In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, changes in stockholders' equity (deficit) and
cash flows present fairly, in all material respects, the combined financial
position of Dental Centers of America (as defined in Note 1 to the financial
statements) at December 31, 1997 and September 30, 1998, and the combined
results of its operations and its combined cash flows for the year ended
December 31, 1997 and for the nine months ended September 30, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Houston, Texas
November 25, 1998
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 193 $ 273
Patient receivables, net of allowance
for uncollectible accounts of $1,162 for 1997
and $1,571 for 1998 .............................. 572 686
Other current assets ............................... 14 18
Related party receivables .......................... -- 238
------- -------
Total current assets ............................. 779 1,215
Property and equipment, net ........................ 170 461
Other assets ....................................... 30 21
------- -------
Total assets ..................................... 979 1,697
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable - related party ...................... $ 379 $ 745
Current portion of notes payable ................... 80 80
Accounts payable and accrued liabilities ........... 397 649
------- -------
Total current liabilities ........................ 856 1,474
Notes payable, net of current portion ................ 276 221
------- -------
Commitments and contingencies
Stockholders' equity:
Common stock ....................................... -- --
Additional paid-in capital ......................... 7 11
Retained earnings .................................. 241 392
Less treasury stock, at cost, 1,000 shares ......... (401) (401)
------- -------
Stockholders' equity (deficit) ................... (153) 2
------- -------
Total liabilities and stockholders'
equity (deficit) ............................... $ 979 $ 1,697
======= =======
The accompanying notes are an integral part of these financial statements.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
Net patient revenue ............................. $11,224 $10,487
Expenses:
Dentists' salaries ............................ 2,942 3,050
Clinical salaries ............................. 1,732 1,474
Dental supplies and laboratory fees ........... 1,488 1,486
Rental and lease expense ...................... 411 368
Advertising and marketing ..................... 223 188
Depreciation and amortization ................. 115 70
Other operating expenses ...................... 252 478
General and administrative .................... 2,143 1,642
General and administrative - related party .... 433 367
Management service fees - related party ....... 1,268 1,149
------- -------
Total expenses .............................. 11,007 10,272
------- -------
Operating income ............................ 217 215
Interest expense ................................ 62 64
------- -------
Net income ...................................... $ 155 $ 151
======= =======
If all of the Company's operations had
been subject to income taxes, net income
would have been as follows (unaudited):
Historical income before income taxes ....... $ 155 $ 151
Provision for income taxes .................. 53 51
------- -------
Pro forma net income ............................ $ 102 $ 100
======= =======
The accompanying notes are an integral part of these financial statements.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
TOTAL
COMMON STOCK ADDITIONAL STOCKHOLDERS'
-------------------- PAID-IN RETAINED TREASURY EQUITY
SHARES AMOUNT CAPITAL EARNINGS STOCK (DEFICIT)
-------- --------- ---------- --------- --------- -------------
Balance at January 1, 1997 .. 7,000 $ -- $ 7 $ 219 $ (25) $ 201
Purchase of treasury stock .. (376) (376)
Distribution to stockholders (133) (133)
Net income .................. 155 155
-------- -------- -------- -------- -------- --------
Balance at December 31, 1997 7,000 -- 7 241 (401) (153)
Net income .................. 151 151
Issuance of common stock .... 4,000 -- 4 4
-------- -------- -------- -------- -------- --------
Balance at September 30, 1998 $ 11,000 $ -- $ 11 $ 392 $ (401) $ 2
======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
Cash flows from operating activities:
Net income ........................................ $ 155 $ 151
Adjustments:
Provision for bad debts ......................... 160 409
Depreciation and amortization ................... 115 70
Changes in operating assets and liabilities:
Patient receivables ............................. (156) (523)
Other current assets ............................ 21 (4)
Related party receivable ........................ -- (238)
Accounts payable and accrued liabilities ........ (91) 252
----- -----
Net cash provided by operating activities ........ 204 117
----- -----
Cash flows used in investing activities:
Capital expenditures .............................. (43) (352)
Cash used for noncompete agreement ................ (60) --
----- -----
Net cash used in investing activities ............ (103) (352)
----- -----
Cash flows from financing activities:
Proceeds from notes payable - related party ....... 93 525
Repayment of notes payable - related party ........ (291) (159)
Repayment of notes payable ........................ (59) (55)
Proceeds for common stock ......................... -- 4
Distributions to stockholders ..................... (44) --
----- -----
Net cash used in financing activities ............ (301) 315
----- -----
Net change in cash and cash equivalents ............. (200) 80
Cash and cash equivalents at beginning of period .... 393 193
----- -----
Cash and cash equivalents at end of period .......... $ 193 $ 273
===== =====
The accompanying notes are an integral part of these financial statements.
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CORPORATE ORGANIZATION
The statements reflect the operations of Dental Centers of America (the
"Company"), which is a group of professional corporations and professional
limited liability companies that provides dental and orthodontic services
and products and that owns and operates dental centers in the San Antonio,
Austin and Dallas, Texas areas.
The financial statements for 1997 reflect the combined operations of the
following companies that were in the group because these entities were
under common management and control:
SHARES SHARES
PAR VALUE AUTHORIZED OUTSTANDING
----------- ----------- ------------
Professional corporations:
Bandera Road Dental Center, P.C. $ 0.01 1,000,000 1,000
Ingram Park Family Dental Center, P.C. 0.01 1,000,000 2,000
Northeast Family Dental Center, P.C. 0.01 1,000,000 1,000
San Pedro Family Dental Center, P.C. 0.01 1,000,000 1,000
Southpark Family Dental Center, P.C. 0.01 1,000,000 1,000
Windsor Park Family Dental Centers, P.C. 0.01 1,000,000 1,000
Professional limited liability companies:
Dental Centers of America at Rolling
Oaks Mall, PLLC
Dental Centers of America at Barton
Creek Square Mall, PLLC
Dental Centers of America at Lakeline
Mall, PLLC
Dental Centers of America at Hurst
Northeast Mall, PLLC
Dental Centers of America at Irving
Mall, PLLC
Dental Centers of America at Six
Flags Mall, PLLC
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED:
CORPORATE ORGANIZATION, CONTINUED
In addition to those included in the 1997 financial statements, the
financial statements for 1998 reflect the combined operations of the above
entities plus:
SHARES SHARES
PAR VALUE AUTHORIZED OUTSTANDING
--------- ---------- -----------
Dental Centers of America at Waco, P.C. $ 0.01 1,000,000 1,000
Dental Centers of America at Sherman, P.C. 0.01 1,000,000 1,000
Dental Centers of America at Richardson
Square Mall, P.C. 0.01 1,000,000 1,000
Dental Centers of America at Mesquite, P.C. 0.01 1,000,000 1,000
These companies began operations during the nine months ended September
30, 1998.
REVENUE RECOGNITION
Net patient revenue represents amounts billed to patients for services
performed by dentists and sales of related products in connection with
those services. Dental revenue is recognized as the services are
performed.
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payors for services
provided by dentists. An allowance for doubtful accounts is recorded by
the Company based on historical experience.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial investments with
original maturities of three months or less when purchased to be cash
equivalents. The carrying amounts approximate fair value.
The Company maintains cash balances at financial institutions. Accounts at
each institution are insured by the Federal Deposit Insurance Corporation
up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not
experienced any losses in such accounts.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
of property and equipment are provided using the straight-line method over
the estimated useful lives of the various classes of depreciable assets,
ranging from five to ten years. Maintenance and repairs are charged to
expense whereas renewals and major replacements are capitalized. Gains and
losses from dispositions are included in operations.
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED:
INCOME TAXES
The Companies are either professional corporations or limited liability
corporations and, accordingly, all federal and state tax liabilities are
the responsibility of the respective stockholders and members.
Income taxes for the pro forma calculation are determined under the
liability method. Under this method, deferred income taxes are based on
the differences between the financial reporting and tax bases of assets
and liabilities and are measured using the enacted marginal tax rates
currently in effect.
ADVERTISING
Advertising costs are expensed when incurred.
PREOPENING COSTS
Costs incurred prior to opening a dental center, primarily salary and
lease expense, are expensed when incurred.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during each reporting period. Actual results could differ from those
estimates.
2. SELECTED BALANCE SHEET INFORMATION:
The details of certain balance sheet accounts were as follows:
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(IN THOUSANDS)
Property and equipment:
Leasehold improvements .......................... $190 $312
Equipment ....................................... 363 582
Furniture and fixtures .......................... 31 42
---- ----
Total property and equipment .................. 584 936
Less accumulated depreciation and amortization .... 414 475
---- ----
Property and equipment, net ...................... $170 $461
==== ====
2. SELECTED BALANCE SHEET INFORMATION, CONTINUED:
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(IN THOUSANDS)
Accounts payable and accrued liabilities:
Accounts payable, trade ........................... $ 55 $238
Accrued payroll ................................... 243 284
Accrued interest .................................. 99 127
---- ----
$397 $649
==== ====
3. NOTES PAYABLE:
Notes payable consisted of the following:
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(IN THOUSANDS)
Note payable due in monthly installments
of $408 principal and interest, interest
rate of 8.25% per year, maturing in 2002,
collateralized by property, plant and
equipment ........................................ $ 17 $ 15
Note payable due in monthly installments
of $5,099 principal and interest, interest
rate of 8.25% per year, maturing in 2002,
collateralized by property, plant and
equipment ........................................ 212 178
Note payable due in monthly installments
of $2,957 principal and interest, interest
rate of 8.25% per year, maturing in 2002,
collateralized by property, plant and
equipment ........................................ 127 108
---- ----
Total ............................................. 356 301
Less current portion .............................. 80 80
---- ----
Total long-term debt .............................. $276 $221
==== ====
3. NOTES PAYABLE, CONTINUED:
The aggregate maturities of long-term debt as of September 30, 1998, for
each of the next five years were as follows (in thousands):
Future minimum lease payments under noncancelable operating leases with
remaining terms of one or more years consisted of the following at
September 30, 1998 (in thousands):
The Company is from time to time subject to claims and suits arising in
the ordinary course of operations. In the opinion of management, the
ultimate resolution of such pending legal proceedings will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
5. SUPPLEMENTAL CASH FLOW INFORMATION:
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(IN THOUSANDS)
Cash paid during the period for interest .............. $ 66 $ 35
Supplemental disclosure of noncash investing and
financing activities:
Issuance of note payables for distribution .......... 89 --
Issuance of note payable for treasury stock
purchase .......................................... 376 --
6. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS:
CREDIT RISK
The Company grants patients credit in the normal course of business. The
credit risk with respect to these patient receivables is generally
considered minimal because procedures are in effect to monitor the
creditworthiness of patients and appropriate allowances are made to reduce
accounts to their net realizable values.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, patient receivables and
accounts payable approximate fair values based on the short-term
maturities of these instruments. The carrying amounts of the Company's
fixed rate long-term borrowings and capitalized lease obligations as of
December 31, 1997 and September 30, 1998 approximate their fair value
based on terms currently available for comparable debt financing.
7. RELATED PARTY TRANSACTIONS:
RELATED PARTY RECEIVABLES
Related party receivables consist of amounts due from an affiliated entity
that is owned by a shareholder of the Company. The receivable relates to
an advance to that affiliated entity for funding the Company's payroll.
The amount was settled subsequent to September 30, 1998.
NOTES PAYABLE - RELATED PARTY
Notes payable - related party consists of uncollateralized notes payable
to entities owned by the primary shareholder. The loan proceeds are used
to finance the opening of new centers and for general corporate purposes.
Interest rates range from 10% to 11% per year and are payable on demand.
7. RELATED PARTY TRANSACTIONS, CONTINUED:
GENERAL AND ADMINISTRATIVE - RELATED PARTY
General and administrative - related party consists of amounts paid to a
shareholder and to affiliates for legal, accounting, purchasing, payroll
and consulting services provided to the dental practices.
MANAGEMENT SERVICE FEES-RELATED PARTY
Management service fees are paid to affiliates on a monthly basis for
administrative services provided to the dental practices. Services
provided include selection and training of nondental personnel, billing,
marketing, collection and accounting services, purchasing of office and
dental supplies, and access to, and maintenance of, dental equipment.
8. SUBSEQUENT EVENT:
The Company and three affiliated management companies have entered into an
agreement with Castle Dental Centers ("Castle"). Castle agreed to purchase
substantially all of the Company's assets for approximately $16 million
consisting of cash, notes, and Castle common stock.
(b) Pro forma Financial Information
Pro forma financial information including the Business acquired is not
included in this initial report. Such pro forma financial information will be
filed within 60 days of the filing of this initial report.
(c) Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1. Underwriting Agreement*
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession
2.1 Asset Purchase Agreement dated as of December 30, 1998, by and
among Castle Dental Centers of Texas, Inc., a Texas
corporation ("Purchaser"), Castle Dental Centers, Inc., a
Delaware corporation ("Castle Dental"), and Jack H. Castle,
D.D.S., P.C., a Texas professional corporation ("Castle PC"),
and DCA Limited Partnership, L.L.P., a Texas limited liability
partnership ("DCA, Ltd."), Dental Administrators of Texas
Limited Partnership, L.L.P., a Texas limited liability
partnership ("DAI, Ltd."), Dental Centers of America Paymaster
P.C., a Texas professional corporation ("Paymaster"), Bandera
Road Dental Center, P.C., a Texas professional corporation
("Bandera"), Ingram Park Family Dental Center, P.C., a Texas
professional corporation ("Ingram"), Northeast Family Dental
Center, P.C., a Texas professional corporation ("Northeast"),
Dental Centers of America at Rolling Oaks Mall, PLLC, a Texas
professional limited liability company ("Rolling Oaks"), San
Pedro Family Dental Center, P.C., a Texas professional
corporation ("San Pedro"), Southpark Family Dental Center,
P.C., a Texas professional corporation ("Southpark"), Windsor
Park Family Dental Center, P.C., a Texas professional
corporation ("Windsor"), Dental Centers of America at Barton
Creek Square Mall, PLLC, a Texas professional limited
liability company ("Barton Creek"), Dental Centers of America
at Lakeline Mall, PLLC, a Texas professional limited liability
company ("Lakeline"), Dental Centers of America at Hurst
Northeast Mall, PLLC, a Texas professional limited liability
company ("Hurst"), Dental Centers of America at Irving Mall,
PLLC, a Texas professional limited liability company
("Irving"), Dental Centers of America at Six Flags Mall, PLLC,
a Texas professional limited liability company ("Six Flags"),
Dental Centers of America at Waco, P.C., a Texas professional
corporation ("Waco"), Dental Centers of America at Mesquite,
P.C., a Texas professional corporation ("Mesquite"), Dental
Centers of America at Sherman, P.C., a Texas professional
corporation ("Sherman"), Dental Centers of America at
Richardson Square Mall, P.C., a Texas professional corporation
("Richardson" and, collectively with DCA, Ltd., DAI, Ltd.,
Paymaster, Bandera, Ingram, Northeast, Rolling Oaks, San
Pedro, Southpark, Windsor, Barton Creek, Lakeline, Hurst,
Irving, Six Flags, Waco, Mesquite and Sherman, the "Sellers"),
Barry E. Solomon, D.D.S., an individual living in San Antonio,
Texas ("B. Solomon"), Marc A. Solomon, an individual living in
San Antonio, Texas ("M. Solomon"), Hebron D. Cutrer, an
individual living in San Antonio, Texas ("Cutrer"), Stan E.
Faye, an individual living in San Antonio, Texas ("Faye"), and
Robert B. Grau, an individual living in San Antonio, Texas
("Grau", and together with B. Solomon, M. Solomon, Cutrer and
Faye, the "Shareholders").
4. Instruments defining the rights of security holders, including
indentures*
16. Letter re change in certifying accountant*
17. Letter re director resignation*
20. Other documents or statements to securityholders*
23. Consents of experts and counsel* 24. Power of attorney*
27. Financial Data Schedule*
99. Additional exhibits
99.1 Form of Subordinated Promissory Note issued to Sellers and/or
Shareholders.
99.2 Form of Subordination Agreement entered into between each
Seller and/or Shareholder receiving a Subordinated Promissory
Note, Castle Dental and NationsBank, N.A., as Agent.
99.3 Registration Rights Agreement among Castle Dental and each
Shareholder.
99.4 Amended and Restated Credit Agreement dated as of December 18,
1998, by and among Castle Dental, NationsBank, N.A., as agent,
and the lenders thereunder.
* Inapplicable to this filing
ITEM 8. CHANGE IN FISCAL YEAR
Not applicable
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S
Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CASTLE DENTAL CENTERS, INC.
December 30, 1998
By: __________________________________
John M. Slack, Chief Financial Officer
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
1. Underwriting Agreement*
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession
2.1 Asset Purchase Agreement dated as of December 30, 1998, by and
among Castle Dental Centers of Texas, Inc., a Texas
corporation ("Purchaser"), Castle Dental Centers, Inc., a
Delaware corporation ("Castle Dental"), and Jack H. Castle,
D.D.S., P.C., a Texas professional corporation ("Castle PC"),
and DCA Limited Partnership, L.L.P., a Texas limited liability
partnership ("DCA, Ltd."), Dental Administrators of Texas
Limited Partnership, L.L.P., a Texas limited liability
partnership ("DAI, Ltd."), Dental Centers of America Paymaster
P.C., a Texas professional corporation ("Paymaster"), Bandera
Road Dental Center, P.C., a Texas professional corporation
("Bandera"), Ingram Park Family Dental Center, P.C., a Texas
professional corporation ("Ingram"), Northeast Family Dental
Center, P.C., a Texas professional corporation ("Northeast"),
Dental Centers of America at Rolling Oaks Mall, PLLC, a Texas
professional limited liability company ("Rolling Oaks"), San
Pedro Family Dental Center, P.C., a Texas professional
corporation ("San Pedro"), Southpark Family Dental Center,
P.C., a Texas professional corporation ("Southpark"), Windsor
Park Family Dental Center, P.C., a Texas professional
corporation ("Windsor"), Dental Centers of America at Barton
Creek Square Mall, PLLC, a Texas professional limited
liability company ("Barton Creek"), Dental Centers of America
at Lakeline Mall, PLLC, a Texas professional limited liability
company ("Lakeline"), Dental Centers of America at Hurst
Northeast Mall, PLLC, a Texas professional limited liability
company ("Hurst"), Dental Centers of America at Irving Mall,
PLLC, a Texas professional limited liability company
("Irving"), Dental Centers of America at Six Flags Mall, PLLC,
a Texas professional limited liability company ("Six Flags"),
Dental Centers of America at Waco, P.C., a Texas professional
corporation ("Waco"), Dental Centers of America at Mesquite,
P.C., a Texas professional corporation ("Mesquite"), Dental
Centers of America at Sherman, P.C., a Texas professional
corporation ("Sherman"), Dental Centers of America at
Richardson Square Mall, P.C., a Texas professional corporation
("Richardson" and, collectively with DCA, Ltd., DAI, Ltd.,
Paymaster, Bandera, Ingram, Northeast, Rolling Oaks, San
Pedro, Southpark, Windsor, Barton Creek, Lakeline, Hurst,
Irving, Six Flags, Waco, Mesquite and Sherman, the "Sellers"),
Barry E. Solomon, D.D.S., an individual living in San Antonio,
Texas ("B. Solomon"), Marc A. Solomon, an individual living in
San Antonio, Texas ("M. Solomon"), Hebron D. Cutrer, an
individual living in San Antonio, Texas ("Cutrer"), Stan E.
Faye, an individual living in San Antonio, Texas ("Faye"), and
Robert B. Grau, an individual living in San Antonio, Texas
("Grau", and together with B. Solomon, M. Solomon, Cutrer and
Faye, the "Shareholders").
4. Instruments defining the rights of security holders, including
indentures*
16. Letter re change in certifying accountant*
17. Letter re director resignation*
20. Other documents or statements to securityholders*
23. Consents of experts and counsel*
24. Power of attorney*
27. Financial Data Schedule*
99. Additional exhibits
99.1 Form of Subordinated Promissory Note issued to Sellers and/or
Shareholders.
99.2 Form of Subordination Agreement entered into between each
Seller and/or Shareholder receiving a Subordinated Promissory
Note, Castle Dental and NationsBank, N.A., as Agent.
99.3 Registration Rights Agreement among Castle Dental and each
Shareholder.
99.4 Amended and Restated Credit Agreement dated as of December 18,
1998, by and among Castle Dental, NationsBank, N.A., as agent,
and the lenders thereunder.
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
DATED AS OF DECEMBER 30, 1998
BY AND AMONG
CASTLE DENTAL CENTERS OF TEXAS, INC.,
AS PURCHASER,
CASTLE DENTAL CENTERS, INC.,
AS CASTLE DENTAL,
JACK H. CASTLE, D.D.S., P.C.,
AS CASTLE PC,
AND
DCA LIMITED PARTNERSHIP, L.L.P.,
DENTAL ADMINISTRATORS OF TEXAS LIMITED PARTNERSHIP, L.L.P.,
DENTAL CENTERS OF AMERICA PAYMASTER, P.C.,
BANDERA ROAD DENTAL CENTER, P.C.,
INGRAM PARK FAMILY DENTAL CENTER, P.C.,
NORTHEAST FAMILY DENTAL CENTER, P.C.,
DENTAL CENTERS OF AMERICA AT ROLLING OAKS MALL, PLLC,
SAN PEDRO FAMILY DENTAL CENTER, P.C.,
SOUTHPARK FAMILY DENTAL CENTER, P.C.,
WINDSOR PARK FAMILY DENTAL CENTER, P.C.,
DENTAL CENTERS OF AMERICA AT BARTON CREEK SQUARE MALL, PLLC,
DENTAL CENTERS OF AMERICA AT LAKELINE MALL, PLLC,
DENTAL CENTERS OF AMERICA AT HURST NORTHEAST MALL, PLLC,
DENTAL CENTERS OF AMERICA AT IRVING MALL, PLLC,
DENTAL CENTERS OF AMERICA AT SIX FLAGS MALL, PLLC,
DENTAL CENTERS OF AMERICA AT WACO, P.C.,
DENTAL CENTERS OF AMERICA AT MESQUITE, P.C.,
DENTAL CENTERS OF AMERICA AT SHERMAN, P.C. AND
DENTAL CENTERS OF AMERICA AT RICHARDSON SQUARE MALL, P.C.,
AS THE SELLERS,
AND
BARRY E. SOLOMON, D.D.S.,
MARC A. SOLOMON,
HEBRON D. CUTRER,
STAN E. FAYE
AND
ROBERT B. GRAU,
AS THE SHAREHOLDERS
TABLE OF CONTENTS
ARTICLE 1..............................................................2
1.1 DEFINITIONS...........................................2
ARTICLE 2..............................................................7
2.1 PURCHASE AND SALE OF BUSINESS ASSETS.................7
2.2 PURCHASE AND SALE OF PC ASSETS.......................8
2.3 EXCLUDED ASSETS......................................8
2.4 ASSUMPTION OF OBLIGATIONS............................9
2.5 NONASSIGNABLE CONTRACTS AND LEASES..................10
2.6 CLOSING.............................................10
2.7 NORTHEAST...........................................10
2.8 SEPARATE NORTHEAST CLOSING..........................11
ARTICLE 3.............................................................11
3.1 AMOUNT; ALLOCATION; DELIVERY........................11
3.2 NORTHEAST BASE PURCHASE PRICE ADJUSTMENT............12
3.3 AUDIT BASE PURCHASE PRICE ADJUSTMENT................12
3.4 DETERMINATION OF NOVEMBER 30 BALANCE SHEET..........13
3.5 PURCHASE PRICE ADJUSTMENT. ........................13
3.6 AGENCY RELATIONSHIP.................................14
ARTICLE 4.............................................................14
4.1 EXISTENCE AND GOOD STANDING.........................14
4.2 AUTHORIZATION AND VALIDITY OF AGREEMENT.............14
4.3 CAPITAL STOCK.......................................14
4.4 CONSENTS AND APPROVALS: NO VIOLATIONS...............15
4.5 SUBSIDIARIES AND AFFILIATES.........................15
4.6 FINANCIAL STATEMENTS: NO MATERIAL ADVERSE CHANGE....16
4.7 BOOKS AND RECORDS...................................16
4.8 TITLE TO PROPERTIES: ENCUMBRANCES: CONDITION........16
4.9 REAL PROPERTY.......................................17
4.10 LEASES..............................................17
4.11 MATERIAL CONTRACTS..................................17
4.12 PERMITS.............................................17
4.13 LITIGATION..........................................18
4.14 TAXES...............................................18
4.15 INSURANCE...........................................19
4.16 INTELLECTUAL PROPERTIES.............................19
4.17 COMPLIANCE WITH LAWS................................19
4.18 EMPLOYMENT RELATIONS................................19
i
4.19 EMPLOYEE BENEFIT PLANS..............................19
4.20 ENVIRONMENTAL LAWS AND REGULATIONS..................19
4.21 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC..............20
4.22 COMPENSATION OF EMPLOYEES...........................20
4.23 PAYORS..............................................20
4.24 ACCOUNTS RECEIVABLE: ACCOUNTS PAYABLE...............20
4.25 DISCLOSURE..........................................21
4.26 BROKER'S OR FINDER'S FEES...........................21
4.27 COPIES OF DOCUMENTS.................................21
4.28 INVESTMENT REPRESENTATIONS..........................21
4.29 DISCLOSURE..........................................22
4.30 PREDECESSORS IN INTEREST............................22
ARTICLE 5.............................................................22
5.1 EXISTENCE AND GOOD STANDING: POWER AND AUTHORITY....23
5.2 NO VIOLATIONS.......................................23
5.3 CAPITAL STOCK.......................................23
5.4 LITIGATION..........................................24
5.5 COMPLIANCE WITH LAWS................................24
5.6 FINANCIAL STATEMENTS................................24
5.7 BROKER'S OR FINDER'S FEES...........................24
5.8 THIRD-PARTY CONSENTS................................24
ARTICLE 6.............................................................24
6.1 TRUTH OF REPRESENTATIONS AND WARRANTIES.............25
6.2 PERFORMANCE OF AGREEMENTS...........................25
6.3 NO LITIGATION THREATENED............................25
6.4 CONSIDERATION.......................................25
6.5 GOVERNMENTAL APPROVALS..............................25
6.6 PROCEEDINGS.........................................25
6.7 SECRETARY'S AND GOOD STANDING CERTIFICATES..........25
6.8 NONCOMPETITION AGREEMENT............................26
6.9 LEGAL OPINION.......................................26
6.10 SUBORDINATION AGREEMENT.............................26
6.11 EMPLOYMENT AGREEMENT................................26
6.12 APPROVAL OF LENDERS.................................26
6.13 NORTHEAST...........................................26
6.14 CONSENTS............................................26
6.15 REGISTRATION RIGHTS AGREEMENT.......................26
ARTICLE 7.............................................................26
7.1 TRUTH OF REPRESENTATIONS AND WARRANTIES.............26
7.2 PERFORMANCE OF AGREEMENTS...........................27
ii
7.3 NO LITIGATION THREATENED............................27
7.4 GOVERNMENTAL APPROVALS..............................27
7.5 CONSENTS............................................27
7.6 PROCEEDINGS.........................................27
7.7 DUE DILIGENCE.......................................27
7.8 APPROVAL OF LENDERS.................................27
7.9 GOOD STANDING CERTIFICATES..........................27
7.10 NONCOMPETITION AGREEMENT............................28
7.11 LEGAL OPINION.......................................28
7.12 SUBORDINATION AGREEMENT.............................28
7.13 EMPLOYMENT AGREEMENT................................28
7.14 DOCUMENTS OF CONVEYANCE.............................28
7.15 FINANCING...........................................28
7.16 NORTHEAST...........................................28
7.17 BANDERA.............................................28
7.18 MANAGEMENT SERVICES AGREEMENT.......................28
ARTICLE 8.............................................................28
8.1 COOPERATION BY EACH SELLER..........................28
8.2 CONDUCT OF BUSINESS.................................29
8.3 PROHIBITED ACTIVITIES...............................29
8.4 DE NOVO OFFICES AND ENTITY REFORMATION..............31
8.5 EXCLUSIVE DEALING...................................31
8.6 REVIEW OF THE ASSETS................................31
8.7 FURTHER ASSURANCES..................................31
8.8 POST-CLOSING ASSISTANCE.............................32
8.9 SUBORDINATION.......................................32
8.10 NORTHEAST...........................................32
8.11 SCHEDULES...........................................32
8.12 BOOKS AND RECORDS...................................32
ARTICLE 9.............................................................33
9.1 COOPERATION BY PURCHASER............................33
9.2 BOOKS AND RECORDS; PERSONNEL........................33
9.3 FURTHER ASSURANCES..................................33
9.4 EMPLOYEES...........................................33
9.5 WARN ACT............................................34
9.6 SEC REPORTS.........................................34
ARTICLE 10............................................................34
10.1 TERMINATION.........................................34
10.2 EFFECT ON OBLIGATIONS...............................35
iii
ARTICLE 11............................................................35
11.1 INDEMNIFICATION OF THE SELLERS AND THE SHAREHOLDERS.35
11.2 INDEMNIFICATION OF THE PURCHASER....................36
11.3 LIMITATIONS ON INDEMNIFICATION......................37
11.4 DEMANDS.............................................37
11.5 RIGHT TO ATTEMPT TO CURE............................38
11.6 RIGHT TO CONTEST AND DEFEND.........................38
11.7 COOPERATION.........................................38
11.8 RIGHT TO PARTICIPATE................................39
11.9 PAYMENT OF DAMAGES..................................39
11.10 RIGHT OF SETOFF.....................................39
11.11 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.........39
11.12 ELECTION OF REMEDIES...............................40
ARTICLE 12............................................................40
12.1 ENTIRE AGREEMENT....................................40
12.2 SUCCESSORS AND ASSIGNS..............................40
12.3 COUNTERPARTS........................................40
12.4 HEADINGS............................................41
12.5 MODIFICATION AND WAIVER.............................41
12.6 NO THIRD PARTY BENEFICIAL RIGHTS....................41
12.7 SALES AND TRANSFER TAXES............................41
12.8 EXPENSES............................................41
12.9 NOTICE..............................................41
12.10 GOVERNING LAW.......................................42
12.11 CONFIDENTIALITY; PUBLICITY..........................42
12.12 CONSENT TO JURISDICTION.............................43
12.13 SEVERABILITY........................................43
12.14 ENFORCEMENT.........................................43
12.15 ARBITRATION AND LIMITATION ON CLAIMS................43
SCHEDULES
Schedule 2.3 Excluded Contracts
Schedule 2.4 Long-term Debt
Schedule 2.7 Acceptable Terms
Schedule 3.1 Purchase Price Allocation
Schedule 4.4 Consents
Schedule 4.5 Asset Owned by Third parties which are Used in the Business
Schedule 4.6 Material Adverse Change
Schedule 4.8 Encumbrances
Schedule 4.9 Real Property
Schedule 4.10 Leased Personal Property
Schedule 4.11 Material Contracts and Proposals
iv
Schedule 4.12 Permits
Schedule 4.13 Litigation
Schedule 4.14 Taxes
Schedule 4.15 Insurance Policies
Schedule 4.16 Intellectual Property
Schedule 4.17 Compliance with Laws
Schedule 4.18 Employment Relations
Schedule 4.22 Employee Compensation
Schedule 4.23 Payors
Schedule 4.24 Accounts Receivable Changes
Schedule 4.26 Broker's Fees
Schedule 8.6 Authorized Employees
Schedule 8.8 Post-Closing Assistance
Schedule 11.3 Limits on Indemnification
EXHIBITS
Exhibit A Employment Agreement
Exhibit B Noncompetition Agreement
Exhibit C Note
Exhibit D Subordination Agreement
Exhibit E Registration Rights Agreement
Exhibit F Management Services Agreement
v
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of December 30, 1998, by and among
Castle Dental Centers of Texas, Inc., a Texas corporation ("Purchaser"), Castle
Dental Centers, Inc., a Delaware corporation ("Castle Dental"), and Jack H.
Castle, D.D.S., P.C., a Texas professional corporation ("Castle PC"), and DCA
Limited Partnership, L.L.P., a Texas limited liability partnership ("DCA,
Ltd."), Dental Administrators of Texas Limited Partnership, L.L.P., a Texas
limited liability partnership ("DAI, Ltd."), Dental Centers of America Paymaster
P.C., a Texas professional corporation ("Paymaster")(DCA, Ltd., along with DAI,
Ltd. and Paymaster collectively referred to herein as "Administrators"), Bandera
Road Dental Center, P.C., a Texas professional corporation ("Bandera"), Ingram
Park Family Dental Center, P.C., a Texas professional corporation ("Ingram"),
Northeast Family Dental Center, P.C., a Texas professional corporation
("Northeast"), Dental Centers of America at Rolling Oaks Mall, PLLC, a Texas
professional limited liability company ("Rolling Oaks"), San Pedro Family Dental
Center, P.C., a Texas professional corporation ("San Pedro"), Southpark Family
Dental Center, P.C., a Texas professional corporation ("Southpark"), Windsor
Park Family Dental Center, P.C., a Texas professional corporation ("Windsor"),
Dental Centers of America at Barton Creek Square Mall, PLLC, a Texas
professional limited liability company ("Barton Creek"), Dental Centers of
America at Lakeline Mall, PLLC, a Texas professional limited liability company
("Lakeline"), Dental Centers of America at Hurst Northeast Mall, PLLC, a Texas
professional limited liability company ("Hurst"), Dental Centers of America at
Irving Mall, PLLC, a Texas professional limited liability company ("Irving"),
Dental Centers of America at Six Flags Mall, PLLC, a Texas professional limited
liability company ("Six Flags"), Dental Centers of America at Waco, P.C., a
Texas professional corporation ("Waco"), Dental Centers of America at Mesquite,
P.C., a Texas professional corporation ("Mesquite"), Dental Centers of America
at Sherman, P.C., a Texas professional corporation ("Sherman"), Dental Centers
of America at Richardson Square Mall, P.C., a Texas professional corporation
("Richardson" and, collectively with Bandera, Ingram, Northeast, Rolling Oaks,
San Pedro, Southpark, Windsor, Barton Creek, Lakeline, Hurst, Irving, Six Flags,
Waco, Mesquite and Sherman, the "PCs")(the Administrators and the PCs being
collectively referred to as the "Sellers" and individually referred to as a
"Seller"), Barry E. Solomon, D.D.S., an individual living in San Antonio, Texas
("B. Solomon"), Marc A. Solomon, an individual living in San Antonio, Texas ("M.
Solomon"), Hebron D. Cutrer, an individual living in San Antonio, Texas
("Cutrer"), Stan E. Faye, an individual living in San Antonio, Texas ("Faye"),
and Robert B. Grau, an individual living in San Antonio, Texas ("Grau", and
together with B. Solomon, M. Solomon, Cutrer and Faye, the "Shareholders").
W I T N E S S E T H:
WHEREAS, each Seller wishes to sell, and Purchaser and Castle PC wish to
purchase, substantially all of the property, assets and business of each such
Seller, all upon the terms and subject to the conditions set forth below; and
1
WHEREAS, DCA, Ltd. was formed to hold and operate all of the assets and
liabilities of Dental Centers of America, Inc., a Texas corporation ("DCA"); and
WHEREAS, DAI, Ltd. was formed to hold and operate all of the assets and
liabilities of Dental Administrators, Inc., a Texas corporation ("DAI");
NOW, THEREFORE, in consideration of the mutual covenants and other
consideration described herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
covenant and agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. As used herein, the following terms have the meanings set
forth below (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
"ACCOUNTS RECEIVABLE" all notes and accounts receivable of each Seller
other than Intercompany Accounts.
"ACCOUNTS PAYABLE" the payables other than Intercompany Accounts of each
Seller to trade account and other creditors incurred in the ordinary course of
business as of the Closing Date.
"ACTUAL KNOWLEDGE" means the actual knowledge of a Person.
"AFFILIATE" with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with such Person.
"AGREEMENT" this Asset Purchase Agreement, as amended from time to time as
provided herein.
"ASSETS" means the Business Assets and the PC Assets.
"ASSIGNED CONTRACT" means any license, lease permit or contract relating
to the Business, except Excluded Contracts.
"ASSUMED OBLIGATIONS" as defined in Section 2.4 hereof.
"BALANCE SHEET DATE" as defined in Section 4.6 hereof.
"BASE PURCHASE PRICE" as defined in Section 3.1 hereof.
"BASKET" as defined in Section 11.3 hereof.
2
"BEST EFFORTS" shall mean the best efforts of a Person; provided, however
that a Person required to use its best efforts hereunder shall not be required
to (a) pay any amount to a third party in order to receive such third party's
cooperation or consent, (b) file suit against any such third party or (c) incur
any material costs on its own behalf.
"BOOKS AND RECORDS" all books, records, books of account, files and data
(including customer and supplier lists), certificates and other documents
related to the conduct of the business or the ownership of the Assets, including
personnel records and files, except that the Books and Records shall not include
any books, records, files and other data of each Seller which relate exclusively
to organizational and governance proceedings of each respective Seller and shall
include only photostatic or electronic copies of documents necessary to prepare
the Tax Returns (past, present or future) of Sellers, DCA, DAI and/or
Shareholders, the originals of which shall be retained by Sellers.
"BUSINESS" as for the PCs, the practice of dentistry, including
orthodontics and periodontics currently conducted by each such PC, and as for
the Administrators, all management and related activities currently conducted by
each such Administrator or with respect to DCA, Ltd. and/or DAI, Ltd. in the
manner previously conducted by DCA and/or DAI, respectively .
"BUSINESS ASSETS" as defined in Section 2.1 hereof.
"CASTLE DENTAL" as defined in the preamble.
"CLOSING" as defined in Section 2.6 hereof.
"CLOSING DATE" as defined in Section 2.6 hereof.
"CODE" the Internal Revenue Code of 1986, as amended from time to time,
and the regulations promulgated and rulings issued thereunder. Section
references to the Code are to the Code as in effect at the date of this
Agreement and any subsequent provisions of the Code amendatory thereof,
supplemental thereto or substituted therefor.
"COMMON STOCK" means the common stock, $.001 par value, of Castle Dental,
which on the date of this Agreement is traded on the Nasdaq National Market.
"DE NOVO OFFICES" as defined in Section 8.4 hereof.
"EMPLOYMENT AGREEMENT" means an employment agreement between Purchaser and
M. Solomon in substantially the form attached hereto as EXHIBIT A and
incorporated herein by this reference.
"ENCUMBRANCES" liens, security interests, options, rights of first
refusal, mortgages, debentures, indentures, deeds of trust, licenses, leases,
permits or security agreements.
3
"ENVIRONMENTAL CLAIM" any and all administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of noncompliance
or violations, investigations or proceedings relating in any way to any
Environmental Law (for purposes of this definition, "Claims") or any permit
issued under any such Environmental Law, including without limitation (i) any
and all Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, remediation or other actions for damages pursuant to any
applicable Environmental Law and (ii) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAW" any federal, state or local statute, law, rule,
regulation, ordinance, code, policy or rule of common law now in effect and any
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to Hazardous
Materials, the environment or health relating to or arising from environmental
conditions, including without limitation the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended 42 U.S.C. ss. 9601
ET SEQ.; the Hazardous Materials Transportation Act, as amended, 49 U.S.C. ss.
1801 ET SEQ.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
ss. 6901 ET SEQ.; the Federal Water Pollution Control Act, as amended, 33 U.S.C.
ss. 1251 ET SEQ.; the Toxic Substances Control Act, 15 U.S.C. ss. 2601 ET SEQ.;
the Clean Air Act, 42 U.S.C. ss. 7401 ET SEQ.; the Safe Drinking Water Act, 42
U.S.C. ss. 3808 ET SEQ.; the Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 ET
SEQ.; and substantially similar state and local laws.
"ERISA" the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA as in effect at the date of
this Agreement and any subsequent provisions of ERISA amendatory thereof,
supplemental thereto or substituted therefor.
"EXCLUDED ASSETS" as defined in Section 2.3 hereof.
"EXCLUDED CONTRACTS" as defined in Section 2.3(a) hereof.
"EXCLUDED LIABILITIES" as defined in Section 2.4 hereof.
"FINANCIAL REPORTS" as defined in Section 3.4 hereof.
"FINANCIAL STATEMENTS" as defined in Section 4.6 hereof.
"GAAP" generally accepted accounting principles consistently applied.
"HAZARDOUS MATERIALS" (i) any petroleum or petroleum products, radioactive
materials, asbestos in any form that is friable, urea formaldehyde foam
insulation, transformers or other equipment that contain dielectric fluid
containing levels of polychlorinated biphenyls, and radon gas; (ii) any
chemicals, materials or substances defined as or included in the definition of
"hazardous
4
substances," "hazardous wastes," "hazardous materials," "extremely hazardous
wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants,"
"contaminants" or "pollutants," or words of substantially similar import under
any applicable Environmental Law; and (iii) any other chemical, material or
substance, exposure to which is prohibited or regulated by an governmental
authority.
"INTELLECTUAL PROPERTY" domestic and foreign patents, patent applications,
registered and unregistered trademarks, service marks, trade names and logos,
registered and unregistered copyrights, computer programs, data bases, trade
secrets and proprietary information currently used in connection with the
Business; provided, however, that Intellectual Property shall exclude the
non-exclusive right to use the "tooth" used by Sellers in their advertising
materials.
"INTERCOMPANY ACCOUNTS" includes any obligation (i) from any Seller to any
Shareholder or any other Seller or (ii) from any Shareholder to any Seller or
any other Shareholder.
"KNOWLEDGE" means the actual knowledge of a Person as well as the
knowledge a reasonable Person would have obtained, after due inquiry (i) in
order to make the representation or warranty referred to herein in an informed
manner or (ii) from the disclosure materials provided to it.
"MANAGEMENT SERVICES AGREEMENT" means a Management Services Agreement
between each of the PCs and Castle PC in substantially the form attached hereto
as EXHIBIT F and incorporated herein by this reference.
"MATERIAL ADVERSE EFFECT" material adverse effect (i) in the case of
Sellers, on the Assets, Assumed Obligations, Business, condition (financial or
otherwise) or results of operations of Sellers taken as a whole and (ii) in the
case of the Purchaser, Castle PC and Castle Dental, on the assets, liabilities,
business, condition (financial or otherwise) or results of operations of Castle
Dental, Purchaser and Castle PC taken as a whole.
"NONCOMPETITION AGREEMENT" means a confidentiality and noncompetition
agreement between Castle Dental and each Shareholder in substantially the form
attached hereto as EXHIBIT B and incorporated herein by this reference, such
agreements to reflect the payment of $50,000 to B. Solomon, $50,000 to M.
Solomon, and $10,000 to each of Cutrer, Faye and Grau.
"NOTES" means the subordinated promissory notes of Castle Dental in
substantially the form attached hereto as EXHIBIT C and incorporated herein by
this reference, provided, however, that in the event Castle Dental elects to
prepay any of its outstanding indebtedness to sellers of businesses acquired by
Castle Dental or its affiliates prior to the Closing, the Notes shall be amended
to provide for amortization of principal in twelve equal quarterly installments.
"PC ASSETS" as defined in Section 2.3 hereof.
"PERMITS" as defined in Section 4.12 hereof.
5
"PERMITTED ENCUMBRANCES" as defined in Section 4.8 hereof.
"PERSON" any individual, partnership, joint venture, corporation, limited
liability company, trust, unincorporated organization, government or other
department or agency thereof or other entity.
"PLANS" as defined in Section 4.19 hereof.
"PRE-CLOSING PERIODS" as defined in Section 4.14(a) hereof.
"PRICE ALLOCATION" as defined in Section 3.1 hereof.
"PURCHASER" as defined in the preamble of this Agreement.
"REGISTRATION RIGHTS AGREEMENT" means a registration rights agreement
between Castle Dental and the Shareholders in substantially the form attached
hereto as EXHIBIT E and incorporated herein by this reference.
"RELEASE" disposing, discharging, injecting, spilling, leaking, leaching,
dumping, emitting, escaping, emptying, seeping, placing and the like, into or
upon any land or water or air, or otherwise entering into the environment.
"RETURNS" as defined in Section 4.14(a) hereof.
"SELLERS" as defined in the preamble of this Agreement.
"SELLER PROPERTY" any real property and improvements thereon presently
owned, leased, operated or occupied by any Seller.
"SHAREHOLDERS" as defined in the preamble.
"SUBORDINATION AGREEMENT" the subordination agreement by and between
NationsBank of Texas, N.A., as agent, on behalf of each of Castle Dental's
senior lenders, Castle Dental and each Person receiving Notes in the form of
EXHIBIT D attached hereto and incorporated herein by reference.
"TAX" any net income, alternative or add-on minimum tax, advance,
corporation, gross income, gross receipts, sales, use, AD VALOREM, franchise,
profits, license, value added, withholding, payroll, employment, unemployment,
excise, stamp or occupation tax, governmental fee or other like assessment or
charge of any kind whatsoever, together with any interest or any penalty imposed
by any governmental authority with respect thereto, and any liability for such
amounts as a result either of being a member of an affiliated group or of a
contractual obligation to indemnify any other entity.
6
ARTICLE 2
THE TRANSACTION
2.1 PURCHASE AND SALE OF BUSINESS ASSETS. Subject to the terms and
conditions of this Agreement, Purchaser agrees to purchase from the each Seller,
and each Seller agrees to sell, convey, transfer, assign and deliver, and cause
to be sold, conveyed, transferred, assigned and delivered, to Purchaser, on the
Closing Date, against the receipt by the Sellers of their respective portion of
the consideration specified in Section 3.1, the Business Assets owned by such
Seller, free and clear of any Encumbrances except Permitted Encumbrances. Except
as otherwise set forth herein, the term "Business Assets" shall mean all of the
rights, title and interests of each Seller in and to the properties or assets
used in or relating to the conduct of its portion of the Business on the Closing
Date, tangible and intangible, real, personal and mixed, wheresoever situated
and whether or not specifically referred to herein or in any instrument of
conveyance delivered pursuant hereto, other than the PC Assets and the Excluded
Assets. Except as otherwise set forth herein, the Business Assets shall include
but are not limited to each Seller's right, title and interest to the following
categories of properties or assets relating to the Business:
(a) each Seller's title to, interest in or rights under the leases
of real property described in Schedule 4.9 attached hereto together with
all buildings, facilities, fixtures and other leasehold improvements
thereon and all easements, rights-of-way, transferable licenses and
permits and other appurtenances thereof;
(b) machinery, equipment, tools, supplies, inventories, furniture,
fixtures, furnishings, vehicles and other assets owned or leased by each
Seller and used or held for use in the conduct of the Business;
(c) contracts, documents, instruments and general intangibles of
each Seller, including the name "Dental Centers of America" and
derivatives thereof, and goodwill associated therewith, other than the
Excluded Contracts;
(d) Accounts Receivable as of the Closing Date;
(e) all licenses, permits, registrations and authorizations,
proprietary information, methods, know-how, designs, processes,
procedures, goodwill and all rights held by each Seller to other
Intellectual Property;
(f) its Books and Records, including a photostatic copy of documents
necessary to prepare Tax returns of Sellers and Shareholders;
(g) any rights of each Seller pertaining to any counterclaims,
set-offs or defenses it may have with respect to any Assumed Obligations;
7
(h) all prepaid claims and other prepaid expense items related to
the Business Assets acquired hereunder;
(i) the cash included in all bank accounts at the date of Closing
(other than cash which may be paid out prior to Closing as allowed by
Section 8.3); and
(j) claims made under, and the right to pursue claims under,
indemnities, policies of insurance, fidelity, surety or similar bonds and
the coverages afforded thereby relating to the Assumed Obligations.
2.2 PURCHASE AND SALE OF PC ASSETS. Subject to the terms and conditions of
this Agreement, Castle PC agrees to purchase from the each Seller, and each
Seller agrees to sell, convey, transfer, assign and deliver, and cause to be
sold, conveyed, transferred, assigned and delivered, to Castle PC, on the
Closing Date, against the receipt by the Sellers of their respective portion of
the consideration specified in Section 3.1, the PC Assets owned by such Seller,
free and clear of any Encumbrances except Permitted Encumbrances. Except as
otherwise set forth herein, the term "PC Assets" shall mean all of the rights,
title and interests of each Seller in and to the following properties or assets
used in or relating to the conduct of its portion of the Business on the Closing
Date:
(a) all of the employment agreements with all dentists presently
employed by Sellers;
(b) Sellers' reimbursement contracts with third party insurance
companies, managed care companies and other reimbursement sources for
dental services provided; and
(c) any property, record or contract that, under Texas law, must be
owned by a licensed dentist or an entity owned solely by licensed
dentists.
