Company shall furnish
its financial reports to each of the Investors. The Company convenants that it
shall, among other things, pay its taxes, preserve its corporate existence,
maintain and preserve its properties and use its best efforts to upgrade the
listing of the Common Stock from the NASDAQ SmallCap Market System to the
NASDAQ National Market System within 90 days of the First Closing. The Company
covenants that it shall not, among other things, change the nature of its
business, permit the Board (other than members appointed by the Investors) to
exceed 15 members or make fundamental changes in the structure of the Company.
The Amendment, attached hereto as Exhibit B and incorporated
by reference, sets forth additional rights and privileges of the each of the
classes of the Preferred Stock of the Company. More specifically, the
Amendment sets forth, where applicable, voting rights, rights to dividends,
liquidation preferences, rights of redemption, conversion rights, voting
rights, rights to distributions and observer rights.
The Company and the Investors entered into a Registration
Rights Agreement, attached hereto as Exhibit C and incorporated by reference,
which grants the Investors certain rights with respect to
Page 6 of 12 Pages
<PAGE>
Company: Gentle Dental Service Corporation CUSIP Number: 37245B
registration under the Securities Act of 1933, as amended. Under the terms of
the Registration Rights Agreement, CVCA may demand that the Company register
shares held by the Investors. A majority of the Investors may require the
Company to file a shelf registration statement, which statement shall qualify
as the demand registration of CVCA. The Registration Rights Agreement also
grants "piggy-back" rights to the Investors to participate in certain
registration statements filed by the Company.
Item 7. Material to be Filed as Exhibits.
Exhibit A Securities Purchase Agreement dated as of May 12, 1998.
Exhibit B Amendment to Restated Articles of Incorporation, as filed with
the Secretary of State of the State of Washington on May 14,
1998, as amended by the Articles of Correction as filed with
the same on May 18, 1998.
Exhibit C Registration Rights Agreement dated as of May 18, 1998.
SCHEDULE A
Item 2 information for executive officers and directors of Chase
Capital.
SCHEDULE B
Item 2 information for executive officers and directors of
Chase.
Page 7 of 12 Pages
<PAGE>
Company: Gentle Dental Service Corporation CUSIP Number: 37245B
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Date: May 26, 1998 CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By: CHASE CAPITAL PARTNERS,
its General Partner
By: /s/ Jeffrey C. Walker
----------------------------------
Name: Jeffrey C. Walker
Title: General Partner
Page 8 of 12 Pages
<PAGE>
Company: Gentle Dental Service Corporation CUSIP Number: 37245B
SCHEDULE A
CHASE CAPITAL CORPORATION
Executive Officers
President Jeffrey C. Walker**
Executive Vice President Mitchell J. Blutt, M.D.**
Vice President & Secretary Gregory Meridith*
Vice President George E. Kelts**
Assistant Secretary Robert C. Carroll*
Directors
William B. Harrison, Jr.*
Jeffrey C. Walker**
- -----------------
* Principal occupation is employee and/or officer of Chase. Business
address is c/o The Chase Manhattan Corporation, 270 Park Avenue, New
York, New York 10017.
** Principal occupation is employee of Chase and/or general partner of Chase
Capital Partners. Business address is c/o CCP, 380 Madison Avenue, 12th
Floor, New York, NY 10017.
Page 9 of 12 Pages
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Company: Gentle Dental Service Corporation CUSIP Number: 37245B
SCHEDULE B
THE CHASE MANHATTAN CORPORATION
Executive Officers*
Walter V. Shipley, Chairman and CEO
Thomas G. Labrecque, President and COO
William B. Harrison, Jr., Vice Chairman
John L. Adams, Executive Vice President
Directors**
Principal Occupation or Employment;
Name Business or Residence Address
Hans W. Becherer Chairman and Chief Executive Officer
Deere & Company
Moline, IL 61265
Frank A. Bennack, Jr. President and Chief Executive Officer
The Hearst Corporation
959 Eighth Avenue
New York, NY 10019
Susan V. Berresford President
The Ford Foundation
320 East 43rd Street
New York, NY 10017
M. Anthony Burns Chairman, President and CEO
Ryder System, Inc.
3600 N.W. 2nd Avenue
Miami, FL 33166
H. Laurance Fuller Chairman of the Board and Chief
Executive Officer
Amoco Corporation
- -----------------
* Principal occupation is executive officer and/or employee of The Chase
Manhattan Bank. Business address is c/o The Chase Manhattan Bank, 270
Park Avenue, New York, New York 10017. Each executive officer of Chase is
a U.S. citizen.
** Each of the persons named below is a citizen of the United States of
America.
Page 10 of 12 Pages
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Company: Gentle Dental Service Corporation CUSIP Number: 37245B
Principal Occupation or Employment;
Name Business or Residence Address
200 East Randolph Drive
Chicago, IL 60601
Melvin R. Goodes Chairman of the Board and
Chief Executive Officer
Warner-Lambert Company
201 Tabor Road
Morris Plains, NJ 07950
William H. Gray, III President and Chief Executive Officer
United Negro College Fund, Inc.
80 Willow Oaks Corporate Drive
P.O. Box 10444
Fairfax, VA 22031
George V. Grune Retired Chairman and Chief Executive
Officer the Reader's Digest
Association, Inc.
Chairman of the Board
The DeWitt Wallace-Reader's
Digest Fund
Lila Wallace-Reader's Digest Fund
2 Park Avenue, 23rd Floor
New York, NY 10016
William B. Harrison, Jr. Vice Chairman of the Board
The Chase Manhattan Corporation
270 Park Avenue, 8th Floor
New York, NY 10017-2070
Harold S. Hook Retired Chairman of the Board
American General Corporation
2929 Allen Parkway
Houston, TX 77019
Helene L. Kaplan Of Counsel
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue - Room 29-72 New
York, NY 10022
Thomas G. Labrecque President and Chief Operating Officer
The Chase Manhattan Corporation
270 Park Avenue, 8th Floor
New York, NY 10017-2070
Henry B. Schacht Director and Senior Advisor
Lucent Technologies, Inc.
600 Mountain Avenue - Room 6A511
Murray Hill, NJ 07974
Page 11 of 12 Pages
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Company: Gentle Dental Service Corporation CUSIP Number: 37245B
Walter V. Shipley Chairman of the Board and Chief
Executive Officer
The Chase Manhattan Corporation
270 Park Avenue, 8th Floor
New York, NY 10017-2070
Andrew C. Sigler Retired Chairman of the Board
and Chief Executive Officer
Champion International Corporation
1 Champion Plaza
Stamford, CT 06921
John R. Stafford Chairman, President and Chief
Executive Officer
American Home Products Corporation
Five Giralda Farms
Madison, NJ 07940
Marina v.N. Whitman Professor of Business Administration
and Public Policy
The University of Michigan
School of Public Policy
411 Lorch Hall, 611 Tappan Street
Ann Arbor, MI 48109-1220
Page 12 of 12 Pages
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EXHIBIT A
SECURITIES PURCHASE AGREEMENT
dated as of May 12, 1998
among
GENTLE DENTAL SERVICE CORPORATION
(the "Company"),
and
THE PURCHASERS NAMED HEREIN
(the "Purchasers")
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TABLE OF CONTENTS
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ARTICLE I DEFINED TERMS; RULES OF CONSTRUCTION ................................. 1
1.1. Defined Terms ...................................................... 1
1.2. Rules of Construction ............................................. 16
ARTICLE II PURCHASE AND SALE OF SHARES; CLOSINGS ............................... 17
2.1. Certificate of Amendment .......................................... 17
2.2. Authorization of Issuance of Convertible
Notes and Preferred Shares ........................................ 17
2.3. Sale of Securities ................................................ 18
2.4. Closings .......................................................... 18
2.5. Closing Deliveries ................................................ 19
2.6. Use of Proceeds ................................................... 19
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
................................................................. 20
3.1. Organization, Power, Authority and Good
Standing .......................................................... 20
3.2. Authorization, Execution and Enforceability ....................... 20
3.3. Authorization ..................................................... 21
3.4. Capitalization and Equity Investment .............................. 21
3.5. Reports and Financial Information ................................. 24
3.6. Absence of Undisclosed Liabilities ................................ 25
3.7. Absence of Changes ................................................ 25
3.8. Title to Assets, Properties and Rights ............................ 25
3.9. Intellectual Property ............................................. 26
3.10. Material Agreements ............................................... 26
3.11. Litigation and Other Proceedings .................................. 27
3.12. Compliance with Laws .............................................. 27
3.13. Taxes ............................................................. 28
3.14. Labor Relations ................................................... 29
3.15. ERISA Plans and Contracts ......................................... 29
3.16. Related Party Transactions ........................................ 29
3.17. Private Sale ...................................................... 30
3.18. Brokers ........................................................... 30
3.19. Insurance ......................................................... 30
3.20. Disclosure ........................................................ 31
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3.21. Accounts and Notes Receivable...................................... 31
3.22. Registration Rights................................................ 32
3.23 Year 2000.......................................................... 32
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE
PURCHASERS......................................................... 33
4.1. Authorization of the Documents .................................... 33
4.2. Investment Representations ........................................ 33
ARTICLE V CONDITIONS TO CLOSING ............................................. 35
5.1. First Closing ..................................................... 35
5.2. Second Closing .................................................... 38
ARTICLE VI INDEMNIFICATION ................................................... 40
6.1. Survival of Representations, Warranties,
Agreements and Covenants, Etc ..................................... 40
6.2. Indemnification.................................................... 41
ARTICLE VII TRANSFER OF SECURITIES ............................................ 43
7.1. Restriction on Transfer............................................ 43
7.2. Restrictive Legends................................................ 43
7.3. Notice of Transfer................................................. 44
7.4. Transfer Pursuant to Rule 144...................................... 45
7.5. Transfers to Competitors........................................... 45
7.6. Transfers of Series A Preferred Shares and
Series C Preferred Shares ......................................... 45
ARTICLE VIII INFORMATION RIGHTS ................................................ 46
8.1. Access to Records ................................................. 46
8.2. Financial Reports ................................................. 47
ARTICLE IX ADDITIONAL AGREEMENTS OF THE COMPANY .............................. 49
9.1. Compliance ........................................................ 49
9.2. Insurance ......................................................... 49
9.3. Affirmative Covenants ............................................. 49
9.4. Negative Covenants ................................................ 51
ARTICLE X EVENTS OF DEFAULT ................................................. 53
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10.1. Default ........................................................... 53
ARTICLE XI SUBORDINATION ..................................................... 55
11.1. Notes Subordinated to Senior Debt ................................. 55
11.2. No Payment on Notes in Certain Circumstances ...................... 56
11.3. Notes Subordinated to Prior Payment of All
Senior Debt on Dissolution, Liquidation or
Reorganization .................................................... 57
11.4. Payments Otherwise Permitted....................................... 58
11.5. Subrogation........................................................ 59
11.6. Obligations of the Company Unconditional .......................... 59
11.7. Subordination Rights Not Impaired by Acts or
Omissions of the Company or Senior
Debtholders........................................................ 60
11.8. Notice to Purchaser ............................................... 60
11.9. Limitations on Remedies ........................................... 61
ARTICLE XII MISCELLANEOUS ..................................................... 61
12.1. Termination Events ................................................ 61
12.2. Exchange of Notes ................................................. 61
12.3. Fees .............................................................. 62
12.4. Further Assurances ................................................ 63
12.5. Remedies .......................................................... 63
12.6. Successors and Assigns ............................................ 63
12.7. Entire Agreement .................................................. 63
12.8. Notices ........................................................... 63
12.9. Amendments, Modifications and Waivers ............................. 65
12.10. Governing Law; Waiver of Jury Trial ............................... 65
12.11. No Third Party Reliance ........................................... 65
12.12. Submission to Jurisdiction ........................................ 66
12.13. Extension; Waiver ................................................. 66
12.14. Severability ...................................................... 66
12.15. Independence of Agreements, Covenants,
Representations and Warranties .................................... 67
12.16 Counterparts; Facsimile Signatures................................. 67
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-iii-
<PAGE>
SCHEDULES AND EXHIBITS
Schedule I - Purchasers
Schedule 3.1 - Jurisdictions
Schedule 3.2 - Consents
Schedule 3.4(a)(i)(B) - Employee Stock Option
Schedule 3.4(a)(i)(D) - Shares Reserved for Warrants
Schedule 3.4(a)(ii)(A) - Series A Preferred Stock Record Holders
Schedule 3.4(a)(ii)(C) - Series C Preferred Stock Record Holders
Schedule 3.4(a)(ii)(D) - Series D Preferred Stock Record Holders
Schedule 3.4(b) - Warrants, Options, etc.
Schedule 3.4(c) - Preemptive Rights
Schedule 3.4(d) - Obligations to Redeem
Schedule 3.4(f) - Subsidiaries
Schedule 3.5(b) - Preparation of Financial Statements
Schedule 3.5(d) - Pro Forma Financial Statements
Schedule 3.6 - Liabilities
Schedule 3.7 - Changes
Schedule 3.8 - Title to Assets
Schedule 3.9 - Intellectual Property
Schedule 3.10 - Material Agreements
Schedule 3.11 - Litigation and Other Proceedings
Schedule 3.12 - Compliance with Laws
Schedule 3.13 - Taxes
Schedule 3.14 - Labor Relations; Employees
Schedule 3.15 - Employee Benefit Plans
Schedule 3.16 - Related Party Transactions
Schedule 3.19 - Insurance
Schedule 3.21 - Accounts and Notes Receivable
Schedule 3.22 - Registration Rights
Schedule 9.2(b) - Insurance Coverage
Schedule 9.4(d) - Repurchase Rights
Exhibit A - Form of Certificate of Amendment
Exhibit B - Form of Convertible Subordinated Note
Exhibit C - Form of Registration Rights Agreement
<PAGE>
SECURITIES PURCHASE
AGREEMENT (the
"Agreement") dated as of
May 12, 1998, among
GENTLE DENTAL SERVICE
CORPORATION, a Washington
corporation (the
"Company"), and the
Purchasers listed on
Schedule I (collectively,
the "Purchasers").
The Company is in the business of providing dental practice
management and related services to dental practices in the United States (the
"Business"). The Company desires to raise $30,000,000 in subordinated debt
financing and approximately $15,000,000 in equity financing, and the
Purchasers are willing to purchase certain subordinated convertible notes and
certain shares of the Company's preferred stock in connection therewith, all
on the terms and subject to the conditions set forth herein.
ACCORDINGLY, in consideration of the foregoing and the
covenants, agreements, representations and warranties contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINED TERMS; RULES OF CONSTRUCTION
ARTICLE 1.1. Defined Terms.
Capitalized terms used and not otherwise defined in this
Agreement have the meanings ascribed to them below or in the other locations
of this Agreement specified below:
"Additional Notes" means the additional Notes issued
pursuant to Section 3 of the Note (including the Non-Cash Interest Additional
Notes).
"Affiliate" means, with respect to any specified Person, (1)
any other Person who, directly or indirectly, owns or controls, is under
common ownership or control with, or is owned or controlled by, such specified
Person, (2) any other Person who is a director, officer or partner or is,
directly or indirectly, the beneficial owner of ten percent (10%) or more of
any class of equity Securities, of the specified Person or a Person described
in clause (1) above, (3) any other Person of whom the specified Person is a
director, officer or partner or is, directly or indirectly, the beneficial
owner of ten percent (10%) or more of any class of equity Securities, (4) any
other Person in whom the specified Person has a substantial beneficial
interest or as to whom the specified Person serves as trustee or in a similar
<PAGE>
capacity, or (5) any relative or spouse (including any partner with whom such
person resides on a permanent basis) of the specified Person or any of the
foregoing Persons described in clause (1), (2), (3) or (4) above, any relative
of such spouse, any spouse of any such relative or any other Person who,
directly or indirectly, is under common ownership or control with, or is owned
or controlled by such spouse or relative. As used in this definition, the term
"control" means the possession, directly or indirectly, of the power to direct
the management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise. As used in this definition, the
term "relative" means any former spouses, parent, grandparent,
great-grandparent, child, grandchild, great-grandchild, sibling, first uncle,
first aunt or first cousin (in each case, whether natural or adoptive),
provided however, that for purposes of this Agreement, the term "Affiliate"
shall not include any dental practices that are managed by the Company or its
Subsidiaries solely as a result of such management relationship.
"Agent" means Imperial Bank, or its successor, as agent for
the lenders parties to the Senior Credit Facility.
"Agreement" shall have the meaning given to such term in the
caption.
"Applicable Law," with respect to any Person, means all
provisions of laws, statutes, ordinances, rules, regulations, permits,
certificates or orders of any Governmental Authority applicable to such Person
or any of its assets or property or to which such Person or any of its assets
or property is subject, and all judgments, injunctions, orders and decrees of
all courts and arbitrators in proceedings or actions in which such Person is a
party or by which it or any of its assets or properties is or may be bound or
subject.
"Arbitration Procedure" means the following procedure to
determine the Fair Value or the Market Price, as applicable (the "valuation
amount"). The valuation amount shall be determined by an investment banking
firm of national recognition, which firm shall be reasonably acceptable to the
Company and the Requisite Purchasers. If the Company and the Requisite
Purchasers are unable to agree upon an acceptable investment banking firm
within ten (10) days after the date either party proposed that one be
selected, the investment banking firm will be selected by an arbitrator
located in the City of New York, New York selected by the American Arbitration
Association (or if such organization ceases to exist, the arbitrator shall be
chosen by a court of competent jurisdiction). The arbitrator shall select the
investment banking firm (within ten (10) days of his appointment) from a list,
jointly prepared by the Company and the Requisite Investors, of not more than
six investment banking firms of national standing in the United States, of
which no more than three may be named by the Company and no more than three
may be named by the Requisite Investors. The arbitrator may consider, within
the ten-day period allotted, arguments from the
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<PAGE>
parties regarding which investment banking firm to choose, but the selection
by the arbitrator shall be made in its sole discretion from the list of six.
The Board and the Requisite Purchasers shall submit to the investment banking
firm their respective determinations of the valuation amount, and any
supporting arguments and other data as they may desire, within ten (10) days
of the appointment of the investment banking firm, and the investment banking
firm shall as soon as practicable thereafter make its own determination of the
valuation amount. The final valuation amount for purposes hereof shall be the
average of the two valuation amounts closest together, as determined by the
investment banking firm, from among the valuation amounts submitted by the
Company and the Requisite Purchasers and the valuation amount calculated by
the investment banking firm. The determination by such investment banking firm
shall be final and binding upon the parties. The Company and the Requisite
Purchasers shall each pay one-half (1/2) of the fees and expenses of the
investment banking firms and arbitrators (if any) used to determine the
valuation amount. If required by any such investment banking firm or
arbitrator, the Company shall execute a retainer and engagement letter
containing reasonable terms and conditions, including, without limitation,
customary provisions concerning the rights of indemnification and contribution
by the Company in favor of such investment banking firm or arbitrator and its
officers, directors, partners, employees, agents and Affiliates.
"Best Knowledge" has the meaning given to it in Section 1.2.
"Board" means the Board of Directors of the Company.
"Business" has the meaning given to it in the Preamble to
this Agreement.
"Business Day" means any day other than a Saturday, Sunday
or a day on which all United States securities exchanges on which Securities
issued by the Company are listed, are authorized or required to be closed.
"By-laws" means the by-laws of the Company, as amended and in
effect at the time in question.
"Capital Expenditures" means, with respect to any Person for
any period, the sum of all amounts (including the capital portion of any
Capital Lease Obligations incurred) that would, in accordance with GAAP, be
included as capital expenditures on a consolidated statement of cash flows for
such Person during such period.
"Capital Lease Obligations" means, with respect to any
Person on any date, the Obligations of such Person to pay rent or other
amounts under any lease of (or other arrangement conveying the right to use)
real or personal property, or a combination thereof, which Obligations are
required to be classified and
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<PAGE>
accounted for as capital leases on a balance sheet of such Person as of such
date computed in accordance with GAAP.
"Certificate of Amendment" means the Certificate of
Amendment of the Company, the form of which is attached as Exhibit A.
"Certificate of Incorporation" means the Articles of
Incorporation of the Company as amended and restated and in effect at the time
in question.
"Change of Control" means the occurrence of any of the
following events: (i) all or substantially all of the Company's assets, on a
consolidated basis, are sold as an entirety to any Person or related group of
Persons or there shall be consummated any consolidation or merger of the
Company (A) in which the Company is not the continuing or surviving company
(other than a consolidation or merger with a wholly-owned Subsidiary of the
Company in which all shares of Common Stock outstanding immediately prior to
the effectiveness thereof are changed into or exchanged for the same
consideration) or (B) pursuant to which the Common Stock would be converted
into cash, Securities or other property, in any case, other than a
consolidation or merger of the Company in which the holders of the Common
Stock immediately prior to the sale of assets or consolidation or merger have,
directly or indirectly, at least a majority of the Common Stock of the
transferee or continuing or surviving company immediately after such sale of
assets or consolidation or merger, (ii) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), is or becomes the beneficial
owner (as defined in Rules 13d-3 and 13d-5 of the Exchange Act provided that
such person shall be deemed to have "beneficial ownership" of all shares that
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
more than 35% of the total voting power of the outstanding capital stock of
the Company; provided however that for purposes of computing the total voting
power of the outstanding capital stock of the Company such computation shall
not include shares of Common Stock issuable upon conversion of the Notes,
Series B Preferred Stock or Series D Preferred Stock; or (iii) during any
period of two consecutive years, individuals who at the beginning of such
period constituted the Board cease for any reason to constitute a majority of
the Board, then in office.
"Claim" means any claim, demand, assessment, judgment,
order, decree, action, cause of action, litigation, suit, investigation or
other Proceeding.
"Closings" means collectively, the First Closing and the
Second Closing.
"Closing Certificate" has the meaning given to it in Section
6.1.
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<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended,
or any similar Federal law then in force, and the rules and regulations
promulgated thereunder, all as the same may from time to time be in effect.
"Common Stock" means, collectively, all of the Common Stock,
no par value, of the Company of any class, and any other class of capital
stock of the Company hereafter authorized that is not limited to a fixed sum
or percentage of par or stated value in respect to the rights of the holders
thereof to participate in dividends or in the distribution of assets upon any
liquidation, dissolution or winding up of the Company.
"Common Stock Equivalent" means all shares of Common Stock
outstanding and all shares of Common Stock issuable (without regard to any
present restrictions on such issuance) upon the conversion, exchange or
exercise of all Securities of the Company that are convertible, exchangeable
or exercisable for Common Stock and all Common Stock appreciation rights,
phantom Common Stock rights and other rights to acquire, or to receive or be
paid amounts based on the Market Price (less any exercise, conversion or
purchase price) of, the Common Stock.
"Company" has the meaning given to it in the caption to this
Agreement.
"Company Indemnified Persons" has the meaning given to it in
Section 6.2(b).
"CVCA" shall mean Chase Venture Capital Associates, L.P.
"Default" shall mean any event or occurrence which after
notice or lapse of time or both would become an Event of Default.
"Designated Senior Debt" means Indebtedness constituting
Senior Debt under the Senior Credit Facility, and any successor credit
facility.
"Documents" means this Agreement, the Notes, Certificate of
Amendment, the Registration Rights Agreement, any Warrant and the SBA Letter.
"EBITDA" means, for any period of determination thereof, Net
Income of the Company plus (a) Interest Expense, (b) income tax expense,
refunds or credits for such periods, and (c) depreciation and amortization
expense of the Company, all determined in accordance with GAAP.
"Employee Plans" means any current or previously terminated
"employee benefit plan" (as defined in Section 3(3) of ERISA) as well as any
other plan, program or arrangement involving direct and indirect compensation
or benefits, in each case, under which the Company or any ERISA Affiliate of
the
-5-
<PAGE>
Company has any present or future obligations or Liability on behalf of its
employees or former employees, contractual employees or their dependents or
beneficiaries.
"Encumbrance" has the meaning given to it in Section 3.8.
"Environmental and Safety Requirements" means all Legal
Requirements, Orders, contractual obligations and all common law concerning
public health and safety, worker health and safety, and pollution or
protection of the environment, including, without limitation, all those
relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation, including
but not limited to, the Solid Waste Disposal Act, as amended, 42 U.S.C.
ss.ss.6901, et seq., the Clean Air Act, as amended, 42 U.S.C. ss.ss.7401, et
seq. the Federal Water Pollution Control Act, as amended, 33 U.S.C.
ss.ss.1251, et seq., the Emergency Planning and Community Right-to-Know Act,
42 U.S.C. ss.ss.11001, et seq., the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, 42 U.S.C. ss.ss.9601, et seq.,
the Hazardous Materials Transportation Uniform Safety Act, as amended, 49
U.S.C. ss.ss.1804, et seq., the Occupational Safety and Health Act of 1970,
and the regulations promulgated thereunder.
"ERISA" means the Employment Retirement Income Security Act
of 1974, as amended, or any similar Federal law in force, and the rules and
regulations promulgated thereunder, all as the same may be amended.
"ERISA Affiliate" means, with respect to any Person, any
entity that is a member of a "controlled group of corporations" with, or is
under "common control" with, or is a member of the same "affiliated service
group" with such Person as defined in Sections 414(b), 414(c), 414(m) or
414(o) of the Code.
"Equity Incentive Plans" means collectively (1) the 1993
Stock Incentive Plan, as amended, (2) the 1996 Stock Option Plan of the
Company, (3) the 1996 Performance Stock Option Plan of the Company and (4) any
other equity incentive plan adopted by the Company and approved by the
required vote of its shareholders.
"Event of Default" means any of the events set forth in
Section 10.1.
"Event of Option" shall occur when there is no longer an
individual nominated by Sprout (other than pursuant to the Certificate of
Amendment) as a member of the Board.
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<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar Federal Statute then in force, and the rules and
regulations promulgated thereunder, all as the same may from time to time be
in effect.
"Exchanged Notes" has the meaning given to such term in
Section 12.2.
"Fair Value" means, with respect to any listed Security, its
Market Price, and with respect to any property or assets other than cash or
listed Securities, the fair value thereof determined in good faith jointly by
the Company and the Requisite Purchasers; provided, however, that if the
parties are not able to agree within a reasonable period of time (not to
exceed ten (10) days) what amount constitutes Fair Value, then the Fair Value
will be determined pursuant to the Arbitration Procedure using an appropriate
valuation methods assuming an arms-length sale for an independent party.
"First Closing" shall have the meaning given to such term in
Section 2.4(a).
"First Closing Date" shall have the meaning given to such
term in Section 2.4(a).
"Fundamental Documents" means the documents by which any
Person (other than an individual) establishes its legal existence or which
govern its internal affairs. The Fundamental Documents of the Company are the
Certificate of Incorporation and By-laws.
"GAAP" means United States generally accepted accounting
principles.
"Governmental Authority" means any domestic or foreign
government or political subdivision thereof, whether on a federal, state or
local level and whether executive, legislative or judicial in nature,
including any agency, authority, board, bureau, commission, court, department
or other instrumentality thereof.
"Guaranty" means any obligation, contingent or otherwise, of
any Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness or other obligation of any other Person in any manner, whether
directly or indirectly, including any obligation of such Person, direct or
indirect, (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation or to purchase (or to
advance or supply funds for the purchase of) any security for the payment of
such Indebtedness or other obligation, (ii) to purchase property, securities
or services for the purpose of assuring the owner of such Indebtedness or
other obligation of the payment thereof, (iii) to purchase or otherwise pay
for merchandise, materials, supplies, services or other property under an
arrangement which provides that payment for
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<PAGE>
such merchandise, materials, supplies, services or other property shall be
made regardless of whether delivery of such merchandise, materials, supplies,
services or other property is ever made or tendered, or (iv) to maintain the
working capital, equity capital or other financial statement condition of any
primary obligor, provided, however, that the term Guaranty shall not include
endorsement of instruments for deposit and collection in the ordinary course
of business.
"Indebtedness" of any Person means, without duplication, (a)
all obligations of such Person for borrowed money or with respect to deposits
or advances of any kind, (b) all obligations of such Person evidenced by (or
which customarily would be evidenced by) bonds, debentures, notes or similar
instruments, (c) all reimbursement obligations of such Person with respect to
letters of credit and similar instruments, (d) all obligations of such Person
under conditional sale or other title retention agreements relating to
property or assets purchased by such Person, (e) all obligations of such
Person incurred, issued or assumed as the deferred purchase price of property
or services other than accounts payable incurred and paid on terms customary
in the business of such Person (it being understood that the "deferred
purchase price" in connection with any purchase of property or assets shall
include only that portion of the purchase price which shall be deferred beyond
the date on which the purchase is actually consummated), (f) all obligations
secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Encumbrance on property
owned or acquired by such Person, whether or not the obligations secured
thereby have been assumed, (g) all obligations of such Person under forward
sales, futures, options and other similar hedging arrangements (including
interest rate hedging or protection agreements), (h) all obligations of such
Person to purchase or otherwise pay for merchandise, materials, supplies,
services or other property under an arrangement which provides that payment
for such merchandise, materials, supplies, services or other property shall be
made regardless of whether delivery of such merchandise, materials, supplies,
services or other property is ever made or tendered, (i) all Guaranties by
such Person of obligations of others and (j) all capitalized lease obligations
of such Person.
"Interest Coverage Ratio" means with respect to the Company
and its Subsidiaries on a consolidated basis for any period, the ratio of (a)
EBITDA for such period to (b) Interest Expense for such period.
"Interest Expense" means, for any period, all interest
(including capitalized interest) and all amortization of debt discount and
expense on any particular Indebtedness (excluding the Notes but including,
without limitation payment-in-kind, zero coupon and other like securities and
the interest component of Capital Lease Obligations applicable to such period)
of the Company.
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<PAGE>
"Indemnified Persons" means any of the Company Indemnified
Persons or any of the Purchaser Indemnified Persons, as the context may
require.
"Indemnifying Persons" means any of the Purchasers or the
Company, as the context may require.
"Insurance Policies" has the meaning given to it in Section
3.19.
"Intellectual Property Rights" means all industrial and
intellectual property rights, including, without limitation, patents, patent
applications, patent rights, trademarks, trademark applications, trade names,
service marks, service mark applications, copyrights, copyright applications,
know-how, trade secrets, proprietary processes and formulae, confidential
information, franchises, licenses, inventions, instructions, marketing
materials, trade dress, logos and designs and all documentation and media
constituting, describing or relating to the foregoing, including manuals,
memoranda and records.
"Interest Payment Date" has the meaning given to it in the
Notes.
"Investment" in any Person, means any loan or advance to
such Person, any purchase or other acquisition of any capital stock or other
ownership or profit interest, warrants, rights, options, obligations or other
Securities of such Person, any capital contribution to such Person or any
other investment in such Person.
"Legal Requirements" means, as to any Person, all federal,
state, local or foreign laws, statutes, rules, regulations, ordinances,
permits, certificates, requirements, regulations, and restrictions of any
Governmental Authority applicable to such Person or any of its properties or
assets.
"Liability" means any liability or obligation, whether known
or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated and whether due or to become due,
regardless of when asserted.
"Loss" means any loss (including diminution in value of
Securities), Liability, demand, claim, action, cause of action, cost, damage,
deficiency, Tax (including any Taxes imposed with respect to any indemnity
payments for any such Loss), penalty, fine or expense, whether or not arising
out of any Claims by or on behalf of any party to this Agreement or any third
party, including interest, penalties, reasonable attorneys' fees and expenses
and all amounts paid in investigation, defense or settlement of any of the
foregoing which any such party may suffer, sustain or become subject to, as a
result of, in connection with, relating or incidental to or by virtue of any
indemnifiable event or condition.
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"Mandatory Conversion Event" shall occur when during 20
Business Days during a Measurement Period, the Market Price of the Common
Stock shall have exceeded the Trigger Price.
"Market Price" means, as to any listed Security, the average
of the closing prices of such Security's sales on all United States securities
exchanges on which such Security may at the time be listed, or, if there have
been no sales 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, on such day, 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 or 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; provided however that for the purposes of determining Market
Price of Securities issued by the Company to sellers of a business (provided
such sellers are not Affiliates of the Company) in connection with an
acquisition of such seller's business then the price shall be averaged over a
period of 5 consecutive Business Days prior to such day.
"Material Adverse Effect" means, with respect to any Person,
a material adverse effect on the business, condition (financial and
otherwise), operations, results of operations, assets (including levels of
working capital and components thereof), Liabilities, and prospects of such
Person.
"Material Agreements" has the meaning given to it in Section
3.10.
"Maturity Date" means the eighth anniversary of the First
Closing Date.
"Measurement Period" means 30 consecutive Business Days.
"Multi-employer Plan" means a Plan which is a multi-employer
plan as defined in Section 3(37) of ERISA.
"NASDAQ System" means either the Nasdaq National Market
System or the Nasdaq Smallcap Market System.
"Net Income" means, for any period, the gross revenues of
the Company for such period less all expenses and other proper charges, but
excluding in any event:
(i) any gains or losses on the sale or other disposition
of Investments or fixed or capital assets or from any
transaction classified as extraordinary under
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GAAP, any taxes on such excluded gains and any tax deductions
or credits on account of any such excluded losses;
(ii) the proceeds of any life insurance policy;
(iii) net earnings and losses of any business entity,
substantially all the assets of which have been acquired in any
manner by the business entity, realized by such company prior
to the date of such acquisition;
(iv) net earnings and losses of any company which shall
have merged into the business entity prior to the date of such
merger;
(v) net earnings of any business entity (other than a
consolidated Subsidiary) in which the Company has an ownership
interest unless such net earnings actually shall have been
received by the Company in the form of cash distributions;
(vi) earnings resulting from a reappraisal, revaluation or
write-up of assets;
(vii) any charge to net earnings resulting from the
amortization of the value of stock options given to employees
to the extent required by FASB 25;
(viii) any increase or decrease of net income arising from
a change in the Company's accounting methods;
(ix) any gains resulting from the forgiveness of
Indebtedness or the retirement of Indebtedness at a discount;
(x) any gain arising from the acquisition of any
Securities of the Company; and
(xi) any reversal of any contingency reserve, except that
provision for such contingency reserve shall have been made
from income arising during such period.
"Newco" has the meaning given to such term in Section 12.2.
"Non-Cash Interest Additional Note" has the meaning given to
such term in the Note.
