PLEDGE AGREEMENT
This is a PLEDGE AGREEMENT (this "AGREEMENT") dated as of August 30, 2002,
between SafeGuard Health Enterprises, Inc., a Delaware corporation
("SAFEGUARD"), and Xxxxxxxx X. Xxxxxxxxx, DMD, a Florida resident ("SELLER").
BACKGROUND
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Seller sold to SafeGuard all of the issued and outstanding common stock of
Paramount Dental Plan, Inc., a Florida corporation ("PARAMOUNT") pursuant to a
Stock Purchase Agreement dated April 24, 2002 (the "STOCK PURCHASE AGREEMENT")
among SafeGuard, Seller, and Paramount. As part of its purchase price for the
Paramount shares, SafeGuard executed and delivered to Seller a Secured
Convertible Promissory Note dated the same date as this Agreement (the "NOTE"),
in the principal amount of $2,625,000. Concurrently with closing of this
transaction, Paramount merged into SafeGuard Health Plans, Inc., a Florida
corporation ("SAFEGUARD FLORIDA"), and Paramount's outstanding shares were
cancelled. This Agreement evidences the terms on which SafeGuard, to secure
repayment of the Note, grants to Seller a security interest in SafeGuard
Florida's outstanding shares of common stock. Capitalized terms not otherwise
defined in this Agreement have the meanings ascribed to them in the Stock
Purchase Agreement.
OPERATIVE TERMS
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SafeGuard and Seller agree as follows:
1. GRANT OF SECURITY INTEREST. To secure prompt payment and
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performance of its obligations under the Note and this Agreement, subject to the
provisions of Section 10 of this Agreement, SafeGuard pledges and grants to
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Seller a security interest in the following property (the "PLEDGED COLLATERAL"):
(a) SECURITIES. All securities of SafeGuard Florida now owned or
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later acquired by SafeGuard, and all new, substituted, and additional
documents, instruments, and general intangibles issued with respect to
those securities (collectively, the "PLEDGED SHARES"), and all now existing
and later arising rights of the holder of the Pledged Shares. Unless an
Event of Default (as defined below) occurs, SafeGuard will be entitled to
all voting rights associated with the Pledged Shares.
(b) PROCEEDS. All proceeds of the Pledged Collateral. For
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purposes of this Agreement, the term "proceeds" includes whatever is
receivable or received when Pledged Collateral or proceeds of the Pledged
Collateral are sold, collected, exchanged, or otherwise disposed of,
whether the disposition is voluntary or involuntary, and includes, without
limitation, all rights to payment in whatever form and however arising.
2. REPRESENTATIONS AND WARRANTIES. SafeGuard represents and warrants
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the following, both on execution of this Agreement and continuously during its
term:
(a) OWNERSHIP OF PLEDGED COLLATERAL. SafeGuard is sole legal and
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equitable owner of and has good and marketable title to the Pledged
Collateral (or, in the case of after-acquired Pledged Collateral, at the
time SafeGuard Florida acquires rights in the Pledged Collateral, will be
the sole legal and equitable owner) and is record and beneficial owner of
the Pledged Shares. The Pledged Shares constitute all of the issued and
outstanding securities of SafeGuard Florida.
(b) CREATION, PERFECTION, ANDPRIORITY. The parties' execution of
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this Agreement and SafeGuard's delivery to Seller of a certificate
evidencing the Pledged Shares create in favor of Seller a perfected
security interest in the Pledged Shares. Except for this security interest,
no person or entity has (or, in the case of after-acquired Pledged
Collateral, at the time SafeGuard Florida acquires rights therein, will
have) any right, title, claim, or interest (by way of security interest or
other lien or charge) in the Pledged Collateral. The Pledged Shares do not
include any uncertificated securities.
3. COVENANTS AND AGREEMENTS OF SAFEGUARD.
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(a) DELIVERY. SafeGuard shall deliver to Seller the certificate
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representing the Pledged Shares and a stock power with respect to the
Pledged Shares, endorsed in blank. SafeGuard shall also deliver to Seller
all instruments, documents, chattel paper, and other items of Pledged
Collateral for which a security interest may be perfected by possession,
together with the additional writings (including assignments and stock
powers) that Seller reasonably requests, provided, however, that the
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assignments and stock powers may be used to transfer or assign the Pledged
Collateral only when an Event of Default occurs. Seller shall cause all
securities included in the Pledged Shares to be or remain certificated
securities. Seller will retain possession of the foregoing documents for so
long as the Note remains outstanding.
(b) PRESERVE PLEDGED COLLATERAL. SafeGuard shall do all acts
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necessary to maintain, preserve, and protect the Pledged Collateral.