2.3 EXCLUDED ASSETS. The above notwithstanding, the Assets shall not
include any of the following (the "Excluded Assets"):
(a) each contract set forth on Schedule 2.3 (the "Excluded
Contracts");
(b) savings account No.1861001882 in NationsBank of Texas, N.A., and
the proceeds thereof;
(c) minute books and governance documents of the Sellers and
original copies of documents necessary to prepare Tax returns of Sellers
and Shareholders;
(d) any rights of each Seller pertaining to any counterclaims,
set-offs or defenses it may have with respect to any Excluded Liabilities;
8
(e) all prepaid claims and other prepaid expense items related to
Excluded Assets;
(f) cash which may be paid out prior to Closing as allowed by
Section 8.3;
(g) claims made under, and the right to pursue claims under,
indemnities, policies of insurance, fidelity, surety or similar bonds and
the coverages afforded thereby relating to the Excluded Liabilities.
(h) any and all build out allowance reimbursements due from the
landlord relating to any lease of a De Novo Office (to the extent the
landlord has authorized their release);
(i) the non-exclusive right to use the "tooth" used in advertising
by Seller;
(j) Intercompany Accounts;
(k) prepaid Taxes or Tax refunds;
(l) any and all right, title and interest in and to the
book/manuscript entitled "How to Keep Your Teeth in Your Mouth for a
Lifetime" authored by B. Solomon; or
(m) assets used in the Business and owned by others and set forth on
Schedule 4.5.
2.4 ASSUMPTION OF OBLIGATIONS. Upon the sale of the Assets by Sellers,
Purchaser or Castle PC shall assume and agree to pay, perform and discharge, in
a timely manner and in accordance with the terms thereof, (a) all liabilities,
claims and obligations of the Sellers (including obligations under any Assigned
Contract), past, present or future relating to the operation of Sellers'
Business on or prior to the Closing Date other than Excluded Liabilities (as
defined below) and (b) any and all liabilities, claims or damages resulting from
any Shareholder guarantees (including any liability thereon of spouses of
Shareholders) of lease obligations of Sellers (other than liabilities arising
from breaches of leases prior to the Closing Date [except for a failure to
obtain the consent of the landlord necessary to assign such lease to the
Purchaser, to the extent such failure constitutes a Permitted
Encumbrance])(collectively, "Assumed Obligations"). Notwithstanding anything
contained herein to the contrary, neither Purchaser nor Castle PC shall assume,
and they hereby expressly disclaim responsibility for, any direct or indirect
indebtedness, liability, claim, deficiency, obligation or responsibility, known
or unknown, fixed or contingent, liquidated or unliquidated, accrued, absolute
or otherwise of any Seller or Shareholder ("Excluded Liability") which arises
from: (a) the long-term debt of the Sellers set forth on Schedule 2.4, (b) any
Intercompany Account, (c) failure to withhold or pay Taxes due and owing prior
to the Closing Date (other than (i) Taxes required to be withheld from or paid
on payroll from the date of each employee's last paycheck to the Closing Date
and (ii) property Taxes that have accrued for the current calendar year (which
shall be pro rated to the Closing Date)), (d) any income or franchise Taxes owed
at any time by any Seller or Shareholder or by any of their predecessors in
interest, (e) any claim by any Person claiming to own an equity, net profits or
other interest in any Seller or in any partner or subsidiary of any Seller,
9
(f) any claim by any Person claiming to be owed a lump-sum payment pursuant to
an employment or other agreement which agreement provides for the payment of
such a lump sum to such Person upon the sale of the business or assets of any
Seller, (g) broker's or finder's fees and the unusual and non-recurring
accounting and legal expenses incurred in connection with the transactions
contemplated by this Agreement (except to the extent such unusual and
non-recurring accounting and legal expenses are paid in accordance with the
provisions of the last sentence of Section 8.3), (h) any malpractice claim or
unfair labor or hiring practice (including disputes with respect to amounts owed
under employment agreements) arising from acts or omissions occurring prior to
the Closing Date; provided, however, that if and to the extent that Castle
Dental, the Purchaser or Castle PC contributes to such unfair labor or hiring
practice after the Closing, any liability arising from such post-closing acts or
omissions shall not be an Excluded Liability or (i) any claim brought by a
governmental entity or the holder of a valid $26 coupon due to the charge by a
Seller of the $7.00 sterilization fee in connection with the use of that coupon.
2.5 NONASSIGNABLE CONTRACTS AND LEASES. In the case of any Assigned
Contracts which are not by their terms assignable or with respect to which a
consent to assignment is not obtained by the Closing Date (which lack of consent
may be a Permitted Encumbrance upon satisfaction of the definition thereof in
Section 4.8), each Seller agrees to use its best efforts to obtain, or cause to
be obtained, as soon as practicable after the Closing Date, any written consents
necessary to convey to Purchaser or Castle PC the benefit thereof; provided,
however, that in no event shall any Seller be required to pay any party to such
a contract a fee to obtain such a consent. Purchaser, Castle Dental and Castle
PC shall use their best efforts to assist Sellers, in such manner as may be
reasonably requested, in connection therewith, including without limitation,
active participation in visits to and meetings, discussions and negotiations
with all Persons with the authority to grant or withhold consent. If any Seller
is unable to obtain such necessary written consents for the remaining term of
such Assigned Contract, Purchaser or Castle PC shall act as such Seller's agent
and shall perform all obligations and liabilities of such Seller under such
Assigned Contract and such Seller shall act as Purchaser's or Castle PC's agent
in the receipt of any benefits, rights or interests which inure to such Seller
under such Assigned Contract. The above notwithstanding, in connection with the
purchase of the Assets relating to Northeast, Purchaser shall execute a new
lease agreement between itself and Alfred G. Bradford, Jr., Trustee, in the form
set forth on Schedule 2.7 attached hereto, and the existing lease relating to
such premises shall be terminated.
2.6 CLOSING. The closing (the "Closing") of the transactions contemplated
hereby shall be held at the offices of Boyer, Ewing & Harris Incorporated, Nine
Greenway Plaza, Suite 3100, Houston, Texas 77046, no later than January 15,
1999, or such other place, date and time as may be mutually agreed upon by the
parties. Such time and date are referred to herein as the "Closing Date."
2.7 NORTHEAST. If B. Solomon fails to acquire (on terms and conditions no
less favorable to Purchaser and Castle PC on a going-forward basis than those
set forth on Schedule 2.7 ("Acceptable Terms")), at or prior to Closing, the
equity interest ("Northeast Interest") in Northeast not currently owned by B.
Solomon, there shall be no breach of this Agreement, but the Purchase Price
shall be reduced as described in Section 3.2. In addition, all representations,
warranties and
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covenants of the Sellers and the Shareholders relating to Northeast and any
contracts or agreements relating to Northeast held by the Administrators (the
"Related Northeast Assets")(other than the provisions of Sections 12.8 and
12.11) shall be deemed deleted from this Agreement from its inception, unless
the provisions of Section 2.8 apply.
2.8 SEPARATE NORTHEAST CLOSING. If the Closing occurs and the Assets of
Northeast and the Related Northeast Assets are not acquired thereat, and within
90 days of the Closing Date, B. Solomon acquires on Acceptable Terms the
Northeast Interest and desires to cause the Purchaser and Castle PC to acquire
the Assets of Northeast and the Related Northeast Assets and assume the Assumed
Obligations relating thereto, Castle PC and the Purchaser shall, subject to the
terms and conditions of this Agreement, acquire the Assets of Northeast and the
Related Northeast Assets and assume the Assumed Obligations relating thereto
(the "Northeast Acquisition"). The closing of the Northeast Acquisition shall be
held at the offices of Boyer, Ewing & Harris Incorporated, Nine Greenway Plaza,
Suite 3100, Houston, Texas 77046, on or before the 90th day following the
Closing Date. The conditions precedent to closing the Northeast Acquisition
shall be identical to those contained in Article 6 and Article 7 of this
Agreement, provided that Northeast and the Administrators holding Related
Northeast Assets shall be the only Sellers at such closing and all
representations, warranties and covenants of the Sellers and Shareholders at
such closing shall only concern Northeast and the Related Northeast Assets and
the Assumed Obligations relating thereto. The purchase price payable for the
Northeast Acquisition shall be equal to the amount by which the Base Purchase
Price was adjusted downward pursuant to Section 3.2 at the Closing, with the
amount of cash, Common Stock and Notes to be paid to be equal to the amount by
which each was so reduced from the Base Purchase Price, but with the number of
shares of Common Stock to be issued to be based on the Closing Trading Price and
with the Notes to be dated as of the closing of the Northeast Acquisition, but
with principal payments due on the same dates as the Notes issued on the Closing
Date.
ARTICLE 3
PAYMENT OF PURCHASE PRICE
3.1 AMOUNT; ALLOCATION; DELIVERY. Subject to adjustment as provided in
Sections 3.2 and 3.3, at the Closing, in addition to Purchaser's assumption of
the Assumed Obligations, Purchaser shall pay to Sellers the sum of $13,220,000
in cash, plus $1,250,000 in Notes, plus up to 125,000 shares of Common Stock
(collectively, the "Base Purchase Price"), which Base Purchase Price shall be
remitted by Purchaser (subject to adjustment as provided in Section 3.2) to
Sellers in the following manner:
(a) Thirteen Million Two Hundred Twenty Thousand and No/100 Dollars
($13,220,000) on the Closing Date, which shall be paid by wire transfer of
immediately available funds to the accounts of Sellers and in the amounts
per Seller set forth on Schedule 3.1;
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(b) 125,000 shares of Common Stock issued in the names and in the
amounts set forth on Schedule 3.1; and
(c) One Million Two Hundred and Fifty Thousand and No/100 Dollars
($1,250,000) in Notes shall be issued and delivered to the Persons and in
the amounts set forth on Schedule 3.1 at the Closing.
Purchaser, Castle PC and Sellers hereby agree to allocate the Purchase
Price in accordance with Section 1060 of the Code among the Assets in accordance
with Schedule 3.1 attached hereto (the "Price Allocation"). The parties hereby
undertake and agree to file timely any information that may be required to be
filed pursuant to regulations promulgated under Section 1060(b) of the Code. The
parties further agree that they will report the federal, state, municipal,
foreign and local and other tax consequences of the purchase and sale hereunder
in a manner consistent with the Price Allocation, as so adjusted, and that they
will not take any position inconsistent therewith. In the event the Sellers
elect to distribute all or any portion of the Notes or Common Stock to any of
their partners or the Shareholders after Closing, Castle Dental shall cause new
stock certificates and/or Notes to be issued in the names of such partners or
Shareholders in such denominations requested by such partners or Shareholders in
substitution for those issued to the Sellers; provided that any transferee of a
Note shall be required to execute a Subordination Agreement. In addition, in the
event the Sellers elect to distribute all or any portion of the Common Stock to
certain of the employees of the Sellers after Closing, Castle Dental shall cause
new stock certificates to be issued in the names of such employees in such
denominations requested by the Sellers in substitution for those issued to the
Sellers.
3.2 NORTHEAST BASE PURCHASE PRICE ADJUSTMENT. In the event B. Solomon
fails to acquire the Northeast Interest on Acceptable Terms at or prior to the
Closing, the Base Purchase Price shall be reduced by an amount equal to (a)
$900,000, with the amount of cash, Common Stock and Notes being decreased pro
rata plus (b) an additional $300,000 in cash.
3.3 AUDIT BASE PURCHASE PRICE ADJUSTMENT. Prior to the Closing Date,
Castle Dental's independent public accountants shall conduct, in consultation
and cooperation with Sellers, an audit of the Business and prepare income
statements and statements of cash flows for Sellers for the years ending
December 31, 1996 and 1997, and for the period from January 1, 1998 to the
Balance Sheet Date, and balance sheets for Sellers at December 31, 1996,
December 31, 1997 and the Balance Sheet Date prepared in accordance with GAAP
(collectively, the "Audited Reports"), and deliver the Audited Reports to Castle
Dental and the Sellers. In addition, prior to the Closing Date, Castle Dental
shall conduct its due diligence review of the Business, including a review of
the income statements and statements of cash flow and balance sheets of the
Business to the extent provided by the Sellers for periods following the Balance
Sheet Date. Immediately prior to the Closing, Castle Dental shall inform the
Sellers and the Shareholders of (a) any and all defaults by the Sellers and/or
the Shareholders of the terms of this Agreement that it has discovered in the
process of conducting its due diligence review or otherwise that have occurred
or will have occurred at Closing if not cured prior to Closing, (b) whether it
believes the net current assets of the Business (excluding the
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Excluded Assets and the Excluded Liabilities) have been reduced from the Balance
Sheet Date until such date because of reasons other than (x) normal fluctuations
in the ordinary course of business or (y) actions otherwise authorized under the
terms of this Agreement, and (c) of the amount of any adjustment to the Base
Purchase Price that Castle Dental believes to be appropriate relating thereto.
If the amount of any adjustment is less than or equal to $75,000, the Base
Purchase Price shall not be reduced, but the amount of the Basket shall be
reduced by such amount. If the amount of any adjustment is more than $75,000,
either the Base Purchase Price shall be reduced by such amount or this Agreement
may be terminated pursuant to Section 10.1(d).
3.4 DETERMINATION OF NOVEMBER 30 BALANCE SHEET. On or prior to the 60th
day following the Closing Date, Sellers' accountants shall prepare an income
statement and statement of cash flows for Sellers for the period from the
Balance Sheet Date to November 30, 1998, and a balance sheet for Sellers as of
November 30, 1998 prepared in accordance with GAAP (collectively, the "Financial
Reports"), and deliver the Financial Reports to Castle Dental. Based upon the
Financial Reports, Castle Dental and Sellers shall determine the net current
assets of Sellers as of November 30, 1998 (excluding the Excluded Assets and the
Excluded Liabilities) in accordance with GAAP. Within 30 days of receipt of the
Financial Reports, in the event Castle Dental believes that the Sellers caused
the net current assets of the Business from the Balance Sheet Date (based upon
the Audited Reports) until November 30, 1998 to be reduced for reasons other
than (i) normal fluctuations in the ordinary course of business, (ii) from
actions otherwise authorized under the terms of this Agreement or (iii) matters
as to which Castle Dental, Castle PC or Purchaser had knowledge at the Closing
Date, Castle Dental shall prepare and deliver a written report with respect to
any disagreement Castle Dental may have with regard to the manner in which the
Business was operated from the balance Sheet Date until Closing. If Sellers'
accountants and Castle Dental cannot resolve such disagreement within 15 days
after Sellers' accountants receipt of such report, then they shall so notify
Sellers, and Sellers and Castle Dental shall attempt to resolve the discrepancy
within 15 days of such notice. If Sellers and Castle Dental cannot resolve the
disagreement to their mutual satisfaction, an independent public accounting firm
reasonably acceptable to Sellers and Castle Dental shall be retained to resolve
the disagreement regarding the Financial Reports. Such firm's conclusions as to
the resolutions of disputed matters for purposes of determining the Sellers' net
current assets shall be conclusive. Any dispute concerning matters other than
the determination of Sellers' net current assets shall be subject to the
provisions of Section 12.15 hereof. Sellers and Castle Dental shall share
equally in the expenses of retaining such independent accounting firm. Castle
Dental shall pay its expenses regarding the Financial Reports and related
matters, and Sellers shall pay the expenses of Sellers' accountants for their
work regarding the Financial Reports and related matters.
3.5 PURCHASE PRICE ADJUSTMENT. On the one-year anniversary of the Closing
Date, the Purchaser shall pay the Sellers in cash ("Guaranteed Amount") (a) the
amount, if any, by which $10.00 exceeds the average closing price of the Common
Stock on the Nasdaq National Market for the 15 trading days immediately
preceding the first anniversary of the Closing Date, multiplied by (b) 125,000;
provided, however, that in no event shall the aggregate amount of the Guaranteed
Amount exceed $430,212.50.
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3.6 AGENCY RELATIONSHIP. In the event that, following the Closing Date,
any Seller receives any funds, documents or instruments which constitute or are
delivered in respect of Assets transferred to Purchaser or Castle PC pursuant to
this Agreement, such Seller agrees to hold such funds, documents or instruments
for the benefit of Purchaser or Castle PC and as Purchaser's or Castle PC's
agent therefor and redeliver such items to Purchaser or Castle PC. In the event
that, following the Closing Date, Purchaser, Castle Dental or Castle PC receives
any funds, documents or instruments which constitute or are delivered in respect
of Excluded Assets retained by any Seller pursuant to this Agreement, Purchaser,
Castle Dental or Castle PC agrees to hold such funds, documents or instruments
for the benefit of such Seller and as such Seller's agent therefor and redeliver
such items to such Seller.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS
AND THE SHAREHOLDERS
As an inducement to the Purchaser, Castle Dental and Castle PC to enter
into and perform this Agreement, each Seller and Shareholder jointly and
severally represents and warrants to Purchaser, Castle Dental and Castle PC as
follows:
4.1 EXISTENCE AND GOOD STANDING. Each Seller is a corporation, limited
liability partnership, professional corporation or professional limited
liability company duly organized and validly existing under the laws of the
State of Texas. Each Seller has the full power and authority to own, lease and
operate its property and to carry on its Business as now being conducted.
4.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. Each Seller has full power
and authority, and each Shareholder has full power and authority to execute and
deliver this Agreement, to perform their respective obligations hereunder and to
consummate the transactions they are required to carry out contemplated hereby.
The execution, delivery and performance of this Agreement by such Seller and the
consummation by it of the transactions contemplated hereby, have been duly
authorized and approved by the Board of Directors, managers or partners of such
Seller and by all of the Shareholders as the shareholders, members or partners
of such Seller, and no other action on the part of such Seller or its
shareholders, members or partners is necessary to authorize the execution,
delivery and performance of this Agreement by such Seller and the consummation
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by such Seller and such Shareholder and is a valid and binding
obligation of such Seller and such Shareholder enforceable against each in
accordance with its terms, except to the extent that its enforceability may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles.
4.3 CAPITAL STOCK. All of the outstanding shares of capital stock or
membership interests of the Sellers that are corporations, professional
corporations or limited liability companies (other than Northeast and Bandera)
are owned beneficially and of record by the Shareholders free and clear
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of any Encumbrances. All of the partnership interests in DCA, Ltd. and DAI, Ltd.
are owned beneficially and of record by DCA GP Texas, Inc., a Texas corporation,
and San Antonio DCA Delaware, Inc., a Delaware corporation (the "DCA Partners")
and DAI GP Texas, Inc., a Texas corporation and San Antonio DAI Delaware, Inc.,
a Delaware corporation (the "DAI Partners") free and clear of any Encumbrances.
All of the outstanding shares of capital stock or membership interests of the
DCA Partners and the DAI Partners are owned beneficially and of record by the
Shareholders free and clear of any Encumbrances. Following B. Solomon's purchase
of the Northeast Interest, all of the outstanding shares of capital stock
Northeast will be owned beneficially and of record by B. Solomon free and clear
of any Encumbrances. Following B. Solomon's purchase of Scott Barton's interest
in Bandera, all of the outstanding shares of capital stock Bandera will be owned
beneficially and of record by B. Solomon free and clear of any Encumbrances.
Other than B. Solomon's option to purchase Scott Barton's interest in Bandera,
no outstanding options, warrants or rights to acquire capital stock, partnership
interest or membership interests of any Seller exist.
4.4 CONSENTS AND APPROVALS: NO VIOLATIONS. Except as set forth on Schedule
4.4, the execution, delivery and performance of this Agreement by each Seller
and Shareholder and the consummation by Sellers and the Shareholders of the
transactions contemplated hereby will not, with or without the giving of notice
or the lapse of time or both: (a) violate, conflict with, or result in a breach
or default under any provision of the organizational documents of any Seller;
(b) to the actual knowledge of any Seller or Shareholder, violate any statute,
ordinance, rule or regulation applicable to any Seller or Shareholder or by
which any of the Assets may be bound, (c) to the knowledge of any Seller or
Shareholder, violate any order, judgment or decree of any court or of any
governmental or regulatory body, agency or authority applicable to any Seller or
Shareholder or by which any of the Assets may be bound; (d) to the actual
knowledge of any Seller or Shareholder, require any filing by any Seller or
Shareholder with, or require any Seller or Shareholder to obtain any permit,
consent or approval of, or require any Seller or Shareholder to give any notice
to, any governmental or regulatory body, agency or authority other than as set
forth in Schedule 4.4 attached hereto; or (e) result in a violation or breach by
any Seller or Shareholder of, conflict with, constitute (with or without due
notice or lapse of time or both) a default by any Seller or Shareholder (or give
rise to any right of termination, cancellation, payment or acceleration) under
or result in the creation of any Encumbrance (other than Permitted Encumbrances)
upon any of the Assets under any of the terms, conditions, or provisions of any
contract set forth on Schedule 4.11.
4.5 SUBSIDIARIES AND AFFILIATES. Except as provided on Schedule 4.5, each
Seller has (i) no subsidiaries and (ii) not, during the last three years,
conducted business under any other name except its legal name. Except as set
forth on Schedule 4.5, all of the Assets used in the Business are owned by the
Sellers, and on consummation of the transactions contemplated hereby Purchaser
or Castle PC will have acquired all of the Assets owned or leased, as the case
may be, by Sellers and used in the Business, other than the Excluded Assets.
Except as set forth on Schedule 4.11, no Seller owns, of record or beneficially,
or controls, directly or indirectly, any capital stock, securities convertible
into capital stock or any other equity interest in any Person, and no Seller is,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
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4.6 FINANCIAL STATEMENTS: NO MATERIAL ADVERSE CHANGE. Each Seller has
heretofore furnished Purchaser with the audited balance sheet of such Seller as
of September 30, 1998 (the "Balance Sheet Date"), the audited statements of
operations and cash flows for the period from January 1, 1998 through September
30, 1998, the audited balance sheet of such Seller as of December 31, 1997, and
the audited statement of operations and cash flows for the year then ended (the
"Financial Statements"). The Financial Statements fairly present in all material
respects in accordance with GAAP the financial position of each Seller at the
date thereof and the results of operations of such Seller and its cash flows for
the period indicated. Except as set forth in Schedule 4.6 attached hereto or
contemplated by the transactions provided for herein, since the Balance Sheet
Date there has been no material adverse change in the Assets or Assumed
Obligations, or in the business or condition, financial or otherwise, or in the
results of operations of any Seller.
Other than as (i) disclosed on the Financial Statements, (ii) incurred
since the Balance Sheet Date in the ordinary course of business or (iii)
disclosed on Schedule 4.6 or another Schedule hereto, no Seller has any direct
or indirect indebtedness, liability, claim, deficiency, obligation or
responsibility, known or unknown, fixed or contingent, liquidated or
unliquidated, accrued, absolute or otherwise, which is an Assumed Obligation
hereunder.
4.7 BOOKS AND RECORDS. Each Seller shall make available to Purchaser at
Faye's office true, correct and complete copies of its articles of
incorporation, articles of formation or certificate of limited partnership and
bylaws, regulations or partnership agreement, and all amendments to each. The
minute books of each Seller, as previously made available to Purchaser and its
representatives, contain accurate records in all material respects of the
meetings of the shareholders, members or partners and Board of Directors or
managers of such Seller.
4.8 TITLE TO PROPERTIES: ENCUMBRANCES: CONDITION. Except as set forth in
Schedule 4.8 or 4.9, and except for properties or assets reflected in the
Financial Statements or acquired since the Balance Sheet Date which have been
sold or otherwise disposed of in the ordinary course of business, Sellers have
good and valid title or leasehold interest to the Assets, in each case subject
to no Encumbrances except for (i) Encumbrances consisting of easements, permits
and other restrictions or limitations on the use of real property or
irregularities in title thereto that do not materially detract from the value
of, or materially impair the use of, such property by any Seller in the
operation of the Business, (ii) Encumbrances for current Taxes, assessments or
governmental charges or levies on property not yet due or delinquent, (iii)
Encumbrances created by Purchaser and (iv) required consents to the assignment
of Assigned Contracts or software licenses that were disclosed on Schedule 4.4
(if the Purchaser elects to consummate the Closing notwithstanding such lack of
consent) (Encumbrances of the type described in clauses (i), (ii), (iii) and
(iv) above are hereinafter sometimes referred to as "Permitted Encumbrances").
Each Seller has heretofore furnished Purchaser with a fixed asset ledger which
sets forth all fixed assets owned by such Seller as of the Balance Sheet Date.
Sellers and Shareholders have no knowledge of any defects in such Assets that
would have a Material Adverse Effect on the Sellers.
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4.9 REAL PROPERTY. Schedule 4.9 identifies all interests in real property
used by each Seller in the Business and includes the name of the record title
holder or landlord thereof. All of the premises leased by each Seller are in
good operating condition, and in a state of good maintenance and repair, subject
to ordinary wear and tear. No Seller has any interests in real property other
than through the leases listed on Schedule 4.9. The real property has adequate
rights of ingress and egress for operation of the Business in the ordinary
course. No condemnation or similar proceeding is pending or, to the best
knowledge of Sellers or the Shareholders, threatened, which would preclude or
impair the use of any such property, except where such proceeding would not have
a Material Adverse Effect.
4.10 LEASES. Schedule 4.10 contains an accurate and complete list of all
personal property leases to which any Seller is a party (as lessee or lessor).
Each lease set forth in Schedule 4.10 is in full force and effect, and except as
set forth on Schedule 4.10 no event has occurred that with the giving of notice,
the passage of time or both would constitute a default thereunder by any Seller.
4.11 MATERIAL CONTRACTS. Schedule 4.11 contains an accurate and complete
list of all material contracts, commitments and similar agreements to which each
Seller is a party or by which it any of the Assets are bound (including but not
limited to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, strategic alliances and
options to purchase land) other than Excluded Contracts. The contracts set forth
on Schedule 4.11 include (a) any agreement, contract or commitment relating to
the employment of any Person by each Seller (excluding oral at-will contracts),
(b) any agreement, indenture or other instrument which contains restrictions
with respect to payment of profits, dividends or any other distributions, (c)
any agreement, contract or commitment relating to capital expenditures in excess
of $10,000 which will not be performed prior to Closing, (d) any loan or advance
to, or investment in, any Person or any agreement, contract or commitment
relating to the making of any such loan, advance or investment, (e) any
guarantee or other contingent liability in respect of any indebtedness or
obligation of any Person, (f) any management service, consulting or any other
similar type contract, (g) any agreement, contract or commitment limiting the
freedom of any Seller to engage in any line of business or to compete with any
Person, (h) any agreement, contract or commitment by any Seller or Shareholder
and relating to the Business which involves $10,000 or more and is not
cancellable without penalty within 31 days, or (i) any other agreement, contract
or commitment by any Seller or Shareholder, the breach or nonperformance of
which would have a Material Adverse Effect on the Sellers. Also set forth in
Schedule 4.11 is a list of all proposals submitted by each Seller to any third
party that, if accepted by such third party, would require disclosure on
Schedule 4.11. Each contract or agreement set forth in Schedule 4.11 is in full
force and effect, each Seller is in full compliance with the terms thereof, and
except as set forth on Schedule 4.11 there exists no default or event of default
or event, occurrence, condition or act (including the purchase of the Assets
hereunder) which, with the giving of notice, the lapse of time or the happening
of any other event or condition, would become a default or event of default
thereunder by any Seller.
4.12 PERMITS. Schedule 4.12 attached hereto lists all of the governmental
permits (including occupancy permits), licenses, consents and authorizations
("Permits") required in
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connection with the use, operation or ownership of each Seller's properties or
assets and the conduct of the Business as currently conducted. Sellers hold all
of the Permits listed on Schedule 4.12, and none is presently subject to
revocation or challenge. Except as set forth on Schedule 4.12, to the actual
knowledge of the Sellers or the Shareholders, none of such Permits will be
subject to revocation or termination as a result of the consummation of the
transactions contemplated hereby.
4.13 LITIGATION. Except as set forth in Schedule 4.13, to the knowledge of
Sellers or the Shareholders, there is no action, suit, proceeding at law or in
equity, arbitration or administrative or other proceeding by or before (or any
investigation by) any governmental or other instrumentality or agency, pending,
or threatened, against or affecting the properties, rights or goodwill of any
Seller, Shareholder, or employees of any Seller, and Sellers or the Shareholders
do not know of any valid basis for any such action, proceeding or investigation.
To the knowledge of Sellers or the Shareholders, there are no such suits,
actions, claims, proceedings or investigations pending or threatened, seeking to
prevent or challenge the transactions contemplated by this Agreement. Schedule
4.13 also describes any actions, suits, disciplinary proceedings and
investigations undertaken by the Dental Board of the State of Texas, or other
body regulating the activities of dentists, against any Seller, Shareholder or
any employee thereof which are known to the Sellers or the Shareholders.
4.14 TAXES. (a) All returns and reports for Taxes for all taxable years or
periods which begin after December 31, 1993 and that end on or before the
Closing Date and, with respect to any taxable year or period beginning before
and ending after the Closing Date, the portion of such taxable year or period
ending on and including the Closing Date ("Pre-Closing Periods"), which are
required to be filed by or with respect to each Seller (collectively, the
"Returns") have been or will be filed when due in a timely fashion and such
Returns as filed are or will be accurate in all material respects.
(b) Except as provided in Schedule 4.14, to the actual knowledge of
Sellers or the Shareholders, there is no material action, suit, proceeding,
investigation, audit, or claim now pending or threatened by any authority
regarding any Taxes relating to any Seller for any Pre-Closing Period.
(c) Except for inchoate liens which exist for Taxes not yet due and
payable, there are no liens or security interests on any of the properties or
assets of any Seller that arose in connection with any failure (or alleged
failure) to pay any Taxes.
(d) Except as provided in Schedule 4.14, there are no agreements for
the extension or waiver of the time for assessment of any Taxes relating to any
Seller for any Pre-Closing Period and no Seller has been requested to enter into
any such agreement or waiver.
(e) All Taxes relating to each Seller which such Seller is required
by law to withhold or collect have been duly withheld or collected, and have
been timely paid over to the proper authorities to the extent due and payable.
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(f) No Seller is now nor has ever been a party to any Tax allocation
or sharing agreement that will result in any liability to Purchaser.
4.15 INSURANCE. Set forth in Schedule 4.15 is a complete list of insurance
policies that each Seller maintains with respect to its Business and properties
or on its employees. To the knowledge of the Sellers or the Shareholders, such
policies are in full force and effect.
4.16 INTELLECTUAL PROPERTIES. Except as set forth on Schedule 4.16, the
operation of the Business as conducted by each Seller as of the Closing Date
requires no material rights under Intellectual Property. To the actual knowledge
of Sellers or the Shareholders, no litigation is pending or threatened wherein
any Seller is accused of infringing or otherwise violating the Intellectual
Property rights of another, or of breaching a contract conveying rights under
Intellectual Property. Castle Dental, Purchaser and Castle PC acknowledge that
the Sellers have taken no action to protect any Intellectual Property owned by
them.
4.17 COMPLIANCE WITH LAWS. Except as set forth on Schedule 4.17, to the
actual knowledge of Sellers or the Shareholders, each Seller is in compliance in
all material respects with all applicable laws, regulations, orders, judgments
and decrees applicable to the Business except where any noncompliance would not
have a Material Adverse Effect on the Sellers. The above notwithstanding, no
Seller makes any representation as to its compliance or failure to comply with
any laws, rules, regulations, orders, judgments or decrees which relate to the
regulation of dental practices including but not limited to the Texas Dental
Practices Act.
4.18 EMPLOYMENT RELATIONS. Except as set forth on Schedule 4.18, (a) no
Seller is engaging and has not engaged in any unfair labor practice; (b) to the
knowledge of Sellers or the Shareholders, no representation question exists
respecting the employees of any Seller; (c) no Seller has been notified of any
grievance that might have a Material Adverse Effect and no arbitration
proceeding arising out of or under any collective bargaining agreement is
pending; and (d) no collective bargaining agreement is currently being
negotiated by any Seller.
4.19 EMPLOYEE BENEFIT PLANS. Each Seller has delivered to Purchaser true
and complete copies of all written employee benefit plans, policies, programs
and arrangements and all related contracts, agreements and other descriptions
thereof with respect to the employee benefits provided to the employees of the
Business prior to the Closing Date (the "Plans"). Each of the Plans has, to the
actual knowledge of Sellers or the Shareholders, been maintained in compliance
with its terms and the requirements of all applicable laws. None of the Plans
are subject to Title IV of ERISA or the minimum funding obligations of Section
412 of the Code, and Sellers and any entity required to be aggregated therewith
pursuant to Section 414(b) or (c) of the Code have no liability under Title IV
of ERISA or under Section 412(f) or 412(n) of the Code.
4.20 ENVIRONMENTAL LAWS AND REGULATIONS. Except as used, treated or stored
in the ordinary course of Sellers' Business, (a) to the actual knowledge of the
Sellers or the Shareholders, Hazardous Materials have not been generated, used,
treated or stored on, or transported to or from,
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any Seller Property by any Seller or its authorized agents, (b) to the actual
knowledge of the Sellers or the Shareholders, Hazardous Materials have not been
Released or disposed of by any Seller or its authorized agents on any Seller
Property or any property adjoining any Seller Property except such Releases
which do not violate any Environmental Laws, (c) to the actual knowledge of the
Sellers or the Shareholders, each Seller is in compliance with all applicable
Environmental Laws and the requirements of any Permits issued under such
Environmental Laws with respect to any Seller Property, (d) to the actual
knowledge of Sellers or the Shareholders, there are no pending or threatened
Environmental Claims against any Seller or any Seller Property, (e) there are no
facts or circumstances, conditions, pre-existing conditions or occurrences on
any Seller Property known to any Seller or Shareholder that could reasonably be
anticipated (A) to form the basis of an Environmental Claim against any Seller
or any Seller Property, or (B) to cause such Seller Property to be subject to
any restrictions on the ownership, occupancy use or transferability of such
Seller Property under any Environmental Law and (f) to the actual knowledge of
the Sellers or the Shareholders, there are not now and there never have been any
underground storage tanks located on any Assets.
4.21 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except for relationships
between the Sellers and the Shareholders or among the Sellers, no Seller
possesses, directly or indirectly, any financial interest in, and no Shareholder
serves as a director, officer or employee of, any Person which is a supplier,
customer, lessor, lessee, or competitor of any Seller.
4.22 COMPENSATION OF EMPLOYEES. Set forth in Schedule 4.22 is an accurate
and complete list showing the names of all Persons whose compensation from all
Sellers collectively for the period ended on the Balance Sheet Date exceeded an
annualized rate of $30,000, together with a statement of the full amount paid or
payable to each such Person for services rendered during the current fiscal year
to date.
4.23 PAYORS. Schedule 4.23 sets forth the ten largest payors of Sellers
for the most recently completed fiscal year. To the knowledge of the Sellers or
the Shareholders, the relationship of each Seller with each of such payors as of
the date of this Agreement is a good commercial working relationship. Except as
set forth in Schedule 4.23 no significant payor has canceled or otherwise
terminated or, to the knowledge of Sellers or the Shareholders, threatened to
cancel or otherwise terminate its relationship with any Seller within the last
three years.
4.24 ACCOUNTS RECEIVABLE: ACCOUNTS PAYABLE. Except as set forth on
Schedule 4.24, the Accounts Receivable represent actual billings for services
actually performed or agreed to be performed and supplies actually utilized or
agreed to be utilized. All Accounts Receivable issued to third-party payors
(including governmental entities) were issued in conformity with the terms of
any contract between the Sellers and such third-party payors. Except as set
forth on Schedule 4.24, there has been no material adverse change since the
Balance Sheet Date in the amount of the Accounts Receivable or other fees or
debts due to any Seller or the allowances with respect thereto, or in the
Accounts Payable by any Seller, from that reflected in the Balance Sheet.
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4.25 DISCLOSURE. None of the Schedules or certificate attached hereto or
delivered in accordance with the terms hereof omits any statement of a material
fact necessary in order to make the statements contained therein not misleading
in light of the circumstances under which they were made.
4.26 BROKER'S OR FINDER'S FEES. Except as set forth on Schedule 4.26, no
agent, broker, Person or firm acting on behalf of any Seller or Shareholder is,
or will be, entitled to any fee, commission or broker's or finder's fees for
which Castle Dental, the Purchaser or Castle PC may be liable in connection with
this Agreement or any of the transactions contemplated hereby.
4.27 COPIES OF DOCUMENTS. Each Seller has caused to be made available for
inspection and copying by Purchaser and its advisers, true, complete and correct
copies of all documents referred to in this Article 4 or in any Schedule
attached hereto.
4.28 INVESTMENT REPRESENTATIONS.
(a) Each Shareholder understands that the Notes and the Common Stock
(collectively, the "Securities") have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"). Each
Shareholder also understands that the Securities are being offered and
sold pursuant to an exemption from registration contained in the
Securities Act based in part upon his representations contained in this
Agreement.
(b) Each Shareholder, in consultation with his accountants,
attorneys and financial advisors, has the requisite experience in
evaluating and investing in private placement transactions of securities
so that he is capable of evaluating the merits and risks of his investment
in Castle Dental and has the capacity to protect his own interests. Each
Shareholder understands that he must bear the economic risk of this
investment indefinitely unless the Securities are registered pursuant to
the Securities Act, or an exemption from registration is available. Each
Shareholder also understands that there is no assurance that any exemption
from registration under the Securities Act will be available and that,
even if available, such exemption may not allow him to transfer all or any
portion of the Securities under the circumstances, in the amounts or at
the times he might propose.
(c) Each Shareholder is acquiring the Securities for his own account
for investment only, and not with a view towards distribution.
(d) Each Shareholder represents that by reason of his business or
financial experience, he has the capacity to protect his own interests in
connection with the transactions contemplated in this Agreement.
(e) Each Shareholder represents that he is an accredited investor
within the meaning of Regulation D under the Securities Act.
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(f) Each Shareholder acknowledges that the Securities have been
offered to such Shareholder without any form of general solicitation or
advertising of any type by or on behalf of Castle Dental or any of its
officers, directors, shareholders, employees, agents, attorneys or
representatives.
(g) Each Shareholder has adequate means of providing for such
Shareholder's current financial needs and contingencies, is able to bear
the substantial economic risks of an investment in the Securities, has no
need for liquidity in such investment, and is able to withstand a complete
loss of such investment.
(h) Each Shareholder acknowledges and understands that no federal or
state agency has passed on the fairness of the investment in the
Securities, nor made any recommendation or endorsement of the Securities,
and that there is a significant risk of loss of all or a portion of such
Shareholder's investment in the Securities.
(i) Each Shareholder acknowledges that Castle Dental and Castle
Dental's officers, directors, agents, attorneys and other representatives
are relying on the representations and warranties set forth herein, and
would not issue the Securities to such Shareholder but for the execution
and delivery of this Agreement by such Shareholder.
4.29 DISCLOSURE. Shareholder acknowledges receipt of a copy of Castle
Dental's prospectus dated September 12, 1997 (the "Prospectus"), relating to
Castle Dental's initial public offering of its Common Stock. Shareholder has
carefully reviewed the Prospectus and has been given the opportunity to discuss
any questions relating thereto with members of Castle Dental's management.
Shareholder has also received a copy of Castle Dental's Report on Form 10-K for
the year ended December 31, 1997, and Castle Dental's Report on Form 10-Q for
the quarter ended June 30, 1998, in the form filed with the Securities and
Exchange Commission ("SEC").
4.30 PREDECESSORS IN INTEREST. DCA, Ltd. and DAI, Ltd. are recently formed
entities which were formed since the Balance Sheet Date to acquire and have
acquired 100% of the business and assets of DCA and DAI, respectively. All
representations and warranties concerning the financial statements, Business,
Assets and Assumed Obligations of DCA, Ltd. and DAI, Ltd. contained herein shall
be understood to relate to the financial statements, Business, Assets and
Assumed Obligations of DCA and DAI, respectively, as if DCA, Ltd. and DAI, Ltd.
had owned and operated such Business, Assets and Assumed Obligations from the
date of formation of DCA and DAI, respectively.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Castle Dental, Castle PC and Purchaser jointly and severally represent and
warrant to the Sellers and the Shareholders as follows:
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5.1 EXISTENCE AND GOOD STANDING: POWER AND AUTHORITY. Each of Castle
Dental, Castle PC and Purchaser is a corporation or professional corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation. Each of Castle Dental, Castle PC and Purchaser has
full corporate power and authority to make, execute, deliver and perform this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by each of Castle Dental, Castle PC and Purchaser and the
consummation by them of the transaction contemplated hereby, have been duly
authorized and approved by all required corporate action of Castle Dental,
Castle PC and Purchaser and no other action on the part of such parties is
necessary to authorize the execution, delivery and performance of this Agreement
by such parties and the consummation of the transaction contemplated hereby.
This Agreement has been duly executed and delivered by Castle Dental, Castle PC
and Purchaser and is a valid and binding obligation of Castle Dental, Castle PC
and Purchaser enforceable against each of them in accordance with its terms,
except to the extent that its enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles.
5.2 NO VIOLATIONS. The execution, delivery and performance of this
Agreement by Castle Dental, Castle PC and Purchaser and the consummation by them
of the transactions contemplated hereby will not, with or without the giving of
notice or the lapse of time or both: (a) violate, conflict with, or result in a
breach or default under any provision of the certificate or articles of
incorporation or by-laws of Castle Dental, Castle PC or Purchaser; (b) to the
knowledge of Castle Dental, Castle PC and Purchaser, violate any statute,
ordinance, rule, regulation, order, judgment or decree of any court or of any
governmental or regulatory body, agency or authority applicable to Castle
Dental, Castle PC or Purchaser or by which any of their respective properties or
assets may be bound; (c) to the knowledge of Castle Dental, Castle PC or
Purchaser require any filing by Castle Dental, Castle PC or Purchaser with, or
require Castle Dental, Castle PC or Purchaser to obtain any permit, consent or
approval of, or require Castle Dental, Castle PC or Purchaser to give any notice
to, any governmental or regulatory body, agency or authority or any third party;
or (d) result in a violation or breach by Castle Dental, Castle PC or Purchaser
of, conflict with, constitute (with or without due notice or lapse of time or
both) a default by Castle Dental, Castle PC or Purchaser (or give rise to any
right of termination, cancellation, payment or acceleration) under, or result in
the creation of any Encumbrance upon any of the properties or assets of Castle
Dental, Castle PC or Purchaser pursuant to any of the terms, conditions or
provision of any note, bond, mortgage, indenture, license, franchise, permit,
agreement, lease, franchise agreement or other instrument or obligation to which
Castle Dental, Castle PC or Purchaser is a party, or by which they or any of
their respective properties or assets may be bound.
5.3 CAPITAL STOCK. The capitalization of Castle Dental is as set forth in
Castle's reports filed with the SEC (the "SEC Reports"). All of the shares of
Common Stock of Castle Dental delivered pursuant to Section 3.1 hereof shall be
duly and validly authorized, and, following the Closing, will be validly issued,
fully paid, nonassessable and free of any Encumbrances.
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5.4 LITIGATION. Except as set forth in Castle's SEC Reports and the
pending arbitration against Castle Dental Centers of California, L.L.C., there
is no action, suit, proceeding at law or in equity, arbitration or
administrative or other proceeding by or before (or any investigation by) any
governmental or other instrumentality or agency, pending, or, to the knowledge
of Castle Dental, Castle PC or Purchaser, threatened, against or affecting the
properties, rights or goodwill of Castle Dental, Castle PC, Purchaser or their
employees, except where such Proceeding would not have a Material Adverse Effect
on Castle Dental, Castle PC or Purchaser, and Castle Dental, Castle PC or
Purchaser does not know of any valid basis for any such action, proceeding or
investigation. There are no such Proceedings pending or, to the knowledge of
Castle Dental, Castle PC or Purchaser, threatened, seeking to prevent or
challenge the transactions contemplated by this Agreement.
5.5 COMPLIANCE WITH LAWS. Each of Castle Dental, Purchaser and Castle PC
is in compliance in all material respects with all applicable laws, regulations,
orders, judgments and decrees applicable to the Business except where any
noncompliance would not have a Material Adverse Effect. The above
notwithstanding, none of Castle Dental, Purchaser or Castle PC makes any
representation as to its compliance or failure to comply with any laws, rules,
regulations, orders, judgments or decrees which relate to the regulation of
dental practices including but not limited to the Texas Dental Practices Act.
5.6 FINANCIAL STATEMENTS. The financial statements of Castle Dental
contained in its filings with the SEC are complete and correct in all material
respects and present fairly in accordance with GAAP consistently applied, the
financial position of Castle Dental and the results of operations of Castle
Dental as of the dates thereof and for the periods indicated.
5.7 BROKER'S OR FINDER'S FEES. No agent, broker, Person or firm acting on
behalf of Castle Dental, Purchaser or Castle PC is, or will be, entitled to any
fee, commission or broker's or finder's fee for which any Seller or Shareholder
may be liable in connection with this Agreement or any of the transactions
contemplated hereby.
5.8 THIRD-PARTY CONSENTS. Neither the execution of this Agreement or the
consummation of the transactions contemplated hereby requires Castle Dental,
Purchaser or Castle PC to obtain the consent or approval of any third party
other than its Lenders under its Credit Facility and, in the event Castle Dental
elects to finance this transaction outside of its Credit Facility, the parties
to such financing.
ARTICLE 6
CONDITIONS TO SELLERS' AND SHAREHOLDERS' OBLIGATIONS
The obligations of each Seller and Shareholder under this Agreement shall
be subject to the satisfaction (or waiver by the party entitled to performance)
on or prior to the Closing Date of all of the following conditions:
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6.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Castle Dental, Castle PC and Purchaser contained in this Agreement
shall be true and correct in all material respects on the Closing Date with the
same effect as though such representations and warranties had been made on the
Closing Date, and Castle Dental, Castle PC and Purchaser shall have delivered to
the Sellers on the Closing Date a certificate of an authorized officer, dated
the Closing Date, to such effect.
6.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of Castle Dental, Castle PC and Purchaser to be performed on or before
the Closing Date pursuant to the terms hereof shall have been duly performed in
all material respects, and Castle Dental, Castle PC and Purchaser shall have
delivered to the Sellers a certificate of an authorized officer, dated the
Closing Date, to such effect.
6.3 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before a court or other governmental body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and Castle
Dental, Castle PC and Purchaser shall have delivered to the Sellers a
certificate of an authorized officer, dated the Closing Date, to such effect to
the best knowledge of such officer.
6.4 CONSIDERATION. The Sellers shall have received all of the
consideration described under the terms of this Agreement to be delivered on the
Closing Date, including the Base Purchase Price, and Purchaser or Castle PC
shall have executed documents whereby they assume the Assumed Obligations.
6.5 GOVERNMENTAL APPROVALS. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
6.6 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Sellers, the
Shareholders and their counsel, and the Sellers and the Shareholders shall have
received copies of all such documents and other evidence as they or their
counsel may reasonably request in order to establish the consummation of such
transactions and the taking of all proceedings in connection therewith.
6.7 SECRETARY'S AND GOOD STANDING CERTIFICATES. The Sellers and the
Shareholders shall have received a certificate of the secretary or any assistant
secretary of each of Castle Dental, Castle PC and Purchaser certifying as to the
following attachments: (a) its certificate or articles of incorporation
(certified by the Secretary of State of or other appropriate governmental
authority of its state of incorporation); (b) its bylaws; (c) the resolutions of
its board of directors respecting the transactions contemplated hereby; and (d)
a certificate respecting the incumbency and true signatures of its officers who
executed this Agreement and any related documents. The Sellers and the
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Shareholders shall have received recently dated good standing and corporate
existence certificates respecting Castle Dental, Castle PC and Purchaser.
6.8 NONCOMPETITION AGREEMENT. Purchaser and each Shareholder shall have
entered into a Noncompetition Agreement.
6.9 LEGAL OPINION. Castle Dental, Purchaser and Castle PC shall have
delivered to Sellers the opinion of Boyer, Ewing & Harris Incorporated in form
and substance reasonably satisfactory to Sellers.
6.10 SUBORDINATION AGREEMENT. Castle Dental and each Person receiving
Notes shall have entered into the Subordination Agreement.
6.11 EMPLOYMENT AGREEMENT. Purchaser and M. Solomon shall have entered
into the Employment Agreement.
6.12 APPROVAL OF LENDERS. All approvals and consents required to be
received from Castle Dental's lenders as a condition to funding the acquisition
described herein shall have been received.
