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SECURITIES PURCHASE AGREEMENT
dated as of May 12, 1998
among
GENTLE DENTAL SERVICE CORPORATION
(the "Company"),
and
THE PURCHASERS NAMED HEREIN
(the "Purchasers")
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TABLE OF CONTENTS
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ARTICLE I DEFINED TERMS; RULES OF CONSTRUCTION ............................ 1
1.1. Defined Terms ................................................... 1
1.2. Rules of Construction ...........................................16
ARTICLE II PURCHASE AND SALE of shares; CLOSINGS ...........................17
2.1. Certificate of Amendment ........................................17
2.2. Authorization of Issuance of Convertible Notes and
Preferred Shares ................................................17
2.3. Sale of Securities ..............................................18
2.4. Closings ........................................................18
2.5. Closing Deliveries ..............................................19
2.6. Use of Proceeds .................................................19
ARTICLE III REPRESENTATIONS AND WARRANTIES OFTHE COMPANY ....................20
3.1. Organization, Power, Authority and Good Standing ................20
3.2. Authorization, Execution and Enforceability .....................20
3.3. Authorization ...................................................21
3.4. Capitalization and Equity Investment ............................21
3.5. Reports and Financial Information ...............................24
3.6. Absence of Undisclosed Liabilities ..............................25
3.7. Absence of Changes ..............................................25
3.8. Title to Assets, Properties and Rights ..........................25
3.9. Intellectual Property ...........................................26
3.10. Material Agreements .............................................26
3.11. Litigation and Other Proceedings ................................27
3.12. Compliance with Laws ............................................27
3.13. Taxes ...........................................................28
3.14. Labor Relations .................................................29
3.15. ERISA Plans and Contracts .......................................29
3.16. Related Party Transactions ......................................29
3.17. Private Sale ....................................................30
3.18. Brokers .........................................................30
3.19. Insurance .......................................................30
3.20. Disclosure ......................................................31
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3.21. Accounts and Notes Receivable ...................................31
3.22. Registration Rights .............................................32
3.23. Year 2000 .......................................................32
ARTICLE IV Representations and Warranties of the Purchasers ................33
4.1. Authorization of the Documents ..................................33
4.2. Investment Representations ......................................33
ARTICLE V CONDITIONS TO CLOSING ...........................................35
5.1. First Closing ...................................................35
5.2. Second Closing ..................................................38
ARTICLE VI INDEMNIFICATION .................................................40
6.1. Survival of Representations, Warranties,
Agreements and Covenants, Etc ...................................40
6.2. Indemnification .................................................41
ARTICLE VII TRANSFER OF SECURITIES ..........................................43
7.1. Restriction on Transfer .........................................43
7.2. Restrictive Legends .............................................43
7.3. Notice of Transfer ..............................................44
7.4. Transfer Pursuant to Rule 144 ...................................45
7.5. Transfers to Competitors ........................................45
7.6. Transfers of Series A Preferred Shares and
Series C Preferred Shares .......................................45
ARTICLE VIII Information Rights ..............................................46
8.1. Access to Records ...............................................46
8.2. Financial Reports ...............................................47
ARTICLE IX Additional Agreements of the Company ............................49
9.1. Compliance ......................................................49
9.2. Insurance .......................................................49
9.3. Affirmative Covenants ...........................................49
9.4. Negative Covenants ..............................................51
ARTICLE X Events Of default ...............................................53
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10.1. Default .........................................................53
ARTICLE XI SUBORDINATION ...................................................55
11.1. Notes Subordinated to Senior Debt ...............................55
11.2. No Payment on Notes in Certain Circumstances ....................56
11.3. Notes Subordinated to Prior Payment of All Senior Debt
on Dissolution, Liquidation or Reorganization ...................57
11.4. Payments Otherwise Permitted ....................................58
11.5. Subrogation .....................................................59
11.6. Obligations of the Company Unconditional ........................59
11.7. Subordination Rights Not Impaired by Acts or Omissions
of the Company or Senior Debtholders ............................60
11.8. Notice to Purchaser .............................................60
11.9. Limitations on Remedies .........................................61
ARTICLE XII MISCELLANEOUS ...................................................61
12.1. Termination Events ..............................................61
12.2. Exchange of Notes ...............................................61
12.3. Fees ............................................................62
12.4. Further Assurances ..............................................63
12.5. Remedies ........................................................63
12.6. Successors and Assigns ..........................................63
12.7. Entire Agreement ................................................63
12.8. Notices .........................................................63
12.9. Amendments, Modifications and Waivers ...........................65
12.10. Governing Law; Waiver of Jury Trial .............................65
12.11. No Third Party Reliance .........................................65
12.12. Submission to Jurisdiction ......................................66
12.13. Extension; Waiver ...............................................66
12.14. Severability ....................................................66
12.15. Independence of Agreements, Covenants, Representations
and Warranties ..................................................67
12.16 Counterparts; Facsimile Signatures ..............................67
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SCHEDULE AND EXHIBITS
Schedule I - Purchasers
Schedule 3.1 - Jurisdictions
Schedule 3.2 - Consents
Schedule 3.4(a)(i)(B) - Employee Stock Option
Schedule 3.4(a)(i)(D) - Shares Reserved for Warrants
Schedule 3.4(a)(ii)(A) - Series A Preferred Stock Record Holders
Schedule 3.4(a)(ii)(C) - Series C Preferred Stock Record Holders
Schedule 3.4(a)(ii)(D) - Series D Preferred Stock Record Holders
Schedule 3.4(b) - Warrants, Options, etc.
Schedule 3.4(c) - Preemptive Rights
Schedule 3.4(d) - Obligations to Redeem
Schedule 3.4(f) - Subsidiaries
Schedule 3.5(b) - Preparation of Financial Statements
Schedule 3.5(d) - Pro Forma Financial Statements
Schedule 3.6 - Liabilities
Schedule 3.7 - Changes
Schedule 3.8 - Title to Assets
Schedule 3.9 - Intellectual Property
Schedule 3.10 - Material Agreements
Schedule 3.11 - Litigation and Other Proceedings
Schedule 3.12 - Compliance with Laws
Schedule 3.13 - Taxes
Schedule 3.14 - Labor Relations; Employees
Schedule 3.15 - Employee Benefit Plans
Schedule 3.16 - Related Party Transactions
Schedule 3.19 - Insurance
Schedule 3.21 - Accounts and Notes Receivable
Schedule 3.22 - Registration Rights
Schedule 9.2(b) - Insurance Coverage
Schedule 9.4(d) - Repurchase Rights
Exhibit A - Form of Certificate of Amendment
Exhibit B - Form of Convertible Subordinated Note
Exhibit C - Form of Registration Rights Agreement
SECURITIES PURCHASE
AGREEMENT (the "Agreement") dated
as of May 12, 1998, among GENTLE
DENTAL SERVICE Corporation, a
Washington corporation (the
"Company"), and the Purchasers
listed on Schedule I (collectively,
the "Purchasers").
The Company is in the business of providing dental practice management
and related services to dental practices in the United States (the "Business").
The Company desires to raise $30,000,000 in subordinated debt financing and
approximately $15,000,000 in equity financing, and the Purchasers are willing to
purchase certain subordinated convertible notes and certain shares of the
Company's preferred stock in connection therewith, all on the terms and subject
to the conditions set forth herein.
ACCORDINGLY, in consideration of the foregoing and the covenants,
agreements, representations and warranties contained in this Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the parties, the parties hereto hereby agree as follows:
ARTICLE I
DEFINED TERMS; RULES OF CONSTRUCTION
1.1. Defined Terms.
Capitalized terms used and not otherwise defined in this Agreement have the
meanings ascribed to them below or in the other locations of this Agreement
specified below:
"Additional Notes" means the additional Notes issued pursuant to
Section 3 of the Note (including the Non-Cash Interest Additional Notes).
"Affiliate" means, with respect to any specified Person, (1) any other
Person who, directly or indirectly, owns or controls, is under common ownership
or control with, or is owned or controlled by, such specified Person, (2) any
other Person who is a director, officer or partner or is, directly or
indirectly, the beneficial owner of ten percent (10%) or more of any class of
equity Securities, of the specified Person or a Person described in clause (1)
above, (3) any other Person of whom the specified Person is a director, officer
or partner or is, directly or indirectly, the beneficial owner of ten percent
(10%) or more of any class of equity Securities, (4) any other Person in whom
the specified Person has a substantial beneficial interest or as to whom the
specified Person serves as trustee or in a similar
capacity, or (5) any relative or spouse (including any partner with whom such
person resides on a permanent basis) of the specified Person or any of the
foregoing Persons described in clause (1), (2), (3) or (4) above, any relative
of such spouse, any spouse of any such relative or any other Person who,
directly or indirectly, is under common ownership or control with, or is owned
or controlled by such spouse or relative. As used in this definition, the term
"control" means the possession, directly or indirectly, of the power to direct
the management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. As used in this definition, the term
"relative" means any former spouses, parent, grandparent, great-grandparent,
child, grandchild, great-grandchild, sibling, first uncle, first aunt or first
cousin (in each case, whether natural or adoptive), provided however, that for
purposes of this Agreement, the term "Affiliate" shall not include any dental
practices that are managed by the Company or its Subsidiaries solely as a result
of such management relationship.
"Agent" means Imperial Bank, or its successor, as agent for the
lenders parties to the Senior Credit Facility.
"Agreement" shall have the meaning given to such term in the caption.
"Applicable Law," with respect to any Person, means all provisions of
laws, statutes, ordinances, rules, regulations, permits, certificates or orders
of any Governmental Authority applicable to such Person or any of its assets or
property or to which such Person or any of its assets or property is subject,
and all judgments, injunctions, orders and decrees of all courts and arbitrators
in proceedings or actions in which such Person is a party or by which it or any
of its assets or properties is or may be bound or subject.
"Arbitration Procedure" means the following procedure to determine the
Fair Value or the Market Price, as applicable (the "valuation amount"). The
valuation amount shall be determined by an investment banking firm of national
recognition, which firm shall be reasonably acceptable to the Company and the
Requisite Purchasers. If the Company and the Requisite Purchasers are unable to
agree upon an acceptable investment banking firm within ten (10) days after the
date either party proposed that one be selected, the investment banking firm
will be selected by an arbitrator located in the City of New York, New York
selected by the American Arbitration Association (or if such organization ceases
to exist, the arbitrator shall be chosen by a court of competent jurisdiction).
The arbitrator shall select the investment banking firm (within ten (10) days of
his appointment) from a list, jointly prepared by the Company and the Requisite
Investors, of not more than six investment banking firms of national standing in
the United States, of which no more than three may be named by the Company and
no more than three may be named by the Requisite Investors. The arbitrator may
consider, within the ten-day period allotted, arguments from the
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parties regarding which investment banking firm to choose, but the selection by
the arbitrator shall be made in its sole discretion from the list of six. The
Board and the Requisite Purchasers shall submit to the investment banking firm
their respective determinations of the valuation amount, and any supporting
arguments and other data as they may desire, within ten (10) days of the
appointment of the investment banking firm, and the investment banking firm
shall as soon as practicable thereafter make its own determination of the
valuation amount. The final valuation amount for purposes hereof shall be the
average of the two valuation amounts closest together, as determined by the
investment banking firm, from among the valuation amounts submitted by the
Company and the Requisite Purchasers and the valuation amount calculated by the
investment banking firm. The determination by such investment banking firm shall
be final and binding upon the parties. The Company and the Requisite Purchasers
shall each pay one-half (1/2) of the fees and expenses of the investment banking
firms and arbitrators (if any) used to determine the valuation amount. If
required by any such investment banking firm or arbitrator, the Company shall
execute a retainer and engagement letter containing reasonable terms and
conditions, including, without limitation, customary provisions concerning the
rights of indemnification and contribution by the Company in favor of such
investment banking firm or arbitrator and its officers, directors, partners,
employees, agents and Affiliates.
"Best Knowledge" has the meaning given to it in Section 1.2.
"Board" means the Board of Directors of the Company.
"Business" has the meaning given to it in the Preamble to this
Agreement.
"Business Day" means any day other than a Saturday, Sunday or a day on
which all United States securities exchanges on which Securities issued by the
Company are listed, are authorized or required to be closed.
"By-laws" means the by-laws of the Company, as amended and in effect
at the time in question.
"Capital Expenditures" means, with respect to any Person for any
period, the sum of all amounts (including the capital portion of any Capital
Lease Obligations incurred) that would, in accordance with GAAP, be included as
capital expenditures on a consolidated statement of cash flows for such Person
during such period.
"Capital Lease Obligations" means, with respect to any Person on any
date, the Obligations of such Person to pay rent or other amounts under any
lease of (or other arrangement conveying the right to use) real or personal
property, or a combination thereof, which Obligations are required to be
classified and
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accounted for as capital leases on a balance sheet of such Person as of such
date computed in accordance with GAAP.
"Certificate of Amendment" means the Certificate of Amendment of the
Company, the form of which is attached as Exhibit A.
"Certificate of Incorporation" means the Articles of Incorporation of
the Company as amended and restated and in effect at the time in question.
"Change of Control" means the occurrence of any of the following
events: (i) all or substantially all of the Company's assets, on a consolidated
basis, are sold as an entirety to any Person or related group of Persons or
there shall be consummated any consolidation or merger of the Company (A) in
which the Company is not the continuing or surviving company (other than a
consolidation or merger with a wholly-owned Subsidiary of the Company in which
all shares of Common Stock outstanding immediately prior to the effectiveness
thereof are changed into or exchanged for the same consideration) or (B)
pursuant to which the Common Stock would be converted into cash, Securities or
other property, in any case, other than a consolidation or merger of the Company
in which the holders of the Common Stock immediately prior to the sale of assets
or consolidation or merger have, directly or indirectly, at least a majority of
the Common Stock of the transferee or continuing or surviving company
immediately after such sale of assets or consolidation or merger, (ii) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act),
is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 of the
Exchange Act provided that such person shall be deemed to have "beneficial
ownership" of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total voting power of the outstanding
capital stock of the Company; provided however that for purposes of computing
the total voting power of the outstanding capital stock of the Company such
computation shall not include shares of Common Stock issuable upon conversion of
the Notes, Series B Preferred Stock or Series D Preferred Stock; or (iii) during
any period of two consecutive years, individuals who at the beginning of such
period constituted the Board cease for any reason to constitute a majority of
the Board, then in office.
"Claim" means any claim, demand, assessment, judgment, order, decree,
action, cause of action, litigation, suit, investigation or other Proceeding.
"Closings" means collectively, the First Closing and the Second
Closing.
"Closing Certificate" has the meaning given to it in Section 6.1.
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"Code" means the Internal Revenue Code of 1986, as amended, or any
similar Federal law then in force, and the rules and regulations promulgated
thereunder, all as the same may from time to time be in effect.
"Common Stock" means, collectively, all of the Common Stock, no par
value, of the Company of any class, and any other class of capital stock of the
Company hereafter authorized that is not limited to a fixed sum or percentage of
par or stated value in respect to the rights of the holders thereof to
participate in dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Company.
"Common Stock Equivalent" means all shares of Common Stock outstanding
and all shares of Common Stock issuable (without regard to any present
restrictions on such issuance) upon the conversion, exchange or exercise of all
Securities of the Company that are convertible, exchangeable or exercisable for
Common Stock and all Common Stock appreciation rights, phantom Common Stock
rights and other rights to acquire, or to receive or be paid amounts based on
the Market Price (less any exercise, conversion or purchase price) of, the
Common Stock.
"Company" has the meaning given to it in the caption to this
Agreement.
"Company Indemnified Persons" has the meaning given to it in Section
6.2(b).
"CVCA" shall mean Chase Venture Capital Associates, L.P.
"Default" shall mean any event or occurrence which after notice or
lapse of time or both would become an Event of Default.
"Designated Senior Debt" means Indebtedness constituting Senior Debt
under the Senior Credit Facility, and any successor credit facility.
"Documents" means this Agreement, the Notes, Certificate of Amendment,
the Registration Rights Agreement, any Warrant and the SBA Letter.
"EBITDA" means, for any period of determination thereof, Net Income of
the Company plus (a) Interest Expense, (b) income tax expense, refunds or
credits for such periods, and (c) depreciation and amortization expense of the
Company, all determined in accordance with GAAP.
"Employee Plans" means any current or previously terminated "employee
benefit plan" (as defined in Section 3(3) of ERISA) as well as any other plan,
program or arrangement involving direct and indirect compensation or benefits,
in each case, under which the Company or any ERISA Affiliate of the
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Company has any present or future obligations or Liability on behalf of its
employees or former employees, contractual employees or their dependents or
beneficiaries.
"Encumbrance" has the meaning given to it in Section 3.8.
"Environmental and Safety Requirements" means all Legal Requirements,
Orders, contractual obligations and all common law concerning public health and
safety, worker health and safety, and pollution or protection of the
environment, including, without limitation, all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation, including but not limited to, the
Solid Waste Disposal Act, as amended, 42 U.S.C. Section 6901, et seq., the Clean
Air Act, as amended, 42 U.S.C. Section 7401, et seq. the Federal Water Pollution
Control Act, as amended, 33 U.S.C. Section 1251, et seq., the Emergency Planning
and Community Right-to-Know Act, 42 U.S.C. Section 11001, et seq., the
Comprehensive Environmental Response, Compensation, and Liability Act, as
amended, 42 U.S.C. Section 9601, et seq., the Hazardous Materials Transportation
Uniform Safety Act, as amended, 49 U.S.C. Sections 1804, et seq., the
Occupational Safety and Health Act of 1970, and the regulations promulgated
thereunder.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, or any similar Federal law in force, and the rules and regulations
promulgated thereunder, all as the same may be amended.
"ERISA Affiliate" means, with respect to any Person, any entity that
is a member of a "controlled group of corporations" with, or is under "common
control" with, or is a member of the same "affiliated service group" with such
Person as defined in Sections 414(b), 414(c), 414(m) or 414(o) of the Code.
"Equity Incentive Plans" means collectively (1) the 1993 Stock
Incentive Plan, as amended, (2) the 1996 Stock Option Plan of the Company, (3)
the 1996 Performance Stock Option Plan of the Company and (4) any other equity
incentive plan adopted by the Company and approved by the required vote of its
shareholders.
"Event of Default" means any of the events set forth in Section 10.1.
"Event of Option" shall occur when there is no longer an individual
nominated by Sprout (other than pursuant to the Certificate of Amendment) as a
member of the Board.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar Federal Statute then in force, and the rules and regulations
promulgated thereunder, all as the same may from time to time be in effect.
"Exchanged Notes" has the meaning given to such term in Section 12.2.
"Fair Value" means, with respect to any listed Security, its Market
Price, and with respect to any property or assets other than cash or listed
Securities, the fair value thereof determined in good faith jointly by the
Company and the Requisite Purchasers; provided, however, that if the parties are
not able to agree within a reasonable period of time (not to exceed ten (10)
days) what amount constitutes Fair Value, then the Fair Value will be determined
pursuant to the Arbitration Procedure using an appropriate valuation methods
assuming an arms-length sale for an independent party.
"First Closing" shall have the meaning given to such term in Section
2.4(a).
"First Closing Date" shall have the meaning given to such term in
Section 2.4(a).
"Fundamental Documents" means the documents by which any Person (other
than an individual) establishes its legal existence or which govern its internal
affairs. The Fundamental Documents of the Company are the Certificate of
Incorporation and By-laws.
"GAAP" means United States generally accepted accounting principles.
"Governmental Authority" means any domestic or foreign government or
political subdivision thereof, whether on a federal, state or local level and
whether executive, legislative or judicial in nature, including any agency,
authority, board, bureau, commission, court, department or other instrumentality
thereof.
"Guaranty" means any obligation, contingent or otherwise, of any
Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness or other obligation of any other Person in any manner, whether
directly or indirectly, including any obligation of such Person, direct or
indirect, (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation or to
purchase (or to advance or supply funds for the purchase of) any
security for the payment of such Indebtedness or other
obligation, (ii) to purchase property, securities or services for
the purpose of assuring the owner of such Indebtedness or other
obligation of the payment thereof, (iii) to purchase or otherwise
pay for merchandise, materials, supplies, services or other
property under an arrangement which provides that payment for
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such merchandise, materials, supplies, services or other property shall be made
regardless of whether delivery of such merchandise, materials, supplies,
services or other property is ever made or tendered, or (iv) to maintain the
working capital, equity capital or other financial statement condition of any
primary obligor, provided, however, that the term Guaranty shall not include
endorsement of instruments for deposit and collection in the ordinary course of
business.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by (or which
customarily would be evidenced by) bonds, debentures, notes or similar
instruments, (c) all reimbursement obligations of such Person with respect to
letters of credit and similar instruments, (d) all obligations of such Person
under conditional sale or other title retention agreements relating to property
or assets purchased by such Person, (e) all obligations of such Person incurred,
issued or assumed as the deferred purchase price of property or services other
than accounts payable incurred and paid on terms customary in the business of
such Person (it being understood that the "deferred purchase price" in
connection with any purchase of property or assets shall include only that
portion of the purchase price which shall be deferred beyond the date on which
the purchase is actually consummated), (f) all obligations secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Encumbrance on property owned or acquired by
such Person, whether or not the obligations secured thereby have been assumed,
(g) all obligations of such Person under forward sales, futures, options and
other similar hedging arrangements (including interest rate hedging or
protection agreements), (h) all obligations of such Person to purchase or
otherwise pay for merchandise, materials, supplies, services or other property
under an arrangement which provides that payment for such merchandise,
materials, supplies, services or other property shall be made regardless of
whether delivery of such merchandise, materials, supplies, services or other
property is ever made or tendered, (i) all Guaranties by such Person of
obligations of others and (j) all capitalized lease obligations of such Person.
"Interest Coverage Ratio" means with respect to the Company and its
Subsidiaries on a consolidated basis for any period, the ratio of (a) EBITDA for
such period to (b) Interest Expense for such period.
"Interest Expense" means, for any period, all interest (including
capitalized interest) and all amortization of debt discount and expense on any
particular Indebtedness (excluding the Notes but including, without limitation
payment-in-kind, zero coupon and other like securities and the interest
component of Capital Lease Obligations applicable to such period) of the
Company.
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"Indemnified Persons" means any of the Company Indemnified Persons or
any of the Purchaser Indemnified Persons, as the context may require.
"Indemnifying Persons" means any of the Purchasers or the Company, as
the context may require.
"Insurance Policies" has the meaning given to it in Section 3.19.
"Intellectual Property Rights" means all industrial and intellectual
property rights, including, without limitation, patents, patent applications,
patent rights, trademarks, trademark applications, trade names, service marks,
service xxxx applications, copyrights, copyright applications, know-how, trade
secrets, proprietary processes and formulae, confidential information,
franchises, licenses, inventions, instructions, marketing materials, trade
dress, logos and designs and all documentation and media constituting,
describing or relating to the foregoing, including manuals, memoranda and
records.
"Interest Payment Date" has the meaning given to it in the Notes.
"Investment" in any Person, means any loan or advance to such Person,
any purchase or other acquisition of any capital stock or other ownership or
profit interest, warrants, rights, options, obligations or other Securities of
such Person, any capital contribution to such Person or any other investment in
such Person.
"Legal Requirements" means, as to any Person, all federal, state,
local or foreign laws, statutes, rules, regulations, ordinances, permits,
certificates, requirements, regulations, and restrictions of any Governmental
Authority applicable to such Person or any of its properties or assets.
"Liability" means any liability or obligation, whether known or
unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued,
liquidated or unliquidated and whether due or to become due, regardless of when
asserted.
"Loss" means any loss (including diminution in value of Securities),
Liability, demand, claim, action, cause of action, cost, damage, deficiency, Tax
(including any Taxes imposed with respect to any indemnity payments for any such
Loss), penalty, fine or expense, whether or not arising out of any Claims by or
on behalf of any party to this Agreement or any third party, including interest,
penalties, reasonable attorneys' fees and expenses and all amounts paid in
investigation, defense or settlement of any of the foregoing which any such
party may suffer, sustain or become subject to, as a result of, in connection
with, relating or incidental to or by virtue of any indemnifiable event or
condition.
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"Mandatory Conversion Event" shall occur when during 20 Business Days
during a Measurement Period, the Market Price of the Common Stock shall have
exceeded the Trigger Price.
"Market Price" means, as to any listed Security, the average of the
closing prices of such Security's sales on all United States securities
exchanges on which such Security may at the time be listed, or, if there have
been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if on
any day such Security is not so listed, the average of the representative bid
and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, on
such day, or, if on any day such security is not quoted in the NASDAQ System,
the average of the highest bid and lowest asked prices on such day in the
domestic over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar or successor organization, in each such case
averaged over a period of 21 days consisting of the day as of which "Market
Price" is being determined and the 20 consecutive Business Days prior to such
day; provided however that for the purposes of determining Market Price of
Securities issued by the Company to sellers of a business (provided such sellers
are not Affiliates of the Company) in connection with an acquisition of such
seller's business then the price shall be averaged over a period of 5
consecutive Business Days prior to such day.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the business, condition (financial and otherwise),
operations, results of operations, assets (including levels of working capital
and components thereof), Liabilities, and prospects of such Person.
"Material Agreements" has the meaning given to it in Section 3.10.
"Maturity Date" means the eighth anniversary of the First Closing
Date.
"Measurement Period" means 30 consecutive Business Days.
"Multi-employer Plan" means a Plan which is a multi-employer plan as
defined in Section 3(37) of ERISA.
"NASDAQ System" means either the Nasdaq National Market System or the
Nasdaq Smallcap Market System.
"Net Income" means, for any period, the gross revenues of the Company
for such period less all expenses and other proper charges, but excluding in any
event:
(i) any gains or losses on the sale or other disposition of
Investments or fixed or capital assets or from any transaction
classified as extraordinary under
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GAAP, any taxes on such excluded gains and any tax deductions or
credits on account of any such excluded losses;
(ii) the proceeds of any life insurance policy;
(iii) net earnings and losses of any business entity,
substantially all the assets of which have been acquired in any manner
by the business entity, realized by such company prior to the date of
such acquisition;
(iv) net earnings and losses of any company which shall have
merged into the business entity prior to the date of such merger;
(v) net earnings of any business entity (other than a
consolidated Subsidiary) in which the Company has an ownership
interest unless such net earnings actually shall have been received by
the Company in the form of cash distributions;
(vi) earnings resulting from a reappraisal, revaluation or
write-up of assets;
(vii) any charge to net earnings resulting from the amortization
of the value of stock options given to employees to the extent
required by FASB 25;
(viii) any increase or decrease of net income arising from a
change in the Company's accounting methods;
(ix) any gains resulting from the forgiveness of Indebtedness or
the retirement of Indebtedness at a discount;
(x) any gain arising from the acquisition of any Securities of
the Company; and
(xi) any reversal of any contingency reserve, except that
provision for such contingency reserve shall have been made from
income arising during such period.
"Newco" has the meaning given to such term in Section 12.2.
"Non-Cash Interest Additional Note" has the meaning given to such term
in the Note.
"Notes" means the 7.0% Convertible Subordinated Notes, substantially
in the form of which is attached hereto as Exhibit B, together with any Notes
issued in substitution or exchange for any Purchased Notes (including the
Exchanged Notes), and any
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Additional Notes (including Non-Cash Interest Additional Notes), all of which
were issued in accordance with the terms hereof.
"Obligation" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including any
liability of such Person on any claim, whether or not the right of any creditor
to payment in respect of such claim is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, disputed, undisputed, legal,
equitable, secured or unsecured, and whether or not such claim is discharged,
stayed or otherwise affected by any proceeding at law or in equity.
"Order" means any judgment, writ, decree, injunction, order,
stipulation, compliance agreement or settlement agreement issued or imposed by,
or entered into with, a Governmental Authority, whether or not having the force
of law.
"Permits" has the meaning given to it in Section 3.12.
"Permitted Encumbrances" has the meaning given to it in Section 3.8.
"Person" shall be construed as broadly as possible and shall include
an individual, a partnership (including a limited liability partnership), a
company, an association, a joint stock company, a limited liability company, a
trust, a joint venture, an unincorporated organization and a Governmental
Authority.
"Payment Blockage Notice" has the meaning set forth in Section
11.2(b).
"Payment Blockage Period" shall have the meaning assigned to such term
in Section 11.2(b).
"Preferred Shares" has the meaning given to it in Section 2.2.
"Preferred Stock" means, collectively, the Series A Preferred Stock,
the Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock.
"Proceeding" means any legal, administrative or arbitration action,
suit, complaint, charge, hearing, inquiry, investigation or proceeding.
"Purchased Notes" has the meaning given to it in Section 2.3.
"Purchaser" has the meaning given to it in the caption to this
Agreement, any Person succeeding to the rights of a Purchaser pursuant to the
terms hereof, and in the case of Article XI, the holder of the Subordinated
Obligations.
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"Purchaser Indemnified Person" has the meaning given to it in Section
6.2(a).
"Registration Rights Agreement" means the Registration Rights
Agreement among the Company and the Purchasers (as defined therein), a form of
which is attached as Exhibit C.
"Requisite Purchasers" means (i) in the case of issues relating to or
concerning the Notes or Warrants, Persons holding Common Stock Equivalents
representing a majority of all the outstanding Common Stock Equivalents issuable
upon conversion of Notes, or upon exercise of Warrants, held by such Persons at
the time in question, provided that so long as CVCA, or its Affiliates, is a
Significant Holder, CVCA must be included in such majority, (ii) in the case of
issues relating to or concerning the Series B Preferred Shares, Persons holding
Common Stock Equivalents representing a majority of all outstanding Common Stock
Equivalents issuable upon conversion of the Series B Preferred Shares held by
such Persons at the time in question provided that so long as CVCA or its
Affiliates, is a Significant Holder, CVCA must be included in such majority,
(iii) in the cases of issues relating to or concerning the Series A Preferred
Shares, CVCA, (iv) in the case of issues relating to or concerning the Series C
Preferred Shares, Sprout, and (v) in the case of issues relating to or
concerning the Series D Preferred Shares, Persons holding Common Stock
Equivalents representing a majority of all outstanding Common Stock Equivalents
issuable upon conversion of the Series D Preferred Shares, held by such Persons
at the time in question provided that so long as CVCA, or its Affiliates, is a
Significant Holder, CVCA must be included in such majority.