"Notes" means the 7.0% Convertible Subordinated Notes,
substantially in the form of which is attached hereto as Exhibit B, together
with any Notes issued in substitution or exchange for any Purchased Notes
(including the Exchanged Notes), and any
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Additional Notes (including Non-Cash Interest Additional Notes), all of which
were issued in accordance with the terms hereof.
"Obligation" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including any
liability of such Person on any claim, whether or not the right of any
creditor to payment in respect of such claim is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed,
legal, equitable, secured or unsecured, and whether or not such claim is
discharged, stayed or otherwise affected by any proceeding at law or in
equity.
"Order" means any judgment, writ, decree, injunction, order,
stipulation, compliance agreement or settlement agreement issued or imposed
by, or entered into with, a Governmental Authority, whether or not having the
force of law.
"Permits" has the meaning given to it in Section 3.12.
"Permitted Encumbrances" has the meaning given to it in
Section 3.8.
"Person" shall be construed as broadly as possible and shall
include an individual, a partnership (including a limited liability
partnership), a company, an association, a joint stock company, a limited
liability company, a trust, a joint venture, an unincorporated organization
and a Governmental Authority.
"Payment Blockage Notice" has the meaning set forth in
Section 11.2(b).
"Payment Blockage Period" shall have the meaning assigned to
such term in Section 11.2(b).
"Preferred Shares" has the meaning given to it in Section 2.2.
"Preferred Stock" means, collectively, the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock
and the Series D Preferred Stock.
"Proceeding" means any legal, administrative or arbitration
action, suit, complaint, charge, hearing, inquiry, investigation or
proceeding.
"Purchased Notes" has the meaning given to it in Section 2.3.
"Purchaser" has the meaning given to it in the caption to
this Agreement, any Person succeeding to the rights of a Purchaser pursuant to
the terms hereof, and in the case of Article XI, the holder of the
Subordinated Obligations.
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"Purchaser Indemnified Person" has the meaning given to it in
Section 6.2(a).
"Registration Rights Agreement" means the Registration
Rights Agreement among the Company and the Purchasers (as defined therein), a
form of which is attached as Exhibit C.
"Requisite Purchasers" means (i) in the case of issues
relating to or concerning the Notes or Warrants, Persons holding Common Stock
Equivalents representing a majority of all the outstanding Common Stock
Equivalents issuable upon conversion of Notes, or upon exercise of Warrants,
held by such Persons at the time in question, provided that so long as CVCA,
or its Affiliates, is a Significant Holder, CVCA must be included in such
majority, (ii) in the case of issues relating to or concerning the Series B
Preferred Shares, Persons holding Common Stock Equivalents representing a
majority of all outstanding Common Stock Equivalents issuable upon conversion
of the Series B Preferred Shares held by such Persons at the time in question
provided that so long as CVCA or its Affiliates, is a Significant Holder, CVCA
must be included in such majority, (iii) in the cases of issues relating to or
concerning the Series A Preferred Shares, CVCA, (iv) in the case of issues
relating to or concerning the Series C Preferred Shares, Sprout, and (v) in
the case of issues relating to or concerning the Series D Preferred Shares,
Persons holding Common Stock Equivalents representing a majority of all
outstanding Common Stock Equivalents issuable upon conversion of the Series D
Preferred Shares, held by such Persons at the time in question provided that
so long as CVCA, or its Affiliates, is a Significant Holder, CVCA must be
included in such majority.
"Reserved Common Shares" means the shares of Common Stock
issuable upon conversion of the Notes, the Series B Preferred Shares, Series D
Preferred Shares or Warrants, if any.
"Restricted Securities" shall mean the Notes, the Reserved
Common Shares and any shares of capital stock received in respect of any
thereof (including any Additional Notes), in each case which have not then
been sold to the public pursuant to (a) registration under the Securities Act
or (b) Rule 144 (or similar or successor rule) promulgated under the
Securities Act.
"Restricted Shares" shall mean the Reserved Common Shares
that constitute Restricted Securities.
"Returns" has the meaning set forth in Section 3.13 of this
Agreement.
"SBA Letter" has the meaning set forth in Section 5.1(n) of
this Agreement.
"Second Closing" has the meaning given to it in Section
2.4(b).
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"Second Closing Date" has the meaning given to it in Section
2.4(b).
"SEC" has the meaning set forth in Section 3.5.
"SEC Reports" has the meaning set forth in Section 3.5.
"Securities" means, with respect to any Person, such
Person's "securities" as defined in Section 2(1) of the Securities Act and
includes such Person's capital stock or other equity interests or any options,
warrants or other securities or rights that are directly or indirectly
convertible into, or exercisable or exchangeable for, such Person's capital
stock or other equity interests.
"Securities Act" means the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations of
the Commission promulgated thereunder, all as the same may from time to time
be in effect.
"Senior Credit Facility" means the Amended and Restated
Credit Agreement, dated as of January 7, 1998, among the Company and its
Subsidiaries and Imperial Bank, as lender and Agent thereunder, or any credit
facility entered into by the Company in connection with refinancing of the
Company's Indebtedness under such Amended and Restated Credit Agreement.
"Senior Credit Documents" means all written contracts or
agreements in respect of Senior Debt.
"Senior Debt" means all Indebtedness other than such
Indebtedness specified as junior or pari passu, for purposes of priority, to
the Notes.
"Senior Debt Non-Payment Default" has the meaning set forth
in Section 11.2(b).
"Senior Debt Payment Default" has the meaning set forth in
Section 11.2(a).
"Senior Debtholders" means the holders from time to time of
any of the Senior Debt.
"Series A Preferred Shares" has the meaning set forth in
Section 2.2.
"Series A Preferred Stock" means the Series A Preferred
Stock, no par value, of the Company.
"Series A Preferred Redemption Event" means the Series A
Preferred Shares shall have been repurchased by the Company pursuant to
Section 7.6 of this Agreement.
"Series B Preferred Conversion Event" has the meaning given
to such term in the Note.
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"Series B Preferred Shares" has the meaning set forth in
Section 2.2.
"Series B Preferred Stock" means the Series B Preferred
Stock, no par value, of the Company.
"Series C Preferred Shares" has the meaning set forth in
Section 2.2.
"Series C Preferred Stock" means the Series C Preferred
Stock, no par value, of the Company.
"Series C Redemption Event" means the Series C Preferred
Shares shall have been repurchased by the Company pursuant to Section 7.6 of
this Agreement.
"Series D Preferred Shares" has the meaning set forth in
Section 2.2.
"Series D Preferred Stock" means the Series D Preferred
Stock, no par value, of the Company.
"Significant Holder" has the meaning set forth in Section
8.1(c).
"Sprout" means The Sprout Group, together with its Affiliates.
"Subordinated Obligations" means all Obligations in respect
of the Notes (other than any indemnification Obligations hereunder, including
those indemnification Obligations under Section 6.2(a)(iii)).
"Subsidiary" shall mean, at any time, with respect to any
Person (the "Subject Person"), (i) any Person of which either (x) more than
50% of the shares of stock or other interests entitled to vote in the election
of directors or comparable Persons performing similar functions (excluding
shares or other interests entitled to vote only upon the failure to pay
dividends thereon or other contingencies) or (y) more than a 50% interest in
the profits or capital of such Person, are at the time owned or controlled
directly or indirectly by the Subject Person or through one or more
Subsidiaries of the Subject Person or by the Subject Person and one or more
Subsidiaries of the Subject Person, or (ii) any Person whose assets, or
portions thereof, are consolidated with the net earnings of the Subject Person
and are recorded on the books of the Subject Person for financial reporting
purposes in accordance with GAAP; provided however, that for purposes of this
Agreement, the term Subsidiary shall not include any dental practices managed
by the Company or any of its Subsidiaries solely as a result of such
management relationship.
"Tax" means any Taxes and the term "Taxes" means, with
respect to any Person, (A) all income taxes (including any tax on
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or based upon net income, or gross income, or income as specially defined, or
earnings, or profits, or selected items of income, earnings or profits) and
all gross receipts, sales, use, ad valorem, transfer, franchise, license,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property or windfall profits taxes, alternative or add-on minimum
taxes, customs duties or other taxes, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any taxing authority (domestic or foreign) on
such Person and (B) any Liability for the payment of any amount of the type
described in the immediately preceding clause (A) as a result of being a
"transferee" (within the meaning of Section 6901 of the Code or any other
applicable Legal Requirement) of another Person or a member of an affiliated
or combined group.
"Total Indebtedness" means, in respect to any Person, at the
date of determination, the aggregate principal amount of all Indebtedness of
such Person, determined in accordance with GAAP.
"Transfer" shall mean any disposition of any shares or other
units of Restricted Securities or any interest therein which would constitute
a sale thereof within the meaning of the Securities Act.
"Trigger Price" means (i) on or prior to the first
anniversary of the Closing Date, $15.73, (ii) after the first anniversary of
the Closing Date, but on or prior to the second anniversary of the Original
Issuance Date, $16.85, and (iii) any time after the second anniversary of the
Closing Date, $17.98.
"Warrants" means the Warrants issuable upon prepayment of
the Notes or redemption at the option of the Company of the Series B Preferred
Shares or Series D Preferred Shares.
1.2 Rules of Construction.
The term "this Agreement" means this agreement together with all
schedules and exhibits hereto, as the same may from time to time be amended,
modified, supplemented or restated in accordance with the terms hereof. In
this Agreement, the term "Best Knowledge" of any Person means (i) actual
knowledge of such Person (including the actual knowledge of the officers and
directors of such Person) and (ii) that knowledge which could have been
acquired by such Person after making such due inquiry and exercising such due
diligence as a prudent businessperson would have made or exercised in the
management of his or her business affairs, including due inquiry of those key
employees and professionals of such Person who could reasonably be expected to
have actual knowledge of the matters in question. The use in this Agreement of
the term "including" means "including, without limitation." The words
"herein," "hereof," "hereunder" and other words of similar import refer to
this Agreement as a whole, including the schedules and exhibits, as the same
may from time
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to time be amended, modified, supplemented or restated, and not to any
particular section, subsection, paragraph, subparagraph or clause contained in
this Agreement. All references to sections, schedules and exhibits mean the
sections of this Agreement and the schedules and exhibits attached to this
Agreement, except where otherwise stated. The title of and the section and
paragraph headings in this Agreement are for convenience of reference only and
shall not govern or affect the interpretation of any of the terms or
provisions of this Agreement. The use herein of the masculine, feminine or
neuter forms shall also denote the other forms, as in each case the context
may require or permit. Where specific language is used to clarify by example a
general statement contained herein, such specific language shall not be deemed
to modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement has been
chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against any party. Unless expressly provided
otherwise, the measure of a period of one month or year for purposes of this
Agreement shall be that date of the following month or year corresponding to
the starting date, provided that if no corresponding date exists, the measure
shall be that date of the following month or year corresponding to the next
day following the starting date. For example, one month following February 18
is March 18, and one month following March 31 is May 1.
ARTICLE II
PURCHASE AND SALE OF SHARES; CLOSINGS
2.1. Certificate of Amendment.
Prior to the First Closing, the Company shall file with the
Secretary of State of the State of Washington the Certificate of Amendment.
The Certificate of Amendment (i) designates one hundred (100) shares of Series
A Preferred Stock, (ii) designates seventy thousand (70,000) shares of Series
B Preferred Stock, (iii) designates one hundred (100) shares of Series C
Preferred Stock, (iv) designates two million (2,000,000) shares of Series D
Preferred Stock, and (v) sets forth the terms, designations, powers,
preferences and relative rights and the qualifications, limitations and
restrictions, of the Preferred Stock.
2.2. Authorization of Issuance of Convertible Notes and Preferred
Shares.
Subject to the terms and conditions hereof, the Company has
authorized the issuance at the Closings of an aggregate of (a) $30,000,000 in
principal amount of the Company's 7.0% Convertible Subordinated Notes (the
"Notes"), (b) 100 shares (the "Series A Preferred Shares") of the Series A
Preferred Stock, (c) 70,000 shares (the "Series B Preferred Shares") of the
Series B
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Preferred Stock, (d) 100 shares (the "Series C Preferred Shares") of Series C
Preferred Stock and (e) 2,000,000 shares (the "Series D Preferred Shares" and
together with the Series A Preferred Shares, Series B Preferred Shares and the
Series C Preferred Shares, collectively, the "Preferred Shares") of Series D
Preferred Stock.
2.3. Sale of Securities.
(a) At the Closings (as defined below), subject to the
satisfaction or waiver of the conditions set forth in Article V, the Company
shall (i) issue and sell to each Purchaser, and each Purchaser shall severally
purchase from the Company, the aggregate principal amount of Notes set forth
opposite the name of such Purchaser in the second column of Schedule I, (the
aggregate principal amount of the Notes purchased by the Purchasers referred
to herein as the "Purchased Notes"), in exchange for the aggregate purchase
price set forth opposite the name of such Purchaser in the third column of
Schedule I and (ii) issue and sell to each of Sprout and CVCA, and each of
Sprout and CVCA shall purchase from the Company that number and series of
Preferred Shares set forth opposite its name on Schedule I for the aggregate
purchase price set forth opposite its name.
(b) At any time and from time to time after the date hereof
and prior to June 5, 1998, the Company may amend this Agreement by adding
additional parties as Purchasers and allocate the Series D Preferred Shares
and Notes remaining for purchase after the First Closing among them; provided
however, that in the event additional parties do not purchase all such
remaining Series D Preferred Shares and Notes on or prior to the Second
Closing Date any Series D Preferred Shares and Notes remaining for purchase at
such time shall be purchased by Sprout pursuant to this Agreement on the
Second Closing Date, provided that, in connection with the purchase of the
Series D Preferred Shares and Notes on the Second Closing Date, Sprout hereby
agrees to waive compliance with all conditions to the purchase of the Series D
Preferred Shares and Notes at the Second Closing, as set forth in Section 5.2.
2.4 Closings.
(a) The first closing (the "First Closing") hereunder with
respect to the issuance and sale of the Purchased Notes and the Preferred
Shares being purchased by each Purchaser at the First Closing and the
consummation of the related transactions contemplated hereby shall, subject to
the satisfaction or waiver of the applicable conditions set forth in Section
5.1, take place at the offices of O'Sullivan Graev & Karabell, LLP, 30
Rockefeller Plaza, New York, New York, on May 15, 1998 (the "First Closing
Date"), or at such other time, date or place as agreed to by the parties.
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(b) The second Closing (the "Second Closing", and together
with the First Closing, the "Closings") of the issuance and sale of Purchased
Notes and the Preferred Shares being purchased by such Purchaser at the Second
Closing hereunder shall, subject to the satisfaction or waiver of the
conditions set forth in Section 5.2, take place at the offices of O'Sullivan
Graev & Karabell, LLP, on or prior to June 5, 1998 (the "Second Closing
Date"), or such later date not past June 30, 1998, if necessary to comply with
the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976 (the "HSR Act") or
at such other time, date or place agreed to by the Company and the Purchasers
purchasing Notes or Series D Preferred Shares at such Closing.
2.5 Closing Deliveries.
At each Closing, the Company shall deliver to each Purchaser
purchasing Securities at such Closing (i) in the case of the First Closing, a
Note payable to the Purchaser, in an aggregate principal amount equal to the
Notes purchased by such Purchaser at the Closing, and to each Purchaser
purchasing Preferred Shares at the First Closing a certificate, registered in
its name, representing the Preferred Shares purchased by such Purchaser at the
First Closing, against receipt by the Company of a wire transfer, of
immediately available funds to an account designated by the Company, of an
amount equal to the purchase price for the Securities being purchased by such
Purchaser at the Closing and (ii) in the case of the Second Closing, a Note
payable to the Purchaser purchasing Notes at such Second Closing, in an
aggregate principal amount equal to the Notes purchased by such Purchaser at
such Closing and to each Purchaser purchasing Preferred Shares at the Second
Closing, a certificate, registered in its name, representing the Preferred
Shares purchased by such Purchaser at the Second Closing against receipt by
the Company of a wire transfer, of immediately available funds to an account
designated by the Company, of an amount equal to the purchase price for the
Securities being purchased by such Purchaser at the Second Closing.
2.6. Use of Proceeds.
The proceeds received by the Company from the sale of all
Purchased Notes and Preferred Shares shall be used by the Company solely for
(i) repayment of existing Indebtedness, (ii) the payment of fees and expenses
incurred in connection with the consummation of this transaction, (iii)
working capital needs and (iv) acquisitions of assets and related
non-professional business of dental practices, each as described in the
detailed analysis of the use of proceeds previously delivered to the
Purchasers.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY
The Company represents and warrants to the Purchasers that
as of the date hereof:
3.1. Organization, Power, Authority and Good Standing.
The Company and each of its Subsidiaries is duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation and has all requisite power and authority (corporate and
otherwise) to own, lease and operate its assets and properties and to carry on
its business as presently conducted and as presently proposed to be conducted.
The Company and each of its Subsidiaries is duly qualified and in good
standing to transact business as a foreign Person in the respective
jurisdictions set forth on Schedule 3.1, which constitute all the
jurisdictions in which the character of the property owned, leased or operated
by the Company and each of its Subsidiaries or the nature of the business or
activities conducted by the Company and each of its Subsidiaries makes such
qualification necessary, except where such failure to so qualify has not had
nor could reasonably be expected to have a Material Adverse Effect on the
Company and each of its Subsidiaries taken together as a whole. The Purchasers
have been furnished with true, correct and complete copies of the Fundamental
Documents of the Company and each of its Subsidiaries, in each case as amended
and in effect on the date hereof. The Company has never engaged in any
businesses other than the Business.
3.2. Authorization, Execution and Enforceability.
The Company has all requisite power and authority (corporate
and otherwise) to execute and deliver and perform its obligations under the
Documents to which it is a party and to consummate the transactions
contemplated by such Documents. The Company's execution and delivery of, and
performance of its obligations under, the Documents to which the Company is a
party have been duly and validly authorized by all requisite action on the
part of the Company, and each such Document constitutes, or upon its execution
and delivery will constitute, a valid and binding obligation of the Company
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws and general principles of equity. Except as set forth on
Schedule 3.2, the Company's execution and delivery of, and performance of its
obligations under, the Documents to which it is a party, and the consummation
of the transactions contemplated thereby, including the authorization,
reservation, issuance, sale and delivery, as the case may be, of the Notes,
the Reserved Common Shares and the Preferred Shares, will not (a) violate any
Legal Requirement applicable to the Company or any of
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its Subsidiaries or any of their properties or assets or (b) conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute (with due notice or lapse of time, or both) a default or give rise
to any right of termination, cancellation or acceleration, or result in the
creation of any Encumbrance upon any of the properties or assets of the
Company or any of its Subsidiaries, under, any provision of the Fundamental
Documents of the Company or any of its Subsidiaries or any Material Agreement
or Permit to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries or their assets or properties are
or may be bound, except where such violation, conflict, breach, default or
right individually or in the aggregate has not had nor could reasonably be
expected to have a Material Adverse Effect on the Company and each of its
Subsidiaries taken together as a whole.
3.3. Authorization.
The authorization, reservation, issuance, sale and delivery,
as applicable, of the Notes, the Reserved Common Shares and the Preferred
Shares have been duly and validly authorized by all requisite action on the
part of the Company. The Notes, the Preferred Shares and the Additional Notes,
if any, and the Reserved Common Shares (assuming the issuance thereof in
accordance with the applicable terms of the Notes, Series BPreferred Shares
and the Series D Preferred Shares), will be duly and validly issued and
outstanding, fully paid and nonassessable, with no personal Liability
attaching to the ownership thereof and not subject to any preemptive rights,
rights of first refusal or other similar rights of the stockholders of the
Company.
3.4. Capitalization and Equity Investment.
(a) The authorized capital stock of the Company immediately
after the consummation of the Closings shall consist of:
(i) 50,000,000 duly authorized shares of Common
Stock, of which:
(A) 7,808,978 shares shall be duly and
validly issued and outstanding, fully paid and
nonassessable, with no personal Liability attached
to the ownership thereof;
(B) 863,350 shares shall be duly and
validlyreserved for issuance pursuant to
outstanding options granted to and held by the
employees of the Company in the amounts set forth
on Schedule 3.4(a)(i)(B);
(C) 1,042,150 shares shall be duly and
validly reserved for issuance pursuant to options
that may be granted after the date hereof to
employees of the
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Company pursuant to the Company's Equity Incentive
Plans;
(D) 640,437 shares shall be duly and
validly reserved for issuance pursuant to
outstanding warrants granted to and held by the
persons and in the amounts set forth on Schedule
3.4(a)(i)(D);
(E) 7,600,434 shares shall be duly and
validly reserved for issuance pursuant to the
conversion of the Notes or Series B Preferred
Shares issued hereunder;
(F) 2,000,000 shares shall be duly and
validly reserved for issuance pursuant to the
conversion of the Series D Preferred Shares issued
hereunder; and
(G) 42,191,022 shares shall be unissued;
and
(ii) 30,000,000 duly authorized shares of Preferred
Stock, of which:
(A) 100 shares shall be designated as
Series A Preferred Stock and shall be duly and
validly issued and outstanding, fully paid and
nonassessable, with no personal Liability attached
to the ownership thereof, all of which shall be
held of record and beneficially by the Persons and
in the amounts set forth on Schedule 3.4(a)(ii)(A);
(B) 70,000 shares shall be designated as
Series B Preferred Stock, none of which shall be
outstanding;
(C) 100 shares shall be designated as
Series C Preferred Stock and shall be duly and
validly issued and outstanding, fully paid and
nonassessable, with no personal Liability attached
to the ownership thereof, all of which shall be
held of record and beneficially by the Persons and
in the amounts set forth on Schedule 3.4(a)(ii)(C);
(D) 2,000,000 shares shall be designated
as Series D Preferred Stock of which 1,628,667
shall be duly and validly issued and outstanding,
fully paid and nonassessable, with no personal
Liability attached to the ownership thereof, all of
which shall be held of record and beneficially by
the Persons in the amounts set forth on Schedule
3.4(a)(ii)(D); and
(E) 28,371,136 shares shall be unissued.
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(b) Schedule 3.4(b) hereto also contains a list of all outstanding
warrants, options, agreements, convertible securities and other commitments
pursuant to which the Company is or may become obligated to issue, sell or
otherwise transfer any Securities of the Company, which list names all Persons
entitled to receive such Securities, indicates whether or not such Securities
are entitled to any anti-dilution or similar adjustments upon the issuance of
additional Securities of the Company or otherwise, sets forth the shares of
capital stock and other Securities required to be issued thereunder
(calculated after giving effect to all such anti-dilution and other similar
adjustments resulting from the issuance of the Purchased Notes and the Series
B Preferred Shares and the Series D Preferred Shares) and the exercise or
conversion price thereof, as applicable.
(c) Except as set forth on Schedule 3.4(c) there are no preemptive
rights of first refusal or other similar rights to purchase or otherwise
acquire shares of capital stock or other Securities of the Company pursuant to
any Legal Requirement, any Fundamental Document of the Company or any
agreement to which the Company is a party or may be bound. Except as set forth
on Schedule 3.4(c) or as contemplated by the Documents and the Fundamental
Documents of the Company, there is no Encumbrance (such as a right of first
refusal, right of first offer, proxy, voting trust or voting agreement) with
respect to the sale or voting of any Securities of the Company (whether
outstanding or issuable upon the conversion, exchange or exercise of
outstanding Securities).
(d) Except as set forth on Schedule 3.4(d), other than as required by
the Certificate of Amendment there are no obligations to redeem, repurchase or
otherwise acquire shares of capital stock or other Securities of the Company
pursuant to any Legal Requirement, any Fundamental Document of the Company or
any agreement to which the Company is a party or may be bound.
(e) All Securities issued by the Company have been either issued
intransactions in accordance with or exempt from registration under the
Securities Act and the rules and regulations promulgated thereunder and all
applicable state securities or "blue sky" laws, and the Company has not
violated the Securities Act or any applicable state securities or "blue sky"
laws in connection with the issuance of any such Securities. There are no
restrictions upon the voting rights associated with, or the transfer of, any
of the capital stock of the Company, except as provided by (i) United States
or state securities laws or (ii) the terms and provisions of the Documents or
as are disclosed in the SEC Reports.
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(f) Except as set forth on Schedule 3.4(f), the Company does not have
any Subsidiaries, nor does it own any capital stock or other proprietary
interest, directly or indirectly, in any other Person. Except as set forth on
Schedule 3.4(f) hereto, the Company owns, directly or through another
Subsidiary, all of the capital stock of each Subsidiary and there are no
options, warrants or other rights to acquire any capital stock of any
Subsidiary.
3.5. Reports and Financial Information.
(a) The Company has filed in a timely manner, all reports required to
be filed by it with the Securities and Exchange Commission (the "SEC")
pursuant to the Exchange Act since February 13, 1997, including, without
limitation, an Annual Report on Form 10-KSB for the year ended December 31,
1997 (collectively, the "SEC Reports"), and has previously furnished or made
available to the Purchasers true and complete copies of all SEC Reports. None
of the SEC Reports or any registration statement, definitive proxy statement
and other documents filed by the Company with the SEC since February 13, 1997
(collectively, the "33 and 34 Act Reports"), as of their respective dates (as
amended through the date hereof), (i) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or (ii) failed to
comply with the requirements of the Securities Act, the Exchange Act or the
respective rules and regulations of the SEC thereunder.
(b) Except as set forth on Schedule 3.5(b) attached hereto, the
financial statements contained in the 33 and 34 Act Reports, and the related
statements of operations and statements of cash flows for the period then
ended (collectively, the "Financial Statements") (i) were in accordance with
the books and records of the Company, (ii) presented fairly the consolidated
financial condition and results of operations of the Company as of the dates
and for the periods indicated and (iii) were prepared in accordance with GAAP
consistently applied (except as set forth in the notes thereto and subject, in
the case of Financial Statements as at the end of or for the periods other
than fiscal years, to normal year-end audit adjustments, provided that such
adjustments are not material individually or in the aggregate).
(c) The Financial Statements complied, when filed, as to form in all
material respects with the applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto.
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(d) The pro forma financial statements (including a balance sheet and
income statement) attached to Schedule 3.5(d), fairly present the pro forma
financial condition and results of operations of the Company as of and for the
periods covered thereby. Except as set forth or provided for in the pro forma
financial statements the Company does not have any material liabilities,
contingent or otherwise. The pro forma Financial Statements are based on
estimates and assumptions which are reasonable in light of the conditions
which existed at the time of their preparation and which exist on the date
hereof, and reflect reasonable estimations of future performance.
3.6. Absence of Undisclosed Liabilities.
Except as set forth on Schedule 3.6 attached hereto, the Company
has no material Liability which was not provided for or disclosed in the
Financial Statements, other than Liabilities incurred in the ordinary course
of business since December 31, 1997.
3.7. Absence of Changes.
Except as set forth on Schedule 3.7 attached hereto, since
December 31, 1997, there has not been any (i)event or condition which has had
or could reasonably be expected to have a Material Adverse Effect on the
Company and its Subsidiaries taken together as a whole, (ii)material deviation
from historical accounting and other practices in connection with the
maintenance of the Company's books and records, (iii) except as in the
ordinary course of business consistent with past practice, increase in or
prepayment of the compensation payable or to become payable by the Company or
any of its Subsidiaries to any of its directors or officers, or the making of
any bonus payment or similar arrangement to or with any of them, (iv) except
for the write-off of accounts receivable in the ordinary course of business
consistent with past practice, cancellation of indebtedness due to the Company
or any of its Subsidiaries from others, (v) waiver or release of any material
rights of the Company or any of its Subsidiaries, except in the ordinary
course of business and for fair value, or any lapse or other loss of a
material right of the Company or any of its Subsidiaries to use its assets or
conduct its business, or (vi) material change in the policies of the Company
or any of its Subsidiaries with respect to the payment of accounts payable or
other current Liabilities or the collection of accounts receivable, including
any acceleration or deferral of the payment or collection thereof, as
applicable.
3.8. Title to Assets, Properties and Rights.
Except as set forth on Schedule 3.8 hereto, each of the Company
and its Subsidiaries has good and marketable title to all properties,
interests in properties and assets, real, personal, intangible or mixed, used
in the conduct of its business, free
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and clear of all mortgages, judgments, claims, liens, security interests,
pledges, escrows, charges, restrictions or other encumbrances of any kind or
character whatsoever ("Encumbrances"), other than Permitted Encumbrances and
Encumbrances which do not have a Material Adverse Effect on the Business. As
used herein, "Permitted Encumbrances" shall mean (i) Encumbrances listed on
Schedule 3.8 hereto, (ii) liens for taxes not yet due and payable and for
which an appropriate reserve has been taken and (iii) rights of way, easements
and other minor defects in title which do not adversely affect in any material
respect the use or value of the real property subject to such Encumbrance.
3.9. Intellectual Property.
Except as set forth on Schedule 3.9, (i) each of the Company
and the Subsidiaries owns, has the right to use, sell, license and dispose of,
and has the right to bring actions for the infringement of, all Intellectual
Property Rights necessary or required for the conduct of the business of the
Company and the Subsidiaries (collectively, the "Owned Requisite Rights"),
other than those Intellectual Property Rights for which the Company and the
Subsidiaries has a valid license, all of which are listed on Schedule 3.9
(collectively, the "Licensed Requisite Rights"; and together with the Owned
Requisite Rights, the "Requisite Rights"), and such rights to use, sell,
license, dispose of and bring actions are exclusive with respect to the Owned
Requisite Rights; and (ii) the Requisite Rights of the Company and the
Subsidiaries, all of which are listed on Schedule 3.9, are sufficient for the
conduct of the business of the Company and the Subsidiaries as currently
conducted and as presently proposed to be conducted.
3.10. Material Agreements.
Except as set forth on Schedule 3.10, there are no (a) notes,
bonds, mortgages, indentures, or material Permits or (b) other material
written or oral contracts, agreements, instruments and other understandings,
involving annual amounts in excess of $100,000, or that are material to the
Business, financial condition or results of the operations of the Company and
its Subsidiaries and would have been required to be disclosed in a
registration statement declared effective by the SEC as of the date hereof
(all such contracts, agreements, instruments and other understandings together
with agreements listed on Schedules 3.4(a)(i)(B), 3.4(a)(i)(D), 3.4(a)(ii)(A),
3.4(a)(ii)(B), 3.4(a)(ii)(C), 3.4(a)(ii)(D), 3.4(b), 3.4(c), 3.4(d), 3.4(f),
3.9, 3.10, 3.16, 3.17, 3.19 and 3.22 being collectively called "Material
Agreements" herein). Each Material Agreement constitutes a valid and binding
obligation of the Company and/or Subsidiary party thereto and to the Best
Knowledge of the Company is enforceable against such other party in accordance
with its terms. Each of the Company and the Subsidiaries have in all material
respects performed all of the obligations required to be
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performed by each of them to date pursuant to the Material Agreements, and
there exists no default, or any event which upon the giving of notice or the
passage of time, or both, would give rise to a claim of a default in the
performance by the Company and the Subsidiaries or, to the Best Knowledge of
the Company, any other party to any of the Material Agreements, except where
such default or event, individually or in the aggregate, has not had nor could
it reasonably be expected to have a Material Adverse Effect on the Company and
each of its Subsidiaries taken together as a whole.
3.11. Litigation and Other Proceedings.
Except as set forth on Schedule 3.11, there are no (i)
Proceedings pending or, to the Best Knowledge of the Company, threatened
against or involving the Company or any of the Subsidiaries, whether at law or
in equity, whether civil or criminal in nature or by or before any
Governmental Authority, which if adversely determined would individually or
aggregate have Material Adverse Effect on the Company and each of its
Subsidiaries taken as a whole, nor to the Best Knowledge of the Company does
there exist any reasonable basis therefor, or (ii) Orders of any Governmental
Authority with respect to or involving the Company or any of the Subsidiaries.
3.12. Compliance with Laws.
The Company and each of the Subsidiaries (i) has complied in
all material respects with, and is in compliance with, in all material
respects all Legal Requirements (including ERISA and Environmental Safety
Requirements), applicable to it and its business and (ii) has all federal,
state, local and foreign governmental licenses and permits (collectively,
"Permits") used or necessary in the conduct of its business, except where such
failure to obtain any Permit, individually or in the aggregate, has not had
nor could it reasonably be expected to have a Material Adverse Effect on the
Company and each of its Subsidiaries taken together as a whole. Such Permits
are in full force and effect, no violations with respect to any thereof have
occurred or are or have been recorded, no Proceeding is pending or, to the
Best Knowledge of the Company, threatened to revoke or limit any thereof.
Schedule 3.12 contains a true, correct and complete list of (A) all such
material Permits and (B) all Orders under which the Company and the
Subsidiaries is operating or bound. To the Best Knowledge of the Company,
there is no proposed change in any applicable Legal Requirement which would
require the Company or any of the Subsidiaries to obtain any material Permits
not set forth on Schedule 3.12 in order to conduct the business of the Company
and the Subsidiaries as each is presently conducted and as presently proposed
to be conducted. None of such Permits or Orders shall be adversely affected as
a result of the Company's execution and delivery of, or the performance of its
obligations under, any Document to which it is a party, or the consummation of
the transactions contemplated
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thereby. Neither the Company nor any of the Subsidiaries has received any
opinion or memorandum or legal advice from legal counsel to the effect that it
is exposed, from a legal standpoint, to any Liability or disadvantage which
may be material to its business, financial condition, operations, property or
affairs. Except as set forth on Schedule 3.12, the Company, after due inquiry,
is not aware of any proposed Legal Requirement which would prohibit or
restrict the Company or any of the Subsidiaries from, or otherwise materially
adversely affect the Company or any of the Subsidiaries in, conducting each of
their businesses in any jurisdiction in which each is now conducting business
or which it proposes to conduct business. To the Best Knowledge of the
Company, there are no facts or circumstances that could reasonably indicate
that the Company's proposed acquisition of Dedicated Dental will not be
approved by the Department of Corporations of the State of California.