6.13 NORTHEAST. All rights and obligations hereunder of Northeast (and of
the Administrators with respect to the Related Northeast Assets) shall be
subject to the acquisition, at or prior to the Closing, of the Northeast
Interest by B. Solomon.
6.14 CONSENTS. Each of the consents referred to in Schedule 4.4 attached
hereto shall have been obtained, unless Purchaser elects to close without the
receipt of such consents.
6.15 REGISTRATION RIGHTS AGREEMENT. Castle Dental and each Shareholder
shall have entered into the Registration Rights Agreement.
ARTICLE 7
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Castle Dental, Castle PC and Purchaser under this
Agreement shall be subject to the satisfaction (or waiver by Purchaser) on or
prior to the Closing Date of all of the following conditions:
7.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Seller and Shareholder contained herein shall be true and
correct in all material respects on the Closing Date with the same effect as
though such representations and warranties had been made on the Closing Date,
and each Seller and Shareholder shall have delivered to Purchaser on the Closing
Date a certificate of an authorized representative, dated the Closing Date, to
such effect.
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7.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of each Seller and Shareholder to be performed on or before the
Closing Date pursuant to the terms hereof shall have been duly performed in all
material respects, and each Seller and Shareholder shall have delivered to
Purchaser a certificate of an authorized representative, dated the Closing Date,
to such effect.
7.3 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before a court or other governmental body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and each
Seller and Shareholder shall have delivered to Purchaser a certificate of an
authorized representative of such Seller or Shareholder, dated the Closing Date,
to such effect to the best knowledge of such officer of Shareholder.
7.4 GOVERNMENTAL APPROVALS. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
7.5 CONSENTS. Each of the consents referred to in Schedule 4.4 attached
hereto shall have been obtained.
7.6 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Purchaser and its
counsel, and Purchaser shall have received copies of all such documents and
other evidence as it or its counsel may reasonably request in order to establish
the consummation of such transactions and the taking of all proceedings in
connection therewith.
7.7 DUE DILIGENCE. Purchaser shall have satisfactorily completed a due
diligence review of each Seller and the Business and shall not have determined,
in the exercise of its reasonable discretion, that the information obtained from
such review materially and adversely affects its appraisal of the business,
prospects and financial condition of any Seller or the Business.
7.8 APPROVAL OF LENDERS. All approvals and consents required to be
received from Castle Dental's lenders as a condition to funding the acquisition
described herein shall have been received.
7.9 GOOD STANDING CERTIFICATES. Castle Dental, Castle PC and Purchaser
shall have received a certificate of the secretary or any assistant secretary of
each Seller certifying as to the following attachments: (a) its articles of
incorporation, articles of formation or certificate of limited partnership
(certified by the Secretary of State of or other appropriate governmental
authority of its state of incorporation); (b) its bylaws, regulations or
partnership agreement; (c) the resolutions of its board of directors (or similar
governing body) respecting the transactions contemplated hereby; and (d) a
certificate respecting the incumbency and true signatures of its officers (or
other representatives) who executed this Agreement and any related documents.
Castle Dental and Purchaser shall have received recently dated good standing and
existence certificates respecting each Seller.
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7.10 NONCOMPETITION AGREEMENT. Purchaser and each Shareholder shall have
entered into a Noncompetition Agreement.
7.11 LEGAL OPINION. The Shareholders and the Sellers shall have delivered
to Purchaser the opinions of Strasburger & Price, L.L.P. and Stan E. Faye in
form and substance reasonably satisfactory to Purchaser.
7.12 SUBORDINATION AGREEMENT. Castle Dental and each Person receiving
Notes shall have entered into a Subordination Agreement.
7.13 EMPLOYMENT AGREEMENT. Purchaser and M. Solomon shall have entered
into the Employment Agreement.
7.14 DOCUMENTS OF CONVEYANCE. Purchaser and Castle PC shall have received
from Sellers fully executed documents of conveyance vesting in Purchaser good
and valid title to the Assets, free and clear of any Encumbrances except
Permitted Encumbrances.
7.15 FINANCING. Castle Dental shall have previously or simultaneously
closed financing arrangements in addition to its existing Credit Facility in an
amount sufficient to fund the Purchase Price hereunder.
7.16 NORTHEAST. The Purchaser's and Castle PCs obligations on the Closing
Date to acquire the Assets of Northeast and the Related Northeast Assets and
assume the Assumed Obligations of Northeast shall be subject to the acquisition,
at or prior to the Closing, of the Northeast Interest by B. Solomon. Following
the Closing Date, the Purchaser's and Castle PCs obligations to acquire the
Assets of Northeast and the Related Northeast Assets and assume the Assumed
Obligations of Northeast shall be subject to the provisions of Section 2.8
hereof.
7.17 BANDERA. B. Solomon shall have consummated the purchase of all of
Scott Barton's equity interest in Bandera.
7.18 MANAGEMENT SERVICES AGREEMENT. Castle PC and each PC shall have
entered into the Management Services Agreement.
ARTICLE 8
COVENANTS OF SELLERS AND THE SHAREHOLDERS
Each Seller and Shareholder hereby covenants and agrees with Purchaser as
follows:
8.1 COOPERATION BY EACH SELLER. From the date hereof until the Closing,
each Seller and Shareholder shall use its reasonable best efforts to cooperate
with Purchaser and Castle PC to secure all necessary consents, approvals,
authorizations, exemptions and waivers from third parties as shall
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be required in order to enable such Seller and Shareholder to effect the
transactions contemplated on its part hereby, and each Seller and Shareholder
shall otherwise use its reasonable best efforts to cause the consummation of
such transactions in accordance with the terms and conditions hereof and to
cause all conditions contained in this Agreement over which it has control to be
satisfied; provided, however, that in no event shall any Seller be required to
pay any party a fee to obtain such party's consent to the assignment of a
contract. Each Seller and Shareholder further agrees to deliver to Purchaser and
Castle PC prompt written notice of any event or condition known to it which, if
it existed on the date of this Agreement, would result in any of the
representations and warranties of such Seller or Shareholder contained herein
being untrue in any material respect.
8.2 CONDUCT OF BUSINESS. Except as Purchaser and Castle PC may otherwise
consent to herein or in writing, between November 30, 1998 and the Closing Date,
each Seller shall, (a) conduct the Business only in the ordinary course, (b) use
its reasonable efforts to keep available the services of its employees and
maintain satisfactory relationships with licensees, suppliers, lessors,
distributors, customers, clients and others, (c) maintain, consistent with past
practice, all the Assets in customary repair, order and condition, ordinary wear
and tear excepted, and insurance upon all the Assets used in the conduct of the
Business in such amounts and of such kinds comparable to that in effect on
November 30, 1998, to the extent available at current premiums, and (d) maintain
the Books and Records in the usual, regular and ordinary manner, on a basis
consistent with past practice.
8.3 PROHIBITED ACTIVITIES. Except as provided in Section 8.4, from
November 30, 1998 until the Closing Date, without the prior written consent of
Purchaser or unless as required or expressly permitted by this Agreement, no
Seller will:
(a) issue any of its capital stock, partnership interests or
membership interests or agree to do so;
(b) pay any dividend or make any other payment in respect of its
capital stock, partnership interests or membership interests;
(c) make any investments in the capital stock, derivative securities
or indebtedness of any Person;
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures in a single transaction or
a series of related transactions involving an aggregate amount of more
than $10,000 otherwise than in the ordinary course of its business and
consistent with its past practice;
(e) except as set forth below, increase or commit or promise to
increase the cash compensation payable or to become payable to any
officer, director, stockholder, employee or agent, consultant or
independent contractor of such Seller or make any discretionary bonus or
management fee payment to any such Person, except bonuses or salary
increases to
29
employees (other than the Shareholders or their immediate family members)
at the times and in the amounts consistent with its past practice;
(f) create, assume or permit to be created or imposed any
Encumbrances (other than Permitted Encumbrances) upon any of its Assets,
whether now owned or hereafter acquired, otherwise than in the ordinary
course of its business and consistent with its past practice;
(g) (i) adopt, establish, amend or terminate any Plan or employee
policies and procedures or (ii) take any discretionary action, or omit to
take any contractually required action, if that action or omission could
either (A) deplete the assets of any Plan or (B) increase the liabilities
or obligations under any such Plan;
(h) sell, assign, lease or otherwise transfer or dispose of any of
its Assets otherwise than in the ordinary course of its business and
consistent with its past practice;
(i) negotiate for the acquisition of any business or the start-up of
any new business;
(j) merge, consolidate or effect a share exchange with, or agree to
merge, consolidate or effect a share exchange with, any other Person;
(k) waive any of its rights or claims that in the aggregate are
material to the Business, provided that it may negotiate and adjust bills
in the course of good faith disputes with customers and vendors in a
manner consistent with past practice;
(l) commit breaches that in the aggregate are material to such
Seller or amend or terminate any material agreement of such Seller which
is to become an Assigned Contract hereunder or any of its Permits;
(m) except as provided in the last sentence of this Section 8.3, pay
any amount included within subsections (e), (f) or (g) of the definition
of Excluded Liabilities contained in Section 2.4; or
(n) enter into, or agree to enter into, any transaction or
commitment (i) outside the ordinary course of its business, (ii)
inconsistent with its past practice or (iii) prohibited hereby.
Notwithstanding the foregoing, the Sellers may (x) continue to pay participating
salaries, bonuses and fees to the employees, partners, officers and directors of
the Sellers, including the Shareholders, Scott Barton and Alfred G. Bradford
(collectively, the "Equity Holders"), consistent with the bonuses and fees the
Sellers, DCA and/or DAI have paid the Equity Holders in the past in the ordinary
course of business and (y) pay the Sellers' unusual and non-recurring accounting
and legal
30
expenses incurred in connection with the transactions contemplated by this
Agreement; provided, however, that the aggregate amount of payments made
pursuant to this sentence shall not exceed the bonuses and fees the Sellers, DCA
and/or DAI have paid the Equity Holders in the past in the ordinary course of
business.
8.4 DE NOVO OFFICES AND ENTITY REFORMATION. Following the execution of
this Agreement, the Sellers shall proceed with the development of de novo
offices at: Richland Hills Mall, Waco, Texas; Town East Mall, Mesquite, Texas;
Sherman Mall, Sherman, Texas; and Richardson Square Mall, Richardson, Texas ("De
Novo Offices"). Seller shall continue to fund, until the Closing Date, all cash
payments scheduled or, if not scheduled, paid by Seller in its ordinary course
of business in connection with the opening of a De Novo Office up to and through
the Date of Closing. The cost to be paid by Sellers shall include the cost of
leasehold improvements as planned by Sellers. No additional Purchase Price shall
be paid to any Seller for the cost incurred by such Seller under the terms of
this Section for the De Novo Offices. In addition, all of the above provisions
of this Agreement notwithstanding, nothing in this Agreement shall be deemed to
prohibit the actions taken by the Sellers in connection with the formation of
DCA, Ltd. and DAI, Ltd. and the transfer of the Assets and Liabilities of DCA
and DIA in connection therewith.
8.5 EXCLUSIVE DEALING. During the period from the date of this Agreement
to the earlier of the Closing Date or the termination of this Agreement, none of
the Sellers or the Shareholders shall take any action to, directly or
indirectly, encourage, initiate or engage in discussions or negotiations with,
or provide any information to, any Person other than Purchaser, concerning any
sale of the Assets or any material part thereof or a similar transaction
involving any Seller or Shareholder, other than the transactions contemplated by
this Agreement.
8.6 REVIEW OF THE ASSETS. Purchaser may, prior to the Closing Date,
through its representatives, review (a) the Assets, (b) the complete working
papers of each Seller's certified public accountants used in their preparation
of financial statements for such Seller and (c) the Books and Records of such
Seller and to otherwise review the financial and legal condition of such Seller
as Purchaser deems necessary or advisable to familiarize itself with the
Business and related matters and to conduct an audit of the Business. Such
review shall occur only during normal business hours upon reasonable notice by
Purchaser. Each Seller and Shareholder shall permit Purchaser and its
representatives to have, after the execution of this Agreement, access during
normal business hours upon reasonable notice to employees of Sellers listed on
Schedule 8.6 hereto, provided that the Sellers shall have the right to have a
representative present at all times when Purchaser is on their premises or
consulting with their employees.
8.7 FURTHER ASSURANCES. At any time or from time to time after the Closing
Date, each Seller and Shareholder shall, at the reasonable request of Purchaser
or Castle PC and at Purchaser's or Castle PC's sole cost and expense, execute
and deliver any further instruments or documents and take all such further
action as Purchaser or Castle PC may reasonably request in order to consummate
and make effective the sale of the Assets and the assumption of the Assumed
Obligations pursuant to this Agreement.
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8.8 POST-CLOSING ASSISTANCE. For a period of six months following the
Closing, B. Solomon shall provide assistance to the Purchaser in integrating the
Business into the Purchaser's operations. Such assistance shall be limited to
those duties set forth on Schedule 8.8 and shall be provided at the offices of
the Sellers upon the reasonable request of the Purchaser, not to exceed three
days per week, eight hours per day and to be performed during normal business
hours. In addition, Sellers and the Shareholders shall use their reasonable best
efforts to cause the accounting and legal personnel engaged by the Sellers to
provide on-going support to the Purchaser in a manner consistent with their past
practices for a period of 90 days following the Closing at Purchaser's expense
and at rates and payment terms similar to those charged to the Sellers, DCA
and/or DAI for such services.
8.9 SUBORDINATION. Following the closing, each Seller and Shareholder
holding Notes shall, at the request of Castle Dental, execute subordination
agreements with respect to the Notes in the form attached hereto as Exhibit D.
8.10 NORTHEAST. Unless B. Solomon acquires the Northeast Interest at or
prior to Closing, Northeast shall not be obligated to sell its Assets to
Purchaser and Castle PC, no Administrator shall be obligated to sell its Related
Northeast Assets to Purchaser or Castle PC, and neither Purchaser nor Castle PC
shall be obligated to purchase the Assets of Northeast or the Related Northeast
Assets or assume the Assumed Obligations in respect thereto, except as set forth
in Section 2.8 above. In the event B. Solomon does not acquire the Northeast
Interest at or prior to Closing, no default hereunder shall be deemed to have
occurred and, except as set forth in Section 2.8 above, effective immediately
upon the Closing, Northeast shall no longer be a party to this Agreement and
shall owe no further obligations hereunder other than those set forth in
Sections 12.8 and 12.11, which shall continue in full force and effect.
8.11 SCHEDULES. Each Seller and Shareholder agrees to use its best efforts
to prepare and deliver (i) a preliminary version of each of the Schedules
contemplated by this Agreement by December 23, 1998 and (ii) a final version of
each of the Schedules contemplated by this Agreement by the Closing Date. All
representations and warranties in this Agreement shall relate to the final
version of such Schedules delivered on or prior to the Closing Date.
8.12 BOOKS AND RECORDS. At all times after the Closing Date each Seller
and Shareholder shall allow Purchaser and Castle PC and any agents of Purchaser
and Castle PC, upon reasonable advance notice to such Seller or Shareholder,
access to all Books and Records of Sellers which are retained by any Seller to
the extent necessary or desirable in anticipation of, or preparation for,
existing or future litigation, employment matters, tax returns or audits, or
reports to or filings with governmental agencies, during normal working hours at
such Seller's or Shareholder's principal places of business or at any location
where such Books and Records are stored, and Purchaser and Castle PC shall have
the right, at their sole cost, to make copies of any such Books and Records.
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ARTICLE 9
COVENANTS OF PURCHASER
Purchaser, Castle Dental and Castle PC hereby covenant and agree with each
Seller and Shareholder as follows:
9.1 COOPERATION BY PURCHASER. From the date hereof until Closing,
Purchaser, Castle PC and Castle Dental will use their reasonable best efforts,
and will cooperate with each Seller and Shareholder, to secure all necessary
consents, approvals, authorizations, exemptions and waivers from third parties
as shall be required in order to enable Purchaser, Castle PC and Castle Dental
to effect the transactions contemplated on their part hereby, and Purchaser,
Castle PC and Castle Dental will otherwise use their reasonable best efforts to
cause the consummation of such transactions in accordance with the terms and
conditions hereof and to cause all conditions contained in this Agreement over
which they have control to be satisfied. Purchaser, Castle PC and Castle Dental
further agree to deliver to each Seller and Shareholder prompt written notice of
any event or condition, which if it existed on the date of this Agreement, would
result in any of the representations and warranties of Purchaser, Castle PC or
Castle Dental contained herein being untrue in any material respect.
9.2 BOOKS AND RECORDS; PERSONNEL. At all times after the Closing Date,
Purchaser, Castle PC and Castle Dental shall allow any Seller or Shareholder and
any agents of any Seller or Shareholder, upon reasonable advance notice to
Purchaser, Castle PC and Castle Dental, access to all Books and Records of such
Seller which are transferred to Purchaser, Castle PC or Castle Dental in
connection herewith, to the extent necessary or desirable in anticipation of, or
preparation for, existing or future litigation, employment matters, tax returns
or audits, or reports to or filings with governmental agencies, during normal
working hours at Purchaser's principal places of business or at any location
where such Books and Records are stored, and such Seller or Shareholder shall
have the right, at such Seller's or Shareholder's sole cost, to make copies of
any such Books and Records.
9.3 FURTHER ASSURANCES. At any time or from time to time after the Closing
Date, Purchaser, Castle PC and Castle Dental shall, at the request of any Seller
or Shareholder and at such Seller's or Shareholder's expense, execute and
deliver any further instruments or documents and take all such further action as
such Seller or Shareholder may reasonably request in order to consummate and
make effective the sale of the Assets and the assumption of the Assumed
Obligations pursuant to this Agreement.
9.4 EMPLOYEES. (a) The Purchaser agrees that, following the Closing,
Purchaser shall offer employment to all of the non-dentist employees of Seller
in connection with the Business for a period of 30 days following the Closing
Date and thereafter as an "at will" employee of Purchaser. Castle PC agrees
that, following the Closing, Castle PC shall offer employment to all of the
dentists employed by Seller in connection with the Business for a period of 30
days following the Closing Date and thereafter as an "at will" employee of
Castle PC, unless otherwise provided in a written
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agreement. The above notwithstanding, any such employee may be terminated for
cause within such 30-day period. Following such 30-day period, the employment
shall be on such terms and conditions as may be negotiated among such employees
and Purchaser or Castle PC.
(b) In the event the transactions contemplated hereby do not close and
this Agreement is terminated, neither Purchaser, Castle PC or Castle Dental or
their employees, officers, agents or Affiliates shall solicit or encourage any
employee of Seller to terminate his or her employment; provide assistance to any
other Person or organization seeking to employ any employee of the Seller; or
solicit on Purchaser's, Castle PC's or Castle Dental's own behalf or on behalf
of any other Person or organization any employee of Seller to commence any
employment, independent contractor or other relationship with Purchaser, Castle
PC or Castle Dental, or any other Person or organization for a period of two
years from the date of this Agreement.
9.5 WARN ACT. No WARN Act notices will be delivered to Employees of Seller
prior to the Closing Date pursuant to the Worker Adjustment and Retaining
Notification Act (29 U.S.C. ss.ss.2101-2109), and Purchaser shall be responsible
for any such notice or liability associated with the persons hired by Purchaser
on or after the Closing Date which takes place or arises after the Closing Date.
9.6 SEC REPORTS. For as long as Castle Dental remains subject to the
reporting requirements of the Securities Exchange Act of 1934, it shall continue
to timely file with the SEC all reports required to be filed thereunder.
ARTICLE 10
TERMINATION
10.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date:
(a) by the mutual written consent of Purchaser, each Shareholder and
each Seller; or
(b) by Purchaser or any Seller or Shareholder in writing without
liability on the part of the terminating party on account of such
termination (provided the terminating party is not otherwise in default or
in breach of this Agreement), if the Closing shall not have occurred on or
before January 15, 1999;
(c) by either Purchaser and Castle Dental, on the one hand, or the
Shareholders and the Sellers, on the other hand, in writing, without
liability on the part of the terminating party on account of such
termination (provided the terminating party is not otherwise in default or
breach of this Agreement), if the other party shall (i) fail to perform
its or their
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covenants or agreements contained herein required to be performed prior to
the Closing Date, or (ii) breach or have breached any of its
representations or warranties contained herein;
(d) by either Purchaser and Castle Dental, on the one hand, or the
Shareholders and the Sellers, on the other hand, in writing, without
liability on the part of the terminating party on account of such
termination if such party or the other party shall have determined that
were the transactions contemplated hereby to close, the purchase price
adjustment described in Section 3.3 would exceed $75,000; or
(e) by the Sellers and the Shareholders in writing without liability
on the part of the terminating party on account of such termination if the
Purchaser fails to obtain financing sufficient to fund the Purchase Price
by January 15, 1999; or
(f) by the Sellers and the Shareholders in writing (notwithstanding
that a Seller or Shareholder is in default or breach of this Agreement) if
the Closing has not occurred by January 15, 1999.
10.2 EFFECT ON OBLIGATIONS. Termination of this Agreement pursuant to this
Article shall terminate all obligations of the parties hereunder, except for the
obligations under Sections 9.4(b), 12.8 and 12.14 hereof and the obligations set
forth in the next succeeding sentence of this Section 10.2; provided, however,
that if this Agreement is terminated by the Sellers and the Shareholders (a)
pursuant to Section 10.1(e), the Purchaser shall reimburse the Sellers and the
Shareholders for their actual direct legal and accounting expenses incurred in
connection with the transactions contemplated hereby not to exceed $75,000 or
(b) pursuant to Section 10.1(f), the Sellers and the Shareholders shall
reimburse Castle Dental, the Purchaser and Castle PC for their actual direct
legal and accounting expenses incurred in connection with the transactions
contemplated hereby not to exceed $75,000. Upon any termination of this
Agreement each party hereto will redeliver all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
and all copies of such materials, whether so obtained before or after the
execution hereof, to the party furnishing the same.
ARTICLE 11
SURVIVAL AND INDEMNIFICATION
11.1 INDEMNIFICATION OF THE SELLERS AND THE SHAREHOLDERS. Subject to
Section 11.3, the Purchaser, Castle Dental and Castle PC, from and after the
Closing Date, shall be responsible for and shall indemnify and hold DCA, DAI,
each Seller and Shareholder and their respective officers, directors, agents,
employees, shareholders and Affiliates (the "Seller Indemnitees") harmless from
and against any and all damages (including exemplary damages and penalties,
losses, deficiencies, costs, expenses, obligations, fines, expenditures, claims
and liabilities, including reasonable counsel fees and reasonable expenses of
investigation, defending and prosecuting litigation (collectively, the
"Damages")), suffered by any Seller Indemnitee as a result of, caused by,
arising out of, or in any
35
way relating to (a) any misrepresentation, breach of warranty, or nonfulfillment
of any agreement or covenant on the part of the Purchaser, Castle Dental or
Castle PC under this Agreement or any agreement relating hereto or any
misrepresentation in or omission from any list, schedule, certificate, or other
instrument furnished or to be furnished to the Sellers by the Purchaser, Castle
Dental or Castle PC pursuant to the terms of this Agreement, (b) any liability
or obligation (other than those for which Purchaser, Castle Dental or Castle PC
is being indemnified by Sellers and the Shareholders hereunder) which pertains
to the ownership, operation or conduct of the Business or Assets arising from
any acts, omissions, events, conditions or circumstances occurring on or after
the Closing Date, (c) the Assumed Obligations, (d) acting as the agent for the
Purchaser, Castle Dental or Castle PC pursuant to the requirements of this
Agreement following the date of Closing or (e) performing the services required
or otherwise operating under the Management Services Agreement following the
date of Closing or for Castle PC's failure to perform its obligations under the
Management Services Agreement.
11.2 INDEMNIFICATION OF THE PURCHASER. Subject to the limitations set
forth in Section 11.3, each Seller and Shareholder, jointly and severally, shall
be responsible for and shall indemnify and hold Purchaser, Castle Dental, Castle
PC and their respective officers, directors, agents, employees, shareholders and
Affiliates (the "Purchaser Indemnitees") harmless from and against any and all
Damages suffered by any Purchaser Indemnitee as a result of, caused by, arising
out of, or in any way relating to (a) any misrepresentation, breach of warranty,
or nonfulfillment of any agreement or covenant on the part of any Seller or
Shareholder under this Agreement or any agreement relating hereto or any
misrepresentation in or omission from any list, schedule, certificate, or other
instrument furnished or to be furnished to the Purchaser by any Seller pursuant
to the terms of this Agreement, (b) Excluded Liabilities or (c) any reduction in
Sellers' net current assets as of November 30, 1998, determined in accordance
with Section 3.4, from Sellers' net current assets as of the Balance Sheet Date
(excluding in each case Excluded Assets and Excluded Liabilities) resulting from
reasons other than (x) normal fluctuations in the ordinary course of business,
(y) actions otherwise authorized under the terms of this Agreement or (z)
matters as to which Castle Dental, Castle PC or Purchaser had knowledge at the
Closing Date (with any claim for Damages relating to (a), (b) and (c) being
referred to hereinafter as a "claim"). Notwithstanding the foregoing, in the
event that at or prior to Closing, Purchaser, Castle PC or Castle Dental had
knowledge that a representation or warranty of a Seller or Shareholder was
untrue or that a covenant or other obligation of a Seller or Shareholder had
been breached or would be untrue or would have been a breach at Closing if not
cured prior to Closing, then the breach of such representation or warranty or
breach of covenant or other obligation of such Seller or Shareholder under the
terms of this Agreement shall not be deemed to be a breach or violation of this
Agreement and any such breach or violation of this Agreement shall be deemed to
be waived and may not be the basis of a claim against the Sellers or the
Shareholders pursuant to this Agreement; provided, however, that the limitations
of this sentence shall not affect the Sellers' and Shareholders' obligations to
indemnify and hold harmless Purchaser, Castle PC or Castle Dental for Excluded
Liabilities, for which the Sellers and Shareholder shall remain responsible
notwithstanding any knowledge of Purchaser, Castle PC or Castle Dental.
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11.3 LIMITATIONS ON INDEMNIFICATION. In no event shall the aggregate
liability of the Sellers and the Shareholder under this Agreement and the
Management Services Agreement exceed (a) with respect to claims made on or prior
to the one-year anniversary of the Closing Date, $5,000,000 or (b) with respect
to claims made after the one-year anniversary of the Closing Date, $2,500,000
less the amount of claims actually paid by the Sellers and the Shareholders
pursuant to claims described under Section 11.3(a). A claim shall be deemed made
when notice thereof is delivered in writing to a Seller or Shareholder. In
addition, in no event shall the aggregate liability of any one Shareholder under
this Agreement exceed (c) with respect to claims made in writing on or prior to
the one-year anniversary of the Closing Date, the amount set forth next to such
Shareholder's name on Schedule 11.3 or (d) with respect to claims made in
writing after the one-year anniversary of the Closing Date, one-half of the
amount set forth next to such Shareholder's name on Schedule 11.3 less the
amount of claims actually paid by such Shareholder pursuant to claims described
under Section 11.3(c). For purposes of determining the amount of Damages, no
effect will be given to any resulting Tax benefit to any indemnified party.
Notwithstanding the provisions of Section 11.2, no Shareholder or Seller shall
be required to indemnify or hold harmless any of the Purchaser Indemnitees on
account of any Damages (other than Excluded Liabilities or Purchase Price
adjustments, for which no threshold or limit shall apply) unless the liability
of the Shareholders and the Sellers with respect to such Damages, when
aggregated with the liability of the Shareholders and the Sellers with respect
to all other Damages, exceeds, and only to the extent the aggregate amount of
all those Damages does exceed, $150,000 (the "Basket"). Notwithstanding the
provisions of Section 11.1, in no event shall Purchaser, Castle Dental or Castle
PC be required to pay punitive or exemplary damages to any Seller Indemnitee
because of a breach of this Agreement or any related Agreement by any of
Purchaser, Castle Dental or Castle PC. Notwithstanding the provisions of Section
11.2, in no event shall any Seller or Shareholder be required to pay punitive or
exemplary damages to any Purchaser Indemnitee because of a breach of this
Agreement or any related Agreement by any Seller or Shareholder. If, however, a
Seller Indemnitee or a Purchaser Indemnitee otherwise becomes liable to pay
punitive or exemplary damages to any person not a party to this Agreement as a
result of events giving rise to indemnification obligations described in (i)
Section 11.1 with respect to a Seller Indemnitee or (ii) Section 11.2 with
respect to a Purchaser Indemnitee, such indemnitee shall be entitled to be
indemnified and held harmless against such damages notwithstanding the punitive
or exemplary nature of such damages.
11.4 DEMANDS. Each indemnified party hereunder agrees that promptly upon
its discovery of facts giving rise to a claim for indemnity under the provisions
of this Agreement, including receipt by it of notice of any demand, assertion,
claim, action or proceeding, judicial or otherwise, by any third party (such
third party actions being collectively referred to herein as the "Claim"), with
respect to any matter as to which it claims to be entitled to indemnity under
the provisions of this Agreement, it will give prompt notice thereof in writing
to the indemnifying party, together with a statement of such information
respecting any of the foregoing as it shall have. Such notice shall include a
formal demand for indemnification under this Agreement. The indemnifying party
shall not be obligated to indemnify the indemnified party with respect to any
Claim if the indemnified party failed to notify the indemnifying party thereof
in accordance with the provisions of this Agreement in sufficient time to permit
the indemnifying party or its counsel to defend against such
37
matter and to make a timely response thereto including, without limitation, any
responsive motion or answer to a complaint, petition, notice or other legal,
equitable or administrative process relating to the Claim, only insofar as such
failure to notify the indemnifying party has actually resulted in prejudice or
damage to the indemnifying party.
11.5 RIGHT TO ATTEMPT TO CURE. Provided that a cure is possible, the
indemnifying party shall be entitled at its cost and expense to attempt to cure
any matter with respect to which it may be called upon to indemnify the
indemnified party under the provisions of this Agreement; provided, that failure
of the indemnified party to notify the indemnifying party of an event within a
sufficient period of time to permit a cure shall not affect the indemnifying
party's obligation therefor.
11.6 RIGHT TO CONTEST AND DEFEND. The indemnifying party shall be entitled
at its cost and expense to contest and defend by all appropriate legal
proceedings any Claim with respect to which it is called upon to indemnify the
indemnified party under the provisions of this Agreement; provided, that notice
of the intention so to contest shall be delivered by the indemnifying party to
the indemnified party as soon as reasonable possible after (but no later than 20
days from) the date of receipt by the indemnifying party of notice by the
indemnified party of the assertion of the Claim. Any such contest may be
conducted in the name and on behalf of the indemnifying party or the indemnified
party as may be appropriate. Such contest shall be conducted by reputable
counsel employed by the indemnifying party, but the indemnified party shall have
the right but not the obligation to participate in such proceedings and to be
represented by counsel of its own choosing at its sole cost and expense. The
indemnifying party shall have full authority to determine all action to be taken
with respect thereto; provided, however, that the indemnifying party will not
have the authority to subject the indemnified party to any obligation
whatsoever, other than the performance of purely ministerial tasks or
obligations not involving material expense. If the indemnifying party does not
elect to contest any such Claim, the indemnifying party shall be bound by the
result obtained with respect thereto by the indemnified party. At any time after
the commencement of the defense of any Claim, the indemnifying party may request
the indemnified party to agree in writing to the abandonment of such contest or
to the payment or compromise by the indemnified party of the asserted Claim,
whereupon such action shall be taken unless the indemnified party determines
that the contest should be continued, and so notifies the indemnifying party in
writing within 15 days of such request from the indemnifying party. If the
indemnified party determines that the contest should be continued, the
indemnifying party shall be liable hereunder only to the extent of the amount
that the other party to the contested Claim had agreed unconditionally to accept
in payment or compromise as of the time the indemnifying party made its request
therefor to the indemnified party.
11.7 COOPERATION. If requested by the indemnifying party, the indemnified
party agrees to cooperate with the indemnifying party and its counsel in
contesting any Claim that the indemnifying party elects to contest or, if
appropriate, in making any counterclaim against the Person asserting the Claim,
or any cross-complaint against any Person, and the indemnifying party will
reimburse the indemnified party for any expenses incurred by it in so
cooperating. At no cost or expense to the indemnified party, the indemnifying
party shall cooperate with the indemnified party and its counsel in contesting
any Claim.
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11.8 RIGHT TO PARTICIPATE. The indemnified party agrees to afford the
indemnifying party and its counsel the opportunity to be present at, and to
participate in, conferences with all Persons, including governmental
authorities, asserting any Claim against the indemnified party or conferences
with representatives of or counsel for such Persons.
11.9 PAYMENT OF DAMAGES. The indemnifying party shall pay to the
indemnified party in immediately available funds any amounts to which the
indemnified party may become entitled by reason of the provisions of this
Agreement, such payment to be made within five days after any such amounts are
finally determined either by mutual agreement of the parties hereto or pursuant
to the final unappealable judgment of a court of competent jurisdiction.
11.10 RIGHT OF SETOFF. Castle Dental, Castle PC and Purchaser shall have
the right to set off any amounts owed by any Seller or Shareholder under this
Article 11 against any amount Castle Dental, Castle PC or Purchaser may owe any
such party pursuant to any section of this Agreement or any of the ancillary
agreements contemplated hereby. Prior to making any claim for cash or against
payments owing the Sellers or the Shareholders under any ancillary agreement,
Castle Dental, Castle PC or Purchaser shall first offset such claim against
amounts owing under the Notes.
11.11 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) Except as otherwise provided herein, notwithstanding any
investigation at any time made by or on behalf of any party hereto, the
representations and warranties set forth herein and in any certificate
delivered in connection herewith with respect to any of those
representations and warranties will survive the Closing and the Closing
Date until the day that is two years from the Closing Date, whereupon they
will terminate and expire, except that the representations and warranties
of the Shareholders and the Sellers which relate expressly or by necessary
implication to Taxes or environmental matters will survive until the
expiration of the applicable statutes of limitations (including all
periods of extension and tolling) and the Purchaser's, Castle Dental's and
Castle PC's representations relating to the Assumed Obligations shall
survive until that date which is the earlier of the date the obligation
relating thereto is paid in full or the date the applicable statutes of
limitations (including all periods of extension and tolling) expires
relating thereto.
(b) After a representation and warranty has expired, as provided in
Section 11.11(a), no claim for Damages may be made or prosecuted by any
Person who would have been entitled to Damages on the basis of that
representation and warranty prior to its termination and expiration,
provided that no claim presented in writing for Damages to the Person or
Persons from which or whom those damages are sought on the basis of that
representation and warranty prior to its termination and expiration will
be affected in any way by that termination and expiration.
11.12 ELECTION OF REMEDIES. Except as provided in Section 3.3 and Section
12.14, in the event of a default by any Seller or Shareholder under the terms of
this Agreement of which
39
Purchaser, Castle Dental or Castle PC had knowledge at or prior to Closing,
Purchaser's Castle Dental's and Castle PC's only remedy for such default shall
be termination pursuant to Article 10. In the event of a default by any of
Purchaser, Castle Dental or Castle PC under the terms of this Agreement of which
any Seller or Shareholder had knowledge at or prior to Closing, except as set
forth in Section 9.4(b), the Sellers' and Shareholders' only remedy for such
default shall be termination pursuant to Article 10. The indemnification
provisions of this Article XI shall not take effect until the Closing and,
following the Closing, except as provided in Section 12.14 shall be the sole
remedy for the parties hereto for enforcement of the provisions of this
Agreement, including claims for any breach, default, misrepresentation or other
violation of the terms of this Agreement.
ARTICLE 12
MISCELLANEOUS
12.1 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules) sets forth the entire understanding of the parties with respect to
the subject matter hereof other than the confidentiality agreement
("Confidentiality Agreement") between Castle Dental and certain of the Sellers.
Between the date of this Agreement and Closing, the terms of this Agreement
shall control in the event of any conflict between this Agreement and the
Confidentiality Agreement. In the event this Agreement is terminated pursuant to
Article 10, the Confidentiality Agreement and Section 9.4 shall thereafter
remain in full force and effect in accordance with its terms. If the Closing
occurs pursuant to the terms of this Agreement, the Confidentiality Agreement
shall thereafter remain merged into and superceded by the terms of this
Agreement. Except as provided above, any previous agreements or understandings
(whether oral or written) between the parties regarding the subject matter
hereof are merged into and superseded by this Agreement.
12.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors of
the parties hereto; provided that this Agreement, including the representations
and warranties herein, may not be assigned by any Seller or Shareholder without
the prior written consent of Purchaser or by Purchaser, Castle PC or Castle
Dental to any Person without the prior written consent of Sellers. Any
assignment in violation of this Section 12.2 shall not be effective to transfer
any rights or obligations under this Agreement.
12.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument. In making proof of this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart. A telecopied facsimile of an executed counterpart of this
Agreement shall be sufficient to evidence the binding agreement of each party to
the terms hereof. However, each party agrees to promptly deliver to the other
parties an original, duly executed counterpart of this Agreement.
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12.4 HEADINGS. The headings of the Articles, Sections and paragraphs of
this Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
12.5 MODIFICATION AND WAIVER. No amendment, modification or alteration of
the terms or provisions of this Agreement shall be binding unless the same shall
be in writing and duly executed by the parties hereto, except that any of the
terms or provisions of this Agreement may be waived in writing at any time by
the party which is entitled to the benefits of such waived terms or provisions.
No waiver of any of the provisions of this Agreement shall be deemed to or shall
constitute a waiver of any other provision hereof (whether or not similar). No
delay on the part of either party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof.
12.6 NO THIRD PARTY BENEFICIAL RIGHTS. Except as provided in Article 11,
this Agreement is not intended to and shall not be construed to give any Person
(other than the parties signatory hereto) any interest or rights (including,
without limitation, any third party beneficiary rights) with respect to or in
connection with any agreement or provision contained herein or contemplated
hereby.
12.7 SALES AND TRANSFER TAXES. Purchaser shall be responsible for and pay
all applicable sales, stamp, transfer, documentary, use, registration, filing
and other Taxes and fees (including any penalties and interest) that may become
due or payable in connection with this Agreement and the transactions
contemplated hereby (other than Taxes (including franchise Taxes) based on
income of any Seller or Shareholder).
12.8 EXPENSES. Except as otherwise provided in this Agreement, each
Seller, each Shareholder and Purchaser shall each pay all costs and expenses
incurred by them or on their behalf in connection with this Agreement and the
transactions contemplated hereby.
12.9 NOTICE. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party shall be sufficiently
given if delivered in person or sent by confirmed facsimile transmission or
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
if to Purchaser, to:
Castle Dental Centers of Texas, Inc.
1360 Post Oak Boulevard Suite 1300
Houston, Texas 77056-3021
Attn: Jack H. Castle, Jr., Chief Executive Officer
with a copy to:
John W. Menke
41
Boyer, Ewing & Harris
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
if to any Seller or the Shareholders to:
c/o Dental Centers of America, Inc.
27906 Copper Crest
San Antonio, Texas 78260
Attn: Barry E. Solomon
and c/o Dental Centers of America, Inc.
201 Garrapata Lane
San Antonio, Texas 78232
Attn: Hebron D. Cutrer
with a copy to:
Strasburger & Price
800 One Alamo Center
106 S. St. Mary's Street
San Antonio, Texas 78205-3603
Attn: Frank Ruttenberg or Mark Jones
or at such other address for a party as shall be specified by like notice, and
such notice or communication shall be deemed to have been duly given as of the
date so delivered, mailed or sent by telecopier.
12.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without regards to conflict of
law rules thereof.
12.11 CONFIDENTIALITY; PUBLICITY. The terms and conditions of this
Agreement shall not be disclosed by any party hereto without the prior written
consent of the other parties; provided, however, that (i) Sellers may disclose
such information to their employees, attorneys and accountants and as is
required to comply with the requirements of their lenders, to obtain consents to
transfer of contract rights contemplated hereby or to otherwise remedy
Encumbrances upon the Assets and (ii) Castle Dental may disclose such
information as is required to comply with the requirements of its lenders and
investors and to comply with applicable securities laws. No party hereto shall
issue any press release or make any other public statement, in each case
relating to or connected with or arising out of this Agreement or the matters
contained herein, without first providing a copy of the text of such release to
the other party hereto and giving such other party an opportunity to comment
thereon.
42
12.12 CONSENT TO JURISDICTION. Any judicial proceeding brought against any
of the parties to this Agreement on any dispute arising out of this Agreement or
any matter related hereto shall be brought in any federal or state court located
in Harris County or Bexar County, Texas, and, by execution and delivery of this
Agreement, each of the parties to this Agreement accepts for itself the
non-exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement.
12.13 SEVERABILITY. If any provision of this Agreement is invalid, illegal
or incapable of being enforced by any rule of law or public policy, all other
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon such
determination that any provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled.
12.14 ENFORCEMENT. The parties hereto agree that the remedy at law for any
breach of Sections 9.4(b) and 12.11 this Agreement is inadequate and such
provisions shall be enforceable in a court of equity by an injunction or a
decree of specific performance. Such remedies shall, however, be cumulative and
nonexclusive, and shall be in addition to any other remedies which the parties
hereto may have.
12.15 ARBITRATION AND LIMITATION ON CLAIMS. Any controversy, dispute or
claim arising out of, in connection with, or in relation to, the interpretation,
performance or breach of this Agreement, including, without limitation, the
validity, scope and enforceability of this Section (including, on the first time
that the Purchaser Indemnitees make aggregate claims in excess of the Basket,
any matters pursuant to which the Purchaser Indemnitees have claimed the right
to reduce the Basket pursuant to Section 3.3) which cannot first be settled
through ordinary negotiation between the Parties shall be submitted to binding
and final arbitration conducted in Harris or Bexar County, Texas by and in
accordance with the then existing Rules for Commercial Arbitration of the
American Arbitration Association or any successor organization. Any such
arbitration shall be to a three member panel selected through the rules
governing selection and appointment of such panels of the American Arbitration
Association or any successor organization. The award rendered by the arbitrators
may be confirmed, entered and enforced as a judgment in any court of competent
jurisdiction; however, the Parties otherwise waive any rights to appeal the
award except with regard to fraud by the panel. Any such action must be brought
within the survival periods set forth elsewhere in this Agreement. The
arbitrators shall award the Party which substantially prevails in any
arbitration proceeding recovery of that Party's attorneys' fees, the
arbitrators' fees and all costs in connection with the arbitration from the
Party who does not substantially prevail. Nothing in this Section 12.15 shall
restrict any Parties' ability to seek injunctive or other equitable relief in
any court of competent jurisdiction prior to initiating arbitration. In the
event that such injunctive or equitable relief is sought by any Party, such
Party is specifically entitled to enforce the appropriate provisions of the
43
Agreement in obtaining such relief in any court of competent jurisdiction and,
thereafter, submit the remaining controversy, dispute or claim to arbitration in
accordance with this Section 12.15.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on its behalf as of the date first above written.
CASTLE DENTAL CENTERS, INC.
By:_______________________________________
Jack H. Castle, Jr., Chief Executive Officer
CASTLE DENTAL CENTERS OF TEXAS, INC.
By:_______________________________________
Jack H. Castle, Jr., Chief Executive Officer
JACK H. CASTLE, D.D.S., P.C.
By:_______________________________________
Jack H. Castle, D.D.S., President
DCA LIMITED PARTNERSHIP, L.L.P.
By: DCA GP TEXAS, INC.,
General Partner
By:_______________________________________
Barry E. Solomon, D.D.S., President
DENTAL ADMINISTRATORS OF TEXAS LIMITED
PARTNERSHIP, L.L.P.
By: DAI GP TEXAS, INC.,
General Partner
By:_______________________________________
Barry E. Solomon, D.D.S., President
44
DENTAL CENTERS OF AMERICA PAYMASTER
P.C.
By:_______________________________________
Barry E. Solomon, D.D.S., President
BANDERA ROAD DENTAL CENTER, P.C.
By:_______________________________________
Barry E. Solomon, D.D.S., President
INGRAM PARK FAMILY DENTAL CENTER, P.C.
By:_______________________________________
Barry E. Solomon, D.D.S., President
NORTHEAST FAMILY DENTAL CENTER, P.C.
By:_______________________________________
Barry E. Solomon, D.D.S., President
DENTAL CENTERS OF AMERICA AT ROLLING
OAKS MALL, PLLC
By:_______________________________________
Barry E. Solomon, D.D.S., Manager
SAN PEDRO FAMILY DENTAL CENTER, P.C.
By:_______________________________________
Barry E. Solomon, D.D.S., President
SOUTHPARK FAMILY DENTAL CENTER, P.C.
By:_______________________________________
Barry E. Solomon, D.D.S., President
WINDSOR PARK FAMILY DENTAL CENTER, P.C.
By:_______________________________________
Barry E. Solomon, D.D.S., President
DENTAL CENTERS OF AMERICA AT BARTON
45
CREEK SQUARE MALL, PLLC
By:_______________________________________
Barry E. Solomon, D.D.S., Manager
DENTAL CENTERS OF AMERICA AT LAKELINE
MALL, PLLC
By:_______________________________________
Barry E. Solomon, D.D.S., Manager
DENTAL CENTERS OF AMERICA AT HURST
NORTHEAST MALL, PLLC
By:_______________________________________
Barry E. Solomon, D.D.S., Manager
DENTAL CENTERS OF AMERICA AT IRVING
MALL, PLLC
By:_______________________________________
Barry E. Solomon, D.D.S., Manager
DENTAL CENTERS OF AMERICA AT SIX FLAGS
MALL, PLLC
By:_______________________________________
Barry E. Solomon, D.D.S., Manager
DENTAL CENTERS OF AMERICA AT WACO, P.C.
By:_______________________________________
Barry E. Solomon, D.D.S., President
DENTAL CENTERS OF AMERICA AT MESQUITE,
P.C.
By:_______________________________________
Barry E. Solomon, D.D.S., President
DENTAL CENTERS OF AMERICA AT SHERMAN,
P.C.
46
By:_______________________________________
Barry E. Solomon, D.D.S., President
DENTAL CENTERS OF AMERICA AT
RICHARDSON SQUARE MALL, P.C.
By:_______________________________________
Barry E. Solomon, D.D.S., President
Barry E. Solomon, D.D.S., Individually
Marc A. Solomon, Individually
Hebron D. Cutrer, Individually
Stan E. Faye, Individually
Robert B. Grau, Individually
47
EXHIBIT 99.1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED, NOR THE SECURITIES LAWS OF ANY STATE. THIS NOTE MAY NOT BE
SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME, EXCEPT UPON
(1) SUCH REGISTRATION, OR (2) DELIVERY TO THE ISSUER OF THIS NOTE OF AN OPINION
OF COUNSEL REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED
FOR SUCH TRANSFER, OR (3) THE SUBMISSION TO THE ISSUER OF THIS NOTE OF OTHER
EVIDENCE, REASONABLY ACCEPTABLE TO THE ISSUER, TO THE EFFECT THAT ANY SUCH SALE,
PLEDGE, HYPOTHECATION OR TRANSFER WILL NOT BE IN VIOLATION OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED, OR OTHER APPLICABLE SECURITIES LAWS OF ANY
STATE, OR ANY RULES OR REGULATIONS PROMULGATED THEREUNDER.
THE PAYMENT OF THE PRINCIPAL OF, AND INTEREST ON, AND ALL OTHER AMOUNTS OWING IN
RESPECT OF THE INDEBTEDNESS EVIDENCED BY, THIS NOTE, IS AND SHALL BE EXPRESSLY
SUBORDINATED, TO THE EXTENT AND IN THE MANNER SET FORTH HEREIN AND, IF
APPLICABLE, IN THAT CERTAIN SUBORDINATION AGREEMENT, OR ANY OTHER SUBORDINATION
AGREEMENT NOW OR HEREAFTER EXECUTED, AMONG CASTLE, THE PAYEE, NATIONSBANK OF
TEXAS, N.A., ITS SUCCESSORS OR ASSIGNS, OR ANY OTHER HOLDER OF SENIOR DEBT
(COLLECTIVELY, "SENIOR CREDITOR"), (IN ANY SUCH EVENT, THE "SUBORDINATION
AGREEMENT").
ISSUE DATE: DECEMBER 30, 1998
CASTLE DENTAL CENTERS, INC.