"Reserved Common Shares" means the shares of Common Stock issuable
upon conversion of the Notes, the Series B Preferred Shares, Series D Preferred
Shares or Warrants, if any.
"Restricted Securities" shall mean the Notes, the Reserved Common
Shares and any shares of capital stock received in respect of any thereof
(including any Additional Notes), in each case which have not then been sold to
the public pursuant to (a) registration under the Securities Act or (b) Rule 144
(or similar or successor rule) promulgated under the Securities Act.
"Restricted Shares" shall mean the Reserved Common Shares that
constitute Restricted Securities.
"Returns" has the meaning set forth in Section 3.13 of this Agreement.
"SBA Letter" has the meaning set forth in Section 5.1(n) of this
Agreement.
"Second Closing" has the meaning given to it in Section 2.4(b).
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"Second Closing Date" has the meaning given to it in Section 2.4(b).
"SEC" has the meaning set forth in Section 3.5.
"SEC Reports" has the meaning set forth in Section 3.5.
"Securities" means, with respect to any Person, such Person's
"securities" as defined in Section 2(1) of the Securities Act and includes such
Person's capital stock or other equity interests or any options, warrants or
other securities or rights that are directly or indirectly convertible into, or
exercisable or exchangeable for, such Person's capital stock or other equity
interests.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same may from time to time be in effect.
"Senior Credit Facility" means the Amended and Restated Credit
Agreement, dated as of January 7, 1998, among the Company and its Subsidiaries
and Imperial Bank, as lender and Agent thereunder, or any credit facility
entered into by the Company in connection with refinancing of the Company's
Indebtedness under such Amended and Restated Credit Agreement.
"Senior Credit Documents" means all written contracts or agreements in
respect of Senior Debt.
"Senior Debt" means all Indebtedness other than such Indebtedness
specified as junior or pari passu, for purposes of priority, to the Notes.
"Senior Debt Non-Payment Default" has the meaning set forth in Section
11.2(b).
"Senior Debt Payment Default" has the meaning set forth in Section
11.2(a).
"Senior Debtholders" means the holders from time to time of any of the
Senior Debt.
"Series A Preferred Shares" has the meaning set forth in Section 2.2.
"Series A Preferred Stock" means the Series A Preferred Stock, no par
value, of the Company.
"Series A Preferred Redemption Event" means the Series A Preferred
Shares shall have been repurchased by the Company pursuant to Section 7.6 of
this Agreement.
"Series B Preferred Conversion Event" has the meaning given to such
term in the Note.
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"Series B Preferred Shares" has the meaning set forth in Section 2.2.
"Series B Preferred Stock" means the Series B Preferred Stock, no par
value, of the Company.
"Series C Preferred Shares" has the meaning set forth in Section 2.2.
"Series C Preferred Stock" means the Series C Preferred Stock, no par
value, of the Company.
"Series C Redemption Event" means the Series C Preferred Shares shall
have been repurchased by the Company pursuant to Section 7.6 of this Agreement.
"Series D Preferred Shares" has the meaning set forth in Section 2.2.
"Series D Preferred Stock" means the Series D Preferred Stock, no par
value, of the Company.
"Significant Holder" has the meaning set forth in Section 8.1(c).
"Sprout" means The Sprout Group, together with its Affiliates.
"Subordinated Obligations" means all Obligations in respect of the
Notes (other than any indemnification Obligations hereunder, including those
indemnification Obligations under Section 6.2(a)(iii)).
"Subsidiary" shall mean, at any time, with respect to any Person (the
"Subject Person"), (i) any Person of which either (x) more than 50% of the
shares of stock or other interests entitled to vote in the election of directors
or comparable Persons performing similar functions (excluding shares or other
interests entitled to vote only upon the failure to pay dividends thereon or
other contingencies) or (y) more than a 50% interest in the profits or capital
of such Person, are at the time owned or controlled directly or indirectly by
the Subject Person or through one or more Subsidiaries of the Subject Person or
by the Subject Person and one or more Subsidiaries of the Subject Person, or
(ii) any Person whose assets, or portions thereof, are consolidated with the net
earnings of the Subject Person and are recorded on the books of the Subject
Person for financial reporting purposes in accordance with GAAP; provided
however, that for purposes of this Agreement, the term Subsidiary shall not
include any dental practices managed by the Company or any of its Subsidiaries
solely as a result of such management relationship.
"Tax" means any Taxes and the term "Taxes" means, with respect to any
Person, (A) all income taxes (including any tax on
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or based upon net income, or gross income, or income as specially defined, or
earnings, or profits, or selected items of income, earnings or profits) and all
gross receipts, sales, use, ad valorem, transfer, franchise, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property or windfall profits taxes, alternative or add-on minimum taxes, customs
duties or other taxes, fees, assessments or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority (domestic or foreign) on such Person and
(B) any Liability for the payment of any amount of the type described in the
immediately preceding clause (A) as a result of being a "transferee" (within the
meaning of Section 6901 of the Code or any other applicable Legal Requirement)
of another Person or a member of an affiliated or combined group.
"Total Indebtedness" means, in respect to any Person, at the date of
determination, the aggregate principal amount of all Indebtedness of such
Person, determined in accordance with GAAP.
"Transfer" shall mean any disposition of any shares or other units of
Restricted Securities or any interest therein which would constitute a sale
thereof within the meaning of the Securities Act.
"Trigger Price" means (i) on or prior to the first anniversary of the
Closing Date, $15.73, (ii) after the first anniversary of the Closing Date, but
on or prior to the second anniversary of the Original Issuance Date, $16.85, and
(iii) any time after the second anniversary of the Closing Date, $17.98.
"Warrants" means the Warrants issuable upon prepayment of the Notes or
redemption at the option of the Company of the Series B Preferred Shares or
Series D Preferred Shares.
1.2. Rules of Construction.
The term "this Agreement" means this agreement together with all schedules
and exhibits hereto, as the same may from time to time be amended, modified,
supplemented or restated in accordance with the terms hereof. In this Agreement,
the term "Best Knowledge" of any Person means (i) actual knowledge of such
Person (including the actual knowledge of the officers and directors of such
Person) and (ii) that knowledge which could have been acquired by such Person
after making such due inquiry and exercising such due diligence as a prudent
businessperson would have made or exercised in the management of his or her
business affairs, including due inquiry of those key employees and professionals
of such Person who could reasonably be expected to have actual knowledge of the
matters in question. The use in this Agreement of the term "including" means
"including, without limitation." The words "herein," "hereof," "hereunder" and
other words of similar import refer to this Agreement as a whole, including the
schedules and exhibits, as the same may from time
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to time be amended, modified, supplemented or restated, and not to any
particular section, subsection, paragraph, subparagraph or clause contained in
this Agreement. All references to sections, schedules and exhibits mean the
sections of this Agreement and the schedules and exhibits attached to this
Agreement, except where otherwise stated. The title of and the section and
paragraph headings in this Agreement are for convenience of reference only and
shall not govern or affect the interpretation of any of the terms or provisions
of this Agreement. The use herein of the masculine, feminine or neuter forms
shall also denote the other forms, as in each case the context may require or
permit. Where specific language is used to clarify by example a general
statement contained herein, such specific language shall not be deemed to
modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement has been
chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against any party. Unless expressly provided
otherwise, the measure of a period of one month or year for purposes of this
Agreement shall be that date of the following month or year corresponding to the
starting date, provided that if no corresponding date exists, the measure shall
be that date of the following month or year corresponding to the next day
following the starting date. For example, one month following February 18 is
March 18, and one month following March 31 is May 1.
ARTICLE II
PURCHASE AND SALE OF SHARES; CLOSINGS
2.1. Certificate of Amendment.
Prior to the First Closing, the Company shall file with the Secretary of
State of the State of Washington the Certificate of Amendment. The Certificate
of Amendment (i) designates one hundred (100) shares of Series A Preferred
Stock, (ii) designates seventy thousand (70,000) shares of Series B Preferred
Stock, (iii) designates one hundred (100) shares of Series C Preferred Stock,
(iv) designates two million (2,000,000) shares of Series D Preferred Stock, and
(v) sets forth the terms, designations, powers, preferences and relative rights
and the qualifications, limitations and restrictions, of the Preferred Stock.
2.2. Authorization of Issuance of Convertible Notes and Preferred Shares.
Subject to the terms and conditions hereof, the Company has authorized the
issuance at the Closings of an aggregate of (a) $30,000,000 in principal amount
of the Company's 7.0% Convertible Subordinated Notes (the "Notes"), (b) 100
shares (the "Series A Preferred Shares") of the Series A Preferred Stock, (c)
70,000 shares (the "Series B Preferred Shares") of the Series B
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Preferred Stock, (d) 100 shares (the "Series C Preferred Shares") of Series C
Preferred Stock and (e) 2,000,000 shares (the "Series D Preferred Shares" and
together with the Series A Preferred Shares, Series B Preferred Shares and the
Series C Preferred Shares, collectively, the "Preferred Shares") of Series D
Preferred Stock.
2.3. Sale of Securities.
(a) At the Closings (as defined below), subject to the satisfaction or
waiver of the conditions set forth in Article V, the Company shall (i) issue and
sell to each Purchaser, and each Purchaser shall severally purchase from the
Company, the aggregate principal amount of Notes set forth opposite the name of
such Purchaser in the second column of Schedule I, (the aggregate principal
amount of the Notes purchased by the Purchasers referred to herein as the
"Purchased Notes"), in exchange for the aggregate purchase price set forth
opposite the name of such Purchaser in the third column of Schedule I and (ii)
issue and sell to each of Sprout and CVCA, and each of Sprout and CVCA shall
purchase from the Company that number and series of Preferred Shares set forth
opposite its name on Schedule I for the aggregate purchase price set forth
opposite its name.
(b) At any time and from time to time after the date hereof and prior to
June 5, 1998, the Company may amend this Agreement by adding additional parties
as Purchasers and allocate the Series D Preferred Shares and Notes remaining for
purchase after the First Closing among them; provided however, that in the event
additional parties do not purchase all such remaining Series D Preferred Shares
and Notes on or prior to the Second Closing Date any Series D Preferred Shares
and Notes remaining for purchase at such time shall be purchased by Sprout
pursuant to this Agreement on the Second Closing Date, provided that, in
connection with the purchase of the Series D Preferred Shares and Notes on the
Second Closing Date, Sprout hereby agrees to waive compliance with all
conditions to the purchase of the Series D Preferred Shares and Notes at the
Second Closing, as set forth in Section 5.2.
2.4. Closings.
(a) The first closing (the "First Closing") hereunder with respect to the
issuance and sale of the Purchased Notes and the Preferred Shares being
purchased by each Purchaser at the First Closing and the consummation of the
related transactions contemplated hereby shall, subject to the satisfaction or
waiver of the applicable conditions set forth in Section 5.1, take place at the
offices of X'Xxxxxxxx Graev & Karabell, LLP, 00 Xxxxxxxxxxx Xxxxx, Xxx Xxxx, Xxx
Xxxx, xx May 15, 1998 (the "First Closing Date"), or at such other time, date or
place as agreed to by the parties.
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(b) The second Closing (the "Second Closing", and together with the First
Closing, the "Closings") of the issuance and sale of Purchased Notes and the
Preferred Shares being purchased by such Purchaser at the Second Closing
hereunder shall, subject to the satisfaction or waiver of the conditions set
forth in Section 5.2, take place at the offices of X'Xxxxxxxx Graev & Karabell,
LLP, on or prior to June 5, 1998 (the "Second Closing Date"), or such later date
not past June 30, 1998, if necessary to comply with the Xxxx-Xxxxx-Xxxxxx
Anti-Trust Improvements Act of 0000 (xxx "XXX Xxx") or at such other time, date
or place agreed to by the Company and the Purchasers purchasing Notes or Series
D Preferred Shares at such Closing.
2.5. Closing Deliveries.
At each Closing, the Company shall deliver to each Purchaser purchasing
Securities at such Closing (i) in the case of the First Closing, a Note payable
to the Purchaser, in an aggregate principal amount equal to the Notes purchased
by such Purchaser at the Closing, and to each Purchaser purchasing Preferred
Shares at the First Closing a certificate, registered in its name, representing
the Preferred Shares purchased by such Purchaser at the First Closing, against
receipt by the Company of a wire transfer, of immediately available funds to an
account designated by the Company, of an amount equal to the purchase price for
the Securities being purchased by such Purchaser at the Closing and (ii) in the
case of the Second Closing, a Note payable to the Purchaser purchasing Notes at
such Second Closing, in an aggregate principal amount equal to the Notes
purchased by such Purchaser at such Closing and to each Purchaser purchasing
Preferred Shares at the Second Closing, a certificate, registered in its name,
representing the Preferred Shares purchased by such Purchaser at the Second
Closing against receipt by the Company of a wire transfer, of immediately
available funds to an account designated by the Company, of an amount equal to
the purchase price for the Securities being purchased by such Purchaser at the
Second Closing.
2.6. Use of Proceeds.
The proceeds received by the Company from the sale of all Purchased Notes
and Preferred Shares shall be used by the Company solely for (i) repayment of
existing Indebtedness, (ii) the payment of fees and expenses incurred in
connection with the consummation of this transaction, (iii) working capital
needs and (iv) acquisitions of assets and related non-professional business of
dental practices, each as described in the detailed analysis of the use of
proceeds previously delivered to the Purchasers.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY
The Company represents and warrants to the Purchasers that as of the date
hereof:
3.1. Organization, Power, Authority and Good Standing.
The Company and each of its Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite power and authority (corporate and
otherwise) to own, lease and operate its assets and properties and to carry on
its business as presently conducted and as presently proposed to be conducted.
The Company and each of its Subsidiaries is duly qualified and in good standing
to transact business as a foreign Person in the respective jurisdictions set
forth on Schedule 3.1, which constitute all the jurisdictions in which the
character of the property owned, leased or operated by the Company and each of
its Subsidiaries or the nature of the business or activities conducted by the
Company and each of its Subsidiaries makes such qualification necessary, except
where such failure to so qualify has not had nor could reasonably be expected to
have a Material Adverse Effect on the Company and each of its Subsidiaries taken
together as a whole. The Purchasers have been furnished with true, correct and
complete copies of the Fundamental Documents of the Company and each of its
Subsidiaries, in each case as amended and in effect on the date hereof. The
Company has never engaged in any businesses other than the Business.
3.2. Authorization, Execution and Enforceability.
The Company has all requisite power and authority (corporate and otherwise)
to execute and deliver and perform its obligations under the Documents to which
it is a party and to consummate the transactions contemplated by such Documents.
The Company's execution and delivery of, and performance of its obligations
under, the Documents to which the Company is a party have been duly and validly
authorized by all requisite action on the part of the Company, and each such
Document constitutes, or upon its execution and delivery will constitute, a
valid and binding obligation of the Company enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws and general principles
of equity. Except as set forth on Schedule 3.2, the Company's execution and
delivery of, and performance of its obligations under, the Documents to which it
is a party, and the consummation of the transactions contemplated thereby,
including the authorization, reservation, issuance, sale and delivery, as the
case may be, of the Notes, the Reserved Common Shares and the Preferred Shares,
will not (a) violate any Legal Requirement applicable to the Company or any of
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its Subsidiaries or any of their properties or assets or (b) conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute (with due notice or lapse of time, or both) a default or give rise to
any right of termination, cancellation or acceleration, or result in the
creation of any Encumbrance upon any of the properties or assets of the Company
or any of its Subsidiaries, under, any provision of the Fundamental Documents of
the Company or any of its Subsidiaries or any Material Agreement or Permit to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries or their assets or properties are or may be bound,
except where such violation, conflict, breach, default or right individually or
in the aggregate has not had nor could reasonably be expected to have a Material
Adverse Effect on the Company and each of its Subsidiaries taken together as a
whole.
3.3. Authorization.
The authorization, reservation, issuance, sale and delivery, as applicable,
of the Notes, the Reserved Common Shares and the Preferred Shares have been duly
and validly authorized by all requisite action on the part of the Company. The
Notes, the Preferred Shares and the Additional Notes, if any, and the Reserved
Common Shares (assuming the issuance thereof in accordance with the applicable
terms of the Notes, Series B Preferred Shares and the Series D Preferred
Shares), will be duly and validly issued and outstanding, fully paid and
nonassessable, with no personal Liability attaching to the ownership thereof and
not subject to any preemptive rights, rights of first refusal or other similar
rights of the stockholders of the Company.
3.4. Capitalization and Equity Investment.
(a) The authorized capital stock of the Company immediately after the
consummation of the Closings shall consist of:
(i) 50,000,000 duly authorized shares of Common Stock, of which:
(A) 7,808,978 shares shall be duly and validly issued and
outstanding, fully paid and nonassessable, with no personal Liability
attached to the ownership thereof;
(B) 863,350 shares shall be duly and validly reserved for
issuance pursuant to outstanding options granted to and held by the
employees of the Company in the amounts set forth on Schedule
3.4(a)(i)(B);
(C) 1,042,150 shares shall be duly and validly reserved for
issuance pursuant to options that may be granted after the date hereof
to employees of the
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Company pursuant to the Company's Equity Incentive Plans;
(D) 640,437 shares shall be duly and validly reserved for
issuance pursuant to outstanding warrants granted to and held by the
persons and in the amounts set forth on Schedule 3.4(a)(i)(D);
(E) 7,600,434 shares shall be duly and validly reserved for
issuance pursuant to the conversion of the Notes or Series B Preferred
Shares issued hereunder;
(F) 2,000,000 shares shall be duly and validly reserved for
issuance pursuant to the conversion of the Series D Preferred Shares
issued hereunder; and
(G) 42,191,022 shares shall be unissued; and
(ii) 30,000,000 duly authorized shares of Preferred Stock, of which:
(A) 100 shares shall be designated as Series A Preferred Stock
and shall be duly and validly issued and outstanding, fully paid and
nonassessable, with no personal Liability attached to the ownership
thereof, all of which shall be held of record and beneficially by the
Persons and in the amounts set forth on Schedule 3.4(a)(ii)(A);
(B) 70,000 shares shall be designated as Series B Preferred
Stock, none of which shall be outstanding;
(C) 100 shares shall be designated as Series C Preferred Stock
and shall be duly and validly issued and outstanding, fully paid and
nonassessable, with no personal Liability attached to the ownership
thereof, all of which shall be held of record and beneficially by the
Persons and in the amounts set forth on Schedule 3.4(a)(ii)(C);
(D) 2,000,000 shares shall be designated as Series D Preferred
Stock of which 1,628,667 shall be duly and validly issued and
outstanding, fully paid and nonassessable, with no personal Liability
attached to the ownership thereof, all of which shall be held of
record and beneficially by the Persons in the amounts set forth on
Schedule 3.4(a)(ii)(D); and
(E) 28,371,136 shares shall be unissued.
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(b) Schedule 3.4(b) hereto also contains a list of all outstanding
warrants, options, agreements, convertible securities and other commitments
pursuant to which the Company is or may become obligated to issue, sell or
otherwise transfer any Securities of the Company, which list names all Persons
entitled to receive such Securities, indicates whether or not such Securities
are entitled to any anti-dilution or similar adjustments upon the issuance of
additional Securities of the Company or otherwise, sets forth the shares of
capital stock and other Securities required to be issued thereunder (calculated
after giving effect to all such anti-dilution and other similar adjustments
resulting from the issuance of the Purchased Notes and the Series B Preferred
Shares and the Series D Preferred Shares) and the exercise or conversion price
thereof, as applicable.
(c) Except as set forth on Schedule 3.4(c) there are no preemptive rights
of first refusal or other similar rights to purchase or otherwise acquire shares
of capital stock or other Securities of the Company pursuant to any Legal
Requirement, any Fundamental Document of the Company or any agreement to which
the Company is a party or may be bound. Except as set forth on Schedule 3.4(c)
or as contemplated by the Documents and the Fundamental Documents of the
Company, there is no Encumbrance (such as a right of first refusal, right of
first offer, proxy, voting trust or voting agreement) with respect to the sale
or voting of any Securities of the Company (whether outstanding or issuable upon
the conversion, exchange or exercise of outstanding Securities).
(d) Except as set forth on Schedule 3.4(d), other than as required by the
Certificate of Amendment there are no obligations to redeem, repurchase or
otherwise acquire shares of capital stock or other Securities of the Company
pursuant to any Legal Requirement, any Fundamental Document of the Company or
any agreement to which the Company is a party or may be bound.
(e) All Securities issued by the Company have been either issued in
transactions in accordance with or exempt from registration under the Securities
Act and the rules and regulations promulgated thereunder and all applicable
state securities or "blue sky" laws, and the Company has not violated the
Securities Act or any applicable state securities or "blue sky" laws in
connection with the issuance of any such Securities. There are no restrictions
upon the voting rights associated with, or the transfer of, any of the capital
stock of the Company, except as provided by (i) United States or state
securities laws or (ii) the terms and provisions of the Documents or as are
disclosed in the SEC Reports.
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(f) Except as set forth on Schedule 3.4(f), the Company does not have any
Subsidiaries, nor does it own any capital stock or other proprietary interest,
directly or indirectly, in any other Person. Except as set forth on Schedule
3.4(f) hereto, the Company owns, directly or through another Subsidiary, all of
the capital stock of each Subsidiary and there are no options, warrants or other
rights to acquire any capital stock of any Subsidiary.
3.5. Reports and Financial Information.
(a) The Company has filed in a timely manner, all reports required to be
filed by it with the Securities and Exchange Commission (the "SEC") pursuant to
the Exchange Act since February 13, 1997, including, without limitation, an
Annual Report on Form 10-KSB for the year ended December 31, 1997 (collectively,
the "SEC Reports"), and has previously furnished or made available to the
Purchasers true and complete copies of all SEC Reports. None of the SEC Reports
or any registration statement, definitive proxy statement and other documents
filed by the Company with the SEC since February 13, 1997 (collectively, the "33
and 34 Act Reports"), as of their respective dates (as amended through the date
hereof), (i) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading or (ii) failed to comply with the requirements of the Securities
Act, the Exchange Act or the respective rules and regulations of the SEC
thereunder.
(b) Except as set forth on Schedule 3.5(b) attached hereto, the financial
statements contained in the 33 and 34 Act Reports, and the related statements of
operations and statements of cash flows for the period then ended (collectively,
the "Financial Statements") (i) were in accordance with the books and records of
the Company, (ii) presented fairly the consolidated financial condition and
results of operations of the Company as of the dates and for the periods
indicated and (iii) were prepared in accordance with GAAP consistently applied
(except as set forth in the notes thereto and subject, in the case of Financial
Statements as at the end of or for the periods other than fiscal years, to
normal year-end audit adjustments, provided that such adjustments are not
material individually or in the aggregate).
(c) The Financial Statements complied, when filed, as to form in all
material respects with the applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto.
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(d) The pro forma financial statements (including a balance sheet and
income statement) attached to Schedule 3.5(d), fairly present the pro forma
financial condition and results of operations of the Company as of and for the
periods covered thereby. Except as set forth or provided for in the pro forma
financial statements the Company does not have any material liabilities,
contingent or otherwise. The pro forma Financial Statements are based on
estimates and assumptions which are reasonable in light of the conditions which
existed at the time of their preparation and which exist on the date hereof, and
reflect reasonable estimations of future performance.
3.6. Absence of Undisclosed Liabilities.
Except as set forth on Schedule 3.6 attached hereto, the Company has no
material Liability which was not provided for or disclosed in the Financial
Statements, other than Liabilities incurred in the ordinary course of business
since December 31, 1997.
3.7. Absence of Changes.
Except as set forth on Schedule 3.7 attached hereto, since December 31,
1997, there has not been any (i) event or condition which has had or could
reasonably be expected to have a Material Adverse Effect on the Company and its
Subsidiaries taken together as a whole, (ii) material deviation from historical
accounting and other practices in connection with the maintenance of the
Company's books and records, (iii) except as in the ordinary course of business
consistent with past practice, increase in or prepayment of the compensation
payable or to become payable by the Company or any of its Subsidiaries to any of
its directors or officers, or the making of any bonus payment or similar
arrangement to or with any of them, (iv) except for the write-off of accounts
receivable in the ordinary course of business consistent with past practice,
cancellation of indebtedness due to the Company or any of its Subsidiaries from
others, (v) waiver or release of any material rights of the Company or any of
its Subsidiaries, except in the ordinary course of business and for fair value,
or any lapse or other loss of a material right of the Company or any of its
Subsidiaries to use its assets or conduct its business, or (vi) material change
in the policies of the Company or any of its Subsidiaries with respect to the
payment of accounts payable or other current Liabilities or the collection of
accounts receivable, including any acceleration or deferral of the payment or
collection thereof, as applicable.
3.8. Title to Assets, Properties and Rights.
Except as set forth on Schedule 3.8 hereto, each of the Company and its
Subsidiaries has good and marketable title to all properties, interests in
properties and assets, real, personal, intangible or mixed, used in the conduct
of its business, free
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and clear of all mortgages, judgments, claims, liens, security interests,
pledges, escrows, charges, restrictions or other encumbrances of any kind or
character whatsoever ("Encumbrances"), other than Permitted Encumbrances and
Encumbrances which do not have a Material Adverse Effect on the Business. As
used herein, "Permitted Encumbrances" shall mean (i) Encumbrances listed on
Schedule 3.8 hereto, (ii) liens for taxes not yet due and payable and for which
an appropriate reserve has been taken and (iii) rights of way, easements and
other minor defects in title which do not adversely affect in any material
respect the use or value of the real property subject to such Encumbrance.
3.9. Intellectual Property.
Except as set forth on Schedule 3.9, (i) each of the Company and the
Subsidiaries owns, has the right to use, sell, license and dispose of, and has
the right to bring actions for the infringement of, all Intellectual Property
Rights necessary or required for the conduct of the business of the Company and
the Subsidiaries (collectively, the "Owned Requisite Rights"), other than those
Intellectual Property Rights for which the Company and the Subsidiaries has a
valid license, all of which are listed on Schedule 3.9 (collectively, the
"Licensed Requisite Rights"; and together with the Owned Requisite Rights, the
"Requisite Rights"), and such rights to use, sell, license, dispose of and bring
actions are exclusive with respect to the Owned Requisite Rights; and (ii) the
Requisite Rights of the Company and the Subsidiaries, all of which are listed on
Schedule 3.9, are sufficient for the conduct of the business of the Company and
the Subsidiaries as currently conducted and as presently proposed to be
conducted.
3.10. Material Agreements.
Except as set forth on Schedule 3.10, there are no (a) notes, bonds,
mortgages, indentures, or material Permits or (b) other material written or oral
contracts, agreements, instruments and other understandings, involving annual
amounts in excess of $100,000, or that are material to the Business, financial
condition or results of the operations of the Company and its Subsidiaries and
would have been required to be disclosed in a registration statement declared
effective by the SEC as of the date hereof (all such contracts, agreements,
instruments and other understandings together with agreements listed on
Schedules 3.4(a)(i)(B), 3.4(a)(i)(D), 3.4(a)(ii)(A), 3.4(a)(ii)(B),
3.4(a)(ii)(C), 3.4(a)(ii)(D), 3.4(b), 3.4(c), 3.4(d), 3.4(f), 3.9, 3.10, 3.16,
3.17, 3.19 and 3.22 being collectively called "Material Agreements" herein).
Each Material Agreement constitutes a valid and binding obligation of the
Company and/or Subsidiary party thereto and to the Best Knowledge of the Company
is enforceable against such other party in accordance with its terms. Each of
the Company and the Subsidiaries have in all material respects performed all of
the obligations required to be
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performed by each of them to date pursuant to the Material Agreements, and there
exists no default, or any event which upon the giving of notice or the passage
of time, or both, would give rise to a claim of a default in the performance by
the Company and the Subsidiaries or, to the Best Knowledge of the Company, any
other party to any of the Material Agreements, except where such default or
event, individually or in the aggregate, has not had nor could it reasonably be
expected to have a Material Adverse Effect on the Company and each of its
Subsidiaries taken together as a whole.
3.11. Litigation and Other Proceedings.
Except as set forth on Schedule 3.11, there are no (i) Proceedings pending
or, to the Best Knowledge of the Company, threatened against or involving the
Company or any of the Subsidiaries, whether at law or in equity, whether civil
or criminal in nature or by or before any Governmental Authority, which if
adversely determined would individually or aggregate have Material Adverse
Effect on the Company and each of its Subsidiaries taken as a whole, nor to the
Best Knowledge of the Company does there exist any reasonable basis therefor, or
(ii) Orders of any Governmental Authority with respect to or involving the
Company or any of the Subsidiaries.