3.13. Taxes.
Except as disclosed on Schedule 3.13, (a) the Company and each
other Person included in any consolidated or combined Tax Return and part of
an affiliated group, within the meaning of Section 1504 of the Code, of which
the Company and each Subsidiary is or has been a member has filed all returns,
declarations of estimated tax, tax reports, information returns and statements
(collectively, the "Returns") required to be filed by it (other than those for
which extensions have been granted and have not expired) relating to any Taxes
(as defined below); (b) as of the time of filing, the Returns were complete
and correct in all material respects and all Taxes shown on the Returns have
been paid; (c) the Company and each Subsidiary has paid or made provisions for
all Taxes payable for any period that ended on or before the date hereof and
for any period that began on or before the date hereof and ends after the date
hereof, to the extent such Taxes are attributable to the portion of any such
period ending on the date hereof; (d) the Company and each Subsidiary is not
delinquent in the payment of any Taxes nor has it requested any extension of
time within which to file any Return, which Return has not since been filed;
(e) there are no pending tax audits of any Returns of the Company or any
Subsidiary, and neither the Company nor any Subsidiary has received notice of
any pending tax audits of any Returns of the Company or any Subsidiary; (f) no
tax liens have been filed and no deficiency or addition to Taxes, interest or
penalties for any Taxes have been proposed, asserted or assessed in writing
against the Company or any Subsidiary; (g) neither the Company nor any
Subsidiary has granted any extension of the statute or any Subsidiary of
limitations applicable to any Return or other Tax claim with respect to any of
its respective income, properties or operations or any Subsidiary; (h) the
Company and the Subsidiaries have complied in all material respects with all
applicable Legal Requirements relating to the payment and withholding of Taxes
(including sales and use Taxes, and amounts required by law to be withheld and
paid from the wages or salaries of employees), and neither the Company nor any
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Subsidiary is liable for any Taxes for failure to comply with any such Legal
Requirement, except where such failure to make payment or withhold Taxes has
not had nor could it reasonably be expected to have a Material Adverse Effect
on the Company and each of its Subsidiaries taken together as a whole; and (i)
neither the Company nor any Subsidiary has agreed to, is not required to, and
will not be obligated to, make any adjustments either on, before or after the
date hereof, to its existing tax accounting method by reason of Section 481 of
the Code, or due to a determination by the Board of Directors of the Company
(acting on the advice of the Company's accountant, as the case may be) that
any existing method of accounting is not permissible or appropriate, and the
Internal Revenue Service has not proposed any such adjustments or changes in
the Company's accounting method.
3.14. Labor Relations.
Schedule 3.14 sets forth a list of all directors, officers and
key employees of the Company and the Subsidiaries as of the date hereof,
together with their respective titles (if any), their current compensation
(including salary, wages, bonuses and commissions) and the respective dates on
which they commenced employment, the number of Common Stock Equivalents held
by such person (including in the case of options or warrants, the exercise
price related thereto) and if applicable, the expiration date of such
officer's or key employee's employment agreement. To the Best Knowledge of the
Company, none of the employees listed on Schedule 3.14 has any plans or
intends to terminate his or their employment or engagement with the Company or
the Subsidiaries.
3.15. ERISA Plans and Contracts.
Schedule 3.15 hereto contains a true and complete list of all
Employee Plans. Neither the Company nor any of its ERISA Affiliates is or has
ever maintained or been obligated to contribute a "multiple employer plan" (as
defined in Section 413 of the Code), a "multiemployer plan" (as defined in
Section 3 (37) of ERISA) or a "defined benefit pension plan" (as defined in
Section 3(35) of ERISA). Neither the Company nor any of its ERISA Affiliates
maintains or has maintained any Employee Plan providing or agreeing to provide
any post-retirement health or welfare benefits to employees, former employees
or retired employees of the Company or its ERISA Affiliates or beneficiaries
of such employees.
3.16. Related Party Transactions.
Except as set forth on Schedule 3.16, and, except for reasonable
compensation to regular employees of the Company and any Affiliate for
services rendered in the ordinary course of business, no current or former
Affiliate of the Company or any "Associate" (as defined in the rules and
regulations promulgated under the Exchange Act) thereof, is presently, or
during the last
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three fiscal years (or since inception, if shorter) has been, (i) a party to
any agreement or transaction with the Company or any of its Subsidiaries
(including, but not limited to, any contract, agreement or other arrangement
providing for the furnishing of services by, or rental of real or personal
property from, or otherwise requiring payments to, any such Affiliate or
Associate) or (ii) the direct or indirect owner of an interest in any Person
which is a present or potential competitor, supplier or customer of the
Company or any its Subsidiaries (other than non-affiliated holdings in
publicly held companies), nor does any such Person receive income from any
source other than the Company which relates to the business of, or should
properly accrue to, the Company. Except as set forth on Schedule 3.16, the
Company and each of its Subsidiaries is not a guarantor or otherwise liable
for any actual or potential Liability or obligation, whether direct or
indirect, of any of its Affiliates.
3.17. Private Sale.
Assuming the accuracy of the representations of the Purchasers
in Section 4.2, the offering, sale, and issuance of the Purchased Notes, the
Preferred Shares and the Reserved Common Shares, as the case may be, will be,
exempt from registration under the Securities Act and applicable state
securities laws and the rules and regulations promulgated thereunder. Neither
the Company nor any Person authorized or employed by the Company as agent,
broker, dealer or otherwise in connection with the offering, sale or issuance
of the Purchased Notes or the Preferred Shares has offered the same for sale
to, or solicited any offers to buy the same from, or otherwise approached or
negotiated with respect thereto, any Person or Persons other than the
Purchasers.
3.18. Brokers.
Except for the Company's engagement of Bear Stearns & Co. Inc.,
in connection with this transaction, and the closing fee payable to the
Purchasers in an amount equal to 1% of aggregate principal amount of the
Purchased Notes, neither the Company nor any of its officers, directors,
stockholders or employees (or any Affiliate of the foregoing) has employed any
broker or finder or incurred any actual or potential Liability or obligation,
whether direct or indirect, for any brokerage fees, commissions or finders'
fees in connection with the transactions contemplated by this Agreement.
3.19. Insurance.
Schedule 3.19 hereto lists and briefly describes each insurance
policy maintained by the Company and the Subsidiaries with respect to the
properties, assets and business of the Company and the Subsidiaries (the
"Insurance Policies"). All of such Insurance Policies are in full force and
effect, and neither the Company nor any of the Subsidiaries is in default in
any
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material respect with respect to its obligations under any of such insurance
policies and has not received any notification of cancellation of any of such
Insurance Policies and has no claim outstanding which could be expected to
cause a material increase in the insurance rates. To the Best Knowledge of the
Company, no facts or circumstances exist that would relieve any insurer under
any such policies of their obligations to satisfy in full any claim of the
Company thereunder. The Company has not received any notice that (i) any of
such policies has been or will be canceled or terminated or will not be
renewed on substantially the same terms as are now in effect or (ii) the
premium on any of such policies will be materially increased on the renewal
thereof. The Company maintains insurance for its benefit in amounts and
against all risks that are normal and customary for Persons operating similar
properties and businesses under policies in effect and issued by insurers of
recognized responsibility.
3.20. Disclosure.
Neither this Agreement nor any of the Schedules or Exhibits,
including the financial projections delivered to the Purchasers in connection
with the execution and delivery of this Agreement, when taken together,
contains any untrue statement of a material fact or omits a material fact
necessary to make the statements contained herein and therein, in light of the
circumstances in which they were made, not misleading. To the Best Knowledge
of the Company, there is no fact, circumstance or condition which has had or
could reasonably be expected to have a Material Adverse Effect on the Company
and the Subsidiaries, taken as a whole which has not been set forth in this
Agreement or in the Schedules or the Exhibits. Except for the provisions of
the Documents, neither the Company nor any of the Subsidiaries is obligated
under any contract or agreement or subject to any restriction set forth in its
Fundamental Documents or subject to any other restriction which has or could
reasonably be expected to have a Material Adverse Effect on the Company and
the Subsidiaries, taken as a whole.
3.21. Accounts and Notes Receivable.
Except as set forth on Schedule3.21, all of the accounts
receivable and notes receivable owing to the Company as of the date hereof
constitute, and as of the date hereof will constitute, valid and enforceable
claims arising from bona fide transactions in the ordinary course of business,
and there are no known or asserted claims, refusals to pay or other rights of
set-off against any thereof. Except to the extent of reserves established by
the Company specifically for doubtful accounts and notes receivable (which
reserves are set forth in the Financial Statements, are reasonable under the
circumstances and are consistent with past practice), to the Best Knowledge of
the Company, each account receivable of the Company existing as of the date
hereof shall be paid in full not later than the 90th day
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after the date such account receivable was created and all of the notes
receivable shall be paid in accordance with the terms thereof. Except as set
forth on Schedule 3.21, as of the date hereof, there is (i) no account debtor
or note debtor delinquent in its payment by more than 90 days, (ii) no account
debtor or note debtor that has refused or threatened to refuse to pay its
obligations for any reason, (iii) to the Best Knowledge of the Company, no
account debtor or note debtor that is insolvent or bankrupt and (iv) no
account receivable or note receivable pledged to any third party by the
Company.
3.22. Registration Rights.
Except as contemplated by the Registration Rights Agreement and
as set forth on Schedule 3.22, no Person has any right to cause the Company to
effect the registration under the Securities Act of any shares of Common Stock
or any other Securities of the Company.
3.23. Year 2000.
To the Best Knowledge of the Company, all billing and other data
processing programs used by the Company are designed to be used prior to,
during and after the calendar year 2000 A.D., and such programs will operate
during each such time period without error relating to date data and
date-dependent data, specifically including any error relating to, or the
program of, date data which represents or references different centuries or
more than one century other than such errors which have not had nor could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company and its Subsidiaries taken together as a whole.
Other than any of the following which has not had nor could reasonably be
expected to have a Material Adverse Effect, individually or in the aggregate,
on the Company and its Subsidiaries taken together as a whole to the Best
Knowledge of the Company without limiting the generality of the foregoing:
(a) each such program will not abnormally end or provide invalid
or incorrect results as a result of date data, specifically including date
data which represents or references different centuries or more than one
century;
(b) each such program has been designed to ensure Year 2000
compatibility, including, but not limited to, date data century recognition,
calculations which accommodate same century and multi-century formulas and
date values and date data interface values that reflect the century; and
(c) each such program includes "Year 2000 Capabilities." For the
purposes hereof, "Year 2000 Capabilities" means each such program:
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(i) manages and manipulates data involving date, including
single century formulas and multi-century formulas, and will not
cause an abnormally ending scenario within the application or
generate incorrect values or invalid results involving such dates;
(ii) provides that all date-related interface
functionalities and data fields include the indication of century;
and
(iii) provides that all date-related data interface
functionalities include the indication of century.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser represents and warrants to the Company as to
itself severally, and not jointly as to any other Purchaser, as of the date
hereof, as follows:
4.1. Authorization of the Documents.
Such Purchaser has all requisite power and authority to execute,
deliver and perform the Documents to which it is a party and the transactions
contemplated thereby, and the execution, delivery and performance by such
Purchaser of the Documents to which it is a party have been duly authorized by
all requisite action by such Purchaser and each such Document constitutes a
valid and binding obligation of such Purchaser enforceable against such
Purchaser in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other similar
laws and subject to general principles of equity.
4.2. Investment Representations.
Solely for establishing that the sale or issuance of the
Purchased Notes, Preferred Shares and Reserved Common Shares (if any), to such
Purchaser is exempt from the registration requirements of Section 5 of the
Securities Act and comparable provisions of state blue-sky laws and not in any
way to mitigate the responsibility or liability of the Company for any breach
of the representations and warranties made by it in this Agreement, on which
such Purchaser is relying in full in connection with its decision to invest in
the Company:
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(a) Such Purchaser is acquiring the Purchased Notes and
Preferred Shares to be purchased hereunder and, in the event that such
Purchaser should acquire any Reserved Common Shares, will be acquiring such
Reserved Common Shares, for its own account, for investment and not with a
view to the distribution thereof in violation of the Securities Act or
applicable state securities laws.
(b) Such Purchaser understands that (i) the Purchased Notes and
Preferred Shares have not been, and the Reserved Common Shares will not be,
registered under the Securities Act or applicable state securities laws by
reason of their issuance by the Company in a transaction exempt from the
registration requirements of the Securities Act and applicable state
securities laws and (ii) the Purchased Notes and Preferred Shares, and if
acquired, the Reserved Common Shares must be held by such Purchaser
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act and applicable state securities laws or is exempt from such
registration.
(c) Each Purchaser further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to such
Purchaser) promulgated under the Securities Act depends on the satisfaction of
various conditions, and that, if applicable, Rule 144 may only afford the
basis for sales of Securities acquired hereunder only in limited amounts.
(d) Such Purchaser has not employed any broker or finder in
connection with the transactions contemplated by this Agreement.
(e) Such Purchaser is an "accredited investor" (as defined in
Rule 501(a) of Regulation D promulgated under the Securities Act). The Company
has made available to such Purchaser or its representatives all agreements,
documents, records and books that such Purchaser has requested relating to an
investment in the Securities which may be acquired by the Purchaser hereunder.
Such Purchaser has had an opportunity to ask questions of, and receive answers
from, a person or persons acting on behalf of the Company, concerning the
terms and conditions of this investment, and answers have been provided to all
of such questions to the full satisfaction of such Purchaser. Such Purchaser
has such knowledge and experience in financial and business matters that it is
capable of evaluating the risks and merits of this investment. Such
Purchaser's representations in this subsection shall in no way limit the
enforceability of any representations made by the Company in any of the
Documents to which it is a party.
(f) The state in which any offer to purchase Purchased Notes or
Preferred Shares hereunder was made to or accepted by such Purchaser is the
state shown as the Purchaser's address on Schedule I hereto.
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(g) Such Purchaser was not formed for the purpose of investing
solely in the Securities which may be acquired hereunder.
ARTICLE V
CONDITIONS TO CLOSING
5.1. First Closing.
The obligation of each Purchaser to purchase and pay for the
Securities to be purchased hereunder at the First Closing, is subject to the
satisfaction of the following conditions precedent (unless waived by such
Purchaser). The Company shall use its best efforts to ensure that all
conditions to the First Closing set forth in this Section 5.1 are satisfied on
or prior to the First Closing Date, including executing and delivering all
documents required to be delivered by the Company at the First Closing and
taking any and all actions which may be necessary on its part to cause each
other party to the Documents to so execute and deliver each Document.
(a) Certificate of Amendment.
(i) The Certificate of Amendment has been filed
with and accepted by the Secretary of the State of Washington and evidence of
such filing and acceptance satisfactory to the purchasers of Preferred Stock,
shall have been delivered to the purchasers of Preferred Stock.
(ii) The Company shall have duly issued and delivered to the
purchasers of Preferred Stock, the certificate for the number and series of
Preferred Shares purchased by the purchasers of such series of Preferred Stock
at the First Closing.
(b) Registration Rights Agreement.
The Registration Rights Agreement shall have been executed
and delivered by the Company and all parties thereto.
(c) Issuance of the Purchased Notes.
The Company shall have duly issued and delivered to such
Purchaser the certificate or certificates for the aggregate principal amount
of the Purchased Notes being purchased by such Purchaser at the First Closing.
(d) Reservation of Common Shares.
The Company shall have reserved the Reserved Common Shares
for issuance upon conversion of the Notes, the Series B Preferred Shares and
the Series D Preferred Shares.
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(e) Representations and Warranties.
The Company shall deliver a certificate executed by an
officer of the Company stating that the representations and warranties
contained in Article III are true, correct and complete in all material
respects on and as of the First Closing Date.
(f) Performance.
The Company shall have performed and complied in all
material respects with all agreements and conditions contained in the
Documents required to be performed or complied with by it prior to or at the
First Closing and shall have certified to such effect to such Purchaser in
writing.
(g) All Proceedings to Be Satisfactory.
All corporate and other proceedings to be taken and all
waivers, consents, approvals, qualifications and registrations required to be
obtained or effected in connection with the execution, delivery and
performance of this Agreement and the other Documents and the transactions
contemplated hereby and thereby shall have been taken, obtained or effected
(except for the filing of any notice subsequent to the First Closing that may
be required under applicable Federal or state securities laws, which notice
shall be filed on a timely basis following the First Closing as so required),
and all documents incident thereto shall be satisfactory in form and substance
to such Purchaser. Such Purchaser shall have received all such originals or
certified or other copies of such documents as have been reasonably requested
by them.
(h) Opinion of Counsel.
McDermott, Will & Emery, counsel to the Company, shall have
delivered its opinion addressed to thePurchasers, dated as of the First
Closing Date, in a form acceptable to the Purchasers.
(i) Supporting Documents.
Such Purchaser shall have received copies of the following
supporting documents (in form and substance satisfactory to such Purchaser):
(i) certificates of the Secretary of State of the State
of Washington, dated as of a recent date as to the due incorporation or
organization and good standing of the Company and listing all documents of the
Company on file with said Secretary;
(ii) a telegram, telex or other acceptable method of
confirmation from said Secretary as of the close of business on
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the next business day preceding the date of the First Closing as to the
continued good standing of the Company;
(iii) a certificate of the Secretary or an
Assistant Secretary of the Company, dated as of the date of the First Closing
and certifying: (1) that attached thereto is a true, correct and complete copy
of each of the Certificate of Incorporation and By-laws as in effect on the
date of such certification (each of which shall be in form and substance
satisfactory to such Purchaser); (2) that attached thereto is a true, correct
and complete copy of all resolutions adopted by the Board of Directors (and
any committees thereof) and the stockholders of the Company authorizing the
execution, delivery and performance of the Documents and the issuance, sale,
and delivery of the Purchased Notes and the Preferred Shares, and that all
such resolutions are still in full force and effect; (3) that the Certificate
of Incorporation has not been amended since the date of the last amendment
referred to in the certificate delivered pursuant to clause (i) above; and (4)
the incumbency and specimen signature of all officers of the Company executing
the Documents, the stock certificates representing the Purchased Notes and the
Preferred Shares, and any certificate or instrument furnished pursuant hereto,
and a certification by another officer of the Company as to the incumbency and
signature of the officer signing the certificate referred to in this clause
(iii); and
(iv) such additional supporting documents and
other information with respect to the operations and affairs of the Company as
such Purchaser may reasonably request.
(j) No Litigation or Legislation.
No Legal Requirement shall have been enacted after the date
hereof and no Proceeding shall be pending which prohibits or seeks to
prohibit, or materially restricts or delays the consummation of the
transactions contemplated by the Documents or materially restricts or impairs
the ability of the Purchasers to own Securities of the Company.
(k) SBA Letter.
CVCA shall have prepared the side letter regarding SBA
regulatory compliance (the "SBA Letter") and the forms required to file with
the SBA in connection with the transactions contemplated hereby and the
Company shall have executed such letter and forms and delivered same to CVCA.
(l) Closing Fees.
The Company shall have paid to each Purchaser a closing fee
equal to 1% of the aggregate principal amount of the Notes purchased by such
Purchaser at the First Closing.
(m) Due Diligence.
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The Purchasers shall have completed their due diligence review
of the Company and shall be satisfied, at their sole discretion, with the
results of such due diligence review.
5.2. Second Closing.
The obligation of each Purchaser to purchase and pay for the
Securities to be purchased hereunder at the Second Closing, is subject to the
satisfaction of the following conditions precedent (unless waived by such
Purchaser). The Company shall use its best efforts to ensure that all
conditions to the Second Closing set forth in this Section 5.2 are satisfied
on or prior to the Second Closing Date.
(a) Registration Rights Agreement.
The Registration Rights Agreement shall have been executed
and delivered by the Purchasers purchasing Notes at the Second Closing.
(b) Issuance of the Purchased Notes.
The Company shall have duly issued and delivered to such
Purchaser the certificate or certificates for the aggregate principal amount
of the Purchased Notes being purchased by such Purchaser at the Second
Closing.
(c) Issuance of Series D Preferred Shares.
The Company shall have duly issued and delivered to such
Purchaser, the Series D Preferred Shares being purchased by such Purchaser at
the Second Closing.
(d) Performance.
The Company shall have performed and complied in all
material respects with all agreements and conditions contained in the
Documents required to be performed or complied with by it prior to or at the
Second Closing and shall have certified to such effect to such Purchaser in
writing.
(e) All Proceedings to Be Satisfactory.
All corporate and other proceedings to be taken and all
waivers, consents, approvals, qualifications and registrations required to be
obtained or effected in connection with the execution, delivery and
performance of this Agreement and the other Documents and the transactions
contemplated hereby and thereby shall have been taken, obtained or effected
(except for the filing of any notice subsequent to the Second Closing that may
be required under applicable Federal or state securities laws, which notice
shall be filed on a timely basis following the Second Closing as so required),
and all documents incident thereto shall be satisfactory in form and substance
to such Purchaser. Such Purchaser shall have received all such originals
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or certified or other copies of such documents as have been reasonably
requested by them.
(f) Opinion of Counsel.
McDermott, Will & Emery, counsel to the Company, shall have
delivered its opinion addressed to thePurchasers, dated as of the Second
Closing Date, substantially similar to the opinion delivered at the First
Closing.
(g) Supporting Documents.
Such Purchaser shall have received copies of the following
supporting documents (in form and substance satisfactory to such Purchaser):
(i) certificates of the Secretary of State of the State of
Washington, dated as of a recent date as to the due incorporation or
organization and good standing of the Company and listing all documents of the
Company on file with said Secretary;
(ii) a telegram, telex or other acceptable method of
confirmation from said Secretary as of the close of business on the next
business day preceding the date of the Second Closing as to the continued good
standing of the Company;
(iii) a certificate of the Secretary or an Assistant
Secretary of the Company, dated as of the date of the Second Closing and
certifying: (1) that attached thereto is a true, correct and complete copy of
each of the Certificate of Incorporation and By-laws as in effect on the date
of such certification (each of which shall be in form and substance
satisfactory to such Purchaser); (2) that attached thereto is a true, correct
and complete copy of all resolutions adopted by the Board of Directors (and
any committees thereof) and the stockholders of the Company authorizing the
execution, delivery and performance of the Documents and the issuance, sale,
and delivery of the Purchased Notes, and that all such resolutions are still
in full force and effect; (3) that the Certificate of Incorporation has not
been amended since the date of the last amendment referred to in the
certificate delivered pursuant to clause (i) above; and (4) the incumbency and
specimen signature of all officers of the Company executing the Documents, the
certificates representing the Purchased Notes, and any certificate or
instrument furnished pursuant hereto, and a certification by another officer
of the Company as to the incumbency and signature of the officer signing the
certificate referred to in this clause (iii); and
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(iv) such additional supporting documents and other
information with respect to the operations and affairs of the Company as such
Purchaser may reasonably request.
(h) No Litigation or Legislation.
No Legal Requirement shall have been enacted after the date
hereof and no Proceeding shall be pending which prohibits or seeks to
prohibit, or materially restricts or delays the consummation of the
transactions contemplated by the Documents or materially restricts or impairs
the ability of the Purchasers to own Securities of the Company. Each of the
parties shall have made all filings required by such Person to comply with the
HSR Act and all applicable waiting periods have expired or been terminated.
(i) Closing Fees.
The Company shall have paid to such Purchaser a closing fee
equal to 1% of the aggregate principal amount of the Notes purchased by such
Purchaser at the Second Closing.
(j) Closing Date.
The Second Closing shall have occurred on or prior to June
5, 1998, or if notification filings are required to comply with the HSR Act,
June 30, 1998.
ARTICLE VI
INDEMNIFICATION
6.1. Survival of Representations, Warranties, Agreements and
Covenants, Etc.
All statements contained in any other Document or any closing
certificate delivered by the Company or the Purchasers, pursuant to this
Agreement or in connection with the transactions contemplated by this
Agreement (each, a "Closing Certificate"), shall constitute representations
and warranties by the Company, or the Purchasers, as applicable, under this
Agreement. Notwithstanding any investigation made at any time by or on behalf
of any party hereto, all representations and warranties contained in this
Agreement or made in writing by or on behalf of the Company, or an Purchaser,
in connection with the transactions contemplated by this Agreement shall
survive the Closing until the third anniversary of the First Closing Date,
provided however, that the representations and warranties contained in
Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.12, 3.17 and 3.18 and 3.23 shall survive
the Closings indefinitely and the representation and warranties contained in
3.13 shall survive the Closings and continue in full force and effect for the
period of the statute of limitations applicable to the matters covered
thereby.
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6.2. Indemnification.
(a) In addition to all other rights and remedies available to the
Purchasers, the Company shall indemnify, defend and hold harmless each
Purchaser and its Affiliates and their respective partners, officers,
directors, employees, agents and representatives (collectively, the "Purchaser
Representatives"; and together with such Purchaser, the "Purchaser Indemnified
Persons") against all Losses, and none of the Purchaser Indemnified Persons
shall be liable to the Company or any other stockholder of the Company for or
with respect to any and all Losses, together with all costs and expenses
(including legal and accounting fees and expenses)related thereto or incurred
in enforcing this Article VI, (i) arising from the untruth, inaccuracy or
breach of any of the representations or warranties of the Company contained in
any Document or Closing Certificate or any facts or circumstances constituting
any such untruth, inaccuracy or breach, (ii) arising from the breach of any
covenant or agreement of the Company contained in any Document or Closing
Certificate or any facts or circumstances constituting such breach, or (iii)
arising from any Claim, except for any Claim made by the Company against such
Purchaser pursuant to Section 6.2(b) (whenever made), resulting from or caused
by any transaction, status, event, condition, occurrence or situation relating
to, arising out of or in connection with (A) the status of, or conduct of the
business and affairs of, the Company or (B) the execution, delivery and
performance of this Agreement and the other Documents and the related
documents and agreements contemplated hereby and thereby. Notwithstanding the
foregoing, and subject to the following part of this sentence, upon judicial
determination, which is final and no longer appealable, that the act or
omission giving rise to the indemnification pursuant to clause (iii) of
Section 6.2(a) resulted primarily out of or was based primarily upon the
indemnified party's gross negligence, fraud or willful misconduct, (unless
such action was based upon the indemnified party's reliance in good faith upon
any of the representations, warranties, covenants or promises made by the
Company herein, or in the Documents), the Company shall not be responsible for
any Losses sought to be indemnified in connection therewith, and the Company
shall be entitled to recover from the indemnified party all amounts previously
paid in full or partial satisfaction of such indemnity, together with all
costs and expenses of the Company reasonably incurred in effecting such
recovery, if any.
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(b) In addition all other rights and remedies available to the
Company, each Purchaser severally as to itself only and not as to any other
Purchaser, shall indemnify, defend and hold harmless the Company and its
officers, directors, employees, agents and representatives (collectively, the
"Company Indemnified Persons,") against all Losses, together with all
reasonable out-of-pocket costs and expenses (including legal and accounting
fees and expenses) related thereto or incurred in enforcing this Article VI,
(i)arising from the untruth, inaccuracy or breach of any of the
representations or warranties of such Purchaser contained in any Document or
Closing Certificate or any facts or circumstances constituting such untruth,
inaccuracy or breach or (ii) arising from the breach of any covenant or
agreement of such Purchaser contained in any Document or Closing Certificate
or any facts or circumstances constituting such breach.
(c) If for any reason the indemnity provided for in this Section
is unavailable to any Indemnified Person or is insufficient to hold each such
Indemnified Person harmless from all such Losses arising with respect to the
transactions contemplated by this Agreement, then the Indemnifying Persons
shall contribute to the amount paid or payable for such Losses in such
proportion as is appropriate to reflect not only the relative benefits
received by the Indemnifying Persons on the one hand and such Indemnified
Person on the other but also the relative fault of the Indemnifying Persons
and the Indemnified Person as well as any relevant equitable considerations.
In addition, the Indemnifying Persons shall reimburse any Indemnified Person
upon demand for all reasonable expenses (including reasonable fees of legal
counsel) incurred by such Indemnified Person in connection with investigating,
preparing for or defending any such action or claim. The indemnity,
contribution and expenses reimbursement obligations that the Indemnifying
Persons have under this Article VI shall be in addition to any Liability that
the Indemnifying Persons may otherwise have. The Indemnifying Persons further
agree that the indemnification and reimbursement commitments set forth in this
Agreement shall apply whether or not the Indemnified Person is a formal party
to any such Claim.
(d) Any indemnification of an Indemnified Person by Indemnifying
Persons pursuant to this Section shall be effected by wire transfer of
immediately available funds from the Indemnifying Persons to an account
designated by the Indemnified Person within 15 days after the determination
thereof.
(e) All indemnification rights hereunder shall survive the
execution and delivery of the Documents and the consummation of the
transactions contemplated herein and therein indefinitely, regardless of any
investigation, inquiry or examination made for or on behalf of, or any
knowledge of the Purchaser and/or any of the other Indemnified Parties or the
acceptance by the Purchaser of any certificate or opinion.
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(f) By executing this Agreement, the Company (i) agrees no
Purchaser Indemnified Person shall have any liability to the Company or its
Subsidiaries pursuant to this Agreement, the other Documents or the
transactions contemplated hereby or thereby (the "Covered Conduct") except (A)
as provided in Section 6.2(b), and (B) to the extent that a court of competent
jurisdiction shall have determined by final judgment, no longer subject to
appeal, that the losses resulting from such Covered Conduct primarily resulted
from or was based primarily upon such Purchaser Indemnified Person's willful
misconduct or gross negligence, (ii) agrees that it will not make under any
circumstances, and it will cause it Subsidiaries not to make under any
circumstances, any claim against any Purchaser Indemnified Person, with
respect to a claim or loss with respect to which such Person is entitled to
indemnification hereunder, for any special, indirect or consequential damages
in respect of any breach or wrongful conduct (whether the claim therefore is
based on contract, tort or duty imposed by law) in connection with, arising
out of or in any way related to, the transactions contemplated by and the
relationship established by this Agreement, the other Documents or the
transactions contemplated hereby or thereby, or any act, omission or event
occurring in connection therewith, and (iii) waive, release and agree not to
sue upon, and it agrees to cause its Subsidiaries not to sue upon, and it
agrees to cause its Subsidiary not to sue upon any such claim for any such
damages, whether or not accrued and whether or not known or suspected to exist
in any such party's favor.
ARTICLE VII
TRANSFER OF SECURITIES
7.1. Restriction on Transfer.
The Restricted Securities shall not be transferable except upon
the conditions specified in this Article VII, which conditions are intended to
insure compliance with the provisions of the Securities Act in respect of the
transfer thereof.
7.2. Restrictive Legends.
Each certificate evidencing the Restricted Securities and each
certificate for any such securities issued to subsequent transferees of any
such certificate shall (unless otherwise permitted by the provisions of
Section 7.3 hereof) be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM
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UNDER SAID ACT OR APPLICABLE STATE BLUE SKY LAWS. ADDITIONALLY,
THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS
SPECIFIED IN THE SECURITIES PURCHASE AGREEMENT DATED AS OF MAY
12, 1998, AMONG THE ISSUER HEREOF AND CERTAIN OTHER SIGNATORIES
THERETO, AND NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR
EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. COPIES OF
SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE ISSUER HEREOF."
7.3. Notice of Transfer.
(a) The holder of any Restricted Securities, by acceptance
thereof agrees, prior to any Transfer of any Restricted Securities, to give
written notice to the Company of such holder's intention to effect such
transfer and to comply in all other respects with the provisions of this
Section 7.3. Each such notice shall describe the manner and circumstances of
the proposed transfer and shall be accompanied by (i)the written opinion,
addressed to the Company, of counsel for the holder of Restricted Securities,
as to whether in the opinion of such counsel (which opinion and counsel shall
be reasonably satisfactory to the Company) such proposed transfer involves a
transaction requiring registration of such Restricted Securities under the
Securities Act, and (ii)in the case of Restricted Shares, if in the opinion of
such counsel such registration is required, a written request addressed to the
Company by the holder of Restricted Shares, describing in detail the proposed
method of disposition and requesting the Company to effect the registration of
such Restricted Shares pursuant to the terms and provisions of the
Registration Rights Agreement; provided, however, that (A)in the case of a
holder of Restricted Securities which is a partnership, no such opinion of
counsel shall be necessary for a Transfer by such holder of Restricted
Securities to a partner of such holder of Restricted Securities, or a retired
partner of such holder who retires after the date hereof, or the estate of any
such partner or retired partner, if in each case the transferee agrees in
writing to be subject to the terms of this Article VII to the same extent as
if such transferee were originally a signatory to this Agreement, and (B)no
such opinion shall be required in connection with a Transfer pursuant to Rule
144 (as amended from time to time) promulgated under the Securities Act (or
successor rule thereto), provided, that the Company, shall be provided with
customary written representations relating to such transaction.
(b) If in the opinion of such counsel (if such opinion is
required hereunder) the proposed Transfer of Restricted Securities may be
effected without registration under the Securities Act, the holder of
Restricted Securities shall thereupon be entitled to Transfer Restricted
Securities in accordance with the terms of the notice delivered by it to the
Company.
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(c) Each certificate or other instrument evidencing the
securities issued upon the transfer of any Restricted Securities (and each
certificate or other instrument evidencing any untransferred balance of such
securities) shall bear the legend set forth in Section 7.2 hereof unless (i)
in the opinion of such counsel registration of future Transfer is not required
by the applicable provisions of the Securities Act or (ii) the Company shall
have waived the requirement of such legends; provided, however, that such
legend shall not be required on any certificate or other instrument evidencing
the securities issued upon such Transfer in the event such Transfer shall be
made in compliance with the requirements of Rule144 (as amended from time to
time) promulgated under the Securities Act (or successor rule thereto).
7.4. Transfer Pursuant to Rule 144.
The Company agrees to provide to the holders of the Restricted
Securities and upon a holder's request to any prospective purchasers
designated by a holder the financial and other information specified in Rule
144 under the Securities Act and to take any other action or to execute any
certificates necessary to permit a transfer by any holder of Restricted
Securities to qualify for the exemption set forth in Rule 144.
7.5. Transfers to Competitors.
No Purchaser shall, without the prior written consent of the
Company, Transfer in a private transaction, any Purchased Notes or Additional
Notes or Preferred Shares, if any, or any interest therein, to any Competitor.
A Purchaser may rely on a representation from a potential Transferee (such
representation to be made for the benefit of such Purchaser and the Company)
that such Transferee is not a Competitor, and unless such Purchaser has actual
knowledge that such representation was untrue, such Transfer shall be valid.
As used herein, the term "Competitor" means (i) any Person (other than the
Company or any of its Subsidiaries) who is engaged in the Business and (ii)
any Affiliate of a Person identified in clause (i) above (it being agreed that
an investment firm shall not be deemed to control a Person described in clause
(i) above merely as a result of owning a minority interest in such Person).
7.6. Transfers of Series A Preferred Shares and Series C Preferred
Shares.