6% SUBORDINATED NOTE
NO. 1 HOUSTON, TEXAS $1,250,000.00
CASTLE DENTAL CENTERS, INC., a Delaware corporation with offices at 1360
Post Oak Boulevard, Suite 1300, Houston, Texas 77056 (hereinafter referred to as
"Castle"), for value received, hereby promises to pay to the order of
______________, at ________________________ ("Payee"), the sum of ONE MILLION
TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($1,250,000.00), together with
interest on the unpaid principal balance hereof from the date hereof until
payment in full, in lawful money of the United States of America which shall be
legal tender for the payment of debts from time to time, at a per annum rate of
Six Percent (6%) prior to maturity. All past due principal, and, to the extent
permitted by applicable law, past due interest, on this Note shall bear interest
from and after maturity until paid at a per annum rate equal to the
Page 1 of a 5 Page Note
lesser of (i) eighteen percent (18%) or (ii) the maximum nonusurious rate
allowable under applicable law. At any time that the outstanding principal
amount of Castle's Senior Indebtedness, as defined below, exceeds $55,000,000,
the unpaid principal balance of this Note shall bear interest at a rate equal to
the rate then being paid on Castle's Senior Debt (as defined in the
Subordination Agreement).
This 6% Subordinated Note (hereinafter referred to as the "Note") is being
issued by Castle pursuant to the terms of an Asset Purchase Agreement dated as
of December 30, 1998 (the "Agreement"), executed by and among Castle, the Payee,
Castle Dental Centers of Texas, Inc. ("Purchaser"), and certain other parties
thereto and is subject to rights of offset in favor of Castle and the Purchaser
pursuant to the terms of the Agreement.
1. INTEREST AND PRINCIPAL PAYMENTS. Principal shall be payable in eleven
quarterly installments of SEVENTY-EIGHT THOUSAND ONE HUNDRED TWENTY-FIVE AND
NO/100 DOLLARS ($78,125.00) beginning on March 31, 1999 and ending on December
31, 2001, on which date the entire unpaid principal balance hereof, together
with all accrued but unpaid interest, shall mature and become due and payable.
Accrued interest shall be paid on the same date as installments of principal.
All payments received hereon by Payee shall be applied first to accrued but
unpaid interest, and the balance, if any, shall be returned to Castle, except in
those instances in which principal payment is required or prepayment is
permitted hereunder, in which event such balance shall be applied to the
principal remaining unpaid hereon, up to the amount due or permitted to be
prepaid, as applicable. In the event Castle or any of its affiliates elects to
prepay any outstanding indebtedness to sellers of businesses acquired by Castle
or any such affiliate ("Seller Indebtedness"), Castle shall also be required to
prepay the outstanding principal and interest on this Note. If less than 100% of
the principal amount of such Seller Indebtedness is prepaid, an equal percentage
of the principal amount of this Note shall be prepaid.
2. LIMITATIONS ON PREPAYMENTS. This Note may be prepaid, in whole or in
part, without penalty at any time or from time to time. Notwithstanding the
foregoing or any provision hereof to the contrary, however, no prepayment of
this Note shall be attempted or permitted if such prepayment would be or would
be deemed to be, with notice or lapse of time or both, prohibited under the
Subordination Agreement.
3. SUBORDINATION PROVISIONS. Castle covenants and agrees, and the Payee,
on behalf of Payee and each subsequent holder of this Note, by acceptance hereof
likewise covenants and agrees, that notwithstanding any provision of this Note
to the contrary, the payment of all indebtedness evidenced by this Note is, to
the extent and in the manner set forth in the Subordination Agreement (the terms
of which are incorporated herein by reference), subordinated in right of payment
to all Senior Indebtedness (as hereinafter defined) of Castle and subject to the
payment blockage periods set forth in the Subordination Agreement. For purposes
of this Note, the term "Senior Indebtedness" shall mean and include (i) Senior
Debt (as defined in the Subordination Agreement), including any modifications,
renewals, extensions, rearrangements, increases, replacements or refinancings of
the Senior Debt (regardless of the identity of the holders of such
indebtedness), (ii) "senior" and "senior
Page 2 of a 5 Page Note
subordinated" indebtedness (as defined in the Agreement), and (iii) such other
indebtedness of Castle as to which the Payee (or other holder hereof) consents
in writing.
4. EVENTS OF DEFAULT. The occurrence and continuation of any one of the
following events or conditions shall constitute an "Event of Default":
(a) Castle fails to make any payment, principal or interest, within
ten (10) days after the date such payment is due under the Note;
(b) Castle fails to perform any of its obligations under this Note
(other than the payment obligation described in Section 4(a) hereof)
within thirty (30) days after receipt from Payee of written notice of such
failure to perform;
(c) An event of default occurs under any arrangement with any holder
of Senior Indebtedness and the Senior Indebtedness is accelerated and not
reinstated; or
(d) Castle makes an assignment for the benefit of creditors or
becomes insolvent or unable to pay its debts generally as they become due,
or applies to any tribunal for the appointment of a trustee, custodian,
receiver or similar person for all or a substantial part of the assets of
Castle, or commences any proceedings relating to Castle under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debts, dissolution or other liquidation law of any jurisdiction; or any
such application is filed, or any such proceedings are commenced against
Castle and Castle indicates its consent to such proceedings, or an order
is entered appointing such trustee, custodian, receiver or similar person,
or approving the petition in any involuntary bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or other
liquidation proceedings, and such order in any involuntary matter remains
in effect for sixty (60) days.
5. REMEDIES. Subject to the provisions of Section 3 hereof, upon the
occurrence of an Event of Default other than as described in Section 4(d)
hereof, the Payee or other holder of this Note may declare the entire unpaid
principal of this Note, and all accrued but unpaid interest thereon, at once due
and payable, and upon the occurrence of an Event of Default under Section 4(d)
hereof, the entire unpaid principal of this Note and all accrued but unpaid
interest thereon shall automatically be declared at once due and payable, and
upon any such declaration the principal of this Note and such accrued but unpaid
interest shall become and be immediately due and payable, and the Payee or any
other holder of this Note may, subject to the provisions of Section 3 hereof,
thereupon proceed to protect and enforce its rights, whether by suit in equity
or by action at law or by other appropriate proceedings, whether for specific
performance (to the extent permitted by law or equity) of any covenant or
agreement contained herein or in aid of the exercise of any power granted
herein, or proceed to enforce the payment of this Note or to enforce any other
legal or equitable right of the Payee or such other holder. The foregoing shall
not affect the relative rights and obligations as
Page 3 of a 5 Page Note
between any holder of Senior Indebtedness and the Payee or other holder hereof;
as between such parties, Section 3 shall control the exercise of remedies.
6. IMMUNITY. This Note and the indebtedness and obligations evidenced
hereby are solely corporate indebtedness and obligations, and no personal
liability whatsoever shall attach to or be incurred by any past, present or
future officer, director, shareholder, agent, attorney or employee of Castle,
under or by reason of any of the obligations, covenants or agreements contained
in or implied by this Note.
7. NOTICES. All notices, requests, consents, and other communications
required or permitted under this Note shall be in writing and shall be deemed,
unless otherwise provided, to have been delivered (i) three business days
following the date mailed, postage prepaid, by certified mail, return receipt
requested, (ii) one business day following the deposit thereof with a recognized
overnight courier or (iii) on the date personally delivered:
(i) If to the Payee, to the address of the Payee set forth above;
(ii) If to Castle, to the address of Castle set forth above,
Attention: President, with a copy of such notice to:
Boyer, Ewing & Harris Incorporated
9 Greenway Plaza, Suite 3100
Houston, Texas 77046
Attn: John W. Menke, Esq;
(iii) If to any holder other than the Payee, to such address as may
have been designated by notice given Castle by such holder;
(iv) If to any holder of Senior Indebtedness, to such address as may
have been designated by notice given Castle by such holder, which Castle
will provide to the holder of this Note upon request.
Castle, the Payee or any other holder hereof may designate a different address
by notice given in accordance with the foregoing.
8. USURY. It is expressly provided and stipulated that notwithstanding any
provision of this Note or any other instrument evidencing or securing the
indebtedness evidenced hereby, in no event shall the aggregate of all interest
paid by Castle to the Payee hereunder ever exceed the Maximum Nonusurious Rate
of interest (as hereinafter defined) which may lawfully be charged Castle under
the laws of the State of Texas or the United States Federal Government, as
applicable, on the principal balance of this Note remaining unpaid. If under any
circumstances the aggregate amounts paid on the indebtedness evidenced by this
Note prior to and incident to the final payment hereof include amounts which by
law are deemed interest and which would exceed the Maximum
Page 4 of a 5 Page Note
Nonusurious Rate of interest which could lawfully have been charged or collected
on this Note, Castle stipulates that (a) any non-principal payment shall be
characterized as an expense, fee, or premium rather than as interest, and any
excess shall be credited hereon by the holder hereof (or, if this Note shall
have been paid in full, refunded to Castle) and (b) determination of the rate of
interest for determining whether the indebtedness evidenced hereby is usurious
shall be made by amortizing, prorating, allocating, and spreading, in equal
parts during the full stated term of such indebtedness, all interest at any time
contracted for, charged, or received from Castle in connection with such
indebtedness, and any excess shall be canceled, credited or refunded as set
forth in (a) herein.
The "Maximum Nonusurious Rate of interest" which may be charged as herein
contemplated shall be the indicated rate ceiling from time to time in effect
pursuant to the applicable provisions of the Texas Finance Code, as amended,
provided that Payee may also rely on any alternative Maximum Nonusurious Rate of
interest provided by other applicable laws if such other rates are higher than
that allowed by said Article, as amended.
THIS NOTE, THE AGREEMENT, THE SUBORDINATION AGREEMENT AND ALL DOCUMENTS,
INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH OR THEREWITH,
REPRESENT THE FINAL AGREEMENT BETWEEN CASTLE AND PAYEE AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF CASTLE AND THE PAYEE. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN CASTLE AND PAYEE.
THIS NOTE IS SUBJECT TO FINAL ACCEPTANCE IN, AND ALL TERMS, OBLIGATIONS,
AND PROVISIONS OF THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF, THE STATE OF TEXAS.
IN WITNESS WHEREOF, Castle has authorized this Note to be executed in its
corporate name by its duly authorized officer as of the date first above
written.
CASTLE DENTAL CENTERS, INC.
By:_______________________________
John M. Slack, Vice President
Page 5 of a 5 Page Note
EXHIBIT 99.2
SUBORDINATION AGREEMENT
(NationsBank, N.A. )
This Subordination Agreement dated as of December 30, 1998 ("Agreement"),
is made by __________________________________________ ("Subordinated Creditor"),
and CASTLE DENTAL CENTERS, INC., a Delaware corporation ("Debtor"), in favor of
NATIONSBANK, N.A. and the other banks under the Credit Agreement referred to
below (collectively, "Senior Creditor").
INTRODUCTION
Reference is made to the Amended and Restated Credit Agreement dated as of
December 18, 1998 (as may be modified from time to time, the "Credit Agreement")
among NationsBank, N.A., as agent, the Debtor and Senior Creditor. It is a
condition precedent to the Senior Creditor's permitting the Debtor to incur the
indebtedness represented by the Subordinated Note (as defined below) that the
Subordinated Creditor enter into this Agreement. In consideration of the
foregoing and for other good and valuable consideration, the Subordinated
Creditor, the Debtor, and the Senior Creditor hereby agree as follows:
Section 1. DEFINITIONS. The following terms shall have the following means
"Event of Default" means any "Default" or "Event of Default" as defined
in, and which may occur under the Credit Agreement.
"Loan Documents" shall have the meaning specified by the Credit Agreement.
"Senior Debt" means (a) all principal, interest, fees, reimbursements,
indemnifications, and other amounts now or hereafter owed by the Debtor to
Senior Creditor under the Credit Agreement, the Loan Documents, and any other
instrument or agreement related thereto and (b) any increases, extensions, and
rearrangements of the foregoing obligations under any amendments, supplements,
and other modifications of the documents and agreements creating the foregoing
obligations.
"Subordinated Debt" means all present and future indebtedness, liabilities
and obligations owed by the Debtor to the Subordinated Creditor pursuant to the
terms of the Subordinated Note or in connection with obligations of Debtor
relating to the stock which Subordinated Creditor receives from Debtor as
partial consideration for the acquisition of the assets of the Subordinated
Creditor's dental business, including, without limitation, pursuant to Section
3.5 of that certain Asset Purchase Agreement dated as of December 30, 1998, by
and among, Debtor, the Subordinated Creditor and the other parties thereto
("Purchase Agreement"), Senior Creditor hereby agrees that all Assumed
Obligations (as defined in the Purchase Agreement), including Debtor's
obligation to indemnify and
1
hold harmless the Subordinated Creditor with respect to such Assumed
Obligations, are expressly excluded from the definition of Subordinated Debt.
"Subordinated Note" means all promissory notes made by the Debtor and
payable to the Subordinated Creditor pursuant to the terms of the Purchase
Agreement, as the same may be increased, extended, rearranged, amended,
supplemented, and otherwise modified from time to time in accordance with this
Agreement.
Section 2. TERMS OF SUBORDINATION. Unless and until the Senior Debt shall
have been irrevocably paid in full and the Senior Creditor shall have no
commitment to extend further Senior Debt, the payment and performance of the
Subordinated Debt is hereby made expressly subordinate and junior in right of
payment and performance to the prior payment and performance of all obligations
and liabilities under the Senior Debt to the extent and in the manner set forth
in this Section 2.
2.1 LIMITATION ON PAYMENTS.
(a) No payment or prepayment of any sum on the Subordinated Debt,
whether by acceleration or otherwise, shall be made, if at the time of such
payment, prepayment, or immediately after giving effect thereto (i) there shall
exist a default in the payment or prepayment with respect to any of the Senior
Debt, or immediately after giving effect thereto, there shall exist a default in
the payment or prepayment of the principal or interest with respect to any of
the Senior Debt or (ii) there shall have occurred, or after giving effect to
such payment there shall occur, an Event of Default (other than an Event of
Default in the payment or prepayment of principal or interest with respect to
any of the Senior Debt) permitting the Senior Creditor to accelerate the
maturity thereof (with notice, lapse of time, or both) and such Event of Default
shall not have been cured to the satisfaction of or waived by the Senior
Creditor.
(b) If at any time there shall occur an Event of Default, the
Subordinated Creditor shall not be entitled to receive any payment on the
Subordinated Debt before the earlier of (i) cure of the Event of Default to the
satisfaction of, or waiver thereof by, the Senior Creditor or (ii) the
irrevocable payment in full of the Senior Debt and the termination of all
commitments to extend Senior Debt.
(c) In the event that any Subordinated Debt is declared due and
payable before their expressed maturity because of the occurrence of an event of
default (under circumstances when the provisions of the foregoing paragraphs (a)
or (b) are not applicable), the Senior Creditor shall be entitled to receive
payment in full of all principal, interest, and other sums outstanding in
connection with the Senior Debt before the Subordinated Creditor is entitled to
receive any payment on account of such Subordinated Debt.
(d) Any payments received by the Subordinated Creditor after the
Subordinated Creditor has knowledge of a Default or Event of Default shall be
held by the Subordinated Creditor
2
in trust for the benefit of the Senior Creditor and shall be immediately turned
over to the Senior Creditor in the form received (together with any necessary
endorsements) for application to the Senior Debt until all outstanding Senior
Debt has been irrevocably paid in full.
2.2 REMEDY BLOCKAGE. Without detracting from or modifying the rights and
obligations provided in Section 2.1 above, during certain periods specified
below (each a "Remedy Blockage Period"), the holders of the Subordinated Debt
will not have any of the following rights (a "Remedy Blockage"): (i) to demand,
sue for or take from or on behalf of the Debtor, by set-off or in any other
manner, any moneys which may then or thereafter be owing by the Debtor on the
Subordinated Debt, (ii) to commence, or to join with any Person in commencing,
any suit, action or proceeding against the Debtor (A) to enforce payment of or
to collect all or any portion of the Subordinated Debt or (B) to commence
judicial enforcement of any of the rights and remedies under the documents or
instruments governing the Subordinated Debt or applicable law, (iii) to
accelerate the principal of or interest on or any other amount under the
Subordinated Debt, or (iv) to commence, or to join with any Person in
commencing, against Debtor or any of its property a bankruptcy, reorganization,
insolvency, receivership or other similar proceeding (except that the holders of
the Subordinated Debt may (1) charge but not collect interest at a default rate,
(2) accelerate the Subordinated Debt after the Senior Debt is accelerated and
(3) give notices and file law suits to prevent the running of the relevant
statute of limitations, and with the joinder of the Senior Creditor pursue
rights in bankruptcy, reorganization, insolvency, receivership, or other similar
proceedings, and otherwise protect legal rights)
The Remedy Blockage Periods shall be as follows:
(a) if there shall exist a default in the payment of any amounts
owing under the Subordinated Debt (a "Payment Default"), the Remedy Blockage
shall remain in effect for a Remedy Blockage Period ending 180 days after agent
for the Senior Debt receives written notice from any holder of the Subordinated
Debt (or any designed representative thereof) of the occurrence of the Payment
Default, and
(b) if there shall exist any default with respect to the
Subordinated Debt other than a Payment Default, the Remedy Blockage Period shall
remain in effect until such default is cured or waived or the Senior Debt is no
longer outstanding; provided, however, that if a Payment Default is also in
effect, the Remedy Blockage Period pursuant to this Section 2.2(b) shall
terminate when the Remedy Blockage Period under Section 2.2(a) has expired.
2.3 SUBORDINATION ON LIQUIDATION. Upon any receivership, insolvency
proceeding, bankruptcy proceeding, assignment for the benefit of creditors,
reorganization, arrangement with creditors, sale of assets for creditors,
dissolution, liquidation, or marshalling of the assets of the Debtor (each, a
"Bankruptcy Event"), all amounts due with respect to the Senior Debt shall be
irrevocably paid in full before the Subordinated Creditor shall be entitled to
collect or receive any payment with respect to the Subordinated Debt. Any
payments received by the Subordinated Creditor in such proceedings shall be held
by the Subordinated Creditor in trust for the benefit of the
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Senior Creditor and shall be immediately turned over to the Senior Creditor in
the form received (together with any necessary endorsements) for application to
the Senior Debt until all outstanding Senior Debt has been irrevocably paid in
full.
2.4 SUBORDINATION OF LIENS. The Subordinated Creditor will not create,
assume, or suffer to exist any lien, security interest, or assignment of
collateral securing the repayment of the Subordinated Debt. Any such judgment
lien, and any other lien, security interest, or assignment existing in violation
of the foregoing shall be fully subordinate to any lien, security interest, or
assignment in favor of the Senior Creditor which secures any of the Senior Debt.
At the request of the Senior Creditor, the Subordinated Creditor and the Debtor
will take any and all steps necessary to fully effect the release of any such
lien, security interest, assignment, or collateral.
2.5 FURTHER ASSURANCES. The Subordinated Creditor and the Debtor agree to
execute any and all other instruments requested by the Senior Creditor to
further evidence the subordination of the Subordinated Debt to the Senior Debt
as herein provided.
2.6. SUBROGATION. After all Senior Debt is irrevocably paid in full and
until the Subordinated Note is irrevocably paid in full, the Subordinated
Creditor shall be subrogated to the rights of holders of the Senior Debt to
receive distributions applicable to Senior Debt to the extent that distributions
otherwise payable to the Subordinated Creditors have been applied to the payment
of the Senior Debt. A distribution made under this Section 2, directly or
indirectly, to holders of Senior Debt that otherwise would have been made to the
Subordinated Creditors is not, as between the Debtor and the Subordinated
Creditors, a payment by the Debtor on the Subordinated Note.
2.7 RELATIVE RIGHTS. This Section 2 defines the relative rights of the
Subordinated Creditors and the Senior Creditor. Nothing in this Agreement shall:
(a) impair, as between the Debtor and the Subordinated Creditors, the
obligation of the Debtor, which is absolute and unconditional, to pay all of the
obligations under the Subordinated Note in accordance with its terms; or
(b) affect the relative rights of the Subordinated Creditors and creditors
of the Debtor other than their rights in relation to the Senior Creditor.
Section 3. SUBORDINATION ABSOLUTE. This is an irrevocable agreement of
subordination and the Senior Creditor may, without notice to any of the parties
hereto and without impairing or releasing the obligations of the Debtor and the
Subordinated Creditor hereunder, (a) create Senior Debt by extending credit
under the Credit Agreement; (b) change the terms of or increase the amount of
the Senior Debt by increasing, extending, rearranging, amending, supplementing,
or otherwise modifying any of the Loan Documents or other instruments or
agreements creating Senior Debt; (c) sell, exchange, release, or otherwise deal
with any collateral securing any Senior Debt; (d) release anyone, including the
Debtor or any guarantor, liable in any manner for the payment or collection of
any Senior Debt; (e) exercise or refrain from exercising any rights against the
Debtor or any other Person;
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and (f) apply any sums received by any Senior Creditor, from whatever source, to
the payment of the Senior Debt.
4.1 There may be no increases, extensions, rearrangements, amendments,
supplements, or other modifications to the Subordinated Note which increase the
principal amount of, increase the interest rate payable on, or accelerate the
scheduled principal and interest payments on the Subordinated Note without the
prior written permission of the Senior Creditor.
4.2 The Subordinated Creditor will cause all Subordinated Debt to be
evidenced by a note, debenture, instrument, or other writing evidencing the
Subordinated Debt and will inscribe a statement or legend thereon to the effect
that such note, debenture, instrument, or other writing is subordinated to the
Senior Debt in favor of the Senior Creditor in the manner and to the extent set
forth in this Agreement.
4.3 The Subordinated Creditor shall mark the books of Subordinated
Creditor to show that the Subordinated Debt is subordinated to the Senior Debt
in the manner and to the extent set forth in this Agreement and cause all
financial statements of the Subordinated Creditor hereafter prepared for
delivery to any person to make specific reference to the provisions of this
Agreement.
4.4 The Subordinated Creditor shall not assign or otherwise transfer to
any other person any interest in the Subordinated Debt unless the Subordinated
Creditor causes the assignee or other transferee to execute and deliver to the
Senior Creditor a subordination agreement in substantially the form of this
Agreement or otherwise acknowledges to the reasonable satisfaction of the Senior
Creditor the subordination of the Subordinated Debt in accordance with this
Agreement.
Section 5. MISCELLANEOUS.
5.1 The Debtor shall reimburse the Senior Creditor for all reasonable
expenses of the Senior Creditor, including reasonable charges and disbursements
of legal counsel for the Senior Creditor, in connection with the execution,
amendment, modification, waiver, and interpretation of this Agreement, and the
administration, preservation, and enforcement of any rights of the Senior
Creditor under this Agreement. The Debtor shall indemnify the Senior Creditor
against all claims, liabilities, damages, and expenses in connection with any
litigation or proceeding relating to this Agreement, INCLUDING CLAIMS CAUSED BY
THE SENIOR CREDITOR'S OWN NEGLIGENCE except as a result of the Senior Creditor's
gross negligence or willful misconduct. The Senior Creditor is hereby authorized
to setoff and apply any obligations owed by the Senior Creditor to the Debtor
against any obligations of the Debtor under this Agreement. The provisions of
this paragraph shall survive termination of this Agreement.
5.2 This Agreement shall be governed by the laws of the State of Texas. If
any provision in this Agreement is held to be unenforceable, such provision
shall be severed and the remaining
5
provisions shall remain in full force and effect. The Senior Creditor's remedies
under this Agreement shall be cumulative, and no delay in enforcing this
Agreement shall act as a waiver of the Senior Creditor's rights hereunder. The
provisions of this Agreement may be waived or amended only in a writing signed
by all of the parties hereto. This Agreement shall bind the Subordinated
Creditor and the Debtor and their successors and assigns and shall inure to the
benefit of the Senior Creditor and its successors and assigns. This Agreement
may be executed in multiple counterparts which together shall constitute one and
the same agreement. Unless otherwise specified, all notices provided for in this
Agreement shall be in writing, delivered to the following addresses:
If to the Subordinated Creditor:
If to the Debtor:
Castle Dental Centers, Inc.
Attn: Jack H. Castle, Jr
1360 Post Oak Boulevard
Houston, Texas 77056
Telephone: (713) 513-1401
Telecopier: (713) 513-1400
or to such other address as shall be designated by one party in writing to the
other parties. Notice sent by telecopy shall be deemed to be given and received
when receipt of such transmission is acknowledged, and delivered notice shall be
deemed to be given and received when receipted for by, or actually received by,
an authorized officer of the receiving party.
THIS WRITTEN AGREEMENT AND THE RELATED CREDIT DOCUMENTS REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
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THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the date first above written.
NationsBank, N.A.
By:____________________________
Margaret Barradas
Senior Vice President
CASTLE DENTAL CENTERS. INC.
By:____________________________
John M. Slack, Vice President
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EXHIBIT 99.3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of December 30, 1998 (the
"Agreement"), by and between CASTLE DENTAL CENTERS, INC., a Delaware corporation
(the "Company"), and Barry E. Solomon, D.D.S., an individual living in San
Antonio, Texas, Marc A. Solomon, an individual living in San Antonio, Texas,
Hebron D. Cutrer, an individual living in San Antonio, Texas, Stan E. Faye, an
individual living in San Antonio, Texas, Robert B. Grau, an individual living in
San Antonio, Texas (with such individuals being collectively referred to herein
as the "Holder").
1. INTRODUCTION. Contemporaneously with the execution and delivery of this
Agreement, the Holder acquired an aggregate of 125,000 shares of the Company's
Common Stock $.001 par value per share ("Common Stock"), and will, after the
date hereof, be entitled to receive additional shares of Common Stock pursuant
to that certain Asset Purchase Agreement ("Asset Purchase Agreement") of even
date herewith between the Company, the Holder and the other parties thereto. The
Company has agreed to grant to the Holders certain registration rights with
respect to the shares of Common Stock held by the Holder. Prior to the date
hereof, the Company entered into a Registration Rights Agreement dated as of
December 18, 1995, with purchasers of the Company's Series A Convertible
Preferred Stock (as defined below) and certain other parties, as may be amended
from time to time (the "Original Registration Rights Agreement"), and other
agreements regarding registration of Common Stock with other parties. Certain
terms used herein which are not otherwise defined are defined in the Original
Registration Rights Agreement.
2. REGISTRATION UNDER SECURITIES ACT.
2.1 "PIGGVBACK" REGISTRATIONS.
(a) RIGHT TO INCLUDE HOLDER SECURITIES. If the Company at any
time proposes to register any Common Stock under the Securities Act (other than
by a registration on Form S-4, Form S-8 or any successor or similar form, or in
connection with a tender offer, merger, or other acquisition), for sale for its
own account, and such Common Stock is to be distributed by or through one or
more underwriters on a firm commitment basis, it will at such time give prompt
written notice to all Holders of Holder Securities (as hereinafter defined) of
its intention to do so and of such Holders' rights under this Section 2.1. Upon
the written request of any such Holder made within 20 days after the date of any
such notice given in accordance with Section 7 hereof, the Company will use its
reasonable best efforts to effect the registration under the Securities Act of
all Holder Securities which the Company has been so requested to register by the
Holders thereof, and to arrange for such underwriters to include all the Holder
Securities to be offered and sold by such Holder among the Common Stock to be
distributed by such underwriters, PROVIDED that if, at any time after giving
written notice of its intention to register its Common Stock and prior to the
effective date of the registration statement filed in connection with such
registration, the Company
shall determine for any reason not to register or to delay registration of its
Common Stock, the Company may, at its election, give written notice of such
determination to each Holder of Holder Securities and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Holder Securities in connection with such registration (but not
from its obligation to pay the Registration Expenses in connection therewith or
to include any Holder Securities in subsequent registrations), and (ii) in the
case of a determination to delay registering, shall be permitted to delay
registering any Holder Securities for the same period as the delay in
registering its Common Stock. The Holders of Holder Securities to be distributed
by such underwriters shall be parties to the underwriting agreement between the
Company and such underwriters. Any such Holder of Holder Securities shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters other than representations, warranties, or
agreements typical in an offering of this type, including those regarding such
Holder, such Holder's Holder Securities and such Holder's intended method of
distribution, any other information supplied by such Holder to the Company for
use in the registration statement and any other representation required by law.
The Company will pay all Registration Expenses in connection with each
registration of Holder Securities requested pursuant to this Section 2.1.
(b) APPORTIONMENT IN "PIGGYBACK" REGISTRATIONS. If the
managing underwriter of such underwritten offering shall inform the Company and
the Holders of the Holder Securities requesting such registration in writing of
its belief that the aggregate number of shares of Common Stock requested to be
included in such registration (including any securities of other security
holders of the Company included in such registration pursuant to the terms of
the Original Registration Rights Agreement) exceeds the number which can be sold
in (or during the time of) such offering or that the inclusion would adversely
affect the marketing or the selling price of the Common Stock to be sold by the
Company therein, then the Company may include all securities proposed by the
Company to be sold for its own account and may decrease or eliminate the number
of Holder Securities requested to be included in such registration to the extent
necessary to reduce the number of shares of Common Stock to be included in the
registration to the level recommended by the managing underwriter. In the event
that such a reduction is necessary, the number of Holder Securities to be
included in such registration shall be reduced, on a pro rata basis among
Holders and the other parties requesting registration (other than holders of
Registrable Inside Shareholder Securities and Registrable Securities) (based on
the total number of shares of Common Stock owned by Holders and such other
parties (but excluding for purposes of this calculation Common Stock which
constitutes Registrable Inside Shareholder Securities and Registrable
Securities) and requested to be included in such registration), prior to any
reduction in the number of Registrable Inside Shareholder Securities and
Registrable Securities to be included in such registration.
2.2 REGISTRATION PROCEDURES. If and whenever the Company is required
to use its reasonable best efforts to effect the registration of any Holder
Securities under the Securities Act as provided in Section 2.1, the Company will
as expeditiously as possible:
(i) prepare and file with the Commission the requisite
registration statement to effect such registration and thereafter use its
reasonable best efforts to
2
cause such registration statement to become effective, provided that the
Company may discontinue any registration of its securities at any time
prior to the effective date of the registration statement relating
thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement until such time as all of such securities have been
disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration statement or for
six months, whichever period is shorter;
(iii) furnish to each seller of Holder Securities covered by
such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement thereto,
such number of copies of the prospectus contained in such registration
statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 or Rule 430A
under the Securities Act, in conformity with the requirements of the
Securities Act, and such other documents, as such seller may reasonably
request;
(iv) use its best efforts to register or qualify all Holder
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller thereof
shall reasonably request, to keep such registration or qualification in
effect for so long as such registration statement remains in effect, and
take any other action which may be reasonably necessary to enable such
seller to consummate the disposition in such jurisdictions of the
securities owned by such seller, except that the Company shall not for any
such purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not but for the
requirements of this subdivision (iv) be obligated to be so qualified or
to consent to general service of process in any such jurisdiction or
subject itself to be required to pay any franchise or income taxes in any
such jurisdiction;
(v) use its reasonable best efforts to cause all Holder
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Holder Securities;
(vi) furnish to each seller of Holder Securities a signed
counterpart, addressed to such seller, of:
3
(x) an opinion of counsel for the Company, dated the
date of the closing under the underwriting agreement, reasonably
satisfactory in form and substance to such underwriter, and
(y) a "comfort" letter, dated the effective date of such
registration statement and dated the date of the closing under the
underwriting agreement, signed by the independent public accountants
who have certified the Company's financial statements included in
such registration statement, addressed to each seller, to the extent
the same can be reasonably obtained, and addressed to the
underwriters, covering substantially the same matters with respect
to such registration statement (and the prospectus included therein)
and, in the case of the accountants' letter, with respect to events
subsequent to the date of such financial statements, as are
customarily covered in accountants' letters delivered to the
underwriters in underwritten public offerings of securities and such
other financial matters as such seller or the underwriters may
reasonably request;
(vii) notify each seller of Holder Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or
upon the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were
made, and at the request of any such seller or Holder promptly prepare and
furnish to such seller or Holder a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the sellers of such securities, such
prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances under which they were made;
(viii) otherwise use its reasonable best efforts to comply
with all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least 12 months, but not more
than 18 months, beginning with the first full calendar month after the
effective date of such registration statement, which earnings statement
shall satisfy the provisions of Section ll(a) of the Securities Act;
(ix) provide and cause to be maintained a transfer agent and
registrar for all Holder Securities covered by such registration statement
from and after a date not later than the effective date of such
registration statement; and
4
(x) use its best efforts to list all Holder Securities covered
by such registration statement on any securities exchange on which any of
the Company's Common Stock is then listed.
The Company may require each proposed seller of Holder Securities as
to which any registration is being effected to promptly furnish the Company, as
a condition precedent to including such Holder's Holder Securities in any
registration, such information regarding such seller and the distribution of
such securities as the Company may from time to time reasonably request in
writing
Each Holder of Holder Securities agrees by acquisition of such
Holder Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (vii) of this
Section 2.2, such Holder will forthwith discontinue its disposition of Holder
Securities pursuant to the registration statement relating to such Holder
Securities until such Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by subdivision (vii) of this Section 2.2 and, if
so directed by the Company, will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the prospectus relating to such Holder Securities at the time of
receipt of such notice.
2.3 PREPARATION: REASONABLE INVESTIGATION. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the Holders of Holder
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel (such counsel representing Holders to be
appointed by the holders of more than 50% by number of shares of Common Stock
being registered other than shares being registered by the Company) the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each of them such access
to its books and records and such opportunities to discuss the business of the
Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
Holders' and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
2.4 INDEMNIFICATION.
(a) INDEMNIFICATION BY COMPANY. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will indemnify and hold harmless the seller of any Holder Securities
covered by such registration statement, its directors and officers, and each
other Person, if any, who controls such seller within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such seller or any such director or officer or controlling
Person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or
5
summary prospectus contained therein, or any amendment or supplement thereto, or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will reimburse such seller and each such director, officer and
controlling Person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding; PROVIDED, HOWEVER, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon (a) an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement, said preliminary or final prospectus or said amendment or supplement
in reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such seller, specifically for use in
the preparation thereof or (b) an untrue statement or alleged untrue statement,
omission or alleged omission in a prospectus if such untrue statement or alleged
untrue statement, omission or alleged omission is corrected in an amendment or
supplement to the prospectus or in the final prospectus, which amendment,
supplement or final prospectus is delivered to such seller and such seller
thereafter fails to deliver such prospectus as so amended or supplemented prior
to or concurrently with the sale of registered Holder Securities to the Person
asserting such loss, claim, damage, liability or expense. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such seller or any such director. officer or controlling Person and
shall survive the transfer of such securities by such seller.
(b) INDEMNIFICATION BY THE HOLDERS. The Holders will, and
hereby do, indemnify and hold harmless (in the same manner and to the same
extent as set forth in subdivision (a) of this Section 2.4) the Company, each
director of the Company, each officer of the Company and each other Person, if
any, who controls the Company within the meaning of the Securities Act with
respect to any untrue statement or alleged untrue statement of any material fact
in such registration statement, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement thereto, or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, if
such statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company by such Holder for use in the preparation of such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement. Such indemnity shall remain in full force and effect,
regardless of any investigation made by or on behalf of the Company or any such
director, officer or controlling Person and shall survive the transfer of such
securities by such Holder.
(c) NOTICE. Promptly after receipt by an indemnified party of
notice of the commencement of any action or proceeding involving a claim
referred to in the preceding subdivisions of this Section 2.4, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action,
provided that the failure of any indemnified party to give notice as provided
6
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 2.4, except to the extent that the
indemnifying party is prejudiced by such failure to give notice. In case any
such action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
party and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) INDEMNIFICATION PAYMENTS. The indemnification required by
this Section 2.4 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
2.5 ADJUSTMENTS AFFECTING HOLDER SECURITIES. The Company will not effect
or permit to occur any combination or subdivision of shares which would
adversely affect the ability of the holders of Holder Securities to include such
Holder Securities in any registration of its securities contemplated by this
Section 2 or the marketability of such Holder Securities under any such
registration.
3. DEFINITIONS. As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:
COMMISSION: The Securities and Exchange Commission or any other federal agency
at the time administering the Securities Act.
COMMON STOCK: Common Stock of the Company, $.001 par value per share, and stock
of any other class with which such shares may hereafter have been exchanged or
reclassified.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
GULFSTAR WARRANT: The warrant to purchase 113,158 shares of the Company's Common
Stock issued to GulfStar Investments, Ltd.
7
HOLDER SECURITIES: The Common Stock (a) issued to the Holders on the date of
this Agreement or hereafter issued to the Holders pursuant to the terms of the
Asset Purchase Agreement and (b) issued to the Holders with respect to such
Common Stock by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise upon any required adjustments.
As to any particular Holder Securities, such securities shall cease to be Holder
Securities when (a) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been distributed to the public pursuant to Rule
144 (or any successor provision) under the Securities Act, (c) they are eligible
for distribution to the public under Rule 144(k), or (d) they shall have ceased
to be outstanding.
HOLDERS: The Holder and any permitted successors or assigns.
INSIDE SHAREHOLDERS: Jack H. Castle, Jr., as Trustee of the Castle 1995 Gift
Trust f/b/o Jack H. Castle, Jr., Castle Interests, Ltd., Lisa G. Castle Donnell,
as Trustee of the Castle 1995 Gift Trust f/b/o Lisa G. Castle Donnell, Jack H.
Castle, D.D.S., Loretta M. Castle and GulfStar Investments, Ltd.
PERSON: A corporation, an association, a partnership, a business or other
business entity, an individual, a governmental or political sub-division thereof
or a governmental agency.
REGISTRABLE INSIDE SHAREHOLDER SECURITIES: All shares of Common Stock held by
the Inside Shareholders on the date hereof and any shares of Common Stock
issuable upon exercise of the GulfStar Warrant or (b) securities issued or
issuable with respect to such GulfStar Warrant or Common Stock by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise
upon any required adjustments.
REGISTRABLE SECURITIES: The Common Stock issuable upon the conversion of the
Company's Series A Convertible Preferred Stock, par value $.001 per share (the
"Convertible Preferred Stock") and any (a) Convertible Preferred Stock or (b)
securities issued or issuable with respect to such Convertible Preferred Stock
or Common Stock by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise upon any required adjustments.
REGISTRATION EXPENSES: All expenses incident to the Company's performance of or
compliance with Section 2, including, without limitation, all registration,
filing and National Association of Securities Dealers, Inc. fees, all fees and
expenses of complying with securities or blue sky laws, all word processing,
duplicating and printing expenses, messenger and delivery expenses, the
reasonable fees and disbursements of counsel for the Company and of its
independent public
8
accountants, including the expenses of any special audits or "comfort" letters
required by or incident to such performance and compliance, the reasonable fees
and disbursements of one counsel (except in the event of a conflict of interest,
then such number of counsel as is appropriate to resolve such conflict) retained
by the holder or holders of more than 50% by number of shares of Common Stock
being registered other than shares registered by the Company, premiums and other
costs of policies of insurance obtained by the Company against liabilities
arising out of the public offering of the Registrable Securities and the Holder
Securities being registered and any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities, including reasonable fees
of underwriters counsel including qualification of securities under blue sky
laws, but excluding all agency fees and commissions, underwriting discounts and
commissions and transfer taxes, if any.
SECURITIES ACT: The Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
4. RULE 144. The Company will file the reports required to be filed by it,
and in the manner required to be filed by it, under the Securities Act and the
Exchange Act (or, if the Company is not required to file such reports, will,
upon the request of any Holder of Holder Securities, make publicly available
other information) and will take such further action as any Holder of Holder
Securities may reasonably request, all to the extent required from time to time
to enable such Holder to sell Holder Securities without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
under the Securities Act, as such rule may be amended from time to time or (b)
any similar rule or regulation hereafter adopted by the Commission ("Rule 144").
Upon the request of any Holder of Holder Securities, the Company will deliver to
such Holder a written statement certifying whether it has complied with such
requirements.
5. AMENDMENTS AND WAIVERS. This Agreement may be amended and the Company
may take any action herein prohibited or omit to perform any act herein required
to be performed by it, only if the Company shall have obtained the written
consent to such amendment, action or omission to act, of the holder or holders
of 66-2/3% or more (by number of shares) of Holder Securities. Each holder of
any Holder Securities at the time or thereafter outstanding shall be bound by
any consent authorized by this Section 5, whether or not such Holder Securities
shall have been marked to indicate such consent.
6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any Holder Securities
are held by a nominee for the beneficial owner thereof, the beneficial owner
thereof may upon the giving of written notice to the Company, at its election,
be treated as the Holder of such Holder Securities for purposes of any request
or other action by any Holder or Holders of Holder Securities pursuant to this
Agreement or any determination of any number or percentage of shares of Holder
Securities held by any Holder or Holders of Holder Securities contemplated by
this Agreement. The Company may require assurances reasonably satisfactory to it
of such owner's beneficial ownership of such Holder
9
Securities.
7. NOTICES. All communications provided for hereunder shall be sent by
first-class mail or overnight courier and (a) if addressed to a party other than
the Company, addressed to such party at the address set forth on the signature
page hereof, or at such other address as such party shall have furnished to the
Company in writing, or (b) if addressed to any other Holder of Holder
Securities, at the address that such Holder shall have furnished to the Company
in writing, or, until any such other holder so furnishes to the Company an
address, then to and at the address of the last holder of such Holder Securities
who has furnished an address to the Company, or (c) if addressed to the Company,
at 1360 Post Oak Boulevard, Suite 1300, Houston, Texas 77056, to the attention
of its President, or to the attention of such other officer, as the Company
shall have furnished to each Holder of Securities at the time outstanding. :
8. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the parties hereto other than the Company shall also be for the benefit of
and enforceable by any subsequent Holder of any Holder Securities.
9. DESCRIPTIVE HEADINGS. The descriptive headings of the several sections
and paragraphs of this Agreement are inserted for reference only and shall not
limit or otherwise affect the meaning hereof.
10. GOVERNING LAW. This agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the state of Delaware.
11. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
12. EXTENSION OF ADDITIONAL REGISTRATION RIGHTS. The Holders acknowledge
that the Company retains the right to extend the same or similar registration
rights to other holders of its securities, and that such action by the Company
shall not constitute a breach of or a default under this Agreement. It is the
intent of the parties hereto that this Agreement be read consistently with the
Original Registration Rights Agreement, but in the event of a conflict
therewith, the provisions of the Original Registration Rights Agreement shall
control.
13. LOCK-UP AGREEMENT. If requested in writing by the underwriters for any
underwritten public offering of securities of the Company, the Holders shall
agree not to sell publicly any shares of Common Stock (other than Common Stock
being registered in such offering), without the consent of such underwriters,
for a period of not more than 270 days following the effective date of the
registration statement relating to such offering.
10
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered by their respective officers "hereunto duly authorized as of the date
first above written.
CASTLE DENTAL CENTERS, INC.
By:________________________
John M. Slack, Vice President
ADDRESS: HOLDER:
27906 Copper Crest
San Antonio, Texas 78260
Barry E. Solomon, D.D.S.
10303 Grenadier Way
San Antonio, Texas 78217
Marc A. Solomon,
201 Garrapata Lane
San Antonio, Texas 78232
Hebron D. Cutrer
9223 Ben Elm
San Antonio, Texas 78230
Stan E. Faye
5426 El Tejano
San Antonio, Texas 78233
Robert B. Grau
11
EXHIBIT 99.4
AMENDED AND RESTATED CREDIT AGREEMENT
AMONG
CASTLE DENTAL CENTERS, INC.
AS BORROWER,
NATIONSBANK, N.A.,
AS AGENT,
AND
THE LENDERS SIGNATORY HERETO
DATED AS OF DECEMBER 18, 1998
$47,500,000 REVOLVING CREDIT FACILITY
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 TERMS DEFINED ABOVE......................................1
Section 1.02 CERTAIN DEFINED TERMS....................................1
Section 1.03 ACCOUNTING TERMS AND DETERMINATIONS.....................18
ARTICLE II
LOANS AND LETTERS OF CREDIT
Section 2.01 LOANS AND LETTERS OF CREDIT.............................19
Section 2.02 BORROWINGS, CONTINUATIONS AND CONVERSIONS, LETTERS
OF CREDIT...............................................19
Section 2.03 CHANGES OF COMMITMENTS..................................21
Section 2.04 FEES....................................................22
Section 2.05 SEVERAL OBLIGATIONS.....................................23
Section 2.06 NOTES...................................................23
Section 2.07 PREPAYMENTS.............................................23
Section 2.08 ASSUMPTION OF RISKS.....................................24
Section 2.09 OBLIGATION TO REIMBURSE AND TO PREPAY...................25
Section 2.10 LENDING OFFICES.........................................27
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 REPAYMENT OF LOANS......................................27
Section 3.02 INTEREST................................................27
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 PAYMENTS................................................28
Section 4.02 PRO RATA TREATMENT......................................28
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Section 4.03 COMPUTATIONS............................................29
Section 4.04 NON-RECEIPT OF FUNDS BY THE AGENT.......................29
Section 4.05 SET-OFF, SHARING OF PAYMENTS, ETC.......................29
Section 4.06 TAXES...................................................30
ARTICLE V
CAPITAL ADEQUACY
Section 5.01 CAPITAL ADEQUACY; ADDITIONAL COSTS......................33
Section 5.02 LIMITATION ON EURODOLLAR LOANS..........................34
Section 5.03 ILLEGALITY..............................................35
Section 5.04 BASE RATE LOANS PURSUANT TO SECTIONS 5.01, 5.02 AND
5.03....................................................35
Section 5.05 COMPENSATION............................................35
Section 5.06 REPLACEMENT LENDERS.....................................36
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 INITIAL FUNDING.........................................37
Section 6.02 INITIAL AND SUBSEQUENT LOANS AND LETTERS OF CREDIT......38
Section 6.03 CONDITIONS PRECEDENT FOR THE BENEFIT OF LENDERS.........40
Section 6.04 NO WAIVER...............................................40
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.01 CORPORATE EXISTENCE.....................................41
Section 7.02 FINANCIAL CONDITION.....................................41
Section 7.03 LITIGATION..............................................41
Section 7.04 NO BREACH...............................................42
Section 7.05 AUTHORITY...............................................42
Section 7.06 APPROVALS...............................................42
Section 7.07 USE OF LOANS............................................42
Section 7.08 ERISA...................................................42
Section 7.09 TAXES...................................................43
Section 7.10 TITLES, ETC.............................................43
Section 7.11 NO MATERIAL MISSTATEMENTS...............................44
Section 7.12 INVESTMENT COMPANY ACT..................................44
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Section 7.13 PUBLIC UTILITY HOLDING COMPANY ACT......................44
Section 7.14 SUBSIDIARIES............................................44
Section 7.15 LOCATION OF BUSINESS AND OFFICES........................44
Section 7.16 DEFAULTS................................................44
Section 7.17 ENVIRONMENTAL MATTERS...................................45
Section 7.18 COMPLIANCE WITH THE LAW.................................45
Section 7.19 INSURANCE...............................................45
Section 7.20 MANAGEMENT SERVICES AGREEMENTS AND ACCOUNTS RECEIVABLE
PURCHASE AGREEMENTS.....................................45
Section 7.21 RESTRICTION ON LIENS....................................46
Section 7.22 MATERIAL AGREEMENTS.....................................46
Section 7.23 HEDGING AGREEMENTS......................................46
Section 7.24 YEAR 2000...............................................46
ARTICLE VIII
AFFIRMATIVE COVENANTS
Section 8.01 REPORTING REQUIREMENTS..................................47
Section 8.02 LITIGATION..............................................49
Section 8.03 MAINTENANCE, ETC........................................49
Section 8.04 ENVIRONMENTAL MATTERS...................................50
Section 8.05 FURTHER ASSURANCES......................................50
Section 8.06 PERFORMANCE OF OBLIGATIONS..............................51
Section 8.07 ERISA INFORMATION AND COMPLIANCE........................51
Section 8.08 MANAGEMENT SERVICES AGREEMENTS AND ACCOUNTS RECEIVABLE
PURCHASE AGREEMENTS.....................................51
Section 8.09 GUARANTEE BY ACQUIRED ENTITIES..........................51
Section 8.10. DISSOLUTION OF JHCDDS, INC.............................52
Section 8.11 COVENANT TO SWAP INTEREST RATES.........................52
Section 8.12 YEAR 2000...............................................52
ARTICLE IX
NEGATIVE COVENANTS
Section 9.01 DEBT....................................................52
Section 9.02 LIENS...................................................53
Section 9.03 INVESTMENTS, LOANS AND ADVANCES.........................53
Section 9.04 DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS................55
Section 9.05 SALES AND LEASEBACKS....................................55
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Section 9.06 NATURE OF BUSINESS......................................55
Section 9.07 MERGERS, ETC............................................55
Section 9.08 PROCEEDS OF NOTES.......................................55
Section 9.09 ERISA COMPLIANCE........................................56
Section 9.10 SALE OR DISCOUNT OF RECEIVABLES.........................57
Section 9.11 RATIO OF TOTAL FUNDED DEBT TO CAPITALIZATION............57
Section 9.12 NET WORTH...............................................57
Section 9.13 LEVERAGE RATIO..........................................57
Section 9.14 FIXED CHARGE COVERAGE RATIO.............................57
Section 9.15 RATIO OF TOTAL FUNDED DEBT TO EBITDA....................58
Section 9.16 CAPITAL EXPENDITURES....................................58
Section 9.17 ENVIRONMENTAL MATTERS...................................58
Section 9.18 TRANSACTIONS WITH AFFILIATES............................58
Section 9.19 SUBSIDIARIES............................................59
Section 9.20 NEGATIVE PLEDGE AGREEMENTS..............................59
Section 9.21 OTHER AGREEMENTS........................................59
Section 9.22 ACQUIRED ENTITIES.......................................59
Section 9.23 AMENDMENT OF CASTLE WEST LLC AGREEMENT..................59
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 EVENTS OF DEFAULT......................................59
Section 10.02 REMEDIES...............................................61
ARTICLE XI
THE AGENT
Section 11.01 APPOINTMENT, POWERS AND IMMUNITIES.....................62
Section 11.02 RELIANCE BY AGENT......................................63
Section 11.03 DEFAULTS...............................................63
Section 11.04 RIGHTS AS A LENDER.....................................63
Section 11.05 INDEMNIFICATION........................................63
Section 11.06 NON-RELIANCE ON AGENT AND OTHER LENDERS................64
Section 11.07 ACTION BY AGENT........................................64
Section 11.08 RESIGNATION OR REMOVAL OF AGENT........................65
Exhibit A - Form of Note
Exhibit B - Form of Borrowing, Continuation and Conversion Request
Exhibit C - Form of Compliance Certificate
Exhibit D - List of Security Instruments
Exhibit E - Form of Borrowing Base Report
Exhibit F - Form of Officer's Certificate
Exhibit G - Due Diligence Items
Exhibit H - Form of Subordination Agreement
Schedule 1.1 - Acquired Entities and Existing PC's
THIS AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 18,
1998 is among CASTLE DENTAL CENTERS, INC., a corporation formed under the laws
of the State of Delaware (the "BORROWER"); each of the lenders that is a
signatory hereto or which becomes a signatory hereto as provided in Section
12.06 (individually, together with its successors and assigns, a "LENDER" and,
collectively, the "LENDERS"); and NATIONSBANK, N.A., a national banking
association (in its individual capacity, "NATIONSBANK"), as agent for the
Lenders (in such capacity, together with its successors in such capacity, the
"AGENT").