(c) USE OF PLEDGED COLLATERAL. SafeGuard shall not use and shall
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not permit any Pledged Collateral to be used unlawfully or in violation of
any provision of this Pledge Agreement, any other agreement with Seller
related to the Pledged Collateral, or any applicable statute, regulation,
or ordinance or any policy of insurance covering the Pledged Collateral.
(d) PAY TAXES. SafeGuard shall pay promptly when due all taxes,
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assessments, charges, encumbrances and liens imposed upon or affecting any
Pledged Collateral.
(e) DEFEND LITIGATION. SafeGuard shall appear in and defend any
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action or proceeding that might affect SafeGuard's title to or Seller's
interest in the Pledged Collateral.
(f) POSSESSION OF PLEDGED COLLATERAL. SafeGuard shall not
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surrender or lose possession of (other than to Seller), sell, encumber,
lease, rent, or otherwise dispose of or transfer any Pledged Collateral,
and shall keep the Pledged Collateral free of all levies and security
interests or other liens or charges (including, but not limited to junior
liens), except those that Seller approves in writing.
(g) COMPLY WITH LAW. SafeGuard shall comply with all laws,
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regulations, and ordinances relating to possession, maintenance, and
control of the Pledged Collateral.
(h) MAINTAIN RECORDS; NOTIFY OF CHANGES. SafeGuard shall keep
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separate, accurate, and complete records of the Pledged Collateral at its
principal place of business and provide to Seller the records, reports, and
information relating to the Pledged Collateral that Seller requests from
time to time. SafeGuard shall give Seller thirty (30) days prior written
notice of any change in SafeGuard Florida's principal place of business or
legal name or trade name(s).
(i) FURTHER ASSURANCES. SafeGuard shall procure, execute, and
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deliver from time to time any stock powers, endorsements, notifications,
registrations, assignments, financing statements, certificates and other
writings deemed necessary or appropriate by Seller to perfect, maintain,
and protect its security interest in the Pledged Collateral and the
priority of the security interest.
(j) PAY SELLER'S COSTS AND EXPENSES. SafeGuard shall reimburse
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Seller on demand for costs and expenses, including reasonable attorney fees
and disbursements, that Seller incurs in properly exercising any right,
power, or remedy provided by this Agreement or by law.
(k) DIVIDENDS ON PLEDGED SHARES. SafeGuard shall account fully for
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and promptly deliver to Seller, in the form received, any dividend or any
other distribution on account of the Pledged Shares whether in securities
or property by way of stock-split, spin-off, split-up or reclassification,
combination of shares or the like, or in case of any reorganization,
consolidation, or merger; provided, however, that until there shall have
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occurred an Event of Default or a condition that with the passage of time
or notice will constitute an Event of Default, SafeGuard may retain any
cash dividends paid on account of the Pledged Shares. SafeGuard shall
permit SafeGuard Florida to pay cash dividends only to the extent permitted
by the terms of the Note.
4. TERM OF PLEDGE; RELEASE. Except as otherwise provided in this
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Agreement, equitable title to the Pledged Shares remains vested in SafeGuard.
Seller holds the Pledged Shares only as security for the repayment of the Note.
Seller shall not encumber or dispose of the Pledged Shares, except in accordance
with the provisions of this Agreement. The Pledged Shares shall remain pledged
to Seller until all sums due under the Note and this Agreement have been paid in
full. Any release of the Pledged Collateral from this Agreement will not
release SafeGuard from continuing obligations under the Note. Upon the payment
and performance in full of the Note, SafeGuard shall be entitled to the return,
upon its written request and at its expense, of
such of the Pledged Collateral as shall not have been sold or otherwise applied
pursuant to the terms of this Agreement.
5. EVENT OF DEFAULT. An "Event of Default" under this Agreement means
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an Event of Default under the Note.
6. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default,
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subject to the provisions of Section 10, Seller shall have, and may exercise any
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one or more of, the following rights:
(a) Seller may vote the Pledged Shares on all corporate matters
and sign written consents in lieu of meeting as owner of the Pledged
Shares;
(b) Seller may take absolute title to the Pledged Shares by
completing the stock power with respect to the Pledged Shares, and after
this transfer Seller will solely own the Pledged Shares;
(c) Seller may, at its option, exercise any rights to convert or
exchange the Pledged Shares for other securities of SafeGuard Florida, and
any and all other rights, privileges, options or powers pertaining or
relating to the Pledged Shares. SafeGuard irrevocably constitutes and
appoints Seller its proxy and attorney-in-fact with full power of
substitution to exercise any and all rights, privileges, options, or powers
of SafeGuard pertaining or relating to the Pledged Shares; or
(d) Seller may sell, assign, and deliver all or any part of the
Pledged Shares at any private sale or at public auction, with or without
demand or advertisement of the time or place of sale or adjournment thereof
or otherwise, for cash, for credit or for other property or consideration,
for immediate or future delivery. Any sale or offer of the Pledged Shares
by Seller pursuant to the terms of this Agreement shall be at SafeGuard's
expense. SafeGuard shall reimburse Seller for his costs and other expenses
in having the Pledged Shares sold or offered for sale, including attorneys'
fees.