The transfer of the Series A Preferred Shares and the Series C
Preferred Shares shall be limited to the Affiliates of the Purchaser of such
shares hereunder. Except in the case of any sale, redemption or conversion of
the Notes in connection with a Series B Conversion Event, the Company shall
have the right to repurchase the Series A Preferred Shares upon (i) the sale
or redemption of sixty-five percent (65%) or more of the Common Stock
Equivalents held by such Purchaser as of the Second Closing Date or (ii) the
conversion of all of the Common Stock Equivalents held by such Purchaser. The
Company shall have the right to repurchase the Series C Preferred Shares upon
(i) the sale or redemption of sixty-five percent (65%) or more of the Common
Stock Equivalents held by such Purchaser as of the Second
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Closing Date or (ii) the conversion of all of the Common Stock Equivalents held
by such Purchaser. The Company shall have the right to repurchase the Series C
Preferred Shares upon (i) the sale or redemption of sixty-five percent (65%) or
more of the Common Stock Equivalents held by such Purchaser as of the Second
Closing Date or (ii) the conversion of all of the Common Stock Equivalents held
by such Purchaser.
ARTICLE VIII
INFORMATION RIGHTS
8.1. Access to Records.
(a) The Company shall afford to each Significant Holder and its
employees, counsel and other authorized representatives, during normal
business hours, reasonable access, upon reasonable advance notice, to all of
the books, records and properties of the Company and its Subsidiaries and to
all officers and employees of the Company and its Subsidiaries; provided,
however, that such investigation shall not unreasonably interfere with the
operations of the Company and its Subsidiaries. The Company will instruct its
independent public accountants to discuss such aspects of the financial
condition of the Company with any Purchaser and its representatives as such
Purchaser may reasonably request, and to permit such Purchaser and its
representatives to inspect, copy and make extracts from such financial
statements, analyses, work papers and other documents and information
(including electronically stored documents and information) prepared by such
accountants with respect to the Company as such holder may reasonably request.
All costs and expenses incurred by such Purchaser and its representatives in
connection with exercising such rights of access shall be borne by such
Persons, and all out-of-pocket costs and expenses incurred by the Company in
complying with any extraordinary requests by such Purchaser and its
representatives in connection with exercising such access rights shall be
borne by such Purchaser.
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(b) Each Purchaser shall use reasonable efforts to maintain the
confidentiality of any confidential and proprietary information obtained by it
under this Section 8.1 and shall not use, or permit the use of, any of such
confidential and proprietary information in its business or the business of
any company in which it may have an ownership interest or in any manner or for
any other purpose except as contemplated hereby; provided, however, that the
foregoing shall in no way limit or otherwise restrict the ability of any
Purchaser or such authorized representatives to disclose any such information
concerning the Company which it may be required to disclose (i) to its
partners or limited partners to the extent required to satisfy its fiduciary
obligations to such persons or (ii) otherwise pursuant to or as required by
law; provided, however, it shall use reasonable efforts to cause its partners
or limited partners (as the case may be) to maintain the confidentiality of
such confidential and proprietary information.
(c) As used herein, "Significant Holder" shall mean and include
any Purchaser who, at the time in question, shall own, together with its
Affiliates, (i) 25% of the aggregate principal amount of the outstanding Notes
or the number of Series D Preferred Shares purchased hereunder, or (ii) Series
B Preferred Shares, if any, convertible for, plus Warrants, if any,
exercisable for, 5% or more of the aggregate outstanding Common Stock
Equivalents.
8.2. Financial Reports.
The Company shall furnish each Significant Holder with the
following:
(a) Default Notice. As soon as possible and in any event within
two days after the occurrence of each Default, a statement of the chief
financial officer or treasurer of the Company setting forth the nature of such
Default and the action that the Company has taken and proposes to take with
respect thereto.
(b) Monthly Statements. Each Significant Holder shall receive,
within the earlier of when such statements are delivered to the Company's
lenders, if any, and 45 days after the end of each monthly accounting period,
an unaudited financial report of the Company, which report shall be prepared
in accordance with GAAP consistently applied, and which shall include the
following:
(i) a profit and loss statement for such monthly accounting
period, together with a cumulative profit and loss statement from the first
day of the current year to the last day of such monthly accounting period;
(ii) a balance sheet as at the last day of such monthly
accounting period;
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(iii) a cash flow analysis for such monthly accounting
period on a cumulative basis for the fiscal year to date; and
(iv) to the extent prepared by the Company prior to the
date of delivery of such monthly financial statements, a comparison between
the actual figures for such monthly accounting period and the comparable
figures for the prior year (if any) for such monthly accounting period, with
an explanation of any material differences between them.
(c) Quarterly Reports. Upon the request of such Significant
Holder, but not later than 45 days after the end of each quarterly accounting
period, (i) an unaudited consolidated financial report of the Company,
prepared in accordance with GAAP consistently applied, except that such
financial statements shall not include footnotes and shall be subject to
normal year-end audit adjustments, including, with respect to such quarterly
accounting period, the statements and comparisons referred to in Section
8.2(b) and a statement of cash flows and statement of operations for such
quarterly accounting period and (ii) to the extent prepared by the Company
prior to such request, a report by management of the Company of the operating
and financial highlights of the Company for the prior accounting periods which
shall include (A) a comparison between operating and financial results and the
Budget and (B) an analysis of the operations of the Company for the prior
quarter.
(d) Upon the request of such Significant Holder, copies of all
financial statements, reports, press releases, notices, proxy statements and
other documents sent by the Company to its stockholders generally or released
to the public and copies of all regular and periodic reports filed by the
Company with the SEC, or any securities exchange.
(e) Upon the request of such Significant Holder, copies of all
reports prepared for or delivered to the management of the Company by its
Accountants;
(f) Upon the request of such Significant Holder, any other
routinely collected financial or other information available to management of
the Company (including, without limitation, routinely collected statistical
data);
(g) Upon the request of such Significant Holder, within ninety
(90) days after commencement of each new fiscal year, a business plan and
projected financial statements for such fiscal year, which financial
statements shall include a comparison between the actual figures for such
prior fiscal year and the comparable budgeted figures for such prior fiscal
year (if any), with, to the extent prepared by the Company prior to such
request, an explanation of any material differences between them; and
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(h) Promptly following its receipt of notice of the
commencement of any action, suit, claim, legal or administrative or
arbitration proceeding or investigation, any of which could reasonably be
expected, on the basis of current economic conditions and other facts and
circumstances known to the Company at the time, to have a Material Adverse
Effect, the Company shall deliver a written notice to such Significant Holder
describing in reasonable detail such proceeding.
ARTICLE IX
ADDITIONAL AGREEMENTS OF THE COMPANY
9.1. Compliance.
The Company and the Subsidiaries (a) in carrying out their
businesses shall comply in all material respects with Legal Requirements and
Orders of any Governmental Authority applicable to it, its business and the
ownership of its assets and (b) shall obtain and maintain in full force and
effect all Federal, state, local and foreign governmental licenses and permits
material to and necessary in the conduct of its business and such licenses and
permits shall be maintained, in full force and effect.
9.2. Insurance.
(a) All the insurable properties of the Company and the
Subsidiaries shall be insured for the benefit of the Company and its
Subsidiaries in the full amounts required to protect the Company and its
Subsidiaries against all risks usually insured against by Persons operating
similar properties in the localities in which such properties are located
under policies in effect and issued by national insurers of recognized
responsibility.
(b) The Company shall maintain the other insurance coverage
specified on Schedule 9.2(b) hereto including directors' and officers'
liability.
9.3. Affirmative Covenants.
As long as any Notes or Warrants (except in the case where such
Warrants were issued upon the Company's prepayment of the Notes or redemption
of the Preferred Shares upon a Change of Control) or Preferred Shares are
outstanding, the Company shall, and shall cause its Subsidiaries, as
applicable, to observe and perform the following:
(a) Payment Under the Documents. The Company shall pay or
accrue, as the case may be, and any amounts payable under the Documents in
accordance with the terms of the Documents.
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(b) Proceeds. The Company shall use the proceeds of the sale
of the Purchased Notes solely in the manner described in this Agreement.
(c) Payment of Taxes, etc. The Company shall pay and discharge,
and cause each of its Subsidiaries to pay and discharge, before the same shall
become delinquent, (i)all amounts of taxes, assessments and governmental
charges or levies imposed upon it or upon its property and (ii)all lawful
claims that, if unpaid, could reasonably be expected by law to become an
Encumbrance upon its property; provided, however, that neither the Company nor
any of its Subsidiaries shall be required to pay or discharge any such tax,
assessment, charge or claim (y)that is being contested in good faith and by
proper proceedings and as to which appropriate reserves are being maintained
or (z) the non-payment or non-discharge of which could not reasonably be
expected to have a Material Adverse Effect on the Company and its subsidiaries
taken as a whole.
(d) Preservation of Corporate Existence, etc. The Company shall
preserve and maintain, and cause each of its Subsidiaries to preserve and
maintain, its corporate existence; provided, however, that any Subsidiary may
merge or consolidate with any other Subsidiary or the Company. The Company
shall preserve and maintain, and cause each of its Subsidiaries to preserve
and maintain, its rights (charter and statutory), and all material permits,
licenses, approvals, privileges and franchises necessary or desirable in the
normal conduct of its business, except any thereof the non-preservation or
non- maintenance of which could not reasonably be expected to have a Material
Adverse Effect on the Company and its subsidiaries taken as a whole.
(e) Keeping of Books. The Company shall keep, and cause each of
its Subsidiaries to keep, proper books of record and account, in which entries
which are full and correct in all material respects shall be made of all
financial transactions and the assets and business of the Company and each
such Subsidiary in accordance with GAAP.
(f) Maintenance of Properties, etc. The Company shall maintain
and preserve, and cause each of its Subsidiaries to maintain and preserve, all
of its properties that are reasonably required in the conduct of its business
in good working order and condition, ordinary wear, tear and depletion
excepted, except any thereof the non-maintenance or non- preservation of which
could not reasonably be expected to have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole.
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(g) Transactions with Affiliates. The Company shall conduct,
and cause each of its Subsidiaries to conduct, all transactions otherwise
permitted under the Documents with any of their Affiliates on terms that are
fair and reasonable and no less favorable to the Company or such Subsidiary
than it would obtain in a comparable arm's-length transaction with a Person
not an Affiliate.
(h) Share Listings. On or prior to 90 days from
the First Closing Date, the Company shall use its best efforts to upgrade its
listing of its Common Stock from the Nasdaq SmallCap Market System to the
Nasdaq National Market System or such other national securities exchange which
is acceptable to the Purchasers.
9.4. Negative Covenants.
As long as any Notes or Warrants (except in the case where such
Warrants were issued upon the Company's prepayment of the Notes or redemption
of the Preferred Shares upon a Change in Control) or Preferred Shares are
outstanding, the Company shall not, without the prior written consent of the
Requisite Purchasers, as applicable:
(a) Change in Nature of Business. Make any material change in
the nature of its business as carried on at the date hereof.
(b) Charter Amendments. Amend its Certificate of Incorporation
or any material provision of By-laws in a manner that would adversely affect
the rights of the Purchasers.
(c) Board of Directors. Permit the number of members of the
Board (other than members appointed or selected by the holders of Series A
Preferred) to exceed fifteen (15).
(d) Restricted Payments. Declare or pay any dividends or make
any other distribution on or with respect to its capital stock or Common Stock
Equivalents, whether in cash, property, securities or a combination thereof,
or directly or indirectly redeem, repurchase, retire or otherwise acquire for
consideration, except with respect to certain reacquisitions of shares
pursuant to (i) the agreements listed on Schedule 9.4(d) and (ii) the Equity
Incentive Plans, any capital stock or Common Stock Equivalents or set apart
any sum for any of the aforesaid purposes.
(e) Nature of Business. Conduct any business or operations other
than the Business or activities reasonably related to the Business.
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(f) Fundamental Changes. Liquidate, dissolve, merge with or into
or consolidate with or combine with any other Person, except that any third
party may merge with the Company if (i) there is no Change of Control, (ii)
the Company shall be solvent after giving effect to such merger on a Pro Forma
basis, (iii) the net worth of the Company, after giving effect to such merger,
shall not be reduced by an amount in excess of the greater of (x) $10 million
or (y) 25% of the net worth of the Company immediately prior to giving effect
to such merger and, prior to the effectiveness of such merger, an officer of
the Company shall have delivered to the Purchaser a certificate to the effect
that such transaction complies with this provision (attaching the calculations
to demonstrate compliance with clauses (ii) and (iii)), and (iv) at the time
thereof and immediately after giving effect thereto, no Event of Default shall
have occurred and be continuing; provided however, that the covenant by the
Company provided in this clause (f) shall not be applicable to transactions in
which a Change of Control would occur and the Requisite Purchasers do not
exercise their option to redeem their shares in accordance with Certificate of
Amendment within 30 days of the date on which notice is given by the Company
to such holders indicating that a Change of Control shall have occurred or is
pending.
(g) Financial Covenants. Commencing December 31, 1998 and each
fiscal quarter thereafter, permit:
(i) the Interest Coverage Ratio for the twelve
months immediately preceding the last day of each fiscal quarter
to be less than 1.5 to 1.
(ii) the ratio of (A)Total Indebtedness of the
Company (other than Indebtedness evidenced by the Notes) for the
twelve months immediately preceding the last day of each fiscal
quarter to (B) EBITDA for such period, to be more than 7.0to 1.
(h) Inconsistent Agreements. Neither the Company nor shall the
Company cause any of its Subsidiaries to enter into any agreement containing
any provision which would (a) be violated or breached by the exercise or
performance by Company or its Subsidiary of any of their respective rights or
obligations under any Document, (b) impair in any material respect the ability
of the Company or any Subsidiary to comply with the terms of the Documents or
(c) prohibit a wholly-owned Subsidiary from paying dividends or making other
distributions..
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ARTICLE X
EVENTS OF DEFAULT
10.1 Default.
(a) In case one or more of the following events (each of which
is an "Event of Default"; 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, or order of any court or any order,
rule or regulation of any administrative or governmental body) shall have
occurred and be continuing:
(i) the Company shall default in the payment of interest on
the Notes as and when the same shall become due and payable, either in cash or
Additional Notes, within 10 days after the Interest Payment Date, and such
noncompliance shall occur on two consecutive Interest Payment Dates;
(ii) the Company or any of its Subsidiaries shall (A)
voluntarily commence any proceeding or file any petition seeking relief under
Title11 of the United States Code or any other federal, state or foreign
bankruptcy, insolvency or similar law, (B)consent to the institution of, or
fail to controvert in a timely and appropriate manner, any such proceeding or
the filing of any such petition, (C) apply for or consent to the appointment
of a receiver, trustee, custodian, sequestrator or similar official for any
such Person or for any substantial part of its property or assets, (D) file an
answer admitting the material allegations of a petition filed against it in
any such proceeding, (E) make a general assignment for the benefit of
creditors, (F) fail generally to pay its debts as they become due or (G) take
any corporate or stockholder action in furtherance of any of the foregoing;
(iii) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction
seeking (A) relief in respect of the Company or any of its Subsidiaries, or of
any substantial part of their respective property or assets, under Title 11 of
the United States Code or any other federal, state or foreign bankruptcy,
insolvency or similar law, (B) the appointment of a receiver, trustee,
custodian, sequestrator or similar official for any such Person or for any
substantial part of its property or (C) the winding-up or liquidation of any
such Person, and such proceeding, petition or order shall continue unstayed
and in effect for a period of 60 consecutive days;
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(iv) a final judgment for the payment of money in
an amount in excess of $5,000,000 shall be rendered by a court
or other tribunal against the Company or any of its Subsidiaries
and shall remain undischarged for a period of 60 consecutive
days during which such judgment and any levy or execution
thereof shall not have been effectively stayed or vacated;
(v) any event shall occur or condition shall exist
or fail to occur or exist if the effect of such occurrence or
failure is to accelerate the maturity of any Indebtedness of the
Company or any of its Subsidiaries in a principal amount in
excess of $5,000,000 or to permit the holder thereof (or a
trustee on behalf of such holder) to cause such Indebtedness to
become due prior to the stated maturity thereof and such
occurrence or failure shall not have been remedied within any
applicable period of grace, or any such Indebtedness shall not
be paid when due, whether by acceleration or otherwise, or the
holder of any Encumbrance upon property of the Company or any of
its Subsidiaries shall commence foreclosure of such Encumbrance;
(vi) a material breach of any of the
representations, warranties or covenants in any of the
Documents, provided that if such default is not willful, such
default continues 30 days after notice of such breach has been
delivered by any holder of Note; or
(vii) a Change of Control shall have occurred;
then, and in each and every such case (other than an Event of Default
specified in clauses (ii) or (iii) above, the Requisite Purchasers, by notice
in writing to the Company (the "Acceleration Notice"), may declare the entire
principal amount of the Notes, and the interest accrued thereon, to be due and
payable immediately, and the same shall become immediately due and payable
without presentment, demand or protest, all of which are hereby expressly
waived, anything contained herein or other evidence of such indebtedness to
the contrary notwithstanding. If an Event of Default specified in clauses (ii)
and (iii) occurs, the entire principal amount of this Note, and the interest
accrued thereon, shall become and be immediately due and payable without any
declaration or other act on the part of the Purchasers and the same shall
become immediately due and payable without presentment, demand or protest, all
of which are hereby expressly waived, anything contained herein or other
evidence of such indebtedness to the contrary notwithstanding.
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(b) In case any one or more Events of Default shall occur and be
continuing, the Holder may, inter alia, proceed to protect and enforce its
rights by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained in this Note,
or for an injunction against a violation of any of the terms hereof or thereof
or in and of the exercise of any power granted hereby or thereby or by law. No
right conferred upon the Holder hereby shall be exclusive of any other right
referred to herein or now or hereafter available at law, in equity, by statute
or otherwise.
ARTICLE XI
SUBORDINATION
11.1. Notes Subordinated to Senior Debt.
(a) The Company, for itself and its successors, and the
Purchaser, by its acceptance of the Notes, agrees that the payment of the
Subordinated Obligations is subordinated, to the extent and in the manner
provided in this Article, to the prior payment in full in cash of all Senior
Debt, including, with respect to Designated Senior Debt, any interest accruing
subsequent to a bankruptcy or other similar proceeding at the rate specified
in the applicable Designated Senior Debt whether or not such interest is an
allowed claim enforceable against the Company in any such proceeding.
(b) This Article XI shall constitute a continuing offer to all
persons who, in reliance upon such provisions, become holders of, or continue
to hold, Senior Debt, and such provisions are made for the benefit of the
holders of Senior Debt, and such holders are made obligees hereunder and any
one or more of them may enforce such provisions. The provisions of this
Article shall be reinstated if at any time any payment of the Senior Debt is
rescinded or must otherwise be returned by any holder thereof or any
representative of such holder upon the insolvency, bankruptcy or
reorganization of the Company.
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11.2. No Payment on Notes in Certain Circumstances.
(a) In the event that any payment of principal of or interest on
the Designated Senior Debt is not paid when due, whether at stated maturity,
by mandatory prepayment, by acceleration or otherwise (each, a "Senior Debt
Payment Default"), and the holders of Designated Senior Debt or their agent
shall have given written notice to the Company and the Purchaser of such
non-payment (a "Payment Default Notice"), then no payment shall be made by the
Company, or accepted by the Purchaser, on account of the Subordinated
Obligations unless and until such payment shall have been made or such Senior
Debt Payment Default is waived in accordance with the terms of the applicable
Senior Credit Documents.
(b) In the event that any default under or in respect of the
Designated Senior Debt that entitles any holders of any Designated Senior Debt
to accelerate the maturity of such Designated Senior Debt outstanding
thereunder (other than a Senior Debt Payment Default) (each, a "Senior Debt
Non-Payment Default") shall have occurred and be continuing and the Company
and the Purchaser shall have received written notice of such Senior Debt
Non-Payment Default from the holders of any Designated Senior Debt or any
agent of such holders (a "Payment Blockage Notice"), then no payment shall be
made by the Company, or accepted by any Purchaser, on account of the
Subordinated Obligations during the period (a "Payment Blockage Period")
commencing on the date the Company and the Purchaser received such Payment
Blockage Notice and ending on the earlier of (i) the date 179 days thereafter
and (ii) the date on which the Senior Debt Non-Payment Default giving rise to
the Payment Blockage Period is cured or waived in accordance with the terms of
the applicable Senior Credit Documents; provided that (x) any holders of
Designated Senior Debt shall not be entitled to institute a Payment Blockage
Period more often than once within any period of 360 consecutive days, (y) no
Senior Debt Non-Payment Default or event which, with the giving of notice
and/or the lapse of time, would become a Senior Debt Non-Payment Default which
existed on the date of the commencement of any such blockage period may be
used as the basis for any subsequent Payment Blockage Notice unless such
Senior Debt Non-Payment Default or event, as the case may be, shall in the
interim have been cured or waived for a period of not less than ninety
consecutive days and (z) any holders of Designated Senior Debt shall not be
entitled to institute a Payment Blockage Period more than two times in total.
(c) The failure to make any payment with respect to the
Subordinated Obligations by reason of the provisions of Section 11.2(a) or
(b), shall not be construed as preventing the occurrence of an Event of
Default hereunder or impairing the right to declare due and payable the
principal amount of and premium on the Notes, plus accrued but unpaid
interest, subject to Section 11.1.
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(d) In furtherance of the provisions of Section 11.1, in the
event that, notwithstanding the foregoing provisions of this Section 11.2, any
payment on account of principal of, premium, interest on the Notes or other
Subordinated Obligations or to acquire any of the Notes or on account of the
redemption provisions of the Notes shall be made by or on behalf of the
Company and received by any Purchaser at a time when such payment was
prohibited by the provisions of this Section 11.2, then, unless and until such
payment is no longer prohibited by this Section 11.2, such payment shall be
received and held in trust by such Purchaser for the benefit of, and, if any
of the Senior Debt remains outstanding, shall be immediately paid over to,
either the Company or the Senior Debtholders (or their representatives)
ratably according to the respective amounts of Senior Debt held or represented
by each, for application to the payment of all Senior Debt remaining unpaid to
the extent necessary to indefeasibly pay all Senior Debt in full in accordance
with its terms, after giving effect to any concurrent payment or distribution
or provision therefor to or for the Senior Debtholders.
(e) The provisions of this Section 11.2 shall not apply to any
payment with respect to which Section 11.3 would be applicable.
11.3. Notes Subordinated to Prior Payment of All Senior Debt on
Dissolution, Liquidation or Reorganization.
Upon any payment or distribution of properties of the Company or
any successor in any dissolution, winding up, liquidation or reorganization of
the Company (including in bankruptcy, insolvency or receivership proceedings
or upon any assignment for the benefit of creditors, whether voluntary or
involuntary):
(i) The holders of all Senior Debt shall first be
entitled to receive payments in full of all amounts due on or
with respect to Senior Debt, including the principal, premium,
and interest, fees, expenses and costs due thereon or relating
thereto, including any interest accruing subsequent to a
bankruptcy or other similar proceeding at the rate specified in
the applicable Senior Debt whether or not such interest is an
allowed claim enforceable against the Company in any such
proceeding, before the Purchaser is entitled to receive any
payment or distribution in cash, securities or other Property on
account of the Subordinated Obligations (other than any payment
or distribution in the form of securities, including, without
limitation, Common Stock Equivalents, the payment of which (i)
is subordinated in right of payment to all Senior Debt that may
at the time be outstanding to the same extent as, or to a
greater extent than, the Subordinated Obligations are
subordinate to the Senior Debt as provided in this Article and
(ii)
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is not payable prior to the payment in full of the Senior Debt).
(ii) Any payment or distribution, whether in cash,
cash equivalents, property or securities, to which the Purchaser
would be entitled except for the provisions of this Article,
shall be paid by the liquidating trustee or agent or other
person making such a payment or distribution, directly to the
holders of Senior Debt (or their representatives) ratably
according to the respective amounts of Senior Debt held or
represented by each, to the extent necessary to make payment in
full in cash of all Senior Debt remaining unpaid after giving
effect to any concurrent payment or distribution or provision
therefor to the holders of such Senior Debt.
(iii) In the event that, notwithstanding the
foregoing, any payment or distribution, whether in cash, cash
equivalents property or securities (other than any payment or
distribution in the form of securities, including, without
limitation, Common Stock Equivalents, the payment of which (i)
is subordinated in right of payment to all Senior Debt that may
at the time be outstanding to the same extent as, or to a
greater extent than, the Subordinated Obligations are
subordinate to the Senior Debt as provided in this Article and
(ii) is not payable prior to the payment in full of the Senior
Debt), shall be received by the Purchaser on account of the
Subordinated Obligations before all Senior Debt is indefeasibly
paid in full in cash, such payment or distribution shall be
received and held in trust by such Purchaser for the benefit of,
and shall be immediately paid over to the Senior Debtholders (or
their representatives) which remain unpaid or unprovided for,
ratably according to the respective amounts of the Senior Debt
held or represented by each, for application to the payment of
all Senior Debt remaining unpaid to the extent necessary to
indefeasibly pay all Senior Debt in full in accordance with its
terms, after giving effect to any concurrent payment or
distribution or provision therefor to or for the Senior
Debtholders.
11.4. Payments Otherwise Permitted.
Nothing contained in any Document shall prevent the Company, at
any time except during any dissolution, liquidation, winding up, or
reorganization of the Company referred to in Section 11.3 or under the
conditions described in Section 11.2, from making payments at any time with
respect to the Subordinated Obligations.
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11.5. Subrogation.
Subject to the payment in full in cash of all Senior Debt and
the termination of all commitments to advance additional funds to the Company
pursuant to the Senior Credit Documents, the Purchaser shall be subrogated to
the rights of the Senior Debtholders to receive payments or distributions of
properties of the Company applicable to the Senior Debt until all amounts due
and payable on the Notes and all other Subordinated Obligations shall be paid
in full. For the purpose of such subrogation, no payments or distributions to
the Senior Debtholders by or on behalf of the Company, or by or on behalf of
the Purchaser by virtue of this Article, which otherwise would have been made
to the Purchaser shall, as between the Company, its creditors other than the
Senior Debtholders and the Purchaser, be deemed to be payment by the Company
to or on account of the Senior Debt, it being understood that the provisions
of this Article are, and are intended, solely for the purpose of defining the
relative rights of the Purchaser, on the one hand, and Senior Debtholders, on
the other hand.
11.6. Obligations of the Company Unconditional.
Nothing contained in this Article or elsewhere in this Agreement
or in any Note is intended to or shall impair, as between the Company, its
creditors (other than the Senior Debtholders) and the Purchaser, the
obligations of the Company, which are absolute and unconditional, to pay to
the Purchaser the Subordinated Obligations when the same become due and
payable in accordance with their terms, or is intended to or shall affect the
relative rights of the Purchaser and creditors of the Company other than the
Senior Debtholders, nor shall anything herein or therein prevent any Purchaser
from exercising all remedies otherwise permitted by Applicable Law upon
default under this Agreement, subject to the rights, if any, and the
limitations on remedies provided in this Article (including Section 11.9), of
the holders of Senior Debt. Notwithstanding anything to the contrary in this
Agreement or in the Notes, upon any distribution of properties of the Company
referred to in this Article, the Purchaser shall be entitled to rely upon any
judgment made by any court of competent jurisdiction in which such
dissolution, winding up, liquidation or reorganization proceedings are
pending, or a certificate of the liquidating trustee or agent or other person
making any distribution to the Purchaser, for the purpose of ascertaining the
persons entitled to participate in such distribution, the Senior Debtholders
and other Obligations of the Company, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article.
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11.7. Subordination Rights Not Impaired by Acts or Omissions of the
Company or Senior Debtholders.
No right of any present or future holders of any Senior Debt to
enforce subordination as provided in this Article shall at any time in any way
be prejudiced or impaired by any act or failure to act on the part of the
Company or by any noncompliance by the Company with the terms of this
Agreement, regardless of any knowledge thereof which any such holder may have
or otherwise be charged with. Subject to the limitations as set forth in the
definition of Senior Debt, the holders of Senior Debt may, without notice to
or consent of any Purchaser, extend, renew, modify, amend or supplement the
terms of the Senior Debt (including changing the terms of payment, or the
refinancing or restructuring of such Senior Debt) or any security received in
exchange therefor and release, sell security or release any persons in any
manner liable for such Obligations and otherwise deal freely with the Company,
all without affecting the Obligations of the Company or the Purchaser under
this Agreement.
11.8. Notice to Purchaser.
Notwithstanding the provisions of this Article or any other
provision of this Agreement, the Purchaser shall not be charged with knowledge
of the existence of any facts that would prohibit the making of any payment in
respect of the Subordinated Obligations (including notification of the
existence or designation of Designated Senior Debt), unless and until the
Purchaser shall have actual knowledge thereof; and, prior to the receipt of
any written notice thereof from the Company or a Senior Debtholder or from any
trustee, fiduciary or agent therefor, the Purchaser shall be entitled in all
respects to assume that no such facts exist. The Purchaser shall be entitled
to rely on the delivery to it of a written notice by a Person representing
itself to be a Senior Debtholder (or a trustee, fiduciary or agent therefor).
In the event that the Purchaser determines in good faith that further evidence
is required with respect to the right of any Person as a Senior Debtholder to
participate in any payment or distribution pursuant to this Article, the
Purchaser may request such Person to furnish evidence to the reasonable
satisfaction of the Purchaser as to the amount of Senior Debt held by such
Person, the extent to which such Person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article and if such evidence is not furnished, the Purchaser
may defer any payment to such Person pending judicial determination as to the
right of such Person to receive such payment.
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11.9. Limitations on Remedies.
(a) Notwithstanding anything contained herein to the contrary,
during any period commencing on the date of receipt of a Payment Default
Notice under Section 11.2(a) or a Payment Blockage Notice under Section
11.2(b) and ending on the earlier of (i) the date the default that is the
subject of such Payment Default Notice or Payment Blockage Notice, as the case
may be, is cured or waived or (ii) ninety days after receipt by the Purchaser
of such Payment Default Notice or 360 days after receipt by the Purchaser of
such Payment Blockage Notice, the Purchaser shall not (i) accelerate the Notes
as provided in Section 10.1, (ii) initiate any judicial proceeding or action
to collect the Notes or (iii) initiate any case, proceeding or other action in
respect of the Company or its Subsidiaries of the type referred to in clause
(a) or (b) of Section 11.3 unless, prior to the expiration of such period, (x)
any holder of Designated Senior Debt or its agent shall take any action of the
type referred to in clauses (i), (ii) and (iii) above in respect of Designated
Senior Debt or (y) any Senior Debt shall have become automatically due and
payable in accordance with its terms.
(b) Prior to taking any action of the type referred to in
clauses (i), (ii) and (iii) of Section 11.9(a), the Purchaser shall give the
Agent, no less than 20 days' notice of the Purchaser's intent to take any such
action (which notice may be given during the continuation of any period during
which the Purchaser is blocked from receiving payments under Section 11.2).
ARTICLE XII
MISCELLANEOUS
12.1. Termination Events.
In the event the First Closing contemplated under this Agreement
shall not have occurred on or before June 12, 1998, this Agreement may be
terminated by CVCA or the Company; provided however, that the right to
terminate this Agreement pursuant to this Section 12.1 shall not be available
to either of the respective parties whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of the
Closing to occur on or before such date.
12.2. Exchange of Notes.
Prior to a Series B Preferred Conversion Event, in the event the
Company consummates a reorganization pursuant to which a holding company
("Newco") is created which owns all of the outstanding stock of the Company,
then the Company and the Purchaser shall enter into an exchange agreement, in
a form reasonably acceptable to the Requisite Purchasers and the Agent,
pursuant to which the Purchased Notes will be exchanged for
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convertible notes (the "Exchanged Notes"), of Newco, which Exchanged Notes
shall be economically identical to the Purchased Notes, including its rights,
privileges and benefits, and shall be otherwise in a form and substance
reasonably acceptable to the Purchaser. The conditions of such exchange shall
include the following: (i) a Default shall not have occurred and be
continuing; (ii) the exchange shall qualify as a tax-free exchange under the
Code; (iii) the Exchanged Notes shall be governed by and entitled to all the
benefits of this Agreement (as if such Exchanged Notes were issued on the
Closing Date pursuant to the terms of this Agreement); (iv) in the case of any
Purchaser acquiring Purchased Notes on a Closing Date, for purposes of
determining the applicable holding period for such Purchased Notes under Rule
144(d), the Exchanged Notes shall be deemed to have been acquired at the
Closing at which such Notes were purchased; (v) legal counsel to the Company
shall deliver a legal opinion addressed to the Purchasers, dated as of the
date of such exchange, in a form reasonably acceptable to the Requisite
Purchasers; and (vi) the Company and Newco shall covenant to the Purchasers
that (x) at no time shall the Company cease to be a wholly-owned subsidiary of
Newco and (y) neither the Company nor Newco shall enter into any agreement
which would restrict the Company's ability to pay dividends or make any other
distributions to Newco.
12.3. Fees.
(a) The Company will pay, and save the Purchasers harmless
against all Liability, whether or not the Closing hereunder occurs, for the
payment of, (i) all costs and other expenses incurred from time to time by the
Company in connection with the Company's performance of and compliance with
all agreements and conditions contained herein on its part to be performed or
complied with (including the reasonable costs and expenses of counsel incurred
in connection with the review and preparation of the Documents), (ii) the
actual and reasonable out-of-pocket costs and expenses incurred by the
Purchasers at or prior to closing in connection with the transactions
contemplated hereby, including reasonable fees and charges of O'Sullivan Graev
& Karabell, LLP (counsel to the Purchasers), and Arthur Andersen, LLP
(accountant to the Purchasers), in connection with the purchase and ownership
of the Purchased Notes and Preferred Shares, provided however, that the
Company's reimbursement obligations under this clause (ii) shall not exceed
$100,000 unless approved by the Company, (iii) the reasonable costs and
expenses (including fees and expenses of counsel) incurred by the Purchasers
in connection with any amendment or waiver of, or enforcement of, any Document
relating to the transactions contemplated hereby, and (iv) the reasonable fees
and expenses incurred by each Purchaser in any filing with any Governmental
Authority with respect to its investment in the Company or in any other filing
with any Governmental Authority with respect to the Company that mentions such
Purchaser.