R E C I T A L S
A. The Borrower has requested that the Lenders amend, increase and
rearrange all of the Prior Debt (as defined in Section 1.02) and provide certain
loans to the Borrower; and
B. The Lenders have agreed to amend, increase and rearrange the Prior Debt
and make such loans subject to the terms and conditions of this Agreement.
C. In consideration of the mutual covenants and agreements herein
contained and of the loans, extensions of credit and commitments hereinafter
referred to, the parties hereto agree to amend and restate the Prior Credit
Agreement (as defined in Section 1.02) as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 TERMS DEFINED ABOVE. As used in this Agreement, the
terms "AGENT," "BORROWER," "LENDER," "LENDERS," and "NATIONSBANK" shall have the
meanings indicated above.
Section 1.02 CERTAIN DEFINED TERMS. As used herein, the following
terms shall have the following meanings (all terms defined in this Article I or
in other provisions of this Agreement in the singular to have the same meanings
when used in the plural and VICE VERSA):
"ACCOUNTS RECEIVABLE PURCHASE AGREEMENTS" shall mean the Accounts
Receivable Purchase Agreements either previously or hereafter entered into
between an Acquired Entity, as seller, and Borrower or any Subsidiary, as buyer,
in form and substance satisfactory to Agent.
"ACQUIRED ENTITY" shall mean the entities identified on SCHEDULE 1.1
hereto and all entities (of whatever form) whose assets are acquired by the
Borrower or any Subsidiary in connection with New Acquisitions, and all new
professional corporations, professional associations or other Persons which
become a party to future Management Services Agreements and Accounts Receivable
Purchase Agreements with Borrower or any Subsidiary pursuant to New
Acquisitions.
"ADDITIONAL COSTS" shall have the meaning assigned such term in Section
5.01(a).
"ADJUSTED AGGREGATE CASTLE WEST EBITDA" shall mean Aggregate Castle West
EBITDA plus the Pro Forma MSO Fees of the Castle West Acquired Clinics;
PROVIDED, HOWEVER, that the
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Adjusted Aggregate Castle West EBITDA shall not include the results of
operations, cost of capital and Castle West Debt arising from any CDC Approved
Expansion.
"AFFECTED LOANS" shall have the meaning assigned such term in Section
5.04.
"AFFILIATE" of any Person shall mean (i) any Person directly or indirectly
controlled by, controlling or under common control with such first Person, (ii)
any director or officer of such first Person or of any Person referred to in
clause (i) above and (iii) if any Person in clause (i) above is an individual,
any member of the immediate family (including parents, spouse and children) of
such individual and any trust whose principal beneficiary is such individual or
one or more members of such immediate family and any Person who is controlled by
any such member or trust. For purposes of this definition, any Person which owns
directly or indirectly 10% or more of the securities having ordinary voting
power for the election of directors or other governing body of a corporation or
10% or more of the partnership or other ownership interests of any other Person
(other than as a limited partner of such other Person) will be deemed to
"CONTROL" (including, with its correlative meanings, "CONTROLLED BY" and "UNDER
COMMON CONTROL WITH") such corporation or other Person.
"AGGREGATE CASTLE WEST EBITDA" shall be equal to (a) the pro forma
aggregate earnings of DCS and the Existing PCs for the year ended December 31,
1997, adjusted to reverse charges thereto made for interest, federal and state
income and franchise taxes, depreciation and amortization (such amounts to be
determined based upon actual 1997 performance as if any portion of any Existing
PC not owned by DCS on January 1, 1997, were acquired by DCS on January 1,
1997), PLUS (b) an amount equal to the unusual and non-recurring expenses
incurred during 1997 in connection with the transactions contemplated by the
Master Contribution Agreement, and an adjustment for (c) any difference between
the 1997 operations of DCS and anticipated Castle West employees or increased
expenses related to additional staffing necessary to operate the Castle West
Acquired Clinics (with any increase in 1998 levels to reduce Aggregate Castle
West EBITDA and any decrease in 1998 levels to increase Aggregate Castle West
EBITDA) as agreed upon by the Borrower and DCS; PROVIDED, HOWEVER, that for
purposes of calculating Aggregate Castle West EBITDA, the 1997 pro forma EBITDA
for Burbank shall be deemed to be $300,000, regardless of Burbank's actual
results of operations.
"AGREEMENT" shall mean this Amended and Restated Credit Agreement, as the
same may from time to time be amended or supplemented.
"AGGREGATE COMMITMENTS" at any time shall equal the amount calculated in
accordance with Section 2.03.
"AGGREGATE MAXIMUM CREDIT AMOUNTS" at any time shall equal the sum of the
Maximum Credit Amounts of the Lenders ($47,500,000.00), as the same may be
reduced pursuant to Section 2.03(b) or increased pursuant to 2.03(d).
"APPLICABLE LENDING OFFICE" shall mean, for each Lender and for each Type
of Loan, the lending office of such Lender (or an Affiliate of such Lender)
designated for such Type of Loan on
- 2 -
the signature pages hereof or such other offices of such Lender (or of an
Affiliate of such Lender) as such Lender may from time to time specify to the
Agent and the Borrower as the office by which its Loans of such Type are to be
made and maintained.
"APPLICABLE MARGIN" the applicable per annum percentage set forth at the
appropriate intersection in the table shown below, based on the ratio of Total
Funded Debt to EBITDA, determined as of the end of the most recent fiscal
quarter of the Borrower:
APPLICABLE MARGIN
TOTAL FUNDED DEBT TO EBITDA EURODOLLAR BASE RATE
Greater than or equal to 2.5 3.50% 1.0%
Greater than or equal to 2.0,
but less than 2.5 3.00% 0.5%
Greater than or equal to 1.5,
but less than 2.0 2.75% 0.25%
Greater than or equal to 1.0,
but less than 1.5 2.50% 0.25%
Less than 1.0 2.25% 0.0%
Each change in the Applicable Margin resulting from a change in the ratio of
Total Funded Debt to EBITDA shall take effect as of the date of determination of
the ratio of Total Funded Debt to EBITDA.
"ASSET PURCHASE" shall mean the acquisition of all or substantially all of
the assets of any Acquired Entity by Borrower or any Subsidiary pursuant to an
Asset Purchase Agreement.
"ASSET PURCHASE AGREEMENTS" shall mean Asset Purchase Agreements entered
into by Borrower or any Subsidiary in form and substance satisfactory to Agent
in connection with New Acquisitions.
"ASSIGNMENT" shall have the meaning assigned such term in Section
12.06(b).
"BASE RATE" shall mean, with respect to any Base Rate Loan, for any day,
the higher of (i) the Federal Funds Rate for any such day plus 1/2 of 1% or (ii)
the Prime Rate for such day. Each change in any interest rate provided for
herein based upon the Base Rate resulting from a change in the Base Rate shall
take effect at the time of such change in the Base Rate.
"BASE RATE LOANS" shall mean Loans that bear interest at rates based upon
the Base Rate.
- 3 -
"BORROWING BASE" shall mean at any time the amount equal to three (3)
times EBITDA as of the end of the most recent fiscal quarter of Borrower
(calculated on a rolling four quarters basis). For any calculation period which
would include one or more quarters prior to any Stock Purchase or any Asset
Purchase or any other future acquisition of an entity, the "rolling four
quarters" shall include the "pro forma" EBITDA of the applicable Acquired Entity
for such prior periods adjusted to reflect costs and expenses which such
Acquired Entity would have incurred had the Management Services Agreements
between Borrower and/or any Subsidiary and such Acquired Entity been in effect
(adding back appropriate executive salaries and non-cash charge offs relating to
this transaction).
"BURBANK" shall mean S.A. Soliemani, DMD, Inc., a California professional
corporation d.b.a. Burbank Dental.
"BURBANK ADJUSTMENT"shall have the definition ascribed thereto in the
Master Contribution Agreement.
"BUSINESS DAY" shall mean any day other than a day on which commercial
banks are authorized or required to close in Houston, Texas and, where such term
is used in the definition of "Quarterly Date" or if such day relates to a
borrowing or continuation of, a payment or prepayment of principal of or
interest on, or a conversion of or into, or the Interest Period for, a
Eurodollar Loan or a notice by the Borrower with respect to any such borrowing
or continuation, payment, prepayment, conversion or Interest Period, any day
which is also a day on which dealings in Dollar deposits are carried out in the
London interbank market.
"CAPITAL COST RATE" shall mean, with respect to any Loan, (i) if such Loan
is a Base Rate Loan, the Base Rate PLUS the Applicable Margin PLUS .25%, or (ii)
if such Loan is a Eurodollar Loan, the Eurodollar Rate PLUS the Applicable
Margin PLUS .25%.
"CAPITALIZATION" shall mean shareholder's equity plus Total Funded Debt.
"CASTLE FLORIDA" shall mean Castle Dental Centers of Florida, Inc., a
Florida corporation and a wholly owned Subsidiary of the Borrower.
"CASTLE TENNESSEE" shall mean Castle Dental Centers of Tennessee, Inc., a
Tennessee corporation and a wholly owned Subsidiary of the Borrower.
"CASTLE TEXAS" shall mean Castle Dental Centers of Texas, Inc., a Texas
corporation and a wholly owned Subsidiary of the Borrower.
"CASTLE WEST" shall mean Castle Dental Centers of California, L.L.C., a
Delaware limited liability company and a Subsidiary of the Borrower.
"CASTLE WEST ACQUIRED CLINICS" shall mean each business (or allocated
portion thereof) with which Castle West enters into an MSO agreement during the
12-month period following the
- 4 -
Closing Date (as defined in the Master Contribution Agreement) and with respect
to which an Acquisition Purchase Price Adjustment (as defined in the Master
Contribution Agreement) is required to be made.
"CASTLE WEST DEBT" shall mean the debt of the Borrower and Castle West
that is directly related to Castle West's business and operations (excluding
debt related to the acquisition of DCS, the Existing PCs, the Castle West
Acquired Clinics and any CDC Approved Expansion).
"CASTLE WEST EBITDA" shall only be used in calculating the Put/Call
Reserve Amount, and shall, for any period, be equal to Castle West's earnings
for such period, determined in accordance with GAAP adjusted to reverse charges
thereto made for interest, federal and state income and franchise taxes,
depreciation and amortization, to the extent included in the calculation of
earnings; PROVIDED, HOWEVER, that Castle West EBITDA shall be determined prior
to any deduction of the Incentive Payment from earnings and without any
deduction for overhead, management, or similar fees paid by Castle West to any
Affiliate of the Borrower or otherwise allocated to Castle West.
"CASTLE WEST INCREMENTAL EBITDA" shall be equal to the amount by which the
Castle West EBITDA for the prior four fiscal quarters ending immediately prior
to delivery of a C Merger Notice or the CDC Call Notice exceeds the Adjusted
Aggregate Castle West EBITDA; PROVIDED, HOWEVER, that the Projected Castle West
Incremental EBITDA shall exclude the Castle West EBITDA, Castle West Debt, and
Common Stock capital costs relating to any acquisitions completed in the
three-month period immediately preceding the delivery of either the C Merger
Notice or the CDC Call Notice.
"C MERGER CONSIDERATION" shall be equal to the aggregate Pro Rata Share of
the Corporate C Members of the Holdings Old Value PLUS the aggregate Pro Rata
Share of the Corporate C Members of the Holdings New Value LESS the aggregate
Pro Rata Share of the Corporate C Members of the Holdings Indebtedness.
"C MERGER NOTICE" shall mean the notice given by the Corporate C Members
to the CDC California of their respective intent to exercise the Corporate C
Member's Merger Option.
"CDC APPROVED EXPANSION" shall mean any expansion, acquisition, or other
opportunity that is approved by the Board of Directors of Castle West if none of
the Class C Interest Directors affirmatively voted to approve such expansion,
acquisition, or other opportunity.
"CDC CALIFORNIA" shall mean CDC of California, Inc., a Delaware
corporation and a wholly-owned Subsidiary of the Borrower.
"CDC CALL NOTICE" shall mean the notice given by CDC California to the
Corporate C Members of its intent to exercise the CDC Call Option.
- 5 -
"CDC CALL OPTION" shall mean the option of CDC California to cause each of
the Corporate C Members to merge with and into CDC California pursuant to
Section 8.2 of the Master Contribution Agreement.
"CHANGE OF CONTROL" shall mean at any time, as a result of one or more
transactions after the date of this Agreement, any "person" or "group" of
persons acting in concert (other than persons owning common stock of the
Borrower on the Closing Date) shall have "beneficial ownership" of more than 51%
of the outstanding common stock of the Borrower (within the meaning of Section
13(d) or 14 (d) of the Securities Exchange Act of 1934, as amended, and the
applicable rules and regulations thereunder), PROVIDED that the relationships
among the respective shareholders of the Borrower on the date of this Agreement
shall not be deemed to constitute all or any combination of them as a "group".
"CLASS C INTEREST DIRECTORS" shall mean Elliott Schlang and Martin
Schecter.
"CLASS III INTEREST" shall mean the Class III Interest in Holdings in the
Holdings Limited Agreement.
"CLASS III REPURCHASE OBLIGATION" shall mean the amount of any outstanding
obligation, if any, of Holdings to the former holder of the Class III Interest
in Holdings (as defined in the Holdings Limited Agreement) arising out of the
previous exercise of Holding's option to purchase the Class III Interest
pursuant to Section 5.5(c) of the Holdings Limited Agreement.
"CLOSING DATE" shall mean December 18, 1998.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time and any successor statute.
"COMMITMENT" shall mean, for any Lender, its obligation to make Loans and
participate in the issuance of Letters of Credit as provided in Section 2.01(b)
up to the lesser of (i) such Lender's Maximum Credit Amount and (ii) the
Lender's Percentage Share of the then effective Borrowing Base.
"COMMON STOCK" the common stock, $.001 par value, of the Borrower.
"COMMON STOCK MARKET MULTIPLE" shall be determined by multiplying the
average closing price of the Common Stock on the principal exchange or quotation
system therefor over the 30-day period ending on the date immediately prior to
delivery of a C Merger Notice or the CDC Call Notice by the weighted average
fully diluted number of shares of Common Stock outstanding over the one-year
period ending on such date, and dividing the product by EBITDA for the prior
four fiscal quarters preceding such date.
"CONSOLIDATED NET INCOME" shall mean with respect to the Borrower and its
Consolidated Subsidiaries, for any period, the aggregate of the net income (or
loss) of the Borrower and its Consolidated Subsidiaries after allowances for
taxes for such period, determined on a consolidated
- 6 -
basis in accordance with GAAP; PROVIDED that there shall be excluded from such
net income (to the extent otherwise included therein) the following: (i) the net
income of any Person in which the Borrower or any Consolidated Subsidiary has an
interest (which interest does not cause the net income of such other Person to
be consolidated with the net income of the Borrower and its Consolidated
Subsidiaries in accordance with GAAP), except to the extent of the amount of
dividends or distributions actually paid in such period by such other Person to
the Borrower or to a Consolidated Subsidiary, as the case may be; (ii) the net
income (but not loss) of any Consolidated Subsidiary to the extent that the
declaration or payment of dividends or similar distributions or transfers or
loans by that Consolidated Subsidiary is not at the time permitted by operation
of the terms of its charter or any agreement, instrument or Governmental
Requirement applicable to such Consolidated Subsidiary, or is otherwise
restricted or prohibited in each case determined in accordance with GAAP; (iii)
the net income (or loss) of any Person acquired in a pooling-of-interests
transaction for any period prior to the date of such transaction; (iv) any
nonrecurring gains or losses acceptable to the Majority Lenders and any
extraordinary gains or losses, including gains or losses attributable to
Property sales not in the ordinary course of business; and (v) the cumulative
effect of a change in accounting principles and any gains or losses attributable
to writeups or write downs of assets.
"CONSOLIDATED SUBSIDIARIES" shall mean each Subsidiary of the Borrower
(whether now existing or hereafter created or acquired) the financial statements
of which shall be (or should have been) consolidated with the financial
statements of the Borrower in accordance with GAAP.
"CORPORATE C MEMBERS" shall have the definition ascribed thereto in the
Master Contribution Agreement.
"CORPORATE C MEMBER'S MERGER OPTION" shall mean the option of each of the
Corporate C Members to cause such Corporate C Member to merge with and into CDC
California pursuant to Section 8.1 of the Master Contribution Agreement.
"DCS" shall mean Dental Consulting Services, L.L.C., a California limited
liability company.
"DEBT" shall mean, for any Person the sum of the following (without
duplication): (i) all obligations of such Person for borrowed money or evidenced
by bonds, debentures, notes or other similar instruments (including principal,
interest, fees and charges); (ii) all obligations of such Person (whether
contingent or otherwise) in respect of bankers' acceptances, letters of credit,
surety or other bonds and similar instruments; (iii) all obligations of such
Person to pay the deferred purchase price of Property or services (other than
for borrowed money); (iv) all obligations under leases which shall have been, or
should have been, in accordance with GAAP, recorded as capital leases in respect
of which such Person is liable (whether contingent or otherwise); (v) all
obligations under leases which require such Person or its Affiliate to make
payments over the term of such lease, including payments at termination, which
are substantially equal to at least eighty percent (80%) of the purchase price
of the Property subject to such lease plus interest as an imputed rate of
interest; (vi) all Debt (as described in the other clauses of this definition)
and other obligations of others
- 7 -
secured by a Lien on any asset of such Person, whether or not such Debt is
assumed by such Person; (vii) all Debt (as described in the other clauses of
this definition) and other obligations of others guaranteed by such Person or in
which such Person otherwise assures a creditor against loss of the debtor or
obligations of others; (viii) all obligations or undertakings of such Person to
maintain or cause to be maintained the financial position or covenants of others
or to purchase the Debt or Property of others; (ix) obligations to deliver goods
or services in consideration of advance payments; and (x) all obligations of
such Person under Hedging Agreements.
"DEFAULT" shall mean an Event of Default or an event which with notice or
lapse of time or both would become an Event of Default.
"DOLLARS" and "$" shall mean lawful money of the United States of America.
"EBITDA" shall mean, for any period, the sum of Consolidated Net Income
for such period plus the following expenses or charges to the extent deducted
from Consolidated Net Income in such period: interest, taxes, depreciation,
depletion and amortization.
"ENVIRONMENTAL LAWS" shall mean any and all Governmental Requirements
pertaining to health or the environment in effect in any and all jurisdictions
in which the Borrower or any Subsidiary is conducting or at any time has
conducted business, or where any Property of the Borrower or any Subsidiary is
located, including without limitation, the Oil Pollution Act of 1990 ("OPA"),
the Clean Air Act, as amended, the Comprehensive Environmental, Response,
Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Federal
Water Pollution Control Act, as amended, the Occupational Safety and Health Act
of 1970, as amended, the Resource Conservation and Recovery Act of 1976
("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended,
and other environmental conservation or protection laws. The term "oil" shall
have the meaning specified in OPA, the terms "hazardous substance" and "release"
(or "threatened release") have the meanings specified in CERCLA, and the terms
"solid waste" and "disposal" (or "disposed") have the meanings specified in
RCRA; PROVIDED, HOWEVER, that (i) in the event either OPA, CERCLA or RCRA is
amended so as to broaden the meaning of any term defined thereby, such broader
meaning shall apply subsequent to the effective date of such amendment and (ii)
to the extent the laws of the state in which any Property of the Borrower or any
Subsidiary is located establish a meaning for "oil," "hazardous substance,"
"release," "solid waste" or "disposal" which is broader than that specified in
either OPA, CERCLA or RCRA, such broader meaning shall apply.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time and any successor statute.
"ERISA AFFILIATE" shall mean each trade or business (whether or not
incorporated) which together with the Borrower or any Subsidiary would be deemed
to be a "single employer" within the meaning of section 4001(b)(1) of ERISA or
subsections (b), (c), (m) or (o) of section 414 of the Code.
- 8 -
"ERISA EVENT" shall mean (i) a "Reportable Event" described in Section
4043 of ERISA and the regulations issued thereunder, (ii) the withdrawal of the
Borrower, any Subsidiary or any ERISA Affiliate from a Plan during a plan year
in which it was a "substantial employer" as defined in Section 4001(a)(2) of
ERISA, (iii) the filing of a notice of intent to terminate a Plan or the
treatment of a Plan amendment as a termination under Section 4041 of ERISA, (iv)
the institution of proceedings to terminate a Plan by the PBGC or (v) any other
event or condition which might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan.
"EURODOLLAR LOANS" shall mean Loans the interest rates on which are
determined on the basis of rates referred to in the definition of "Eurodollar
Rate".
"EURODOLLAR RATE" shall mean, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as
the London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period. If for any reason such
rate is not available, the term "Eurodollar Rate" shall mean, for any Eurodollar
Loan for any Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as
the London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period; PROVIDED, HOWEVER, if more
than one rate is specified on Reuters Screen LIBO Page, the applicable rate
shall be the arithmetic mean of all such rates.
"EVENT OF DEFAULT" shall have the meaning assigned such term in Section
10.01.
"EXCEPTED LIENS" shall mean: (i) Liens for taxes, assessments or other
governmental charges or levies not yet due or which are being contested in good
faith by appropriate action and for which adequate reserves have been
maintained; (ii) Liens in connection with workmen's compensation, unemployment
insurance or other social security, old age pension or public liability
obligations not yet due or which are being contested in good faith by
appropriate action and for which adequate reserves have been maintained in
accordance with GAAP; (iii) operators', vendors', carriers', warehousemen's,
repairmen's, mechanics', workmen's, materialmen's, construction or other like
Liens arising by operation of law in the ordinary course of business or
statutory landlord's liens, each of which is in respect of obligations that have
not been outstanding more than 90 days or which are being contested in good
faith by appropriate proceedings and for which adequate reserves have been
maintained in accordance with GAAP; (iv) any Liens reserved in leases for rent
and for compliance with the terms of leases in the case of leasehold estates, to
the extent that any such Lien referred to in this clause does not materially
impair the use of the Property covered by such Lien for the purposes for which
such Property is held by the Borrower or any Subsidiary or materially impair the
value of such Property subject thereto; (v) encumbrances (other than to secure
the payment of borrowed money or the deferred purchase price of Property or
services), easements, restrictions, servitudes, permits, conditions, covenants,
exceptions or reservations in any rights of way or other Property of the
Borrower or any Subsidiary for the purpose of roads, pipelines, transmission
lines, transportation lines, distribution lines for the removal of gas, oil,
coal or other minerals or timber,
- 9 -
and other like purposes, or for the joint or common use of real estate, rights
of way, facilities and equipment, and defects, irregularities, zoning
restrictions and deficiencies in title of any rights of way or other Property
which in the aggregate do not materially impair the use of such rights of way or
other Property for the purposes of which such rights of way and other Property
are held by the Borrower or any Subsidiary or materially impair the value of
such Property subject thereto; (vi) deposits of cash or securities to secure the
performance of bids, trade contracts, leases, statutory obligations and other
obligations of a like nature incurred in the ordinary course of business; and
(vii) Liens permitted by the Security Instruments.
"EXISTING PCS" means the affiliated dental practices identified on
Schedule 7.14 hereto.
"FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight federal funds transactions with a member of the
Federal Reserve System arranged by federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (i) if the date for which such rate is to be
determined is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average
rate charged to the Agent on such day on such transactions as determined by the
Agent.
"FINAL MATURITY DATE" shall mean the earlier to occur of (i) November 7,
2002 and (ii) the date that the Notes are accelerated pursuant to Section 10.02.
"FINANCIAL STATEMENTS" shall mean the financial statement or statements of
the Borrower and its Consolidated Subsidiaries described or referred to in
Section 7.02.
"GAAP" shall mean generally accepted accounting principles in the United
States of America in effect from time to time.
"GOVERNMENTAL AUTHORITY" shall include the country, the state, county,
city and political subdivisions in which any Person or such Person's Property is
located or which exercises valid jurisdiction over any such Person or such
Person's Property, and any court, agency, department, commission, board, bureau
or instrumentality of any of them including monetary authorities which exercises
valid jurisdiction over any such Person or such Person's Property. Unless
otherwise specified, all references to Governmental Authority herein shall mean
a Governmental Authority having jurisdiction over, where applicable, the
Borrower, its Subsidiaries or any of their Property or the Agent or any Lender
or any Applicable Lending Office.
"GOVERNMENTAL REQUIREMENT" shall mean any law, statute, code, ordinance,
order, determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other directive or requirement
(whether or not having the force of law), including, without limitation,
Environmental Laws, energy regulations and occupational, safety and health
standards or controls, of any Governmental Authority.
- 10 -
"GUARANTORS" shall mean each Subsidiary which may execute a Guaranty
Agreement pursuant to Section 9.19.
"GUARANTY AGREEMENT" shall mean an agreement executed by the Guarantors in
form and substance satisfactory to the Agent guarantying, unconditionally,
payment of the Indebtedness, as the same may be amended, modified or
supplemented from time to time.
"HEDGING AGREEMENTS" shall mean any interest rate swap, cap, floor,
collar, forward agreement or other protection agreements or any option with
respect to any such transaction.
"HIGHEST LAWFUL RATE" shall mean, with respect to each Lender, the maximum
nonusurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Notes or on other
Indebtedness under laws applicable to such Lender which are presently in effect
or, to the extent allowed by law, under such applicable laws which may hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
"HOLDINGS" shall mean Castle West Holdings, L.L.C., a California limited
liability company.
"HOLDINGS INDEBTEDNESS" shall mean, at the time of determination, all
outstanding indebtedness of Holdings to any person, including, without
limitation, the Class III Repurchase Obligation.
"HOLDINGS NEW VALUE" shall be equal to 20% of (A) the Castle West
Incremental EBITDA PLUS the Projected Castle West Incremental EBITDA, (B)
multiplied by the Common Stock Market Multiple (C) multiplied by 90%; PROVIDED,
HOWEVER, that the Holdings New Value shall be calculated subject to the
following:
1. The Holdings New Value shall be reduced, without duplication, by
(i) the aggregate capital costs related to Common Stock invested in
Castle West acquisitions or expansions (excluding DCS, the Existing
PCs and the Castle West Acquired Clinics), and (ii) a percentage of
20% of the Castle West Debt, determined as follows:
Castle West Annual Growth Rate Percentage of 20% of Castle West Debt
from January 1, 1999 Allocated to the Holdings New Value
------------------------------ -------------------------------------
Less than 26% 100%
26% or more but less than 27% 90%
27% or more but less than 28% 80%
28% or more but less than 29% 70%
- 11 -
29% or more but less than 30% 60%
30% or more but less than 31% 50%
31% or more but less than 32% 40%
32% or more but less than 33% 30%
33% or more but less than 34% 20%
34% or more but less than 35% 10%
More than 35% 0%
2. The aggregate capital costs related to Common Stock invested in
Castle West acquisitions or expansions shall be based upon the
valuation given to such Common Stock pursuant to the agreements
pursuant to which such acquisitions or expansions were consummated
multiplied by the Capital Cost Rate; and
3. The outstanding Castle West Debt used to determine the Holdings
New Value shall exclude the Castle West EBITDA, Castle West Debt,
and Common Stock capital costs relating to any acquisitions
completed in the three-month period immediately preceding the
delivery of either the C Merger Notice or the CDC Call Notice.
"HOLDINGS OLD VALUE" shall be equal to (i) 20% of the Adjusted Aggregate
Castle West EBITDA multiplied by 6.5, LESS (ii) 20% of the purchase price of the
Castle West Acquired Clinics, LESS (iii) 25% of the Burbank Adjustment:
"INDEBTEDNESS" shall mean any and all amounts owing or to be owing by the
Borrower or any Subsidiary to the Agent, the Issuing Bank and/or the Lenders in
connection with the Loan Documents, the Letter of Credit Agreements, and any
Hedging Agreements now or hereafter entered into between the Borrower and the
Lenders or any Affiliate of a Lender, and all renewals, extensions and/or
rearrangements of any of the above.
"INDEMNIFIED PARTIES" shall have the meaning assigned such term in Section
12.03(a)(ii).
"INDEMNITY MATTERS" shall mean any and all actions, suits, proceedings
(including any investigations, litigation or inquiries), claims, demands and
causes of action made or threatened against a Person and, in connection
therewith, all losses, liabilities, damages (including, without limitation,
consequential damages) or reasonable costs and expenses of any kind or nature
whatsoever incurred by such Person whether caused by the sole or concurrent
negligence of such Person seeking indemnification.
"INITIAL FUNDING" shall mean the initial funding of the Loans or issuance
of the initial Letters of Credit upon satisfaction of the conditions set forth
in Sections 6.01 and 6.02.
- 12 -
"INTEREST PERIOD" shall mean, with respect to any Eurodollar Loan, the
period commencing on the date such Eurodollar Loan is made and ending on the
numerically corresponding day in the first, second, third or sixth calendar
month thereafter, as the Borrower may select as provided in Section 2.02 (or
such longer period as may be requested by the Borrower and agreed to by the
Majority Lenders), except that each Interest Period which commences on the last
Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) no Interest Period may end after the
Final Maturity Date; (ii) no Interest Period may end after the due date of any
installment, if any, provided for in Section 3.01 to the extent that such
Eurodollar Loan would need to be prepaid prior to the end of such Interest
Period in order for such installment to be paid when due; (iii) each Interest
Period which would otherwise end on a day which is not a Business Day shall end
on the next succeeding Business Day (or, if such next succeeding Business Day
falls in the next succeeding calendar month, on the next preceding Business
Day); and (iv) no Interest Period shall have a duration of less than one month
and, if the Interest Period for any Eurodollar Loans would otherwise be for a
shorter period, such Loans shall not be available hereunder.
"ISSUING BANK" shall mean NationsBank or any other Lender agreed to among
the Borrower and the Agent to issue Letters of Credit.
"LC COMMITMENT" at any time shall mean $2,000,000.
"LC EXPOSURE" at any time shall mean the difference between (i) aggregate
face amount of all undrawn and uncancelled Letters of Credit and the aggregate
of all amounts drawn under all Letters of Credit and not yet reimbursed, minus
(ii) the aggregate amount of all cash securing outstanding Letters of Credit
pursuant to Section 2.10(b).
"LETTER OF CREDIT AGREEMENTS" shall mean the written agreements with the
Issuing Bank, as issuing lender for any Letter of Credit, executed in connection
with the issuance by the Issuing Bank of the Letters of Credit, such agreements
to be on the Issuing Bank's customary form for letters of credit of comparable
amount and purpose as from time to time in effect or as otherwise agreed to by
the Borrower and the Issuing Bank
"LETTERS OF CREDIT" shall mean the letters of credit issued pursuant to
Section 2.01(b) and all reimbursement obligations pertaining to any such letters
of credit, and "Letter of Credit" shall mean any one of the Letters of Credit
and the reimbursement obligations pertaining thereto.
"LIEN" shall mean any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and whether such
obligation or claim is fixed or contingent, and including but not limited to the
lien or security interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "LIEN" shall include reservations, exceptions,
encroachments, easements, rights of way,
- 13 -
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting Property. For the purposes of this Agreement, the
Borrower or any Subsidiary shall be deemed to be the owner of any Property which
it has acquired or holds subject to a conditional sale agreement, or leases
under a financing lease or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person in a transaction
intended to create a financing.
"LOANS" shall mean the Loans made pursuant to Section 2.01(a).
"LOAN DOCUMENTS" shall mean this Agreement, the Notes and the Security
Instruments.
"MAJORITY LENDERS" shall mean Lenders holding at least sixty-six and
two-thirds percent (66- 2/3%) of the outstanding aggregate principal amount of
the Loans (without regard to any sale by a Lender of a participation in any Loan
under Section 12.06(c)).
"MANAGEMENT SERVICES AGREEMENTS" shall mean Management Service Agreements
previously or hereafter entered into between an Acquired Entity and Borrower or
any Subsidiary, in form and substance satisfactory to Lenders.
"MASTER CONTRIBUTION AGREEMENT" shall mean the Master Contribution and
Combination Agreement, dated as of January 30, 1998, by and among, the Borrower,
CDC California, Dental Consulting Services, L.L.C., Castle Dental Centers of
California, L.L.C., Castle West Holdings, L.L.C., each of the DCS Members listed
on Schedule A attached thereto, each of the Holding Members (as defined
therein), each of the Corporate B Members (as defined therein) and each of the
Corporate C Members.
"MATERIAL ADVERSE EFFECT" shall mean any material and adverse effect on
(i) the assets, liabilities, financial condition, business, operations or
affairs of the Borrower and its Subsidiaries taken as a whole different from
those reflected in the Financial Statements or from the facts represented or
warranted in any Loan Document, or (ii) the ability of the Borrower and its
Subsidiaries taken as a whole to carry out their business as at the Closing Date
or as proposed as of the Closing Date to be conducted or meet their obligations
under the Loan Documents on a timely basis.
"MAXIMUM CREDIT AMOUNT" shall mean, as to each Lender, the amount set
forth opposite such Lender's name on ANNEX I under the caption "Maximum Credit
Amounts" (as the same may be reduced pursuant to Section 2.03(b) pro rata to
each Lender based on its Percentage Share), as modified from time to time to
reflect any assignments permitted by Section 12.06(b).
"MSO" means a management services organization agreement between Castle
West and professional corporations.
"MULTIEMPLOYER PLAN" shall mean a Plan defined as such in Section 3(37) or
4001(a)(3) of ERISA.
- 14 -
"NET WORTH" shall mean, as at any date, the sum of the following for the
Borrower and its Consolidated Subsidiaries determined (without duplication) in
accordance with GAAP:
(i) the amount of preferred stock and common stock at par plus the amount
of surplus of the Borrower, PLUS
(ii) the retained earnings (or, in the case of retained earnings deficit,
MINUS the amount of such deficit).
"NEW ACQUISITION" shall mean the acquisition of dental practices and/or
management service organizations using proceeds of the Loans as permitted by the
Agreement.
"NOTES" shall mean the Notes provided for by Section 2.06, together with
any and all renewals, extensions for any period, increases, rearrangements,
substitutions or modifications thereof.
"OTHER TAXES" shall have the meaning assigned such term in Section
4.06(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions.
"PERCENTAGE SHARE" shall mean the percentage of the Aggregate Commitments
to be provided by a Lender under this Agreement as indicated on ANNEX I hereto,
as modified from time to time to reflect any assignments permitted by Section
12.06(b).
"PERSON" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization or
government or any agency, instrumentality or political subdivision thereof, or
any other form of entity.
"PLAN" shall mean any employee pension benefit plan, as defined in Section
3(2) of ERISA, which (i) is currently or hereafter sponsored, maintained or
contributed to by the Borrower, any Subsidiary or an ERISA Affiliate or (ii) was
at any time during the preceding six calendar years sponsored, maintained or
contributed to, by the Borrower, any Subsidiary or an ERISA Affiliate.
"POST-DEFAULT RATE" shall mean, in respect of any principal of any Loan or
any other amount payable by the Borrower under this Agreement or any other Loan
Document, a rate per annum during the period commencing on the date of
occurrence of an Event of Default until such amount is paid in full or all
Events of Default are cured or waived equal to 2% per annum above the Base Rate
as in effect from time to time plus the Applicable Margin (if any), but in no
event to exceed the Highest Lawful Rate; provided however, for a Eurodollar
Loan, the "POST-DEFAULT RATE" for such principal shall be, for the period
commencing on the date of occurrence of an Event of Default and ending on the
earlier to occur of the last day of the Interest Period therefor or the date all
Events of Default are cured or waived, 2% per annum above the interest rate for
such Loan as provided in Section 3.02(a), but in no event to exceed the Highest
Lawful Rate.
- 15 -
"PRIME RATE" shall mean the rate of interest from time to time announced
publicly by the Agent at the Principal Office as its prime commercial lending
rate. Such rate is set by the Agent as a general reference rate of interest,
taking into account such factors as the Agent may deem appropriate, it being
understood that many of the Agent's commercial or other loans are priced in
relation to such rate, that it is not necessarily the lowest or best rate
actually charged to any customer and that the Agent may make various commercial
or other loans at rates of interest having no relationship to such rate.
"PRINCIPAL OFFICE" shall mean the principal office of the Agent, presently
located at 700 Louisiana, Houston, Harris County, Texas 77002.
"PRIOR CREDIT AGREEMENT" shall mean that certain Credit Agreement dated as
of November 7, 1997 among the Borrower, the Agent, and the lenders party
thereto, as amended and supplemented.
"PRIOR DEBT" shall mean the outstanding Debt under the Prior Credit
Agreement.
"PRO FORMA MSO FEES" shall mean, with respect to any Castle West Acquired
Clinic, the MSO fees (determined upon actual operating results) that would have
been paid to Castle West (over the 12-month period ending prior to the
acquisition with respect to which the Castle West Acquired Clinic was valued by
Castle West and the Castle West Acquired Clinic for purposes of Castle West's
acquisition thereof) if the MSO Agreement with respect to such Castle West
Acquired Clinic had been in effect at the beginning of such period.
"PROJECTED CASTLE WEST INCREMENTAL EBITDA" shall be equal to (A) the
Castle West Incremental EBITDA plus the Adjusted Aggregate Castle West EBITDA,
ADJUSTED to take into consideration a 25% compounded growth rate for the period
from the date of determination to the later to occur of (i) the first date on
which either a Corporate C Member's Merger Option or the CDC Call Option could
be exercised or (ii) the date that is 365 days from the date of determination,
LESS (B) the Adjusted Aggregate Castle West EBITDA plus the Castle West
Incremental EBITDA.
"PRO RATA SHARE" shall have the definition ascribed thereto in the Master
Contribution Agreement.
"PROPERTY" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"PUT/CALL RESERVE AMOUNT" shall be equal to the greater of $2,698,000 or
25% of the C Merger Consideration.
"QUARTERLY DATES" shall mean the fifteenth day of each March, June,
September, and December, in each year, the first of which shall be December 15,
1997; PROVIDED, HOWEVER, that if any such day is not a Business Day, such
Quarterly Date shall be the next succeeding Business Day.
- 16 -
"REGULATION D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System (or any successor), as the same may be amended or
supplemented from time to time.
"REGULATORY CHANGE" shall mean, with respect to any Lender, any change
after the Closing Date in any Governmental Requirement (including Regulation D)
or the adoption or making after such date of any interpretations, directives or
requests applying to a class of lenders (including such Lender or its Applicable
Lending Office) of or under any Governmental Requirement (whether or not having
the force of law) by any Governmental Authority charged with the interpretation
or administration thereof.
"REQUIRED PAYMENT" shall have the meaning assigned such term in Section
4.04.
"RESPONSIBLE OFFICER" shall mean, as to any Person, the Chief Executive
Officer, the President or any Vice President of such Person and, with respect to
financial matters, the term "Responsible Officer" shall include the Chief
Financial Officer of such Person. Unless otherwise specified, all references to
a Responsible Officer herein shall mean a Responsible Officer of the Borrower.
"REVOLVING CREDIT PERIOD" shall mean the period from the Closing Date to
and ending on the Revolving Credit Termination Date.
"REVOLVING CREDIT TERMINATION DATE" shall mean the earlier to occur of (i)
the second anniversary of the Closing Date and (ii) the date that the
Commitments are sooner terminated pursuant to Sections 2.03(b) or 10.02.
"SEC" shall mean the Securities and Exchange Commission or any successor
Governmental Authority.
"SECURITY INSTRUMENTS" shall mean the Letters of Credit, the Letter of
Credit Agreements, the agreements or instruments described or referred to in
EXHIBIT D, and any and all other agreements or instruments now or hereafter
executed and delivered by the Borrower or any other Person (other than
participation or similar agreements between any Lender and any other lender or
creditor with respect to any Indebtedness pursuant to this Agreement) in
connection with, or as security for the payment or performance of the Notes or
this Agreement, or reimbursement obligations under the Letters of Credit, as
such agreements may be amended, supplemented or restated from time to time.
"SENIOR FUNDED DEBT" shall mean, at any date and with respect to the
Borrower and its Subsidiaries, all Debt for borrowed money (excluding Debt
expressly subordinated to the Indebtedness in form and substance satisfactory to
the Lenders), any capital lease obligations and any guaranty with respect to
Senior Funded Debt of another person.
"SPECIAL ENTITY" shall mean any joint venture, limited liability company
or partnership, general or limited partnership or any other type of partnership
or company other than a corporation in which the Borrower or one or more of its
other Subsidiaries is a member, owner, partner or joint venturer and owns,
directly or indirectly, at least a majority of the equity of such entity or
controls
- 17 -
such entity, but excluding any tax partnerships that are not classified as
partnerships under state law. For purposes of this definition, any Person which
owns directly or indirectly an equity investment in another Person which allows
the first Person to manage or elect managers who manage the normal activities of
such second Person will be deemed to "control" such second Person (E.G. a sole
general partner controls a limited partnership).
"STOCK PURCHASE" shall mean any acquisition of all capital stock of any
Acquired Entity by Borrower or a Subsidiary pursuant to a Stock Purchase
Agreement
"STOCK PURCHASE AGREEMENTS" shall mean that certain Stock Purchase
Agreement dated as of December 19, 1995, between the Borrower and Jack H.
Castle, D.D.S., and such future stock purchase agreements (including stock
option agreements) entered into by Borrower or any Subsidiary, in form and
substance satisfactory to Agent, in connection with New Acquisitions.
"SUBORDINATED DEBT" shall mean Debt of the Borrower or any Subsidiary that
is subordinated to the Indebtedness pursuant to a subordination agreement
substantially in the form of Exhibit H.
"SUBSIDIARY" shall mean (i) any corporation of which at least a majority
of the outstanding shares of stock having by the terms thereof ordinary voting
power to elect a majority of the board of directors of such corporation
(irrespective of whether or not at the time stock of any other class or classes
of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned or
controlled by the Borrower or one or more of its Subsidiaries or by the Borrower
and one or more of its Subsidiaries and (ii) any Special Entity. Unless
otherwise indicated herein, each reference to the term "Subsidiary" shall mean a
Subsidiary of the Borrower.
"TAXES" shall have the meaning assigned such term in Section 4.06(a).
"TOTAL FUNDED DEBT" shall mean Senior Funded Debt plus all debt expressly
subordinated to the Indebtedness, including without limitation, any contingent
Debt resulting from the guaranty of a future stock price of capital stock issued
by the Borrower or an Affiliate of the Borrower to a seller in consideration for
an acquisition, all in form and substance satisfactory to the Lenders.
"TYPE" shall mean, with respect to any Loan, a Base Rate Loan or a
Eurodollar Loan.
"WHOLLY-OWNED SUBSIDIARY" shall mean, as to the Borrower, any Subsidiary
of which all of the outstanding shares of capital stock or other equity
interests, on a fully-diluted basis, are owned by the Borrower or one or more of
the Wholly-Owned Subsidiaries or by the Borrower and one or more of the
Wholly-Owned Subsidiaries.
Section 1.03 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Agent or the Lenders hereunder shall be
prepared,
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in accordance with GAAP, applied on a basis consistent with the audited
financial statements of the Borrower referred to in Section 7.02 (except for
changes concurred with by the Borrower's independent public accountants).
ARTICLE II
LOANS AND LETTERS OF CREDIT
Section 2.01 LOANS AND LETTERS OF CREDIT.
(a) LOANS. Each Lender severally agrees, on the terms and conditions of
this Agreement, to make loans to the Borrower during the Revolving Credit Period
in an aggregate principal amount at any one time outstanding up to, but not
exceeding, the amount of such Lender's Commitment as then in effect; PROVIDED,
HOWEVER, that the aggregate principal amount of all such Loans by all Lenders
hereunder at any one time outstanding, PLUS the LC Exposure, shall not exceed
the Aggregate Commitments. Subject to the terms of this Agreement, during the
Revolving Credit Period, the Borrower may borrow, repay and reborrow the amount
described in this Section 2.01(a).
(b) LETTERS OF CREDIT. The Issuing Bank, as issuing bank for the Lenders,
agrees to extend credit for the account of the Borrower and its Subsidiaries at
any time and from time to time by issuing, renewing, increasing, extending or
reissuing Letters of Credit; PROVIDED HOWEVER, the LC Exposure at any one time
outstanding shall not exceed the lesser of (i) the LC Commitment and (ii) the
Aggregate Commitments, as then in effect, minus the aggregate principal amount
of all Loans then outstanding. The Lenders shall participate in such Letters of
Credit according to their respective Percentage Shares. Each of the Letters of
Credit shall (i) be issued by the Issuing Bank, (ii) contain such terms and
provisions as are reasonably required by the Issuing Bank, (iii) be for the
account of the Borrower and its Subsidiaries and (iv) expire not later than two
(2) days before the Final Maturity Date.
(c) LIMITATION ON TYPES OF LOANS. Subject to the other terms and
provisions of this Agreement, at the option of the Borrower, the Loans may be
Base Rate Loans or Eurodollar Loans; provided that, without the prior written
consent of the Majority Lenders, no more than ten (10) Eurodollar Loans may be
outstanding at any time.
Section 2.02 BORROWINGS, CONTINUATIONS AND CONVERSIONS, LETTERS OF CREDIT.
(a) BORROWINGS. The Borrower shall give the Agent (which shall promptly
notify the Lenders) advance notice as hereinafter provided of each borrowing
hereunder, which shall specify (i) the aggregate amount of such borrowing, (ii)
the Type and (iii) the date (which shall be a Business Day) of the Loans to be
borrowed, and (iv) (in the case of Eurodollar Loans) the duration of the
Interest Period therefor.
(b) MINIMUM AMOUNTS. All Base Rate Loan borrowings shall be in amounts of
at least $100,000 or the remaining balance of the Aggregate Commitments, if
less, or any whole multiple
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of $100,000 in excess thereof, and all Eurodollar Loans shall be in amounts of
at least $100,000 or any whole multiple of $100,000 in excess thereof.