3.12. Compliance with Laws.
The Company and each of the Subsidiaries (i) has complied in all material
respects with, and is in compliance with, in all material respects all Legal
Requirements (including ERISA and Environmental Safety Requirements), applicable
to it and its business and (ii) has all federal, state, local and foreign
governmental licenses and permits (collectively, "Permits") used or necessary in
the conduct of its business, except where such failure to obtain any Permit,
individually or in the aggregate, has not had nor could it reasonably be
expected to have a Material Adverse Effect on the Company and each of its
Subsidiaries taken together as a whole. Such Permits are in full force and
effect, no violations with respect to any thereof have occurred or are or have
been recorded, no Proceeding is pending or, to the Best Knowledge of the
Company, threatened to revoke or limit any thereof. Schedule 3.12 contains a
true, correct and complete list of (A) all such material Permits and (B) all
Orders under which the Company and the Subsidiaries is operating or bound. To
the Best Knowledge of the Company, there is no proposed change in any applicable
Legal Requirement which would require the Company or any of the Subsidiaries to
obtain any material Permits not set forth on Schedule 3.12 in order to conduct
the business of the Company and the Subsidiaries as each is presently conducted
and as presently proposed to be conducted. None of such Permits or Orders shall
be adversely affected as a result of the Company's execution and delivery of, or
the performance of its obligations under, any Document to which it is a party,
or the consummation of the transactions contemplated
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thereby. Neither the Company nor any of the Subsidiaries has received any
opinion or memorandum or legal advice from legal counsel to the effect that it
is exposed, from a legal standpoint, to any Liability or disadvantage which may
be material to its business, financial condition, operations, property or
affairs. Except as set forth on Schedule 3.12, the Company, after due inquiry,
is not aware of any proposed Legal Requirement which would prohibit or restrict
the Company or any of the Subsidiaries from, or otherwise materially adversely
affect the Company or any of the Subsidiaries in, conducting each of their
businesses in any jurisdiction in which each is now conducting business or which
it proposes to conduct business. To the Best Knowledge of the Company, there are
no facts or circumstances that could reasonably indicate that the Company's
proposed acquisition of Dedicated Dental will not be approved by the Department
of Corporations of the State of California.
3.13. Taxes.
Except as disclosed on Schedule 3.13, (a) the Company and each other
Person included in any consolidated or combined Tax Return and part of an
affiliated group, within the meaning of Section 1504 of the Code, of which the
Company and each Subsidiary is or has been a member has filed all returns,
declarations of estimated tax, tax reports, information returns and statements
(collectively, the "Returns") required to be filed by it (other than those for
which extensions have been granted and have not expired) relating to any Taxes
(as defined below); (b) as of the time of filing, the Returns were complete and
correct in all material respects and all Taxes shown on the Returns have been
paid; (c) the Company and each Subsidiary has paid or made provisions for all
Taxes payable for any period that ended on or before the date hereof and for any
period that began on or before the date hereof and ends after the date hereof,
to the extent such Taxes are attributable to the portion of any such period
ending on the date hereof; (d) the Company and each Subsidiary is not delinquent
in the payment of any Taxes nor has it requested any extension of time within
which to file any Return, which Return has not since been filed; (e) there are
no pending tax audits of any Returns of the Company or any Subsidiary, and
neither the Company nor any Subsidiary has received notice of any pending tax
audits of any Returns of the Company or any Subsidiary; (f) no tax liens have
been filed and no deficiency or addition to Taxes, interest or penalties for any
Taxes have been proposed, asserted or assessed in writing against the Company or
any Subsidiary; (g) neither the Company nor any Subsidiary has granted any
extension of the statute or any Subsidiary of limitations applicable to any
Return or other Tax claim with respect to any of its respective income,
properties or operations or any Subsidiary; (h) the Company and the Subsidiaries
have complied in all material respects with all applicable Legal Requirements
relating to the payment and withholding of Taxes (including sales and use Taxes,
and amounts required by law to be withheld and paid from the wages or salaries
of employees), and neither the Company nor any
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Subsidiary is liable for any Taxes for failure to comply with any such Legal
Requirement, except where such failure to make payment or withhold Taxes has not
had nor could it reasonably be expected to have a Material Adverse Effect on the
Company and each of its Subsidiaries taken together as a whole; and (i) neither
the Company nor any Subsidiary has agreed to, is not required to, and will not
be obligated to, make any adjustments either on, before or after the date
hereof, to its existing tax accounting method by reason of Section 481 of the
Code, or due to a determination by the Board of Directors of the Company (acting
on the advice of the Company's accountant, as the case may be) that any existing
method of accounting is not permissible or appropriate, and the Internal Revenue
Service has not proposed any such adjustments or changes in the Company's
accounting method.
3.14. Labor Relations.
Schedule 3.14 sets forth a list of all directors, officers and key
employees of the Company and the Subsidiaries as of the date hereof, together
with their respective titles (if any), their current compensation (including
salary, wages, bonuses and commissions) and the respective dates on which they
commenced employment, the number of Common Stock Equivalents held by such person
(including in the case of options or warrants, the exercise price related
thereto) and if applicable, the expiration date of such officer's or key
employee's employment agreement. To the Best Knowledge of the Company, none of
the employees listed on Schedule 3.14 has any plans or intends to terminate his
or their employment or engagement with the Company or the Subsidiaries.
3.15. ERISA Plans and Contracts.
Schedule 3.15 hereto contains a true and complete list of all Employee
Plans. Neither the Company nor any of its ERISA Affiliates is or has ever
maintained or been obligated to contribute a "multiple employer plan" (as
defined in Section 413 of the Code), a "multiemployer plan" (as defined in
Section 3 (37) of ERISA) or a "defined benefit pension plan" (as defined in
Section 3(35) of ERISA). Neither the Company nor any of its ERISA Affiliates
maintains or has maintained any Employee Plan providing or agreeing to provide
any post-retirement health or welfare benefits to employees, former employees or
retired employees of the Company or its ERISA Affiliates or beneficiaries of
such employees.
3.16. Related Party Transactions.
Except as set forth on Schedule 3.16, and, except for reasonable
compensation to regular employees of the Company and any Affiliate for services
rendered in the ordinary course of business, no current or former Affiliate of
the Company or any "Associate" (as defined in the rules and regulations
promulgated under the Exchange Act) thereof, is presently, or during the last
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three fiscal years (or since inception, if shorter) has been, (i) a party to any
agreement or transaction with the Company or any of its Subsidiaries (including,
but not limited to, any contract, agreement or other arrangement providing for
the furnishing of services by, or rental of real or personal property from, or
otherwise requiring payments to, any such Affiliate or Associate) or (ii) the
direct or indirect owner of an interest in any Person which is a present or
potential competitor, supplier or customer of the Company or any its
Subsidiaries (other than non-affiliated holdings in publicly held companies),
nor does any such Person receive income from any source other than the Company
which relates to the business of, or should properly accrue to, the Company.
Except as set forth on Schedule 3.16, the Company and each of its Subsidiaries
is not a guarantor or otherwise liable for any actual or potential Liability or
obligation, whether direct or indirect, of any of its Affiliates.
3.17. Private Sale.
Assuming the accuracy of the representations of the Purchasers in Section
4.2, the offering, sale, and issuance of the Purchased Notes, the Preferred
Shares and the Reserved Common Shares, as the case may be, will be, exempt from
registration under the Securities Act and applicable state securities laws and
the rules and regulations promulgated thereunder. Neither the Company nor any
Person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering, sale or issuance of the Purchased
Notes or the Preferred Shares has offered the same for sale to, or solicited any
offers to buy the same from, or otherwise approached or negotiated with respect
thereto, any Person or Persons other than the Purchasers.
3.18. Brokers.
Except for the Company's engagement of Bear Xxxxxxx & Co. Inc., in
connection with this transaction, and the closing fee payable to the Purchasers
in an amount equal to 1% of aggregate principal amount of the Purchased Notes,
neither the Company nor any of its officers, directors, stockholders or
employees (or any Affiliate of the foregoing) has employed any broker or finder
or incurred any actual or potential Liability or obligation, whether direct or
indirect, for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated by this Agreement.
3.19. Insurance.
Schedule 3.19 hereto lists and briefly describes each insurance policy
maintained by the Company and the Subsidiaries with respect to the properties,
assets and business of the Company and the Subsidiaries (the "Insurance
Policies"). All of such Insurance Policies are in full force and effect, and
neither the Company nor any of the Subsidiaries is in default in any
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material respect with respect to its obligations under any of such insurance
policies and has not received any notification of cancellation of any of such
Insurance Policies and has no claim outstanding which could be expected to cause
a material increase in the insurance rates. To the Best Knowledge of the
Company, no facts or circumstances exist that would relieve any insurer under
any such policies of their obligations to satisfy in full any claim of the
Company thereunder. The Company has not received any notice that (i) any of such
policies has been or will be canceled or terminated or will not be renewed on
substantially the same terms as are now in effect or (ii) the premium on any of
such policies will be materially increased on the renewal thereof. The Company
maintains insurance for its benefit in amounts and against all risks that are
normal and customary for Persons operating similar properties and businesses
under policies in effect and issued by insurers of recognized responsibility.
3.20. Disclosure.
Neither this Agreement nor any of the Schedules or Exhibits, including the
financial projections delivered to the Purchasers in connection with the
execution and delivery of this Agreement, when taken together, contains any
untrue statement of a material fact or omits a material fact necessary to make
the statements contained herein and therein, in light of the circumstances in
which they were made, not misleading. To the Best Knowledge of the Company,
there is no fact, circumstance or condition which has had or could reasonably be
expected to have a Material Adverse Effect on the Company and the Subsidiaries,
taken as a whole which has not been set forth in this Agreement or in the
Schedules or the Exhibits. Except for the provisions of the Documents, neither
the Company nor any of the Subsidiaries is obligated under any contract or
agreement or subject to any restriction set forth in its Fundamental Documents
or subject to any other restriction which has or could reasonably be expected to
have a Material Adverse Effect on the Company and the Subsidiaries, taken as a
whole.
3.21. Accounts and Notes Receivable.
Except as set forth on Schedule 3.21, all of the accounts receivable and
notes receivable owing to the Company as of the date hereof constitute, and as
of the date hereof will constitute, valid and enforceable claims arising from
bona fide transactions in the ordinary course of business, and there are no
known or asserted claims, refusals to pay or other rights of set-off against any
thereof. Except to the extent of reserves established by the Company
specifically for doubtful accounts and notes receivable (which reserves are set
forth in the Financial Statements, are reasonable under the circumstances and
are consistent with past practice), to the Best Knowledge of the Company, each
account receivable of the Company existing as of the date hereof shall be paid
in full not later than the 90th day
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after the date such account receivable was created and all of the notes
receivable shall be paid in accordance with the terms thereof. Except as set
forth on Schedule 3.21, as of the date hereof, there is (i) no account debtor or
note debtor delinquent in its payment by more than 90 days, (ii) no account
debtor or note debtor that has refused or threatened to refuse to pay its
obligations for any reason, (iii) to the Best Knowledge of the Company, no
account debtor or note debtor that is insolvent or bankrupt and (iv) no account
receivable or note receivable pledged to any third party by the Company.
3.22. Registration Rights.
Except as contemplated by the Registration Rights Agreement and as set
forth on Schedule 3.22, no Person has any right to cause the Company to effect
the registration under the Securities Act of any shares of Common Stock or any
other Securities of the Company.
3.23. Year 2000.
To the Best Knowledge of the Company, all billing and other data
processing programs used by the Company are designed to be used prior to, during
and after the calendar year 2000 A.D., and such programs will operate during
each such time period without error relating to date data and date-dependent
data, specifically including any error relating to, or the program of, date data
which represents or references different centuries or more than one century
other than such errors which have not had nor could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the Company
and its Subsidiaries taken together as a whole. Other than any of the following
which has not had nor could reasonably be expected to have a Material Adverse
Effect, individually or in the aggregate, on the Company and its Subsidiaries
taken together as a whole to the Best Knowledge of the Company without limiting
the generality of the foregoing:
(a) each such program will not abnormally end or provide invalid or
incorrect results as a result of date data, specifically including date data
which represents or references different centuries or more than one century;
(b) each such program has been designed to ensure Year 2000 compatibility,
including, but not limited to, date data century recognition, calculations which
accommodate same century and multi-century formulas and date values and date
data interface values that reflect the century; and
(c) each such program includes "Year 2000 Capabilities." For the purposes
hereof, "Year 2000 Capabilities" means each such program:
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(i) manages and manipulates data involving date, including single
century formulas and multi-century formulas, and will not cause an
abnormally ending scenario within the application or generate incorrect
values or invalid results involving such dates;
(ii) provides that all date-related interface functionalities and
data fields include the indication of century; and
(iii) provides that all date-related data interface functionalities
include the indication of century.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser represents and warrants to the Company as to itself
severally, and not jointly as to any other Purchaser, as of the date hereof, as
follows:
4.1. Authorization of the Documents.
Such Purchaser has all requisite power and authority to execute, deliver
and perform the Documents to which it is a party and the transactions
contemplated thereby, and the execution, delivery and performance by such
Purchaser of the Documents to which it is a party have been duly authorized by
all requisite action by such Purchaser and each such Document constitutes a
valid and binding obligation of such Purchaser enforceable against such
Purchaser in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other similar
laws and subject to general principles of equity.
4.2. Investment Representations.
Solely for establishing that the sale or issuance of the Purchased Notes,
Preferred Shares and Reserved Common Shares (if any), to such Purchaser is
exempt from the registration requirements of Section 5 of the Securities Act and
comparable provisions of state blue-sky laws and not in any way to mitigate the
responsibility or liability of the Company for any breach of the representations
and warranties made by it in this Agreement, on which such Purchaser is relying
in full in connection with its decision to invest in the Company:
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(a) Such Purchaser is acquiring the Purchased Notes and Preferred Shares to
be purchased hereunder and, in the event that such Purchaser should acquire any
Reserved Common Shares, will be acquiring such Reserved Common Shares, for its
own account, for investment and not with a view to the distribution thereof in
violation of the Securities Act or applicable state securities laws.
(b) Such Purchaser understands that (i) the Purchased Notes and Preferred
Shares have not been, and the Reserved Common Shares will not be, registered
under the Securities Act or applicable state securities laws by reason of their
issuance by the Company in a transaction exempt from the registration
requirements of the Securities Act and applicable state securities laws and (ii)
the Purchased Notes and Preferred Shares, and if acquired, the Reserved Common
Shares must be held by such Purchaser indefinitely unless a subsequent
disposition thereof is registered under the Securities Act and applicable state
securities laws or is exempt from such registration.
(c) Each Purchaser further understands that the exemption from registration
afforded by Rule 144 (the provisions of which are known to such Purchaser)
promulgated under the Securities Act depends on the satisfaction of various
conditions, and that, if applicable, Rule 144 may only afford the basis for
sales of Securities acquired hereunder only in limited amounts.
(d) Such Purchaser has not employed any broker or finder in connection with
the transactions contemplated by this Agreement.
(e) Such Purchaser is an "accredited investor" (as defined in Rule 501(a)
of Regulation D promulgated under the Securities Act). The Company has made
available to such Purchaser or its representatives all agreements, documents,
records and books that such Purchaser has requested relating to an investment in
the Securities which may be acquired by the Purchaser hereunder. Such Purchaser
has had an opportunity to ask questions of, and receive answers from, a person
or persons acting on behalf of the Company, concerning the terms and conditions
of this investment, and answers have been provided to all of such questions to
the full satisfaction of such Purchaser. Such Purchaser has such knowledge and
experience in financial and business matters that it is capable of evaluating
the risks and merits of this investment. Such Purchaser's representations in
this subsection shall in no way limit the enforceability of any representations
made by the Company in any of the Documents to which it is a party.
(f) The state in which any offer to purchase Purchased Notes or Preferred
Shares hereunder was made to or accepted by such Purchaser is the state shown as
the Purchaser's address on Schedule I hereto.
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(g) Such Purchaser was not formed for the purpose of investing solely in
the Securities which may be acquired hereunder.
ARTICLE V
CONDITIONS TO CLOSING
5.1. First Closing.
The obligation of each Purchaser to purchase and pay for the Securities to
be purchased hereunder at the First Closing, is subject to the satisfaction of
the following conditions precedent (unless waived by such Purchaser). The
Company shall use its best efforts to ensure that all conditions to the First
Closing set forth in this Section 5.1 are satisfied on or prior to the First
Closing Date, including executing and delivering all documents required to be
delivered by the Company at the First Closing and taking any and all actions
which may be necessary on its part to cause each other party to the Documents to
so execute and deliver each Document.
(a) Certificate of Amendment.
(i) The Certificate of Amendment has been filed with and accepted by
the Secretary of the State of Washington and evidence of such filing and
acceptance satisfactory to the purchasers of Preferred Stock, shall have been
delivered to the purchasers of Preferred Stock.
(ii) The Company shall have duly issued and delivered to the
purchasers of Preferred Stock, the certificate for the number and series of
Preferred Shares purchased by the purchasers of such series of Preferred Stock
at the First Closing.
(b) Registration Rights Agreement.
The Registration Rights Agreement shall have been executed and delivered by
the Company and all parties thereto.
(c) Issuance of the Purchased Notes.
The Company shall have duly issued and delivered to such Purchaser the
certificate or certificates for the aggregate principal amount of the Purchased
Notes being purchased by such Purchaser at the First Closing.
(d) Reservation of Common Shares.
The Company shall have reserved the Reserved Common Shares for issuance
upon conversion of the Notes, the Series B Preferred Shares and the Series D
Preferred Shares.
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(e) Representations and Warranties.
The Company shall deliver a certificate executed by an officer of the
Company stating that the representations and warranties contained in Article III
are true, correct and complete in all material respects on and as of the First
Closing Date.
(f) Performance.
The Company shall have performed and complied in all material respects with
all agreements and conditions contained in the Documents required to be
performed or complied with by it prior to or at the First Closing and shall have
certified to such effect to such Purchaser in writing.
(g) All Proceedings to Be Satisfactory.
All corporate and other proceedings to be taken and all waivers, consents,
approvals, qualifications and registrations required to be obtained or effected
in connection with the execution, delivery and performance of this Agreement and
the other Documents and the transactions contemplated hereby and thereby shall
have been taken, obtained or effected (except for the filing of any notice
subsequent to the First Closing that may be required under applicable Federal or
state securities laws, which notice shall be filed on a timely basis following
the First Closing as so required), and all documents incident thereto shall be
satisfactory in form and substance to such Purchaser. Such Purchaser shall have
received all such originals or certified or other copies of such documents as
have been reasonably requested by them.
(h) Opinion of Counsel.
XxXxxxxxx, Will & Xxxxx, counsel to the Company, shall have delivered its
opinion addressed to the Purchasers, dated as of the First Closing Date, in a
form acceptable to the Purchasers.
(i) Supporting Documents.
Such Purchaser shall have received copies of the following supporting
documents (in form and substance satisfactory to such Purchaser):
(i) certificates of the Secretary of State of the State of Washington,
dated as of a recent date as to the due incorporation or organization and good
standing of the Company and listing all documents of the Company on file with
said Secretary;
(ii) a telegram, telex or other acceptable method of confirmation from
said Secretary as of the close of business on
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the next business day preceding the date of the First Closing as to the
continued good standing of the Company;
(iii) a certificate of the Secretary or an Assistant Secretary of the
Company, dated as of the date of the First Closing and certifying: (1) that
attached thereto is a true, correct and complete copy of each of the Certificate
of Incorporation and By-laws as in effect on the date of such certification
(each of which shall be in form and substance satisfactory to such Purchaser);
(2) that attached thereto is a true, correct and complete copy of all
resolutions adopted by the Board of Directors (and any committees thereof) and
the stockholders of the Company authorizing the execution, delivery and
performance of the Documents and the issuance, sale, and delivery of the
Purchased Notes and the Preferred Shares, and that all such resolutions are
still in full force and effect; (3) that the Certificate of Incorporation has
not been amended since the date of the last amendment referred to in the
certificate delivered pursuant to clause (i) above; and (4) the incumbency and
specimen signature of all officers of the Company executing the Documents, the
stock certificates representing the Purchased Notes and the Preferred Shares,
and any certificate or instrument furnished pursuant hereto, and a certification
by another officer of the Company as to the incumbency and signature of the
officer signing the certificate referred to in this clause (iii); and
(iv) such additional supporting documents and other information with
respect to the operations and affairs of the Company as such Purchaser may
reasonably request.
(j) No Litigation or Legislation.
No Legal Requirement shall have been enacted after the date hereof and no
Proceeding shall be pending which prohibits or seeks to prohibit, or materially
restricts or delays the consummation of the transactions contemplated by the
Documents or materially restricts or impairs the ability of the Purchasers to
own Securities of the Company.
(k) SBA Letter.
CVCA shall have prepared the side letter regarding SBA regulatory
compliance (the "SBA Letter") and the forms required to file with the SBA in
connection with the transactions contemplated hereby and the Company shall have
executed such letter and forms and delivered same to CVCA.
(l) Closing Fees.
The Company shall have paid to each Purchaser a closing fee equal to 1% of
the aggregate principal amount of the Notes purchased by such Purchaser at the
First Closing.
(m) Due Diligence.
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The Purchasers shall have completed their due diligence review of the
Company and shall be satisfied, at their sole discretion, with the results of
such due diligence review.
5.2. Second Closing.
The obligation of each Purchaser to purchase and pay for the Securities to
be purchased hereunder at the Second Closing, is subject to the satisfaction of
the following conditions precedent (unless waived by such Purchaser). The
Company shall use its best efforts to ensure that all conditions to the Second
Closing set forth in this Section 5.2 are satisfied on or prior to the Second
Closing Date.
(a) Registration Rights Agreement.
The Registration Rights Agreement shall have been executed and delivered by
the Purchasers purchasing Notes at the Second Closing.
(b) Issuance of the Purchased Notes.
The Company shall have duly issued and delivered to such Purchaser the
certificate or certificates for the aggregate principal amount of the Purchased
Notes being purchased by such Purchaser at the Second Closing.
(c) Issuance of Series D Preferred Shares.
The Company shall have duly issued and delivered to such Purchaser, the
Series D Preferred Shares being purchased by such Purchaser at the Second
Closing.
(d) Performance.
The Company shall have performed and complied in all material respects with
all agreements and conditions contained in the Documents required to be
performed or complied with by it prior to or at the Second Closing and shall
have certified to such effect to such Purchaser in writing.
(e) All Proceedings to Be Satisfactory.
All corporate and other proceedings to be taken and all waivers, consents,
approvals, qualifications and registrations required to be obtained or effected
in connection with the execution, delivery and performance of this Agreement and
the other Documents and the transactions contemplated hereby and thereby shall
have been taken, obtained or effected (except for the filing of any notice
subsequent to the Second Closing that may be required under applicable Federal
or state securities laws, which notice shall be filed on a timely basis
following the Second Closing as so required), and all documents incident thereto
shall be satisfactory in form and substance to such
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Purchaser. Such Purchaser shall have received all such originals or certified or
other copies of such documents as have been reasonably requested by them.
(f) Opinion of Counsel.
XxXxxxxxx, Will & Xxxxx, counsel to the Company, shall have delivered its
opinion addressed to the Purchasers, dated as of the Second Closing Date,
substantially similar to the opinion delivered at the First Closing.
(g) Supporting Documents.
Such Purchaser shall have received copies of the following supporting
documents (in form and substance satisfactory to such Purchaser):
(i) certificates of the Secretary of State of the State of Washington,
dated as of a recent date as to the due incorporation or organization and
good standing of the Company and listing all documents of the Company on
file with said Secretary;
(ii) a telegram, telex or other acceptable method of confirmation from
said Secretary as of the close of business on the next business day
preceding the date of the Second Closing as to the continued good standing
of the Company;
(iii) a certificate of the Secretary or an Assistant Secretary of the
Company, dated as of the date of the Second Closing and certifying: (1)
that attached thereto is a true, correct and complete copy of each of the
Certificate of Incorporation and By-laws as in effect on the date of such
certification (each of which shall be in form and substance satisfactory to
such Purchaser); (2) that attached thereto is a true, correct and complete
copy of all resolutions adopted by the Board of Directors (and any
committees thereof) and the stockholders of the Company authorizing the
execution, delivery and performance of the Documents and the issuance,
sale, and delivery of the Purchased Notes, and that all such resolutions
are still in full force and effect; (3) that the Certificate of
Incorporation has not been amended since the date of the last amendment
referred to in the certificate delivered pursuant to clause (i) above; and
(4) the incumbency and specimen signature of all officers of the Company
executing the Documents, the certificates representing the Purchased Notes,
and any certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the incumbency and
signature of the officer signing the certificate referred to in this clause
(iii); and
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(iv) such additional supporting documents and other information with
respect to the operations and affairs of the Company as such Purchaser may
reasonably request.
(h) No Litigation or Legislation.
No Legal Requirement shall have been enacted after the date hereof and no
Proceeding shall be pending which prohibits or seeks to prohibit, or materially
restricts or delays the consummation of the transactions contemplated by the
Documents or materially restricts or impairs the ability of the Purchasers to
own Securities of the Company. Each of the parties shall have made all filings
required by such Person to comply with the HSR Act and all applicable waiting
periods have expired or been terminated.
(i) Closing Fees.
The Company shall have paid to such Purchaser a closing fee equal to 1% of
the aggregate principal amount of the Notes purchased by such Purchaser at the
Second Closing.
(j) Closing Date.
The Second Closing shall have occurred on or prior to June 5, 1998, or if
notification filings are required to comply with the HSR Act, June 30, 1998.
ARTICLE VI
INDEMNIFICATION
6.1. Survival of Representations, Warranties, Agreements and Covenants, Etc.
All statements contained in any other Document or any closing certificate
delivered by the Company or the Purchasers, pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement (each, a
"Closing Certificate"), shall constitute representations and warranties by the
Company, or the Purchasers, as applicable, under this Agreement. Notwithstanding
any investigation made at any time by or on behalf of any party hereto, all
representations and warranties contained in this Agreement or made in writing by
or on behalf of the Company, or an Purchaser, in connection with the
transactions contemplated by this Agreement shall survive the Closing until the
third anniversary of the First Closing Date, provided however, that the
representations and warranties contained in Sections 3.1, 3.2, 3.3, 3.4, 3.5,
3.12, 3.17 and 3.18 and 3.23 shall survive the Closings indefinitely and the
representation and warranties contained in 3.13 shall survive the Closings and
continue in full force and effect for the period of the statute of limitations
applicable to the matters covered thereby.
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6.2. Indemnification.
(a) In addition to all other rights and remedies available to the
Purchasers, the Company shall indemnify, defend and hold harmless each Purchaser
and its Affiliates and their respective partners, officers, directors,
employees, agents and representatives (collectively, the "Purchaser
Representatives"; and together with such Purchaser, the "Purchaser Indemnified
Persons") against all Losses, and none of the Purchaser Indemnified Persons
shall be liable to the Company or any other stockholder of the Company for or
with respect to any and all Losses, together with all costs and expenses
(including legal and accounting fees and expenses) related thereto or incurred
in enforcing this Article VI, (i) arising from the untruth, inaccuracy or breach
of any of the representations or warranties of the Company contained in any
Document or Closing Certificate or any facts or circumstances constituting any
such untruth, inaccuracy or breach, (ii) arising from the breach of any covenant
or agreement of the Company contained in any Document or Closing Certificate or
any facts or circumstances constituting such breach, or (iii) arising from any
Claim, except for any Claim made by the Company against such Purchaser pursuant
to Section 6.2(b) (whenever made), resulting from or caused by any transaction,
status, event, condition, occurrence or situation relating to, arising out of or
in connection with (A) the status of, or conduct of the business and affairs of,
the Company or (B) the execution, delivery and performance of this Agreement and
the other Documents and the related documents and agreements contemplated hereby
and thereby. Notwithstanding the foregoing, and subject to the following part of
this sentence, upon judicial determination, which is final and no longer
appealable, that the act or omission giving rise to the indemnification pursuant
to clause (iii) of Section 6.2(a) resulted primarily out of or was based
primarily upon the indemnified party's gross negligence, fraud or willful
misconduct, (unless such action was based upon the indemnified party's reliance
in good faith upon any of the representations, warranties, covenants or promises
made by the Company herein, or in the Documents), the Company shall not be
responsible for any Losses sought to be indemnified in connection therewith, and
the Company shall be entitled to recover from the indemnified party all amounts
previously paid in full or partial satisfaction of such indemnity, together with
all costs and expenses of the Company reasonably incurred in effecting such
recovery, if any.
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(b) In addition all other rights and remedies available to the Company,
each Purchaser severally as to itself only and not as to any other Purchaser,
shall indemnify, defend and hold harmless the Company and its officers,
directors, employees, agents and representatives (collectively, the "Company
Indemnified Persons,") against all Losses, together with all reasonable
out-of-pocket costs and expenses (including legal and accounting fees and
expenses) related thereto or incurred in enforcing this Article VI, (i) arising
from the untruth, inaccuracy or breach of any of the representations or
warranties of such Purchaser contained in any Document or Closing Certificate or
any facts or circumstances constituting such untruth, inaccuracy or breach or
(ii) arising from the breach of any covenant or agreement of such Purchaser
contained in any Document or Closing Certificate or any facts or circumstances
constituting such breach.
(c) If for any reason the indemnity provided for in this Section is
unavailable to any Indemnified Person or is insufficient to hold each such
Indemnified Person harmless from all such Losses arising with respect to the
transactions contemplated by this Agreement, then the Indemnifying Persons shall
contribute to the amount paid or payable for such Losses in such proportion as
is appropriate to reflect not only the relative benefits received by the
Indemnifying Persons on the one hand and such Indemnified Person on the other
but also the relative fault of the Indemnifying Persons and the Indemnified
Person as well as any relevant equitable considerations. In addition, the
Indemnifying Persons shall reimburse any Indemnified Person upon demand for all
reasonable expenses (including reasonable fees of legal counsel) incurred by
such Indemnified Person in connection with investigating, preparing for or
defending any such action or claim. The indemnity, contribution and expenses
reimbursement obligations that the Indemnifying Persons have under this Article
VI shall be in addition to any Liability that the Indemnifying Persons may
otherwise have. The Indemnifying Persons further agree that the indemnification
and reimbursement commitments set forth in this Agreement shall apply whether or
not the Indemnified Person is a formal party to any such Claim.