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(b) The Company further agrees that it will pay, and will save
the Purchasers harmless from, any and all Liability with respect to any stamp
or similar taxes which may be determined to be payable in connection with the
execution and delivery and performance of the Documents or any modification,
amendment or alteration of the terms or provisions of the Documents, and that
it will similarly pay and hold the Purchasers harmless from all issue taxes in
respect of the issuance of the Additional Notes or Reserved Common Shares to
the Purchasers.
12.4. Further Assurances.
The Company shall duly execute and deliver, or cause to be duly
executed and delivered, at its own cost and expense, such further instruments
and documents and to take all such action, in each case as may be necessary or
proper in the reasonable judgment of the Purchasers to carry out the provisions
and purposes of the Agreement and the other Documents.
12.5. Remedies.
In case any one or more of the representations, warranties,
covenants and/or agreements set forth in this Agreement shall have been
breached by the Company, the Purchasers (or any Purchaser) may proceed to
protect and enforce its or their rights either by suit in equity and/or by
action at law, including an action for damages as a result of any such breach
and/or an action for specific performance of any such covenant or agreement
contained in this Agreement.
12.6. Successors and Assigns.
This Agreement shall bind and inure to the benefit of the
Company and the Purchasers and their respective successors, assigns, heirs and
personal representatives. Upon any transfer of the Notes or the Reserved
Common Shares, the transferee shall be bound by, and entitled to the benefits
of, this Agreement with respect to such transferred Securities in the same
manner as the transferring Purchaser.
12.7. Entire Agreement.
This Agreement and the other writings referred to herein or
delivered pursuant hereto which form a part hereof contain the entire
agreement among the parties with respect to the subject matter hereof and
thereof and supersede all prior and contemporaneous arrangements or
understandings with respect thereto.
12.8. Notices.
All notices and other communications delivered hereunder
(whether or not required to be delivered hereunder) shall be
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deemed to be sufficient and duly given if contained in a written instrument
(a) personally delivered, (b) sent by telecopier, (c) sent by
nationally-recognized overnight courier guaranteeing next Business Day
delivery or (d) sent by first class registered or certified mail, postage
prepaid, return receipt requested, in each case addressed as follows:
(i) if to the Company, to:
Gentle Dental Service Corporation
222 North Sepulveda Boulevard
El Segundo, California 90245
Telephone: (310) 765-2400
Telecopier: (310) 765-2459
Attention: Michael T. Fiore
President and
Chief Executive Officer
with a copy to:
McDermott, Will & Emery
One Newport Place
1301 Dove Street, Suite 500
Newport Beach, California 92660
Telephone: (714) 851-0633
Telecopier: (714) 851-9349
Attention: Richard J. Babcock, Esq.
(ii) if to any Purchaser, to him, her or it at his, her or
its address set forth on Schedule I attached hereto;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, NY 10112
Telephone: (212) 408-2400
Telecopier: (212) 408-2420
Attention: Harvey M. Eisenberg, Esq.
or to such other address as the party to whom such notice or other
communication is to be given may have furnished to each other party in writing
in accordance herewith. Any such notice or communication shall be deemed to
have been received (i) when delivered, if personally delivered, (ii) when
sent, if sent by telecopy on a Business Day (or, if not sent on a Business
Day, on the next Business Day after the date sent by telecopy), (iii) on the
next Business Day after dispatch, if sent by nationally recognized, overnight
courier guaranteeing next Business Day delivery, and (iv) on the fifth
Business Day following the date on which the piece of mail containing such
communication is posted, if sent by mail.
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12.9. Amendments, Modifications and Waivers.
The terms and provisions of this Agreement may not be modified
or amended, nor may any of the provisions hereof be waived, temporarily or
permanently, except pursuant to a written instrument executed by the Company
and the Requisite Purchasers and in the case of amendments, modifications or
waivers of provisions of Article XI, definitions of capitalized terms used in
Article XI, or Section 12.2 or this Section 12.9, with the consent of the
Agent; provided however that any such amendment, modification or waiver that
would adversely affect the rights hereunder of any Purchaser, in its capacity
as a Purchaser, without similarly affecting the rights hereunder of all
Purchasers, in their capacities as Purchasers, shall not be effective as to
such Purchaser without its prior written consent.
12.10. Governing Law; Waiver of Jury Trial.
(a) All questions concerning the construction, interpretation
and validity of the Documents shall be governed by and construed and enforced
in accordance with the domestic laws of the State of New York, without giving
effect to any choice or conflict of law provision or rule (whether in the
State of New York or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of New York. In
furtherance of the foregoing, the internal law of the State of New York will
control the interpretation and construction of the Documents, even if under
such jurisdiction's choice of law or conflict of law analysis, the substantive
law of some other jurisdiction would ordinarily or necessarily apply.
(b) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX
FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE LAWS TO APPLY
(RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION,
THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS
AGREEMENT OR ANY DOCUMENTS RELATED HERETO.
12.11. No Third Party Reliance.
Anything contained herein to the contrary notwithstanding, the
representations and warranties of the Company contained in this Agreement (a)
are being given by the Company as an inducement to the Purchasers to enter
into this Agreement and the other Documents (and the Company acknowledges that
the Purchasers have expressly relied thereon) and (b) are solely for the
benefit of the Purchasers. Accordingly, no third party (including, without
limitation, any holder of capital stock of the Company) or anyone acting on
behalf of any thereof other
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<PAGE>
than the Purchasers, and each of them, shall be a third party or other
beneficiary of such representations and warranties and no such third party
shall have any rights of contribution against the Purchasers or the Company
with respect to such representations or warranties or any matter subject to or
resulting in indemnification under this Agreement or otherwise.
12.12. Submission to Jurisdiction.
Any legal action or proceeding with respect to this Agreement or
the other Documents may be brought in the courts of the State of New York and
the United States of America for the Southern District of New York and, by
execution and delivery of this Agreement, the Company hereby accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. The Company hereby irrevocably waives,
in connection with any such action or proceeding, any objection, including,
without limitation, any objection to the venue or based on the grounds of
forum non conveniens, which it may now or hereafter have to the bringing of
any such action or proceeding in such respective jurisdictions. The Company
hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to it at its
address as set forth herein. Nothing herein shall affect the right of the
Purchasers to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against the Company in any
other jurisdiction.
12.13. Extension; Waiver.
At any time prior to the First Closing, the parties may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties, (b) waive any inaccuracies in the representations and
warranties contained in this Agreement or in any document delivered pursuant
to this Agreement and (c) waive compliance with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party, and any such waiver
shall not operate or be construed as a waiver of any subsequent breach by the
other party.
12.14. Severability.
It is the desire and intent of the parties that the provisions
of this Agreement be enforced to the fullest extent permissible under the law
and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, in the event that any provision of this Agreement would
be held in any jurisdiction to be invalid, prohibited or unenforceable for any
reason, such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of
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<PAGE>
this Agreement or affecting the validity or enforceability of such provision
in any jurisdiction. Notwithstanding the foregoing, if such provision could be
more narrowly drawn so as not be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
12.15. Independence of Agreements, Covenants, Representations and
Warranties.
All agreements and covenants hereunder shall be given
independent effect so that if a certain action or condition constitutes a
default under a certain agreement or covenant, the fact that such action or
condition is permitted by another agreement or covenant shall not affect the
occurrence of such default, unless expressly permitted under an exception to
such initial covenant. In addition, all representations and warranties
hereunder shall be given independent effect so that if a particular
representation or warranty proves to be incorrect or is breached, the fact
that another representation or warranty concerning the same or similar subject
matter is correct or is not breached will not affect the incorrectness of or a
breach of a representation and warranty hereunder. The exhibits and schedules
attached hereto are hereby made part of this Agreement in all respects. Any
disclosure made in any Schedule to this Agreement which should, based on the
substance of such disclosure, be applicable to another Schedule to this
Agreement shall be deemed to be made with respect to such other Schedule
regardless of whether or not a specific reference is made thereto; provided,
that the description of such item on a Schedule is such that the Purchaser
could reasonably be expected to ascertain that such disclosure would relate to
such other provision of this Agreement.
12.16. Counterparts; Facsimile Signatures.
This Agreement may be executed in any number of counterparts,
and each such counterpart hereof shall be deemed to be an original instrument,
but all such counterparts together shall constitute but one agreement.
Facsimile counterpart signatures to this Agreement shall be acceptable an
binding.
* * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Securities Purchase
Agreement as of the date first above written.
GENTLE DENTAL SERVICE
CORPORATION
By:
-------------------------------
Name: Michael T. Fiore
Title: President and CEO
PURCHASERS:
CHASE VENTURE CAPITAL
ASSOCIATES, L.P.
By: Chase Capital Partners,
its General Partner
By:
-------------------------------
Name:
Title:
DLJ CAPITAL CORP.
By:
-------------------------------
Kathleen LaPorte
Attorney In Fact
DLJ FIRST ESC L.L.C.
By: DLJ LBO Plans Management
Corporation,
its Manager
By:
-------------------------------
Kathleen LaPorte
Attorney In Fact
<PAGE>
SPROUT CAPITAL VII, L.P.
By: DLJ Capital Corp.
its Managing General Partner
By:
-------------------------------
Kathleen LaPorte
Attorney In Fact
SPROUT GROWTH II, L.P.
By: DLJ Capital Corp.
its Managing General Partner
By:
-------------------------------
Kathleen LaPorte
Attorney In Fact
THE SPROUT CEO FUND, L.P.
By: DLJ Capital Corp.
its General Partner
By:
-------------------------------
Kathleen LaPorte
Attorney In Fact
<PAGE>
SCHEDULE I
First Closing
<TABLE>
<CAPTION>
Aggregate
Price of Aggregate
Series A Series A Price of
Shares Shares Series C Shares Series C Shares Series D Shares
------ ------ --------------- --------------- ---------------
Name and Address
----------------
<S> <C> <C> <C> <C> <C>
Chase Venture Capital Associates, L.P. 100 $100.00 -- -- 1,085,767
c/o Chase Capital Partners
380 Madison Avenue,
12th Floor
New York, NY 10017
Attention: Jonas Steinman
Eric Green
Tel: (212) 622-3100
Fax: (212) 622-3101
DLJ Capital Corp. -- -- -- -- 7,601
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
DLJ First ESC L.L.C. -- -- -- -- 38,003
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
<CAPTION>
Aggregate Aggregate Aggregate
Price of Principal Amount Price of
Series D Shares of Notes Notes Total Price
--------------- -------- ----- -----------
Name and Address
----------------
<S> <C> <C> <C> <C>
Chase Venture Capital Associates, L.P. $9,999,900.00 $15,000,000.00 $15,000,000.00 $25,000,000.00
c/o Chase Capital Partners
380 Madison Avenue,
12th Floor
New York, NY 10017
Attention: Jonas Steinman
Eric Green
Tel: (212) 622-3100
Fax: (212) 622-3101
DLJ Capital Corp. $70,005.21 $209,998.75 $209,998.75 $280,003.96
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
DLJ First ESC L.L.C. $350,007.63 $1,049,999.70 $1,049,999.70 $1,400,007.33
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Price of Aggregate
Series A Series A Price of
Shares Shares Series C Shares Series C Shares Series D Shares
------ ------ --------------- --------------- ---------------
Name and Address
----------------
<S> <C> <C> <C> <C> <C>
Sprout Capital VII, L.P. -- -- 100 $100.00 182,833
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
Sprout Growth II, L.P. -- -- -- -- 149,472
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
The Sprout CEO Fund, L.P. -- -- -- -- 2,124
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
Total First Closing 100 $100.00 100 $100.00 1,465,800
<CAPTION>
Aggregate Aggregate Aggregate
Price of Principal Amount Price of
Series D Shares of Notes Notes Total Price
--------------- -------- ----- -----------
Name and Address
----------------
<S> <C> <C> <C> <C>
Sprout Capital VII, L.P. $1,683,891.93 $5,051,520.90 $5,051,520.90 $6,735,512.83
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
Sprout Growth II, L.P. $1,376,637.12 $4,129,800.10 $4,129,800.10 $5,506,437.22
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
The Sprout CEO Fund, L.P. $19,562.04 $58,680.55 $58,680.55 $78,242.59
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
Total First Closing $13,500,003.93 $25,500,000.00 $25,500,000.00 $39,000,203.93
</TABLE>
<PAGE>
SCHEDULE I (Cont'd)
Second Closing
<TABLE>
<CAPTION>
Aggregate
Price of Aggregate
Series A Series A Price of
Shares Shares Series C Shares Series C Shares Series D Shares
------ ------ --------------- --------------- ---------------
Name and Address
----------------
<S> <C> <C> <C> <C> <C>
DLJ Capital Corp. -- -- -- -- --
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
DLJ First ESC L.L.C. -- -- -- -- --
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
Sprout Capital VII, L.P. -- -- -- -- --
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
Sprout Growth II, L.P. -- -- -- -- --
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
<CAPTION>
Aggregate Aggregate Aggregate
Price of Principal Amount Price of
Series D Shares of Notes Notes Total Price
--------------- -------- ----- -----------
Name and Address
----------------
<S> <C> <C> <C> <C>
DLJ Capital Corp. -- -- -- --
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
DLJ Fist ESC L.L.C. -- -- -- --
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
Sprout Capital VII, L.P. -- -- -- --
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
Sprout Growth II, L.P. -- -- -- --
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Price of Aggregate
Series A Series A Price of
Shares Shares Series C Shares Series C Shares Series D Shares
------ ------ --------------- --------------- ---------------
Name and Address
----------------
<S> <C> <C> <C> <C> <C>
The Sprout CEO Fund, L.P. -- -- -- -- --
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
<CAPTION>
Aggregate Aggregate Aggregate
Price of Principal Amount Price of
Series D Shares of Notes Notes Total Price
--------------- -------- ----- -----------
Name and Address
----------------
<S> <C> <C> <C> <C>
The Sprout CEO Fund, L.P. -- -- -- --
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
</TABLE>
<PAGE>
EXHIBIT B
ARTICLE IX
SERIES A PREFERRED STOCK
1. Designation of Amount; Ranking.
The issuance of One Hundred (100) shares of the Series A Preferred
Stock is hereby authorized. The Series A Preferred Stock shall rank senior to
the Common Stock (as hereinafter defined), pari passu with the Series C
Preferred Stock and junior to all other classes and series of equity securities
of the Corporation now existing or hereafter created with respect to rights of
redemption and rights of Liquidation (as hereinafter defined).
2. Definitions.
As used in this Article IX, the following capitalized terms
have the following meanings:
"Affiliate" has the meaning given to such term in the Purchase
Agreement.
"Applicable Law" has the meaning given to such term in the
Purchase Agreement.
"By-laws" means the By-laws of the Corporation, as amended
and in effect from time to time.
"Board" means the Board of Directors of the Corporation.
"Business Day" has the meaning given to such term in the
Purchase Agreement.
"Certificate of Incorporation" means the Restated Articles of
Incorporation of the Corporation as amended and restated and in effect at the
time in question.
"Closing Date" has the meaning given to such term in the
Purchase Agreement.
"Common Stock" means, collectively, all of the Common Stock,
no par value, of the Corporation of any class, and any other class of capital
stock of the Corporation hereafter authorized that is not limited to a fixed sum
or percentage of par or stated value in respect to the rights of the holders
thereof to participate in dividends or in the distribution of assets upon any
liquidation, dissolution or winding up of the Corporation.
<PAGE>
"Corporation" means Gentle Dental Service Corporation, a
Washington corporation.
"Default Director" has the meaning given to such term in
Section 3(b) of this Article IX.
"Document" has the meaning given to such term in the Purchase
Agreement.
"Event of Default" has the meaning given to such term in the
Purchase Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.
"Governmental Authority" shall mean any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case whether of the United States of
America or any political subdivision thereof, or of any other country.
"Liquidation" means any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
"Mandatory Conversion Event" has the meaning given to such
term in the Purchase Agreement.
"Maturity Date" has the meaning given to such term in the
Purchase Agreement.
"Notes" has the meaning given to such term in the Purchase
Agreement.
"Original Cost" means, with respect to any share of Series A
Preferred Stock, $1.00. In the event of any change (by way of any
recapitalization, subdivision or recombination) in the number or kind of shares
of Series A Preferred Stock, the Original Cost of the shares of Series A
Preferred Stock immediately prior to such change shall be ratably adjusted among
such shares of Series A Preferred Stock immediately after such change.
"Person" shall be construed broadly and shall include without
limitation an individual, a partnership, a corporation, an association, a joint
stock company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a Governmental Authority.
"Preferred Director" shall mean any individual elected to the
Board, to serve as a director, pursuant to Section 3(b)(i) of this Article IX.
-2-
<PAGE>
"Preferred Holders" means holders of Series A Preferred Stock.
"Preferred Liquidation Preference" has the meaning ascribed to
it in Section 4 of this Article IX.
"Preferred Stock" means the preferred stock, no par value, of
the Corporation.
"Purchase Agreement" means the Securities Purchase Agreement
dated as of May 12, 1998, between the Corporation and the Purchasers (as defined
therein), as amended from time to time.
"Redemption Event" has the meaning ascribed to it in Section
5(a) of this Article IX.
"Redemption Price" has the meaning ascribed to it in Section
5(a) of this Article IX.
"Requisite Preferred Holders" means the holders of a majority
of the outstanding shares of Series A Preferred Stock.
"Securities" means "securities" as defined in Section 2(1) of
the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal law then in force.
"Series A Preferred Redemption Event" has the meaning given to
such term in the Purchase Agreement.
"Series C Preferred Stock" means the Series C Preferred Stock,
no par value, of the Corporation.
"Warrant" has the meaning given to such term in the Note.
3. Voting Rights.
(a) Non-Voting.
Except as required by law and pursuant to paragraphs (b) and
(c) below, the Preferred Holders shall not be entitled to vote.
(b) Board Representation.
(i) So long as any Series A Preferred Stock remains
outstanding, the Requisite Preferred Holders shall be entitled to elect one
individual to the Board to serve as a director, which individual initially shall
be Eric Green; provided, however, that upon the occurrence or the continuance of
any Event of Default,
-3-
<PAGE>
the Requisite Preferred Holders shall be entitled to elect one additional
individual to the Board to serve as a director (a "Default Director").
(ii) Notwithstanding any other sections of the Certificate of
Incorporation, so long as any Series A Preferred Stock remains outstanding, the
Requisite Preferred Holders shall be entitled to (A) remove from the Board any
Preferred Director elected under the foregoing subsection (i), (B) elect each
successor to any such Preferred Director removed in accordance herewith or who
otherwise vacates such office, and (C) remove any other director necessary to
create sufficient vacancies on the Board to permit the Requisite Preferred
Holders to elect additional individuals to the Board upon an occurrence or
continuance of an Event of Default, or an Event of Option, pursuant to the
foregoing clause (i) above.
(iii) The right of the Preferred Holders to elect directors
may be exercised at the special meeting called pursuant to this Section, at any
annual or other special meeting of shareholders and, to the extent and in the
manner permitted by Applicable Law, pursuant to a written consent in lieu of a
shareholders meeting. A proper officer of the Corporation shall, upon the
written request of the Requisite Preferred Holders, addressed to any officer of
the Corporation, call a special meeting of the holders of Preferred Stock for
the purpose of electing directors pursuant to this Section. Such meeting shall
be held at the earliest legally permissible date at the principal office of the
Corporation, or at such other place designated by the Requisite Preferred
Holders. If such meeting has not been called by a proper officer of the
Corporation within 2 days after personal delivery, by hand or by a nationally
recognized, overnight courier guaranteeing next business day delivery, of such
written request upon any officer of the Corporation or within 5 days after
mailing the same to the secretary of the Corporation at its principal office,
then the Requisite Preferred Holders may call such meeting at the expense of the
Corporation, and such meeting may be called upon the notice required for annual
meetings of shareholders and shall be held at the Corporation's principal
office, or at such other place designated by the Requisite Preferred Holders.
The Preferred Holders shall be given access to the stock record books of the
Corporation for the purpose of causing a meeting of stockholders to be called
pursuant to this Section.
(iv) At any meeting or at any adjournment thereof at which the
Preferred Holders have the right to elect directors, the presence, in person or
by proxy, of the Preferred Holders shall be required to constitute a quorum for
the election or removal of any director by the Requisite Preferred Holders. The
affirmative vote of the Requisite Preferred Holders shall be required to elect
or remove any Preferred Director.
-4-
<PAGE>
(v) If any Event of Default shall occur and be continuing, the
Preferred Holders shall also have any other rights which such holder is entitled
to under any Document at any time and any other rights which such holder may
have pursuant to Applicable Law.
(vi) The Corporation shall pay or reimburse each Preferred
Director for the reasonable out-of-pocket expenses incurred by such Person in
connection with attending formal meetings of the Board and any committee
thereof. The Corporation shall use its best efforts to maintain video
teleconferencing capabilities for all formal meetings of the Board and any
committee thereof.
(c) Covenants.
The Corporation shall not, without the affirmative consent or
approval of the Requisite Preferred Holders:
(i) in any manner authorize, issue or sell any shares of
Series A Preferred Stock other than as contemplated by the Purchase
Agreement or this Article IX;
(ii) reclassify, cancel or in any manner alter or change the
terms, designations, powers, preferences or relative, optional or other
special rights, or the qualifications, limitations or restrictions
thereof, of the Series A Preferred Stock;
(iii) amend, repeal or modify any provision of this Article
IX; or
(iv) amend, repeal or modify any provision of the Certificate
of Incorporation or By-laws in a manner that would adversely affect the
powers, preferences or rights of the Series A Preferred Stock.
(d) Observer Rights.
(i) The Corporation hereby covenants that the Preferred
Holders shall have the right to have that number of representatives (each such
representative, an "Observer") determined as hereinafter provided present at all
meetings of the Board. Such right shall from time to time be exercisable by
delivery to the Corporation of written notice from the Requisite Preferred
Holders specifying the names of such Observers. The number of Observers shall at
all times and from time to time be equal to that number of members of the Board
that the Preferred Holders are then entitled to designate but whose seats on the
Board are at the time vacant.
-5-
<PAGE>
(ii) The Corporation will give each Observer reasonable prior
notice (it being agreed that the same prior notice given to the Board shall be
deemed reasonable prior notice) in any manner permitted in the Corporation's
By-laws for notices to directors of the time and place of any proposed meeting
of the Board, such notice in all cases to include true and complete copies of
all documents furnished to any director in connection with such meeting. Each
such Observer will be entitled to be present in person as an observer at any
such meeting or, if a meeting is held by telephone conference, to participate
therein for the purpose of listening thereto.
(iii) The Corporation will deliver to each Observer copies of
all papers which may be distributed from time to time to the directors of the
Corporation at such time as such papers are so distributed to them, including
copies of any written consent.
4. Liquidation.
In the event of any Liquidation, the Preferred Holders shall
be entitled to receive, out of the assets of the Corporation legally available
for distribution to its stockholders, before any payment shall be made to the
holders of any stock ranking on Liquidation junior to the Series A Preferred
Stock (with respect to rights on Liquidation, the Series A Preferred Stock shall
rank senior to the Common Stock, pari passu with the Series C Preferred Stock
but junior to all other series of Preferred Stock), an amount per share equal to
(the "Preferred Liquidation Preference") the Original Cost of such share. If,
upon any Liquidation, the assets of the Corporation available for distribution
to its stockholders shall be insufficient to pay the Preferred Holders the full
amount to which it shall be entitled, then the Corporation shall pay the
Preferred Holders the aggregate unpaid Preferred Liquidation Preference as soon
as practicable after the Corporation has funds legally available therefor. In
the event of any Liquidation, after payment shall have been made to the
Preferred Holders in the full amount to which it is entitled, the holders of
shares of Common Stock shall be entitled, to the exclusion of the Preferred
Holders, to share, according to their respective rights and preferences, in all
remaining assets of the Corporation available for distribution to its
stockholders.
5. Redemption.
(a) Subject to the Corporation having funds legally available for
such purpose, the Corporation shall redeem all of the shares of the Series A
Preferred Stock then outstanding, on the first to occur of (A) on the Maturity
Date, so long as all of the outstanding Notes, the outstanding shares of the
Series B Preferred Stock and the outstanding shares of the Series D
-6-
<PAGE>
Preferred Stock shall have been redeemed or converted prior thereto, (B) upon
the occurrence of the Mandatory Conversion Event, or (C) in the event a Series A
Preferred Redemption Event shall have occurred (each of clauses (A), (B) and (C)
above, a "Redemption Event"). The per share redemption price at which shares of
Series A Preferred Stock are to be redeemed pursuant to this Section 5(a) shall
be equal to the Liquidation Preference Amount (the "Redemption Price").
(b) On and after any redemption date (the "Redemption Date") pursuant
to this Section 5 (unless default shall be made by the Corporation in the
payment of the Redemption Price, in which event such rights shall be exercisable
until such default is cured), all rights in respect of the shares of the Series
A Preferred Stock to be redeemed, except the right to receive the Redemption
Price, shall cease and terminate, and such shares shall no longer be deemed to
be outstanding, whether or not the certificates representing such shares have
been received by the Corporation.
(c) Any communication or notice relating to redemption given pursuant
to this Section 5 shall be sent by first-class certified mail, return receipt
requested, postage prepaid, to the Preferred Holders, at their respective
addresses as the same shall appear on the books of the Corporation, or to the
Corporation at the address of its principal, or registered office, as the case
may be.
(d) At any time on or after the Redemption Date, the Preferred
Holders shall be entitled to receive the Redemption Price upon actual delivery
to the Corporation or its agents of the certificates representing the shares of
the Series A Preferred Stock to be redeemed.
(e) Any redemption payments by the Corporation pursuant to this
Section 5 shall be paid in cash.
(f) Any shares of Series A Preferred Stock which are redeemed,
converted or otherwise acquired by the Corporation shall be canceled and shall
not be reissued (as treasury shares), sold or transferred as Series A Preferred
but such shares shall become unclassified Preferred Stock of the Corporation.
ARTICLE X
SERIES B PREFERRED STOCK
1. Designation of Amount; Ranking.
The issuance of Seventy Thousand (70,000) shares of the
Series B Preferred Stock is hereby authorized. The Series B
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Preferred Stock shall rank senior to all other classes and series of equity
securities of the Corporation now existing or hereafter created including the
Series A Preferred Stock, no par value, Series C Preferred Stock, no par value
and the Series D Preferred Stock (collectively, the "Junior Stock"), with
respect to dividend rights, rights of redemption, rights of conversion and
rights of Liquidation (as hereinafter defined).
2. Definitions.
Except as set forth below, capitalized terms used herein have
the meanings given to such terms in the Purchase Agreement. The following
capitalized terms used in this Article X have the following meanings:
"Adjusted Market Price" shall be an amount equal to 95% of
the Market Price in effect at such time.
"Applicable Dividend Rate" means, for each Dividend Period (i)
for dividends paid in cash on the last day of such period where an Event of
Default shall not have occurred, a rate equal to the Applicable Interest Rate at
the time of the Series B Preferred Conversion Event, and (ii) in all other
circumstances, a rate equal to the Applicable Interest Rate at the time of the
Series B Conversion Event plus 1.25% per annum; and the Corporation and the
holders of Series A Preferred Stock acknowledge that the difference of 1.25%
between the aforementioned rate represents additional dividend payable upon the
occurrence and continuation of an Event of Default after the Series B Preferred
Conversion Event.
"Converted Shares" has the meaning ascribed to it in Section
6(d) of this Article X.
"Converting Shares" has the meaning ascribed to it in Section
6(d) of this Article X.
"Corporation" means Gentle Dental Service Corporation, a
Washington corporation.
"Conversion Premium" shall mean $0.2247.
"Conversion Price" shall initially be the Conversion Price of
the Notes on the date of the Series B Conversion Event, and shall be subject to
adjustment from time to time as set forth in Section 4(c) of this Article X.
"Documents" shall have the meaning ascribed to it in the
Purchase Agreement.
"Excluded Stock" means (i) all Common Stock issued upon
conversion of Preferred Stock, Notes and Warrants, (ii) shares of Common Stock
(as such number is equitably adjusted for stock
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splits, stock dividends, share combinations and similar pro-rata
recapitalizations) issued upon the exercise of stock options issued pursuant to
the Equity Incentive Plans and (iii) Securities issued by the Corporation in an
underwritten Public Offering.
"Junior Stock" has the meaning given to such term in Section 1
of this Article X.
"Liquidation" means any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
"Mandatory Redemption Date" shall mean the eighth anniversary
of the First Closing Date.
"Measurement Period" means 30 consecutive Business Days.
"Original Cost" means, with respect to any share of Series B
Preferred Stock, $1,000.00. In the event of any change (by way of any
recapitalization, subdivision or recombination) in the number or kind of shares
of Series B Preferred Stock, the Original Cost of the shares of Series B
Preferred Stock immediately prior to such change shall be ratably adjusted among
such shares of Series B Preferred Stock immediately after such change.
"Original Issuance Date" means the date on which the Notes are
converted pursuant to a Series B Conversion Event.
"Preferred Liquidation Preference" has the meaning ascribed to
it in Section 4(b) of this Article X.
"Preferred Dividend Payment Date" shall have the meaning
ascribed to it in Section 4(a) of this Article X.
"Public Offering" means the closing of a public offering of
Securities pursuant to a registration statement declared effective under the
Securities Act, except that a Public Offering shall not include an offering made
in connection with a business acquisition or an employee benefit plan.
"Purchase Agreement" means the Securities Purchase Agreement
dated as of May 12, 1998, among the Corporation and the Purchasers (as defined
therein), as amended from time to time.
"Qualified Holder" means (i) each Person who initially
acquires Series B Preferred Stock from the Corporation and (ii) any other holder
of Series B Preferred Stock who, together with its Affiliates, owns Series B
Preferred Stock with an aggregate Original Cost of $1,000,000 or more.
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"Qualified Securities" means the Common Stock issued to the
stockholders of the Corporation as consideration in any conversion, provided (i)
such Common Stock is then listed on a national securities exchange or reported
on the Nasdaq National Market and (ii) such Common Stock is registered under the
Securities Act or is freely tradable under Rule 144 of the Securities Act within
6 months of the date of issuance.
"Redemption Price" has the meaning ascribed to it in
Section 5(a) of this Article X.
"Requisite Preferred Holders" means the holders of a majority
of the outstanding shares of Series B Preferred Stock at the time in question.
"Securities and Exchange Commission" means the Securities and
Exchange Commission or any Governmental Authority succeeding to the functions
thereof.
"Sale of the Corporation" means (i) the sale (in one or a
series of related transactions) of all or substantially all of the Corporation's
assets to a Person or a group of Persons acting in concert, (ii) the sale or
transfer (in one or a series of related transactions) of the outstanding capital
stock of the Corporation to one Person or a group of Persons acting in concert,
or (iii) the merger or consolidation of the Corporation with or into another
Person who is not an Affiliate of the Corporation, in each case in clauses (ii)
and (iii) above under circumstances in which the holders of a majority in voting
power of the outstanding capital stock of the Corporation, immediately prior to
such transaction, own less than a majority in voting power of the outstanding
capital stock of the Corporation or the surviving or resulting company or
acquirer, as the case may be, immediately following such transaction. A sale (or
multiple related sales) of one or more Subsidiaries of the Corporation (whether
by way of merger, consolidation, reorganization or sale of all or substantially
all assets or Securities) which constitutes all or substantially all of the
consolidated assets of the Corporation shall be deemed a Sale of the
Corporation.
"Stockholders" means holders of Common Stock or Preferred
Stock.
3. Voting Rights.
(a) General.
In addition to the rights provided by law and by paragraph (b)
below, the holders of Series B Preferred Stock shall be entitled to vote on all
matters as to which holders of Common Stock shall be entitled to vote, in the
same manner and with the same effect as the holders of Common Stock, voting
together with the holders of Common Stock, and any other capital
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stock of the Corporation entitled to vote together with the Common Stock, all as
one class. Each share of Series B Preferred Stock shall entitle the holder
thereof to such number of votes as shall equal the number of shares of Common
Stock into which such share of Series B Preferred Stock is then convertible
pursuant to Section 6 below.
(b) Covenants.
The Corporation shall not, without the affirmative consent or
approval of the Requisite Preferred Holders:
(i) in any manner authorize, create, designate, issue or sell
any class or series of capital stock of the Corporation (including any
shares of treasury stock) or rights, options, warrants or other
Securities convertible into or exercisable or exchangeable for capital
stock or any debt security which by its terms is convertible into or
exchangeable for any equity security or has any other equity
participation feature or any security that is a combination of debt and
equity, which, in each case as to the equity or convertible component
thereof, as to the payment of dividends, distribution of assets or
redemptions, including, without limitation, distributions to be made
upon the liquidation, dissolution or winding up of the Corporation or a
merger, consolidation or sale of the assets thereof, is senior to or
pari passu with the Series B Preferred Stock;
(ii) reclassify any Securities of the Corporation into shares
of any class or series of capital stock of the Corporation (A) ranking,
either as to payment of dividends, distributions of assets or
redemptions, including, without limitation, distributions to be made
upon the liquidation, dissolution or winding up of the Corporation or a
merger, consolidation or sale of the assets thereof, senior to or pari
passu with the Series B Preferred Stock or (B) which in any manner
adversely affects the rights of the holders of Series B Preferred Stock
in their capacity as such;
(iii) in any manner authorize, issue or sell any shares of
Series B Preferred Stock other than as contemplated by the Purchase
Agreement or this Article X;
(iv) reclassify, cancel or in any manner alter or change the
terms, designations, powers, preferences or relative, optional or other
special rights, or the qualifications, limitations or restrictions
thereof, of the Series B Preferred Stock;
(v) amend, repeal or modify any provision of the Certificate
of Incorporation or Bylaws that adversely affects the powers,
preferences or rights of the Series B Preferred Stock; or
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(vi) fail to comply with any of the covenants of the
Corporation as set forth in the Purchase Agreement.
4. Dividends, Distributions and Liquidations.
(a) Dividends.