(c) NOTICES. All borrowings, continuations and conversions shall require
advance written notice to the Agent (which shall promptly notify the Lenders) in
the form of EXHIBIT B (or telephonic notice promptly confirmed by such a written
notice), which in each case shall be irrevocable, from the Borrower to be
received by the Agent not later than 11:00 a.m. Houston time at least one
Business Day prior to the date of each Base Rate Loan borrowing and three
Business Days prior to the date of each Eurodollar Loan borrowing, continuation
or conversion. Without in any way limiting the Borrower's obligation to confirm
in writing any telephonic notice, the Agent may act without liability upon the
basis of telephonic notice believed by the Agent in good faith to be from the
Borrower prior to receipt of written confirmation. In each such case, the
Borrower hereby waives the right to dispute the Agent's record of the terms of
such telephonic notice except in the case of gross negligence or willful
misconduct by the Agent.
(d) CONTINUATION OPTIONS. Subject to the provisions made in this Section
2.02(d), the Borrower may elect to continue all or any part of any Eurodollar
Loan beyond the expiration of the then current Interest Period relating thereto
by giving advance notice as provided in Section 2.02(c) to the Agent (which
shall promptly notify the Lenders) of such election, specifying the amount of
such Loan to be continued and the Interest Period therefor. In the absence of
such a timely and proper election, the Borrower shall be deemed to have elected
to convert such Eurodollar Loan to a Base Rate Loan pursuant to Section 2.02(e).
All or any part of any Eurodollar Loan may be continued as provided herein,
provided that (i) any continuation of any such Loan shall be (as to each Loan as
continued for an applicable Interest Period) in amounts of at least $100,000 or
any whole multiple of $100,000 in excess thereof and (ii) no Default shall have
occurred and be continuing. If a Default shall have occurred and be continuing,
each Eurodollar Loan shall be converted to a Base Rate Loan on the last day of
the Interest Period applicable thereto.
(e) CONVERSION OPTIONS. The Borrower may elect to convert all or any part
of any Eurodollar Loan on the last day of the then current Interest Period
relating thereto to a Base Rate Loan by giving advance notice to the Agent
(which shall promptly notify the Lenders) of such election. Subject to the
provisions made in this Section 2.02(e), the Borrower may elect to convert all
or any part of any Base Rate Loan at any time and from time to time to a
Eurodollar Loan by giving advance notice as provided in Section 2.02(c) to the
Agent (which shall promptly notify the Lenders) of such election. All or any
part of any outstanding Loan may be converted as provided herein, provided that
(i) any conversion of any Base Rate Loan into a Eurodollar Loan shall be (as to
each such Loan into which there is a conversion for an applicable Interest
Period) in amounts of at least $100,000 or any whole multiple of $100,000 in
excess thereof and (ii) no Default shall have occurred and be continuing. If a
Default shall have occurred and be continuing, no Base Rate Loan may be
converted into a Eurodollar Loan.
(f) ADVANCES. Not later than 11:00 a.m. Houston time on the date specified
for each borrowing hereunder, each Lender shall make available the amount of the
Loans to be made by it on such date to the Agent, to an account which the Agent
shall specify, in immediately available funds, for the account of the Borrower.
The amounts so received by the Agent shall, subject to the terms
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and conditions of this Agreement, be made available to the Borrower by
depositing the same, in immediately available funds, in an account of the
Borrower, designated by the Borrower and maintained at the Principal Office.
(g ) LETTERS OF CREDIT. The Borrower shall give the Issuing Bank (which
shall promptly notify the Lenders of such request and their Percentage Share of
such Letter of Credit) advance notice to be received by the Issuing Bank not
later than 11:00 a.m. Houston time not less than three (3) Business Days prior
thereto of each request for the issuance, and at least five (5) Business Days
prior to the date of the renewal, increase or extension, of a Letter of Credit
hereunder which request shall specify (i) the amount of such Letter of Credit,
(ii) the date (which shall be a Business Day) such Letter of Credit is to be
issued, increase, renewed or extended, (iii) the duration thereof, (iv) the name
and address of the beneficiary thereof, (v) the form of the Letter of Credit and
(vi) such other information as the Agent may reasonably request, all of which
shall be reasonably satisfactory to the Agent. Subject to the terms and
conditions of this Agreement, on the date specified for the issuance, increase,
renewal or extension of a Letter of Credit, the Agent shall issue, increase,
renew or extend such Letter of Credit to the beneficiary thereof.
In conjunction with the issuance of each Letter of Credit, the Borrower,
shall execute a Letter of Credit Agreement. In the event of any conflict between
any provision of a Letter of Credit Agreement and this Agreement, the Borrower,
the Issuing Bank, the Agent and the Lenders hereby agree that the provisions of
this Agreement shall govern.
The Issuing Bank will send to the Borrower and each Lender, immediately
upon issuance of any Letter of Credit, or an amendment thereto, a true and
complete copy of such Letter of Credit, or such amendment thereto.
Section 2.03 CHANGES OF COMMITMENTS.
(a) The Aggregate Commitments shall at all times be equal to the lesser of
(i) the Aggregate Maximum Credit Amounts (less the Put/Call Reserve Amount,
unless either the Corporate C Merger Option or the CDC Call Option has been
exercised) after adjustments resulting from reductions pursuant to Section
2.03(b) or increases pursuant to Section 2.03(d) or (ii) the Borrowing Base as
determined from time to time.
(b) The Borrower shall have the right to terminate or to reduce the amount
of the Aggregate Maximum Credit Amounts at any time, or from time to time, upon
not less than three (3) Business Days' prior notice to the Agent (which shall
promptly notify the Lenders) of each such termination or reduction, which notice
shall specify the effective date thereof and the amount of any such reduction
(which shall not be less than $100,000 or any whole multiple of $100,000 in
excess thereof) and shall be irrevocable and effective only upon receipt by the
Agent.
(c) The Aggregate Maximum Credit Amounts once terminated or reduced may
not be reinstated.
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(d) The Agent, on a good faith basis, will seek to find additional
financial institutions that will agree to become Lenders under this Agreement
with an additional aggregate Commitment of $7,500,000. If such additional
Lenders become parties to this Agreement (which may only be done prior to the
Revolving Credit Termination Date), the Aggregate Maximum Credit Amounts will
increase from $47,500,000 to $55,000,000 and a revised Annex I reflecting such
change and any changes in Percentage Shares of each Lender will be distributed
to all parties to this Agreement.
Section 2.04 FEES.
(a) COMMITMENT FEE. The Borrower shall pay to the Agent for the account of
each Lender a commitment fee based on the daily average unused amount of the
Aggregate Maximum Credit Amounts less the outstanding principal amount of the
Loans and LC Exposure for the period from and including the Closing Date, up to,
but excluding the earlier of the date the Commitments are terminated or the
Revolving Credit Termination Date at a rate per annum equal to applicable per
annum percentage set forth at the appropriate intersection in the table shown
below, based on the ratio of Total Funded Debt to EBITDA as in effect from time
to time. Accrued commitment fees shall be payable quarterly in arrears on each
Quarterly Date and on the earlier of the date the Commitments are terminated or
the Revolving Credit Termination Date.
TOTAL FUNDED DEBT TO EBITDA COMMITMENT FEE PERCENTAGE
Greater than or equal to 2.5 .5%
Greater than or equal to 2.0 but less than 2.5 .375%
Greater than or equal to 1.5 but less than 2.0 .375%
Greater than or equal to 1.0 but less than 1.5 .25%
Less than 1.0 .125%
(b) LETTER OF CREDIT FEES. The Borrower agrees to pay the Agent, for the
account of each Lender, commissions for issuing the Letters of Credit on the
daily average outstanding of the maximum liability of the Issuing Bank existing
from time to time under such Letter of Credit (calculated separately for each
Letter of Credit) at the rate of 2% per annum, provided that each Letter of
Credit shall bear a minimum commission of $1,000.00. Each Letter of Credit shall
be deemed to be outstanding up to the full face amount (plus any increases) of
the Letter of Credit until the Issuing Bank has received the canceled Letter of
Credit or a written cancellation of the Letter of Credit from the beneficiary of
such Letter of Credit in form and substance acceptable to the Issuing Bank, or
for any reductions in the amount of the Letter of Credit (other than from a
drawing), written notification from the beneficiary of such Letter of Credit.
Such commissions are payable quarterly in arrears on each Quarterly Date and
upon cancellation or expiration of each such Letter of Credit.
(c) FEE LETTERS. The Borrower shall pay to the Agent for their respective
accounts such other fees as are set forth in the fee letters between Borrower,
such parties and the Lenders, dated of even date herewith, on the dates
specified therein to the extent not paid prior to the Closing Date.
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Section 2.05 SEVERAL OBLIGATIONS. The failure of any Lender to make any
Loan to be made by it or to provide funds for disbursements or reimbursements
under Letters of Credit on the date specified therefor shall not relieve any
other Lender of its obligation to make its Loan or provide funds on such date,
but no Lender shall be responsible for the failure of any other Lender to make a
Loan to be made by such other Lender or to provide funds to be provided by such
other Lender.
Section 2.06 NOTES. The Loans made by each Lender shall be evidenced by a
single promissory note of the Borrower in substantially the form of EXHIBIT A,
dated (i) the Closing Date or (ii) the effective date of an Assignment pursuant
to Section 12.06(b), payable to the order of such Lender in a principal amount
equal to its Maximum Credit Amount as originally in effect and otherwise duly
completed and such substitute Notes as required by Section 12.06(b). The date,
amount, Type, interest rate and Interest Period of each Loan made by each
Lender, and all payments made on account of the principal thereof, shall be
recorded by such Lender on its books for its Notes, and, prior to any transfer
may be endorsed by such Lender on the schedule attached to such Notes or any
continuation thereof or on any separate record maintained by such Lender.
Failure to make any such notation or to attach a schedule shall not affect any
Lender's or the Borrower's rights or obligations in respect of such Loans or
affect the validity of such transfer by any Lender of its Notes.
Section 2.07 PREPAYMENTS.
(a) VOLUNTARY PREPAYMENTS. The Borrower may prepay the Base Rate Loans
upon not less than one (1) Business Day's prior notice to the Agent (which shall
promptly notify the Lenders), which notice shall specify the prepayment date
(which shall be a Business Day) and the amount of the prepayment (which shall be
at least $10,000 or the remaining aggregate principal balance outstanding on the
Notes) and shall be irrevocable and effective only upon receipt by the Agent,
provided that interest on the principal prepaid, accrued to the prepayment date,
shall be paid on the prepayment date. The Borrower may prepay Eurodollar Loans
on the same conditions as for Base Rate Loans (except that prior notice to the
Agent shall be not less than three (3) Business Days for Eurodollar Loans) and
in addition such prepayments of Eurodollar Loans shall be subject to the terms
of Section 5.05 and shall be in an amount equal to all of the Eurodollar Loans
for the Interest Period prepaid.
Notwithstanding the foregoing, if the Borrower should voluntarily prepay
the Loans in their entirety, Borrower shall pay to the Agent, for the benefit of
the Lenders, a prepayment fee of 1.00% of the Aggregate Maximum Credit Amounts.
(b) MANDATORY PREPAYMENTS.
(i) If, after giving effect to any termination or reduction of the
Aggregate Maximum Credit Amounts pursuant to Section 2.03(b), the
outstanding aggregate principal amount of the Loans plus the LC Exposure
exceeds the Aggregate Maximum Credit Amounts, the Borrower shall (A)
prepay the Loans on the date of such termination or reduction in an
aggregate principal amount equal to the excess, together with interest on
the principal amount paid accrued to the date of such prepayment and (B)
if any excess remains
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after prepaying all of the Loans because of LC Exposure, pay to the Agent
on behalf of the Lenders an amount equal to the excess to be held as cash
collateral as provided in Section 2.09(b) hereof.
(ii) Upon any redetermination of the amount of the Borrowing Base,
if the redetermined Borrowing Base is less than the aggregate outstanding
principal amount of the Loans plus the LC Exposure, then the Borrower
shall within thirty (30) days of receipt of written notice thereof (A)
prepay the Loans in an aggregate principal amount equal to such excess,
together with interest on the principal amount paid accrued to the date of
such prepayment and (B) if a Borrowing Base deficiency remains after
prepaying all of the Loans because of LC Exposure, the Borrower shall pay
to the Agent on behalf of the Lenders an amount equal to such Borrowing
Base deficiency to be held as cash collateral as provided in Section
2.09(b).
(iii) If the Borrower raises any cash proceeds by the offering of
equity, 50% of the net cash proceeds obtained from such equity offering
shall be used to prepay the outstanding principal on the Loans, applied in
accordance with Section 2.07(c) to the Loans as the Borrower shall elect.
(c) GENERALLY. Any prepayments on the Loans made during the Revolving
Credit Period may be reborrowed pursuant to Section 2.01(a). Prepayments of
Eurodollar Loans required by Section 2.07(b) shall be subject to the terms of
Section 5.05 and shall be in an amount equal to all of the Eurodollar Loans for
the Interest Period prepaid.
Section 2.08 ASSUMPTION OF RISKS. The Borrower assumes all risks of the
acts or omissions of any beneficiary of any Letter of Credit or any transferee
thereof with respect to its use of such Letter of Credit or the proceeds
thereof. Neither the Issuing Bank (except in the case of willful misconduct or
gross negligence on the part of the Issuing Bank or any of its employees), its
correspondents nor any Lender shall be responsible for the validity, sufficiency
or genuineness of certificates or other documents or any endorsements thereon,
even if such certificates or other documents should in fact prove to be invalid,
insufficient, fraudulent or forged; for errors, omissions, interruptions or
delays in transmissions or delivery of any messages by mail, telex, or
otherwise, whether or not they be in code; for errors in translation or for
errors in interpretation of technical terms; the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason;
the failure of any beneficiary or any transferee of any Letter of Credit to
comply fully with conditions required in order to draw upon any Letter of
Credit; or for any other consequences arising from causes beyond the Issuing
Bank's control or the control of the Issuing Bank's correspondents. In addition,
neither the Issuing Bank, the Agent nor any Lender shall be responsible for any
error, neglect, or default of any of the Issuing Bank's correspondents, except
as a result of the Issuing Bank's, the Agent's or any Lender's wilful misconduct
or gross negligence; and none of the above shall affect, impair or prevent the
vesting of any of the Issuing Bank's, the Agent's or any Lender's rights or
powers hereunder, or under the Letter of Credit Agreements, all of which rights
shall be cumulative. The Issuing Bank and its
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correspondents may accept certificates or other documents that appear on their
face to be in order, without responsibility for further investigation of any
matter contained therein regardless of any notice or information to the
contrary. In furtherance and not in limitation of the foregoing provisions, the
Borrower agrees that any action, inaction or omission taken or not taken by the
Issuing Bank or by any correspondent for the Issuing Bank in good faith in
connection with any Letter of Credit, or any related drafts, certificates,
documents or instruments, shall be binding on the Borrower and shall not put the
Issuing Bank or its correspondents under any resulting liability to the
Borrower, except as a result of the Issuing Bank's, the Agent's or any Lender's
wilful misconduct or gross negligence.
Section 2.09 OBLIGATION TO REIMBURSE AND TO PREPAY.
(a) If a disbursement by the Issuing Bank is made under any Letter of
Credit, except as otherwise provided in Subsection 2.09(d) below, the Borrower
shall pay to the Agent within two (2) Business Days after notice of any such
disbursement is received by the Borrower, the amount of each such disbursement
made by the Issuing Bank under the Letter of Credit (if such payment is not
sooner effected as may be required under this Section 2.10 or under other
provisions of the Letter of Credit), together with interest on the amount
disbursed from and including the date of disbursement until payment in full of
such disbursed amount at a varying rate per annum equal to (i) the then
applicable interest rate for Base Rate Loans through the second Business Day
after notice of such disbursement is received by the Borrower and (ii)
thereafter, the Post-Default Rate for Base Rate Loans (but in no event to exceed
the Highest Lawful Rate) for the period from and including the third Business
Day following the date of such disbursement to and including the date of
repayment in full of such disbursed amount. The obligations of the Borrower
under this Agreement with respect to each Letter of Credit shall be absolute,
unconditional and irrevocable and shall be paid or performed strictly in
accordance with the terms of this Agreement under all circumstances whatsoever,
including, without limitation, but only to the fullest extent permitted by
applicable law, the following circumstances: (i) any lack of validity or
enforceability of this Agreement, any Letter of Credit or any of the Security
Instruments; (ii) any amendment or waiver of (including any default), or any
consent to departure from this Agreement (except to the extent permitted by any
amendment or waiver), any Letter of Credit or any of the Security Instruments;
(iii) the existence of any claim, set-off, defense or other rights which the
Borrower may have at any time against the beneficiary of any Letter of Credit or
any transferee of any Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), the Issuing Bank, the Agent,
any Lender or any other Person, whether in connection with this Agreement, any
Letter of Credit, the Security Instruments, the transactions contemplated hereby
or any unrelated transaction; (iv) any statement, certificate, draft, notice or
any other document presented under any Letter of Credit proves to have been
forged, fraudulent, insufficient or invalid in any respect or any statement
therein proves to have been untrue or inaccurate in any respect whatsoever; (v)
payment by the Issuing Bank under any Letter of Credit against presentation of a
draft or certificate which appears on its face to comply, but does not comply,
with the terms of such Letter of Credit; and (vi) any other circumstance or
happening whatsoever, whether or not similar to any of the foregoing.
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Notwithstanding anything in this Agreement to the contrary, the Borrower will
not be liable for payment or performance that results from the gross negligence
or willful misconduct of the Issuing Bank, except where the Borrower or any
Subsidiary actually recovers the proceeds for itself or the Issuing Bank of any
payment made by the Issuing Bank in connection with such gross negligence or
willful misconduct.
(b) In the event of the occurrence of any Event of Default, a payment or
prepayment pursuant to Section 2.07(b) or the maturity of the Notes, whether by
acceleration or otherwise, an amount equal to the LC Exposure (or the excess in
the case of Section 2.07(b)) shall be deemed to be forthwith due and owing by
the Borrower to the Issuing Bank, the Agent and the Lenders as of the date of
any such occurrence; and the Borrower's obligation to pay such amount shall be
absolute and unconditional, without regard to whether any beneficiary of any
such Letter of Credit has attempted to draw down all or a portion of such amount
under the terms of a Letter of Credit, and, to the fullest extent permitted by
applicable law, shall not be subject to any defense or be affected by a right of
set-off, counterclaim or recoupment which the Borrower may now or hereafter have
against any such beneficiary, the Issuing Bank, the Agent, the Lenders or any
other Person for any reason whatsoever. Such payments shall be held by the Agent
on behalf of the Lenders as cash collateral securing the LC Exposure in an
account or accounts at the Principal Office; and the Borrower hereby grants to
and by its deposit with the Agent grants to the Agent a security interest in
such cash collateral. In the event of any such payment by the Borrower of
amounts contingently owing under outstanding Letters of Credit and in the event
that thereafter drafts or other demands for payment complying with the terms of
such Letters of Credit are not made prior to the respective expiration dates
thereof, the Agent agrees, if no Event of Default has occurred and is continuing
or if no other amounts are outstanding under this Agreement, the Notes or the
Security Instruments, to remit to the Borrower amounts for which the contingent
obligations evidenced by the Letters of Credit have ceased.
(c) Each Lender severally and unconditionally agrees that it shall
promptly reimburse the Issuing Bank an amount equal to such Lender's Percentage
Share of any disbursement made by the Issuing Bank under any Letter of Credit
that is not reimbursed according to this Section 2.10.
(d) Notwithstanding anything to the contrary contained herein, if no Event
of Default has occurred and is continuing and subject to availability under the
Aggregate Commitments (after reduction for LC Exposure), to the extent the
Borrower has not reimbursed the Issuing Bank for any drawn upon Letter of Credit
within two (2) Business Days after notice of such disbursement has been received
by the Borrower, the amount of such Letter of Credit reimbursement obligation
shall automatically be funded by the Lenders as a Loan hereunder and used by the
Lenders to pay such Letter of Credit reimbursement obligation. If an Event of
Default has occurred and is continuing, or if the funding of such Letter of
Credit reimbursement obligation as a Loan would cause the aggregate amount of
all Loans outstanding to exceed the Aggregate Commitments (after reduction for
LC Exposure), such Letter of Credit reimbursement obligation shall not be funded
as a Loan, but instead shall accrue interest as provided in Section 2.10(a).
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Section 2.10 LENDING OFFICES. The Loans of each Type made by each Lender
shall be made and maintained at such Lender's Applicable Lending Office for
Loans of such Type.
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 REPAYMENT OF LOANS.
(a) LOANS. Commencing on the Quarterly Date immediately following the
Revolving Credit Termination Date, the aggregate principal amount of the Notes
outstanding on the Revolving Credit Termination Date shall be payable in eight
(8) equal consecutive quarterly installments, each equal to 1/20th of the
outstanding principal amount of the Notes as of the Revolving Credit Termination
Date, with final payment of the remaining principal balance on the Notes due on
the Final Maturity Date.
(b) GENERALLY. The Borrower will pay to the Agent, for the account of each
Lender, the principal payments required by this Section 3.01.
Section 3.02 INTEREST.
(a) INTEREST RATES. The Borrower will pay to the Agent, for the account of
each Lender, interest on the unpaid principal amount of each Loan made by such
Lender for the period commencing on the date such Loan is made to, but
excluding, the date such Loan shall be paid in full, at the following rates per
annum:
(i) if such a Loan is a Base Rate Loan, the Base Rate (as in effect
from time to time) plus the Applicable Margin, but in no event to exceed
the Highest Lawful Rate; and
(ii) if such a Loan is a Eurodollar Loan, for each Interest Period
relating thereto, the Eurodollar Rate for such Loan plus the Applicable
Margin (as in effect from time to time), but in no event to exceed the
Highest Lawful Rate.
(b) POST-DEFAULT RATE. Notwithstanding the foregoing, the Borrower will
pay to the Agent, for the account of each Lender interest at the applicable
Post-Default Rate on any principal of any Loan made by such Lender, and (to the
fullest extent permitted by law) on any other amount payable by the Borrower
hereunder, under any Loan Document or under any Note held by such Lender to or
for account of such Lender, for the period commencing on the date of an Event of
Default until the same is paid in full or all Events of Default are cured or
waived.
(c) DUE DATES. Accrued interest on Base Rate Loans shall be payable
quarterly commencing on March 15, 1999, and on each Quarterly Date thereafter
and accrued interest on each Eurodollar Loan shall be payable on the last day of
the Interest Period therefor and, if such Interest
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Period is longer than three months at three-month intervals following the first
day of such Interest Period, except that interest payable at the Post-Default
Rate shall be payable from time to time on demand and interest on any Eurodollar
Loan that is converted into a Base Rate Loan (pursuant to Section 5.04) shall be
payable on the date of conversion (but only to the extent so converted).
(d) DETERMINATION OF RATES. Promptly after the determination of any
interest rate provided for herein or any change therein, the Agent shall notify
the Lenders to which such interest is payable and the Borrower thereof. Each
determination by the Agent of an interest rate or fee hereunder shall, except in
cases of manifest error, be final, conclusive and binding on the parties.
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 PAYMENTS. Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by the Borrower
under this Agreement, the Letter of Credit Agreements, and the Notes shall be
made in Dollars, in immediately available funds, to the Agent at such account as
the Agent shall specify by notice to the Borrower from time to time, not later
than 11:00 a.m. Houston time on the date on which such payments shall become due
(each such payment made after such time on such due date to be deemed to have
been made on the next succeeding Business Day). Such payments shall be made
without (to the fullest extent permitted by applicable law) defense, set-off or
counterclaim. Each payment received by the Agent under this Agreement or any
Note for account of a Lender shall be paid promptly to such Lender in
immediately available funds. Except as otherwise provided in the definition of
"Interest Period", if the due date of any payment under this Agreement or any
Note would otherwise fall on a day which is not a Business Day such date shall
be extended to the next succeeding Business Day and interest shall be payable
for any principal so extended for the period of such extension. At the time of
each payment to the Agent of any principal of or interest on any borrowing, the
Borrower shall notify the Agent of the Loans to which such payment shall apply.
In the absence of such notice the Agent may specify the Loans to which such
payment shall apply, but to the extent possible such payment or prepayment will
be applied first to the Loans comprised of Base Rate Loans.
Section 4.02 PRO RATA TREATMENT. Except to the extent otherwise provided
herein each Lender agrees that: (i) each borrowing from the Lenders under
Section 2.01 and each continuation and conversion under Section 2.02 shall be
made from the Lenders pro rata in accordance with their Percentage Share, each
payment of commitment fee or other fees under Section 2.04(a) and Section
2.04(b) shall be made for account of the Lenders pro rata in accordance with
their Percentage Share, and each termination or reduction of the amount of the
Aggregate Maximum Credit Amounts under Section 2.03(b) shall be applied to the
Commitment of each Lender, pro rata according to the amounts of its respective
Commitment; (ii) each payment of principal of Loans by the Borrower shall be
made for account of the Lenders pro rata in accordance with the respective
unpaid principal amount of the Loans held by the Lenders; (iii) each payment of
interest on Loans by the Borrower shall be made for account of the Lenders pro
rata in accordance with the amounts of interest due and payable to the
respective Lenders; and (iv) each reimbursement by the Borrower of disbursements
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under Letters of Credit shall be made for account of the Issuing Bank or, if
funded by the Lenders, pro rata for the account of the Lenders, in accordance
with the amounts of reimbursement obligations due and payable to each respective
Lender.
Section 4.03 COMPUTATIONS. Interest on Eurodollar Loans shall be computed
on the basis of a year of 360 days and actual days elapsed (including the first
day but excluding the last day) occurring in the period for which such interest
is payable, unless such calculation would exceed the Highest Lawful Rate, in
which case interest shall be calculated on the per annum basis of a year of 365
or 366 days, as the case may be. Interest on Base Rate Loans and fees shall be
computed on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed (including the first day but excluding the last day)
occurring in the period for which such interest is payable.
Section 4.04 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent shall
have been notified by a Lender or the Borrower prior to the date on which such
notifying party is scheduled to make payment to the Agent (in the case of a
Lender) of the proceeds of a Loan or a payment under a Letter of Credit to be
made by it hereunder or (in the case of the Borrower) a payment to the Agent for
account of one or more of the Lenders hereunder (such payment being herein
called the "REQUIRED PAYMENT"), which notice shall be effective upon receipt,
that it does not intend to make the Required Payment to the Agent, the Agent may
assume that the Required Payment has been made and may, in reliance upon such
assumption (but shall not be required to), make the amount thereof available to
the intended recipient(s) on such date and, if such Lender or the Borrower (as
the case may be) has not in fact made the Required Payment to the Agent, the
recipient(s) of such payment shall, on demand, repay to the Agent the amount so
made available together with interest thereon in respect of each day during the
period commencing on the date such amount was so made available by the Agent
until, but excluding, the date the Agent recovers such amount at a rate per
annum which, for any Lender as recipient, will be equal to the Federal Funds
Rate, and for the Borrower as recipient, will be equal to the Base Rate plus the
Applicable Margin.
Section 4.05 SET-OFF, SHARING OF PAYMENTS, ETC.
(a) Upon the occurrence and during the continuance of an Event of Default,
the Borrower agrees that, in addition to (and without limitation of) any right
of set-off, bankers' lien or counterclaim a Lender may otherwise have, each
Lender shall have the right and be entitled (after consultation with the Agent),
at its option, to offset balances held by it or by any of its Affiliates for
account of the Borrower or any Subsidiary at any of its offices, in Dollars or
in any other currency, against any principal of or interest on any of such
Lender's Loans, or any other amount payable to such Lender hereunder, which is
not paid when due (regardless of whether such balances are then due to the
Borrower), in which case it shall promptly notify the Borrower and the Agent
thereof, provided that such Lender's failure to give such notice shall not
affect the validity thereof.
(b) If any Lender shall obtain payment of any principal of or interest on
any Loan made by it to the Borrower under this Agreement (or reimbursement as to
any Letter of Credit) through the exercise of any right of set-off, banker's
lien or counterclaim or similar right or otherwise, and, as a result of such
payment, such Lender shall have received a greater percentage of the principal
or
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interest (or reimbursement) then due hereunder by the Borrower to such Lender
than the percentage received by any other Lenders, it shall promptly (i) notify
the Agent and each other Lender thereof and (ii) purchase from such other
Lenders participations in (or, if and to the extent specified by such Lender,
direct interests in) the Loans (or participations in Letters of Credit) made by
such other Lenders (or in interest due thereon, as the case may be) in such
amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all the Lenders shall share the benefit of such
excess payment (net of any expenses which may be incurred by such Lender in
obtaining or preserving such excess payment) pro rata in accordance with the
unpaid principal and/or interest on the Loans held by each of the Lenders (or
reimbursements of Letters of Credit). To such end all the Lenders shall make
appropriate adjustments among themselves (by the resale of participations sold
or otherwise) if such payment is rescinded or must otherwise be restored. The
Borrower agrees that any Lender so purchasing a participation (or direct
interest) in the Loans made by other Lenders (or in interest due thereon, as the
case may be) may exercise all rights of set-off, banker's lien, counterclaim or
similar rights with respect to such participation as fully as if such Lender
were a direct holder of Loans (or Letters of Credit) in the amount of such
participation. Nothing contained herein shall require any Lender to exercise any
such right or shall affect the right of any Lender to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of the Borrower. If under any applicable bankruptcy, insolvency or
other similar law, any Lender receives a secured claim in lieu of a set-off to
which this Section 4.05 applies, such Lender shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent with
the rights of the Lenders entitled under this Section 4.05 to share the benefits
of any recovery on such secured claim.
Section 4.06 TAXES.
(a) PAYMENTS FREE AND CLEAR. Any and all payments by the Borrower
hereunder shall be made, in accordance with Section 4.01, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
EXCLUDING, in the case of each Lender, the Issuing Bank and the Agent, taxes
imposed on its income, and franchise or similar taxes imposed on it, by (i) any
jurisdiction (or political subdivision thereof) of which the Agent, the Issuing
Bank or such Lender, as the case may be, is a citizen or resident or in which
such Lender has an Applicable Lending Office, (ii) the jurisdiction (or any
political subdivision thereof) in which the Agent, the Issuing Bank or such
Lender is organized, or (iii) any jurisdiction (or political subdivision
thereof) in which such Lender, the Issuing Bank or the Agent is presently doing
business which taxes are imposed solely as a result of doing business in such
jurisdiction (all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "TAXES"). If the
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder to the Lenders, the Issuing Bank or the Agent (i) the sum
payable shall be increased by the amount necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 4.06) such Lender, the Issuing Bank or the Agent (as the case
may be) shall receive an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount
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deducted to the relevant taxing authority or other Governmental Authority in
accordance with applicable law and provide the relevant Lender with a receipt
thereof.
(b) OTHER TAXES. In addition, to the fullest extent permitted by
applicable law, the Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement, any
Assignment or any Security Instrument (hereinafter referred to as "OTHER
TAXES").
(C) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
THE BORROWER WILL INDEMNIFY EACH LENDER AND THE ISSUING BANK AND THE AGENT FOR
THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT LIMITED TO, ANY
TAXES OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL AUTHORITY ON AMOUNTS PAYABLE
UNDER THIS SECTION 4.06) PAID BY SUCH LENDER, THE ISSUING BANK OR THE AGENT (ON
THEIR BEHALF OR ON BEHALF OF ANY LENDER), AS THE CASE MAY BE, AND ANY LIABILITY
(INCLUDING PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT
THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY
ASSERTED UNLESS THE PAYMENT OF SUCH TAXES WAS NOT CORRECTLY OR LEGALLY ASSERTED
AND SUCH LENDER'S PAYMENT OF SUCH TAXES OR OTHER TAXES WAS THE RESULT OF ITS
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT TO SUCH
INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS AFTER THE DATE ANY LENDER,
THE ISSUING BANK OR THE AGENT, AS THE CASE MAY BE, MAKES WRITTEN DEMAND
THEREFOR. IF ANY LENDER, THE ISSUING BANK OR THE AGENT RECEIVES A REFUND OR
CREDIT IN RESPECT OF ANY TAXES OR OTHER TAXES FOR WHICH SUCH LENDER, ISSUING
BANK OR THE AGENT HAS RECEIVED PAYMENT FROM THE BORROWER IT SHALL PROMPTLY
NOTIFY THE BORROWER OF SUCH REFUND OR CREDIT AND SHALL, IF NO DEFAULT HAS
OCCURRED AND IS CONTINUING, WITHIN THIRTY (30) DAYS AFTER RECEIPT OF A REQUEST
BY THE BORROWER (OR PROMPTLY UPON RECEIPT, IF THE BORROWER HAS REQUESTED
APPLICATION FOR SUCH REFUND OR CREDIT PURSUANT HERETO), PAY AN AMOUNT EQUAL TO
SUCH REFUND OR CREDIT TO THE BORROWER WITHOUT INTEREST (BUT WITH ANY INTEREST SO
REFUNDED OR CREDITED), PROVIDED THAT THE BORROWER, UPON THE REQUEST OF SUCH
LENDER, THE ISSUING BANK OR THE AGENT, AGREES TO RETURN SUCH REFUND OR CREDIT
(PLUS PENALTIES, INTEREST OR OTHER CHARGES) TO SUCH LENDER, THE ISSUING BANK OR
THE AGENT IN THE EVENT SUCH LENDER, THE ISSUING BANK OR THE AGENT IS REQUIRED TO
REPAY SUCH REFUND OR CREDIT.
(d) LENDER REPRESENTATIONS.
(i) Each Lender represents that it is either (1) a banking
association or corporation organized under the laws of the United States
of America or any state thereof or (2) it is entitled to complete
exemption from United States withholding tax imposed on or with respect to
any payments, including fees, to be made to it pursuant to this Agreement
(A) under an applicable provision of a tax convention to which the United
States of America is a party or (B) because it is acting through a branch,
agency or office in the United States of America and any payment to be
received by it hereunder is effectively connected with a
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trade or business in the United States of America. Each Lender that is not
a banking association or corporation organized under the laws of the
United States of America or any state thereof agrees to provide to the
Borrower and the Agent on the Closing Date, or on the date of its delivery
of the Assignment pursuant to which it becomes a Lender, and at such other
times as required by United States law or as the Borrower or the Agent
shall reasonably request, two accurate and complete original signed copies
of either (A) Internal Revenue Service Form 4224 (or successor form)
certifying that all payments to be made to it hereunder will be
effectively connected to a United States trade or business (the "FORM 4224
CERTIFICATION") or (B) Internal Revenue Service Form 1001 (or successor
form) certifying that it is entitled to the benefit of a provision of a
tax convention to which the United States of America is a party which
completely exempts from United States withholding tax all payments to be
made to it hereunder (the "FORM 1001 CERTIFICATION"). In addition, each
Lender agrees that if it previously filed a Form 4224 Certification, it
will deliver to the Borrower and the Agent a new Form 4224 Certification
prior to the first payment date occurring in each of its subsequent
taxable years; and if it previously filed a Form 1001 Certification, it
will deliver to the Borrower and the Agent a new certification prior to
the first payment date falling in the third year following the previous
filing of such certification. Each Lender also agrees to deliver to the
Borrower and the Agent such other or supplemental forms as may at any time
be required as a result of changes in applicable law or regulation in
order to confirm or maintain in effect its entitlement to exemption from
United States withholding tax on any payments hereunder, PROVIDED that the
circumstances of such Lender at the relevant time and applicable laws
permit it to do so. If a Lender determines, as a result of any change in
either (i) a Governmental Requirement or (ii) its circumstances, that it
is unable to submit any form or certificate that it is obligated to submit
pursuant to this Section 4.06, or that it is required to withdraw or
cancel any such form or certificate previously submitted, it shall
promptly notify the Borrower and the Agent of such fact. If a Lender is
organized under the laws of a jurisdiction outside the United States of
America, unless the Borrower and the Agent have received a Form 1001
Certification or Form 4224 Certification satisfactory to them indicating
that all payments to be made to such Lender hereunder are not subject to
United States withholding tax, the Borrower shall withhold taxes from such
payments at the applicable statutory rate. Each Lender agrees to indemnify
and hold harmless the Borrower or Agent, as applicable, from any United
States taxes, penalties, interest and other expenses, costs and losses
incurred or payable by (i) the Agent as a result of such Lender's failure
to submit any form or certificate that it is required to provide pursuant
to this Section 4.06 or (ii) the Borrower or the Agent as a result of
their reliance on any such form or certificate which such Lender has
provided to them pursuant to this Section 4.06.
(ii) For any period with respect to which a Lender has failed to
provide the Borrower with the form required pursuant to this Section 4.06,
if any, (other than if such failure is due to a change in a Governmental
Requirement occurring subsequent to the date on which a form originally
was required to be provided), such Lender shall not be entitled to
indemnification under Section 4.06 with respect to taxes imposed by the
United States which taxes would not have been imposed but for such failure
to provide such forms;
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PROVIDED, HOWEVER, that if a Lender, which is otherwise exempt from or
subject to a reduced rate of withholding tax, becomes subject to taxes
because of its failure to deliver a form required hereunder, the Borrower
shall take such steps as such Lender shall reasonably request to assist
such Lender to recover such taxes.
(iii) Any Lender claiming any additional amounts payable pursuant to
this Section 4.06 shall use reasonable efforts (consistent with legal and
regulatory restrictions) to file any certificate or document requested by
the Borrower or the Agent or to change the jurisdiction of its Applicable
Lending Office or to contest any tax imposed if the making of such a
filing or change or contesting such tax would avoid the need for or reduce
the amount of any such additional amounts that may thereafter accrue and
would not, in the sole determination of such Lender, be otherwise
disadvantageous to such Lender.
ARTICLE V
CAPITAL ADEQUACY
Section 5.01 CAPITAL ADEQUACY; ADDITIONAL COSTS.
(a) EURODOLLAR REGULATIONS, ETC. The Borrower shall pay directly to each
Lender from time to time such amounts as such Lender may determine to be
necessary to compensate such Lender for any costs which it determines are
attributable to its making or maintaining of any Eurodollar Loans or issuing or
participating in Letters of Credit hereunder or its obligation to make any
Eurodollar Loans or issue or participate in any Letters of Credit hereunder, or
any reduction in any amount receivable by such Lender hereunder in respect of
any of such Eurodollar Loans, Letters of Credit or such obligation (such
increases in costs and reductions in amounts receivable being herein called
"ADDITIONAL COSTS"), resulting from any Regulatory Change which: (i) changes the
basis of taxation of any amounts payable to such Lender under this Agreement or
any Note in respect of any of such Eurodollar Loans or Letters of Credit (other
than taxes imposed on the overall net income of such Lender or of its Applicable
Lending Office for any of such Eurodollar Loans by the jurisdiction in which
such Lender has its principal office or Applicable Lending Office); or (ii)
imposes or modifies any reserve, special deposit, minimum capital, capital ratio
or similar requirements relating to any extensions of credit or other assets of,
or any deposits with or other liabilities of such Lender, or the Commitment or
Loans of such Lender or the Eurodollar interbank market; or (iii) imposes any
other condition affecting this Agreement or any Notes (or any of such extensions
of credit or liabilities) or such Lender's Commitment or Loans. Each Lender will
notify the Agent and the Borrower of any event occurring after the Closing Date
which will entitle such Lender to compensation pursuant to this Section 5.01(a)
as promptly as practicable after it obtains knowledge thereof and determines to
request such compensation, and will designate a different Applicable Lending
Office for the Loans of such Lender affected by such event if such designation
will avoid the need for, or reduce the amount of, such compensation and will
not, in the reasonable opinion of such Lender, be disadvantageous to such
Lender, provided that such Lender shall have no obligation to so designate an
Applicable Lending Office located in the United States. If any Lender requests
compensation from the Borrower under this Section 5.01(a), the Borrower may, by
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notice to such Lender, suspend the obligation of such Lender to make additional
Loans of the Type with respect to which such compensation is requested until the
Regulatory Change giving rise to such request ceases to be in effect (in which
case the provisions of Section 5.04 shall be applicable).
(b) REGULATORY CHANGE. Without limiting the effect of the provisions of
Section 5.01(a), in the event that at any time (by reason of any Regulatory
Change or any other circumstances arising after the Closing Date affecting (A)
any Lender, (B) the Eurodollar interbank market or (C) such Lender's position in
such market), the Eurodollar Rate, as determined in good faith by such Lender,
will not adequately and fairly reflect the cost to such Lender of funding its
Eurodollar Loans, then, if such Lender so elects, by notice to the Borrower and
the Agent, the obligation of such Lender to make additional Eurodollar Loans
shall be suspended until such Regulatory Change or other circumstances ceases to
be in effect (in which case the provisions of Section 5.04 shall be applicable).
(c) CAPITAL ADEQUACY. Without limiting the effect of the foregoing
provisions of this Section 5.01 (but without duplication), the Borrower shall
pay directly to any Lender from time to time on request such amounts as such
Lender may reasonably determine to be necessary to compensate such Lender or its
parent or holding company for any costs which it determines are attributable to
the maintenance by such Lender or its parent or holding company (or any
Applicable Lending Office), pursuant to any Governmental Requirement following
any Regulatory Change, of capital in respect of its Commitment, its Notes or its
Loans or any interest held by it in any Letter of Credit, such compensation to
include, without limitation, an amount equal to any reduction of the rate of
return on assets or equity of such Lender or its parent or holding company (or
any Applicable Lending Office) to a level below that which such Lender or its
parent or holding company (or any Applicable Lending Office) could have achieved
but for such Governmental Requirement. Such Lender will notify the Borrower that
it is entitled to compensation pursuant to this Section 5.01(c) as promptly as
practicable after it determines to request such compensation.
(d) COMPENSATION PROCEDURE. Any Lender notifying the Borrower of the
incurrence of additional costs under this Section 5.01 shall in such notice to
the Borrower and the Agent set forth in reasonable detail the basis and amount
of its request for compensation. Determinations and allocations by each Lender
for purposes of this Section 5.01 of the effect of any Regulatory Change
pursuant to Section 5.01(a) or (b), or of the effect of capital maintained
pursuant to Section 5.01(c), on its costs or rate of return of maintaining Loans
or its obligation to make Loans or issue Letters of Credit, or on amounts
receivable by it in respect of Loans or Letters of Credit, and of the amounts
required to compensate such Lender under this Section 5.01, shall be conclusive
and binding for all purposes, provided that such determinations and allocations
are made on a reasonable basis. Any request for additional compensation under
this Section 5.01 shall be paid by the Borrower within thirty (30) days of the
receipt by the Borrower of the notice described in this Section 5.01(d).
Section 5.02 LIMITATION ON EURODOLLAR LOANS. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any Eurodollar
Rate for any Interest Period:
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(i) the Agent determines (which determination shall be conclusive,
absent manifest error) that quotations of interest rates for the relevant
deposits referred to in the definition of "Eurodollar Rate" in Section
1.02 are not being provided in the relevant amounts or for the relevant
maturities for purposes of determining rates of interest for Eurodollar
Loans as provided herein; or
(ii) the Agent determines (which determination shall be conclusive,
absent manifest error) that the relevant rates of interest referred to in
the definition of "Eurodollar Rate" in Section 1.02 upon the basis of
which the rate of interest for Eurodollar Loans for such Interest Period
is to be determined are not sufficient to adequately cover the cost to the
Lenders of making or maintaining Eurodollar Loans;
then the Agent shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the Lenders shall be under no obligation to
make additional Eurodollar Loans.
Section 5.03 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make or maintain Eurodollar
Loans hereunder, then such Lender shall promptly notify the Borrower thereof and
such Lender's obligation to make Eurodollar Loans shall be suspended until such
time as such Lender may again make and maintain Eurodollar Loans (in which case
the provisions of Section 5.04 shall be applicable).
Section 5.04 BASE RATE LOANS PURSUANT TO SECTIONS 5.01, 5.02 AND 5.03. If
the obligation of any Lender to make Eurodollar Loans shall be suspended
pursuant to Sections 5.01, 5.02 or 5.03 ("AFFECTED LOANS"), all Affected Loans
which would otherwise be made by such Lender shall be made instead as Base Rate
Loans (and, if an event referred to in Section 5.01(b) or Section 5.03 has
occurred and such Lender so requests by notice to the Borrower, all Affected
Loans of such Lender then outstanding shall be automatically converted into Base
Rate Loans on the date specified by such Lender in such notice) and, to the
extent that Affected Loans are so made as (or converted into) Base Rate Loans,
all payments of principal which would otherwise be applied to such Lender's
Affected Loans shall be applied instead to its Base Rate Loans.
Section 5.05 COMPENSATION. The Borrower shall pay to each Lender within
thirty (30) days of receipt of written request of such Lender (which request
shall set forth, in reasonable detail, the basis for requesting such amounts and
which shall be conclusive and binding for all purposes provided that such
determinations are made on a reasonable basis), such amount or amounts as shall
compensate it for any loss, cost, expense or liability which such Lender
determines are attributable to:
(i) any payment, prepayment or conversion of a Eurodollar Loan
properly made by such Lender or the Borrower for any reason (including,
without limitation, the acceleration of the Loans pursuant to Section
10.01) on a date other than the last day of the Interest Period for such
Loan; or
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(ii) any failure by the Borrower for any reason (including but not
limited to, the failure of any of the conditions precedent specified in
Article VI to be satisfied) to borrow, continue or convert a Eurodollar
Loan from such Lender on the date for such borrowing, continuation or
conversion specified in the relevant notice given pursuant to Section
2.02(c).
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the principal amount so paid, prepaid or converted
or not borrowed for the period from the date of such payment, prepayment or
conversion or failure to borrow to the last day of the Interest Period for such
Loan (or, in the case of a failure to borrow, the Interest Period for such Loan
which would have commenced on the date specified for such borrowing) at the
applicable rate of interest for such Loan provided for herein over (ii) the
interest component of the amount such Lender would have bid in the London
interbank market for Dollar deposits of leading banks in amounts comparable to
such principal amount and with maturities comparable to such period (as
reasonably determined by such Lender).
Section 5.06 REPLACEMENT LENDERS.
(a) If any Lender has notified the Borrower and the Agent of its incurring
additional costs under Section 5.01 or has required the Borrower to make
payments for Taxes under Section 4.06, then the Borrower may, unless such Lender
has notified the Borrower and the Agent that the circumstances giving rise to
such notice no longer apply, terminate, in whole but not in part, the Commitment
of such Lender (other than the Agent) (the "TERMINATED LENDER") at any time upon
five (5) Business Days' prior written notice to the Terminated Lender and the
Agent (such notice referred to herein as a "NOTICE OF TERMINATION").
(b) In order to effect the termination of the Commitment of the Terminated
Lender, the Borrower shall: (i) obtain an agreement with one or more Lenders to
increase their Commitment or Commitments and/or (ii) request any one or more
other banking institutions to become parties to this Agreement in place and
instead of such Terminated Lender and agree to accept a Commitment or
Commitments; PROVIDED, HOWEVER, that such one or more other banking institutions
are reasonably acceptable to the Agent and become parties by executing an
Assignment (the Lenders or other banking institutions that agree to accept in
whole or in part the Commitment of the Terminated Lender being referred to
herein as the "REPLACEMENT LENDERS"), such that the aggregate increased and/or
accepted Commitments of the Replacement Lenders under clauses (i) and (ii) above
equal the Commitment of the Terminated Lender.
(c) The Notice of Termination shall include the name of the Terminated
Lender, the date the termination will occur (the "LENDER TERMINATION DATE"), and
the Replacement Lender or Replacement Lenders to which the Terminated Lender
will assign its Commitment and, if there will be more than one Replacement
Lender, the portion of the Terminated Lender's Commitment to be assigned to each
Replacement Lender.