(d) Any indemnification of an Indemnified Person by Indemnifying Persons
pursuant to this Section shall be effected by wire transfer of immediately
available funds from the Indemnifying Persons to an account designated by the
Indemnified Person within 15 days after the determination thereof.
(e) All indemnification rights hereunder shall survive the execution and
delivery of the Documents and the consummation of the transactions contemplated
herein and therein indefinitely, regardless of any investigation, inquiry or
examination made for or on behalf of, or any knowledge of the Purchaser and/or
any of the other Indemnified Parties or the acceptance by the Purchaser of any
certificate or opinion.
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(f) By executing this Agreement, the Company (i) agrees no Purchaser
Indemnified Person shall have any liability to the Company or its Subsidiaries
pursuant to this Agreement, the other Documents or the transactions contemplated
hereby or thereby (the "Covered Conduct") except (A) as provided in Section
6.2(b), and (B) to the extent that a court of competent jurisdiction shall have
determined by final judgment, no longer subject to appeal, that the losses
resulting from such Covered Conduct primarily resulted from or was based
primarily upon such Purchaser Indemnified Person's willful misconduct or gross
negligence, (ii) agrees that it will not make under any circumstances, and it
will cause it Subsidiaries not to make under any circumstances, any claim
against any Purchaser Indemnified Person, with respect to a claim or loss with
respect to which such Person is entitled to indemnification hereunder, for any
special, indirect or consequential damages in respect of any breach or wrongful
conduct (whether the claim therefore is based on contract, tort or duty imposed
by law) in connection with, arising out of or in any way related to, the
transactions contemplated by and the relationship established by this Agreement,
the other Documents or the transactions contemplated hereby or thereby, or any
act, omission or event occurring in connection therewith, and (iii) waive,
release and agree not to xxx upon, and it agrees to cause its Subsidiaries not
to xxx upon, and it agrees to cause its Subsidiary not to xxx upon any such
claim for any such damages, whether or not accrued and whether or not known or
suspected to exist in any such party's favor.
ARTICLE VII
TRANSFER OF SECURITIES
7.1. Restriction on Transfer.
The Restricted Securities shall not be transferable except upon the
conditions specified in this Article VII, which conditions are intended to
insure compliance with the provisions of the Securities Act in respect of the
transfer thereof.
7.2. Restrictive Legends.
Each certificate evidencing the Restricted Securities and each certificate
for any such securities issued to subsequent transferees of any such certificate
shall (unless otherwise permitted by the provisions of Section 7.3 hereof) be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
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UNDER SAID ACT OR APPLICABLE STATE BLUE SKY LAWS. ADDITIONALLY, THE
TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN
THE SECURITIES PURCHASE AGREEMENT DATED AS OF MAY 12, 1998, AMONG THE
ISSUER HEREOF AND CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER
OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS
HAVE BEEN FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS
CERTIFICATE TO THE SECRETARY OF THE ISSUER HEREOF."
7.3. Notice of Transfer.
(a) The holder of any Restricted Securities, by acceptance thereof agrees,
prior to any Transfer of any Restricted Securities, to give written notice to
the Company of such holder's intention to effect such transfer and to comply in
all other respects with the provisions of this Section 7.3. Each such notice
shall describe the manner and circumstances of the proposed transfer and shall
be accompanied by (i) the written opinion, addressed to the Company, of
counsel for the holder of Restricted Securities, as to whether in the opinion of
such counsel (which opinion and counsel shall be reasonably satisfactory to the
Company) such proposed transfer involves a transaction requiring registration of
such Restricted Securities under the Securities Act, and (ii) in the case
of Restricted Shares, if in the opinion of such counsel such registration is
required, a written request addressed to the Company by the holder of Restricted
Shares, describing in detail the proposed method of disposition and requesting
the Company to effect the registration of such Restricted Shares pursuant to the
terms and provisions of the Registration Rights Agreement; provided, however,
that (A) in the case of a holder of Restricted Securities which is a
partnership, no such opinion of counsel shall be necessary for a Transfer by
such holder of Restricted Securities to a partner of such holder of Restricted
Securities, or a retired partner of such holder who retires after the date
hereof, or the estate of any such partner or retired partner, if in each case
the transferee agrees in writing to be subject to the terms of this Article VII
to the same extent as if such transferee were originally a signatory to this
Agreement, and (B) no such opinion shall be required in connection with a
Transfer pursuant to Rule 144 (as amended from time to time) promulgated under
the Securities Act (or successor rule thereto), provided, that the Company,
shall be provided with customary written representations relating to such
transaction.
(b) If in the opinion of such counsel (if such opinion is required
hereunder) the proposed Transfer of Restricted Securities may be effected
without registration under the Securities Act, the holder of Restricted
Securities shall thereupon be entitled to Transfer Restricted Securities in
accordance with the terms of the notice delivered by it to the Company.
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(c) Each certificate or other instrument evidencing the securities issued
upon the transfer of any Restricted Securities (and each certificate or other
instrument evidencing any untransferred balance of such securities) shall bear
the legend set forth in Section 7.2 hereof unless (i) in the opinion of such
counsel registration of future Transfer is not required by the applicable
provisions of the Securities Act or (ii) the Company shall have waived the
requirement of such legends; provided, however, that such legend shall not be
required on any certificate or other instrument evidencing the securities issued
upon such Transfer in the event such Transfer shall be made in compliance with
the requirements of Rule 144 (as amended from time to time) promulgated
under the Securities Act (or successor rule thereto).
7.4. Transfer Pursuant to Rule 144.
The Company agrees to provide to the holders of the Restricted Securities
and upon a holder's request to any prospective purchasers designated by a holder
the financial and other information specified in Rule 144 under the Securities
Act and to take any other action or to execute any certificates necessary to
permit a transfer by any holder of Restricted Securities to qualify for the
exemption set forth in Rule 144.
7.5. Transfers to Competitors.
No Purchaser shall, without the prior written consent of the Company,
Transfer in a private transaction, any Purchased Notes or Additional Notes or
Preferred Shares, if any, or any interest therein, to any Competitor. A
Purchaser may rely on a representation from a potential Transferee (such
representation to be made for the benefit of such Purchaser and the Company)
that such Transferee is not a Competitor, and unless such Purchaser has actual
knowledge that such representation was untrue, such Transfer shall be valid. As
used herein, the term "Competitor" means (i) any Person (other than the Company
or any of its Subsidiaries) who is engaged in the Business and (ii) any
Affiliate of a Person identified in clause (i) above (it being agreed that an
investment firm shall not be deemed to control a Person described in clause (i)
above merely as a result of owning a minority interest in such Person).
7.6. Transfers of Series A Preferred Shares and Series C Preferred Shares.
The transfer of the Series A Preferred Shares and the Series C Preferred
Shares shall be limited to the Affiliates of the Purchaser of such shares
hereunder. Except in the case of any sale, redemption or conversion of the Notes
in connection with a Series B Conversion Event, the Company shall have the right
to repurchase the Series A Preferred Shares upon (i) the sale or redemption of
sixty-five percent (65%) or more of the Common Stock Equivalents held by such
Purchaser as of the Second
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Closing Date or (ii) the conversion of all of the Common Stock Equivalents held
by such Purchaser. The Company shall have the right to repurchase the Series C
Preferred Shares upon (i) the sale or redemption of sixty-five percent (65%) or
more of the Common Stock Equivalents held by such Purchaser as of the Second
Closing Date or (ii) the conversion of all of the Common Stock Equivalents held
by such Purchaser.
ARTICLE VIII
INFORMATION RIGHTS
8.1. Access to Records.
(a) The Company shall afford to each Significant Holder and its employees,
counsel and other authorized representatives, during normal business hours,
reasonable access, upon reasonable advance notice, to all of the books, records
and properties of the Company and its Subsidiaries and to all officers and
employees of the Company and its Subsidiaries; provided, however, that such
investigation shall not unreasonably interfere with the operations of the
Company and its Subsidiaries. The Company will instruct its independent public
accountants to discuss such aspects of the financial condition of the Company
with any Purchaser and its representatives as such Purchaser may reasonably
request, and to permit such Purchaser and its representatives to inspect, copy
and make extracts from such financial statements, analyses, work papers and
other documents and information (including electronically stored documents and
information) prepared by such accountants with respect to the Company as such
holder may reasonably request. All costs and expenses incurred by such Purchaser
and its representatives in connection with exercising such rights of access
shall be borne by such Persons, and all out-of-pocket costs and expenses
incurred by the Company in complying with any extraordinary requests by such
Purchaser and its representatives in connection with exercising such access
rights shall be borne by such Purchaser.
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(b) Each Purchaser shall use reasonable efforts to maintain the
confidentiality of any confidential and proprietary information obtained by it
under this Section 8.1 and shall not use, or permit the use of, any of such
confidential and proprietary information in its business or the business of any
company in which it may have an ownership interest or in any manner or for any
other purpose except as contemplated hereby; provided, however, that the
foregoing shall in no way limit or otherwise restrict the ability of any
Purchaser or such authorized representatives to disclose any such information
concerning the Company which it may be required to disclose (i) to its partners
or limited partners to the extent required to satisfy its fiduciary obligations
to such persons or (ii) otherwise pursuant to or as required by law; provided,
however, it shall use reasonable efforts to cause its partners or limited
partners (as the case may be) to maintain the confidentiality of such
confidential and proprietary information.
(c) As used herein, "Significant Holder" shall mean and include any
Purchaser who, at the time in question, shall own, together with its Affiliates,
(i) 25% of the aggregate principal amount of the outstanding Notes or the number
of Series D Preferred Shares purchased hereunder, or (ii) Series B Preferred
Shares, if any, convertible for, plus Warrants, if any, exercisable for, 5% or
more of the aggregate outstanding Common Stock Equivalents.
8.2. Financial Reports.
The Company shall furnish each Significant Holder with the following:
(a) Default Notice. As soon as possible and in any event within two days
after the occurrence of each Default, a statement of the chief financial officer
or treasurer of the Company setting forth the nature of such Default and the
action that the Company has taken and proposes to take with respect thereto.
(b) Monthly Statements. Each Significant Holder shall receive, within the
earlier of when such statements are delivered to the Company's lenders, if any,
and 45 days after the end of each monthly accounting period, an unaudited
financial report of the Company, which report shall be prepared in accordance
with GAAP consistently applied, and which shall include the following:
(i) a profit and loss statement for such monthly accounting period,
together with a cumulative profit and loss statement from the first day of
the current year to the last day of such monthly accounting period;
(ii) a balance sheet as at the last day of such monthly accounting
period;
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(iii) a cash flow analysis for such monthly accounting period on a
cumulative basis for the fiscal year to date; and
(iv) to the extent prepared by the Company prior to the date of
delivery of such monthly financial statements, a comparison between the
actual figures for such monthly accounting period and the comparable
figures for the prior year (if any) for such monthly accounting period,
with an explanation of any material differences between them.
(c) Quarterly Reports. Upon the request of such Significant Holder, but not
later than 45 days after the end of each quarterly accounting period, (i) an
unaudited consolidated financial report of the Company, prepared in accordance
with GAAP consistently applied, except that such financial statements shall not
include footnotes and shall be subject to normal year-end audit adjustments,
including, with respect to such quarterly accounting period, the statements and
comparisons referred to in Section 8.2(b) and a statement of cash flows and
statement of operations for such quarterly accounting period and (ii) to the
extent prepared by the Company prior to such request, a report by management of
the Company of the operating and financial highlights of the Company for the
prior accounting periods which shall include (A) a comparison between operating
and financial results and the Budget and (B) an analysis of the operations of
the Company for the prior quarter.
(d) Upon the request of such Significant Holder, copies of all financial
statements, reports, press releases, notices, proxy statements and other
documents sent by the Company to its stockholders generally or released to the
public and copies of all regular and periodic reports filed by the Company with
the SEC, or any securities exchange.
(e) Upon the request of such Significant Holder, copies of all reports
prepared for or delivered to the management of the Company by its Accountants;
(f) Upon the request of such Significant Holder, any other routinely
collected financial or other information available to management of the Company
(including, without limitation, routinely collected statistical data);
(g) Upon the request of such Significant Holder, within ninety (90) days
after commencement of each new fiscal year, a business plan and projected
financial statements for such fiscal year, which financial statements shall
include a comparison between the actual figures for such prior fiscal year and
the comparable budgeted figures for such prior fiscal year (if any), with, to
the extent prepared by the Company prior to such request, an explanation of any
material differences between them; and
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(h) Promptly following its receipt of notice of the commencement of any
action, suit, claim, legal or administrative or arbitration proceeding or
investigation, any of which could reasonably be expected, on the basis of
current economic conditions and other facts and circumstances known to the
Company at the time, to have a Material Adverse Effect, the Company shall
deliver a written notice to such Significant Holder describing in reasonable
detail such proceeding.
ARTICLE IX
ADDITIONAL AGREEMENTS OF THE COMPANY
9.1. Compliance.
The Company and the Subsidiaries (a) in carrying out their businesses shall
comply in all material respects with Legal Requirements and Orders of any
Governmental Authority applicable to it, its business and the ownership of its
assets and (b) shall obtain and maintain in full force and effect all Federal,
state, local and foreign governmental licenses and permits material to and
necessary in the conduct of its business and such licenses and permits shall be
maintained, in full force and effect.
9.2. Insurance.
(a) All the insurable properties of the Company and the Subsidiaries shall
be insured for the benefit of the Company and its Subsidiaries in the full
amounts required to protect the Company and its Subsidiaries against all risks
usually insured against by Persons operating similar properties in the
localities in which such properties are located under policies in effect and
issued by national insurers of recognized responsibility.
(b) The Company shall maintain the other insurance coverage specified on
Schedule 9.2(b) hereto including directors' and officers' liability.
9.3. Affirmative Covenants.
As long as any Notes or Warrants (except in the case where such Warrants
were issued upon the Company's prepayment of the Notes or redemption of the
Preferred Shares upon a Change of Control) or Preferred Shares are outstanding,
the Company shall, and shall cause its Subsidiaries, as applicable, to observe
and perform the following:
(a) Payment Under the Documents. The Company shall pay or accrue, as the
case may be, and any amounts payable under the Documents in accordance with the
terms of the Documents.
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(b) Proceeds. The Company shall use the proceeds of the sale of the
Purchased Notes solely in the manner described in this Agreement.
(c) Payment of Taxes, etc. The Company shall pay and discharge, and cause
each of its Subsidiaries to pay and discharge, before the same shall become
delinquent, (i) all amounts of taxes, assessments and governmental charges
or levies imposed upon it or upon its property and (ii) all lawful claims
that, if unpaid, could reasonably be expected by law to become an Encumbrance
upon its property; provided, however, that neither the Company nor any of its
Subsidiaries shall be required to pay or discharge any such tax, assessment,
charge or claim (y) that is being contested in good faith and by proper
proceedings and as to which appropriate reserves are being maintained or (z) the
non-payment or non-discharge of which could not reasonably be expected to have a
Material Adverse Effect on the Company and its subsidiaries taken as a whole.
(d) Preservation of Corporate Existence, etc. The Company shall preserve
and maintain, and cause each of its Subsidiaries to preserve and maintain, its
corporate existence; provided, however, that any Subsidiary may merge or
consolidate with any other Subsidiary or the Company. The Company shall preserve
and maintain, and cause each of its Subsidiaries to preserve and maintain, its
rights (charter and statutory), and all material permits, licenses, approvals,
privileges and franchises necessary or desirable in the normal conduct of its
business, except any thereof the non-preservation or non-maintenance of which
could not reasonably be expected to have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole.
(e) Keeping of Books. The Company shall keep, and cause each of its
Subsidiaries to keep, proper books of record and account, in which entries which
are full and correct in all material respects shall be made of all financial
transactions and the assets and business of the Company and each such Subsidiary
in accordance with GAAP.
(f) Maintenance of Properties, etc. The Company shall maintain and
preserve, and cause each of its Subsidiaries to maintain and preserve, all of
its properties that are reasonably required in the conduct of its business in
good working order and condition, ordinary wear, tear and depletion excepted,
except any thereof the non-maintenance or non-preservation of which could not
reasonably be expected to have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole.
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(g) Transactions with Affiliates. The Company shall conduct, and cause each
of its Subsidiaries to conduct, all transactions otherwise permitted under the
Documents with any of their Affiliates on terms that are fair and reasonable and
no less favorable to the Company or such Subsidiary than it would obtain in a
comparable arm's-length transaction with a Person not an Affiliate.
(h) Share Listings. On or prior to 90 days from the First Closing Date, the
Company shall use its best efforts to upgrade its listing of its Common Stock
from the Nasdaq SmallCap Market System to the Nasdaq National Market System or
such other national securities exchange which is acceptable to the Purchasers.
9.4. Negative Covenants.
As long as any Notes or Warrants (except in the case where such Warrants
were issued upon the Company's prepayment of the Notes or redemption of the
Preferred Shares upon a Change in Control) or Preferred Shares are outstanding,
the Company shall not, without the prior written consent of the Requisite
Purchasers, as applicable:
(a) Change in Nature of Business. Make any material change in the nature of
its business as carried on at the date hereof.
(b) Charter Amendments. Amend its Certificate of Incorporation or any
material provision of By-laws in a manner that would adversely affect the rights
of the Purchasers.
(c) Board of Directors. Permit the number of members of the Board (other
than members appointed or selected by the holders of Series A Preferred) to
exceed fifteen (15).
(d) Restricted Payments. Declare or pay any dividends or make any other
distribution on or with respect to its capital stock or Common Stock
Equivalents, whether in cash, property, securities or a combination thereof, or
directly or indirectly redeem, repurchase, retire or otherwise acquire for
consideration, except with respect to certain reacquisitions of shares pursuant
to (i) the agreements listed on Schedule 9.4(d) and (ii) the Equity Incentive
Plans, any capital stock or Common Stock Equivalents or set apart any sum for
any of the aforesaid purposes.
(e) Nature of Business. Conduct any business or operations other than the
Business or activities reasonably related to the Business.
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(f) Fundamental Changes. Liquidate, dissolve, merge with or into or
consolidate with or combine with any other Person, except that any third party
may merge with the Company if (i) there is no Change of Control, (ii) the
Company shall be solvent after giving effect to such merger on a Pro Forma
basis, (iii) the net worth of the Company, after giving effect to such merger,
shall not be reduced by an amount in excess of the greater of (x) $10 million or
(y) 25% of the net worth of the Company immediately prior to giving effect to
such merger and, prior to the effectiveness of such merger, an officer of the
Company shall have delivered to the Purchaser a certificate to the effect that
such transaction complies with this provision (attaching the calculations to
demonstrate compliance with clauses (ii) and (iii)), and (iv) at the time
thereof and immediately after giving effect thereto, no Event of Default shall
have occurred and be continuing; provided however, that the covenant by the
Company provided in this clause (f) shall not be applicable to transactions in
which a Change of Control would occur and the Requisite Purchasers do not
exercise their option to redeem their shares in accordance with Certificate of
Amendment within 30 days of the date on which notice is given by the Company to
such holders indicating that a Change of Control shall have occurred or is
pending.
(g) Financial Covenants. Commencing December 31, 1998 and each fiscal
quarter thereafter, permit:
(i) the Interest Coverage Ratio for the twelve months immediately
preceding the last day of each fiscal quarter to be less than 1.5 to 1.
(ii) the ratio of (A) Total Indebtedness of the Company (other than
Indebtedness evidenced by the Notes) for the twelve months immediately
preceding the last day of each fiscal quarter to (B) EBITDA for such
period, to be more than 7.0 to 1.
(h) Inconsistent Agreements. Neither the Company nor shall the Company
cause any of its Subsidiaries to enter into any agreement containing any
provision which would (a) be violated or breached by the exercise or performance
by Company or its Subsidiary of any of their respective rights or obligations
under any Document, (b) impair in any material respect the ability of the
Company or any Subsidiary to comply with the terms of the Documents or (c)
prohibit a wholly-owned Subsidiary from paying dividends or making other
distributions..
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ARTICLE X
EVENTS OF DEFAULT
10.1. Default.
(a) In case one or more of the following events (each of which is an "Event
of Default"; whatever the reason for such Event of Default and whether it shall
be voluntary or involuntary or be effected by operation of law or pursuant to
any judgment, decree, or order of any court or any order, rule or regulation of
any administrative or governmental body) shall have occurred and be continuing:
(i) the Company shall default in the payment of interest on the Notes
as and when the same shall become due and payable, either in cash or
Additional Notes, within 10 days after the Interest Payment Date, and such
noncompliance shall occur on two consecutive Interest Payment Dates;
(ii) the Company or any of its Subsidiaries shall (A) voluntarily
commence any proceeding or file any petition seeking relief under Title 11
of the United States Code or any other federal, state or foreign
bankruptcy, insolvency or similar law, (B) consent to the institution of,
or fail to controvert in a timely and appropriate manner, any such
proceeding or the filing of any such petition, (C) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator or similar
official for any such Person or for any substantial part of its property
or assets, (D) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (E) make a general
assignment for the benefit of creditors, (F) fail generally to pay its
debts as they become due or (G) take any corporate or stockholder action
in furtherance of any of the foregoing;
(iii) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (A)
relief in respect of the Company or any of its Subsidiaries, or of any
substantial part of their respective property or assets, under Title 11 of
the United States Code or any other federal, state or foreign bankruptcy,
insolvency or similar law, (B) the appointment of a receiver, trustee,
custodian, sequestrator or similar official for any such Person or for any
substantial part of its property or (C) the winding-up or liquidation of
any such Person, and such proceeding, petition or order shall continue
unstayed and in effect for a period of 60 consecutive days;
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(iv) a final judgment for the payment of money in an amount in excess
of $5,000,000 shall be rendered by a court or other tribunal against the
Company or any of its Subsidiaries and shall remain undischarged for a
period of 60 consecutive days during which such judgment and any levy or
execution thereof shall not have been effectively stayed or vacated;
(v) any event shall occur or condition shall exist or fail to occur
or exist if the effect of such occurrence or failure is to accelerate the
maturity of any Indebtedness of the Company or any of its Subsidiaries in
a principal amount in excess of $5,000,000 or to permit the holder thereof
(or a trustee on behalf of such holder) to cause such Indebtedness to
become due prior to the stated maturity thereof and such occurrence or
failure shall not have been remedied within any applicable period of
grace, or any such Indebtedness shall not be paid when due, whether by
acceleration or otherwise, or the holder of any Encumbrance upon property
of the Company or any of its Subsidiaries shall commence foreclosure of
such Encumbrance;
(vi) a material breach of any of the representations, warranties or
covenants in any of the Documents, provided that if such default is not
willful, such default continues 30 days after notice of such breach has
been delivered by any holder of Note; or
(vii) a Change of Control shall have occurred;
then, and in each and every such case (other than an Event of Default specified
in clauses (ii) or (iii) above, the Requisite Purchasers, by notice in writing
to the Company (the "Acceleration Notice"), may declare the entire principal
amount of the Notes, and the interest accrued thereon, to be due and payable
immediately, and the same shall become immediately due and payable without
presentment, demand or protest, all of which are hereby expressly waived,
anything contained herein or other evidence of such indebtedness to the contrary
notwithstanding. If an Event of Default specified in clauses (ii) and (iii)
occurs, the entire principal amount of this Note, and the interest accrued
thereon, shall become and be immediately due and payable without any declaration
or other act on the part of the Purchasers and the same shall become immediately
due and payable without presentment, demand or protest, all of which are hereby
expressly waived, anything contained herein or other evidence of such
indebtedness to the contrary notwithstanding.
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(b) In case any one or more Events of Default shall occur and be
continuing, the Holder may, inter alia, proceed to protect and enforce its
rights by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained in this Note, or
for an injunction against a violation of any of the terms hereof or thereof or
in and of the exercise of any power granted hereby or thereby or by law. No
right conferred upon the Holder hereby shall be exclusive of any other right
referred to herein or now or hereafter available at law, in equity, by statute
or otherwise.
ARTICLE XI
SUBORDINATION
11.1. Notes Subordinated to Senior Debt.
(a) The Company, for itself and its successors, and the Purchaser, by its
acceptance of the Notes, agrees that the payment of the Subordinated Obligations
is subordinated, to the extent and in the manner provided in this Article, to
the prior payment in full in cash of all Senior Debt, including, with respect to
Designated Senior Debt, any interest accruing subsequent to a bankruptcy or
other similar proceeding at the rate specified in the applicable Designated
Senior Debt whether or not such interest is an allowed claim enforceable against
the Company in any such proceeding.
(b) This Article XI shall constitute a continuing offer to all persons
who, in reliance upon such provisions, become holders of, or continue to hold,
Senior Debt, and such provisions are made for the benefit of the holders of
Senior Debt, and such holders are made obligees hereunder and any one or more of
them may enforce such provisions. The provisions of this Article shall be
reinstated if at any time any payment of the Senior Debt is rescinded or must
otherwise be returned by any holder thereof or any representative of such holder
upon the insolvency, bankruptcy or reorganization of the Company.
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11.2. No Payment on Notes in Certain Circumstances.
(a) In the event that any payment of principal of or interest on the
Designated Senior Debt is not paid when due, whether at stated maturity, by
mandatory prepayment, by acceleration or otherwise (each, a "Senior Debt Payment
Default"), and the holders of Designated Senior Debt or their agent shall have
given written notice to the Company and the Purchaser of such non-payment (a
"Payment Default Notice"), then no payment shall be made by the Company, or
accepted by the Purchaser, on account of the Subordinated Obligations unless and
until such payment shall have been made or such Senior Debt Payment Default is
waived in accordance with the terms of the applicable Senior Credit Documents.
(b) In the event that any default under or in respect of the Designated
Senior Debt that entitles any holders of any Designated Senior Debt to
accelerate the maturity of such Designated Senior Debt outstanding thereunder
(other than a Senior Debt Payment Default) (each, a "Senior Debt Non-Payment
Default") shall have occurred and be continuing and the Company and the
Purchaser shall have received written notice of such Senior Debt Non-Payment
Default from the holders of any Designated Senior Debt or any agent of such
holders (a "Payment Blockage Notice"), then no payment shall be made by the
Company, or accepted by any Purchaser, on account of the Subordinated
Obligations during the period (a "Payment Blockage Period") commencing on the
date the Company and the Purchaser received such Payment Blockage Notice and
ending on the earlier of (i) the date 179 days thereafter and (ii) the date on
which the Senior Debt Non-Payment Default giving rise to the Payment Blockage
Period is cured or waived in accordance with the terms of the applicable Senior
Credit Documents; provided that (x) any holders of Designated Senior Debt shall
not be entitled to institute a Payment Blockage Period more often than once
within any period of 360 consecutive days, (y) no Senior Debt Non-Payment
Default or event which, with the giving of notice and/or the lapse of time,
would become a Senior Debt Non-Payment Default which existed on the date of the
commencement of any such blockage period may be used as the basis for any
subsequent Payment Blockage Notice unless such Senior Debt Non-Payment Default
or event, as the case may be, shall in the interim have been cured or waived for
a period of not less than ninety consecutive days and (z) any holders of
Designated Senior Debt shall not be entitled to institute a Payment Blockage
Period more than two times in total.
(c) The failure to make any payment with respect to the Subordinated
Obligations by reason of the provisions of Section 11.2(a) or (b), shall not be
construed as preventing the occurrence of an Event of Default hereunder or
impairing the right to declare due and payable the principal amount of and
premium on the Notes, plus accrued but unpaid interest, subject to Section 11.1.
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(d) In furtherance of the provisions of Section 11.1, in the event that,
notwithstanding the foregoing provisions of this Section 11.2, any payment on
account of principal of, premium, interest on the Notes or other Subordinated
Obligations or to acquire any of the Notes or on account of the redemption
provisions of the Notes shall be made by or on behalf of the Company and
received by any Purchaser at a time when such payment was prohibited by the
provisions of this Section 11.2, then, unless and until such payment is no
longer prohibited by this Section 11.2, such payment shall be received and held
in trust by such Purchaser for the benefit of, and, if any of the Senior Debt
remains outstanding, shall be immediately paid over to, either the Company or
the Senior Debtholders (or their representatives) ratably according to the
respective amounts of Senior Debt held or represented by each, for application
to the payment of all Senior Debt remaining unpaid to the extent necessary to
indefeasibly pay all Senior Debt in full in accordance with its terms, after
giving effect to any concurrent payment or distribution or provision therefor to
or for the Senior Debtholders.
(e) The provisions of this Section 11.2 shall not apply to any payment
with respect to which Section 11.3 would be applicable.
11.3. Notes Subordinated to Prior Payment of All Senior Debt on Dissolution,
Liquidation or Reorganization.
Upon any payment or distribution of properties of the Company or any
successor in any dissolution, winding up, liquidation or reorganization of the
Company (including in bankruptcy, insolvency or receivership proceedings or upon
any assignment for the benefit of creditors, whether voluntary or involuntary):
(i) The holders of all Senior Debt shall first be entitled to receive
payments in full of all amounts due on or with respect to Senior Debt,
including the principal, premium, and interest, fees, expenses and costs
due thereon or relating thereto, including any interest accruing
subsequent to a bankruptcy or other similar proceeding at the rate
specified in the applicable Senior Debt whether or not such interest is an
allowed claim enforceable against the Company in any such proceeding,
before the Purchaser is entitled to receive any payment or distribution in
cash, securities or other Property on account of the Subordinated
Obligations (other than any payment or distribution in the form of
securities, including, without limitation, Common Stock Equivalents, the
payment of which (i) is subordinated in right of payment to all Senior
Debt that may at the time be outstanding to the same extent as, or to a
greater extent than, the Subordinated Obligations are subordinate to the
Senior Debt as provided in this Article and (ii)
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is not payable prior to the payment in full of the Senior Debt).