(i) When, as, and if declared by the Board, out of funds
legally available for that purpose, the holders of Series B Preferred Stock
shall be entitled to receive before any dividends shall be declared and paid or
set aside for Common Stock, dividends, which shall accrue on a daily basis at
the Applicable Dividend Rate on the sum of the Original Cost of a share of
Series B Preferred Stock, plus all accumulated and unpaid dividends thereon,
payable on each September 30 and March 31 (each, a "Preferred Dividend Payment
Date"), the first such Preferred Dividend Payment Date being the first Preferred
Dividend Payment Date following the Series B Conversion Event. Dividends shall
accrue at the Applicable Dividend Rate regardless of whether the Board has
declared a dividend payment or whether there are any profits, surplus or other
funds of the Corporation legally available for dividends. Any dividends which
accrue pursuant to this Section 4(a) and which are not paid prior to the next
succeeding Preferred Dividend Payment Date shall be classified as "accumulated
dividends" and shall remain "accumulated and unpaid dividends" until paid or
otherwise satisfied pursuant to this Article X. Dividends on each share of
Preferred Stock shall accrue pursuant to this Section 4(a) from and including
the Original Issuance Date to and including the date such share is converted or
redeemed in full and all accrued but unpaid dividends thereon are also converted
or paid in full. All payments in cash due in cash under this Section 4(a) to any
holder of shares of Series B Preferred Stock shall be made to the nearest cent.
(ii) The dividends payable with respect to the Series B
Preferred Stock on each Preferred Dividend Payment Date shall be paid to the
holders of shares of the Preferred Stock as they appear on the stock records of
the Corporation on such date (the "Preferred Record Date") as shall be fixed by
the Board, which Preferred Record Date shall not be more than 60 days prior to
the applicable Preferred Dividend Payment Date and shall not precede the date
upon which the resolution fixing such Preferred Record Date is adopted, and if
the Board shall not fix a Preferred Record Date, the Preferred Record Date shall
be deemed to be the same date as the applicable Preferred Dividend Payment Date.
(iii) Except as otherwise provided herein, if at any time the
Corporation pays less than the total amount of dividends then accrued with
respect to the Series B Preferred Stock, such payment shall be distributed
ratably among the holders of the Series B Preferred Stock based upon the number
of shares of Series B Preferred Stock then held by each holder.
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(b) Liquidation.
In the event of any Liquidation, the holders of shares of
Series B Preferred Stock then outstanding shall be entitled to receive, out of
the assets of the Corporation legally available for distribution to its
stockholders, before any payment shall be made to the holders of any stock
ranking on Liquidation junior to the Series B Preferred Stock (with respect to
rights on Liquidation, the Series B Preferred Stock shall rank senior to the
Common Stock and any other class of Junior Stock), an amount per share equal to
(the "Preferred Liquidation Preference") the greater of (X) the Original Cost of
such share plus an amount equal to any accumulated and unpaid dividends on each
share to the date of payment or (Y) the amount that would otherwise be
distributed to such holder in such Liquidation if nothing was paid pursuant to
clause (X) and such holder converted such shares into shares of Common Stock in
accordance with the provisions of this Article X. If, upon any Liquidation, the
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of shares of the Series B Preferred Stock the
full amounts to which they respectively shall be entitled, the holders of shares
of Series B Preferred Stock shall share ratably in any distribution of assets
according to the respective amounts which would be payable with respect to the
shares held by them upon such distribution if all amounts payable on or with
respect to said shares were paid in full. In the event of any Liquidation, after
payment shall have been made to the holders of shares of Series B Preferred
Stock in the full amount to which they are entitled, the holders of shares of
capital stock ranking junior to the Series B Preferred Stock on Liquidation
shall be entitled, to the exclusion of the holders of the Series B Preferred
Stock, to share, according to their respective rights and preferences, in all
remaining assets of the Corporation available for distribution to its
stockholders.
5. Redemption.
(a) Mandatory Redemption.
Subject to the Corporation having funds legally available for
such purpose, the Corporation shall redeem all of the shares of the Series B
Preferred Stock then outstanding on the Mandatory Redemption Date. The per share
redemption price (the "Mandatory Redemption Price") at which shares of the
Series B Preferred Stock are to be redeemed pursuant to this Section 5(a) shall
be equal to the greater of (x) the Original Cost of such share plus an amount
equal to any accumulated and unpaid dividends on each share, if any, to the date
of payment or (y) the Fair Value of such share. If the funds of the Corporation
legally available for redemption of shares of Series B Preferred Stock shall be
insufficient to permit the payment of the Mandatory Redemption Price required to
be paid pursuant to this Section 5(a), then the holders of Series B Preferred
Stock shall
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share in any legally available funds ratably in any such redemption based on the
respective number of Series B Preferred Stock that each holder thereof holds and
the Corporation shall redeem the remaining shares to have been redeemed as soon
as practicable after the Corporation has funds legally available therefor.
(b) Redemption at the Option of the Holders.
(i) At any time on or after the occurrence or continuation of
an Event of Default, the Requisite Preferred Holders may elect to have the
Corporation redeem all (but not less than all) of the outstanding shares of
Series B Preferred Stock at a price per share (i) in the case of a redemption
option caused by an Event of Default, other than a Change of Control, equal to
the Original Cost of such share plus an amount equal to all accrued and unpaid
dividends on each share, if any, to the date of payment and (ii) in the case of
a Change of Control (the "Change of Control Price"), equal to 101% of the
Original Cost thereof plus, without duplication, an amount in cash equal to
accrued and unpaid dividends thereof (in either case, the "Redemption Price"),
by giving written notice to the Corporation of such election (the "Investor
Notice of Election"), whereupon the Corporation shall be obligated to repurchase
such shares of Series B Preferred Stock on such date (the "Investor Optional
Redemption Date") as shall be determined by the Corporation, but in any event
not earlier than 10 days and not later than 30 days after the date on which the
Investor Notice of Election is delivered to the Corporation. Promptly (but in no
event later than five days) after the delivery of the Investor Notice of
Election to the Corporation, the Corporation shall send written notice (the
"Optional Redemption Notice") to each of the holders of the Series B Preferred
Stock. The Optional Redemption Notice shall specify the Investor Optional
Redemption Date and the location of the Corporation's principal executive office
or place of business where the closing will occur.
(ii) Closing.
(A) The closing of the Corporation's redemption of the Series B
Preferred Stock pursuant to Section 5(c) above shall take place at
11:00 a.m. New York City time on the Investor Optional Redemption
Date at the Corporation's principal executive office or place of
business. At the closing, the Corporation shall pay to each of the
holders of the Series B Preferred Stock, against the Corporation's
receipt from such holder of the certificate or certificates
representing the shares of such series of Series B Preferred Stock
then held by such holder, an amount equal to the Redemption
Price. All such payments shall be made by wire transfer of
immediately available funds, or if such holder shall not have
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specified wire transfer instructions to the Corporation prior to
the closing, by certified or official bank check made payable to
the order of such holder.
(B) If the funds of the Corporation (without rendering the
Corporation insolvent) available for redemption of shares of Series
B Preferred Stock on any Investor Redemption Date are insufficient
to redeem the total number of such shares to be redeemed on such
date, those funds which are legally available (without rendering
the Corporation insolvent) shall be used to redeem the maximum
possible number of shares ratably among the holders of such
shares based upon the aggregate number of such shares held by each
such holder. At any time thereafter when additional funds of the
Corporation are legally available which will not make the
Corporation insolvent for the redemption of shares such funds shall
immediately be used to redeem the balance of the shares which the
Corporation has become obligated to redeem on any Investor
Redemption Date but which it had not redeemed.
(c) Redemption at the Option of the Corporation.
The Series B Preferred Stock is redeemable at the option of
the Corporation, in whole or in part at a per share price equal to the Original
Cost of such share plus any accrued but unpaid dividends on each share, if any,
to the date of payment; provided however, that in the event the Corporation
shall redeem all or any portion of the shares of the outstanding Series B
Preferred Shares, then the Holder shall be entitled to receive a warrant (the
"Warrant") that is initially exercisable for that number of shares of Common
Stock equal to the number of shares of Common Stock, including the accrued but
unpaid dividends thereon, into which such redeemed shares would have been
convertible in the event of an optional conversion at such time pursuant to
Section 6(a) hereof, of the shares redeemed hereunder immediately prior to such
redemption; provided, further, however, that in the event the Series B Preferred
Shares shall be redeemed by the Corporation in connection with a Change of
Control the amount paid by the Corporation to the holder in connection with such
prepayment shall equal the Change of Control Price. The initial exercise price
for each share of Common Stock issuable upon exercise of the Warrant shall be
equal to the Conversion Price in effect immediately prior to the prepayment. The
Warrant shall have customary cashless conversion and exercise provisions,
customary anti-dilution protections economically identical to the Series B
Preferred Stock and shall otherwise be in form and substance reasonably
acceptable to the holder of such shares.
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(d) General
(i) No shares of Series B Preferred Stock are entitled to any
dividends accumulating after the date on which the full redemption price for
such share is paid to the holder thereof. On such date all rights of the holder
of such share shall cease, and such share shall not be deemed to be outstanding.
(ii) Any shares of Series B Preferred Stock which are redeemed
or otherwise acquired by the Corporation shall be canceled and shall not be
reissued (as treasury shares), sold or transferred.
(iii) Neither the Corporation nor any Subsidiaries shall offer
to purchase, redeem or acquire any shares of Series B Preferred Stock other than
pursuant to the terms of this Article X or pursuant to a purchase offer made to
all holders of Series B Preferred Stock pro rata based upon the number of such
shares owned by such holders.
6. Conversion.
(a) Optional Conversion of Series B Preferred Stock into Common
Stock.
Subject to and in compliance with the applicable provisions of
this Article X, each holder of shares of Series B Preferred Stock shall have the
right, at such holder's option, at any time and from time to time, to convert
any such share, or the accumulated and unpaid dividends accrued thereon, into
that number of fully paid and nonassessable shares of Common Stock (provided
that in such event the holder shall have the option to require that such shares
be Qualified Securities) equal to the quotient obtained by dividing (x) the sum
of the Original Cost of such shares of Series B Preferred Stock, plus all
accumulated and unpaid dividends thereon, by (y) the Conversion Price, as last
adjusted and then in effect, by surrender of the certificates representing such
share to be converted; provided however, that the Preferred Holder shall have
the right to convert all or a portion of the accumulated and unpaid dividends on
any share of Series B Preferred Stock without the need to convert the share of
Series B Preferred Stock on which such dividends accrued. The Corporation shall
give the Preferred Holders reasonable prior notice of a Sale of the Corporation,
including the price and material terms and conditions thereof, in order to
provide the Preferred Holders reasonable opportunity to consider whether to
redeem or convert the Series B Preferred Stock, or the accumulated and unpaid
dividends accrued thereon, into Common Stock at or prior to such Sale of the
Corporation. If the price or material terms or conditions of such transaction
thereafter change, the Corporation shall promptly deliver written notice to the
Preferred Holders specifying such changes. The Corporation
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will not issue fractional shares of its Common Stock, as applicable, and shall
distribute cash in lieu of such fractional shares.
(b) Mandatory Conversion of Series B Preferred Stock into Common
Stock.
Upon the occurrence of a Mandatory Conversion Event, all
shares of Series B Preferred Stock then outstanding shall, at the option of the
Corporation by virtue of the delivery of a notice by the Corporation to the
holder notifying the holder of the occurrence of such Mandatory Conversion
Event, which notice shall state the date upon which such conversion shall become
effective (the "Effective Date") (which date shall be no earlier than 15
Business Days after the date of delivery), and without any action on the part of
the holders thereof, shall on the Effective Date be deemed automatically
converted in accordance with and subject to prior compliance with Section
6(c)(ii) into that number of fully paid and nonassessable shares of Qualified
Securities into which such shares, including the accumulated and unpaid
dividends accrued thereon, would have been convertible in the event of optional
conversion at such time pursuant to subsection (a) above. Upon conversion, the
Corporation will not issue fractional shares of its Qualified Securities, as
applicable, and shall distribute cash in lieu of such fractional shares.
(c) Conversion Price Adjustment.
(i) The Conversion Price shall also be subject to adjustment
from time to time as follows:
(A) If the Corporation shall, at any time or from time to time
after the Original Issuance Date, issue any shares of Common Stock
(other than Excluded Stock) without consideration or for a
consideration per share less than the Adjusted Market Price in
effect immediately prior to the issuance of such Common Stock, then
the Conversion Price in effect immediately prior to each such
issuance shall forthwith be lowered (but never increased) to a
price equal to the sum of (x) the Conversion Premium plus (y) the
quotient obtained by dividing:
(1) an amount equal to the sum of (x) the total number
of shares of Common Stock outstanding immediately prior
to such issuance, multiplied by the Market Price in
effect immediately prior to such issuance, and (y) the
consideration received by the Corporation upon such
issuance; by
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(2) the total number of shares of Common Stock
outstanding (including any shares of Common Stock
deemed to have been issued pursuant to subdivision (3)
of clause (B) below) immediately after the issuance of
such Common Stock.
(B) For the purposes of any adjustment of the Conversion Price
pursuant to clause (A) above, the following provisions shall be
applicable:
(1) In the case of the issuance of Common Stock for
cash in a public offering or private placement, the
consideration shall be deemed to be the amount of cash
paid therefor prior to deducting therefrom any usual
and customary discounts, commissions or placement fees
paid by the Corporation to any underwriter or placement
agent in connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the
Fair Value thereof.
(3) In the case of the issuance of options to purchase
or rights to subscribe for Common Stock, Securities by
their terms convertible into or exchangeable for Common
Stock, or options to purchase or rights to subscribe
for such convertible or exchangeable Securities:
(a) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to
purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time
such options or rights were issued and for a
consideration equal to the consideration
(determined in the manner provided in subdivisions
(1) and (2) above), if any, received by the
Corporation upon the issuance of such options or
rights plus the minimum purchase price provided in
such options or rights for the Common Stock covered
thereby;
(b) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange
for any such convertible or exchangeable Securities
or upon the exercise of options to purchase or
rights to subscribe for
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such convertible or exchangeable Securities and
subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such
Securities, options, or rights were issued and
for a consideration equal to the consideration
received by the Corporation for any such
Securities and related options or rights
(excluding any cash received on account of accrued
interest or accrued dividends), plus the
additional consideration, if any, to be received
by the Corporation upon the conversion or exchange
of such Securities or the exercise of any related
options or rights (the consideration in each case
to be determined in the manner provided in
subdivisions (1) and (2) above);
(c) on any change in the number of shares or exercise
price of Common Stock deliverable upon exercise of
any such options or rights or conversions of or
exchange for such Securities, the Conversion Price
shall forthwith be readjusted to such Conversion
Price as would have been obtained had the
adjustment made upon the issuance of such options,
rights or Securities not converted prior to such
change or options or rights related to such
Securities not converted prior to such change been
made upon the basis of such change; and
(d) on the expiration of any such options or rights,
the termination of any such rights to convert or
exchange or the expiration of any options or rights
related to such convertible or exchangeable
Securities, the Conversion Price shall forthwith be
readjusted to such Conversion Price as would have
obtained had the adjustment made upon the issuance
of such options, rights, Securities or options or
rights related to such Securities been made upon
the basis of the issuance of only the number of
shares of Common Stock actually issued upon the
exercise of such options or rights, upon the
conversion or exchange of such Securities, or upon
the exercise of the options or rights related to
such Securities and subsequent conversion or
exchange thereof.
(ii) If, at any time after the Original Issuance Date,
the number of shares of Common Stock outstanding is increased by a stock
dividend payable in shares of Common Stock or by a subdivision or split-up of
shares of Common Stock, then, following the record date for the determination of
holders of Common Stock entitled to receive such stock dividend, subdivision
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or split-up (or if no record date is set, the date such stock dividend,
subdivision or stock split is consummated), the Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of Series B Preferred Stock shall be increased in
proportion to such increase in outstanding shares.
(iii) If, at any time after the Original Issuance Date,
the number of shares of Common Stock outstanding is decreased by a combination
of the outstanding shares of Common Stock, then, following the record date for
such combination, the Conversion Price shall be appropriately increased so that
the number of shares of Common Stock issuable on conversion of each share of
Series B Preferred Stock shall be decreased in proportion to such decrease in
outstanding shares.
(iv) In the event of any capital reorganization of the
Corporation, any reclassification of the stock of the Corporation (other than a
change in par value or from no par value to par value or from par value to no
par value or as a result of a stock dividend or subdivision, split-up or
combination of shares), or any consolidation or merger of the Corporation, each
share of Series B Preferred Stock shall after such reorganization,
reclassification, consolidation, or merger be convertible into the kind and
number of shares of stock or other Securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger to
which the holder of the number of shares of Common Stock deliverable
(immediately prior to the time of such reorganization, reclassification,
consolidation or merger) upon conversion of such share of Series B Preferred
Stock would have been entitled upon such reorganization, reclassification,
consolidation or merger. The provisions of this clause shall similarly apply to
successive reorganizations, reclassifications, consolidations or mergers.
(v) If any event occurs of the type contemplated by the
provisions of this Section 6 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the
Corporation's Board of Directors shall make an appropriate reduction in the
Conversion Price so as to protect the rights of the holders of the Series B
Preferred Stock.
(vi) All calculations under this paragraph shall be made
to the nearest one hundredth (1/100) of a cent.
(vii) In any case in which the provisions of this
Section 6(c) shall require that an adjustment shall become effective immediately
after a record date of an event, the Corporation may defer until the occurrence
of such event (i) issuing to the holder of any share of Series B Preferred Stock
converted after such record date and before the occurrence
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of such event the shares of capital stock issuable upon such conversion by
reason of the adjustment required by such event in addition to the shares of
capital stock issuable upon such conversion before giving effect to such
adjustments, and (ii) paying to such holder any amount in cash in lieu of a
fractional share of capital stock pursuant to paragraph (iii) above; provided,
however, that the Corporation shall deliver to such holder an appropriate
instrument evidencing such holder's right to receive such additional shares and
such cash.
(viii) Whenever the Conversion Price shall be adjusted as
provided in this paragraph (c), the Corporation shall make available for
inspection during regular business hours, at its principal executive offices or
at such other place as may be designated by the Corporation, a statement, signed
by its chief executive officer, showing in detail the facts requiring such
adjustment and the Conversion Price that shall be in effect after such
adjustment. The Corporation shall also cause a copy of such statement to be sent
by first class certified mail, return receipt requested and postage prepaid, to
each holder of Series B Preferred Stock at such holder's address appearing on
the Corporation's records. Where appropriate, such copy may be given in advance
and may be included as part of any notice required to be mailed under the
provisions of paragraph (x) below.
(ix) If the Corporation shall propose to take any action
of the types described in clauses (ii), (iii) or (iv) of this paragraph (c)
above, the Corporation shall give notice to each holder of shares of Series B
Preferred Stock, in the manner set forth in paragraph (viii) above, which notice
shall specify the record date, if any, with respect to any such action and the
date on which such action is to take place. Such notice shall also set forth
such facts with respect thereto as shall be reasonably necessary to indicate the
effect of such action (to the extent such effect may be known at the date of
such notice) on the Conversion Price and the number, kind or class of shares or
other Securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of shares of Series B
Preferred Stock. In the case of any action which would require the fixing of a
record date, such notice shall be given at least 10 days prior to the date so
fixed, and in case of all other action, such notice shall be given at least 10
days prior to the taking of such proposed action. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of any such
action.
(x) In the event that the Requisite Preferred Holders
consent in writing to limit, or waive in its entirety, any anti-dilution
adjustment to which the holders of the Series B Preferred Stock would otherwise
be entitled hereunder, the Corporation shall not be required to make any
adjustment whatsoever with respect to any Series B Preferred Stock in excess
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of such limit or at all, as the terms of such consent may dictate.
(xi) The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 6 and in the taking of all such action as may be necessary or
appropriate in order to protect the exercise rights of the holders of Preferred
Stock against impairment.
(xii) The computations of all amounts under this Section
6 shall be made assuming all other anti-dilution or similar adjustments to be
made to the terms of all other securities resulting from the transaction causing
an adjustment pursuant to this Section 6 have previously been made so as to
maintain the relative economic interest of the Preferred Stock vis a vis all
other securities issued by the Corporation.
(xiii) The Corporation shall take or cause to be taken
such steps as shall be necessary to ensure that the par value per share of
Common Stock is at all time less than or equal to the Conversion Price.
(xiv) In the event the Corporation grants, issues or
sells any options, convertible securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then the Preferred Holder shall be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate number or amount of such stock, warrants, securities or other property
which such Holder could have acquired if such Holder had held the Common Stock
acquirable upon complete conversion of this Series B Preferred Stock immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of the grant,
issue or sale of such Purchase Rights.
(xv) In the event the Corporation shall, at any time or
from time to time after the date hereof, distribute pro rata to the record
holders of Common Stock cash, evidences of its indebtedness, other Securities or
other properties or assets, or any options, warrants or other rights to
subscribe for or purchase any of the foregoing, then (unless the holder of the
share of Series B Preferred Stock shares in such distribution on a ratable basis
based upon the shares of Common Stock issuable upon conversion of such share)
the Conversion Price shall be decreased to a price determined by multiplying the
Conversion Price then in effect by a fraction, the numerator of which shall
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be the Market Price less the sum of (X) the cash portion, if any, of such
distribution per share of Common Stock deemed outstanding (exclusive of any
treasury shares) on the record date for such distribution plus (Y) the Fair
Value of such distribution consisting of evidences of indebtedness, other
Securities, properties, assets, options, warrants or subscription or purchase
rights, per share of Common Stock deemed outstanding (exclusive of any treasury
shares) on the record date for such distribution of that portion, if any, and
the denominator of which shall be such Market Price of Common Stock. The
adjustments required by this paragraph (xv) shall be made whenever any such
distribution occurs retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
(d) Conversion Procedures.
(i) Each conversion of shares of any class of capital
stock of the Corporation into shares of another class of capital stock of the
Corporation shall be effected by the surrender of the certificate or
certificates representing the shares to be converted (the "Converting Shares")
at the principal office of the Corporation (or such other office or agency of
the Corporation as the Corporation may designate by written notice to the
holders of such class of capital stock) at any time during its usual business
hours, together with written notice by the holder of such Converting Shares,
stating that such holder desires to convert the Converting Shares, or a stated
number of the shares represented by such certificate or certificates, into an
equal number of shares of the class into which such shares may be converted (the
"Converted Shares"). Such notice shall also state the name or names (with
addresses) and denominations in which the certificate or certificates for
Converted Shares are to be issued and shall include instructions for the
delivery thereof. A holder of Converting Shares may make any such notice of
conversion, whether such conversion is in connection with a Sale of the
Corporation or otherwise, conditional upon the happening of any event or the
passage of such time as is specified by such holder in such conversion notice,
and may rescind any notice of conversion prior to the effective time thereof
specified in any such notice. Promptly after such surrender and the receipt of
such written notice of conversion, the Corporation will issue and deliver in
accordance with the surrendering holder's instructions the certificate or
certificates evidencing the Converted Shares issuable upon such conversion, and
the Corporation will deliver to the converting holder a certificate (which shall
contain such legends as were set forth on the surrendered certificate or
certificates) representing any shares which were represented by the certificate
or certificates that were delivered to the Corporation in connection with such
conversion, but which were not converted. Such conversion, to the extent
permitted by law, shall be deemed to have been effected as of the close of
business on the date on which such certificate or certificates shall have been
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surrendered and such notice shall have been received by the Corporation, and at
such time the rights of the holder of the Converting Shares as such holder shall
cease and the person or persons in whose name or names the certificate or
certificates for the Converted Shares are to be issued upon such conversion
shall be deemed to have become the holder or holders of record of the Converted
Shares.
(ii) Upon issuance of shares in accordance with this
Section, such Converted Shares shall be deemed to be duly authorized, validly
issued, fully paid and non-assessable, with no personal liability attaching to
the ownership thereof and free from all taxes, liens or charges with respect
thereto due to any action of the Corporation. The Corporation shall take all
such actions as may be necessary to assure that all such shares may be so issued
without violation of any Applicable Law or governmental regulation or any
requirements of any domestic securities exchange upon which such shares may be
listed (except for official notice of issuance which will be immediately
transmitted by the Corporation upon issuance). The Corporation shall not close
its books against the transfer of shares in any manner which would interfere
with the timely conversion of any shares. The issuance of certificates for
shares of any class of capital stock (upon conversion of shares of any other
class of capital stock or otherwise) shall be made without charge to the holders
of such shares for any issuance tax in respect thereof or other cost incurred by
the Corporation in connection with such conversion and/or the issuance of such
shares; provided, however, that the Corporation shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
shares converted. In the event the holder of the shares converted hereunder, in
connection with the conversion of shares hereunder, shall be required to file a
notification pursuant to the Hart-Scott-Rodino Anti-Trust Improvements Act of
1976 (the "HSR Act"), the Corporation and the holder shall take all actions
necessary to comply with such notification requirement and the conversion
hereunder of the shares, or the accumulated and unpaid dividends on such shares,
shall become effective upon the expiration of the applicable waiting period. The
Corporation will pay and save the holders of Series B Preferred Shares harmless
against all liability for the payment of all actual and reasonable costs and
expenses incurred by such holder in connection with any requirements to file a
notification pursuant to the HSR Act. No fractional shares of Common Stock or
scrip shall be issued upon conversion of any shares. The number of full shares
issuable upon conversion shall be computed on the basis of the aggregate number
of shares to be converted by a holder. Instead of any fractional shares which
would otherwise be issuable upon conversion of the shares, the Corporation shall
pay a cash adjustment in respect of such fractional interest in an amount equal
to the product of (i) the Fair Value of one share of such Common Stock and (ii)
such
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fractional interest. The holders of fractional interests shall not be entitled
to any rights as stockholders of the Corporation in respect of such fractional
interests.
7. Reservation of Shares.
The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock, solely for the
purpose of issuance upon the conversion of shares of Series B Preferred Stock
hereunder, such number of shares of such class as are then issuable upon the
conversion of all outstanding shares of such other class which may be converted.
8. Shares Acquired by the Corporation.
Any shares of Series B Preferred Stock which are redeemed,
converted or otherwise acquired by the Corporation shall be canceled and shall
not be reissued (as treasury shares), sold or transferred as Series B Preferred
Stock but such shares shall become unclassified Preferred Stock of the
Corporation.
ARTICLE XI
SERIES C PREFERRED STOCK
1. Designation of Amount; Ranking.
The issuance of One Hundred (100) shares of the Series C Preferred
Stock is hereby authorized. The Series C Preferred Stock shall rank senior to
the Common Stock (as hereinafter defined), pari passu with the Series A
Preferred Stock (as hereinafter defined) and junior to all other classes and
series of equity securities of the Corporation now existing or hereafter created
with respect to rights of redemption and rights of Liquidation (as hereinafter
defined).
2. Definitions.
As used in this Article XI, the following capitalized terms
have the following meanings:
"Affiliate" has the meaning given to such term in the Purchase
Agreement.
"Applicable Law" has the meaning given to such term in the
Purchase Agreement.
"By-laws" means the By-laws of the Corporation, as amended and in
effect from time to time.
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"Board" means the Board of Directors of the Corporation.
"Business Day" has the meaning given to such term in the Purchase
Agreement.
"Certificate of Incorporation" means the Restated Articles of
Incorporation of the Corporation as amended and restated and in effect at the
time in question.
"Closing Date" has the meaning given to such term in the Purchase
Agreement.
"Common Stock" means, collectively, all of the Common Stock,
no par value, of the Corporation of any class, and any other class of capital
stock of the Corporation hereafter authorized that is not limited to a fixed sum
or percentage of par or stated value in respect to the rights of the holders
thereof to participate in dividends or in the distribution of assets upon any
liquidation, dissolution or winding up of the Corporation.
"Corporation" means Gentle Dental Service Corporation, a
Washington corporation.
"Document" has the meaning given to such term in the Purchase
Agreement.
"Event of Option" has the meaning given to such term in the
Purchase Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.
"Governmental Authority" shall mean any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case whether of the United States of
America or any political subdivision thereof, or of any other country.
"Liquidation" means any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
"Mandatory Conversion Event" has the meaning given to such term
in the Purchase Agreement.
"Maturity Date" has the meaning given to such term in the Purchase
Agreement.
"Notes" has the meaning given to such term in the Purchase
Agreement.
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"Option Director" has the meaning given to such term in Section
3(b) of this Article XI.
"Original Cost" means, with respect to any share of Series C
Preferred Stock, $1.00. In the event of any change (by way of any
recapitalization, subdivision or recombination) in the number or kind of shares
of Series C Preferred Stock, the Original Cost of the shares of Series C
Preferred Stock immediately prior to such change shall be ratably adjusted among
such shares of Series C Preferred Stock immediately after such change.
"Person" shall be construed broadly and shall include without
limitation an individual, a partnership, a corporation, an association, a joint
stock company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a Governmental Authority.
"Preferred Director" shall mean any individual elected to the
Board, to serve as a director, pursuant to Section 3(b)(i) of this Article XI.
"Preferred Holders" means holders of Series C Preferred Stock.
"Preferred Liquidation Preference" has the meaning ascribed to it
in Section 4 of this Article XI.
"Preferred Stock" means the preferred stock, no par value, of the
Corporation.
"Purchase Agreement" means the Securities Purchase Agreement
dated as of May 12, 1998, between the Corporation and the Purchasers (as defined
therein), as amended from time to time.
"Redemption Event" has the meaning ascribed to it in Section 5(a)
of this Article XI.
"Redemption Price" has the meaning ascribed to it in Section 5(a).
"Requisite Preferred Holders" means the holders of a majority
of the outstanding shares of Series C Preferred Stock.
"Securities" means "securities" as defined in Section 2(1) of the
Securities Act.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal law then in force.
"Series A Preferred Stock" means the Series A Preferred Stock,
no par value, of the Corporation.
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"Series C Redemption Event" has the meaning given to such term
in the Purchase Agreement.
"Warrant" has the meaning given to such term in the Note.
3. Voting Rights.
(a) Non-Voting.
Except as required by law and pursuant to paragraphs (b) and
(c) below, the Preferred Holders shall not be entitled to vote.
(b) Board Representation.
(i) So long as any Series C Preferred Stock remains
outstanding, the Requisite Preferred Holders shall be entitled to elect one
individual to the Board to serve as a director (an "Option Director") upon the
occurrence or continuation of an Event of Option.
(ii) Notwithstanding any other sections of the Certificate of
Incorporation, so long as any Series C Preferred Stock remains outstanding, the
Requisite Preferred Holders shall be entitled to (A) remove from the Board any
Preferred Director elected under the foregoing subsection (i), (B) elect each
successor to any such Preferred Director removed in accordance herewith or who
otherwise vacates such office, and (C) remove any other director necessary to
create sufficient vacancies on the Board to permit the Requisite Preferred
Holders to elect additional individuals to the Board upon an occurrence or
continuance of an Event of Option, pursuant to the foregoing clause (i) above.
(iii) The right of the Preferred Holders to elect directors
may be exercised at the special meeting called pursuant to this Section, at any
annual or other special meeting of shareholders and, to the extent and in the
manner permitted by Applicable Law, pursuant to a written consent in lieu of a
shareholders meeting. A proper officer of the Corporation shall, upon the
written request of the Requisite Preferred Holders, addressed to any officer of
the Corporation, call a special meeting of the holders of Preferred Stock for
the purpose of electing directors pursuant to this Section. Such meeting shall
be held at the earliest legally permissible date at the principal office of the
Corporation, or at such other place designated by the Requisite Preferred
Holders. If such meeting has not been called by a proper officer of the
Corporation within 2 days after personal delivery, by hand or by a nationally
recognized, overnight courier guaranteeing next business day delivery, of such
written request upon any officer of the Corporation or within 5 days after
mailing the same to the secretary of the
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Corporation at its principal office, then the Requisite Preferred Holders may
call such meeting at the expense of the Corporation, and such meeting may be
called upon the notice required for annual meetings of shareholders and shall be
held at the Corporation's principal office, or at such other place designated by
the Requisite Preferred Holders. The Preferred Holders shall be given access to
the stock record books of the Corporation for the purpose of causing a meeting
of stockholders to be called pursuant to this Section.
(iv) At any meeting or at any adjournment thereof at which the
Preferred Holders have the right to elect directors, the presence, in person or
by proxy, of the Preferred Holders shall be required to constitute a quorum for
the election or removal of any director by the Requisite Preferred Holders. The
affirmative vote of the Requisite Preferred Holders shall be required to elect
or remove any Preferred Director.
(v) The Corporation shall pay or reimburse each Preferred
Director for the reasonable out-of-pocket expenses incurred by such Person in
connection with attending formal meetings of the Board and any committee
thereof. The Corporation shall use its best efforts to maintain video
teleconferencing capabilities for all formal meetings of the Board and any
committee thereof.
(c) Covenants.
The Corporation shall not, without the affirmative consent or
approval of the Requisite Preferred Holders:
(i) in any manner authorize, issue or sell any shares of
Series C Preferred Stock other than as contemplated by the Purchase
Agreement or this Article XI;
(ii) reclassify, cancel or in any manner alter or change the
terms, designations, powers, preferences or relative, optional or other
special rights, or the qualifications, limitations or restrictions
thereof, of the Series C Preferred Stock;
(iii) amend, repeal or modify any provision of this Article
XI; or
(iv) amend, repeal or modify any provision of the Certificate
of Incorporation or By-laws in a manner that would adversely affect the
powers, preferences or rights of the Series C Preferred Stock.
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(d) Observer Rights.
(i) The Corporation hereby covenants that the Preferred
Holders shall have the right to have that number of representatives (each such
representative, an "Observer") determined as hereinafter provided present at all
meetings of the Board. Such right shall from time to time be exercisable by
delivery to the Corporation of written notice from the Requisite Preferred
Holders specifying the names of such Observers. The number of Observers shall at
all times and from time to time be equal to that number of members of the Board
that the Preferred Holders are then entitled to designate but whose seats on the
Board are at the time vacant.
(ii) The Corporation will give each Observer reasonable prior
notice (it being agreed that the same prior notice given to the Board shall be
deemed reasonable prior notice) in any manner permitted in the Corporation's
By-laws for notices to directors of the time and place of any proposed meeting
of the Board, such notice in all cases to include true and complete copies of
all documents furnished to any director in connection with such meeting. Each
such Observer will be entitled to be present in person as an observer at any
such meeting or, if a meeting is held by telephone conference, to participate
therein for the purpose of listening thereto.
(iii) The Corporation will deliver to each Observer copies of
all papers which may be distributed from time to time to the directors of the
Corporation at such time as such papers are so distributed to them, including
copies of any written consent.