7. APPLICATION OF PROCEEDS. Seller shall apply the proceeds of any
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sale of all or any part of the Pledged Shares and any dividends or other
distributions that it directs to himself pursuant to the provisions of Section
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3(k), together with any other funds held by Seller under the provisions of this
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Agreement, after deducting all costs and expenses of collection, sale and
delivery (including without limitation, attorneys' fees, paralegal fees and
expenses, for all proceedings, trials and appeals and all costs and expenses
incurred by Seller) incurred by Seller, to the payment of all amounts due and
payable on the Note and all other liabilities of SafeGuard to Seller. After it
pays in full these amounts, Seller shall pay to SafeGuard the balance of any
such proceeds.
8. PRIVATE SALE OF PLEDGED SHARES. Subject to the provisions of
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Section 10, Seller may effect a private sale of Pledged Shares. In effecting
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such private sale, SafeGuard waives for itself or its assigns, to the extent it
is legally able to do so, any requirement (statutory or otherwise) of
advertisement (general or limited) or public announcement as to the time and
place of the sale of the Pledged Shares by Seller.
9. RIGHT TO BID OR PURCHASE. At any sale made pursuant to Section
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6(d), Seller may bid for or purchase, free from any right of redemption on the
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part of SafeGuard (all said rights being also waived and released), all or any
portion of Pledged Shares offered for sale and may make payment on account
thereof by using any outstanding balance of the Note as a credit against the
purchase price, and Seller may, upon compliance with the terms of sale, hold,
retain and dispose of such Pledged Shares without further accountability.
However, notwithstanding any of the foregoing, nothing in this Agreement shall
be construed as a requirement of Seller to sell, or attempt to sell, Pledged
Shares upon an Event of Default.
10. GOVERNMENTAL REQUIREMENTS. SafeGuard Florida is licensed as a
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Prepaid Limited Health Service Organization under the laws of the State of
Florida. Any transfer or voting of the Pledged Shares by Seller requires the
prior approval of the Florida Department of Insurance (the "DEPARTMENT"). This
Agreement and the obligations of SafeGuard and the rights of Seller are subject
to the Department's requirements and obtaining the Department's prior approval,
notwithstanding any provision of this Agreement to the contrary. In the event
of an Event of Default under this Agreement, SafeGuard shall assist and
cooperate in all respects in the process pursuant to which Seller secures
approval of the transfer by the Department.
11. POWER OF ATTORNEY.
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(a) SafeGuard irrevocably constitutes and appoints Seller (and his
personal representative in the event of Seller's death or disability) the
true and lawful attorney-in-fact of SafeGuard to make, execute,
acknowledge, swear to and file after an Event of Default: (i) any
application, request, certificate or other instrument which may be required
to be filed with the Department or any other governmental authority in the
State of Florida or any other jurisdiction whose laws may be applicable to
effectuate any transfer or voting of the Pledged Shares by Seller, in
accordance with the provisions of this Agreement; and (ii) any instrument
which the Seller deems necessary or appropriate to facilitate the
implementation of the terms of this Agreement, so long as such instruments
do not alter the rights or obligations of SafeGuard under the terms of this
Agreement.
(b) It is expressly acknowledged by SafeGuard that the foregoing
power of attorney is coupled with an interest, is irrevocable and shall
survive the bankruptcy or insolvency of SafeGuard or any assignment of the
Pledged Shares for the benefit of creditors. The foregoing grant of
authority: (i) may be exercised by Seller (or Seller's personal
representative) by a facsimile signature, and (ii) shall not cause
SafeGuard to be liable in any manner for the act or omissions of Seller (or
Seller's personal representative) and is granted only to permit Seller (or
Seller's personal representatives) to carry out the provisions of this
Agreement.
12. MISCELLANEOUS.
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(a) NOTICES. All demands, notices and other communications to
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Seller or SafeGuard provided for under this Agreement shall be provided as
set forth in the Stock Purchase Agreement.