(ii) Any payment or distribution, whether in cash, cash equivalents,
property or securities, to which the Purchaser would be entitled except
for the provisions of this Article, shall be paid by the liquidating
trustee or agent or other person making such a payment or distribution,
directly to the holders of Senior Debt (or their representatives) ratably
according to the respective amounts of Senior Debt held or represented by
each, to the extent necessary to make payment in full in cash of all
Senior Debt remaining unpaid after giving effect to any concurrent payment
or distribution or provision therefor to the holders of such Senior Debt.
(iii) In the event that, notwithstanding the foregoing, any payment
or distribution, whether in cash, cash equivalents property or securities
(other than any payment or distribution in the form of securities,
including, without limitation, Common Stock Equivalents, the payment of
which (i) is subordinated in right of payment to all Senior Debt that may
at the time be outstanding to the same extent as, or to a greater extent
than, the Subordinated Obligations are subordinate to the Senior Debt as
provided in this Article and (ii) is not payable prior to the payment in
full of the Senior Debt), shall be received by the Purchaser on account of
the Subordinated Obligations before all Senior Debt is indefeasibly paid
in full in cash, such payment or distribution shall be received and held
in trust by such Purchaser for the benefit of, and shall be immediately
paid over to the Senior Debtholders (or their representatives) which
remain unpaid or unprovided for, ratably according to the respective
amounts of the Senior Debt held or represented by each, for application to
the payment of all Senior Debt remaining unpaid to the extent necessary to
indefeasibly pay all Senior Debt in full in accordance with its terms,
after giving effect to any concurrent payment or distribution or provision
therefor to or for the Senior Debtholders.
11.4. Payments Otherwise Permitted.
Nothing contained in any Document shall prevent the Company, at any time
except during any dissolution, liquidation, winding up, or reorganization of the
Company referred to in Section 11.3 or under the conditions described in Section
11.2, from making payments at any time with respect to the Subordinated
Obligations.
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11.5. Subrogation.
Subject to the payment in full in cash of all Senior Debt and the
termination of all commitments to advance additional funds to the Company
pursuant to the Senior Credit Documents, the Purchaser shall be subrogated to
the rights of the Senior Debtholders to receive payments or distributions of
properties of the Company applicable to the Senior Debt until all amounts due
and payable on the Notes and all other Subordinated Obligations shall be paid in
full. For the purpose of such subrogation, no payments or distributions to the
Senior Debtholders by or on behalf of the Company, or by or on behalf of the
Purchaser by virtue of this Article, which otherwise would have been made to the
Purchaser shall, as between the Company, its creditors other than the Senior
Debtholders and the Purchaser, be deemed to be payment by the Company to or on
account of the Senior Debt, it being understood that the provisions of this
Article are, and are intended, solely for the purpose of defining the relative
rights of the Purchaser, on the one hand, and Senior Debtholders, on the other
hand.
11.6. Obligations of the Company Unconditional.
Nothing contained in this Article or elsewhere in this Agreement or in any
Note is intended to or shall impair, as between the Company, its creditors
(other than the Senior Debtholders) and the Purchaser, the obligations of the
Company, which are absolute and unconditional, to pay to the Purchaser the
Subordinated Obligations when the same become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Purchaser and creditors of the Company other than the Senior Debtholders, nor
shall anything herein or therein prevent any Purchaser from exercising all
remedies otherwise permitted by Applicable Law upon default under this
Agreement, subject to the rights, if any, and the limitations on remedies
provided in this Article (including Section 11.9), of the holders of Senior
Debt. Notwithstanding anything to the contrary in this Agreement or in the
Notes, upon any distribution of properties of the Company referred to in this
Article, the Purchaser shall be entitled to rely upon any judgment made by any
court of competent jurisdiction in which such dissolution, winding up,
liquidation or reorganization proceedings are pending, or a certificate of the
liquidating trustee or agent or other person making any distribution to the
Purchaser, for the purpose of ascertaining the persons entitled to participate
in such distribution, the Senior Debtholders and other Obligations of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article.
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11.7. Subordination Rights Not Impaired by Acts or Omissions of the Company or
Senior Debtholders.
No right of any present or future holders of any Senior Debt to enforce
subordination as provided in this Article shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any noncompliance by the Company with the terms of this Agreement,
regardless of any knowledge thereof which any such holder may have or otherwise
be charged with. Subject to the limitations as set forth in the definition of
Senior Debt, the holders of Senior Debt may, without notice to or consent of any
Purchaser, extend, renew, modify, amend or supplement the terms of the Senior
Debt (including changing the terms of payment, or the refinancing or
restructuring of such Senior Debt) or any security received in exchange therefor
and release, sell security or release any persons in any manner liable for such
Obligations and otherwise deal freely with the Company, all without affecting
the Obligations of the Company or the Purchaser under this Agreement.
11.8. Notice to Purchaser.
Notwithstanding the provisions of this Article or any other provision of
this Agreement, the Purchaser shall not be charged with knowledge of the
existence of any facts that would prohibit the making of any payment in respect
of the Subordinated Obligations (including notification of the existence or
designation of Designated Senior Debt), unless and until the Purchaser shall
have actual knowledge thereof; and, prior to the receipt of any written notice
thereof from the Company or a Senior Debtholder or from any trustee, fiduciary
or agent therefor, the Purchaser shall be entitled in all respects to assume
that no such facts exist. The Purchaser shall be entitled to rely on the
delivery to it of a written notice by a Person representing itself to be a
Senior Debtholder (or a trustee, fiduciary or agent therefor). In the event that
the Purchaser determines in good faith that further evidence is required with
respect to the right of any Person as a Senior Debtholder to participate in any
payment or distribution pursuant to this Article, the Purchaser may request such
Person to furnish evidence to the reasonable satisfaction of the Purchaser as to
the amount of Senior Debt held by such Person, the extent to which such Person
is entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article and if such evidence
is not furnished, the Purchaser may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.
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11.9. Limitations on Remedies.
(a) Notwithstanding anything contained herein to the contrary, during any
period commencing on the date of receipt of a Payment Default Notice under
Section 11.2(a) or a Payment Blockage Notice under Section 11.2(b) and ending on
the earlier of (i) the date the default that is the subject of such Payment
Default Notice or Payment Blockage Notice, as the case may be, is cured or
waived or (ii) ninety days after receipt by the Purchaser of such Payment
Default Notice or 360 days after receipt by the Purchaser of such Payment
Blockage Notice, the Purchaser shall not (i) accelerate the Notes as provided in
Section 10.1, (ii) initiate any judicial proceeding or action to collect the
Notes or (iii) initiate any case, proceeding or other action in respect of the
Company or its Subsidiaries of the type referred to in clause (a) or (b) of
Section 11.3 unless, prior to the expiration of such period, (x) any holder of
Designated Senior Debt or its agent shall take any action of the type referred
to in clauses (i), (ii) and (iii) above in respect of Designated Senior Debt or
(y) any Senior Debt shall have become automatically due and payable in
accordance with its terms.
(b) Prior to taking any action of the type referred to in clauses (i),
(ii) and (iii) of Section 11.9(a), the Purchaser shall give the Agent, no less
than 20 days' notice of the Purchaser's intent to take any such action (which
notice may be given during the continuation of any period during which the
Purchaser is blocked from receiving payments under Section 11.2).
ARTICLE XII
MISCELLANEOUS
12.1. Termination Events.
In the event the First Closing contemplated under this Agreement shall not
have occurred on or before June 12, 1998, this Agreement may be terminated by
CVCA or the Company; provided however, that the right to terminate this
Agreement pursuant to this Section 12.1 shall not be available to either of the
respective parties whose failure to fulfill any obligation under this Agreement
has been the cause of, or resulted in, the failure of the Closing to occur on or
before such date.
12.2. Exchange of Notes.
Prior to a Series B Preferred Conversion Event, in the event the Company
consummates a reorganization pursuant to which a holding company ("Newco") is
created which owns all of the outstanding stock of the Company, then the Company
and the Purchaser shall enter into an exchange agreement, in a form reasonably
acceptable to the Requisite Purchasers and the Agent, pursuant to which the
Purchased Notes will be exchanged for
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convertible notes (the "Exchanged Notes"), of Newco, which Exchanged Notes shall
be economically identical to the Purchased Notes, including its rights,
privileges and benefits, and shall be otherwise in a form and substance
reasonably acceptable to the Purchaser. The conditions of such exchange shall
include the following: (i) a Default shall not have occurred and be continuing;
(ii) the exchange shall qualify as a tax-free exchange under the Code; (iii) the
Exchanged Notes shall be governed by and entitled to all the benefits of this
Agreement (as if such Exchanged Notes were issued on the Closing Date pursuant
to the terms of this Agreement); (iv) in the case of any Purchaser acquiring
Purchased Notes on a Closing Date, for purposes of determining the applicable
holding period for such Purchased Notes under Rule 144(d), the Exchanged Notes
shall be deemed to have been acquired at the Closing at which such Notes were
purchased; (v) legal counsel to the Company shall deliver a legal opinion
addressed to the Purchasers, dated as of the date of such exchange, in a form
reasonably acceptable to the Requisite Purchasers; and (vi) the Company and
Newco shall covenant to the Purchasers that (x) at no time shall the Company
cease to be a wholly-owned subsidiary of Newco and (y) neither the Company nor
Newco shall enter into any agreement which would restrict the Company's ability
to pay dividends or make any other distributions to Newco.
12.3. Fees.
The Company will pay, and save the Purchasers harmless against all
Liability, whether or not the Closing hereunder occurs, for the payment of, (i)
all costs and other expenses incurred from time to time by the Company in
connection with the Company's performance of and compliance with all agreements
and conditions contained herein on its part to be performed or complied with
(including the reasonable costs and expenses of counsel incurred in connection
with the review and preparation of the Documents), (ii) the actual and
reasonable out-of-pocket costs and expenses incurred by the Purchasers at or
prior to closing in connection with the transactions contemplated hereby,
including reasonable fees and charges of X'Xxxxxxxx Graev & Karabell, LLP
(counsel to the Purchasers), and Xxxxxx Xxxxxxxx, LLP (accountant to the
Purchasers), in connection with the purchase and ownership of the Purchased
Notes and Preferred Shares, provided however, that the Company's reimbursement
obligations under this clause (ii) shall not exceed $100,000 unless approved by
the Company, (iii) the reasonable costs and expenses (including fees and
expenses of counsel) incurred by the Purchasers in connection with any amendment
or waiver of, or enforcement of, any Document relating to the transactions
contemplated hereby, and (iv) the reasonable fees and expenses incurred by each
Purchaser in any filing with any Governmental Authority with respect to its
investment in the Company or in any other filing with any Governmental Authority
with respect to the Company that mentions such Purchaser.
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(b) The Company further agrees that it will pay, and will save the
Purchasers harmless from, any and all Liability with respect to any stamp or
similar taxes which may be determined to be payable in connection with the
execution and delivery and performance of the Documents or any modification,
amendment or alteration of the terms or provisions of the Documents, and that it
will similarly pay and hold the Purchasers harmless from all issue taxes in
respect of the issuance of the Additional Notes or Reserved Common Shares to the
Purchasers.
12.4. Further Assurances.
The Company shall duly execute and deliver, or cause to be duly executed
and delivered, at its own cost and expense, such further instruments and
documents and to take all such action, in each case as may be necessary or
proper in the reasonable judgment of the Purchasers to carry out the provisions
and purposes of the Agreement and the other Documents.
12.5. Remedies.
In case any one or more of the representations, warranties, covenants
and/or agreements set forth in this Agreement shall have been breached by the
Company, the Purchasers (or any Purchaser) may proceed to protect and enforce
its or their rights either by suit in equity and/or by action at law, including
an action for damages as a result of any such breach and/or an action for
specific performance of any such covenant or agreement contained in this
Agreement.
12.6. Successors and Assigns.
This Agreement shall bind and inure to the benefit of the Company and the
Purchasers and their respective successors, assigns, heirs and personal
representatives. Upon any transfer of the Notes or the Reserved Common Shares,
the transferee shall be bound by, and entitled to the benefits of, this
Agreement with respect to such transferred Securities in the same manner as the
transferring Purchaser.
12.7. Entire Agreement.
This Agreement and the other writings referred to herein or delivered
pursuant hereto which form a part hereof contain the entire agreement among the
parties with respect to the subject matter hereof and thereof and supersede all
prior and contemporaneous arrangements or understandings with respect thereto.
12.8. Notices.
All notices and other communications delivered hereunder (whether or not
required to be delivered hereunder) shall be
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deemed to be sufficient and duly given if contained in a written instrument (a)
personally delivered, (b) sent by telecopier, (c) sent by nationally-recognized
overnight courier guaranteeing next Business Day delivery or (d) sent by first
class registered or certified mail, postage prepaid, return receipt requested,
in each case addressed as follows:
(i) if to the Company, to:
Gentle Dental Service Corporation
000 Xxxxx Xxxxxxxxx Xxxxxxxxx
Xx Xxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx
President and
Chief Executive Officer
with a copy to:
XxXxxxxxx, Will & Xxxxx
One Newport Place
0000 Xxxx Xxxxxx, Xxxxx 000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
(ii) if to any Purchaser, to him, her or it at his,
her or its address set forth on Schedule I
attached hereto;
with a copy to:
X'Xxxxxxxx Graev & Karabell, LLP
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxxx, Esq.
or to such other address as the party to whom such notice or other communication
is to be given may have furnished to each other party in writing in accordance
herewith. Any such notice or communication shall be deemed to have been received
(i) when delivered, if personally delivered, (ii) when sent, if sent by telecopy
on a Business Day (or, if not sent on a Business Day, on the next Business Day
after the date sent by telecopy), (iii) on the next Business Day after dispatch,
if sent by nationally recognized, overnight courier guaranteeing next Business
Day delivery, and (iv) on the fifth Business Day following the date on which the
piece of mail containing such communication is posted, if sent by mail.
-64-
12.9. Amendments, Modifications and Waivers.
The terms and provisions of this Agreement may not be modified or amended,
nor may any of the provisions hereof be waived, temporarily or permanently,
except pursuant to a written instrument executed by the Company and the
Requisite Purchasers and in the case of amendments, modifications or waivers of
provisions of Article XI, definitions of capitalized terms used in Article XI,
or Section 12.2 or this Section 12.9, with the consent of the Agent; provided
however that any such amendment, modification or waiver that would adversely
affect the rights hereunder of any Purchaser, in its capacity as a Purchaser,
without similarly affecting the rights hereunder of all Purchasers, in their
capacities as Purchasers, shall not be effective as to such Purchaser without
its prior written consent.
12.10. Governing Law; Waiver of Jury Trial.
(a) All questions concerning the construction, interpretation and validity
of the Documents shall be governed by and construed and enforced in accordance
with the domestic laws of the State of New York, without giving effect to any
choice or conflict of law provision or rule (whether in the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York. In furtherance of the foregoing,
the internal law of the State of New York will control the interpretation and
construction of the Documents, even if under such jurisdiction's choice of law
or conflict of law analysis, the substantive law of some other jurisdiction
would ordinarily or necessarily apply.
(b) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE LAWS TO APPLY (RATHER THAN
ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO
WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO
ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS
RELATED HERETO.
12.11. No Third Party Reliance.
Anything contained herein to the contrary notwithstanding, the
representations and warranties of the Company contained in this Agreement (a)
are being given by the Company as an inducement to the Purchasers to enter into
this Agreement and the other Documents (and the Company acknowledges that the
Purchasers have expressly relied thereon) and (b) are solely for the benefit of
the Purchasers. Accordingly, no third party (including, without limitation, any
holder of capital stock of the Company) or anyone acting on behalf of any
thereof other
-65-
than the Purchasers, and each of them, shall be a third party or other
beneficiary of such representations and warranties and no such third party shall
have any rights of contribution against the Purchasers or the Company with
respect to such representations or warranties or any matter subject to or
resulting in indemnification under this Agreement or otherwise.
12.12. Submission to Jurisdiction.
Any legal action or proceeding with respect to this Agreement or the other
Documents may be brought in the courts of the State of New York and the United
States of America for the Southern District of New York and, by execution and
delivery of this Agreement, the Company hereby accepts for itself and in respect
of its property, generally and unconditionally, the jurisdiction of the
aforesaid courts. The Company hereby irrevocably waives, in connection with any
such action or proceeding, any objection, including, without limitation, any
objection to the venue or based on the grounds of forum non conveniens, which it
may now or hereafter have to the bringing of any such action or proceeding in
such respective jurisdictions. The Company hereby irrevocably consents to the
service of process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to it at its address as set forth herein. Nothing herein shall
affect the right of the Purchasers to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise proceed against
the Company in any other jurisdiction.
12.13. Extension; Waiver.
At any time prior to the First Closing, the parties may (a) extend the
time for the performance of any of the obligations or other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties
contained in this Agreement or in any document delivered pursuant to this
Agreement and (c) waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party, and any such waiver shall not operate or be
construed as a waiver of any subsequent breach by the other party.
12.14. Severability.
It is the desire and intent of the parties that the provisions of this
Agreement be enforced to the fullest extent permissible under the law and public
policies applied in each jurisdiction in which enforcement is sought.
Accordingly, in the event that any provision of this Agreement would be held in
any jurisdiction to be invalid, prohibited or unenforceable for any reason, such
provision, as to such jurisdiction, shall be ineffective, without invalidating
the remaining provisions of
-66-
this Agreement or affecting the validity or enforceability of such provision in
any jurisdiction. Notwithstanding the foregoing, if such provision could be more
narrowly drawn so as not be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
12.15. Independence of Agreements, Covenants, Representations and Warranties.
All agreements and covenants hereunder shall be given independent effect
so that if a certain action or condition constitutes a default under a certain
agreement or covenant, the fact that such action or condition is permitted by
another agreement or covenant shall not affect the occurrence of such default,
unless expressly permitted under an exception to such initial covenant. In
addition, all representations and warranties hereunder shall be given
independent effect so that if a particular representation or warranty proves to
be incorrect or is breached, the fact that another representation or warranty
concerning the same or similar subject matter is correct or is not breached will
not affect the incorrectness of or a breach of a representation and warranty
hereunder. The exhibits and schedules attached hereto are hereby made part of
this Agreement in all respects. Any disclosure made in any Schedule to this
Agreement which should, based on the substance of such disclosure, be applicable
to another Schedule to this Agreement shall be deemed to be made with respect to
such other Schedule regardless of whether or not a specific reference is made
thereto; provided, that the description of such item on a Schedule is such that
the Purchaser could reasonably be expected to ascertain that such disclosure
would relate to such other provision of this Agreement.
12.16. Counterparts; Facsimile Signatures.
This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement. Facsimile
counterpart signatures to this Agreement shall be acceptable an binding.
* * * *
-67-
IN WITNESS WHEREOF, the parties hereto have executed this Securities
Purchase Agreement as of the date first above written.
GENTLE DENTAL SERVICE
CORPORATION
By: XXXXXXX X. XXXXX
-------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: President and CEO
PURCHASERS:
----------
CHASE VENTURE CAPITAL
ASSOCIATES, L.P.
By: Chase Capital Partners,
its General Partner
By: XXXX XXXXX
-------------------------------------
Name: Xxxx Xxxxx
Title: Managing Director
DLJ CAPITAL CORP.
By: XXXXXXXX XXXXXXX
-------------------------------------
Xxxxxxxx XxXxxxx
Attorney In Fact
DLJ FIRST ESC L.L.C.
By: DLJ LBO Plans Management
Corporation,
its Manager
By: XXXXXXXX XXXXXXX
-------------------------------------
Xxxxxxxx XxXxxxx
Attorney In Fact
SPROUT CAPITAL VII, L.P.
By: DLJ Capital Corp.
its Managing General
Partner
By: XXXXXXXX XXXXXXX
-------------------------------------
Xxxxxxxx XxXxxxx
Attorney In Fact
SPROUT GROWTH II, L.P.
By: DLJ Capital Corp.
its Managing General
Partner
By: XXXXXXXX XXXXXXX
-------------------------------------
Xxxxxxxx XxXxxxx
Attorney In Fact
THE SPROUT CEO FUND, L.P.
By: DLJ Capital Corp.
its General Partner
By: XXXXXXXX XXXXXXX
-------------------------------------
Xxxxxxxx XxXxxxx
Attorney In Fact
SCHEDULE I
----------
First Closing
-------------
(Page 1 of 2)
Aggregate Aggregate Aggregate
Price of Price of Price of Aggregate
Series A Series A Series C Series C Series D Series D Principal Amount
Name and Address Shares Shares Shares Shares Shares Shares of Notes
---------------- -------- --------- -------- --------- --------- ------------- ----------------
Chase Venture Capital Associates, L.P. 100 $ 100.00 - - 1,085,767 $9,999,900.00 $15,000,000.00
c/o Chase Capital Partners
380 Madison Avenue,
12th floor
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxxxx
Xxxx Xxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
DLJ Capital Corp. - - - - 7,601 $70,005.21 $209,998.75
c/o The Sprout Group
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx
Xxxxxxxx XxXxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
DLJ First ESC L.L.C. - - - - 38,003 $350,007.63 $1,049,999.70
c/o The Sprout Group
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx
Xxxxxxxx XxXxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
SCHEDULE I
----------
First Closing
-------------
(Page 2 of 2)
Aggregate
Price of
Name and Address Notes Total Price
---------------- -------------- --------------
Chase Venture Capital Associates, L.P. $15,000,000.00 $25,000,000.00
c/o Chase Capital Partners
380 Madison Avenue,
12th floor
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxxxx
Xxxx Xxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
DLJ Capital Corp. $209,998.75 $280,003.96
c/o The Sprout Group
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx
Xxxxxxxx XxXxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
DLJ First ESC L.L.C. $1,049,999.70 $1,400,007.33
c/o The Sprout Group
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx
Xxxxxxxx XxXxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
(Page 1 of 2)
Aggregate Aggregate Aggregate
Price of Price of Price of Aggregate
Series A Series A Series C Series C Series D Series D Principal Amount
Name and Address Shares Shares Shares Shares Shares Shares of Notes
---------------- -------- --------- -------- --------- --------- ------------- ----------------
Sprout Capital VII, L.P. - - 100 $ 100.00 182,833 $1,683,891.93 $5,051,520.90
c/o The Sprout Group
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: RobertFinzi
Xxxxxxxx XxXxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
Sprout Growth II, L.P. - - - - 149,472 $1,376,637.12 $4,129,800.10
c/o The Sprout Group
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx
Xxxxxxxx XxXxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
The Sprout CEO Fund, L.P. - - - - 2,124 $19,562.04 $58,680.55
c/o The Sprout Group
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx
Xxxxxxxx XxXxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
Total First Closing 100 $100.00 100 $100.00 1,465,800 $13,500,003.93 $25,500,000.00
(Page 2 of 2)
Aggregate
Price of
Name and Address Notes Total Price
---------------- -------------- --------------
Sprout Capital VII, L.P. $5,051,520.90 $6,735,512.83
c/o The Sprout Group
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: RobertFinzi
Xxxxxxxx XxXxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
Sprout Growth II, L.P. $4,129,800.10 $5,506,437.22
c/o The Sprout Group
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx
Xxxxxxxx XxXxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
The Sprout CEO Fund, L.P. $58,680.55 $78,242.59
c/o The Sprout Group
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx
Xxxxxxxx XxXxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
----------------------------
Total First Closing $25,500,000.00 $39,000,203.93
SCHEDULE I (Cont'd)
-------------------
Second Closing
--------------
(Page 1 of 2)
Aggregate Aggregate Aggregate
Price of Price of Price of Aggregate
Series A Series A Series C Series C Series D Series D Principal Amount
Name and Address Shares Shares Shares Shares Shares Shares of Notes
---------------- -------- --------- -------- --------- --------- ------------- ----------------
St. Xxxx Venture Capital IV, LLC - - - - 36,192 $333,328.32 $1,000,000.00
0000 Xxxxxxxxxx Xxxx Xxxxxxxxx
Xxxxx 0000
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxxxx Xxx
Tel: (000) 000-0000
Fax: (000) 000-0000
Accel V L.P. - - - - 58,342 $537,329.82 $1,612,000.00
0 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxx Sednaoui
Tel: (000) 000-0000
Fax: (000) 000-0000
Accel Internet/Strategic Technology - - - - 7,817 $71,994.57 $216,000.00
Fund L.P.
0 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxx Sednaoui
Tel: (000) 000-0000
Fax: (000) 000-0000
Accel Keiretsu V L.P. - - - - 1,158 $10,665.18 $32,000.00
0 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxx Sednaoui
Tel: (000) 000-0000
Fax: (000) 000-0000
Accel Investors - 96 L.P. - - - - 3,474 $31,995.54 $96,000.00
0 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxx Sednaoui
Tel: (000) 000-0000
Fax: (000) 000-0000
(Page 2 of 2)
Aggregate
Price of
Name and Address Notes Total Price
---------------- -------------- --------------
St. Xxxx Venture Capital IV, LLC $1,000,000.00 $1,333,328.32
0000 Xxxxxxxxxx Xxxx Xxxxxxxxx
Xxxxx 0000
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxxxx Xxx
Tel: (000) 000-0000
Fax: (000) 000-0000
Accel V L.P. $1,612,000.00 $2,149,329.82
0 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxx Sednaoui
Tel: (000) 000-0000
Fax: (000) 000-0000
Accel Internet/Strategic Technology $216,000.00 $287,994.57
Fund L.P.
0 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxx Sednaoui
Tel: (000) 000-0000
Fax: (000) 000-0000
Accel Keiretsu V L.P. $32,000.00 $42,665.18
0 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxx Sednaoui
Tel: (000) 000-0000
Fax: (000) 000-0000
Accel Investors - 96 L.P. $96,000.00 $127,995.54
0 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxx Sednaoui
Tel: (000) 000-0000
Fax: (000) 000-0000
(Page 1 of 2)
Aggregate Aggregate Aggregate
Price of Price of Price of Aggregate
Series A Series A Series C Series C Series D Series D Principal Amount
Name and Address Shares Shares Shares Shares Shares Shares of Notes
---------------- -------- --------- -------- --------- --------- ------------- ----------------
Xxxxxxx X. Xxxxxxxxx Partners - - - - 1,592 $14,662.32 $44,000.00
0 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxx Sednaoui
Tel: (000) 000-0000
Fax: (000) 000-0000
Bessemer Venture Partners GMS - - - - 54,288 $499,992.48 $1,500,000.00
0000 Xxx Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
------------------------------
Total Second Closing - - - - 162,863 $1,499,968.23 $4,500,000.00
(Page 2 of 2)
Aggregate
Price of
Name and Address Notes Total Price
---------------- -------------- --------------
Xxxxxxx X. Xxxxxxxxx Partners $44,000.00 $58,662.32
0 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxx Sednaoui
Tel: (000) 000-0000
Fax: (000) 000-0000
Bessemer Venture Partners GMS $1,500,000.00 $1,999,992.48
0000 Xxx Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
------------------------------
Total Second Closing $4,500,000.00 $5,999,968.23
Exhibit A
Form of Certificate of Amendment
(See Attached)
ARTICLE IX
SERIES A PREFERRED STOCK
1. Designation of Amount; Ranking.
The issuance of One Hundred (100) shares of the Series A Preferred
Stock is hereby authorized. The Series A Preferred Stock shall rank senior to
the Common Stock (as hereinafter defined), pari passu with the Series C
Preferred Stock and junior to all other classes and series of equity securities
of the Corporation now existing or hereafter created with respect to rights of
redemption and rights of Liquidation (as hereinafter defined).
2. Definitions.
As used in this Article IX, the following capitalized terms have the
following meanings:
"Affiliate" has the meaning given to such term in the Purchase
Agreement.
"Applicable Law" has the meaning given to such term in the Purchase
Agreement.
"By-laws" means the By-laws of the Corporation, as amended and in
effect from time to time.
"Board" means the Board of Directors of the Corporation.
"Business Day" has the meaning given to such term in the Purchase
Agreement.
"Certificate of Incorporation" means the Restated Articles of
Incorporation of the Corporation as amended and restated and in effect at the
time in question.
"Closing Date" has the meaning given to such term in the Purchase
Agreement.
"Common Stock" means, collectively, all of the Common Stock, no par
value, of the Corporation of any class, and any other class of capital stock of
the Corporation hereafter authorized that is not limited to a fixed sum or
percentage of par or stated value in respect to the rights of the holders
thereof to participate in dividends or in the distribution of assets upon any
liquidation, dissolution or winding up of the Corporation.
"Corporation" means Gentle Dental Service Corporation, a Washington
corporation.
"Default Director" has the meaning given to such term in Section 3(b)
of this Article IX.
"Document" has the meaning given to such term in the Purchase
Agreement.
"Event of Default" has the meaning given to such term in the Purchase
Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal law then in force.
"Governmental Authority" shall mean any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case whether of the United States of
America or any political subdivision thereof, or of any other country.
"Liquidation" means any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
"Mandatory Conversion Event" has the meaning given to such term in the
Purchase Agreement.
"Maturity Date" has the meaning given to such term in the Purchase
Agreement.
"Notes" has the meaning given to such term in the Purchase Agreement.
"Original Cost" means, with respect to any share of Series A Preferred
Stock, $1.00. In the event of any change (by way of any recapitalization,
subdivision or recombination) in the number or kind of shares of Series A
Preferred Stock, the Original Cost of the shares of Series A Preferred Stock
immediately prior to such change shall be ratably adjusted among such shares of
Series A Preferred Stock immediately after such change.