4. Liquidation.
In the event of any Liquidation, the Preferred Holders shall
be entitled to receive, out of the assets of the Corporation legally available
for distribution to its stockholders, before any payment shall be made to the
holders of any stock ranking on Liquidation junior to the Series C Preferred
Stock (with respect to rights on Liquidation, the Series C Preferred Stock shall
rank senior to the Common Stock, pari passu with the Series A Preferred Stock
but junior to all other series of Preferred Stock), an amount per share equal to
(the "Preferred Liquidation Preference") the Original Cost of such share. If,
upon any Liquidation, the assets of the Corporation available for distribution
to its stockholders shall be insufficient to pay the Preferred Holders the full
amount to which it shall be entitled, then the Corporation shall pay the
Preferred Holders the aggregate unpaid Preferred Liquidation Preference as soon
as practicable after the Corporation has funds legally available therefor. In
the event of any Liquidation, after payment shall have been made to the
Preferred Holders in the full amount to which it is entitled, the holders of
shares of Common Stock shall
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be entitled, to the exclusion of the Preferred Holders, to share, according to
their respective rights and preferences, in all remaining assets of the
Corporation available for distribution to its stockholders.
5. Redemption.
(a) Subject to the Corporation having funds legally available for
such purpose, the Corporation shall redeem all of the shares of the Series C
Preferred Stock then outstanding, on the first to occur of (A) on the Maturity
Date, so long as all of the outstanding Notes, the outstanding shares of the
Series B Preferred Stock and the outstanding shares of the Series D Preferred
Stock shall have been redeemed or converted prior thereto, (B) upon the
occurrence of the Mandatory Conversion Event, or (C) in the event a Series C
Redemption Event shall have occurred (each of clauses (A), (B) and (C) above, a
"Redemption Event"). The per share redemption price at which shares of Series C
Preferred Stock are to be redeemed pursuant to this Section 5(a) shall be equal
to the Liquidation Preference Amount (the "Redemption Price").
(b) On and after any redemption date (the "Redemption Date") pursuant
to this Section 5 (unless default shall be made by the Corporation in the
payment of the Redemption Price, in which event such rights shall be exercisable
until such default is cured), all rights in respect of the shares of the Series
C Preferred Stock to be redeemed, except the right to receive the Redemption
Price, shall cease and terminate, and such shares shall no longer be deemed to
be outstanding, whether or not the certificates representing such shares have
been received by the Corporation.
(c) Any communication or notice relating to redemption given pursuant
to this Section 5 shall be sent by first-class certified mail, return receipt
requested, postage prepaid, to the Preferred Holders, at their respective
addresses as the same shall appear on the books of the Corporation, or to the
Corporation at the address of its principal, or registered office, as the case
may be.
(d) At any time on or after the Redemption Date, the Preferred
Holders shall be entitled to receive the Redemption Price upon actual delivery
to the Corporation or its agents of the certificates representing the shares of
the Series C Preferred Stock to be redeemed.
(e) Any redemption payments by the Corporation pursuant to this
Section 5 shall be paid in cash.
(f) Any shares of Series C Preferred Stock which are redeemed,
converted or otherwise acquired by the Corporation shall be canceled and shall
not be reissued (as treasury shares),
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sold or transferred as Series C Preferred but such shares shall become
unclassified Preferred Stock of the Corporation.
ARTICLE XII
SERIES D PREFERRED STOCK
1. Designation of Amount; Ranking.
The issuance of Two Million (2,000,000) shares of the Series
D Preferred Stock is hereby authorized. The Series D Preferred Stock shall rank
senior to all other classes and series of equity securities of the Corporation
now existing or hereafter created including the Series A Preferred Stock, no par
value, and the Series C Preferred Stock, no par value (collectively, the "Junior
Stock"), but junior to the Series B Preferred Stock, with respect to dividend
rights, rights of redemption, rights of conversion and rights of Liquidation (as
hereinafter defined).
2. Definitions.
Except as set forth below, capitalized terms used herein have
the meanings given to such terms in the Purchase Agreement. The following
capitalized terms used in this Article XII have the following meanings:
"Adjusted Market Price" shall be an amount equal to 95% of the
Market Price in effect at such time.
"Applicable Dividend Rate" means for each Dividend Period (i)
during the period commencing on the First Closing Date and ending prior to the
ninth anniversary of the First Closing Date, 0% (zero percent), and (ii) any
time after the ninth anniversary of the First Closing Date, 7% (seven percent).
"Conversion Premium" shall mean $0.2247.
"Conversion Price" shall initially be $9.21, and shall be
subject to adjustment from time to time as set forth in Section 6(c) of this
Article XII.
"Converted Shares" has the meaning ascribed to it in Section
6(d) of this Article XII.
"Converting Shares" has the meaning ascribed to it in Section
6(d).
"Corporation" means Gentle Dental Service Corporation, a
Washington corporation.
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"Documents" shall have the meaning ascribed to it in the
Purchase Agreement.
"Excluded Stock" means (i) all Common Stock issued upon
conversion of Preferred Stock, Notes or Warrants, (ii) shares of Common Stock
(as such number is equitably adjusted for stock splits, stock dividends, share
combinations and similar pro-rata recapitalizations) issued upon the exercise of
stock options issued pursuant to the Equity Incentive Plans and (iii) Securities
issued by the Corporation in an underwritten Public Offering.
"Junior Stock" has the meaning given to such term in Section 1
of this Article XII.
"Liquidation" means any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
"Original Cost" means, with respect to any share of Series D
Preferred Stock, $9.21. In the event of any change (by way of any
recapitalization, subdivision or recombination) in the number or kind of shares
of Series D Preferred Stock, the Original Cost of the shares of Series D
Preferred Stock immediately prior to such change shall be ratably adjusted among
such shares of Series D Preferred Stock immediately after such change.
"Original Issuance Date" means the Second Closing Date.
"Preferred Liquidation Preference" has the meaning ascribed to
it in Section 4(b) of this Article XII.
"Public Offering" means the closing of a public offering of
Securities pursuant to a registration statement declared effective under the
Securities Act, except that a Public Offering shall not include an offering made
in connection with a business acquisition or an employee benefit plan.
"Purchase Agreement" means the Securities Purchase Agreement
dated as of May 12, 1998, among the Corporation and the Purchasers (as defined
therein), as amended from time to time.
"Qualified Holder" means (i) each Person who initially
acquires Series D Preferred Stock from the Corporation and (ii) any other holder
of Series D Preferred Stock who, together with its Affiliates, owns Series D
Preferred Stock with an aggregate Original Cost of $1,000,000 or more.
"Qualified Securities" means the Common Stock issued to the
stockholders of the Corporation as consideration in any conversion, provided (i)
such Common Stock is then listed on a national securities exchange or reported
on the Nasdaq National
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Market and (ii) such Common Stock is registered under the Securities Act or is
freely tradable under Rule 144 of the Securities Act within 6 months of the date
of issuance.
"Redemption Price" has the meaning ascribed to it in Section
5(a) of this Article XII.
"Requisite Preferred Holders" means the holders of a majority
of the outstanding shares of Series D Preferred Stock at the time in question.
"Securities and Exchange Commission" means the Securities and
Exchange Commission or any Governmental Authority succeeding to the functions
thereof.
"Sale of the Corporation" means (i) the sale (in one or a
series of related transactions) of all or substantially all of the Corporation's
assets to a Person or a group of Persons acting in concert, (ii) the sale or
transfer (in one or a series of related transactions) of the outstanding capital
stock of the Corporation to one Person or a group of Persons acting in concert,
or (iii) the merger or consolidation of the Corporation with or into another
Person who is not an Affiliate of the Corporation, in each case in clauses (ii)
and (iii) above under circumstances in which the holders of a majority in voting
power of the outstanding capital stock of the Corporation, immediately prior to
such transaction, own less than a majority in voting power of the outstanding
capital stock of the Corporation or the surviving or resulting company or
acquirer, as the case may be, immediately following such transaction. A sale (or
multiple related sales) of one or more Subsidiaries of the Corporation (whether
by way of merger, consolidation, reorganization or sale of all or substantially
all assets or Securities) which constitutes all or substantially all of the
consolidated assets of the Corporation shall be deemed a Sale of the
Corporation.
"Stockholders" means holders of Common Stock or Preferred
Stock.
3. Voting Rights.
(a) General.
In addition to the rights provided by law and by paragraph (b)
below, the holders of Series D Preferred Stock shall be entitled to vote on all
matters as to which holders of Common Stock shall be entitled to vote, in the
same manner and with the same effect as the holders of Common Stock, voting
together with the holders of Common Stock, and any other capital stock of the
Corporation entitled to vote together with the Common Stock, all as one class.
Each share of Series D Preferred Stock shall entitle the holder thereof to such
number of votes as shall equal the number of shares of Common Stock into which
such
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share of Series D Preferred Stock is then convertible pursuant to Section 6
below.
(b) Covenants.
The Corporation shall not, without the affirmative consent or
approval of the Requisite Preferred Holders:
(i) in any manner authorize, create, designate, issue or sell
any class or series of capital stock of the Corporation (including any
shares of treasury stock) or rights, options, warrants or other
Securities convertible into or exercisable or exchangeable for capital
stock or any debt security which by its terms is convertible into or
exchangeable for any equity security or has any other equity
participation feature or any security that is a combination of debt and
equity, which, in each case as to the equity or convertible component
thereof, as to the payment of dividends, distribution of assets or
redemptions, including, without limitation, distributions to be made
upon the liquidation, dissolution or winding up of the Corporation or a
merger, consolidation or sale of the assets thereof, is senior to or
pari passu with the Series D Preferred Stock;
(ii) reclassify any Securities of the Corporation into shares
of any class or series of capital stock of the Corporation (A) ranking,
either as to payment of dividends, distributions of assets or
redemptions, including, without limitation, distributions to be made
upon the liquidation, dissolution or winding up of the Corporation or a
merger, consolidation or sale of the assets thereof, senior to or pari
passu with the Series D Preferred Stock or (B) which in any manner
adversely affects the rights of the holders of Series D Preferred Stock
in their capacity as such;
(iii) in any manner authorize, issue or sell any shares of
Series D Preferred Stock other than as contemplated by the Purchase
Agreement or this Article XII;
(iv) reclassify, cancel or in any manner alter or change the
terms, designations, powers, preferences or relative, optional or other
special rights, or the qualifications, limitations or restrictions
thereof, of the Series D Preferred Stock; or
(v) amend, repeal or modify any provision of the Certificate
of Incorporation or Bylaws that adversely affects the powers,
preferences or rights of the Series D Preferred Stock.
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4. Dividends, Distributions and Liquidations.
(a) Dividends.
(i) When, as, and if declared by the Board, out of funds
legally available for that purpose, the holders of Series D Preferred Stock
shall be entitled to receive before any dividends shall be declared and paid or
set aside for Common Stock, dividends, which shall accrue on a daily basis at
the Applicable Dividend Rate on the sum of the Original Cost of a share of
Series D Preferred Stock, plus all accumulated and unpaid dividends thereon,
payable on each September 30 and March 31 (each, a "Preferred Dividend Payment
Date"), the first such Preferred Dividend Payment Date being the first Preferred
Dividend Payment Date following the ninth anniversary of the First Closing Date.
Dividends shall accrue at the Applicable Dividend Rate regardless of whether the
Board has declared a dividend payment or whether there are any profits, surplus
or other funds of the Corporation legally available for dividends. Any dividends
which accrue pursuant to this Section 4(a)(i) and which are not paid prior to
the next succeeding Preferred Dividend Payment Date shall be classified as
"accumulated dividends" and shall remain "accumulated and unpaid dividends"
until paid or otherwise satisfied pursuant to this Article XII. Dividends on
each share of Series D Preferred Stock shall accrue pursuant to this Section
4(a)(i) from and including the ninth anniversary of the First Closing Date to
and including the date such share is converted or redeemed in full and all
accrued but unpaid dividends thereon are also converted or paid in full. All
payments in cash due in cash under this Section 4(a) to any holder of shares of
Series D Preferred Stock shall be made to the nearest cent.
(ii) In addition to the rights to receive dividends pursuant
to clause (i) above, when, as and if declared by the Board, out of funds legally
available for the purpose, the holders of Series D Preferred Stock shall be
entitled to share in any dividends declared and paid upon or set aside for the
Common Stock on a ratable basis based upon the Common Stock Equivalents
represented by such Series D Preferred Stock.
(iii) The dividends payable with respect to the Series D
Preferred Stock on each Preferred Dividend Payment Date shall be paid to the
holders of shares of the Preferred Stock as they appear on the stock records of
the Corporation on such date (the "Preferred Record Date") as shall be fixed by
the Board, which Preferred Record Date shall not be more than 60 days prior to
the applicable Preferred Dividend Payment Date and shall not precede the date
upon which the resolution fixing such Preferred Record Date is adopted, and if
the Board shall not fix a Preferred Record Date, the Preferred Record Date shall
be deemed to be the same date as the applicable Preferred Dividend Payment Date.
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(iv) Except as otherwise provided herein, if at any time the
Corporation pays less than the total amount of dividends then accrued with
respect to the Series D Preferred Stock, such payment shall be distributed
ratably among the holders of the Series D Preferred Stock based upon the number
of shares of Series D Preferred Stock then held by each holder.
(b) Liquidation.
In the event of any Liquidation, the holders of shares of
Series D Preferred Stock then outstanding shall be entitled to receive, out of
the assets of the Corporation legally available for distribution to its
stockholders, before any payment shall be made to the holders of any stock
ranking on Liquidation junior to the Series D Preferred Stock (with respect to
rights on Liquidation, the Series D Preferred Stock shall rank senior to the
Common Stock and any other class of Junior Stock, but pari passu with the Series
B Preferred Stock), an amount per share equal to (the "Preferred Liquidation
Preference") the greater of (X) the Original Cost of such share plus an amount
equal to any accrued but unpaid dividends on each share to the date of payment
or (Y) the amount that would otherwise be distributed to such holder in such
Liquidation if nothing was paid pursuant to clause (X) and such holder converted
such shares into shares of Common Stock in accordance with the provisions of
this Article XII. If, upon any Liquidation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
holders of shares of the Series D Preferred Stock the full amounts to which they
respectively shall be entitled, the holders of shares of Series D Preferred
Stock shall share ratably in any distribution of assets according to the
respective amounts which would be payable with respect to the shares held by
them upon such distribution if all amounts payable on or with respect to said
shares were paid in full. In the event of any Liquidation, after payment shall
have been made to the holders of shares of Series D Preferred Stock in the full
amount to which they are entitled, the holders of shares of capital stock
ranking junior to the Series D Preferred Stock on Liquidation shall be entitled,
to the exclusion of the holders of the Series D Preferred Stock, to share,
according to their respective rights and preferences, in all remaining assets of
the Corporation available for distribution to its stockholders.
5. Redemption.
(a) Redemption at the Option of the Holders.
(i) At any time on or after the occurrence or continuation of an Event
of Default the Requisite Preferred Holders may elect to have the Corporation
redeem all (but not less than all) of the outstanding shares of Series D
Preferred Stock at a price per share equal to (i) in the case of a redemption
option caused by a Change of Control (the "Change of Control Price"), equal to
101%
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of the Original Cost thereof plus without duplication, an amount in cash accrued
and unpaid dividends thereon, and (ii) in the case of a redemption option caused
by an Event of Default, other than a Change of Control, the greater of the
Original Cost of such share plus an amount equal to all accrued and unpaid
dividends on each share, if any, to the date of payment (in either case, the
"Redemption Price"), by giving written notice to the Corporation of such
election (the "Investor Notice of Election"), whereupon the Corporation shall be
obligated to repurchase such shares of Series D Preferred Stock on such date
(the "Investor Optional Redemption Date") as shall be determined by the
Corporation, but in any event not earlier than 10 days and not later than 30
days after the date on which the Investor Notice of Election is delivered to the
Corporation. Promptly (but in no event later than five days) after the delivery
of the Investor Notice of Election to the Corporation, the Corporation shall
send written notice (the "Optional Redemption Notice") to each of the holders of
the Series D Preferred Stock. The Optional Redemption Notice shall specify the
Investor Optional Redemption Date and the location of the Corporation's
principal executive office or place of business where the closing will occur.
(ii) Closing.
(A) The closing of the Corporation's redemption of the Series D
Preferred Stock pursuant to this Section 5(c) above shall take place
at 11:00 a.m. New York City time on the Investor Optional Redemption
Date at the Corporation's principal executive office or place of
business. At the closing, the Corporation shall pay to each of the
holders of the Series D Preferred Stock, against the Corporation's
receipt from such holder of the certificate or certificates
representing the shares of such series of Series D Preferred Stock
then held by such holder, an amount equal to the Redemption Price.
All such payments shall be made by wire transfer of immediately
available funds, or if such holder shall not have specified wire
transfer instructions to the Corporation prior to the closing, by
certified or official bank check made payable to the order of such
holder.
(B) If the funds of the Corporation (without rendering the
Corporation insolvent) available for redemption of shares of Series D
Preferred Stock on any Investor Redemption Date are insufficient to
redeem the total number of such shares to be redeemed on such date,
those funds which are legally available (without rendering the
Corporation insolvent) shall be used to redeem the maximum possible
number of shares ratably among the holders of such shares based
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upon the aggregate number of such shares held by each such holder. At
any time thereafter when additional funds of the Corporation are
legally available which will not make the Corporation insolvent for
the redemption of shares such funds shall immediately be used to
redeem the balance of the shares which the Corporation has become
obligated to redeem on any Investor Redemption Date but which it had
not redeemed.
(b) Redemption at the Option of the Corporation.
The Series D Preferred Stock is redeemable at the option of
the Corporation, in whole or in part at a per share price equal to the Original
Cost of such share plus any accrued but unpaid dividends on each share, if any,
to the date of payment; provided however, that in the event the Corporation
shall redeem all or any portion of the shares of the outstanding Series D
Preferred Shares, then the holder of Series D Preferred Shares shall be entitled
to receive a warrant (the "Warrant") that is initially exercisable for that
number of shares of Common Stock equal to the number of shares of Common Stock,
including the accrued but unpaid dividends thereon, into which such redeemed
shares would have been convertible in the event of an optional conversion at
such time pursuant to Section 6(a) hereof, of the shares redeemed hereunder
immediately prior to such redemption; provided, further, however, that in the
event the Series D Preferred Shares shall be redeemed by the Corporation in
connection with a Change of Control the amount paid by the Corporation to the
holder in connection with such prepayment shall equal the Change of Control
Price. The initial exercise price for each share of Common Stock issuable upon
exercise of the Warrant shall be equal to the Conversion Price in effect
immediately prior to the prepayment. The Warrant shall have customary cashless
conversion and exercise provisions, customary anti-dilution protections
economically identical to the Series D Preferred Stock and shall otherwise be in
form and substance reasonably acceptable to the holder of such shares.
(c) General
(i) No shares of Series D Preferred Stock are entitled to any
dividends accumulating after the date on which the full redemption
price for such share is paid to the holder thereof. On such date all
rights of the holder of such share shall cease, and such share shall
not be deemed to be outstanding.
(ii) Any shares of Series D Preferred Stock which are redeemed
or otherwise acquired by the Corporation shall be canceled and shall
not be reissued (as treasury shares), sold or transferred.
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(iii) Neither the Corporation nor any Subsidiaries shall offer
to purchase, redeem or acquire any shares of Series D Preferred Stock
other than pursuant to the terms of this Article XII or pursuant to a
purchase offer made to all holders of Series D Preferred Stock pro
rata based upon the number of such shares owned by such holders.
6. Conversion.
(a) Optional Conversion of Series D Preferred Stock into Common
Stock.
Subject to and in compliance with the applicable provisions of
this Article XII, each holder of shares of Series D Preferred Stock shall have
the right, at such holder's option, at any time and from time to time, to
convert any such share, or the accrued but unpaid dividends accrued thereon,
into that number of fully paid and nonassessable shares of Common Stock
(provided that in such event the holder shall have the option to require that
such shares be Qualified Securities) equal to the quotient obtained by dividing
(x) the sum of the Original Cost of such shares of Series D Preferred Stock,
plus all accrued but unpaid dividends thereon, by (y) the Conversion Price, as
last adjusted and then in effect, by surrender of the certificates representing
such share to be converted; provided however, that the Preferred Holder shall
have the right to convert all or a portion of the accrued but unpaid dividends
on any share of Series D Preferred Stock without the need to convert the share
of Series D Preferred Stock on which such dividends accrued. The Corporation
shall give the Preferred Holders reasonable prior notice of a Sale of the
Corporation, including the price and material terms and conditions thereof, in
order to provide the Preferred Holders reasonable opportunity to consider
whether to redeem or convert the Series D Preferred Stock, or the accrued but
unpaid dividends accrued thereon, into Common Stock at or prior to such Sale of
the Corporation. If the price or material terms or conditions of such
transaction thereafter change, the Corporation shall promptly deliver written
notice to the Preferred Holders specifying such changes. Upon conversion, the
Corporation will issue fractional shares of its Common Stock, as applicable, and
shall not distribute cash in lieu of such fractional shares unless such cash
distribution is approved by the Requisite Preferred Holders.
(b) Mandatory Conversion of Series D Preferred Stock into Common
Stock.
Upon the occurrence of a Mandatory Conversion Event, all
shares of Series D Preferred Stock then outstanding shall, at the option of the
Corporation by virtue of the delivery of a notice by the Corporation to the
holder notifying the holder of the occurrence of such Mandatory Conversion
Event, which notice shall state the date upon which such conversion shall become
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effective (the "Effective Date") (which date shall be no earlier than 15
Business Days after the date of delivery), and without any action on the part of
the holders thereof, shall on the Effective Date be deemed automatically
converted, in accordance with Section 6(d)(ii), into that number of fully paid
and nonassessable shares of Qualified Securities into which such shares,
including the accrued but unpaid dividends accrued thereon, would have been
convertible in the event of optional conversion at such time pursuant to
subsection (a) above. Upon conversion, the Corporation will issue fractional
shares of its Qualified Securities, as applicable, and shall not distribute cash
in lieu of such fractional shares unless such cash distribution is approved by
the Requisite Preferred Holders.
(c) Adjustment of Conversion Price.
(i) The initial Conversion Price was established based upon
the Corporation's representation and warranty in the Securities Purchase
Agreement that 1,628,664 shares of Common Stock represented (the "Target
Percentage") no less than 10.68% of the 15,240,908 Common Stock Equivalents
outstanding as of the date of the Securities Purchase Agreement (inclusive of
the 1,042,150 Common Stock Equivalents reserved but not necessarily issued under
the Equity Incentive Plans and the 4,885,993 shares issuable upon conversion of
the Securities to be issued pursuant to the Purchase Agreement). In the event
such representation and warranty is untrue, the Conversion Price shall be
reduced (but not increased) to such Conversion Price as would have been obtained
had the initial Conversion Price been properly set to meet the Target
Percentage.
(ii) The Conversion Price shall also be subject to adjustment
from time to time as follows:
(A) If the Corporation shall, at any time or from time to
time after the First Closing Date, issue any shares of Common Stock
(other than Excluded Stock) without consideration or for a
consideration per share less than the Adjusted Market Price in
effect immediately prior to the issuance of such Common Stock, then
the Conversion Price in effect immediately prior to each such
issuance shall forthwith be lowered (but never increased) to a
price equal to the sum of (x) the Conversion Premium and (y) the
quotient obtained by dividing:
(1) an amount equal to the sum of (x) the total number
of shares of Common Stock outstanding immediately prior
to such issuance, multiplied by the Market Price in
effect immediately prior to such issuance, and (y) the
consideration received by the Corporation upon such
issuance; by
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(2) the total number of shares of Common Stock
outstanding (including any shares of Common Stock
deemed to have been issued pursuant to subdivision (3)
of clause (B) below) immediately after the issuance of
such Common Stock.
(B) For the purposes of any adjustment of the Conversion Price
pursuant to clause (A) above, the following provisions shall be
applicable:
(1) In the case of the issuance of Common Stock for
cash in a public offering or private placement, the
consideration shall be deemed to be the amount of cash
paid therefor prior to deducting therefrom any usual
and customary discounts, commissions or placement fees
paid by the Corporation to any underwriter or placement
agent in connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the
Fair Value thereof.
(3) In the case of the issuance of options to purchase
or rights to subscribe for Common Stock, Securities by
their terms convertible into or exchangeable for Common
Stock, or options to purchase or rights to subscribe
for such convertible or exchangeable Securities:
(a) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options
to purchase or rights to subscribe for Common
Stock shall be deemed to have been issued at the
time such options or rights were issued and for a
consideration equal to the consideration
(determined in the manner provided in
subdivisions (1) and (2) above), if any, received
by the Corporation upon the issuance of such
options or rights plus the minimum purchase price
provided in such options or rights for the Common
Stock covered thereby;
(b) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in
exchange for any such convertible or exchangeable
Securities or upon the exercise of options to
purchase or rights to subscribe for
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such convertible or exchangeable Securities and
subsequent conversion or exchange thereof shall
be deemed to have been issued at the time such
Securities, options, or rights were issued and
for a consideration equal to the consideration
received by the Corporation for any such
Securities and related options or rights
(excluding any cash received on account of
accrued interest or accrued dividends), plus the
additional consideration, if any, to be received
by the Corporation upon the conversion or
exchange of such Securities or the exercise of
any related options or rights (the consideration
in each case to be determined in the manner
provided in subdivisions (1) and (2) above);
(c) on any change in the number of shares or exercise
price of Common Stock deliverable upon exercise
of any such options or rights or conversions of
or exchange for such Securities, the Conversion
Price shall forthwith be readjusted to such
Conversion Price as would have been obtained had
the adjustment made upon the issuance of such
options, rights or Securities not converted prior
to such change or options or rights related to
such Securities not converted prior to such
change been made upon the basis of such change;
and
(d) on the expiration of any such options or rights,
the termination of any such rights to convert or
exchange or the expiration of any options or
rights related to such convertible or
exchangeable Securities, the Conversion Price
shall forthwith be readjusted to such Conversion
Price as would have obtained had the adjustment
made upon the issuance of such options, rights,
Securities or options or rights related to such
Securities been made upon the basis of the
issuance of only the number of shares of Common
Stock actually issued upon the exercise of such
options or rights, upon the conversion or
exchange of such Securities, or upon the exercise
of the options or rights related to such
Securities and subsequent conversion or exchange
thereof.
(iii) If, at any time after the Original Issuance Date, the
number of shares of Common Stock outstanding is increased by a stock dividend
payable in shares of Common Stock or by a subdivision
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or split-up of shares of Common Stock, then, following the record date for the
determination of holders of Common Stock entitled to receive such stock
dividend, subdivision or split-up (or if no record date is set, the date such
stock dividend, subdivision or stock split is consummated), the Conversion Price
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of Series D Preferred Stock shall be
increased in proportion to such increase in outstanding shares.
(iv) If, at any time after the Original Issuance Date, the
number of shares of Common Stock outstanding is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date for such
combination, the Conversion Price shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of each share of Series
D Preferred Stock shall be decreased in proportion to such decrease in
outstanding shares.
(v) In the event of any capital reorganization of the
Corporation, any reclassification of the stock of the Corporation (other than a
change in par value or from no par value to par value or from par value to no
par value or as a result of a stock dividend or subdivision, split-up or
combination of shares), or any consolidation or merger of the Corporation, each
share of Series D Preferred Stock shall after such reorganization,
reclassification, consolidation, or merger be convertible into the kind and
number of shares of stock or other Securities or property of the Corporation or
of the corporation resulting from such consolidation or surviving such merger to
which the holder of the number of shares of Common Stock deliverable
(immediately prior to the time of such reorganization, reclassification,
consolidation or merger) upon conversion of such share of Series D Preferred
Stock would have been entitled upon such reorganization, reclassification,
consolidation or merger. The provisions of this clause shall similarly apply to
successive reorganizations, reclassifications, consolidations or mergers.
(vi) If any event occurs of the type contemplated by the
provisions of this Section 6 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the
Corporation's Board of Directors shall make an appropriate reduction in the
Conversion Price so as to protect the rights of the holders of the Series D
Preferred Stock.
(vii) All calculations under this paragraph shall be made to
the nearest one hundredth (1/100) of a cent.
(viii) In any case in which the provisions of this Section
6(c) shall require that an adjustment shall become effective immediately after a
record date of an event, the Corporation may defer until the occurrence of such
event (i) issuing to the holder of any share of Series D Preferred Stock
converted after such record date and before the occurrence
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of such event the shares of capital stock issuable upon such conversion by
reason of the adjustment required by such event in addition to the shares of
capital stock issuable upon such conversion before giving effect to such
adjustments, and (ii) paying to such holder any amount in cash in lieu of a
fractional share of capital stock pursuant to paragraph (iii) above; provided,
however, that the Corporation shall deliver to such holder an appropriate
instrument evidencing such holder's right to receive such additional shares and
such cash.
(ix) Whenever the Conversion Price shall be adjusted as
provided in this paragraph (c), the Corporation shall make available for
inspection during regular business hours, at its principal executive offices or
at such other place as may be designated by the Corporation, a statement, signed
by its chief executive officer, showing in detail the facts requiring such
adjustment and the Conversion Price that shall be in effect after such
adjustment. The Corporation shall also cause a copy of such statement to be sent
by first class certified mail, return receipt requested and postage prepaid, to
each holder of Series D Preferred Stock at such holder's address appearing on
the Corporation's records. Where appropriate, such copy may be given in advance
and may be included as part of any notice required to be mailed under the
provisions of paragraph (x) below.
(x) If the Corporation shall propose to take any action of the
types described in clauses (iii), (iv) or (v) of this paragraph (c) above, the
Corporation shall give notice to each holder of shares of Series D Preferred
Stock, in the manner set forth in paragraph (ix) above, which notice shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. Such notice shall also set forth such facts
with respect thereto as shall be reasonably necessary to indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Conversion Price and the number, kind or class of shares or other
Securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of shares of Series D
Preferred Stock. In the case of any action which would require the fixing of a
record date, such notice shall be given at least 10 days prior to the date so
fixed, and in case of all other action, such notice shall be given at least 10
days prior to the taking of such proposed action. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of any such
action.
(xi) In the event that the Requisite Preferred Holders consent
in writing to limit, or waive in its entirety, any anti-dilution adjustment to
which the holders of the Series D Preferred Stock would otherwise be entitled
hereunder, the Corporation shall not be required to make any adjustment
whatsoever with respect to any Series D Preferred Stock in excess
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of such limit or at all, as the terms of such consent may dictate.
(xii) The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 6 and in the taking of all such action as may be necessary or
appropriate in order to protect the exercise rights of the holders of Preferred
Stock against impairment.
(xiii) The computations of all amounts under this Section 6
shall be made assuming all other anti-dilution or similar adjustments to be made
to the terms of all other securities resulting from the transaction causing an
adjustment pursuant to this Section 6 have previously been made so as to
maintain the relative economic interest of the Preferred Stock vis a vis all
other securities issued by the Corporation.
(xiv) The Corporation shall take or cause to be taken such
steps as shall be necessary to ensure that the par value per share of Common
Stock is at all time less than or equal to the Conversion Price.
(xv) In the event the Corporation grants, issues or sells any
options, convertible securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then the Preferred Holder shall be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate number or amount of such stock, warrants, securities or other property
which such Holder could have acquired if such Holder had held the Common Stock
acquirable upon complete conversion of this Series D Preferred Stock immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of the grant,
issue or sale of such Purchase Rights.
(d) Conversion Procedures.
(i) Each conversion of shares of any class of capital stock of
the Corporation into shares of another class of capital stock of the
Corporation shall be effected by the surrender of the certificate or
certificates representing the shares to be converted (the "Converting
Shares") at the principal office of the Corporation
(or such other office or agency of the Corporation as the Corporation
may designate by written notice to the holders of such class
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of capital stock) at any time during its usual business hours, together
with written notice by the holder of such Converting Shares, stating
that such holder desires to convert the Converting Shares, or a stated
number of the shares represented by such certificate or certificates,
into an equal number of shares of the class into which such shares may
be converted (the "Converted Shares"). Such notice shall also state the
name or names (with addresses) and denominations in which the
certificate or certificates for Converted Shares are to be issued and
shall include instructions for the delivery thereof. A holder of
Converting Shares may make any such notice of conversion, whether such
conversion is in connection with a Sale of the Corporation or
otherwise, conditional upon the happening of any event or the passage
of such time as is specified by such holder in such conversion notice,
and may rescind any notice of conversion prior to the effective time
thereof specified in any such notice. Promptly after such surrender and
the receipt of such written notice of conversion, the Corporation will
issue and deliver in accordance with the surrendering holder's
instructions the certificate or certificates evidencing the Converted
Shares issuable upon such conversion, and the Corporation will deliver
to the converting holder a certificate (which shall contain such
legends as were set forth on the surrendered certificate or
certificates) representing any shares which were represented by the
certificate or certificates that were delivered to the Corporation in
connection with such conversion, but which were not converted. Such
conversion, to the extent permitted by law, shall be deemed to have
been effected as of the close of business on the date on which such
certificate or certificates shall have been surrendered and such notice
shall have been received by the Corporation, and at such time the
rights of the holder of the Converting Shares as such holder shall
cease and the person or persons in whose name or names the certificate
or certificates for the Converted Shares are to be issued upon such
conversion shall be deemed to have become the holder or holders of
record of the Converted Shares.
(ii) Upon issuance of shares in accordance with this Section, such
Converted Shares shall be deemed to be duly authorized, validly issued,
fully paid and non-assessable, with no personal liability attaching to
the ownership thereof and free from all taxes, liens or charges with
respect thereto due to any action of the Corporation. The Corporation
shall take all such actions as may be necessary to assure that all such
shares may be so issued without violation of any Applicable Law or
governmental regulation or any requirements of any domestic securities
exchange upon which such shares may be listed (except for official
notice of issuance which will be immediately transmitted by the
Corporation upon issuance). The Corporation shall not close
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its books against the transfer of shares in any manner which would
interfere with the timely conversion of any shares. The issuance of
certificates for shares of any class of capital stock (upon conversion
of shares of any other class of capital stock or otherwise) shall be
made without charge to the holders of such shares for any issuance tax
in respect thereof or other cost incurred by the Corporation in
connection with such conversion and/or the issuance of such shares;
provided, however, that the Corporation shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of
the holder of the shares converted. In the event the holder of the
shares converted hereunder, in connection with the conversion of shares
hereunder, shall be required to file a notification pursuant to the
Hart-Scott-Rodino Anti-Trust Improvements Act of 1976 (the "HSR Act"),
the Corporation and the holder shall take all actions necessary to
comply with such notification requirement and the conversion hereunder
of the shares, or the accrued but unpaid dividends on such shares,
shall become effective upon the expiration of the applicable waiting
period. Subject to Sections 6(a) and (b), no fractional shares of
Common Stock or scrip shall be issued upon conversion of any shares.