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(d) On the Lender Termination Date, (i) the Terminated Lender shall by
execution and delivery of an Assignment assign its Commitment to the Replacement
Lender or Replacement Lenders (pro rata, if there is more than one Replacement
Lender, in proportion to the portion of the Terminated Lender's Commitment to be
assigned to each Replacement Lender) indicated in the Notice of Termination and
shall assign to the Replacement Lender or Replacement Lenders each of its Loans
(if any) then outstanding and participation interests in Letters of Credit (if
any) then outstanding (pro rata as aforesaid), (ii) the Terminated Lender shall
endorse its Notes, payable without recourse, representation or warranty to the
order of the Replacement Lender or Replacement Lenders (pro rata as aforesaid),
(iii) the Replacement Lender or Replacement Lenders shall purchase the Notes
held by the Terminated Lender (pro rata as aforesaid) at a price equal to the
unpaid principal amount thereof plus interest, facility and other fees, and
other amounts owing under the Loan Documents accrued and unpaid to the Lender
Termination Date, and (iv) the Replacement Lender or Replacement Lenders will
thereupon (pro rata as aforesaid) succeed to and be substituted in all respects
for the Terminated Lender with like effect as if becoming a Lender pursuant to
the terms of Section 12.06(b), and the Terminated Lender will have the rights
and benefits of an assignor under Section 12.06(b). To the extent not in
conflict, the terms of Section 12.06(b) shall supplement the provisions of this
Section 5.06(d). For each assignment made under this Section 5.06, the
Replacement Lender shall pay to the Agent the processing fee provided for in
Section 12.06(b). The Borrower will be responsible for the payment of any
breakage costs, as set forth in Section 5.05, associated with termination of the
Terminated Lender and assignment of Loans and Commitments to Replacement
Lenders.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 INITIAL FUNDING.
The obligation of the Lenders to make the Initial Funding is subject to
the receipt by the Agent and the Lenders of all fees payable pursuant to Section
2.04 on or before the Closing Date and the receipt by the Agent of the following
documents and satisfaction of the other conditions provided in this Section
6.01, each of which shall be reasonably satisfactory to the Agent in form and
substance:
(a) A certificate of the Secretary or an Assistant Secretary of the
Borrower setting forth (i) resolutions of its board of directors with respect to
the authorization of the Borrower to execute and deliver the Loan Documents to
which it is a party and to enter into the transactions contemplated in those
documents, (ii) the officers of the Borrower (y) who are authorized to sign the
Loan Documents to which Borrower is a party and (z) who will, until replaced by
another officer or officers duly authorized for that purpose, act as its
representative for the purposes of signing documents and giving notices and
other communications in connection with this Agreement and the transactions
contemplated hereby, (iii) specimen signatures of the authorized officers, and
(iv) the articles or certificate of incorporation and bylaws of the Borrower,
certified as being true and
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complete. The Agent and the Lenders may conclusively rely on such certificate
until the Agent receives notice in writing from the Borrower to the contrary.
(b) A certificate of the Secretary or an Assistant Secretary of each
Guarantor setting forth (i) resolutions of its board of directors with respect
to the authorization of such Guarantor to execute and deliver the Loan Documents
to which it is a party and to enter into the transactions contemplated in those
documents, (ii) the officers of such Guarantor (y) who are authorized to sign
the Loan Documents to which such Guarantor is a party and (z) who will, until
replaced by another officer or officers duly authorized for that purpose, act as
its representative for the purposes of signing documents and giving notices and
other communications in connection with this Agreement and the transactions
contemplated hereby, (iii) specimen signatures of the authorized officers, and
(iv) the articles or certificate of incorporation and bylaws of such Guarantor,
certified as being true and complete. The Agent and the Lenders may conclusively
rely on such certificate until they receive notice in writing from such
Guarantor to the contrary.
(c) Certificates of the appropriate state agencies with respect to the
existence, qualification and good standing of the Borrower and Subsidiaries.
(d) A compliance certificate which shall be substantially in the form of
EXHIBIT C, duly and properly executed by a Responsible Officer and dated as of
the date of the Initial Funding.
(e) The Notes, duly completed and executed.
(f) The Security Instruments, including those described on EXHIBIT D, duly
completed and executed in sufficient number of counterparts for recording, if
necessary.
(g) Opinions of Bracewell & Patterson, L.L.P. and Boyer, Ewing & Harris
Incorporated, counsel to the Borrower and Guarantors, in form and substance
satisfactory to the Agent, as to such matters incident to the transactions
herein contemplated as the Agent may reasonably request.
(h) A certificate of insurance coverage of the Borrower evidencing that
the Borrower is carrying insurance in accordance with Section 7.19.
(i) Balance sheet as of September 30, 1998.
(j) Such other documents as the Agent or any Lender or special counsel to
the Agent may reasonably request.
Section 6.02 INITIAL AND SUBSEQUENT LOANS AND LETTERS OF CREDIT.
(a) The obligation of the Lenders to make Loans to the Borrower upon the
occasion of each borrowing hereunder and to issue, renew, extend or reissue
Letters of Credit for the account of the Borrower (including the Initial
Funding) is subject to the further conditions precedent that, as of the date of
such Loans and after giving effect thereto:
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(i) no Default shall have occurred and be continuing; and
(ii) the representations and warranties made by the Borrower in
Article VII and in the Security Instruments shall be true on
and as of the date of the making of such Loans or issuance,
renewal, extension or reissuance of a Letter of Credit with
the same force and effect as if made on and as of such date
and following such new borrowing, except to the extent such
representations and warranties are expressly limited to an
earlier date or the Majority Lenders may expressly consent in
writing to the contrary.
(b) If a Loan is to be used by the Borrower in connection with a New
Acquisition, the obligation of the Lenders to make such Loan is subject to the
further conditions precedent that, as of the date of such Loans:
(i) Borrower or Subsidiary shall have entered into a Management
Services Agreement and an Accounts Receivable Purchase
Agreement with the new Acquired Entity in form and substance
satisfactory to Agent;
(ii) Borrower shall have submitted updated SCHEDULES 7.14, 7.19 and
7.22 to Agent;
(iii) Borrower shall have passed corporate resolutions approving
such New Acquisition;
(iv) The Agent shall have received copies of any legal opinions
received by the Borrower or any Subsidiary from the seller in
connection with any New Acquisition relating to due
incorporation of the seller; due authorization and execution
by the seller of the purchase documents; enforceability of the
purchase documents against the seller; in the case of a stock
acquisition, valid issuance of the purchased shares; and no
authorizations, approvals or consents required other than
those obtained;
(v) The Agent shall have received the Security Instruments
required by Section 9.03(g)(i) and an officer's certificate,
substantially in the form of EXHIBIT F attached hereto,
certifying the representations and warranties made by the
Borrower in Article VII and in the Security Instruments,
including those Security Instruments obtained in connection
with such New Acquisition, shall be true on and as of the date
of the Loan except to the extent such representations and
warranties are expressly limited to an earlier date or the
Majority Lenders may expressly consent in writing to the
contrary;
(vi) The Agent shall have received a borrowing base report in the
form of EXHIBIT E attached hereto;
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(vii) The Agent shall have received a Compliance Certificate in the
form of EXHIBIT C attached hereto; and
(viii)The Agent shall have received a completed Put/Call Reserve
Amount Certificate in the form of EXHIBIT I attached hereto,
unless each Corporate C Member has exercised the Corporate C
Member's Merger Option or the CDC Call Option has been
exercised.
and, if such New Acquisition relates to a dental practice in any
state in which neither the Borrower or any Subsidiary is currently
operating, or if such New Acquisition involves consideration paid by
the Borrower or any Subsidiary in an amount of $5,000,000 or more:
(vii) The Agent shall have received legal opinions regarding any New
Acquisition in form and substance satisfactory to Lenders; and
(viii)Relating to a dental practice in any state in which neither
the Borrower or any Subsidiary is currently operating only,
the Agent shall have received risk analysis letters regarding
any New Acquisition in form and substance satisfactory to
Lenders.
(c) Each request for a borrowing or issuance, renewal, extension or
reissuance of a Letter of Credit by the Borrower hereunder shall constitute a
certification by the Borrower to the effect set forth in Section 6.02(a)(iii)
(both as of the date of such notice and, unless the Borrower otherwise notifies
the Agent prior to the date of and immediately following such borrowing or
issuance, renewal, extension or reissuance of a Letter of Credit as of the date
thereof).
Section 6.03 CONDITIONS PRECEDENT FOR THE BENEFIT OF LENDERS. All
conditions precedent to the obligations of the Lenders to make any Loan are
imposed hereby solely for the benefit of the Lenders, and no other Person may
require satisfaction of any such condition precedent or be entitled to assume
that the Lenders will refuse to make any Loan in the absence of strict
compliance with such conditions precedent.
Section 6.04 NO WAIVER. No waiver of any condition precedent shall
preclude the Agent or the Lenders from requiring such condition to be met prior
to making any subsequent Loan or preclude the Lenders from thereafter declaring
that the failure of the Borrower to satisfy such condition precedent constitutes
a Default.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Agent and the Lenders that
(each representation and warranty herein is given as of the Closing Date and
shall be deemed repeated and reaffirmed on
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the dates of each borrowing and issuance, renewal, extension or reissuance of a
Letter of Credit as provided in Section 6.02):
Section 7.01 CORPORATE EXISTENCE. Each of the Borrower and each
Subsidiary: (i) is a corporation duly organized, legally existing and in good
standing under the laws of the jurisdiction of its incorporation; (ii) has all
requisite corporate power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry on
its business as now being or as proposed to be conducted; and (iii) is qualified
to do business in all jurisdictions in which the nature of the business
conducted by it makes such qualification necessary and where failure so to
qualify would have a Material Adverse Effect.
Section 7.02 FINANCIAL CONDITION. The audited consolidated balance sheet
of the Borrower and its Consolidated Subsidiaries as at December 31, 1997 and
the related consolidated statement of income, stockholders' equity and cash flow
of the Borrower and its Consolidated Subsidiaries for the fiscal year ended on
said date, with the opinion thereon of Pricewaterhouse Coopers L.L.P. heretofore
furnished to the Agent and the unaudited consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as at September 30, 1998 and their
related consolidated statements of income, stockholders' equity and cash flow of
the Borrower and its Consolidated Subsidiaries for the nine month period ended
on such date heretofore furnished to the Agent, are complete and correct and
fairly present the consolidated financial condition of the Borrower and its
Consolidated Subsidiaries as at said dates and the results of its operations for
the fiscal year and the nine month period on said dates, all in accordance with
GAAP, as applied on a consistent basis (subject, in the case of the interim
financial statements, to normal year-end adjustments). Neither the Borrower nor
any Subsidiary has on the Closing Date any material Debt, contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments or
unrealized or anticipated losses from any unfavorable commitments, except as
referred to or reflected or provided for in the Financial Statements or in
SCHEDULE 7.02. Since September 30, 1998, there has been no change or event
having a Material Adverse Effect. Since the date of the Financial Statements,
neither the business nor the Properties of the Borrower or any Subsidiary have
been materially and adversely affected as a result of any fire, explosion,
earthquake, flood, drought, windstorm, accident, strike or other labor
disturbance, embargo, requisition or taking of Property or cancellation of
contracts, permits or concessions by any Governmental Authority, riot,
activities of armed forces or acts of God or of any public enemy. The unaudited
pro forma projected consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries at the Closing Date, and the unaudited pro forma
projected consolidated statement of income of the Borrower and its Consolidated
Subsidiaries as of the Closing Date, heretofore furnished to the Agent, fairly
present the pro forma projected consolidated financial condition of the Borrower
and its Consolidated Subsidiaries as at the Closing Date.
Section 7.03 LITIGATION. At the Closing Date there is no litigation,
legal, administrative or arbitral proceeding, investigation or other action of
any nature pending or, to the knowledge of the Borrower threatened against or
affecting the Borrower or any Subsidiary which could reasonably be expected to
have a Material Adverse Effect.
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Section 7.04 NO BREACH. Neither the execution and delivery of the Loan
Documents, nor compliance with the terms and provisions hereof will conflict
with or result in a breach of, or require any consent which has not been
obtained as of the Closing Date under, the respective charter or by-laws of the
Borrower or any Subsidiary, or any Governmental Requirement or any material
agreement or instrument to which the Borrower or any Subsidiary is a party or by
which it is bound or to which it or its Properties are subject, or constitute a
default under any such material agreement or instrument, or result in the
creation or imposition of any Lien upon any of the revenues or assets of the
Borrower or any Subsidiary pursuant to the terms of any such material agreement
or instrument other than the Liens created by the Loan Documents.
Section 7.05 AUTHORITY. The Borrower and each Subsidiary have all
necessary corporate power and authority to execute, deliver and perform its
obligations under the Loan Documents to which it is a party; and the execution,
delivery and performance by the Borrower and each Subsidiary of the Loan
Documents to which it is a party, have been duly authorized by all necessary
corporate action on its part; and the Loan Documents constitute the legal, valid
and binding obligations of the Borrower and each Subsidiary, enforceable in
accordance with their terms.
Section 7.06 APPROVALS. No authorizations, approvals or consents of, and
no filings or registrations with, any Governmental Authority are necessary for
the execution, delivery or performance by the Borrower or any Subsidiary of the
Loan Documents to which it is a party or for the validity or enforceability
thereof, except for the recording and filing of the Security Instruments as
required by this Agreement.
Section 7.07 USE OF LOANS. The proceeds of the Loans shall be used to
provide financing for New Acquisitions, for capital expenditures and for general
working capital purposes of the Borrower; PROVIDED, HOWEVER, that not more than
$5,000,000 of the Loans (in the aggregate) may be used by the Borrower for
general working capital purposes. The Borrower is not engaged princi pally, or
as one of its important activities, in the business of extending credit for the
purpose, whether immediate, incidental or ultimate, of buying or carrying margin
stock (within the meaning of Regulation G, T, U or X of the Board of Governors
of the Federal Reserve System) and no part of the proceeds of any Loan hereunder
will be used to buy or carry any margin stock.
Section 7.08 ERISA.
(a) The Borrower, each Subsidiary and each ERISA Affiliate have complied
in all material respects with ERISA and, where applicable, the Code regarding
each Plan.
(b) Each Plan is, and has been, maintained in substantial compliance with
ERISA and, where applicable, the Code.
(c) No act, omission or transaction has occurred which could result in
imposition on the Borrower, any Subsidiary or any ERISA Affiliate (whether
directly or indirectly) of (i) either a civil penalty assessed pursuant to
section 502(c), (i) or (l) of ERISA or a tax imposed pursuant to Chapter 43 of
Subtitle D of the Code or (ii) breach of fiduciary duty liability damages under
section 409 of ERISA.
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(d) No liability to the PBGC (other than for the payment of current
premiums which are not past due) by the Borrower, any Subsidiary or any ERISA
Affiliate has been or is expected by the Borrower, any Subsidiary or any ERISA
Affiliate to be incurred with respect to any Plan. No ERISA Event with respect
to any Plan has occurred.
(e) Full payment when due has been made of all amounts which the Borrower,
any Subsidiary or any ERISA Affiliate is required under the terms of each Plan
or applicable law to have paid as contributions to such Plan, and no accumulated
funding deficiency (as defined in section 302 of ERISA and section 412 of the
Code), whether or not waived, exists with respect to any Plan.
(f) The actuarial present value of the benefit liabilities under each Plan
which is subject to Title IV of ERISA does not, as of the end of the Borrower's
most recently ended fiscal year, exceed the current value of the assets
(computed on a plan termination basis in accordance with Title IV of ERISA) of
such Plan allocable to such benefit liabilities. The term "actuarial present
value of the benefit liabilities" shall have the meaning specified in section
4041 of ERISA.
(g) None of the Borrower, any Subsidiary or any ERISA Affiliate sponsors,
maintains, or contributes to an employee welfare benefit plan, as defined in
section 3(1) of ERISA, including, without limitation, any such plan maintained
to provide benefits to former employees of such entities, that may not be
terminated by the Borrower, a Subsidiary or any ERISA Affiliate in its sole
discretion at any time without any material liability.
(h) None of the Borrower, any Subsidiary or any ERISA Affiliate sponsors,
maintains or contributes to, or has at any time in the preceding six calendar
years, sponsored, maintained or contributed to, any Multiemployer Plan.
(i) None of the Borrower, any Subsidiary or any ERISA Affiliate is
required to provide security under section 401(a)(29) of the Code due to a Plan
amendment that results in an increase in current liability for the Plan.
Section 7.09 TAXES. Each of the Borrower and its Subsidiaries has filed
all United States Federal income tax returns and all other tax returns which are
required to be filed by them and have paid all material taxes due pursuant to
such returns or pursuant to any assessment received by the Borrower or any
Subsidiary. The charges, accruals and reserves on the books of the Borrower and
its Subsidiaries in respect of taxes and other governmental charges are, in the
opinion of the Borrower, adequate. No tax lien has been filed and, to the
knowledge of the Borrower, no claim is being asserted with respect to any such
tax, fee or other charge.
Section 7.10 TITLES, ETC.
(a) Each of the Borrower and its Subsidiaries and each Acquired Entity has
good and defensible title to its material (individually or in the aggregate)
Properties, free and clear of all Liens, except Liens permitted by Section 9.02.
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(b) All leases and agreements necessary for the conduct of the business of
the Borrower and its Subsidiaries and each Acquired Entity are valid and
subsisting, in full force and effect and there exists no default or event or
circumstance which with the giving of notice or the passage of time or both
would give rise to a default under any such lease or leases, which would affect
in any material respect the conduct of the business of the Borrower and its
Subsidiaries.
(c) The licenses, rights, Properties and other assets presently owned,
leased or licensed by the Borrower and its Subsidiaries and each Acquired
Entity, include all rights, Properties and other assets necessary to permit the
Borrower and its Subsidiaries and each Acquired Entity to conduct their business
in all material respects in the same manner as its business has been conducted
prior to the Closing Date.
(d) All of the assets and Properties of the Borrower and its Subsidiaries
and each Acquired Entity which are reasonably necessary for the operation of its
business are in good working condition and are maintained in accordance with
prudent business standards.
Section 7.11 NO MATERIAL MISSTATEMENTS. No written information, statement,
exhibit, certificate, document or report furnished to the Agent and the Lenders
(or any of them) by the Borrower or any Subsidiary in connection with the
negotiation of this Agreement contained any material misstatement of fact or
omitted to state a material fact or any fact necessary to make the statement
contained therein not materially misleading in the light of the circumstances in
which made and with respect to the Borrower and its Subsidiaries taken as a
whole.
Section 7.12 INVESTMENT COMPANY ACT. Neither the Borrower nor any
Subsidiary is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
Section 7.13 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor
any Subsidiary is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," or a "public utility" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
Section 7.14 SUBSIDIARIES. Except as set forth on SCHEDULE 7.14, the
Borrower has no Sub sidiaries. In the event that a new Subsidiary is formed and
an advance is requested under this Agreement, and the Lenders approve such
advance, Borrower will provide the Agent with a new, updated SCHEDULE 7.14.
Section 7.15 LOCATION OF BUSINESS AND OFFICES. The Borrower's principal
place of business and chief executive offices are located at the address stated
on the signature page of this Agreement. The principal place of business and
chief executive office of each Subsidiary are located at the addresses stated on
SCHEDULE 7.14.
Section 7.16 DEFAULTS. Neither the Borrower nor any Subsidiary is in
default nor has any event or circumstance occurred which, but for the expiration
of any applicable grace period or the giving of notice, or both, would
constitute a default under any material agreement or instrument to
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which the Borrower or any Subsidiary is a party or by which the Borrower or any
Subsidiary is bound which default would have a Material Adverse Effect. No
Default hereunder has occurred and is continuing.
Section 7.17 ENVIRONMENTAL MATTERS. Except as would not have a Material
Adverse Effect, neither any Property of the Borrower nor any Subsidiary nor the
operations conducted thereon violate any law, order or requirement of any court
or Governmental Authority or any Environmental Laws.
Section 7.18 COMPLIANCE WITH THE LAW. Neither the Borrower nor any
Subsidiary has violated any Governmental Requirement or failed to obtain any
license, permit, franchise or other governmental authorization necessary for the
ownership of any of its Properties or the conduct of its business, which
violation or failure would have (in the event such violation or failure were
asserted by any Person through appropriate action) a Material Adverse Effect.
Section 7.19 INSURANCE. SCHEDULE 7.19 attached hereto contains an accurate
and complete description of all material policies of fire, liability, workmen's
compensation and other forms of insurance owned or held by the Borrower and each
Subsidiary. All such policies are in full force and effect, all premiums with
respect thereto covering all periods up to and including the date of the closing
have been paid, and no notice of cancellation or termination has been received
with respect to any such policy. Such policies are sufficient for compliance
with all requirements of law and of all agreements to which the Borrower or any
Subsidiary is a party; are valid, outstanding and enforceable policies; provide
adequate insurance coverage in at least such amounts and against at least such
risks (but including in any event public liability) as are usually insured
against in the same general area by companies engaged in the same or a similar
business for the assets and operations of the Borrower and each Subsidiary; will
remain in full force and effect through the respective dates set forth in
SCHEDULE 7.19 without the payment of additional premiums; and will not in any
way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. SCHEDULE 7.19 identifies all material risks, if
any, which the Borrower and its Subsidiaries and their respective Board of
Directors or officers have designated as being self insured. Neither the
Borrower nor any Subsidiary has been refused any insurance with respect to its
assets or operations, nor has its coverage been limited below usual and
customary policy limits, by an insurance carrier to which it has applied for any
such insurance or with which it has carried insurance during the last three
years. In the event that a new Subsidiary is formed and an advance is requested
under the Loans, and the Lenders approve such advance, Borrower will provide the
Agent with a new, updated SCHEDULE 7.19.
Section 7.20 MANAGEMENT SERVICES AGREEMENTS AND ACCOUNTS RECEIVABLE
PURCHASE AGREEMENTS. The copies of Management Services Agreements and Account
Receivable Purchase Agreements listed on Schedule 7.20 hereto. The above
Management Services Agreements and the Accounts Receivable Purchase Agreements
are valid, binding and enforceable against the parties thereto and the Borrower
has the right to grant a Lien and has granted a Lien on the Borrower's right to
receive proceeds under the Management Services Agreements and the receivables
purchased under the Accounts Receivable Purchase Agreements pursuant to the
Security Instruments, and the Lenders may enforce their remedies contained in
the Security Instruments against such collateral. The Borrower has obtained all
consents from Governmental Authorities necessary to perform under the
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Management Services Agreements, the failure of which to obtain could have a
Material Adverse Effect. In the event that a new Subsidiary is formed, any
Management Services Agreements and Accounts Receivable Purchase Agreements
binding such Subsidiary shall be included within the terms of this
representation and warranty.
Section 7.21 RESTRICTION ON LIENS. Neither the Borrower nor any of its
Subsidiaries is a party to any agreement or arrangement (other than this
Agreement and the Security Instruments), or subject to any order, judgment, writ
or decree, which either restricts or purports to restrict its ability to grant
Liens to other Persons on or in respect of their respective assets or
Properties, except for Property subject to Liens permitted under Section 9.02.
Section 7.22 MATERIAL AGREEMENTS. Set forth on SCHEDULE 7.22 hereto is a
complete and correct list of all material credit agreements, indentures,
purchase agreements, obligations in respect of letters of credit, guarantees,
joint venture agreements, and other instruments in effect or to be in effect as
of the Closing Date (other than Hedging Agreements) providing for, evidencing,
securing or otherwise relating to any Debt of the Borrower or any of its
Subsidiaries in excess of $250,000, and all obligations of the Borrower or any
of its Subsidiaries to issuers of surety or appeal bonds issued for account of
the Borrower or any such Subsidiary in excess of $250,000, and such list
correctly sets forth the names of the debtor or lessee and creditor or lessor
with respect to the Debt or lease obligations outstanding or to be outstanding
and the Property subject to any Lien securing such Debt or lease obligation. In
the event that a new Subsidiary is formed and an advance is requested under this
Agreement, if Lenders approve such advance, Borrower will provide the Agent with
a new, updated SCHEDULE 7.22.
Section 7.23 HEDGING AGREEMENTS. SCHEDULE 7.23 sets forth, as of the
Closing Date, a true and complete list of all Hedging Agreements of the
Borrower, the material terms thereof (including the type, term, effective date,
termination date and notional amounts or volumes), the net mark to market value
thereof, all credit support agreements relating thereto (including any margin
required or supplied), and the counterparty to each such agreement.
Section 7.24 YEAR 2000.
(a) The Borrower has (i) begun analyzing the operations of Borrower
and its Subsidiaries and Affiliates that could be adversely affected by
failure to become Year 2000 compliant (that is, that computer
applications, imbedded microchips and other systems will be able to
perform date-sensitive functions prior to and after December 31, 1999) and
(ii) developed a plan for becoming Year 2000 compliant in a timely manner,
the implementation of which is on schedule in all material respects. The
Borrower reasonably believes that it will become Year 2000 compliant for
its operations and those of its Subsidiaries and Affiliates on a timely
basis except to the extent that a failure to do so could not reasonably be
expected to have a Material Adverse Effect upon the financial condition of
the Borrower.
(b) The Borrower reasonably believes any suppliers and vendors that
are material to the operations of Borrower or its Subsidiaries and
Affiliates will be Year 2000 compliant for their own computer applications
except to the extent that a failure to do so could not
- 46 -
reasonably be expected to have a Material Adverse Effect upon the
financial condition of the Borrower.
ARTICLE VIII
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as any of the Commitments
are in effect and until payment in full of all Loans hereunder, all interest
thereon and all other amounts payable by the Borrower hereunder:
Section 8.01 REPORTING REQUIREMENTS. The Borrower shall deliver, or shall
cause to be delivered, to the Agent with sufficient copies of each for the
Lenders:
(a) ANNUAL FINANCIAL STATEMENTS. As soon as available and in any event
within 120 days after the end of each fiscal year of the Borrower, the audited
consolidated and unaudited consolidat ing statements of income, stockholders'
equity, changes in financial position and cash flow of the Borrower and its
Consolidated Subsidiaries for such fiscal year, and the related consolidated and
consolidating balance sheets of the Borrower and its Consolidated Subsidiaries
as at the end of such fiscal year, and setting forth in each case in comparative
form the corresponding figures for the preceding fiscal year, and accompanied by
the related opinion of independent public accountants of recognized national
standing acceptable to the Agent which opinion shall state that said financial
statements fairly present the consolidated and consolidating financial condition
and results of operations of the Borrower and its Consolidated Subsidiaries as
at the end of, and for, such fiscal year and that such financial statements have
been prepared in accordance with GAAP, except for such changes in such
principles with which the independent public accountants shall have concurred
and such opinion shall not contain a "going concern" or like qualification or
exception, and a certificate of such accountants stating that, in making the
examination necessary for their opinion, they obtained no knowledge, except as
specifically stated, of any Default.
(b) QUARTERLY FINANCIAL STATEMENTS. As soon as available and in any event
within 45 days after the end of each of the first three fiscal quarterly periods
of each fiscal year of the Borrower, consolidated and consolidating statements
of income, stockholders' equity, changes in financial position and cash flow of
the Borrower and its Consolidated Subsidiaries for such period and for the
period from the beginning of the respective fiscal year to the end of such
period, and the related consolidated and consolidating balance sheets as at the
end of such period, and setting forth in each case in comparative form the
corresponding figures for the corresponding period in the preceding fiscal year,
accompanied by the certificate of a Responsible Officer, which certificate shall
state that said financial statements fairly present the consolidated and
consolidating financial condition and results of operations of the Borrower and
its Consolidated Subsidiaries in accordance with GAAP, as at the end of, and
for, such period (subject to normal year-end audit adjustments).
(c) BUDGET. As soon as available and in any event within thirty (30) days
after the end of each fiscal year of the Borrower, a budget for the Borrower and
its Consolidated Subsidiaries, as
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approved by the board of directors of the Borrower, for the following fiscal
year setting forth in comparative form corresponding figures from the preceding
fiscal year, in reasonable detail and certified as to its good-faith preparation
by a Responsible Officer.
(d) NOTICE OF DEFAULT, ETC. Promptly after the Borrower knows that any
Default or any Material Adverse Effect has occurred, a notice of such Default or
Material Adverse Effect, describing the same in reasonable detail and the action
the Borrower proposes to take with respect thereto.
(e) OTHER ACCOUNTING REPORTS. Promptly upon receipt thereof, a copy of
each other report or letter submitted to the Borrower or any Subsidiary by
independent accountants in connection with any annual, interim or special audit
made by them of the books of the Borrower and its Subsidiaries, and a copy of
any response by the Borrower or any Subsidiary of the Borrower, or the Board of
Directors of the Borrower or any Subsidiary of the Borrower, to such letter or
report.
(f) SEC FILINGS, ETC. Promptly upon its becoming available, each financial
statement, report, notice or proxy statement sent by the Borrower to
stockholders generally and each regular or periodic report and any registration
statement, prospectus or written communication (other than transmittal letters)
in respect thereof filed by the Borrower with or received by the Borrower in
connection therewith from any securities exchange or the SEC or any successor
agency.
(g) NOTICES UNDER OTHER LOAN AGREEMENTS. Promptly after the furnishing
thereof, copies of any material statement, report or notice furnished to or any
Person pursuant to the terms of any indenture, loan or credit or other similar
agreement, other than this Agreement and not otherwise required to be furnished
to the Agent pursuant to any other provision of this Section 8.01.
(h) BORROWING BASE REPORT. Promptly upon becoming available and in any
event within 45 days after the end of each of Borrower's fiscal quarters, a
borrowing base report, which shall contain supporting schedules and be in
substantially the form of EXHIBIT E attached hereto.
(i) ANNUAL REVENUE REPORTS. As soon as available and in any event within
120 days after the end of each fiscal year of the Borrower, a report prepared by
the Borrower for each dental center setting forth the revenues, expenses and
contributions to profit of such dental center in form and substance acceptable
to the Agent.
(j) QUARTERLY REVENUE REPORTS. Beginning December 31, 1998, as soon as
available and in any event within 45 days after the end of each of the first
three fiscal quarterly periods of each fiscal year of the Borrower, a report by
the Borrower for each dental center setting forth the revenues, expenses and
contributions to profit of such dental center in form and substance acceptable
to the Agent.
(k) PLAN REPORT. From time to time such other information regarding the
business, affairs or financial condition of the Borrower or any Subsidiary
(including, without limitation, any Plan or Multiemployer Plan and any reports
or other information required to be filed under ERISA) as the Agent may
reasonably request.
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(l) HEDGING AGREEMENT REPORT. As soon as available and in any event within
ten (10) Business Days after the last day of each calendar quarter, a report, in
form and substance satisfactory to the Agent, setting forth as of the last
Business Day of such calendar quarter a true and complete list of all Hedging
Agreements of the Borrower, the material terms thereof (including the type,
term, effective date, termination date and notional amounts or volumes), the net
mark to market value therefor, any new credit support agreements relating
thereto not listed on SCHEDULE 7.23, any margin required or supplied under any
credit support document, and the counterparty to each such agreement.
(m) CAPITAL EXPENDITURES BUDGET. Promptly upon becoming available and in
any event within 30 days after the end of each fiscal year of the Borrower, a
capital expenditure budget for the next fiscal year setting forth all proposed
capital expenditures to be incurred during such fiscal year.
(n) MODIFICATIONS OF MANAGEMENT SERVICES AGREEMENTS, ETC. Promptly upon
the execution thereof, executed copies of any modification or amendment of any
Management Services Agreement or Accounts Receivable Purchase Agreement.
(o) PUT/CALL RESERVE AMOUNT CERTIFICATE Within 45 days after each June 30
and December 31 of each calendar year until the earlier to occur of the Final
Maturity Date or the exercise of either the last Corporate C Member's Merger
Option or the CDC Call Option, a completed Put/Call Reserve Certificate in the
form of EXHIBIT I attached hereto.
The Borrower shall furnish to the Lenders, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate
substantially in the form of EXHIBIT C hereto executed by a Responsible Officer
(i) certifying as to the matters set forth therein and stating that no Default
has occurred and is continuing (or, if any Default has occurred and is
continuing, describing the same in reasonable detail), and (ii) setting forth in
reasonable detail the computations necessary to determine the Borrower's Total
Funded Debt, Senior Funded Debt and EBITDA and whether the Borrower is in
compliance with Sections 9.11, 9.12, 9.13, 9.14, 9.15 and 9.16 as of the end of
the respective fiscal quarter or fiscal year.
Section 8.02 LITIGATION. The Borrower shall promptly give to the Agent
notice of: (i) all legal or arbitral proceedings, and of all proceedings before
any Governmental Authority affecting the Borrower, any Acquired Entity or any
Subsidiary, except proceedings which, if adversely determined, would not have a
Material Adverse Effect, and (ii) of any litigation or proceeding against or
adversely affecting the Borrower, any Acquired Entity or any Subsidiary in which
the amount involved is not covered in full by insurance (subject to normal and
customary deductibles and for which the insurer has not assumed the defense), or
in which injunctive or similar relief is sought. The Borrower will, and will
cause each of its Subsidiaries to, promptly notify the Agent and each of the
Lenders of any claim, judgment, Lien or other encumbrance affecting any Property
of the Borrower, any Acquired Entity or any Subsidiary if the value of the
claim, judgment, Lien, or other encumbrance affecting such Property shall exceed
$250,000.
Section 8.03 MAINTENANCE, ETC.
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(a) GENERALLY. The Borrower shall and shall cause each Subsidiary to:
preserve and maintain its corporate existence and all of its material rights,
privileges and franchises; keep books of record and account in which full, true
and correct entries will be made of all dealings or transactions in relation to
its business and activities; comply with all Governmental Requirements if
failure to comply with such requirements will have a Material Adverse Effect;
pay and discharge all taxes, assessments and governmental charges or levies
imposed on it or on its income or profits or on any of its Property prior to the
date on which penalties attach thereto, except for any such tax, assessment,
charge or levy the payment of which is being contested in good faith and by
proper proceedings and against which adequate reserves are being maintained;
upon reasonable notice, permit representatives of the Agent or any Lender,
during normal business hours, to examine, copy and make extracts from its books
and records, to inspect its Properties, and to discuss its business and affairs
with its officers, all to the extent reasonably requested by such Lender or the
Agent (as the case may be); and keep, or cause to be kept, insured by
financially sound and reputable insurers all Property of a character usually
insured by Persons engaged in the same or similar business similarly situated
against loss or damage of the kinds and in the amounts customarily insured
against by such Persons and carry such other insurance as is usually carried by
such Persons including, without limitation, environmental risk insurance to the
extent reasonably available.
(b) PROOF OF INSURANCE. Contemporaneously with the delivery of the
financial statements required by Section 8.01(a) to be delivered for each year,
the Borrower will furnish or cause to be furnished to the Agent a certificate of
insurance coverage from the insurer in form and substance satisfactory to the
Agent and, if requested, will furnish the Agent copies of the applicable
policies.
(c) OPERATION OF PROPERTIES. The Borrower will and will cause each
Subsidiary to operate its Properties or cause such Properties to be operated in
a careful and efficient manner in accordance with the practices of the industry
and in compliance with all applicable contracts and agreements and in compliance
in all material respects with all Governmental Requirements.
Section 8.04 ENVIRONMENTAL MATTERS.
(a) ESTABLISHMENT OF PROCEDURES. The Borrower will and will cause each
Subsidiary to establish and implement such procedures as may be reasonably
necessary to continuously determine and assure that (i) all Property of the
Borrower and its Subsidiaries and the operations conducted thereon and other
activities of the Borrower and its Subsidiaries are, in all material respects,
in compliance with and do not violate the requirements of any Environmental
Laws, and (ii) no oil, hazardous substances or solid wastes are disposed of or
otherwise released on or to any Property owned by any such party except in
compliance with Environmental Laws.
(b) NOTICE OF ACTION. The Borrower will promptly notify the Agent in
writing of any threatened action, investigation or inquiry by any Governmental
Authority of which the Borrower has knowledge in connection with any
Environmental Laws, excluding routine testing and corrective action.
Section 8.05 FURTHER ASSURANCES. The Borrower will and will cause each
Subsidiary to cure promptly any defects in the creation and issuance of the
Notes and the execution and delivery of the
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Security Instruments and this Agreement. The Borrower at its expense will and
will cause each Subsidiary to promptly execute and deliver to the Agent upon
request all such other documents, agreements and instruments to comply with or
accomplish the covenants and agreements of the Borrower or any Subsidiary, as
the case may be, in the Security Instruments and this Agreement, or to further
evidence and more fully describe the collateral intended as security for the
Notes, or to correct any omissions in the Security Instruments, or to state more
fully the security obligations set out herein or in any of the Security
Instruments, or to perfect, protect or preserve any Liens created pursuant to
any of the Security Instruments, or to make any recordings, to file any notices
or obtain any consents, all as may be necessary or appropriate in connection
therewith.
Section 8.06 PERFORMANCE OF OBLIGATIONS. The Borrower will pay the Notes
according to the reading, tenor and effect thereof; and the Borrower will and
will cause each Subsidiary to do and perform every act and discharge all of the
obligations to be performed and discharged by them under the Security
Instruments and this Agreement, at the time or times and in the manner
specified.
Section 8.07 ERISA INFORMATION AND COMPLIANCE. The Borrower will promptly
furnish and will cause the Subsidiaries and any ERISA Affiliate to promptly
furnish to the Agent with sufficient copies to the Lenders (i) promptly after
the filing thereof with the United States Secretary of Labor, the Internal
Revenue Service or the PBGC, copies of each annual and other report with respect
to each Plan or any trust created thereunder, (ii) immediately upon becoming
aware of the occurrence of any ERISA Event or of any "prohibited transaction,"
as described in section 406 of ERISA or in section 4975 of the Code, in
connection with any Plan or any trust created thereunder, a written notice
signed by a Responsible Officer specifying the nature thereof, what action the
Borrower, the Subsidiary or the ERISA Affiliate is taking or proposes to take
with respect thereto, and, when known, any action taken or proposed by the
Internal Revenue Service, the Department of Labor or the PBGC with respect
thereto, and (iii) immediately upon receipt thereof, copies of any notice of the
PBGC's intention to terminate or to have a trustee appointed to administer any
Plan. With respect to each Plan (other than a Multiemployer Plan), the Borrower
will, and will cause each Subsidiary and ERISA Affiliate to, (i) satisfy in full
and in a timely manner, without incurring any late payment or underpayment
charge or penalty and without giving rise to any lien, all of the contribution
and funding requirements of section 412 of the Code (determined without regard
to subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA
(determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay,
or cause to be paid, to the PBGC in a timely manner, without incurring any late
payment or underpayment charge or penalty, all premiums required pursuant to
sections 4006 and 4007 of ERISA.
Section 8.08 MANAGEMENT SERVICES AGREEMENTS AND ACCOUNTS RECEIVABLE
PURCHASE AGREEMENTS. The Borrower will and will cause each Subsidiary to do all
things necessary to maintain and keep in full force and effect and to enforce
compliance with the Management Services Agreements and the Accounts Receivable
Purchase Agreements. In the event that a new Subsidiary is formed, any
Management Services Agreements and Accounts Receivable Purchase Agreements
binding such Subsidiary shall be included within the terms of this affirmative
covenant.
Section 8.09 GUARANTEE BY ACQUIRED ENTITIES. In connection with Borrower's
or any Subsidiary's purchase of all the outstanding stock of any Acquired Entity
pursuant to any Stock
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Purchase Agreement, upon the request of the Agent at any time thereafter, the
Borrower will cause such Acquired Entity to guarantee the Indebtedness upon
terms satisfactory to the Agent.
Section 8.10. DISSOLUTION OF JHCDDS, INC. Notwithstanding any provision
contained herein to the contrary, JHCDDS, Inc. may be dissolved without the
consent of the Agent or the Lenders. The Borrower shall provide the Agent with
notice of such dissolution upon its occurrence.
Section 8.11 COVENANT TO SWAP INTEREST RATES. The Borrower hereby
covenants and agrees that if, at any time, Total Funded Debt exceeds
$25,000,000, the Borrower shall, at the Agent's request, within twenty Business
Days after such occurrence, enter into a Hedging Agreement with one of the
Lenders, or with another party reasonably acceptable to the Majority Lenders,
whereby the Borrower will swap the floating interest rate relating to the amount
of Total Funded Debt exceeding $25,000,000 for a fixed interest rate on such
amount.
Section 8.12 YEAR 2000. The Borrower will promptly notify the Agent in the
event the Borrower determines that any computer application which is material to
the operations of the Borrower, its Subsidiaries or any of its material vendors
or suppliers will not be fully Year 2000 compliant on a timely basis, except to
the extent that such failure could not reasonably be expected to have a Material
Adverse Effect upon the financial condition of the Borrower.
ARTICLE IX
NEGATIVE COVENANTS
The Borrower covenants and agrees that, so long as any of the Commitments
are in effect and until payment in full of Loans hereunder, all interest thereon
and all other amounts payable by the Borrower hereunder, without the prior
written consent of the Majority Lenders:
Section 9.01 DEBT. Neither the Borrower nor any Subsidiary will incur,
create, assume or permit to exist any Debt, except:
(a) the Notes or other Indebtedness or any guaranty of or suretyship
arrangement for the Notes or other Indebtedness;
(b) accounts payable (for the deferred purchase price of Property or
services) from time to time incurred in the ordinary course of
business which, if greater than 90 days past the invoice or billing
date, are being contested in good faith by appropriate proceedings
and reserves adequate under GAAP shall have been established
therefor;
(c) Debt under capital leases (as required to be reported on the
financial statements of the Borrower pursuant to GAAP) not to exceed
$2,000,000 in the aggregate;
(d) Debt of the Borrower under Hedging Agreements with the Lender or
otherwise approved by the Agent;
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(e) purchase money Debt not to exceed $2,000,000 in the aggregate;
(f) Debt described on SCHEDULE 9.01; and
(g) Subordinated Debt in connection with New Acquisitions.
Section 9.02 LIENS. Neither the Borrower nor any Subsidiary will create,
incur, assume or permit to exist any Lien on any of its Properties (now owned or
hereafter acquired), except:
(a) Liens securing the payment of any Indebtedness;
(b) Excepted Liens;
(c) Liens disclosed on SCHEDULE 9.02.
(d) Liens securing capital leases allowed under Section 9.01(c), but only
on the Property leased with such capital Leases.
(e) Liens originally created to secure purchase money Debt permitted under
Section 9.01(e), which in each case shall not exceed 100% of the lesser of the
total purchase price and the fair market value of the Property acquired as
determined at the time of acquisition; PROVIDED, THAT, (i) the Property to be
purchased with the proceeds of such Debt shall be purchased not more than sixty
(60) days prior to the date of the creation of such Lien and (ii) such Lien
encumbers only the Property so acquired.
Section 9.03 INVESTMENTS, LOANS AND ADVANCES. Neither the Borrower nor any
Subsidiary will make or permit to remain outstanding any loans or advances to or
investments in any Person, except that the foregoing restriction shall not apply
to:
(a) investments, loans or advances reflected in the Financial Statements
or which are disclosed to the Agent in SCHEDULE 9.03;
(b) accounts receivable arising in the ordinary course of business;
(c) direct obligations of the United States or any agency thereof, or
obligations guaranteed by the United States or any agency thereof,
in each case maturing within one year from the date of creation
thereof;
(d) commercial paper maturing within one year from the date of creation
thereof rated in the highest grade by Standard & Poor's Corporation
or Moody's Investors Service, Inc.;
(e) deposits maturing within one year from the date of creation thereof
with, including certificates of deposit issued by, any Lender or any
office located in the United States of any other bank or trust
company which is organized under the laws of the United
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States or any state thereof, has capital, surplus and undivided
profits aggregating at least $100,000,000.00 (as of the date of such
Lender's or bank or trust company's most recent financial reports)
and has a short term deposit rating of no lower than A2 or P2, as
such rating is set forth from time to time, by Standard & Poor's
Corporation or Moody's Investors Service, Inc., respectively;
(f) deposits in money market funds investing exclusively in investments
described in Section 9.03(c), 9.03(d) or 9.03(e);
(g) investments in, or purchases of, dental practices, provided that:
(i) such purchase is an Asset Purchase or Stock Purchase and, if
such purchase is a Stock Purchase, such Acquired Entity shall be
merged with and into Borrower or a Subsidiary, and such Subsidiary
(if the surviving entity) shall have executed a Guaranty Agreement
pursuant to Section 9.19 hereof and executed Security Instruments in
favor of Agent in form and substance satisfactory to Agent;
(ii) (A) any investment of $5,000,000.00 or more in any one dental
practice, (B) any investment in any dental practice which has
incurred a net income loss calculated after adding back any
adjustments for any owner's compensation as though the dental
practice had been owned by the Borrower throughout the relevant
pre-purchase period, for any of its last three fiscal years, or (C)
any investment in any dental practice which has a total purchase
price in excess of eight (8) times the EBITDA of such dental
practice, shall require the prior written approval of the Majority
Lenders and the Borrower shall deliver to Agent at least ten (10)
Business Days prior to closing the purchase of any such dental
practice (1) pro forma financial statements demonstrating continued
compliance with all covenants in this Agreement following the
inclusion of the target in Borrower's consolidated enterprise, (2)
completed due diligence consisting of the information listed on
EXHIBIT G, as approved by the Agent, (3) due diligence review
conducted by Claymore Partners, Ltd. if such dental practice is in a
region in which neither the Borrower nor any Subsidiary owns a
dental practice as of the date hereof and the investment in such
practice exceeds $5,000,000, (4) audited or reviewed financial
statements of the dental practice to be acquired for the last three
(3) years and interim period or, in lieu thereof, confirmation of
profits, cash flows and accounts receivable of such dental practice
by a third party acceptable to Agent, (5) an updated Borrowing Base
Report in substantially the form of EXHIBIT E attached hereto, and
(6) any additional information and/or documentation reasonably
requested by the Agent;
(iii) for any investment of $2,000,000 or more but less than
$5,000,000 the Borrower shall deliver to Agent within ten (10)
Business Days after closing the purchase of any such dental practice
(1) pro forma financial statements demonstrating continued
compliance with all covenants in this Agreement following the
inclusion of the target in Borrower's consolidated enterprise, (2)
completed due diligence consisting of the information listed on
EXHIBIT G, as approved by the Agent, (3)
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compiled financial statements of the dental practice to be acquired
for the last three (3) years and interim period or, in lieu thereof,
confirmation of profits, cash flows and accounts receivable of such
dental practice by a third party acceptable to Agent, (4) an updated
Borrowing Base Report in substantially the form of EXHIBIT E
attached hereto, and (5) any additional information and/or
documentation reasonably requested by the Agent.
(iv) for any investment of less than $2,000,000, the Borrower shall
deliver to the Agent within ten (10) Business Days after closing the
purchase of any such dental practice (1) an updated Borrowing Base
Report in substantially the form of EXHIBIT E attached hereto, and
(2) copies of the tax returns of the target dental practice for the
last three years.
Section 9.04 DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS. The Borrower will
not declare or pay any dividend, purchase, redeem or otherwise acquire for value
any of its stock now or hereafter outstanding, return any capital to its
stockholders or make any distribution of its assets to its stockholders.
Section 9.05 SALES AND LEASEBACKS. Neither the Borrower nor any Subsidiary
will enter into any arrangement, directly or indirectly, with any Person whereby
the Borrower or any Subsidiary shall sell or transfer any of its Property,
whether now owned or hereafter acquired, and whereby the Borrower or any
Subsidiary shall then or thereafter rent or lease as lessee such Property or any
part thereof or other Property which the Borrower or any Subsidiary intends to
use for substantially the same purpose or purposes as the Property sold or
transferred.
Section 9.06 NATURE OF BUSINESS. Neither the Borrower nor any Subsidiary
will allow any material change to be made in the character of its business.
Section 9.07 MERGERS, ETC. Neither the Borrower nor any Subsidiary will
merge into or with or consolidate with any other Person, or sell, lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially all of its Property or assets to any other Person, another
Subsidiary or in connection with Section 9.03(g), except that any Subsidiary may
merge into the Borrower or into any Wholly-Owned Subsidiary so long as the
surviving Wholly-Owned Subsidiary is a Guarantor.
Section 9.08 PROCEEDS OF NOTES. The Borrower will not permit the proceeds
of the Loans to be used for any purpose other than those permitted by Section
7.07 and not more than $5,000,000 of the Loans in the aggregate will be used for
general working capital purposes. Neither the Borrower nor any Person acting on
behalf of the Borrower has taken or will take any action which might cause any
of the Loan Documents to violate Regulation T, U or X or any other regulation of
the Board of Governors of the Federal Reserve System or to violate Section 7 of
the Securities Exchange Act of 1934 or any rule or regulation thereunder, in
each case as now in effect or as the same may hereinafter be in effect.