"Person" shall be construed broadly and shall include without
limitation an individual, a partnership, a corporation, an association, a joint
stock company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a Governmental Authority.
"Preferred Director" shall mean any individual elected to the Board,
to serve as a director, pursuant to Section 3(b)(i) of this Article IX.
-2-
"Preferred Holders" means holders of Series A Preferred Stock.
"Preferred Liquidation Preference" has the meaning ascribed to it in
Section 4 of this Article IX.
"Preferred Stock" means the preferred stock, no par value, of the
Corporation.
"Purchase Agreement" means the Securities Purchase Agreement dated as
of May 12, 1998, between the Corporation and the Purchasers (as defined
therein), as amended from time to time.
"Redemption Event" has the meaning ascribed to it in Section 5(a) of
this Article IX.
"Redemption Price" has the meaning ascribed to it in Section 5(a) of
this Article IX.
"Requisite Preferred Holders" means the holders of a majority of the
outstanding shares of Series A Preferred Stock.
"Securities" means "securities" as defined in Section 2(1) of the
Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Series A Preferred Redemption Event" has the meaning given to such
term in the Purchase Agreement.
"Series C Preferred Stock" means the Series C Preferred Stock, no par
value, of the Corporation.
"Warrant" has the meaning given to such term in the Note.
3. Voting Rights.
(a) Non-Voting.
Except as required by law and pursuant to paragraphs (b) and (c)
below, the Preferred Holders shall not be entitled to vote.
(b) Board Representation.
(i) So long as any Series A Preferred Stock remains outstanding,
the Requisite Preferred Holders shall be entitled to elect one individual to the
Board to serve as a director, which individual initially shall be Xxxx Xxxxx;
provided, however, that upon the occurrence or the continuance of any Event of
Default,
-3-
the Requisite Preferred Holders shall be entitled to elect one additional
individual to the Board to serve as a director (a "Default Director").
(ii) Notwithstanding any other sections of the Certificate of
Incorporation, so long as any Series A Preferred Stock remains outstanding, the
Requisite Preferred Holders shall be entitled to (A) remove from the Board any
Preferred Director elected under the foregoing subsection (i), (B) elect each
successor to any such Preferred Director removed in accordance herewith or who
otherwise vacates such office, and (C) remove any other director necessary to
create sufficient vacancies on the Board to permit the Requisite Preferred
Holders to elect additional individuals to the Board upon an occurrence or
continuance of an Event of Default, or an Event of Option, pursuant to the
foregoing clause (i) above.
(iii) The right of the Preferred Holders to elect directors may
be exercised at the special meeting called pursuant to this Section, at any
annual or other special meeting of shareholders and, to the extent and in the
manner permitted by Applicable Law, pursuant to a written consent in lieu of a
shareholders meeting. A proper officer of the Corporation shall, upon the
written request of the Requisite Preferred Holders, addressed to any officer of
the Corporation, call a special meeting of the holders of Preferred Stock for
the purpose of electing directors pursuant to this Section. Such meeting shall
be held at the earliest legally permissible date at the principal office of the
Corporation, or at such other place designated by the Requisite Preferred
Holders. If such meeting has not been called by a proper officer of the
Corporation within 2 days after personal delivery, by hand or by a nationally
recognized, overnight courier guaranteeing next business day delivery, of such
written request upon any officer of the Corporation or within 5 days after
mailing the same to the secretary of the Corporation at its principal office,
then the Requisite Preferred Holders may call such meeting at the expense of the
Corporation, and such meeting may be called upon the notice required for annual
meetings of shareholders and shall be held at the Corporation's principal
office, or at such other place designated by the Requisite Preferred Holders.
The Preferred Holders shall be given access to the stock record books of the
Corporation for the purpose of causing a meeting of stockholders to be called
pursuant to this Section.
(iv) At any meeting or at any adjournment thereof at which the
Preferred Holders have the right to elect directors, the presence, in person or
by proxy, of the Preferred Holders shall be required to constitute a quorum for
the election or removal of any director by the Requisite Preferred Holders. The
affirmative vote of the Requisite Preferred Holders shall be required to elect
or remove any Preferred Director.
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(v) If any Event of Default shall occur and be continuing, the
Preferred Holders shall also have any other rights which such holder is entitled
to under any Document at any time and any other rights which such holder may
have pursuant to Applicable Law.
(vi) The Corporation shall pay or reimburse each Preferred
Director for the reasonable out-of-pocket expenses incurred by such Person in
connection with attending formal meetings of the Board and any committee
thereof. The Corporation shall use its best efforts to maintain video
teleconferencing capabilities for all formal meetings of the Board and any
committee thereof.
(c) Covenants.
The Corporation shall not, without the affirmative consent or approval
of the Requisite Preferred Holders:
(i) in any manner authorize, issue or sell any shares of Series A
Preferred Stock other than as contemplated by the Purchase Agreement or
this Article IX;
(ii) reclassify, cancel or in any manner alter or change the
terms, designations, powers, preferences or relative, optional or other
special rights, or the qualifications, limitations or restrictions thereof,
of the Series A Preferred Stock;
(iii) amend, repeal or modify any provision of this Article IX;
or
(iv) amend, repeal or modify any provision of the Certificate of
Incorporation or By-laws in a manner that would adversely affect the
powers, preferences or rights of the Series A Preferred Stock.
(d) Observer Rights.
(i) The Corporation hereby covenants that the Preferred Holders
shall have the right to have that number of representatives (each such
representative, an "Observer") determined as hereinafter provided present at all
meetings of the Board. Such right shall from time to time be exercisable by
delivery to the Corporation of written notice from the Requisite Preferred
Holders specifying the names of such Observers. The number of Observers shall at
all times and from time to time be equal to that number of members of the Board
that the Preferred Holders are then entitled to designate but whose seats on the
Board are at the time vacant.
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(ii) The Corporation will give each Observer reasonable prior
notice (it being agreed that the same prior notice given to the Board shall be
deemed reasonable prior notice) in any manner permitted in the Corporation's
By-laws for notices to directors of the time and place of any proposed meeting
of the Board, such notice in all cases to include true and complete copies of
all documents furnished to any director in connection with such meeting. Each
such Observer will be entitled to be present in person as an observer at any
such meeting or, if a meeting is held by telephone conference, to participate
therein for the purpose of listening thereto.
(iii) The Corporation will deliver to each Observer copies of all
papers which may be distributed from time to time to the directors of the
Corporation at such time as such papers are so distributed to them, including
copies of any written consent.
4. Liquidation.
In the event of any Liquidation, the Preferred Holders shall be
entitled to receive, out of the assets of the Corporation legally available for
distribution to its stockholders, before any payment shall be made to the
holders of any stock ranking on Liquidation junior to the Series A Preferred
Stock (with respect to rights on Liquidation, the Series A Preferred Stock shall
rank senior to the Common Stock, pari passu with the Series C Preferred Stock
but junior to all other series of Preferred Stock), an amount per share equal to
(the "Preferred Liquidation Preference") the Original Cost of such share. If,
upon any Liquidation, the assets of the Corporation available for distribution
to its stockholders shall be insufficient to pay the Preferred Holders the full
amount to which it shall be entitled, then the Corporation shall pay the
Preferred Holders the aggregate unpaid Preferred Liquidation Preference as soon
as practicable after the Corporation has funds legally available therefor. In
the event of any Liquidation, after payment shall have been made to the
Preferred Holders in the full amount to which it is entitled, the holders of
shares of Common Stock shall be entitled, to the exclusion of the Preferred
Holders, to share, according to their respective rights and preferences, in all
remaining assets of the Corporation available for distribution to its
stockholders.
5. Redemption.
Subject to the Corporation having funds legally available for such
purpose, the Corporation shall redeem all of the shares of the Series A
Preferred Stock then outstanding, on the first to occur of (A) on the Maturity
Date, so long as all of the outstanding Notes, the outstanding shares of the
Series B Preferred Stock and the outstanding shares of the Series D
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Preferred Stock shall have been redeemed or converted prior thereto, (B) upon
the occurrence of the Mandatory Conversion Event, or (C) in the event a Series A
Preferred Redemption Event shall have occurred (each of clauses (A), (B) and (C)
above, a "Redemption Event"). The per share redemption price at which shares of
Series A Preferred Stock are to be redeemed pursuant to this Section 5(a) shall
be equal to the Liquidation Preference Amount (the "Redemption Price").
(b) On and after any redemption date (the "Redemption Date") pursuant
to this Section 5 (unless default shall be made by the Corporation in the
payment of the Redemption Price, in which event such rights shall be exercisable
until such default is cured), all rights in respect of the shares of the Series
A Preferred Stock to be redeemed, except the right to receive the Redemption
Price, shall cease and terminate, and such shares shall no longer be deemed to
be outstanding, whether or not the certificates representing such shares have
been received by the Corporation.
(c) Any communication or notice relating to redemption given pursuant
to this Section 5 shall be sent by first-class certified mail, return receipt
requested, postage prepaid, to the Preferred Holders, at their respective
addresses as the same shall appear on the books of the Corporation, or to the
Corporation at the address of its principal, or registered office, as the case
may be.
(d) At any time on or after the Redemption Date, the Preferred Holders
shall be entitled to receive the Redemption Price upon actual delivery to the
Corporation or its agents of the certificates representing the shares of the
Series A Preferred Stock to be redeemed.
(e) Any redemption payments by the Corporation pursuant to this
Section 5 shall be paid in cash.
(f) Any shares of Series A Preferred Stock which are redeemed,
converted or otherwise acquired by the Corporation shall be canceled and shall
not be reissued (as treasury shares), sold or transferred as Series A Preferred
but such shares shall become unclassified Preferred Stock of the Corporation.
ARTICLE X
SERIES B PREFERRED STOCK
1. Designation of Amount; Ranking.
The issuance of Seventy Thousand (70,000) shares of the Series B
Preferred Stock is hereby authorized. The Series B
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Preferred Stock shall rank senior to all other classes and series of equity
securities of the Corporation now existing or hereafter created including the
Series A Preferred Stock, no par value, Series C Preferred Stock, no par value
and the Series D Preferred Stock (collectively, the "Junior Stock"), with
respect to dividend rights, rights of redemption, rights of conversion and
rights of Liquidation (as hereinafter defined).
2. Definitions.
Except as set forth below, capitalized terms used herein have the
meanings given to such terms in the Purchase Agreement. The following
capitalized terms used in this Article X have the following meanings:
"Adjusted Market Price" shall be an amount equal to 95% of the Market
Price in effect at such time.
"Applicable Dividend Rate" means, for each Dividend Period (i) for
dividends paid in cash on the last day of such period where an Event of Default
shall not have occurred, a rate equal to the Applicable Interest Rate at the
time of the Series B Preferred Conversion Event, and (ii) in all other
circumstances, a rate equal to the Applicable Interest Rate at the time of the
Series B Conversion Event plus 1.25% per annum; and the Corporation and the
holders of Series A Preferred Stock acknowledge that the difference of 1.25%
between the aforementioned rate represents additional dividend payable upon the
occurrence and continuation of an Event of Default after the Series B Preferred
Conversion Event.
"Converted Shares" has the meaning ascribed to it in Section 6(d) of
this Article X.
"Converting Shares" has the meaning ascribed to it in Section 6(d) of
this Article X.
"Corporation" means Gentle Dental Service Corporation, a Washington
corporation.
"Conversion Premium" shall mean $0.2247.
"Conversion Price" shall initially be the Conversion Price of the
Notes on the date of the Series B Conversion Event, and shall be subject to
adjustment from time to time as set forth in Section 4(c) of this Article X.
"Documents" shall have the meaning ascribed to it in the Purchase
Agreement.
"Excluded Stock" means (i) all Common Stock issued upon conversion of
Preferred Stock, Notes and Warrants, (ii) shares of Common Stock (as such number
is equitably adjusted for stock
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splits, stock dividends, share combinations and similar pro-rata
recapitalizations) issued upon the exercise of stock options issued pursuant to
the Equity Incentive Plans and (iii) Securities issued by the Corporation in an
underwritten Public Offering.
"Junior Stock" has the meaning given to such term in Section 1 of this
Article X.
"Liquidation" means any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
"Mandatory Redemption Date" shall mean the eighth anniversary of the
First Closing Date.
"Measurement Period" means 30 consecutive Business Days.
"Original Cost" means, with respect to any share of Series B Preferred
Stock, $1,000.00. In the event of any change (by way of any recapitalization,
subdivision or recombination) in the number or kind of shares of Series B
Preferred Stock, the Original Cost of the shares of Series B Preferred Stock
immediately prior to such change shall be ratably adjusted among such shares of
Series B Preferred Stock immediately after such change.
"Original Issuance Date" means the date on which the Notes are
converted pursuant to a Series B Conversion Event.
"Preferred Liquidation Preference" has the meaning ascribed to it in
Section 4(b) of this Article X.
"Preferred Dividend Payment Date" shall have the meaning ascribed to
it in Section 4(a) of this Article X.
"Public Offering" means the closing of a public offering of Securities
pursuant to a registration statement declared effective under the Securities
Act, except that a Public Offering shall not include an offering made in
connection with a business acquisition or an employee benefit plan.
"Purchase Agreement" means the Securities Purchase Agreement dated as
of May 12, 1998, among the Corporation and the Purchasers (as defined therein),
as amended from time to time.
"Qualified Holder" means (i) each Person who initially acquires Series
B Preferred Stock from the Corporation and (ii) any other holder of Series B
Preferred Stock who, together with its Affiliates, owns Series B Preferred Stock
with an aggregate Original Cost of $1,000,000 or more.
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"Qualified Securities" means the Common Stock issued to the
stockholders of the Corporation as consideration in any conversion, provided (i)
such Common Stock is then listed on a national securities exchange or reported
on the Nasdaq National Market and (ii) such Common Stock is registered under the
Securities Act or is freely tradable under Rule 144 of the Securities Act within
6 months of the date of issuance.
"Redemption Price" has the meaning ascribed to it in Section 5(a) of
this Article X.
"Requisite Preferred Holders" means the holders of a majority of the
outstanding shares of Series B Preferred Stock at the time in question.
"Securities and Exchange Commission" means the Securities and Exchange
Commission or any Governmental Authority succeeding to the functions thereof.
"Sale of the Corporation" means (i) the sale (in one or a series of
related transactions) of all or substantially all of the Corporation's assets to
a Person or a group of Persons acting in concert, (ii) the sale or transfer (in
one or a series of related transactions) of the outstanding capital stock of the
Corporation to one Person or a group of Persons acting in concert, or (iii) the
merger or consolidation of the Corporation with or into another Person who is
not an Affiliate of the Corporation, in each case in clauses (ii) and (iii)
above under circumstances in which the holders of a majority in voting power of
the outstanding capital stock of the Corporation, immediately prior to such
transaction, own less than a majority in voting power of the outstanding capital
stock of the Corporation or the surviving or resulting company or acquirer, as
the case may be, immediately following such transaction. A sale (or multiple
related sales) of one or more Subsidiaries of the Corporation (whether by way of
merger, consolidation, reorganization or sale of all or substantially all assets
or Securities) which constitutes all or substantially all of the consolidated
assets of the Corporation shall be deemed a Sale of the Corporation.
"Stockholders" means holders of Common Stock or Preferred Stock.
3. Voting Rights.
(a) General.
In addition to the rights provided by law and by paragraph (b) below,
the holders of Series B Preferred Stock shall be entitled to vote on all matters
as to which holders of Common Stock shall be entitled to vote, in the same
manner and with the same effect as the holders of Common Stock, voting together
with the holders of Common Stock, and any other capital
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stock of the Corporation entitled to vote together with the Common Stock, all as
one class. Each share of Series B Preferred Stock shall entitle the holder
thereof to such number of votes as shall equal the number of shares of Common
Stock into which such share of Series B Preferred Stock is then convertible
pursuant to Section 6 below.
(b) Covenants.
The Corporation shall not, without the affirmative consent or approval
of the Requisite Preferred Holders:
(i) in any manner authorize, create, designate, issue or sell any
class or series of capital stock of the Corporation (including any shares
of treasury stock) or rights, options, warrants or other Securities
convertible into or exercisable or exchangeable for capital stock or any
debt security which by its terms is convertible into or exchangeable for
any equity security or has any other equity participation feature or any
security that is a combination of debt and equity, which, in each case as
to the equity or convertible component thereof, as to the payment of
dividends, distribution of assets or redemptions, including, without
limitation, distributions to be made upon the liquidation, dissolution or
winding up of the Corporation or a merger, consolidation or sale of the
assets thereof, is senior to or pari passu with the Series B Preferred
Stock;
(ii) reclassify any Securities of the Corporation into shares of
any class or series of capital stock of the Corporation (A) ranking, either
as to payment of dividends, distributions of assets or redemptions,
including, without limitation, distributions to be made upon the
liquidation, dissolution or winding up of the Corporation or a merger,
consolidation or sale of the assets thereof, senior to or pari passu with
the Series B Preferred Stock or (B) which in any manner adversely affects
the rights of the holders of Series B Preferred Stock in their capacity as
such;
(iii) in any manner authorize, issue or sell any shares of Series
B Preferred Stock other than as contemplated by the Purchase Agreement or
this Article X;
(iv) reclassify, cancel or in any manner alter or change the
terms, designations, powers, preferences or relative, optional or other
special rights, or the qualifications, limitations or restrictions thereof,
of the Series B Preferred Stock;
(v) amend, repeal or modify any provision of the Certificate of
Incorporation or Bylaws that adversely affects the powers, preferences or
rights of the Series B Preferred Stock; or
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(vi) fail to comply with any of the covenants of the Corporation
as set forth in the Purchase Agreement.
4. Dividends, Distributions and Liquidations.
(a) Dividends.
(i) When, as, and if declared by the Board, out of funds legally
available for that purpose, the holders of Series B Preferred Stock shall be
entitled to receive before any dividends shall be declared and paid or set aside
for Common Stock, dividends, which shall accrue on a daily basis at the
Applicable Dividend Rate on the sum of the Original Cost of a share of Series B
Preferred Stock, plus all accumulated and unpaid dividends thereon, payable on
each September 30 and March 31 (each, a "Preferred Dividend Payment Date"), the
first such Preferred Dividend Payment Date being the first Preferred Dividend
Payment Date following the Series B Conversion Event. Dividends shall accrue at
the Applicable Dividend Rate regardless of whether the Board has declared a
dividend payment or whether there are any profits, surplus or other funds of the
Corporation legally available for dividends. Any dividends which accrue pursuant
to this Section 4(a) and which are not paid prior to the next succeeding
Preferred Dividend Payment Date shall be classified as "accumulated dividends"
and shall remain "accumulated and unpaid dividends" until paid or otherwise
satisfied pursuant to this Article X. Dividends on each share of Preferred Stock
shall accrue pursuant to this Section 4(a) from and including the Original
Issuance Date to and including the date such share is converted or redeemed in
full and all accrued but unpaid dividends thereon are also converted or paid in
full. All payments in cash due in cash under this Section 4(a) to any holder of
shares of Series B Preferred Stock shall be made to the nearest cent.
(ii) The dividends payable with respect to the Series B Preferred
Stock on each Preferred Dividend Payment Date shall be paid to the holders of
shares of the Preferred Stock as they appear on the stock records of the
Corporation on such date (the "Preferred Record Date") as shall be fixed by the
Board, which Preferred Record Date shall not be more than 60 days prior to the
applicable Preferred Dividend Payment Date and shall not precede the date upon
which the resolution fixing such Preferred Record Date is adopted, and if the
Board shall not fix a Preferred Record Date, the Preferred Record Date shall be
deemed to be the same date as the applicable Preferred Dividend Payment Date.
(iii) Except as otherwise provided herein, if at any time the
Corporation pays less than the total amount of dividends then accrued with
respect to the Series B Preferred Stock, such payment shall be distributed
ratably among the holders of the Series B Preferred Stock based upon the number
of shares of Series B Preferred Stock then held by each holder.
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(b) Liquidation.
In the event of any Liquidation, the holders of shares of Series B
Preferred Stock then outstanding shall be entitled to receive, out of the assets
of the Corporation legally available for distribution to its stockholders,
before any payment shall be made to the holders of any stock ranking on
Liquidation junior to the Series B Preferred Stock (with respect to rights on
Liquidation, the Series B Preferred Stock shall rank senior to the Common Stock
and any other class of Junior Stock), an amount per share equal to (the
"Preferred Liquidation Preference") the greater of (X) the Original Cost of such
share plus an amount equal to any accumulated and unpaid dividends on each share
to the date of payment or (Y) the amount that would otherwise be distributed to
such holder in such Liquidation if nothing was paid pursuant to clause (X) and
such holder converted such shares into shares of Common Stock in accordance with
the provisions of this Article X. If, upon any Liquidation, the assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of the Series B Preferred Stock the full amounts to
which they respectively shall be entitled, the holders of shares of Series B
Preferred Stock shall share ratably in any distribution of assets according to
the respective amounts which would be payable with respect to the shares held by
them upon such distribution if all amounts payable on or with respect to said
shares were paid in full. In the event of any Liquidation, after payment shall
have been made to the holders of shares of Series B Preferred Stock in the full
amount to which they are entitled, the holders of shares of capital stock
ranking junior to the Series B Preferred Stock on Liquidation shall be entitled,
to the exclusion of the holders of the Series B Preferred Stock, to share,
according to their respective rights and preferences, in all remaining assets of
the Corporation available for distribution to its stockholders.
5. Redemption.
(a) Mandatory Redemption.
Subject to the Corporation having funds legally available for such
purpose, the Corporation shall redeem all of the shares of the Series B
Preferred Stock then outstanding on the Mandatory Redemption Date. The per share
redemption price (the "Mandatory Redemption Price") at which shares of the
Series B Preferred Stock are to be redeemed pursuant to this Section 5(a) shall
be equal to the greater of (x) the Original Cost of such share plus an amount
equal to any accumulated and unpaid dividends on each share, if any, to the date
of payment or (y) the Fair Value of such share. If the funds of the Corporation
legally available for redemption of shares of Series B Preferred Stock shall be
insufficient to permit the payment of the Mandatory Redemption Price required to
be paid pursuant to this Section 5(a), then the holders of Series B Preferred
Stock shall
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share in any legally available funds ratably in any such redemption based on the
respective number of Series B Preferred Stock that each holder thereof holds and
the Corporation shall redeem the remaining shares to have been redeemed as soon
as practicable after the Corporation has funds legally available therefor.
(b) Redemption at the Option of the Holders.
(i) At any time on or after the occurrence or continuation of an Event of
Default, the Requisite Preferred Holders may elect to have the Corporation
redeem all (but not less than all) of the outstanding shares of Series B
Preferred Stock at a price per share (i) in the case of a redemption option
caused by an Event of Default, other than a Change of Control, equal to the
Original Cost of such share plus an amount equal to all accrued and unpaid
dividends on each share, if any, to the date of payment and (ii) in the case of
a Change of Control (the "Change of Control Price"), equal to 101% of the
Original Cost thereof plus, without duplication, an amount in cash equal to
accrued and unpaid dividends thereof (in either case, the "Redemption Price"),
by giving written notice to the Corporation of such election (the "Investor
Notice of Election"), whereupon the Corporation shall be obligated to repurchase
such shares of Series B Preferred Stock on such date (the "Investor Optional
Redemption Date") as shall be determined by the Corporation, but in any event
not earlier than 10 days and not later than 30 days after the date on which the
Investor Notice of Election is delivered to the Corporation. Promptly (but in no
event later than five days) after the delivery of the Investor Notice of
Election to the Corporation, the Corporation shall send written notice (the
"Optional Redemption Notice") to each of the holders of the Series B Preferred
Stock. The Optional Redemption Notice shall specify the Investor Optional
Redemption Date and the location of the Corporation's principal executive office
or place of business where the closing will occur.
(ii) Closing.
(A) The closing of the Corporation's redemption of the Series B
Preferred Stock pursuant to Section 5(c) above shall take place at 11:00
a.m. New York City time on the Investor Optional Redemption Date at the
Corporation's principal executive office or place of business. At the
closing, the Corporation shall pay to each of the holders of the Series B
Preferred Stock, against the Corporation's receipt from such holder of the
certificate or certificates representing the shares of such series of
Series B Preferred Stock then held by such holder, an amount equal to the
Redemption Price. All such payments shall be made by wire transfer of
immediately available funds, or if such holder shall not have
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specified wire transfer instructions to the Corporation prior to the
closing, by certified or official bank check made payable to the order of
such holder.
(B) If the funds of the Corporation (without rendering the Corporation
insolvent) available for redemption of shares of Series B Preferred Stock
on any Investor Redemption Date are insufficient to redeem the total number
of such shares to be redeemed on such date, those funds which are legally
available (without rendering the Corporation insolvent) shall be used to
redeem the maximum possible number of shares ratably among the holders of
such shares based upon the aggregate number of such shares held by each
such holder. At any time thereafter when additional funds of the
Corporation are legally available which will not make the Corporation
insolvent for the redemption of shares such funds shall immediately be used
to redeem the balance of the shares which the Corporation has become
obligated to redeem on any Investor Redemption Date but which it had not
redeemed.
(c) Redemption at the Option of the Corporation.
The Series B Preferred Stock is redeemable at the option of the
Corporation, in whole or in part at a per share price equal to the Original Cost
of such share plus any accrued but unpaid dividends on each share, if any, to
the date of payment; provided however, that in the event the Corporation shall
redeem all or any portion of the shares of the outstanding Series B Preferred
Shares, then the Holder shall be entitled to receive a warrant (the "Warrant")
that is initially exercisable for that number of shares of Common Stock equal to
the number of shares of Common Stock, including the accrued but unpaid dividends
thereon, into which such redeemed shares would have been convertible in the
event of an optional conversion at such time pursuant to Section 6(a) hereof, of
the shares redeemed hereunder immediately prior to such redemption; provided,
further, however, that in the event the Series B Preferred Shares shall be
redeemed by the Corporation in connection with a Change of Control the amount
paid by the Corporation to the holder in connection with such prepayment shall
equal the Change of Control Price. The initial exercise price for each share of
Common Stock issuable upon exercise of the Warrant shall be equal to the
Conversion Price in effect immediately prior to the prepayment. The Warrant
shall have customary cashless conversion and exercise provisions, customary
anti-dilution protections economically identical to the Series B Preferred Stock
and shall otherwise be in form and substance reasonably acceptable to the holder
of such shares.
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(d) General
(i) No shares of Series B Preferred Stock are entitled to any
dividends accumulating after the date on which the full redemption price for
such share is paid to the holder thereof. On such date all rights of the holder
of such share shall cease, and such share shall not be deemed to be outstanding.
(ii) Any shares of Series B Preferred Stock which are redeemed or
otherwise acquired by the Corporation shall be canceled and shall not be
reissued (as treasury shares), sold or transferred.
(iii) Neither the Corporation nor any Subsidiaries shall offer to
purchase, redeem or acquire any shares of Series B Preferred Stock other than
pursuant to the terms of this Article X or pursuant to a purchase offer made to
all holders of Series B Preferred Stock pro rata based upon the number of such
shares owned by such holders.
6. Conversion.
(a) Optional Conversion of Series B Preferred Stock into Common Stock.
Subject to and in compliance with the applicable provisions of this
Article X, each holder of shares of Series B Preferred Stock shall have the
right, at such holder's option, at any time and from time to time, to convert
any such share, or the accumulated and unpaid dividends accrued thereon, into
that number of fully paid and nonassessable shares of Common Stock (provided
that in such event the holder shall have the option to require that such shares
be Qualified Securities) equal to the quotient obtained by dividing (x) the sum
of the Original Cost of such shares of Series B Preferred Stock, plus all
accumulated and unpaid dividends thereon, by (y) the Conversion Price, as last
adjusted and then in effect, by surrender of the certificates representing such
share to be converted; provided however, that the Preferred Holder shall have
the right to convert all or a portion of the accumulated and unpaid dividends on
any share of Series B Preferred Stock without the need to convert the share of
Series B Preferred Stock on which such dividends accrued. The Corporation shall
give the Preferred Holders reasonable prior notice of a Sale of the Corporation,
including the price and material terms and conditions thereof, in order to
provide the Preferred Holders reasonable opportunity to consider whether to
redeem or convert the Series B Preferred Stock, or the accumulated and unpaid
dividends accrued thereon, into Common Stock at or prior to such Sale of the
Corporation. If the price or material terms or conditions of such transaction
thereafter change, the Corporation shall promptly deliver written notice to
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the Preferred Holders specifying such changes. The Corporation will not issue
fractional shares of its Common Stock, as applicable, and shall distribute cash
in lieu of such fractional shares.
(b) Mandatory Conversion of Series B Preferred Stock into Common
Stock.
Upon the occurrence of a Mandatory Conversion Event, all shares of
Series B Preferred Stock then outstanding shall, at the option of the
Corporation by virtue of the delivery of a notice by the Corporation to the
holder notifying the holder of the occurrence of such Mandatory Conversion
Event, which notice shall state the date upon which such conversion shall become
effective (the "Effective Date") (which date shall be no earlier than 15
Business Days after the date of delivery), and without any action on the part of
the holders thereof, shall on the Effective Date be deemed automatically
converted in accordance with and subject to prior compliance with Section
6(c)(ii) into that number of fully paid and nonassessable shares of Qualified
Securities into which such shares, including the accumulated and unpaid
dividends accrued thereon, would have been convertible in the event of optional
conversion at such time pursuant to subsection (a) above. Upon conversion, the
Corporation will not issue fractional shares of its Qualified Securities, as
applicable, and shall distribute cash in lieu of such fractional shares.
(c) Conversion Price Adjustment.