The Corporation will pay and save the holder of Series D Preferred
Shares harmless against all liability for the payment of all actual and
reasonable costs and expenses incurred by the holder in connection with
any requirements to file a notification pursuant to the HSR Act. The
number of full shares issuable upon conversion shall be computed on the
basis of the aggregate number of shares to be converted by a holder.
Instead of any fractional shares which would otherwise be issuable upon
conversion of the shares, the Corporation shall pay a cash adjustment
in respect of such fractional interest in an amount equal to the
product of (i) the Fair Value of one share of such Common Stock and
(ii) such fractional interest. The holders of fractional interests
shall not be entitled to any rights as stockholders of the Corporation
in respect of such fractional interests.
7. Reservation of Shares.
The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock, solely for the
purpose of issuance upon the conversion of shares of Series D Preferred Stock
hereunder, such number of shares of such class as are then issuable upon the
conversion of all outstanding shares of such other class which may be converted.
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8. Shares Acquired by the Corporation.
Any shares of Series D Preferred Stock which are redeemed,
converted or otherwise acquired by the Corporation shall be canceled and shall
not be reissued (as treasury shares), sold or transferred as Series D Preferred
Stock but such shares shall become unclassified Preferred Stock of the
Corporation.
* * * *
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EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
dated as of May 18, 1998, among GENTLE
DENTAL SERVICE CORPORATION, a Washington
corporation (the "Company"), and the
PURCHASERS (as defined below).
The Purchasers own or have the right to purchase or otherwise acquire
(by the exercise, exchange or conversion of shares of the Company's securities
owned by the Purchasers that are exercisable or exchangeable for or convertible
into Common Stock (as hereinafter defined), without regard to any restrictions
on the ability of any Purchaser to exercise such rights or exercise exchange or
conversion) shares of the Common Stock, no par value (the "Common Stock"), of
the Company (or such other class of common stock of the Company into which the
Common Stock may be converted or reclassified, and all references herein to the
Common Stock shall mean such other class of common stock, if applicable). The
Company and the Purchasers deem it to be in their respective best interests to
set forth the rights of the Purchasers in connection with public offerings and
sales of the capital stock of the Company.
ACCORDINGLY, in consideration of the premises and mutual covenants and
obligations hereinafter set forth, the Company and the Purchasers hereby agree
as follows:
SECTION 1. Definitions. As used in this Agreement, the following
terms shall have the following meanings:
"Affiliate" shall have the meaning ascribed to it in the Purchase
Agreement.
"Commission" shall mean the Securities and Exchange Commission or any
other Governmental Authority at the time administering the
Securities Act.
"Common Stock" shall have the meaning ascribed to it in the Preamble.
"Common Stock Equivalent" shall mean one share of Common Stock or the
right to acquire, whether or not such right is immediately exercisable, one
share of Common Stock, whether evidenced by a Note, Warrant, Preferred Stock,
option, warrant, convertible security or other instrument or agreement.
"Notes" shall have the meaning ascribed to it in the Purchase
Agreement.
"CVCA" shall mean Chase Venture Capital Associates, L.P., a California
limited partnership.
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934 or any
successor Federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Governmental Authority" shall mean any domestic or foreign government
or political subdivision thereof, whether on a federal, state or local level
and whether executive, legislative or judicial in nature, including any agency,
authority, board, bureau, commission, court, department or other
instrumentality thereof.
"Material Transaction" shall mean any material transaction in which
the Company or any of its subsidiaries proposes to engage or is engaged,
including a purchase or sale of assets or securities, financing, merger,
consolidation, tender offer or any other transaction that would require
disclosure pursuant to the Exchange Act, and with respect to which the Board of
Directors of the Company reasonably has determined in good faith that
compliance with this Agreement may reasonably be expected to either materially
interfere with the Company's or such subsidiary's ability to consummate such
transaction in a timely fashion or require the Company to disclose material,
non-public information prior to such time as it would otherwise be required to
be disclosed.
"Other Shares" shall mean at any time those shares of Common Stock
which do not constitute Primary Shares or Registrable Shares.
"Person" shall be construed as broadly as possible and shall include
an individual person, a partnership (including a limited liability
partnership), a corporation, an association, a joint stock company, a limited
liability company, a trust, a joint venture, an unincorporated organization and
a Governmental Authority.
"Preferred Stock" shall have the meaning ascribed to it in the
Purchase Agreement.
"Primary Shares" shall mean, at any time, the authorized but unissued
shares of Common Stock held by the Company in its treasury.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any prospectus subject to completion, and any such
prospectus as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Shares and, in
each case, by all other amendments and supplements to such prospectus,
including post-effective amendments, and in each case including all material
incorporated by reference therein.
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<PAGE>
"Purchase Agreement" means the Securities Purchase Agreement dated as
of May 12, 1998, between the Company and the Purchasers, as amended from time
to time.
"Purchasers" shall mean, collectively, (i) the Persons listed on
Schedule I attached to this Agreement and (ii) any successor to, or assignee or
transferee of Restricted Securities held by a Purchaser who or which agrees in
writing to be treated as a Purchaser hereunder and to be bound by and comply
with all of the applicable terms and provisions hereof.
"Registrable Shares" shall mean, at any time, and with respect to any
Purchaser, the shares of Common Stock held by such Purchaser which constitute
Restricted Securities. As to any particular Registrable Shares, once issued,
such Registrable Shares shall cease to be Registrable Shares (A) when such
Registrable Shares have been registered under the Securities Act, the
Registration Statement in connection therewith has been declared effective and
they have been disposed of pursuant to and in the manner described in such
effective Registration Statement, (B) when such Registrable Shares are sold or
distributed pursuant to Rule 144, (C) in the case of any Purchaser who,
together with its Affiliates, holds Common Stock Equivalents that constitute
less than two percent of the issued and outstanding shares of Common Stock of
the Company, one year after the date on which such Purchaser may first sell
such Registrable Shares under Rule 144 (provided that such Purchaser is still
able, at such time, to sell such Registrable Shares under Rule 144), or (D)
when such Registrable Shares have ceased to be outstanding.
"Registration Statement" shall mean any registration statement of the
Company which covers any of the Registrable Shares, and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Representative" of a Person shall be construed broadly and shall
include such Person's partners, officers, directors, employees, agents,
counsel, accountants and other representatives.
"Requisite Purchasers" shall mean those Purchasers who hold in the
aggregate in excess of a majority the Restricted Securities (based on Common
Stock Equivalents) held by all of the Purchasers, provided that so long as
CVCA, or its Affiliates, is a Significant Holder, CVCA must be included in such
majority.
"Restricted Securities" shall mean, at any time and with respect to
any Purchaser, the Common Stock Equivalents and any other securities received
with respect to any such Common Stock Equivalents, which are held by such
Purchaser and which
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theretofore have not been sold to the public pursuant to a Registration
Statement or pursuant to Rule 144.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act or
any successor rule thereto.
"Securities" shall have the meaning ascribed to it in the Purchase
Agreement.
"Securities Act" shall mean the Securities Act of 1933 or any
successor Federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Significant Holder" shall have the meaning ascribed to it in the
Purchase Agreement.
"Suspension Period" shall have the meaning ascribed to it in Section
10.
"Transfer" shall mean any disposition of any Restricted Securities or
of any interest therein which would constitute a sale thereof within the
meaning of the Securities Act, other than any such disposition pursuant to a
Registration Statement and in compliance with all applicable state securities
and "blue sky" laws.
"Warrants" shall have the meaning ascribed to it in the Purchase
Agreement.
SECTION 2. Required Registration.
(a) If at any time the Company shall be requested by CVCA to effect
the registration under the Securities Act of Registrable Shares, it shall
promptly give written notice to the other Purchasers of its requirement to so
register such Registrable Shares and, upon the written request, delivered to
the Company within 30 days after delivery of any such notice by the Company, of
the other Purchasers to include in such registration Registrable Shares (which
request shall specify the number of Registrable Shares proposed to be included
in such registration), the Company shall, subject to Section 2(b) below,
promptly use its best efforts to effect such registration under the Securities
Act of the Registrable Shares which the Company has been so requested to
register.
(b) Anything contained in Section 2(a) to the contrary
notwithstanding, the Company shall not be obligated to effect pursuant to
Section 2(a) any registration under the Securities Act except in accordance
with the following provisions:
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<PAGE>
(i) the Company shall not be obligated to use its best
efforts to file and cause to become effective (A) more than one
Registration Statement initiated pursuant to Section 2(a) (provided,
that if the Company, shall consummate a "shelf" registration pursuant
to this Agreement such registration shall be deemed to count as one
demand registration by the Purchasers); provided however, that if the
Purchasers were unable to sell at least 90% of the Registrable Shares
requested to be included in the registration pursuant to Section 2(a)
as a result of an underwriter's cutback, then an additional
registration shall be added to this Section 2(b)(i) until the
foregoing condition is satisfied, (B) any Registration Statement
during any period in which any other registration statement (other
than on Form S-4 or Form S-8 promulgated under the Securities Act or
any successor forms thereto pursuant to which Primary Shares are to be
or were sold has been filed and not withdrawn or has been declared
effective within the prior 90 days, or (C) any Registration Statement
if the aggregate market value of the Registrable Shares to be
registered thereunder, whether held by CVCA or others, shall be less
than $5 million;
(ii) the Company may delay the filing or effectiveness of any
Registration Statement for a period of up to 90 days after the date of
a request for registration pursuant to Section 2(a) if at the time of
such request the Company is engaged in a Material Transaction; and
(iii) with respect to any registration pursuant to Section
2(a), the Company may include in such registration any Primary Shares
or Other Shares; provided, however, that if the managing underwriter
advises the Company that the inclusion of all Registrable Shares,
Primary Shares and Other Shares proposed to be included in such
registration would interfere with the successful marketing (including
pricing) of all such securities, then the number of Registrable
Shares, Primary Shares and Other Shares proposed to be included in
such registration shall be included in the following order:
(A) first, the Registrable Shares held by the
Purchasers requesting that their Registrable Shares be
included in such registration pursuant to Section 2(a), pro
rata based upon the number of Restricted Securities owned by
each such Purchaser at the time of such registration;
(B) second, the Primary Shares; and
(C) third, the Other Shares.
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(c) A requested registration under this Section 2 may be
rescinded prior to such registration being declared effective by the
Commission by written notice to the Company from CVCA; provided,
however, that such rescinded registration shall not count as a
registration initiated pursuant to this Section 2 for purposes of
subclause (A) of clause (i) of subsection (b) above if the Company
shall have been reimbursed (pro rata by the Purchasers requesting
registration or in such other proportion as they may agree) for all
out-of-pocket expenses incurred by the Company in connection with such
rescinded registration.
SECTION 3. Shelf Registration. If at any time the Company shall be
requested by the Requisite Purchasers to file a shelf registration statement
for an offering to be made on a continuous basis pursuant to Rule 415
promulgated under the Securities Act covering the Registrable Shares, then:
(i) the Company shall, as expeditiously as
practicable, file a shelf registration statement under the
Securities Act permitting registration of such Purchasers'
Registrable Shares for resale by Purchasers in the manner or
manners designated by them (including, without limitation,
one or more underwritten offerings);
(ii) the Company shall use its best efforts to keep
such shelf registration statement continuously effective
under the Securities Act until the date which is 18 months
from its effective date, or such shorter period ending when
all the Registrable Shares covered by such shelf registration
statement have been sold in the manner set forth and as
contemplated in the shelf registration statement; and
(iii) the Company shall promptly supplement and
amend the shelf registration statement if required by the
rules, regulations or instructions applicable to the
registration form used for such shelf registration statement,
if required by the Securities Act, or if reasonably requested
by CVCA or by any underwriter of the Registrable Shares
registered thereunder.
SECTION 4. Piggyback Registration. If the Company at any time proposes
for any reason to register Primary Shares or Other Shares under the Securities
Act (other than on Form S-4 or Form S-8 promulgated under the Securities Act or
any successor forms thereto), it shall promptly give written notice to each
Purchaser of its intention so to register the Primary Shares or Other Shares
and, upon the written request, given within 20 days after delivery of any such
notice by the Company, of any such Purchaser to include in such registration
Registrable Shares (which request shall specify the number of Registrable
Shares proposed to be included in such registration), the Company shall use its
best efforts to cause all such Registrable Shares to be
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<PAGE>
included in such registration on the same terms and conditions as the
securities otherwise being sold in such registration; provided, however, that
if the managing underwriter advises the Company that the inclusion of all
Registrable Shares or Other Shares proposed to be included in such registration
would interfere with the successful marketing (including pricing) of Primary
Shares proposed to be registered by the Company, then the number of Primary
Shares, Registrable Shares and Other Shares proposed to be included in such
registration shall be included in the following order:
(i) first, the Primary Shares;
(ii) second, the Registrable Shares held by the
Purchasers, pro rata based upon the number of Restricted
Securities owned by each such Purchaser at the time of such
registration; and
(iii) third, the Other Shares.
SECTION 5. Holdback Agreement.
(a) If the Company at any time shall register shares of Common Stock
under the Securities Act in an underwritten offering pursuant to any
registration so long as the Requisite Purchasers agree in writing that this
holdback provision applies to such registration, then the Purchasers shall not
sell, make any short sale of, grant any option for the purchase of, or
otherwise dispose of any Restricted Securities (other than those Registrable
Shares included in such registration pursuant to Section 2, 3 or 4) without the
prior written consent of the Company for a period as shall be determined by the
managing underwriters, which period cannot begin more than 10 days prior to the
effectiveness of such Registration Statement and cannot last more than 180 days
after the effective date of such Registration Statement.
(b) If the Company at any time pursuant to Sections 2, 3 or 4 of this
Agreement shall register under the Securities Act Registrable Shares held by
Purchasers for sale to the public pursuant to an underwritten offering, the
Company shall not, without the prior written consent of the Requisite
Purchasers, effect any public sale or distribution of securities similar to
those being registered or any securities convertible into or exercisable or
exchangeable for such securities, for such period as shall be determined by the
managing underwriters, which period shall not begin more than 10 days prior to
the effectiveness of the Registration Statement pursuant to which such public
offering shall be made and shall not last more than 180 days after the closing
of sale of shares pursuant to such Registration Statement.
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SECTION 6. Preparation and Filing. If and whenever the Company is
under an obligation pursuant to the provisions of this Agreement to use its
best efforts to effect the registration of any Registrable Shares, the Company
shall, as expeditiously as practicable:
(i) use its best efforts to cause a Registration Statement
that registers such Registrable Shares to become and remain effective
for a period of 90 days or until all of such Registrable Shares have
been disposed of (if earlier);
(ii) furnish, at least five business days before filing a
Registration Statement that registers such Registrable Shares, a
Prospectus relating thereto and any amendments or supplements relating
to such Registration Statement or Prospectus, to one counsel selected
by CVCA (the "Purchasers' Counsel"), copies of all such documents
proposed to be filed (it being understood that such five-business-day
period need not apply to successive drafts of the same document
proposed to be filed so long as such successive drafts are supplied to
such counsel in advance of the proposed filing by a period of time
that is customary and reasonable under the circumstances);
(iii) prepare and file with the Commission such amendments
and supplements to such Registration Statement and the Prospectus used
in connection therewith as may be necessary to keep such Registration
Statement effective for at least a period of 90 days or until all of
such Registrable Shares have been disposed of (if earlier) and to
comply with the provisions of the Securities Act with respect to the
sale or other disposition of such Registrable Shares;
(iv) notify the Purchasers' Counsel promptly in writing (A)
of any comments by the Commission with respect to such Registration
Statement or Prospectus, or any request by the Commission for the
amending or supplementing thereof or for additional information with
respect thereto, (B) of the issuance by the Commission of any stop
order suspending the effectiveness of such Registration Statement or
Prospectus or any amendment or supplement thereto or the initiation of
any proceedings for that purpose and (C) of the receipt by the Company
of any notification with respect to the suspension of the
qualification of such Registrable Shares for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purposes;
(v) use its best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of
such jurisdictions as any seller of Registrable Shares reasonably
requests and do any and all
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other acts and things which may be reasonably necessary or advisable
to enable such seller of Registrable Shares to consummate the
disposition in such jurisdictions of the Registrable Shares owned by
such seller; provided, however, that the Company will not be required
to qualify generally to do business, subject itself to general
taxation or consent to general service of process in any jurisdiction
where it would not otherwise be required so to do but for this clause
(v);
(vi) furnish to each seller of such Registrable Shares such
number of copies of a summary Prospectus or other Prospectus,
including a preliminary Prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such
seller of Registrable Shares may reasonably request in order to
facilitate the public sale or other disposition of such Registrable
Shares;
(vii) use its best efforts to cause such Registrable Shares
to be registered with or approved by such other governmental agencies
or authorities as may be necessary by virtue of the business and
operations of the Company to enable the seller or sellers thereof to
consummate the disposition of such Registrable Shares;
(viii) notify on a timely basis each seller of such
Registrable Shares at any time when a Prospectus relating to such
Registrable Shares is required to be delivered under the Securities
Act within the appropriate period mentioned in clause (i) of this
Section 6 of the happening of any event as a result of which the
Prospectus included in such Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing and, at the request of such seller, prepare and furnish to
such seller a reasonable number of copies of a supplement to or an
amendment of such Prospectus as may be necessary so that, as
thereafter delivered to the offerees of such shares, such Prospectus
shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances then existing;
(ix) make available for inspection by any seller of such
Registrable Shares, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney, accountant
or other agent retained by any such seller or underwriter
(collectively, the "Inspectors"), all pertinent financial,
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business and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records"), as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and
employees to supply all information (together with the Records, the
"Information") reasonably requested by any such Inspector in
connection with such Registration Statement (and any of the
Information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so
notified, shall not be disclosed by the Inspectors unless (A) the
disclosure of such Information is necessary to avoid or correct a
misstatement or omission in the Registration Statement, (B) the
release of such Information is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction, (C) such Information has
been made generally available to the public, and (D) the seller of
Registrable Shares agrees that it will, upon learning that disclosure
of such Information is sought in a court of competent jurisdiction,
give notice to the Company and allow the Company, at the Company's
expense, to undertake appropriate action to prevent disclosure of the
Information deemed confidential);
(x) use its best efforts to obtain from its independent
certified public accountants a "cold comfort" letter in customary form
and covering such matters of the type customarily covered by cold
comfort letters;
(xi) use its best efforts to obtain, from its counsel, an
opinion or opinions in customary form (which shall also be addressed
to the Purchasers selling Registrable Shares in such registration);
(xii) provide a transfer agent and registrar (which may be
the same entity and which may be the Company) for such Registrable
Shares;
(xiii) issue to any underwriter to which any seller of
Registrable Shares may sell shares in such offering certificates
evidencing such Registrable Shares;
(xiv) list such Registrable Shares on any national securities
exchange on which any shares of the Common Stock are listed or, if the
Common Stock is not listed on a national securities exchange, use its
best efforts to qualify such Registrable Shares for inclusion on the
automated quotation system of the National Association of Securities
Dealers, Inc. (the "NASD"), National Market System ("NMS"), or such
other national securities exchange as the holders of a majority of
such Registrable Shares shall request included in such registration;
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(xv) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its securityholders, as soon as reasonably practicable, earnings
statements which need not be audited covering a period of 12 months
beginning within three months after the effective date of the
Registration Statement, which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act; and
(xvi) use its best efforts to take all other steps necessary
to effect the registration of such Registrable Shares contemplated
hereby.
SECTION 7. Expenses. All expenses incurred by the Company in complying
with Section 6, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the NASD), fees and expenses of
complying with securities and blue sky laws, printing expenses, fees and
expenses of the Company's counsel and accountants and fees and expenses of one
special legal counsel to the Purchasers selected by CVCA, shall be paid by the
Company; provided, however, that all underwriting discounts and selling
commissions applicable to the Registrable Shares shall not be borne by the
Company but shall be borne by the seller or sellers thereof, in proportion to
the number of Registrable Shares sold by such seller or sellers.
SECTION 8. Indemnification.
(a) In connection with any registration of any Registrable Shares
under the Securities Act pursuant to this Agreement, the Company shall
indemnify and hold harmless the seller of such Registrable Shares, each
underwriter, broker or any other Person acting on behalf of such seller, each
other Person, if any, who controls any of the foregoing Persons within the
meaning of the Securities Act and each Representative of any of the foregoing
Persons, against any losses, claims, damages or liabilities, joint or several,
to which any of the foregoing Persons may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement under which such Registrable Shares were registered, any preliminary
Prospectus or final Prospectus contained therein, any amendment or supplement
thereto or any document incident to registration or qualification of any
Registrable Shares, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or, with respect to any
Prospectus, necessary to make the statements therein in light of the
circumstances under which they were made not misleading, or any violation by
the Company of the Securities Act or state securities or blue sky laws
applicable to the Company and relating to action or inaction required of the
Company in connection with such registration or qualification under such state
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securities or blue sky laws, and the Company shall promptly reimburse such
seller, such underwriter, such broker, such controlling Person or such
Representatives for any legal or other expenses incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
any such Person to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in said Registration Statement,
preliminary Prospectus, amendment, supplement or document incident to
registration or qualification of any Registrable Shares in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such Person, or a Person duly acting on their
behalf, specifically for use in the preparation thereof; provided further,
however, that the foregoing indemnity agreement is subject to the condition
that, insofar as it relates to any untrue statement, allegedly untrue
statement, omission or alleged omission made in any preliminary Prospectus but
eliminated or remedied in the final Prospectus (filed pursuant to Rule 424 of
the Securities Act), such indemnity agreement shall not inure to the benefit of
any indemnified party from whom the Person asserting any loss, claim, damage,
liability or expense purchased the Registrable Shares which are the subject
thereof, if a copy of such final Prospectus had been timely made available to
such Indemnified Person and such final Prospectus was not delivered to such
Person with or prior to the written confirmation of the sale of such
Registrable Shares to such Person.
(b) In connection with any registration of Registrable Shares under
the Securities Act pursuant to this Agreement, each seller of Registrable
Shares shall indemnify and hold harmless (in the same manner and to the same
extent as set forth in the paragraph (a) of this Section 8) the Company, each
underwriter or broker involved in such offering, each other seller of
Registrable Shares under such Registration Statement, each Person who controls
any of the foregoing Persons within the meaning of the Securities Act and any
Representative of the foregoing Persons with respect to any statement or
omission from such Registration Statement, any preliminary Prospectus or final
Prospectus contained therein, any amendment or supplement thereto or any
document incident to registration or qualification of any Registrable Shares,
if such statement or omission was made in reliance upon and in conformity with
written information furnished to the Company or such underwriter through an
instrument duly executed by such seller or a Person duly acting on their behalf
specifically for use in connection with the preparation of such Registration
Statement, preliminary Prospectus, final Prospectus, amendment or supplement;
provided, however, that the maximum amount of liability in respect of such
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<PAGE>
indemnification shall be limited, in the case of each seller of Registrable
Shares, to an amount equal to the net proceeds actually received by such seller
from the sale of Registrable Shares effected pursuant to such registration.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 8, such indemnified party will, if a claim in
respect thereof is made against an indemnifying party, give written notice to
the latter of the commencement of such action (provided however, that an
indemnified party's failure to give such notice in a timely manner shall only
relieve the indemnification obligations of an indemnifying party to the extent
such indemnifying party is prejudiced by such failure). In case any such action
is brought against an indemnified party, the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be responsible
for any legal or other expenses subsequently incurred by the indemnified party
in connection with the defense thereof; provided, however, that if any
indemnified party shall have reasonably concluded that there may be one or more
legal or equitable defenses available to such indemnified party which are in
addition to or conflict with those available to the indemnifying party, or that
such claim or litigation involves or could have an effect upon matters beyond
the scope of the indemnity agreement provided in this Section 8, the
indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party and such indemnifying party shall
reimburse such indemnified party and any Person controlling such indemnified
party for that portion of the fees and expenses of any one lead counsel (plus
appropriate special and local counsel) retained by the indemnified party which
are reasonably related to the matters covered by the indemnity agreement
provided in this Section 8.
(d) If the indemnification provided for in this Section 8 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, claim, damage or liability referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amounts paid or payable by such indemnified party as a
result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other hand in connection with the
statements or omissions which resulted in such loss, claim, damage or liability
as well as any other relevant equitable considerations; provided, however, that
the maximum amount of
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<PAGE>
liability in respect of such contribution shall be limited, in the case of each
seller of Registrable Shares, to an amount equal to the net proceeds actually
received by such seller from the sale of Registrable Shares effected pursuant
to such registration. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
(e) The indemnification and contribution provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party and will survive the transfer of
securities.
SECTION 9. Underwriting Agreement.
(a) Notwithstanding the provisions of Sections 6 and 8, to the extent
that the Purchasers selling Registrable Shares in a proposed registration shall
enter into an underwriting or similar agreement, which agreement contains
provisions covering one or more issues addressed in such Sections of this
Agreement, the provisions contained in such Sections of this Agreement
addressing such issue or issues shall be of no force or effect with respect to
such registration, but this provision shall not apply to the Company if the
Company is not a party to the underwriting or similar agreement.
(b) If any registration pursuant to Section 2 is requested to be an
underwritten offering, the Company shall negotiate in good faith to enter into
a reasonable and customary underwriting agreement with the underwriters
thereof. The Company shall be entitled to receive indemnities from lead
institutions, underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, to the
same extent as provided above with respect to information so furnished in
writing by such Persons specifically for inclusion in any Prospectus or
Registration Statement and to the extent customary given their role in such
distribution.
(c) No Purchaser may participate in any registration hereunder that is
underwritten unless such Purchaser agrees to (i) sell such Purchaser's
Registrable Shares proposed to be included therein on the basis provided in any
underwriting arrangements acceptable to the Company and CVCA and (ii) as
expeditiously as possible, notify the Company of the occurrence of any event
concerning such Purchaser as a result of which the Prospectus relating to such
registration contains an untrue statement of a material fact or omits to state
a material fact
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<PAGE>
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
SECTION 10. Suspension. Anything contained in this Agreement to the
contrary notwithstanding, the Company may (not more than once with respect to
each registration), by notice in writing to each holder of Registrable Shares
to which a Prospectus relates, require such holder to suspend, for up to 90
days (the "Suspension Period"), the use of any Prospectus included in a
Registration Statement filed under Section 2, 3 or 4 if a Material Transaction
exists that would require an amendment to such Registration Statement or
supplement to such Prospectus (including any such amendment or supplement made
through incorporation by reference to a report filed under Section 13 of the
Exchange Act). The period during which such Prospectus must remain effective
shall be extended by a period equal to the Suspension Period. The Company may
(but shall not be obligated to) withdraw the effectiveness of any Registration
Statement subject to this provision.
SECTION 11. Information by Holder. Each holder of Registrable Shares
to be included in any registration shall furnish to the Company and the
managing underwriter such written information regarding such holder and the
distribution proposed by such holder as the Company or the managing underwriter
may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this Agreement.
SECTION 12. Exchange Act Compliance. From and after the Registration
Date or such earlier date as a registration statement filed by the Company
pursuant to the Exchange Act relating to any class of the Company's securities
shall have become effective, the Company shall comply with all of the reporting
requirements of the Exchange Act (whether or not it shall be required to do so)
and shall comply with all other public information reporting requirements of
the Commission which are conditions to the availability of Rule 144 for the
sale of the Common Stock. The Company shall cooperate with each Purchaser in
supplying such information as may be necessary for such Purchaser to complete
and file any information reporting forms presently or hereafter required by the
Commission as a condition to the availability of Rule 144.
SECTION 13. No Conflict of Rights. The Company represents and warrants
to the Purchasers that the registration rights granted to the Purchasers hereby
do not conflict with any other registration rights granted by the Company. The
Company shall not, after the date hereof, grant any registration rights which
conflict with or impair, or have any priority over, the registration rights
granted hereby. In any underwritten public offering initiated pursuant to
Section 2(a), the managing
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<PAGE>
underwriter shall be a nationally recognized investment banking firm selected
by the Company, and reasonably acceptable to CVCA.
SECTION 14. Termination. This Agreement shall terminate and be of no
further force or effect when there shall not be any Restricted Securities;
provided however, that Sections 7 and 8 shall survive the termination of this
Agreement.
SECTION 15. Successors and Assigns. This Agreement shall bind and
inure to the benefit of the Company and the Purchasers and, subject to Section
16, their respective successors and assigns.
SECTION 16. Assignment. Each Purchaser may assign its rights hereunder
to any purchaser from such Purchaser of Restricted Securities; provided,
however, that such purchaser shall, as a condition to the effectiveness of such
assignment, be required to execute a counterpart to this Agreement agreeing to
be treated as a Purchaser hereunder whereupon such purchaser shall have the
benefits of, and shall be subject to the restrictions contained in, this
Agreement as an Purchaser.
SECTION 17. Entire Agreement. This Agreement contains the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior arrangements or understandings with respect hereto.
SECTION 18. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument and shall be deemed to have been duly given
when delivered in Person, by telex, telegram or telecopy, by overnight courier,
or by first class registered or certified mail, postage prepaid, addressed to
such party at the address set forth below or such other address as may
hereafter be designated in writing by the addressee to the sender:
(i) if to the Company, to:
Gentle Dental Service Corporation
222 North Sepulveda Boulevard
El Segundo, California 90245
Telephone: (310) 765-2400
Telecopy: (310) 765-2459
Attention: Michael T. Fiore
President and Chief Executive
Officer;
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<PAGE>
with a copy to:
McDermott, Will & Emery
One Newport Place
1301 Dove Street, Suite 500
Newport Beach, California 92660
Telephone: (714) 851-0633
Telecopy: (714) 851-9349
Attention: Richard J. Babcock, Esq.;
(ii) if to any Purchaser, to him, her or
its address set forth on Schedule I
or, if none, in the books of the
Company;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Telephone: (212) 408-2400
Telecopy: (212) 408-2420
Attention: Harvey M. Eisenberg, Esq.
All such notices, requests, consents and other communications shall be deemed
to have been delivered (a) in the case of personal delivery, telex, telegram
or telecopy, on the date of such delivery, (b) in the, case of overnight
courier, on the next business day, and (c) in the case of mailing, on the
fifth business day following such mailing.
SECTION 19. Modifications; Amendments; Waivers. The terms and
provisions of this Agreement may not be modified or amended, nor may any
provision applicable to the Purchasers be waived, except pursuant to a writing
signed by the Company and Requisite Purchasers; provided, however, that (i) any
such amendment, modification, or waiver that would adversely affect the rights
hereunder of any Purchaser, in its capacity as an Purchaser, without similarly
affecting the rights hereunder of all Purchasers of such class, in their
capacities as Purchasers of such class, shall not be effective as to such
Purchaser without its prior written consent and (ii) Schedule I to this
Agreement shall be deemed to be automatically amended from time to time to
reflect the addition to this Agreement of any Person identified in clause (ii)
of the definition of Purchaser without requiring the consent of any party, and
the Company will, from time to time, distribute to the Purchasers a revised
Schedule I to reflect any such changes.
SECTION 20. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
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<PAGE>
SECTION 21. Severability. It is the desire and intent of the parties
that the provisions of this Agreement be enforced to the fullest extent
permissible under the law and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any provision of this Agreement
would be held in any jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting
the validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn
so as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 22. Governing Law; Etc. All questions concerning the
construction, interpretation and validity of this Agreement shall be governed
by and construed and enforced in accordance with the domestic laws of the State
of New York, without giving effect to any choice or conflict of law provision
or rule (whether in the State of New York or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
New York. In furtherance of the foregoing, the internal law of the State of New
York will control the interpretation and construction of this Agreement, even
if under such jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
SECTION 23. Counterparts; Validity. This Agreement may be executed in
any number of counterparts, each of which shall be an original, but all of
which taken together shall constitute one and the same agreement, and
telecopied signatures shall be effective. The failure of any Person holding
Registrable Shares to execute this Agreement shall not render this Agreement
invalid as between the Company and any other Person holding Registrable Shares.
SECTION 24. Entire Agreement This Agreement and the other documents,
certificates, instruments, writings and agreements referred to herein or
delivered pursuant hereto contain the entire understanding of the parties with
respect to the subject matter hereof and supersede in their entirety any and
all prior agreements and understandings between any of the parties hereto, all
of which are hereby terminated in their entirety and of no further force or
effect.
* * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement on the date first written above.
THE COMPANY:
GENTLE DENTAL SERVICE CORPORATION
By:
------------------------------------------
Name:
Title:
THE PURCHASERS:
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By: Chase Capital Partners,
its General Partner
By:
-----------------------------------------
Name:
Title:
DLJ CAPITAL CORP.
By:
----------------------------------------
Kathleen LaPorte
Attorney In Fact
DLJ FIRST ESC L.L.C.
By: DLJ LBO Plans Management Corporation
its Manager
By:
----------------------------------------
Kathleen LaPorte
Attorney In Fact
<PAGE>
SPROUT CAPITAL VII, L.P.
By: DLJ Capital Corp.
its Managing General Partner
By:
---------------------------------------
Kathleen LaPorte
Attorney In Fact
SPROUT GROWTH II, L.P.
By: DLJ Capital Corp.
its Managing General Partner
By:
--------------------------------------
Kathleen LaPorte
Attorney In Fact
THE SPROUT CEO FUND, L.P.
By: DLJ Capital Corp.
its General Partner
By:
-----------------------------------
Kathleen LaPorte
Attorney In Fact
<PAGE>
SCHEDULE I
----------
Purchasers
-----------
Chase Venture Capital Associates, L.P.
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, New York 10017
Attention: Jonas Steinman
Eric Green
Tel: (212) 622-3100
Fax: (212) 622-3101
DLJ Capital Corp.
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
DLJ First ESC L.L.C.
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
Sprout Capital VII, L.P.
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
<PAGE>
SCHEDULE I
----------
Purchasers
----------
Sprout Growth II, L.P.
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
The Sprout CEO Fund, L.P.
c/o The Sprout Group
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, California 94025
Attention: Robert Finzi
Kathleen LaPorte
Tel: (650) 234-2700
Fax: (650) 234-2779