(b) GOVERNING LAW. The validity, construction, interpretation,
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and enforceability of this Agreement shall be governed by the laws of the
State of Florida without giving effect to the choice of laws rules thereof.
(c) COUNTERPARTS. This Agreement may be executed in any number of
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counterparts, each of which when so executed will be deemed to be an
original and all of which when taken together will constitute one and the
same agreement.
(d) SUCCESSORS AND ASSIGNS. This Agreement is not assignable by
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any party without the prior written consent of the other parties, and any
attempted assignment without the prior written consent of the other parties
shall be invalid and unenforceable against the other parties. This
Agreement is binding upon, and inures to the benefit of, the respective
heirs, authorized assignees, successors and personal representatives of the
parties to it. The terms "SafeGuard Florida," "SafeGuard" and "Seller" as
used in this Agreement shall include such persons' successors, authorized
assigns, heirs and personal representatives.
(e) HEADINGS, CAPTIONS AND PRONOUNS. The Section headings,
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captions or abbreviations are included solely for convenient reference and
shall not control the meanings or interpretation of any of the provisions
of this Agreement. As used herein, words in the singular include the plural
and the words in the masculine include the feminine and neuter gender, and
vice versa whenever the context so requires.
(f) WAIVER. No waiver of any breach or default under this
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Agreement shall be deemed to be a waiver of any subsequent breach or
default. SafeGuard waives any right to require Seller to proceed against
any person or entity to exhaust any Pledged Collateral or to pursue any
remedy in Seller's power.
(g) INCORPORATION OF RECITALS. The recitals set forth at the
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beginning of this Agreement are hereby incorporated into this Agreement by
this reference and this Agreement shall be interpreted with reference to
such recitals.
(h) ENTIRE AGREEMENT;SEVERABILITY. This Agreement contains the
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entire pledge agreement between SafeGuard and Seller. This Agreement shall
not be severable in any way, but if any provision shall be held to be
invalid, the invalidity shall not affect the validity of the remainder of
this Agreement and the remainder of this Agreement shall continue in full
force and effect.
(i) AMENDMENT. This Agreement may not be amended or modified
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except by a writing signed by each of the parties.
(j) CUMULATIVE RIGHTS. The rights, powers, and remedies of Seller
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under this Agreement shall be in addition to all rights, powers, and
remedies given to Seller by virtue of any statute or rule of law, the Stock
Purchase Agreement or any Related Agreement, all of which rights, powers,
and remedies shall be cumulative and may be exercised successively or
concurrently without impairing Seller's security interest in the Pledged
Collateral.
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STOCK PLEDGE AGREEMENT
SIGNATURE PAGE
The undersigned execute the Stock Pledge Agreement and authorize this
signature page to be attached to a counterpart of the Stock Pledge Agreement
executed by the other parties to the Stock Pledge Agreement.
Executed as of the day and year first above written.
"SAFEGUARD"
SAFEGUARD HEALTH ENTERPRISES, INC.,
a Delaware corporation
By: /s/ Xxxxxxx X. Xxxxx
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Xxxxxxx X. Xxxxx
Executive Vice President & Chief
Operating Officer
By: /s/ Xxxxxx X. Xxxxxxxx
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Xxxxxx X. Xxxxxxxx
Senior Vice President and Secretary
STOCK PLEDGE AGREEMENT
SIGNATURE PAGE
The undersigned executes the Stock Pledge Agreement and authorize this
signature page to be attached to a counterpart of the Stock Pledge Agreement
executed by the other parties to the Stock Pledge Agreement.
Executed as of the day and year first above written.
"SELLER"
/s/ Xxxxxxxx X. Xxxxxxxxx, DMD
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Xxxxxxxx X. Xxxxxxxxx, DMD
IRREVOCABLE STOCK POWER
For value received, the undersigned does hereby sell, assign and transfer to
Xxxxxxxx X. Xxxxxxxxx, DMD __________ shares of the common stock of SafeGuard
Health Plans, Inc., a Florida corporation represented by certificate number
__________ standing in the name of the under-signed on the books of said
company.
The undersigned does hereby irrevocably constitute and appoint
____________________ attorney to transfer the said stock on the books of said
company, with full power of substitution in the premises.
Dated August 30, 2002
SAFEGUARD HEALTH ENTERPRISES, INC.,
a Delaware corporation
By: /s/ Xxxxx X. Xxxxxxx
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Xxxxx X. Xxxxxxx
President and Chief Executive Officer
By: /s/ Xxxxxx X. Xxxxxxxx
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Xxxxxx X. Xxxxxxxx
Senior Vice President and Secretary