(i) The Conversion Price shall also be subject to adjustment from
time to time as follows:
(A) If the Corporation shall, at any time or from time to time
after the Original Issuance Date, issue any shares of Common Stock
(other than Excluded Stock) without consideration or for a
consideration per share less than the Adjusted Market Price in effect
immediately prior to the issuance of such Common Stock, then the
Conversion Price in effect immediately prior to each such issuance
shall forthwith be lowered (but never increased) to a price equal to
the sum of (x) the Conversion Premium plus (y) the quotient obtained
by dividing:
(1) an amount equal to the sum of (x) the total number
of shares of Common Stock outstanding immediately prior to such
issuance, multiplied by the Market Price in effect immediately
prior to such issuance, and (y) the consideration received by the
Corporation upon such issuance; by
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(2) the total number of shares of Common Stock
outstanding (including any shares of Common Stock deemed to have
been issued pursuant to subdivision (3) of clause (B) below)
immediately after the issuance of such Common Stock.
(B) For the purposes of any adjustment of the Conversion Price
pursuant to clause (A) above, the following provisions shall be
applicable:
(1) In the case of the issuance of Common Stock for
cash in a public offering or private placement, the consideration
shall be deemed to be the amount of cash paid therefor prior to
deducting therefrom any usual and customary discounts,
commissions or placement fees paid by the Corporation to any
underwriter or placement agent in connection with the issuance
and sale thereof.
(2) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the Fair
Value thereof.
(3) In the case of the issuance of options to purchase
or rights to subscribe for Common Stock, Securities by their
terms convertible into or exchangeable for Common Stock, or
options to purchase or rights to subscribe for such convertible
or exchangeable Securities:
(a) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or
rights to subscribe for Common Stock shall be deemed to have
been issued at the time such options or rights were issued
and for a consideration equal to the consideration
(determined in the manner provided in subdivisions (1) and
(2) above), if any, received by the Corporation upon the
issuance of such options or rights plus the minimum purchase
price provided in such options or rights for the Common Stock
covered thereby;
(b) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable Securities or upon the exercise
of options to purchase or rights to subscribe for
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such convertible or exchangeable Securities and subsequent
conversion or exchange thereof shall be deemed to have been
issued at the time such Securities, options, or rights were
issued and for a consideration equal to the consideration
received by the Corporation for any such Securities and
related options or rights (excluding any cash received on
account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the
Corporation upon the conversion or exchange of such
Securities or the exercise of any related options or rights
(the consideration in each case to be determined in the
manner provided in subdivisions (1) and (2) above);
(c) on any change in the number of shares or exercise price of
Common Stock deliverable upon exercise of any such options or
rights or conversions of or exchange for such Securities, the
Conversion Price shall forthwith be readjusted to such
Conversion Price as would have been obtained had the
adjustment made upon the issuance of such options, rights or
Securities not converted prior to such change or options or
rights related to such Securities not converted prior to such
change been made upon the basis of such change; and
(d) on the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related to such
convertible or exchangeable Securities, the Conversion Price
shall forthwith be readjusted to such Conversion Price as
would have obtained had the adjustment made upon the issuance
of such options, rights, Securities or options or rights
related to such Securities been made upon the basis of the
issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options or rights,
upon the conversion or exchange of such Securities, or upon
the exercise of the options or rights related to such
Securities and subsequent conversion or exchange thereof.
(ii) If, at any time after the Original Issuance Date, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision
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or split-up of shares of Common Stock, then, following the record date for the
determination of holders of Common Stock entitled to receive such stock
dividend, subdivision or split-up (or if no record date is set, the date such
stock dividend, subdivision or stock split is consummated), the Conversion Price
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of Series B Preferred Stock shall be
increased in proportion to such increase in outstanding shares.
(iii) If, at any time after the Original Issuance Date, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date for such
combination, the Conversion Price shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of each share of Series
B Preferred Stock shall be decreased in proportion to such decrease in
outstanding shares.
(iv) In the event of any capital reorganization of the Corporation,
any reclassification of the stock of the Corporation (other than a change in par
value or from no par value to par value or from par value to no par value or as
a result of a stock dividend or subdivision, split-up or combination of shares),
or any consolidation or merger of the Corporation, each share of Series B
Preferred Stock shall after such reorganization, reclassification,
consolidation, or merger be convertible into the kind and number of shares of
stock or other Securities or property of the Corporation or of the corporation
resulting from such consolidation or surviving such merger to which the holder
of the number of shares of Common Stock deliverable (immediately prior to the
time of such reorganization, reclassification, consolidation or merger) upon
conversion of such share of Series B Preferred Stock would have been entitled
upon such reorganization, reclassification, consolidation or merger. The
provisions of this clause shall similarly apply to successive reorganizations,
reclassifications, consolidations or mergers.
(v) If any event occurs of the type contemplated by the provisions of
this Section 6 but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom stock
rights or other rights with equity features), then the Corporation's Board of
Directors shall make an appropriate reduction in the Conversion Price so as to
protect the rights of the holders of the Series B Preferred Stock.
(vi) All calculations under this paragraph shall be made to the
nearest one hundredth (1/100) of a cent.
(vii) In any case in which the provisions of this Section 6(c) shall
require that an adjustment shall become effective immediately after a record
date of an event, the Corporation may defer until the occurrence of such event
(i) issuing to the holder of any share of Series B Preferred Stock converted
after such record date and before the occurrence
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of such event the shares of capital stock issuable upon such conversion by
reason of the adjustment required by such event in addition to the shares of
capital stock issuable upon such conversion before giving effect to such
adjustments, and (ii) paying to such holder any amount in cash in lieu of a
fractional share of capital stock pursuant to paragraph (iii) above; provided,
however, that the Corporation shall deliver to such holder an appropriate
instrument evidencing such holder's right to receive such additional shares and
such cash.
(viii) Whenever the Conversion Price shall be adjusted as provided in
this paragraph (c), the Corporation shall make available for inspection during
regular business hours, at its principal executive offices or at such other
place as may be designated by the Corporation, a statement, signed by its chief
executive officer, showing in detail the facts requiring such adjustment and the
Conversion Price that shall be in effect after such adjustment. The Corporation
shall also cause a copy of such statement to be sent by first class certified
mail, return receipt requested and postage prepaid, to each holder of Series B
Preferred Stock at such holder's address appearing on the Corporation's records.
Where appropriate, such copy may be given in advance and may be included as part
of any notice required to be mailed under the provisions of paragraph (x) below.
(ix) If the Corporation shall propose to take any action of the types
described in clauses (ii), (iii) or (iv) of this paragraph (c) above, the
Corporation shall give notice to each holder of shares of Series B Preferred
Stock, in the manner set forth in paragraph (viii) above, which notice shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. Such notice shall also set forth such facts
with respect thereto as shall be reasonably necessary to indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Conversion Price and the number, kind or class of shares or other
Securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of shares of Series B
Preferred Stock. In the case of any action which would require the fixing of a
record date, such notice shall be given at least 10 days prior to the date so
fixed, and in case of all other action, such notice shall be given at least 10
days prior to the taking of such proposed action. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of any such
action.
(x) In the event that the Requisite Preferred Holders consent in
writing to limit, or waive in its entirety, any anti-dilution adjustment to
which the holders of the Series B Preferred Stock would otherwise be entitled
hereunder, the Corporation shall not be required to make any adjustment
whatsoever with respect to any Series B Preferred Stock in excess
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of such limit or at all, as the terms of such consent may dictate.
(xi) The Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 6
and in the taking of all such action as may be necessary or appropriate in order
to protect the exercise rights of the holders of Preferred Stock against
impairment.
(xii) The computations of all amounts under this Section 6 shall be
made assuming all other anti-dilution or similar adjustments to be made to the
terms of all other securities resulting from the transaction causing an
adjustment pursuant to this Section 6 have previously been made so as to
maintain the relative economic interest of the Preferred Stock vis a vis all
other securities issued by the Corporation.
(xiii) The Corporation shall take or cause to be taken such steps as
shall be necessary to ensure that the par value per share of Common Stock is at
all time less than or equal to the Conversion Price.
(xiv) In the event the Corporation grants, issues or sells any
options, convertible securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then the Preferred Holder shall be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate number or amount of such stock, warrants, securities or other property
which such Holder could have acquired if such Holder had held the Common Stock
acquirable upon complete conversion of this Series B Preferred Stock immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of the grant,
issue or sale of such Purchase Rights.
(xv) In the event the Corporation shall, at any time or from time to
time after the date hereof, distribute pro rata to the record holders of Common
Stock cash, evidences of its indebtedness, other Securities or other properties
or assets, or any options, warrants or other rights to subscribe for or purchase
any of the foregoing, then (unless the holder of the share of Series B Preferred
Stock shares in such distribution on a ratable basis based upon the shares of
Common Stock issuable upon conversion of such share) the Conversion Price shall
be decreased to a price determined by multiplying the Conversion Price then in
effect by a fraction, the numerator of which shall
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be the Market Price less the sum of (X) the cash portion, if any, of such
distribution per share of Common Stock deemed outstanding (exclusive of any
treasury shares) on the record date for such distribution plus (Y) the Fair
Value of such distribution consisting of evidences of indebtedness, other
Securities, properties, assets, options, warrants or subscription or purchase
rights, per share of Common Stock deemed outstanding (exclusive of any treasury
shares) on the record date for such distribution of that portion, if any, and
the denominator of which shall be such Market Price of Common Stock. The
adjustments required by this paragraph (xv) shall be made whenever any such
distribution occurs retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
(d) Conversion Procedures.
(i) Each conversion of shares of any class of capital stock of
the Corporation into shares of another class of capital stock of the Corporation
shall be effected by the surrender of the certificate or certificates
representing the shares to be converted (the "Converting Shares") at the
principal office of the Corporation (or such other office or agency of the
Corporation as the Corporation may designate by written notice to the holders of
such class of capital stock) at any time during its usual business hours,
together with written notice by the holder of such Converting Shares, stating
that such holder desires to convert the Converting Shares, or a stated number of
the shares represented by such certificate or certificates, into an equal number
of shares of the class into which such shares may be converted (the "Converted
Shares"). Such notice shall also state the name or names (with addresses) and
denominations in which the certificate or certificates for Converted Shares are
to be issued and shall include instructions for the delivery thereof. A holder
of Converting Shares may make any such notice of conversion, whether such
conversion is in connection with a Sale of the Corporation or otherwise,
conditional upon the happening of any event or the passage of such time as is
specified by such holder in such conversion notice, and may rescind any notice
of conversion prior to the effective time thereof specified in any such notice.
Promptly after such surrender and the receipt of such written notice of
conversion, the Corporation will issue and deliver in accordance with the
surrendering holder's instructions the certificate or certificates evidencing
the Converted Shares issuable upon such conversion, and the Corporation will
deliver to the converting holder a certificate (which shall contain such legends
as were set forth on the surrendered certificate or certificates) representing
any shares which were represented by the certificate or certificates that were
delivered to the Corporation in connection with such conversion, but which were
not converted. Such conversion, to the extent permitted by law, shall be deemed
to have been effected as of the close of business on the date on which such
certificate or certificates shall have been
-23-
surrendered and such notice shall have been received by the Corporation, and at
such time the rights of the holder of the Converting Shares as such holder shall
cease and the person or persons in whose name or names the certificate or
certificates for the Converted Shares are to be issued upon such conversion
shall be deemed to have become the holder or holders of record of the Converted
Shares.
(ii) Upon issuance of shares in accordance with this Section,
such Converted Shares shall be deemed to be duly authorized, validly issued,
fully paid and non-assessable, with no personal liability attaching to the
ownership thereof and free from all taxes, liens or charges with respect thereto
due to any action of the Corporation. The Corporation shall take all such
actions as may be necessary to assure that all such shares may be so issued
without violation of any Applicable Law or governmental regulation or any
requirements of any domestic securities exchange upon which such shares may be
listed (except for official notice of issuance which will be immediately
transmitted by the Corporation upon issuance). The Corporation shall not close
its books against the transfer of shares in any manner which would interfere
with the timely conversion of any shares. The issuance of certificates for
shares of any class of capital stock (upon conversion of shares of any other
class of capital stock or otherwise) shall be made without charge to the holders
of such shares for any issuance tax in respect thereof or other cost incurred by
the Corporation in connection with such conversion and/or the issuance of such
shares; provided, however, that the Corporation shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
shares converted. In the event the holder of the shares converted hereunder, in
connection with the conversion of shares hereunder, shall be required to file a
notification pursuant to the Xxxx-Xxxxx-Xxxxxx Anti-Trust Improvements Act of
0000 (xxx "XXX Xxx"), the Corporation and the holder shall take all actions
necessary to comply with such notification requirement and the conversion
hereunder of the shares, or the accumulated and unpaid dividends on such shares,
shall become effective upon the expiration of the applicable waiting period. The
Corporation will pay and save the holders of Series B Preferred Shares harmless
against all liability for the payment of all actual and reasonable costs and
expenses incurred by such holder in connection with any requirements to file a
notification pursuant to the HSR Act. No fractional shares of Common Stock or
scrip shall be issued upon conversion of any shares. The number of full shares
issuable upon conversion shall be computed on the basis of the aggregate number
of shares to be converted by a holder. Instead of any fractional shares which
would otherwise be issuable upon conversion of the shares, the Corporation shall
pay a cash adjustment in respect of such fractional interest in an amount equal
to the product of (i) the Fair Value of one share of such Common Stock and (ii)
such
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fractional interest. The holders of fractional interests shall not be entitled
to any rights as stockholders of the Corporation in respect of such fractional
interests.
7. Reservation of Shares.
The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
issuance upon the conversion of shares of Series B Preferred Stock hereunder,
such number of shares of such class as are then issuable upon the conversion of
all outstanding shares of such other class which may be converted.
8. Shares Acquired by the Corporation.
Any shares of Series B Preferred Stock which are redeemed, converted
or otherwise acquired by the Corporation shall be canceled and shall not be
reissued (as treasury shares), sold or transferred as Series B Preferred Stock
but such shares shall become unclassified Preferred Stock of the Corporation.
ARTICLE XI
SERIES C PREFERRED STOCK
1. Designation of Amount; Ranking.
The issuance of One Hundred (100) shares of the Series C
Preferred Stock is hereby authorized. The Series C Preferred Stock shall rank
senior to the Common Stock (as hereinafter defined), pari passu with the Series
A Preferred Stock (as hereinafter defined) and junior to all other classes and
series of equity securities of the Corporation now existing or hereafter created
with respect to rights of redemption and rights of Liquidation (as hereinafter
defined).
2. Definitions.
As used in this Article XI, the following capitalized terms have the
following meanings:
"Affiliate" has the meaning given to such term in the Purchase
Agreement.
"Applicable Law" has the meaning given to such term in the Purchase
Agreement.
"By-laws" means the By-laws of the Corporation, as amended and in
effect from time to time.
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"Board" means the Board of Directors of the Corporation.
"Business Day" has the meaning given to such term in the Purchase
Agreement.
"Certificate of Incorporation" means the Restated Articles of
Incorporation of the Corporation as amended and restated and in effect at the
time in question.
"Closing Date" has the meaning given to such term in the Purchase
Agreement.
"Common Stock" means, collectively, all of the Common Stock, no par
value, of the Corporation of any class, and any other class of capital stock of
the Corporation hereafter authorized that is not limited to a fixed sum or
percentage of par or stated value in respect to the rights of the holders
thereof to participate in dividends or in the distribution of assets upon any
liquidation, dissolution or winding up of the Corporation.
"Corporation" means Gentle Dental Service Corporation, a Washington
corporation.
"Document" has the meaning given to such term in the Purchase
Agreement.
"Event of Option" has the meaning given to such term in the Purchase
Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal law then in force.
"Governmental Authority" shall mean any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case whether of the United States of
America or any political subdivision thereof, or of any other country.
"Liquidation" means any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
"Mandatory Conversion Event" has the meaning given to such term in the
Purchase Agreement.
"Maturity Date" has the meaning given to such term in the Purchase
Agreement.
"Notes" has the meaning given to such term in the Purchase Agreement.
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"Option Director" has the meaning given to such term in Section 3(b)
of this Article XI.
"Original Cost" means, with respect to any share of Series C Preferred
Stock, $1.00. In the event of any change (by way of any recapitalization,
subdivision or recombination) in the number or kind of shares of Series C
Preferred Stock, the Original Cost of the shares of Series C Preferred Stock
immediately prior to such change shall be ratably adjusted among such shares of
Series C Preferred Stock immediately after such change.
"Person" shall be construed broadly and shall include without
limitation an individual, a partnership, a corporation, an association, a joint
stock company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a Governmental Authority.
"Preferred Director" shall mean any individual elected to the Board,
to serve as a director, pursuant to Section 3(b)(i) of this Article XI.
"Preferred Holders" means holders of Series C Preferred Stock.
"Preferred Liquidation Preference" has the meaning ascribed to it in
Section 4 of this Article XI.
"Preferred Stock" means the preferred stock, no par value, of the
Corporation.
"Purchase Agreement" means the Securities Purchase Agreement dated as
of May 12, 1998, between the Corporation and the Purchasers (as defined
therein), as amended from time to time.
"Redemption Event" has the meaning ascribed to it in Section 5(a) of
this Article XI.
"Redemption Price" has the meaning ascribed to it in Section 5(a).
"Requisite Preferred Holders" means the holders of a majority of the
outstanding shares of Series C Preferred Stock.
"Securities" means "securities" as defined in Section 2(1) of the
Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Series A Preferred Stock" means the Series A Preferred Stock, no par
value, of the Corporation.
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"Series C Redemption Event" has the meaning given to such term in the
Purchase Agreement.
"Warrant" has the meaning given to such term in the Note.
3. Voting Rights.
(a) Non-Voting.
Except as required by law and pursuant to paragraphs (b) and (c)
below, the Preferred Holders shall not be entitled to vote.
(b) Board Representation.
(i) So long as any Series C Preferred Stock remains outstanding,
the Requisite Preferred Holders shall be entitled to elect one individual to the
Board to serve as a director (an "Option Director") upon the occurrence or
continuation of an Event of Option.
(ii) Notwithstanding any other sections of the Certificate of
Incorporation, so long as any Series C Preferred Stock remains outstanding, the
Requisite Preferred Holders shall be entitled to (A) remove from the Board any
Preferred Director elected under the foregoing subsection (i), (B) elect each
successor to any such Preferred Director removed in accordance herewith or who
otherwise vacates such office, and (C) remove any other director necessary to
create sufficient vacancies on the Board to permit the Requisite Preferred
Holders to elect additional individuals to the Board upon an occurrence or
continuance of an Event of Option, pursuant to the foregoing clause (i) above.
(iii) The right of the Preferred Holders to elect directors may
be exercised at the special meeting called pursuant to this Section, at any
annual or other special meeting of shareholders and, to the extent and in the
manner permitted by Applicable Law, pursuant to a written consent in lieu of a
shareholders meeting. A proper officer of the Corporation shall, upon the
written request of the Requisite Preferred Holders, addressed to any officer of
the Corporation, call a special meeting of the holders of Preferred Stock for
the purpose of electing directors pursuant to this Section. Such meeting shall
be held at the earliest legally permissible date at the principal office of the
Corporation, or at such other place designated by the Requisite Preferred
Holders. If such meeting has not been called by a proper officer of the
Corporation within 2 days after personal delivery, by hand or by a nationally
recognized, overnight courier guaranteeing next business day delivery, of such
written request upon any officer of the Corporation or within 5 days after
mailing the same to the secretary of the
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Corporation at its principal office, then the Requisite Preferred Holders may
call such meeting at the expense of the Corporation, and such meeting may be
called upon the notice required for annual meetings of shareholders and shall be
held at the Corporation's principal office, or at such other place designated by
the Requisite Preferred Holders. The Preferred Holders shall be given access to
the stock record books of the Corporation for the purpose of causing a meeting
of stockholders to be called pursuant to this Section.
(iv) At any meeting or at any adjournment thereof at which the
Preferred Holders have the right to elect directors, the presence, in person or
by proxy, of the Preferred Holders shall be required to constitute a quorum for
the election or removal of any director by the Requisite Preferred Holders. The
affirmative vote of the Requisite Preferred Holders shall be required to elect
or remove any Preferred Director.
(v) The Corporation shall pay or reimburse each Preferred
Director for the reasonable out-of-pocket expenses incurred by such Person in
connection with attending formal meetings of the Board and any committee
thereof. The Corporation shall use its best efforts to maintain video
teleconferencing capabilities for all formal meetings of the Board and any
committee thereof.
(c) Covenants.
The Corporation shall not, without the affirmative consent or approval
of the Requisite Preferred Holders:
(i) in any manner authorize, issue or sell any shares of Series C
Preferred Stock other than as contemplated by the Purchase Agreement or
this Article XI;
(ii) reclassify, cancel or in any manner alter or change the
terms, designations, powers, preferences or relative, optional or other
special rights, or the qualifications, limitations or restrictions thereof,
of the Series C Preferred Stock;
(iii) amend, repeal or modify any provision of this Article XI;
or
(iv) amend, repeal or modify any provision of the Certificate of
Incorporation or By-laws in a manner that would adversely affect the
powers, preferences or rights of the Series C Preferred Stock.
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(d) Observer Rights.
(i) The Corporation hereby covenants that the Preferred Holders
shall have the right to have that number of representatives (each such
representative, an "Observer") determined as hereinafter provided present at all
meetings of the Board. Such right shall from time to time be exercisable by
delivery to the Corporation of written notice from the Requisite Preferred
Holders specifying the names of such Observers. The number of Observers shall at
all times and from time to time be equal to that number of members of the Board
that the Preferred Holders are then entitled to designate but whose seats on the
Board are at the time vacant.
(ii) The Corporation will give each Observer reasonable prior
notice (it being agreed that the same prior notice given to the Board shall be
deemed reasonable prior notice) in any manner permitted in the Corporation's
By-laws for notices to directors of the time and place of any proposed meeting
of the Board, such notice in all cases to include true and complete copies of
all documents furnished to any director in connection with such meeting. Each
such Observer will be entitled to be present in person as an observer at any
such meeting or, if a meeting is held by telephone conference, to participate
therein for the purpose of listening thereto.
(iii) The Corporation will deliver to each Observer copies of all
papers which may be distributed from time to time to the directors of the
Corporation at such time as such papers are so distributed to them, including
copies of any written consent.
4. Liquidation.
In the event of any Liquidation, the Preferred Holders shall be
entitled to receive, out of the assets of the Corporation legally available for
distribution to its stockholders, before any payment shall be made to the
holders of any stock ranking on Liquidation junior to the Series C Preferred
Stock (with respect to rights on Liquidation, the Series C Preferred Stock shall
rank senior to the Common Stock, pari passu with the Series A Preferred Stock
but junior to all other series of Preferred Stock), an amount per share equal to
(the "Preferred Liquidation Preference") the Original Cost of such share. If,
upon any Liquidation, the assets of the Corporation available for distribution
to its stockholders shall be insufficient to pay the Preferred Holders the full
amount to which it shall be entitled, then the Corporation shall pay the
Preferred Holders the aggregate unpaid Preferred Liquidation Preference as soon
as practicable after the Corporation has funds legally available therefor. In
the event of any Liquidation, after payment shall have been made to the
Preferred Holders in the full amount to which it is entitled, the holders of
shares of Common Stock shall
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be entitled, to the exclusion of the Preferred Holders, to share, according to
their respective rights and preferences, in all remaining assets of the
Corporation available for distribution to its stockholders.
5. Redemption.
(a) Subject to the Corporation having funds legally available for such
purpose, the Corporation shall redeem all of the shares of the Series C
Preferred Stock then outstanding, on the first to occur of (A) on the Maturity
Date, so long as all of the outstanding Notes, the outstanding shares of the
Series B Preferred Stock and the outstanding shares of the Series D Preferred
Stock shall have been redeemed or converted prior thereto, (B) upon the
occurrence of the Mandatory Conversion Event, or (C) in the event a Series C
Redemption Event shall have occurred (each of clauses (A), (B) and (C) above, a
"Redemption Event"). The per share redemption price at which shares of Series C
Preferred Stock are to be redeemed pursuant to this Section 5(a) shall be equal
to the Liquidation Preference Amount (the "Redemption Price").
(b) On and after any redemption date (the "Redemption Date") pursuant
to this Section 5 (unless default shall be made by the Corporation in the
payment of the Redemption Price, in which event such rights shall be exercisable
until such default is cured), all rights in respect of the shares of the Series
C Preferred Stock to be redeemed, except the right to receive the Redemption
Price, shall cease and terminate, and such shares shall no longer be deemed to
be outstanding, whether or not the certificates representing such shares have
been received by the Corporation.
(c) Any communication or notice relating to redemption given pursuant
to this Section 5 shall be sent by first-class certified mail, return receipt
requested, postage prepaid, to the Preferred Holders, at their respective
addresses as the same shall appear on the books of the Corporation, or to the
Corporation at the address of its principal, or registered office, as the case
may be.
(d) At any time on or after the Redemption Date, the Preferred Holders
shall be entitled to receive the Redemption Price upon actual delivery to the
Corporation or its agents of the certificates representing the shares of the
Series C Preferred Stock to be redeemed.
(e) Any redemption payments by the Corporation pursuant to this
Section 5 shall be paid in cash.
(f) Any shares of Series C Preferred Stock which are redeemed,
converted or otherwise acquired by the Corporation shall be canceled and shall
not be reissued (as treasury shares),
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sold or transferred as Series C Preferred but such shares shall become
unclassified Preferred Stock of the Corporation.
ARTICLE XII
SERIES D PREFERRED STOCK
1. Designation of Amount; Ranking.
The issuance of Two Million (2,000,000) shares of the Series D
Preferred Stock is hereby authorized. The Series D Preferred Stock shall rank
senior to all other classes and series of equity securities of the Corporation
now existing or hereafter created including the Series A Preferred Stock, no par
value, and the Series C Preferred Stock, no par value (collectively, the "Junior
Stock"), but junior to the Series B Preferred Stock, with respect to dividend
rights, rights of redemption, rights of conversion and rights of Liquidation (as
hereinafter defined).
2. Definitions.
Except as set forth below, capitalized terms used herein have the
meanings given to such terms in the Purchase Agreement. The following
capitalized terms used in this Article XII have the following meanings:
"Adjusted Market Price" shall be an amount equal to 95% of the Market
Price in effect at such time.
"Applicable Dividend Rate" means for each Dividend Period (i) during
the period commencing on the First Closing Date and ending prior to the ninth
anniversary of the First Closing Date, 0% (zero percent), and (ii) any time
after the ninth anniversary of the First Closing Date, 7% (seven percent).
"Conversion Premium" shall mean $0.2247.
"Conversion Price" shall initially be $9.21, and shall be subject to
adjustment from time to time as set forth in Section 6(c) of this Article XII.
"Converted Shares" has the meaning ascribed to it in Section 6(d) of
this Article XII.
"Converting Shares" has the meaning ascribed to it in Section 6(d).
"Corporation" means Gentle Dental Service Corporation, a Washington
corporation.
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"Documents" shall have the meaning ascribed to it in the Purchase
Agreement.
"Excluded Stock" means (i) all Common Stock issued upon conversion of
Preferred Stock, Notes or Warrants, (ii) shares of Common Stock (as such number
is equitably adjusted for stock splits, stock dividends, share combinations and
similar pro-rata recapitalizations) issued upon the exercise of stock options
issued pursuant to the Equity Incentive Plans and (iii) Securities issued by the
Corporation in an underwritten Public Offering.
"Junior Stock" has the meaning given to such term in Section 1 of this
Article XII.
"Liquidation" means any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
"Original Cost" means, with respect to any share of Series D Preferred
Stock, $9.21. In the event of any change (by way of any recapitalization,
subdivision or recombination) in the number or kind of shares of Series D
Preferred Stock, the Original Cost of the shares of Series D Preferred Stock
immediately prior to such change shall be ratably adjusted among such shares of
Series D Preferred Stock immediately after such change.
"Original Issuance Date" means the Second Closing Date.
"Preferred Liquidation Preference" has the meaning ascribed to it in
Section 4(b) of this Article XII.
"Public Offering" means the closing of a public offering of Securities
pursuant to a registration statement declared effective under the Securities
Act, except that a Public Offering shall not include an offering made in
connection with a business acquisition or an employee benefit plan.
"Purchase Agreement" means the Securities Purchase Agreement dated as
of May 12, 1998, among the Corporation and the urchasers (as defined therein),
as amended from time to time.
"Qualified Holder" means (i) each Person who initially acquires Series
D Preferred Stock from the Corporation and (ii) any other holder of Series D
Preferred Stock who, together with its Affiliates, owns Series D Preferred Stock
with an aggregate Original Cost of $1,000,000 or more.
"Qualified Securities" means the Common Stock issued to the
stockholders of the Corporation as consideration in any conversion, provided (i)
such Common Stock is then listed on a national securities exchange or reported
on the Nasdaq National
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Market and (ii) such Common Stock is registered under the Securities Act or is
freely tradable under Rule 144 of the Securities Act within 6 months of the date
of issuance.
"Redemption Price" has the meaning ascribed to it in Section 5(a) of
this Article XII.
"Requisite Preferred Holders" means the holders of a majority of the
outstanding shares of Series D Preferred Stock at the time in question.
"Securities and Exchange Commission" means the Securities and Exchange
Commission or any Governmental Authority succeeding to the functions thereof.