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Section 9.09 ERISA COMPLIANCE. The Borrower will not at any time:
(a) Engage in, or permit any Subsidiary or ERISA Affiliate to engage in,
any transaction in connection with which the Borrower, any Subsidiary or any
ERISA Affiliate could be subjected to either a civil penalty assessed pursuant
to section 502(c), (i) or (l) of ERISA or a tax imposed by Chapter 43 of
Subtitle D of the Code;
(b) Terminate, or permit any Subsidiary or ERISA Affiliate to terminate,
any Plan in a manner, or take any other action with respect to any Plan, which
could result in any liability to the Borrower, any Subsidiary or any ERISA
Affiliate to the PBGC;
(c) Fail to make, or permit any Subsidiary or ERISA Affiliate to fail to
make, full payment when due of all amounts which, under the provisions of any
Plan, agreement relating thereto or applicable law, the Borrower, a Subsidiary
or any ERISA Affiliate is required to pay as contributions thereto;
(d) Permit to exist, or allow any Subsidiary or ERISA Affiliate to permit
to exist, any accumulated funding deficiency within the meaning of Section 302
of ERISA or section 412 of the Code, whether or not waived, with respect to any
Plan;
(e) Permit, or allow any Subsidiary or ERISA Affiliate to permit, the
actuarial present value of the benefit liabilities under any Plan maintained by
the Borrower, any Subsidiary or any ERISA Affiliate which is regulated under
Title IV of ERISA to exceed the current value of the assets (computed on a plan
termination basis in accordance with Title IV of ERISA) of such Plan allocable
to such benefit liabilities. The term "actuarial present value of the benefit
liabilities" shall have the meaning specified in section 4041 of ERISA;
(f) Contribute to or assume an obligation to contribute to, or permit any
Subsidiary or ERISA Affiliate to contribute to or assume an obligation to
contribute to, any Multiemployer Plan;
(g) Acquire, or permit any Subsidiary or ERISA Affiliate to acquire, an
interest in any Person that causes such Person to become an ERISA Affiliate with
respect to the Borrower, any Subsidiary or any ERISA Affiliate if such Person
sponsors, maintains or contributes to, or at any time in the six-year period
preceding such acquisition has sponsored, maintained, or contributed to, (1) any
Multiemployer Plan, or (2) any other Plan that is subject to Title IV of ERISA
under which the actuarial present value of the benefit liabilities under such
Plan exceeds the current value of the assets (computed on a plan termination
basis in accordance with Title IV of ERISA) of such Plan allocable to such
benefit liabilities;
(h) Incur, or permit any Subsidiary or ERISA Affiliate to incur, a
liability to or on account of a Plan under sections 515, 4062, 4063, 4064, 4201
or 4204 of ERISA;
(i) Contribute to or assume an obligation to contribute to, or permit any
Subsidiary or ERISA Affiliate to contribute to or assume an obligation to
contribute to, any employee welfare benefit plan, as defined in section 3(1) of
ERISA, including, without limitation, any such plan
- 56 -
maintained to provide benefits to former employees of such entities, that may
not be terminated by such entities in their sole discretion at any time without
any material liability; or
(j) Amend or permit any Subsidiary or ERISA Affiliate to amend, a Plan
resulting in an increase in current liability such that the Borrower, any
Subsidiary or any ERISA Affiliate is required to provide security to such Plan
under section 401(a)(29) of the Code.
Section 9.10 SALE OR DISCOUNT OF RECEIVABLES. Neither the Borrower nor any
Subsidiary will discount or sell (with or without recourse) any of its notes
receivable or accounts receivable.
Section 9.11 RATIO OF TOTAL FUNDED DEBT TO CAPITALIZATION. The Borrower
will not permit its ratio of Total Funded Debt to Capitalization as of the end
of any fiscal quarter to be greater than .6 to 1.0.
Section 9.12 NET WORTH. The Borrower will not permit its Net Worth to be
less than $30,733,000 at any time, with such minimum amount being permanently
increased by an amount equal to 75% of positive net income of the Borrower
during each fiscal quarter beginning with the fiscal quarter ended September 30,
1998, and 100% of equity capital raised by the Borrower after the Closing Date,
provided, such minimum amount shall not be decreased as a result of any losses
or negative earnings.
Section 9.13 LEVERAGE RATIO. The Borrower will not permit its Leverage
Ratio as of the end of any fiscal quarter (calculated on a rolling four quarter
basis) to be greater than 3.0 to 1.0. For any calculation period which would
include one or more quarters prior to any Stock Purchase or any Asset Purchase
or any other future acquisition of an entity, the "rolling four quarters" shall
include the "pro forma" EBITDA of the applicable Acquired Entity for such prior
periods adjusted to reflect costs and expenses which such Acquired Entity would
have included had the Management Services Agreements between Borrower and/or any
Subsidiary and such Acquired Entity been in effect (adding back appropriate
executive salaries and non-cash charge offs relating to this transaction). As
used in this Section 9.13, "LEVERAGE RATIO" shall mean the ratio of (i) Senior
Funded Debt to (ii) EBITDA.
Section 9.14 FIXED CHARGE COVERAGE RATIO. The Borrower will not permit its
Fixed Charge Coverage Ratio as of the end of any fiscal quarter (calculated on a
rolling four quarter basis) to be less than the ratio for the relevant periods
set forth below.
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RATIO PERIOD
1.10 to 1.00 from the Closing Date through
and including 9/30/99
1.15 to 1.00 from 10/1/99 through and
including 3/31/2000
1.20 to 1.00 from 4/1/2000 and thereafter
For purposes of this Section 9.14, "FIXED CHARGE COVERAGE RATIO" shall mean the
ratio for the relevant period of (i) EBITDA, LESS taxes payable in cash, PLUS
lease and rental expense to (ii) lease and rental expense, PLUS interest, PLUS,
during the Revolving Credit Period, one-seventh (1/7) of the then-outstanding
principal balance of the Loans, PLUS, without duplication, current maturities of
long-term debt, PLUS capital leases. For any calculation period which would
include one or more quarters prior to any Stock Purchase or any Asset Purchase
or any other future acquisition of an entity, the "rolling four quarters" shall
include the "pro forma" EBITDA of the applicable Acquired Entity for such prior
periods adjusted to reflect costs and expenses which such Acquired Entity would
have included had the Management Services Agreements between Borrower and/or any
Subsidiary and such Acquired Entity been in effect (adding back appropriate
executive salaries and non-cash charge offs relating to this transaction).
Section 9.15RATIO OF TOTAL FUNDED DEBT TO EBITDA. The Borrower will not
permit its ratio of Total Funded Debt as of the end of any fiscal quarter to
EBITDA for the four fiscal quarters ending on such date to be greater than 4.0
to 1.0. For purposes hereof, EBITDA shall be calculated as provided in Section
9.13 above.
Section 9.16 CAPITAL EXPENDITURES. Without the prior written consent of
the Majority Lenders, the Borrower will not make any expenditures for fixed or
capital assets if, after giving effect thereto, the aggregate of all such
expenditures would exceed $8,500,000 during any consecutive 12 month period.
Section 9.17 ENVIRONMENTAL MATTERS. Neither the Borrower nor any
Subsidiary will cause or permit any of its Property to be in violation of, or do
anything or permit anything to be done which will subject any such Property to
any remedial obligations under any Environmental Laws, assuming disclosure to
the applicable Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to such Property where such violations or
remedial obligations would have a Material Adverse Effect.
Section 9.18 TRANSACTIONS WITH AFFILIATES. Except pursuant to Management
Services Agreements and the Accounts Receivable Purchase Agreements, neither the
Borrower nor any Subsidiary will enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of Property or the rendering
of any service, with any Affiliate unless such transactions are otherwise
permitted under this Agreement, are in the ordinary course of its business and
are upon
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fair and reasonable terms no less favorable to it than it would obtain in a
comparable arm's length transaction with a Person not an Affiliate.
Section 9.19 SUBSIDIARIES. The Borrower shall not create any additional
Subsidiaries or permit any Subsidiary to do so without prior written approval of
the Agent. In every such case, each new Subsidiary shall forthwith execute and
deliver a Guaranty Agreement and Security Instruments in favor of the Agent. The
Borrower shall not and shall not permit any Subsidiary to sell or to issue any
stock of a Subsidiary or any interest in a Special Entity. The Borrower shall
not permit any Subsidiary to issue any stock except to the Borrower or any
Guarantors and except in compliance with Section 9.03 and all of the stock of
such Subsidiary shall have been pledged to the Agent for the benefit of the
Lenders in form satisfactory to the Agent.
Section 9.20 NEGATIVE PLEDGE AGREEMENTS. Neither the Borrower nor any
Subsidiary will create, incur, assume or suffer to exist any contract, agreement
or understanding (other than this Agreement and the Security Instruments) which
in any way prohibits or restricts the granting, conveying, creation or
imposition of any Lien on any of its Property or restricts any Subsidiary from
paying dividends to the Borrower, or which requires the consent of or notice to
other Persons in connection therewith.
Section 9.21 OTHER AGREEMENTS. Neither the Borrower nor any Subsidiary
shall make or permit any material amendment or modification of the Management
Services Agreements or the Accounts Receivables Purchase Agreements, except for
those modifications required to comply with Government Requirements.
Section 9.22 ACQUIRED ENTITIES. Notwithstanding anything to the contrary
contained herein, the Borrower will not permit any Acquired Entity to create,
incur, assume or permit to exist any Debt (other than the Indebtedness) or Lien
(other than the Lien securing the payment of the Indebtedness), make any loans,
advances or investments in any persons, or sell or transfer any of its property,
whether now owned or hereafter acquired except for Debt and Liens in favor of
the Borrower and Liens permitted by Section 9.02.
Section 9.23 AMENDMENT OF CASTLE WEST LLC AGREEMENT. Until such time as
each of the Corporate C Members has exercised its Corporate C Member's Merger
Option or CDC California has exercised the CDC Call Option, neither the Borrower
nor any Subsidiary shall make or permit any material amendment or modification
of the Limited Liability Company Agreement of Castle West without the prior
written consent of the Agent.
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 EVENTS OF DEFAULT. One or more of the following events shall
constitute an "EVENT OF DEFAULT":
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(a) the Borrower shall default in the payment or prepayment when due of
any principal of or interest on any Loan, or any fees or other amount payable by
it hereunder or under any Security Instrument; PROVIDED, HOWEVER, if such
default is a default on a payment of fees (other than fees under Section 2.04),
and such default shall continue unremedied for a period of 30 days; or
(b) the Borrower or any Subsidiary shall default in the payment when due
of any principal of or interest on any of its other Debt aggregating $250,000 or
more, or any event specified in any note, agreement, indenture or other document
evidencing or relating to any such Debt shall occur if the effect of such event
is to cause, or (with the giving of any notice or the lapse of time or both) to
permit the holder or holders of such Debt (or a trustee or agent on behalf of
such holder or holders) to cause, such Debt to become due prior to its stated
maturity; or
(c) any representation, warranty or certification made or deemed made
herein or in any Security Instrument by the Borrower or any Subsidiary, or any
certificate furnished to any Lender pursuant to the provisions hereof or any
Security Instrument, shall prove to have been materially false or misleading as
of the time made or furnished in any material respect; or
(d) the Borrower shall default in the performance of any of its
obligations under Article IX or any other Article of this Agreement other than
under Article VIII; or the Borrower shall default in the performance of any of
its obligations under Article VIII or any Security Instrument (other than the
payment of amounts due which shall be governed by Section 10.01(a)) and such
default shall continue unremedied for a period of thirty (30) days after the
earlier to occur of (i) notice thereof to the Borrower by any Lender or (ii) the
Borrower otherwise becoming aware of such default; or
(e) the Borrower shall admit in writing its inability to, or be generally
unable to, pay its debts as such debts become due; or
(f) the Borrower shall (i) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary case
under the Federal Bankruptcy Code (as now or hereafter in effect), (iv) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, liquidation or composition or
readjustment of debts, (v) fail to controvert in a timely and appropriate
manner, or acquiesce in writing to, any petition filed against it in an
involuntary case under the Federal Bankruptcy Code, or (vi) take any corporate
action for the purpose of effecting any of the foregoing; or
(g) a proceeding or case shall be commenced, without the application or
consent of the Borrower, in any court of competent jurisdiction, seeking (i) its
liquidation, reorganization, dissolution or winding-up, or the composition or
readjustment of its debts, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of the Borrower of all or any substantial part
of its assets, or (iii) similar relief in respect of the Borrower under any law
relating to bankruptcy, insolvency, reorganization, winding-up, or composition
or adjustment of debts, and such proceeding or case shall continue undismissed,
or an order, judgment or decree approving or ordering any of the
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foregoing shall be entered and continue unstayed and in effect, for a period of
60 days; or (iv) an order for relief against the Borrower shall be entered in an
involuntary case under the Federal Bankruptcy Code; or
(h) a judgment or judgments for the payment of money in excess of $250,000
in the aggregate shall be rendered by a court against the Borrower or any
Subsidiary and the same shall not be discharged (or provision shall not be made
for such discharge), or a stay of execution thereof shall not be (i) fully
covered by insurance owned or held by the Borrower or such Subsidiary, as
applicable, under a policy or policies which are in full force and effect, or
(ii) procured, within thirty (30) days from the date of entry thereof and the
Borrower or such Subsidiary shall not, within said period of 30 days, or such
longer period during which execution of the same shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such appeal; or
(i) the Security Instruments after delivery thereof shall for any reason,
except to the extent permitted by the terms thereof, cease to be in full force
and effect and valid, binding and enforceable in accordance with their terms, or
cease to create a valid and perfected Lien of the priority required thereby on
any of the collateral purported to be covered thereby, except to the extent
permitted by the terms of this Agreement, or the Borrower shall so state in
writing; or
(j) the Borrower discontinues its usual business; or
(k) Guarantors takes, suffers or permits to exist any of the events or
conditions referred to in paragraphs (e), (f), (g) or (h) hereof or if any
provision of any guaranty agreement related thereto shall for any reason cease
to be valid and binding on Guarantors or if Guarantors shall so state in
writing; or
(l) Any Acquired Entity or any Subsidiary takes, suffers or permits to
exist any of the events or conditions referred to in paragraphs (e), (f), (g) or
(h) hereof; or
(m) Any Management Services Agreement or any Accounts Receivable Purchase
Agreement terminates or a default by the Borrower occurs thereunder; or
(n) any modification or amendment of any Management Services Agreement or
any Accounts Receivable Purchase Agreement is made that could result in a
monetary impact to the Borrower without the prior written consent of the Agent;
or
(o) A Change of Control occurs.
Section 10.02 REMEDIES.
(a) In the case of an Event of Default other than one referred to in
clauses (e), (f) or (g) of Section 10.01 or in clauses (k) and (l) to the extent
they relates to clauses (e), (f) or (g), the Agent, upon request of the Majority
Lenders, shall, by notice to the Borrower, cancel the Commitments and/or declare
the principal amount then outstanding of, and the accrued interest on, the Loans
and
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all other amounts payable by the Borrower hereunder and under the Notes
(including without limitation the payment of cash collateral to secure the LC
Exposure as provided in Section 2.10(b)) to be forthwith due and payable,
whereupon such amounts shall be immediately due and payable without presentment,
demand, protest, notice of intent to accelerate, notice of acceleration or other
formalities of any kind, all of which are hereby expressly waived by the
Borrower.
(b) In the case of the occurrence of an Event of Default referred to in
clauses (e), (f) or (g) of Section 10.01 or in clauses (k) and (l) to the extent
they relate to clauses (e), (f) or (g), the Commitments shall be automatically
canceled and the principal amount then outstanding of, and the accrued interest
on, the Loans and all other amounts payable by the Borrower hereunder and under
the Notes (including without limitation the payment of cash collateral to secure
the LC Exposure as provided in Section 2.10(b)) shall become automatically
immediately due and payable without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration or other formalities of any kind,
all of which are hereby expressly waived by the Borrower.
(c) All proceeds received after maturity of the Notes, whether by
acceleration or otherwise shall be applied first to reimbursement of expenses
and indemnities provided for in this Agreement and the Security Instruments;
second to accrued interest on the Notes; third to fees; fourth pro rata to
principal outstanding on the Notes and other Indebtedness; fifth to serve as
cash collateral to be held by the Agent to secure the LC Exposure; and any
excess shall be paid to the Borrower or as otherwise required by any
Governmental Requirement.
ARTICLE XI
THE AGENT
Section 11.01 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under the Security Instruments with such powers as are specifically delegated to
the Agent by the terms of this Agreement and the Security Instruments, together
with such other powers as are reasonably incidental thereto. The Agent (which
term as used in this sentence and in Section 11.05 and the first sentence of
Section 11.06 shall include reference to its Affiliates and its and its
Affiliates' officers, directors, employees, attorneys, accountants, experts and
agents): (i) shall have no duties or responsibilities except those expressly set
forth in the Loan Documents, and shall not by reason of the Loan Documents be a
trustee or fiduciary for any Lender; (ii) makes no representation or warranty to
any Lender and shall not be responsible to the Lenders for any recitals,
statements, representations or warranties contained in this Agreement, or in any
certificate or other document referred to or provided for in, or received by any
of them under, this Agreement, or for the value, validity, effectiveness,
genuineness, execution, effectiveness, legality, enforceability or sufficiency
of this Agreement, any Note or any other document referred to or provided for
herein or for any failure by the Borrower or any other Person (other than the
Agent) to perform any of its obligations hereunder or thereunder or for the
existence, value, perfection or priority of any collateral security or the
financial or other condition of the Borrower, its Subsidiaries or any other
obligor or guarantor; (iii) except pursuant to Section 11.07 shall not be
required to initiate or conduct any litigation or
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collection proceedings hereunder; and (iv) shall not be responsible for any
action taken or omitted to be taken by it hereunder or under any other document
or instrument referred to or provided for herein or in connection herewith
including its own ordinary negligence, except for its own gross negligence or
willful misconduct. The Agent may employ agents, accountants, attorneys and
experts and shall not be responsible for the negligence or misconduct of any
such agents, accountants, attorneys or experts selected by it in good faith or
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such agents, accountants, attorneys or experts. The Agent may deem
and treat the payee of any Note as the holder thereof for all purposes hereof
unless and until a written notice of the assignment or transfer thereof
permitted hereunder shall have been filed with the Agent. The Agent is
authorized to release any collateral that is permitted to be sold or released
pursuant to the terms of the Loan Documents.
Section 11.02 RELIANCE BY AGENT. The Agent shall be entitled to rely upon
any certification, notice or other communication (including any thereof by
telephone, telex, telecopier, telegram or cable) reasonably believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent.
Section 11.03 DEFAULTS. The Agent shall not be deemed to have knowledge of
the occurrence of a Default (other than the non-payment of principal of or
interest on Loans or of fees or failure to reimburse for Letter of Credit
drawings) unless the Agent has received notice from a Lender or the Borrower
specifying such Default and stating that such notice is a "Notice of Default."
In the event that the Agent receives such a notice of the occurrence of a
Default, the Agent shall give prompt notice thereof to the Lenders. In the event
of a payment Default, the Agent shall give each Lender prompt notice of each
such payment Default.
Section 11.04 RIGHTS AS A LENDER. With respect to its Commitments and the
Loans made by it and its participation in the issuance of Letters of Credit,
NationsBank (and any successor acting as Agent) in its capacity as a Lender
hereunder shall have the same rights and powers hereunder as any other Lender
and may exercise the same as though it were not acting as the Agent, and the
term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include the Agent in its individual capacity. NationsBank (and any successor
acting as Agent) and its Affiliates may (without having to account therefor to
any Lender) accept deposits from, lend money to and generally engage in any kind
of banking, trust or other business with the Borrower (and any of its
Affiliates) as if it were not acting as the Agent, and NationsBank and its
Affiliates may accept fees and other consideration from the Borrower for
services in connection with this Agreement or otherwise without having to
account for the same to the Lenders.
Section 11.05 INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY THE AGENT
AND THE ISSUING BANK RATABLY IN ACCORDANCE WITH THEIR PERCENTAGE SHARES FOR THE
INDEMNITY MATTERS AS DESCRIBED IN SECTION 12.03 TO THE EXTENT NOT INDEMNIFIED OR
REIMBURSED BY THE BORROWER UNDER SECTION 12.03, BUT WITHOUT LIMITING THE
OBLIGATIONS OF THE BORROWER UNDER SAID SECTION 12.03 AND FOR ANY AND ALL OTHER
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS,
COSTS,
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EXPENSES OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER WHICH MAY BE IMPOSED
ON, INCURRED BY OR ASSERTED AGAINST THE AGENT OR THE ISSUING BANK IN ANY WAY
RELATING TO OR ARISING OUT OF: (I) THIS AGREEMENT, THE SECURITY INSTRUMENTS OR
ANY OTHER DOCUMENTS CONTEMPLATED BY OR REFERRED TO HEREIN OR THE TRANSACTIONS
CONTEMPLATED HEREBY, BUT EXCLUDING, UNLESS A DEFAULT HAS OCCURRED AND IS
CONTINUING, NORMAL ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE PERFORMANCE
OF ITS AGENCY DUTIES HEREUNDER OR (II) THE ENFORCEMENT OF ANY OF THE TERMS OF
THIS AGREEMENT, ANY SECURITY INSTRUMENT OR OF ANY SUCH OTHER DOCUMENTS; WHETHER
OR NOT ANY OF THE FOREGOING SPECIFIED IN THIS SECTION 11.05 ARISES FROM THE SOLE
OR CONCURRENT NEGLIGENCE OF THE AGENT OR THE ISSUING BANK, PROVIDED THAT NO
LENDER SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM
THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE AGENT OR THE ISSUING BANK.
Section 11.06 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender
acknowledges and agrees that it has, independently and without reliance on the
Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own credit analysis of the Borrower and its
decision to enter into this Agreement, and that it will, independently and
without reliance upon the Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under this Agreement.
The Agent shall not be required to keep itself informed as to the performance or
observance by the Borrower of this Agreement, the Notes, the Security
Instruments or any other document referred to or provided for herein or to
inspect the properties or books of the Borrower. Except for notices, reports and
other documents and information expressly required to be furnished to the
Lenders by the Agent hereunder and copies of the documents required to be
provided to the Agent under Article VI, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower (or any
of its Affiliates) which may come into the possession of the Agent or any of its
Affiliates. In this regard, each Lender acknowledges that Vinson & Elkins L.L.P.
is acting in this transaction as special counsel to the Agent only, except to
the extent otherwise expressly stated in any legal opinion or any Loan Document.
Each Lender will consult with its own legal counsel to the extent that it deems
necessary in connection with the Loan Documents and the matters contemplated
therein.
Section 11.07 ACTION BY AGENT. Except for action or other matters
expressly required of the Agent hereunder, the Agent shall in all cases be fully
justified in failing or refusing to act hereunder unless it shall (i) receive
written instructions from the Majority Lenders (or all of the Lenders as
expressly required by Section 12.04) specifying the action to be taken, and (ii)
be indemnified to its satisfaction by the Lenders against any and all liability
and expenses which may be incurred by it by reason of taking or continuing to
take any such action. The instructions of the Majority Lenders (or all of the
Lenders as expressly required by Section 12.04) and any action taken or failure
to act pursuant thereto by the Agent shall be binding on all of the Lenders. If
a Default has occurred and is continuing, the Agent shall take such action with
respect to such Default as shall be directed by the Majority Lenders (or all of
the Lenders as required by Section 12.04) in the written instructions (with
indemnities) described in this Section 11.07, provided that, unless and until
the Agent shall
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have received such directions, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default as it shall deem advisable in the best interests of the Lenders. In no
event, however, shall the Agent be required to take any action which exposes the
Agent to personal liability or which is contrary to this Agreement and the
Security Instruments or applicable law.
Section 11.08 RESIGNATION OR REMOVAL OF AGENT. Subject to the appointment
and acceptance of a successor Agent as provided below, the Agent may resign at
any time by giving notice thereof to the Lenders and the Borrower, and the Agent
may be removed at any time with or without cause by the Majority Lenders. Upon
any such resignation or removal, the Majority Lenders shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed by
the Majority Lenders and shall have accepted such appointment within thirty (30)
days after the retiring Agent's giving of notice of resignation or the Majority
Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent. Upon the acceptance of such
appointment hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Article XI and Section 12.03
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent.
ARTICLE XII
MISCELLANEOUS
Section 12.01 WAIVER. No failure on the part of the Agent or any Lender to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under any of the Loan Documents shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege under any of the Loan Documents preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The remedies
provided herein are cumulative and not exclusive of any remedies provided by
law.
Section 12.02 NOTICES. All notices and other communications provided for
herein and in the other Loan Documents (including, without limitation, any
modifications of, or waivers or consents under, this Agreement or the other Loan
Documents) shall be given or made by telex, telecopy, courier or U.S. Mail or in
writing and telexed, telecopied, mailed or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof or in the Loan Documents, except that for notices and other
communications to the Agent other than payment of money, the Borrower need only
send such notices and communications to the Agent care of the Houston address of
NationsBank; or, as to any party, at such other address as shall be desig nated
by such party in a notice to each other party. Except as otherwise provided in
this Agreement or in the other Loan Documents, all such communications shall be
deemed to have been duly given when transmitted, if transmitted before 1:00 p.m.
local time on a Business Day (otherwise on the next succeeding Business Day) by
telex or telecopier and evidence or confirmation of receipt is
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obtained, or personally delivered or, in the case of a mailed notice, three (3)
Business Days after the date deposited in the mails, postage prepaid, in each
case given or addressed as aforesaid.
Section 12.03 PAYMENT OF EXPENSES, INDEMNITIES, ETC.
(a) The Borrower agrees:
(i) whether or not the transactions hereby contemplated are
consummated, to pay all reasonable expenses of the Agent in the
administration (both before and after the execution hereof and including
advice of counsel as to the rights and duties of the Agent and the Lenders
with respect thereto) of, and in connection with the negotiation,
syndication, investigation, preparation, execution and delivery of,
recording or filing of, preservation of rights under, enforcement of, and
refinancing, renegotiation or restructuring of, the Loan Documents and any
amendment, waiver or consent relating thereto (including, without
limitation, travel, photocopy, mailing, courier, telephone and other
similar expenses of the Agent, the cost of environmental audits, surveys
and appraisals at reasonable intervals, the reasonable fees and
disbursements of counsel and other outside consultants for the Agent and,
in the case of enforcement (including, without limitation, bankruptcy and
workout matters), the reasonable fees and disbursements of counsel for the
Agent, the Issuing Bank, and any of the Lenders); and promptly reimburse
the Agent for all amounts expended, advanced or incurred by the Agent or
the Lenders to satisfy any obligation of the Borrower under this Agreement
or any Security Instrument, including without limitation, all costs and
expenses of foreclosure;
(II) TO INDEMNIFY THE AGENT, THE ISSUING BANK, AND EACH LENDER AND
EACH OF THEIR AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES,
REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS ("INDEMNIFIED
PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND PROMPTLY UPON
DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS WHICH MAY
BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT
ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF
OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED USE BY THE BORROWER OF
THE PROCEEDS OF ANY OF THE LOANS OR LETTERS OF CREDIT, (II) THE EXECUTION,
DELIVERY AND PERFORMANCE OF THE LOAN DOCUMENTS, (III) THE OPERATIONS OF
THE BUSINESS OF THE BORROWER AND ITS SUBSIDIARIES, (IV) THE FAILURE OF THE
BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY SECURITY
INSTRUMENT OR THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (V)
ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OF THE
BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS, (VI) THE
ISSUANCE, EXECUTION AND DELIVERY OR TRANSFER OF OR PAYMENT OR FAILURE TO
PAY UNDER ANY LETTER OF CREDIT, OR (VII) THE PAYMENT OF A DRAWING UNDER
ANY LETTER OF CREDIT NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR
OTHER IMPROPER PRESENTATION OF THE MANUALLY EXECUTED DRAFT(S) AND
CERTIFICATION(S), (VIII) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED
TO RECEIVE THE PROCEEDS
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RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS OR (IX) ANY OTHER ASPECT OF
THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND
DISBURSEMENTS OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION
WITH INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION,
SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES)
OR CLAIM AND INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE
ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL INDEMNITY
MATTERS ARISING SOLELY BY REASON OF CLAIMS BETWEEN THE LENDERS OR ANY
LENDER AND THE AGENT OR A LENDER'S SHAREHOLDERS AGAINST THE AGENT OR
LENDER OR BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE
PART OF THE INDEMNIFIED PARTY; AND
(III) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE
INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST
RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND
LIABILITIES TO WHICH ANY SUCH PERSON MAY BECOME SUBJECT (I) UNDER ANY
ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR ANY OF
THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE TREATMENT OR DISPOSAL
OF HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (II) AS A RESULT OF
THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY SUBSIDIARY WITH ANY
ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY, (III) DUE
TO PAST OWNERSHIP BY THE BORROWER OR ANY SUBSIDIARY OF ANY OF THEIR
PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH
LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT
LIABILITY, (IV) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL
OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED
BY THE BORROWER OR ANY SUBSIDIARY, OR (V) ANY OTHER ENVIRONMENTAL, HEALTH
OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS; PROVIDED,
HOWEVER, NO INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION 12.03(A)(III)
IN RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING FROM THE ACTS OR
OMISSIONS OF THE AGENT OR ANY LENDER DURING THE PERIOD AFTER WHICH SUCH
PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED POSSESSION OF SUCH
PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS
MORTGAGEE-IN-POSSESSION OR OTHERWISE).
(b) No Indemnified Party may settle any claim to be indemnified without
the consent of the indemnitor, such consent not to be unreasonably withheld;
provided, that the indemnitor may not reasonably withhold consent to any
settlement that an Indemnified Party proposes, if the indemnitor does not have
the financial ability to pay all its obligations outstanding and asserted
against the indemnitor at that time, including the maximum potential claims
against the Indemnified Party to be indemnified pursuant to this Section 12.03.
(c) In the case of any indemnification hereunder, the Agent, the Issuing
Bank or Lender, as appropriate shall give notice to the Borrower of any such
claim or demand being made against the Indemnified Party and the Borrower shall
have the non-exclusive right to join in the defense against any such claim or
demand provided that if the Borrower provides a defense, the Indemnified
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Party shall bear its own cost of defense unless there is a conflict between the
Borrower and such Indemnified Party.
(D) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES
NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER
WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN
OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT
IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE
INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON
ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED
PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE BUT
SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY
REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE
INDEMNIFIED PARTY.
(e) The Borrower's obligations under this Section 12.03 shall survive any
termination of this Agreement and the payment of the Notes and shall continue
thereafter in full force and effect.
(f) The Borrower shall pay any amounts due under this Section 12.03 within
thirty (30) days of the receipt by the Borrower of notice of the amount due.
Section 12.04 AMENDMENTS, ETC. Any provision of this Agreement or any
Security Instrument may be amended, modified or waived with the Borrower's and
the Majority Lenders' prior written consent; provided that (i) no amendment,
modification or waiver which extends the final maturity of the Loans, postpones
the scheduled payment date of any amount owing under any Loan Document,
increases the Aggregate Maximum Credit Amounts, modifies the Borrowing Base,
forgives the principal amount of any Indebtedness outstanding under this
Agreement, releases any guarantor of the Indebtedness or releases all or
substantially all of the collateral, reduces the interest rate applicable to the
Loans or the fees payable to the Lenders generally, affects Section 2.03(a),
this Section 12.04 or Section 12.06(a) or modifies the definition of "Majority
Lenders" or "Revolving Credit Termination Date" shall be effective without
consent of all Lenders; (ii) no amendment, modification or waiver which
increases the Maximum Credit Amount of any Lender shall be effective without the
consent of such Lender; and (iii) no amendment, modification or waiver which
modifies the rights, duties or obligations of the Agent shall be effective
without the consent of the Agent.
Section 12.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
Section 12.06 ASSIGNMENTS AND PARTICIPATIONS.
(a) The Borrower may not assign its rights or obligations hereunder or
under the Notes or any Letters of Credit without the prior consent of all of the
Lenders and the Agent.
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(b) Any Lender may, upon the written consent of the Agent and, if no Event
of Default has occurred and is continuing, the Borrower (which consent will not
be unreasonably withheld), assign to one or more assignees all or a portion of
its rights and obligations under this Agreement; PROVIDED, HOWEVER, that (i) any
such assignment shall be in the amount of at least $5,000,000 or such lesser
amount to which the Borrower has consented and (ii) the assignee or assignor
shall pay to the Agent a processing and recordation fee of $3,000 for each
assignment. Any such assignment will become effective upon the execution and
delivery to the Agent of the assignment and the consent of the Agent and the
Borrower, if applicable. Promptly after receipt of an executed Assignment, the
Agent shall send to the Borrower a copy of such executed Assignment. Upon
receipt of such executed Assignment, the Borrower, will, at its own expense,
execute and deliver new Notes to the assignor and/or assignee, as appropriate,
in accordance with their respective interests as they appear. Upon the
effectiveness of any assignment pursuant to this Section 12.06(b), the assignee
will become a "Lender," if not already a "Lender," for all purposes of this
Agreement and the Security Instruments. The assignor shall be relieved of its
obligations hereunder to the extent of such assignment (and if the assigning
Lender no longer holds any rights or obligations under this Agreement, such
assigning Lender shall cease to be a "Lender" hereunder except that its rights
under Sections 4.06, 5.01, 5.05 and 12.03 shall not be affected). The Agent will
prepare on the last Business Day of each month during which an assignment has
become effective pursuant to this Section 12.06(b), a new ANNEX I giving effect
to all such assignments effected during such month, and will promptly provide
the same to the Borrower and each of the Lenders.
(c) Each Lender may transfer, grant or assign participations in all or any
part of such Lender's interests hereunder pursuant to this Section 12.06(c) to
any Person, PROVIDED that: (i) such Lender shall remain a "Lender" for all
purposes of this Agreement and the transferee of such participation shall not
constitute a "Lender" hereunder; and (ii) no participant under any such
participation shall have rights to approve any amendment to or waiver of any of
the Loan Documents except to the extent such amendment or waiver would (x)
forgive any principal owing on any Indebtedness or extend the final maturity of
the Loans, (y) reduce the interest rate (other than as a result of waiving the
applicability of any post-default increases in interest rates) or fees
applicable to any of the Commitments or Loans or Letters of Credit in which such
participant is participating, or postpone the payment of any thereof, or (z)
release any guarantor of the Indebtedness or release all or substantially all of
the collateral (except as provided in the Loan Documents) supporting any of the
Commitments or Loans or Letters of Credit in which such participant is
participating. In the case of any such participation, the participant shall not
have any rights under this Agreement or any of the Security Instruments (the
participant's rights against the granting Lender in respect of such
participation to be those set forth in the agreement with such Lender creating
such participation), and all amounts payable by the Borrower hereunder shall be
determined as if such Lender had not sold such participation, PROVIDED that such
participant shall be entitled to receive additional amounts under Article V on
the same basis as if it were a Lender and be indemnified under Section 12.03 as
if it were a Lender. In addition, each agreement creating any participation must
include an agreement by the participant to be bound by the provisions of Section
12.15.
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(d) The Lenders may furnish any information concerning the Borrower in the
possession of the Lenders from time to time to assignees and participants
(including prospective assignees and participants); provided that, such Persons
agree to be bound by the provisions of Section 12.15.
(e) Notwithstanding anything in this Section 12.06 to the contrary, any
Lender may assign and pledge its Notes to any Federal Reserve Bank. No such
assignment and/or pledge shall release the assigning and/or pledging Lender from
its obligations hereunder.
(f) Notwithstanding any other provisions of this Section 12.06, no
transfer or assignment of the interests or obligations of any Lender or any
grant of participations therein shall be permitted if such transfer, assignment
or grant would require the Borrower to file a registration statement with the
SEC or to qualify the Loans under the "Blue Sky" laws of any state.
Section 12.07 INVALIDITY. In the event that any one or more of the
provisions contained in any of the Loan Documents, the Letter of Credit
Agreements, or the Letters of Credit shall, for any reason, be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of the Notes, this
Agreement or any Security Instrument.
Section 12.08 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
Section 12.09 REFERENCES. The words "herein," "hereof," "hereunder" and
other words of similar import when used in this Agreement refer to this
Agreement as a whole, and not to any particular article, section or subsection.
Any reference herein to a Section shall be deemed to refer to the applicable
Section of this Agreement unless otherwise stated herein. Any reference herein
to an exhibit or schedule shall be deemed to refer to the applicable exhibit or
schedule attached hereto unless otherwise stated herein.
Section 12.10 SURVIVAL. The obligations of the parties under Section 4.06,
Article V, and Sections 11.05 and 12.03 shall survive the repayment of the Loans
and the termination of the Commitments. To the extent that any payments on the
Indebtedness or proceeds of any collateral are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver or other Person under any bankruptcy
law, common law or equitable cause, then to such extent, the Indebtedness so
satisfied shall be revived and continue as if such payment or proceeds had not
been received and the Agent's and the Lenders' Liens, security interests,
rights, powers and remedies under this Agreement and each Security Instrument
shall continue in full force and effect. In such event, each Security Instrument
shall be automatically reinstated and the Borrower shall take such action as may
be reasonably requested by the Agent and the Lenders to effect such
reinstatement.
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Section 12.11 CAPTIONS. Captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
Section 12.12 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION.
(A) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT UNITED
STATES FEDERAL LAW PERMITS ANY LENDER TO CHARGE INTEREST AT THE RATE ALLOWED BY
THE LAWS OF THE STATE WHERE SUCH LENDER IS LOCATED. CHAPTER 346 OF THE TEXAS
FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND
REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE NOTES.
(B) SUBJECT TO SECTION 12.17, ANY LEGAL ACTION OR PROCEEDING WITH RESPECT
TO THE LOAN DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF
THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWER, THE AGENT AND
THE LENDERS HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. EACH OF THE BORROWER, THE AGENT AND THE LENDERS HEREBY
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION
TO THE LAYING OF 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.
(C) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY LENDER OR
ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(D) THE BORROWER, THE AGENT AND EACH LENDER HEREBY (I) IRREVOCABLY AND
UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY SECURITY
INSTRUMENT AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVE, TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER
IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY
THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY
HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK
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TO ENFORCE THE FOREGOING WAIVERS, AND (IV) ACKNOWLEDGE THAT IT HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT, THE SECURITY INSTRUMENTS AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS CONTAINED IN THIS SECTION 12.13.
Section 12.14 INTEREST. It is the intention of the parties hereto that
each Lender shall conform strictly to usury laws applicable to it. Accordingly,
if the transactions contemplated hereby would be usurious as to any Lender under
laws applicable to it (including the laws of the United States of America and
the State of Texas or any other jurisdiction whose laws may be mandatorily
applicable to such Lender notwithstanding the other provisions of this
Agreement), then, in that event, notwithstanding anything to the contrary in any
of the Loan Documents or any agreement entered into in connection with or as
security for the Notes, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under law applicable to any Lender that
is contracted for, taken, reserved, charged or received by such Lender under any
of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be canceled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of the
Indebtedness (or, to the extent that the principal amount of the Indebtedness
shall have been or would thereby be paid in full, refunded by such Lender to the
Borrower); and (ii) in the event that the maturity of the Notes is accelerated
by reason of an election of the holder thereof resulting from any Event of
Default under this Agreement or otherwise, or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to any Lender may never include more than the maximum amount
allowed by such applicable law, and excess interest, if any, provided for in
this Agreement or otherwise shall be canceled automatically by such Lender as of
the date of such acceleration or prepayment and, if theretofore paid, shall be
credited by such Lender on the principal amount of the Indebtedness (or, to the
extent that the principal amount of the Indebtedness shall have been or would
thereby be paid in full, refunded by such Lender to the Borrower). All sums paid
or agreed to be paid to any Lender for the use, forbearance or detention of sums
due hereunder shall, to the extent permitted by law applicable to such Lender,
be amortized, prorated, allocated and spread throughout the full term of the
Loans evidenced by the Notes until payment in full so that the rate or amount of
interest on account of any Loans hereunder does not exceed the maximum amount
allowed by such applicable law. If at any time and from time to time (i) the
amount of interest payable to any Lender on any date shall be computed at the
Highest Lawful Rate applicable to such Lender pursuant to this Section 12.14 and
(ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to such Lender would be less than the amount of
interest payable to such Lender computed at the Highest Lawful Rate applicable
to such Lender, then the amount of interest payable to such Lender in respect of
such subsequent interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to such Lender until the total amount of interest
payable to such Lender shall equal the total amount of interest which would have
been payable to such Lender if the total amount of interest had been computed
without giving effect to this Section 12.14. To the extent that Chapter 303 of
the Texas Finance Code is relevant for the purpose of determining the Highest
Lawful Rate, such Lender elects to determine the applicable rate ceiling under
such Chapter by the indicated weekly rate ceiling from time to time in effect.
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Section 12.15 CONFIDENTIALITY. In the event that the Borrower provides to
the Agent or the Lenders written confidential information belonging to the
Borrower, if the Borrower shall denominate such information in writing as
"confidential", the Agent and the Lenders shall thereafter maintain such
information in confidence in accordance with the standards of care and diligence
that each utilizes in maintaining its own confidential information. This
obligation of confidence shall not apply to such portions of the information
which (i) are in the public domain, (ii) hereafter become part of the public
domain without the Agent or the Lenders breaching their obligation of confidence
to the Borrower, (iii) are previously known by the Agent or the Lenders from
some source other than the Borrower, (iv) are hereafter developed by the Agent
or the Lenders without using the Borrower's information, (v) are hereafter
obtained by or available to the Agent or the Lenders from a third party who owes
no obligation of confidence to the Borrower with respect to such information or
through any other means other than through disclosure by the Borrower, (vi) are
disclosed with the Borrower's consent, (vii) must be disclosed either pursuant
to any Governmental Requirement or to Persons regulating the activities of the
Agent or the Lenders, or (viii) as may be required by law or regulation or order
of any Governmental Authority in any judicial, arbitration or governmental
proceeding. Further, the Agent or a Lender may disclose any such information to
any other Lender, any independent consultants, any independent certified public
accountants, any legal counsel employed by such Person in connection with this
Agreement or any Security Instrument, including without limitation, the
enforcement or exercise of all rights and remedies thereunder, or any assignee
or participant (including prospective assignees and participants) in the Loans;
PROVIDED, HOWEVER, that the Agent or the Lenders shall receive a confidentiality
agreement from the Person to whom such information is disclosed such that said
Person shall have the same obligation to maintain the confidentiality of such
information as is imposed upon the Agent or the Lenders hereunder.
Notwithstanding anything to the contrary provided herein, this obligation of
confidence shall cease three (3) years from the date the information was
furnished, unless the Borrower requests in writing at least thirty (30) days
prior to the expiration of such three year period, to maintain the
confidentiality of such information for an additional three year period. The
Borrower waives any and all other rights it may have to confidentiality as
against the Agent and the Lenders arising by contract, agreement, statute or law
except as expressly stated in this Section 12.15.
Section 12.16 EFFECTIVENESS. This Agreement shall be effective on the
Closing Date.
Section 12.17 BINDING ARBITRATION.
(A) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO,
INCLUDING BUT NOT LIMITED TO, THOSE ARISING OUT OF OR RELATING TO THIS
AGREEMENT, THE NOTES OR THE SECURITY INSTRUMENTS, INCLUDING ANY CLAIM OR
CONTROVERSY OF ANY KIND BASED ON OR ARISING IN TORT, SHALL BE DETERMINED BY
BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE
ARBITRATION OF COMMERCIAL DISPUTES OR JUDICIAL ARBITRATION AND MEDIATION
SERVICES, INC. ("J.A.M.S."), AND THE RULES SET FORTH IN SECTION 12.17(B) BELOW.
IN THE EVENT OF ANY INCONSISTENCY, THE RULES SET FORTH IN SECTION 12.17(B) BELOW
SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT
HAVING JURISDICTION. ANY PARTY TO THE NOTES OR ANY
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OTHER SECURITY INSTRUMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OR ANY CONTROVERSY OR CLAIM TO WHICH EITHER
THE NOTES, THIS AGREEMENT OR ANY OTHER SECURITY INSTRUMENT APPLIES IN ANY COURT
HAVING JURISDICTION OVER SUCH ACTION.
(B) THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF HOUSTON, TEXAS AND
ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR. IF J.A.M.S. IS UNABLE
OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION, AND THE ARBITRATOR SHALL, ONLY
UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARINGS FOR AN ADDITIONAL 60 DAYS.
(C) NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO (I) LIMIT THE
APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE OR
ANY WAIVERS CONTAINED IN THIS AGREEMENT, THE NOTES, THE GUARANTY AGREEMENT OR
THE OTHER SECURITY INSTRUMENTS; (II) BE A WAIVER BY ANY LENDER OF THE PROTECTION
AFFORDED TO IT BY 12 U.S.C. SS.91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR
(III) LIMIT THE RIGHT OF ANY LENDER TO (A) EXERCISE SELF HELP REMEDIES SUCH AS,
BUT NOT LIMITED TO, SETOFF, (B) FORECLOSE AGAINST ANY COLLATERAL, WHETHER REAL
OR PERSONAL PROPERTY, OR (C) OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS, BUT NOT LIMITED, INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE
APPOINTMENT OF A RECEIVER. ANY LENDER MAY EXERCISE SUCH SELF HELP RIGHTS,
FORECLOSE UPON COLLATERAL, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES
BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT
PURSUANT TO THE NOTES, THIS AGREEMENT OR THE OTHER SECURITY INSTRUMENTS. NEITHER
THE EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN
ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A
WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING THE RESORT TO SUCH
REMEDIES.
(D) THE PROVISIONS OF THIS SECTION 12.17 SHALL SURVIVE ANY TERMINATION,
AMENDMENT, OR EXPIRATION OF THE SECURITY INSTRUMENTS. EACH PARTY AGREES TO KEEP
ALL DISPUTES AND ARBITRATION PROCEEDINGS STRICTLY CONFIDENTIAL, EXCEPT FOR
DISCLOSURES OF INFORMATION REQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS OR BY
APPLICABLE LAW OR REGULATION.
(E) NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO LIMIT THE RIGHT OF THE
BORROWER TO OBTAIN INJUNCTIVE RELIEF AGAINST ANY LENDER PRIOR TO OR DURING THE
PENDENCY OF ANY ARBITRATION PROCEEDING BASED ON VIOLATIONS BY ANY LENDER OF ANY
LENDER'S AGREEMENTS WITH THE BORROWER, SO LONG AS THE INJUNCTIVE RELIEF IS
LIMITED TO RESTRAINING ANY LENDER FROM EXERCISING ITS RIGHTS AND REMEDIES UNTIL
THE ARBITRATION PROCEEDING (IN PROCESS OR INITIATED BY THE BORROWER OR ANY
LENDER IN
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CONJUNCTION WITH THE REQUEST FOR SUCH INJUNCTIVE RELIEF) HAS BEEN COMPLETED AND
ARBITRATION AWARD HAS BEEN MADE.
Section 12.18 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE SECURITY
INSTRUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS
OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS; THAT IT HAS IN FACT READ THIS
AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS,
CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY
INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING
ITS EXECUTION OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS; AND HAS RECEIVED
THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE SECURITY
INSTRUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT
AND THE SECURITY INSTRUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT
IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS
RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT
IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION
OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS ON THE BASIS THAT THE PARTY HAD
NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT
"CONSPICUOUS."
[SIGNATURES BEGIN ON NEXT PAGE]
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The parties hereto have caused this Agreement to be duly executed as of
the day and year first above written.
BORROWER: CASTLE DENTAL CENTERS, INC.
By:______________________________________
Name: John M. Slack,
Title: Vice President and Chief Executive
Officer
Address for Notices:
1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056
Telecopier No.:(713) 513-1401
Telephone No.:(713) 513-1400
Attention: Jack H. Castle, Jr.
Signature Page - 1
AGENT: NATIONSBANK, N.A.
By:____________________________
Margaret H. Barradas
Senior Vice President
Lending Office for Base Rate Loans and
Eurodollar Loans:
700 Louisiana Street
7th Floor
Houston, Texas 77002
Address for Notices:
700 Louisiana Street
7th Floor
Houston, Texas 77002
Telecopier No.: (713) 247-7175
Telephone No.: (713) 247-6056
Attention: Margaret H. Barradas
Signature Page - 2
LENDERS: PNC BANK
By:_____________________________
Name:
Title:
Lending Office for Base Rate Loans and
Eurodollar Loans and Address for
Notices:
1 PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Telecopier No.: 412/768-5149
Telephone No.: 412/762-4726
Attention:
Signature Page - 3
Am SOUTH
By:_________________________________
Name:
Title:
Lending Office for Base Rate Loans and
Eurodollar Loans and Addresses for
Notices:
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