"Sale of the Corporation" means (i) the sale (in one or a series of
related transactions) of all or substantially all of the Corporation's assets to
a Person or a group of Persons acting in concert, (ii) the sale or transfer (in
one or a series of related transactions) of the outstanding capital stock of the
Corporation to one Person or a group of Persons acting in concert, or (iii) the
merger or consolidation of the Corporation with or into another Person who is
not an Affiliate of the Corporation, in each case in clauses (ii) and (iii)
above under circumstances in which the holders of a majority in voting power of
the outstanding capital stock of the Corporation, immediately prior to such
transaction, own less than a majority in voting power of the outstanding capital
stock of the Corporation or the surviving or resulting company or acquirer, as
the case may be, immediately following such transaction. A sale (or multiple
related sales) of one or more Subsidiaries of the Corporation (whether by way of
merger, consolidation, reorganization or sale of all or substantially all assets
or Securities) which constitutes all or substantially all of the consolidated
assets of the Corporation shall be deemed a Sale of the Corporation.
"Stockholders" means holders of Common Stock or Preferred Stock.
3. Voting Rights.
(a) General.
In addition to the rights provided by law and by paragraph (b) below,
the holders of Series D Preferred Stock shall be entitled to vote on all matters
as to which holders of Common Stock shall be entitled to vote, in the same
manner and with the same effect as the holders of Common Stock, voting together
with the holders of Common Stock, and any other capital stock of the Corporation
entitled to vote together with the Common Stock, all as one class. Each share of
Series D Preferred Stock shall entitle the holder thereof to such number of
votes as shall equal the number of shares of Common Stock into which such
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share of Series D Preferred Stock is then convertible pursuant to Section 6
below.
(b) Covenants.
The Corporation shall not, without the affirmative consent or approval
of the Requisite Preferred Holders:
(i) in any manner authorize, create, designate, issue or sell any
class or series of capital stock of the Corporation (including any shares
of treasury stock) or rights, options, warrants or other Securities
convertible into or exercisable or exchangeable for capital stock or any
debt security which by its terms is convertible into or exchangeable for
any equity security or has any other equity participation feature or any
security that is a combination of debt and equity, which, in each case as
to the equity or convertible component thereof, as to the payment of
dividends, distribution of assets or redemptions, including, without
limitation, distributions to be made upon the liquidation, dissolution or
winding up of the Corporation or a merger, consolidation or sale of the
assets thereof, is senior to or pari passu with the Series D Preferred
Stock;
(ii) reclassify any Securities of the Corporation into shares of
any class or series of capital stock of the Corporation (A) ranking, either
as to payment of dividends, distributions of assets or redemptions,
including, without limitation, distributions to be made upon the
liquidation, dissolution or winding up of the Corporation or a merger,
consolidation or sale of the assets thereof, senior to or pari passu with
the Series D Preferred Stock or (B) which in any manner adversely affects
the rights of the holders of Series D Preferred Stock in their capacity as
such;
(iii) in any manner authorize, issue or sell any shares of Series
D Preferred Stock other than as contemplated by the Purchase Agreement or
this Article XII;
(iv) reclassify, cancel or in any manner alter or change the
terms, designations, powers, preferences or relative, optional or other
special rights, or the qualifications, limitations or restrictions thereof,
of the Series D Preferred Stock; or
(v) amend, repeal or modify any provision of the Certificate of
Incorporation or Bylaws that adversely affects the powers, preferences or
rights of the Series D Preferred Stock.
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4. Dividends, Distributions and Liquidations.
(a) Dividends.
(i) When, as, and if declared by the Board, out of funds legally
available for that purpose, the holders of Series D Preferred Stock shall be
entitled to receive before any dividends shall be declared and paid or set aside
for Common Stock, dividends, which shall accrue on a daily basis at the
Applicable Dividend Rate on the sum of the Original Cost of a share of Series D
Preferred Stock, plus all accumulated and unpaid dividends thereon, payable on
each September 30 and March 31 (each, a "Preferred Dividend Payment Date"), the
first such Preferred Dividend Payment Date being the first Preferred Dividend
Payment Date following the ninth anniversary of the First Closing Date.
Dividends shall accrue at the Applicable Dividend Rate regardless of whether the
Board has declared a dividend payment or whether there are any profits, surplus
or other funds of the Corporation legally available for dividends. Any dividends
which accrue pursuant to this Section 4(a)(i) and which are not paid prior to
the next succeeding Preferred Dividend Payment Date shall be classified as
"accumulated dividends" and shall remain "accumulated and unpaid dividends"
until paid or otherwise satisfied pursuant to this Article XII. Dividends on
each share of Series D Preferred Stock shall accrue pursuant to this Section
4(a)(i) from and including the ninth anniversary of the First Closing Date to
and including the date such share is converted or redeemed in full and all
accrued but unpaid dividends thereon are also converted or paid in full. All
payments in cash due in cash under this Section 4(a) to any holder of shares of
Series D Preferred Stock shall be made to the nearest cent.
(ii) In addition to the rights to receive dividends pursuant to
clause (i) above, when, as and if declared by the Board, out of funds legally
available for the purpose, the holders of Series D Preferred Stock shall be
entitled to share in any dividends declared and paid upon or set aside for the
Common Stock on a ratable basis based upon the Common Stock Equivalents
represented by such Series D Preferred Stock.
(iii) The dividends payable with respect to the Series D
Preferred Stock on each Preferred Dividend Payment Date shall be paid to the
holders of shares of the Preferred Stock as they appear on the stock records of
the Corporation on such date (the "Preferred Record Date") as shall be fixed by
the Board, which Preferred Record Date shall not be more than 60 days prior to
the applicable Preferred Dividend Payment Date and shall not precede the date
upon which the resolution fixing such Preferred Record Date is adopted, and if
the Board shall not fix a Preferred Record Date, the Preferred Record Date shall
be deemed to be the same date as the applicable Preferred Dividend Payment Date.
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(iv) Except as otherwise provided herein, if at any time the
Corporation pays less than the total amount of dividends then accrued with
respect to the Series D Preferred Stock, such payment shall be distributed
ratably among the holders of the Series D Preferred Stock based upon the number
of shares of Series D Preferred Stock then held by each holder.
(b) Liquidation.
In the event of any Liquidation, the holders of shares of Series D
Preferred Stock then outstanding shall be entitled to receive, out of the assets
of the Corporation legally available for distribution to its stockholders,
before any payment shall be made to the holders of any stock ranking on
Liquidation junior to the Series D Preferred Stock (with respect to rights on
Liquidation, the Series D Preferred Stock shall rank senior to the Common Stock
and any other class of Junior Stock, but pari passu with the Series B Preferred
Stock), an amount per share equal to (the "Preferred Liquidation Preference")
the greater of (X) the Original Cost of such share plus an amount equal to any
accrued but unpaid dividends on each share to the date of payment or (Y) the
amount that would otherwise be distributed to such holder in such Liquidation if
nothing was paid pursuant to clause (X) and such holder converted such shares
into shares of Common Stock in accordance with the provisions of this Article
XII. If, upon any Liquidation, the assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the holders of
shares of the Series D Preferred Stock the full amounts to which they
respectively shall be entitled, the holders of shares of Series D Preferred
Stock shall share ratably in any distribution of assets according to the
respective amounts which would be payable with respect to the shares held by
them upon such distribution if all amounts payable on or with respect to said
shares were paid in full. In the event of any Liquidation, after payment shall
have been made to the holders of shares of Series D Preferred Stock in the full
amount to which they are entitled, the holders of shares of capital stock
ranking junior to the Series D Preferred Stock on Liquidation shall be entitled,
to the exclusion of the holders of the Series D Preferred Stock, to share,
according to their respective rights and preferences, in all remaining assets of
the Corporation available for distribution to its stockholders.
5. Redemption.
(a) Redemption at the Option of the Holders.
(i) At any time on or after the occurrence or continuation of an Event of
Default the Requisite Preferred Holders may elect to have the Corporation redeem
all (but not less than all) of the outstanding shares of Series D Preferred
Stock at a price per share equal to (i) in the case of a redemption option
caused by a Change of Control (the "Change of Control Price"), equal to 101%
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of the Original Cost thereof plus without duplication, an amount in cash accrued
and unpaid dividends thereon, and (ii) in the case of a redemption option caused
by an Event of Default, other than a Change of Control, the greater of the
Original Cost of such share plus an amount equal to all accrued and unpaid
dividends on each share, if any, to the date of payment (in either case, the
"Redemption Price"), by giving written notice to the Corporation of such
election (the "Investor Notice of Election"), whereupon the Corporation shall be
obligated to repurchase such shares of Series D Preferred Stock on such date
(the "Investor Optional Redemption Date") as shall be determined by the
Corporation, but in any event not earlier than 10 days and not later than 30
days after the date on which the Investor Notice of Election is delivered to the
Corporation. Promptly (but in no event later than five days) after the delivery
of the Investor Notice of Election to the Corporation, the Corporation shall
send written notice (the "Optional Redemption Notice") to each of the holders of
the Series D Preferred Stock. The Optional Redemption Notice shall specify the
Investor Optional Redemption Date and the location of the Corporation's
principal executive office or place of business where the closing will occur.
(ii) Closing.
(A) The closing of the Corporation's redemption of the Series D
Preferred Stock pursuant to this Section 5(c) above shall take place at
11:00 a.m. New York City time on the Investor Optional Redemption Date at
the Corporation's principal executive office or place of business. At the
closing, the Corporation shall pay to each of the holders of the Series D
Preferred Stock, against the Corporation's receipt from such holder of the
certificate or certificates representing the shares of such series of
Series D Preferred Stock then held by such holder, an amount equal to the
Redemption Price. All such payments shall be made by wire transfer of
immediately available funds, or if such holder shall not have specified
wire transfer instructions to the Corporation prior to the closing, by
certified or official bank check made payable to the order of such holder.
(B) If the funds of the Corporation (without rendering the Corporation
insolvent) available for redemption of shares of Series D Preferred Stock
on any Investor Redemption Date are insufficient to redeem the total number
of such shares to be redeemed on such date, those funds which are legally
available (without rendering the Corporation insolvent) shall be used to
redeem the maximum possible number of shares ratably among the holders of
such shares based
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upon the aggregate number of such shares held by each such holder. At any
time thereafter when additional funds of the Corporation are legally
available which will not make the Corporation insolvent for the redemption
of shares such funds shall immediately be used to redeem the balance of the
shares which the Corporation has become obligated to redeem on any Investor
Redemption Date but which it had not redeemed.
(b) Redemption at the Option of the Corporation.
The Series D Preferred Stock is redeemable at the option of the
Corporation, in whole or in part at a per share price equal to the Original Cost
of such share plus any accrued but unpaid dividends on each share, if any, to
the date of payment; provided however, that in the event the Corporation shall
redeem all or any portion of the shares of the outstanding Series D Preferred
Shares, then the holder of Series D Preferred Shares shall be entitled to
receive a warrant (the "Warrant") that is initially exercisable for that number
of shares of Common Stock equal to the number of shares of Common Stock,
including the accrued but unpaid dividends thereon, into which such redeemed
shares would have been convertible in the event of an optional conversion at
such time pursuant to Section 6(a) hereof, of the shares redeemed hereunder
immediately prior to such redemption; provided, further, however, that in the
event the Series D Preferred Shares shall be redeemed by the Corporation in
connection with a Change of Control the amount paid by the Corporation to the
holder in connection with such prepayment shall equal the Change of Control
Price. The initial exercise price for each share of Common Stock issuable upon
exercise of the Warrant shall be equal to the Conversion Price in effect
immediately prior to the prepayment. The Warrant shall have customary cashless
conversion and exercise provisions, customary anti-dilution protections
economically identical to the Series D Preferred Stock and shall otherwise be in
form and substance reasonably acceptable to the holder of such shares.
(c) General
(i) No shares of Series D Preferred Stock are entitled to any
dividends accumulating after the date on which the full redemption price for
such share is paid to the holder thereof. On such date all rights of the holder
of such share shall cease, and such share shall not be deemed to be outstanding.
(ii) Any shares of Series D Preferred Stock which are redeemed or
otherwise acquired by the Corporation shall be canceled and shall not be
reissued (as treasury shares), sold or transferred.
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(iii) Neither the Corporation nor any Subsidiaries shall offer to
purchase, redeem or acquire any shares of Series D Preferred Stock other than
pursuant to the terms of this Article XII or pursuant to a purchase offer made
to all holders of Series D Preferred Stock pro rata based upon the number of
such shares owned by such holders.
6. Conversion.
(a) Optional Conversion of Series D Preferred Stock into Common Stock.
Subject to and in compliance with the applicable provisions of this
Article XII, each holder of shares of Series D Preferred Stock shall have the
right, at such holder's option, at any time and from time to time, to convert
any such share, or the accrued but unpaid dividends accrued thereon, into that
number of fully paid and nonassessable shares of Common Stock (provided that in
such event the holder shall have the option to require that such shares be
Qualified Securities) equal to the quotient obtained by dividing (x) the sum of
the Original Cost of such shares of Series D Preferred Stock, plus all accrued
but unpaid dividends thereon, by (y) the Conversion Price, as last adjusted and
then in effect, by surrender of the certificates representing such share to be
converted; provided however, that the Preferred Holder shall have the right to
convert all or a portion of the accrued but unpaid dividends on any share of
Series D Preferred Stock without the need to convert the share of Series D
Preferred Stock on which such dividends accrued. The Corporation shall give the
Preferred Holders reasonable prior notice of a Sale of the Corporation,
including the price and material terms and conditions thereof, in order to
provide the Preferred Holders reasonable opportunity to consider whether to
redeem or convert the Series D Preferred Stock, or the accrued but unpaid
dividends accrued thereon, into Common Stock at or prior to such Sale of the
Corporation. If the price or material terms or conditions of such transaction
thereafter change, the Corporation shall promptly deliver written notice to the
Preferred Holders specifying such changes. Upon conversion, the Corporation will
issue fractional shares of its Common Stock, as applicable, and shall not
distribute cash in lieu of such fractional shares unless such cash distribution
is approved by the Requisite Preferred Holders.
(b) Mandatory Conversion of Series D Preferred Stock into Common
Stock.
Upon the occurrence of a Mandatory Conversion Event, all shares of
Series D Preferred Stock then outstanding shall, at the option of the
Corporation by virtue of the delivery of a notice by the Corporation to the
holder notifying the holder of the occurrence of such Mandatory Conversion
Event, which notice shall state the date upon which such conversion shall become
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effective (the "Effective Date") (which date shall be no earlier than 15
Business Days after the date of delivery), and without any action on the part of
the holders thereof, shall on the Effective Date be deemed automatically
converted, in accordance with Section 6(d)(ii), into that number of fully paid
and nonassessable shares of Qualified Securities into which such shares,
including the accrued but unpaid dividends accrued thereon, would have been
convertible in the event of optional conversion at such time pursuant to
subsection (a) above. Upon conversion, the Corporation will issue fractional
shares of its Qualified Securities, as applicable, and shall not distribute cash
in lieu of such fractional shares unless such cash distribution is approved by
the Requisite Preferred Holders.
(c) Adjustment of Conversion Price.
(i) The initial Conversion Price was established based upon the
Corporation's representation and warranty in the Securities Purchase Agreement
that 1,628,664 shares of Common Stock represented (the "Target Percentage") no
less than 10.68% of the 15,240,908 Common Stock Equivalents outstanding as of
the date of the Securities Purchase Agreement (inclusive of the 1,042,150 Common
Stock Equivalents reserved but not necessarily issued under the Equity Incentive
Plans and the 4,885,993 shares issuable upon conversion of the Securities to be
issued pursuant to the Purchase Agreement). In the event such representation and
warranty is untrue, the Conversion Price shall be reduced (but not increased) to
such Conversion Price as would have been
obtained had the initial Conversion Price been properly set to
meet the Target Percentage.
(ii) The Conversion Price shall also be subject to adjustment
from time to time as follows:
(A) If the Corporation shall, at any time or from time to time
after the First Closing Date, issue any shares of Common Stock (other than
Excluded Stock) without consideration or for a consideration per share less
than the Adjusted Market Price in effect immediately prior to the issuance
of such Common Stock, then the Conversion Price in effect immediately prior
to each such issuance shall forthwith be lowered (but never increased) to a
price equal to the sum of (x) the Conversion Premium and (y) the quotient
obtained by dividing:
(1) an amount equal to the sum of (x) the total number
of shares of Common Stock outstanding immediately prior to such
issuance, multiplied by the Market Price in effect immediately prior
to such issuance, and (y) the consideration received by the
Corporation upon such issuance; by
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(2) the total number of shares of Common Stock
outstanding (including any shares of Common Stock deemed to have been
issued pursuant to subdivision (3) of clause (B) below) immediately
after the issuance of such Common Stock.
(B) For the purposes of any adjustment of the Conversion Price
pursuant to clause (A) above, the following provisions shall be applicable:
(1) In the case of the issuance of Common Stock for
cash in a public offering or private placement, the consideration
shall be deemed to be the amount of cash paid therefor prior to
deducting therefrom any usual and customary discounts, commissions or
placement fees paid by the Corporation to any underwriter or placement
agent in connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the Fair Value thereof.
(3) In the case of the issuance of options to purchase
or rights to subscribe for Common Stock, Securities by their terms
convertible into or exchangeable for Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable
Securities:
(a) the aggregate maximum number of shares of Common Stock deliverable
upon exercise of such options to purchase or rights to subscribe
for Common Stock shall be deemed to have been issued at the time
such options or rights were issued and for a consideration equal
to the consideration (determined in the manner provided in
subdivisions (1) and (2) above), if any, received by the
Corporation upon the issuance of such options or rights plus the
minimum purchase price provided in such options or rights for the
Common Stock covered thereby;
(b) the aggregate maximum number of shares of Common Stock deliverable
upon conversion of or in exchange for any such convertible or
exchangeable Securities or upon the exercise of options to
purchase or rights to subscribe for
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such convertible or exchangeable Securities and subsequent
conversion or exchange thereof shall be deemed to have been issued
at the time such Securities, options, or rights were issued and
for a consideration equal to the consideration received by the
Corporation for any such Securities and related options or rights
(excluding any cash received on account of accrued interest or
accrued dividends), plus the additional consideration, if any, to
be received by the Corporation upon the conversion or exchange of
such Securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner
provided in subdivisions (1) and (2) above);
(c) on any change in the number of shares or exercise price of Common
Stock deliverable upon exercise of any such options or rights or
conversions of or exchange for such Securities, the Conversion
Price shall forthwith be readjusted to such Conversion Price as
would have been obtained had the adjustment made upon the issuance
of such options, rights or Securities not converted prior to such
change or options or rights related to such Securities not
converted prior to such change been made upon the basis of such
change; and
(d) on the expiration of any such options or rights, the termination
of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable
Securities, the Conversion Price shall forthwith be readjusted to
such Conversion Price as would have obtained had the adjustment
made upon the issuance of such options, rights, Securities or
options or rights related to such Securities been made upon the
basis of the issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options or rights, upon
the conversion or exchange of such Securities, or upon the
exercise of the options or rights related to such Securities and
subsequent conversion or exchange thereof.
(iii) If, at any time after the Original Issuance Date, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, following the record date for the determination of holders of
Common Stock entitled to receive such stock dividend, subdivision
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or split-up (or if no record date is set, the date such stock dividend,
subdivision or stock split is consummated), the Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of Series D Preferred Stock shall be increased in
proportion to such increase in outstanding shares.
(iv) If, at any time after the Original Issuance Date, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date for such
combination, the Conversion Price shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of each share of Series
D Preferred Stock shall be decreased in proportion to such decrease in
outstanding shares.
(v) In the event of any capital reorganization of the Corporation, any
reclassification of the stock of the Corporation (other than a change in par
value or from no par value to par value or from par value to no par value or as
a result of a stock dividend or subdivision, split-up or combination of shares),
or any consolidation or merger of the Corporation, each share of Series D
Preferred Stock shall after such reorganization, reclassification,
consolidation, or merger be convertible into the kind and number of shares of
stock or other Securities or property of the Corporation or of the corporation
resulting from such consolidation or surviving such merger to which the holder
of the number of shares of Common Stock deliverable (immediately prior to the
time of such reorganization, reclassification, consolidation or merger) upon
conversion of such share of Series D Preferred Stock would have been entitled
upon such reorganization, reclassification, consolidation or merger. The
provisions of this clause shall similarly apply to successive reorganizations,
reclassifications, consolidations or mergers.
(vi) If any event occurs of the type contemplated by the provisions of
this Section 6 but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom stock
rights or other rights with equity features), then the Corporation's Board of
Directors shall make an appropriate reduction in the Conversion Price so as to
protect the rights of the holders of the Series D Preferred Stock.
(vii) All calculations under this paragraph shall be made to the
nearest one hundredth (1/100) of a cent.
(viii) In any case in which the provisions of this Section 6(c) shall
require that an adjustment shall become effective immediately after a record
date of an event, theCorporation may defer until the occurrence of such event
(i) issuing to the holder of any share of Series D Preferred Stock converted
after such record date and before the occurrence
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of such event the shares of capital stock issuable upon such conversion by
reason of the adjustment required by such event in addition to the shares of
capital stock issuable upon such conversion before giving effect to such
adjustments, and (ii) paying to such holder any amount in cash in lieu of a
fractional share of capital stock pursuant to paragraph (iii) above; provided,
however, that the Corporation shall deliver to such holder an appropriate
instrument evidencing such holder's right to receive such additional shares and
such cash.
(ix) Whenever the Conversion Price shall be adjusted as provided in
this paragraph (c), the Corporation shall make available for inspection during
regular business hours, at its principal executive offices or at such other
place as may be designated by the Corporation, a statement, signed by its chief
executive officer, showing in detail the facts requiring such adjustment and the
Conversion Price that shall be in effect after such adjustment. The Corporation
shall also cause a copy of such statement to be sent by first class certified
mail, return receipt requested and postage prepaid, to each holder of Series D
Preferred Stock at such holder's address appearing on the Corporation's records.
Where appropriate, such copy may be given in advance and may be included as part
of any notice required to be mailed under the provisions of paragraph (x) below.
(x) If the Corporation shall propose to take any action of the types
described in clauses (iii), (iv) or (v) of this paragraph (c) above, the
Corporation shall give notice to each holder of shares of Series D Preferred
Stock, in the manner set forth in paragraph (ix) above, which notice shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. Such notice shall also set forth such facts
with respect thereto as shall be reasonably necessary to indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Conversion Price and the number, kind or class of shares or other
Securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of shares of Series D
Preferred Stock. In the case of any action which would require the fixing of a
record date, such notice shall be given at least 10 days prior to the date so
fixed, and in case of all other action, such notice shall be given at least 10
days prior to the taking of such proposed action. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of any such
action.
(xi) In the event that the Requisite Preferred Holders consent in
writing to limit, or waive in its entirety, any anti-dilution adjustment to
which the holders of the Series D Preferred Stock would otherwise be entitled
hereunder, the Corporation shall not be required to make any adjustment
whatsoever with respect to any Series D Preferred Stock in excess
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of such limit or at all, as the terms of such consent may dictate.
(xii) The Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 6
and in the taking of all such action as may be necessary or appropriate in order
to protect the exercise rights of the holders of Preferred Stock against
impairment.
(xiii) The computations of all amounts under this Section 6 shall be
made assuming all other anti-dilution or similar adjustments to be made to the
terms of all other securities resulting from the transaction causing an
adjustment pursuant to this Section 6 have previously been made so as to
maintain the relative economic interest of the Preferred Stock vis a vis all
other securities issued by the Corporation.
(xiv) The Corporation shall take or cause to be taken such steps as
shall be necessary to ensure that the par value per share of Common Stock is at
all time less than or equal to the Conversion Price.
(xv) In the event the Corporation grants, issues or sells any options,
convertible securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights"), then the Preferred Holder shall be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate number or amount of
such stock, warrants, securities or other property which such Holder could have
acquired if such Holder had held the Common Stock acquirable upon complete
conversion of this Series D Preferred Stock immediately before the date on which
a record is taken for the grant, issuance or sale of such Purchase Rights, or,
if no such record is taken, the date as of the grant, issue or sale of such
Purchase Rights.
(d) Conversion Procedures.
(i) Each conversion of shares of any class of capital stock of
the Corporation into shares of another class of capital stock of the
Corporation shall be effected by the surrender of the certificate or
certificates representing the shares to be converted (the "Converting
Shares") at the principal office of the Corporation (or such other office
or agency of the Corporation as the Corporation may designate by written
notice to the holders of such class
-46-
of capital stock) at any time during its usual business hours, together
with written notice by the holder of such Converting Shares, stating that
such holder desires to convert the Converting Shares, or a stated number of
the shares represented by such certificate or certificates, into an equal
number of shares of the class into which such shares may be converted (the
"Converted Shares"). Such notice shall also state the name or names (with
addresses) and denominations in which the certificate or certificates for
Converted Shares are to be issued and shall include instructions for the
delivery thereof. A holder of Converting Shares may make any such notice of
conversion, whether such conversion is in connection with a Sale of the
Corporation or otherwise, conditional upon the happening of any event or
the passage of such time as is specified by such holder in such conversion
notice, and may rescind any notice of conversion prior to the effective
time thereof specified in any such notice. Promptly after such surrender
and the receipt of such written notice of conversion, the Corporation will
issue and deliver in accordance with the surrendering holder's instructions
the certificate or certificates evidencing the Converted Shares issuable
upon such conversion, and the Corporation will deliver to the converting
holder a certificate (which shall contain such legends as were set forth on
the surrendered certificate or certificates) representing any shares which
were represented by the certificate or certificates that were delivered to
the Corporation in connection with such conversion, but which were not
converted. Such conversion, to the extent permitted by law, shall be deemed
to have been effected as of the close of business on the date on which such
certificate or certificates shall have been surrendered and such notice
shall have been received by the Corporation, and at such time the rights of
the holder of the Converting Shares as such holder shall cease and the
person or persons in whose name or names the certificate or certificates
for the Converted Shares are to be issued upon such conversion shall be
deemed to have become the holder or holders of record of the Converted
Shares.
(ii) Upon issuance of shares in accordance with this Section, such
Converted Shares shall be deemed to be duly authorized, validly issued,
fully paid and non-assessable, with no personal liability attaching to the
ownership thereof and free from all taxes, liens or charges with respect
thereto due to any action of the Corporation. The Corporation shall take
all such actions as may be necessary to assure that all such shares may be
so issued without violation of any Applicable Law or governmental
regulation or any requirements of any domestic securities exchange upon
which such shares may be listed (except for official notice of issuance
which will be immediately transmitted by the Corporation upon issuance).
The Corporation shall not close
-47-
its books against the transfer of shares in any manner which would
interfere with the timely conversion of any shares. The issuance of
certificates for shares of any class of capital stock (upon conversion of
shares of any other class of capital stock or otherwise) shall be made
without charge to the holders of such shares for any issuance tax in
respect thereof or other cost incurred by the Corporation in connection
with such conversion and/or the issuance of such shares; provided, however,
that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of
any certificate in a name other than that of the holder of the shares
converted. In the event the holder of the shares converted hereunder, in
connection with the conversion of shares hereunder, shall be required to
file a notification pursuant to the Xxxx-Xxxxx-Xxxxxx Anti-Trust
Improvements Act of 0000 (xxx "XXX Xxx"), the Corporation and the holder
shall take all actions necessary to comply with such notification
requirement and the conversion hereunder of the shares, or the accrued but
unpaid dividends on such shares, shall become effective upon the expiration
of the applicable waiting period. Subject to Sections 6(a) and (b), no
fractional shares of Common Stock or scrip shall be issued upon conversion
of any shares. The Corporation will pay and save the holder of Series D
Preferred Shares harmless against all liability for the payment of all
actual and reasonable costs and expenses incurred by the holder in
connection with any requirements to file a notification pursuant to the HSR
Act. The number of full shares issuable upon conversion shall be computed
on the basis of the aggregate number of shares to be converted by a holder.
Instead of any fractional shares which would otherwise be issuable upon
conversion of the shares, the Corporation shall pay a cash adjustment in
respect of such fractional interest in an amount equal to the product of
(i) the Fair Value of one share of such Common Stock and (ii) such
fractional interest. The holders of fractional interests shall not be
entitled to any rights as stockholders of the Corporation in respect of
such fractional interests.
7. Reservation of Shares.
The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
issuance upon the conversion of shares of Series D Preferred Stock hereunder,
such number of shares of such class as are then issuable upon the conversion of
all outstanding shares of such other class which may be converted.
-48-
8. Shares Acquired by the Corporation.
Any shares of Series D Preferred Stock which are redeemed, converted
or otherwise acquired by the Corporation shall be canceled and shall not be
reissued (as treasury shares), sold or transferred as Series D Preferred Stock
but such shares shall become unclassified Preferred Stock of the Corporation.
* * * *
-49-
Exhibit B
Form of Convertible Subordinated Note
(See Attached)
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT OR APPLICABLE STATE BLUE SKY LAWS.
ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS
SPECIFIED IN THE SECURITIES PURCHASE AGREEMENT DATED AS OF MAY 12, 1998, AMONG
THE ISSUER HEREOF AND CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER OF
THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
ISSUER HEREOF.
THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE IS SUBJECT TO
THE RIGHTS AND LIMITATIONS OF THE REGISTRATION RIGHTS AGREEMENT DATED AS OF MAY
__, 1998, AMONG THE ISSUER HEREOF AND CERTAIN OTHER SIGNATORIES THERETO.
GENTLE DENTAL SERVICE CORPORATION
---------------------------------
7% Convertible Subordinated Note
New York, New York
May __, 1998
$[ ]
SECTION 1. General.
(a) For value received, GENTLE DENTAL SERVICE CORPORATION, a
Washington corporation (the "Company"), hereby promises to pay to the order of
__________________ or assigns (the "Holder"), the principal sum of
_________________, __________________, on May __, 2006 (the "Maturity Date"),
and to pay interest semiannually on September 30 and March 31 (each an "Interest
Payment Date") of each year, commencing with September 30, 1998, on said
principal sum at the rate equal to the Applicable Interest Rate from the most
recent Interest Payment Date to which such interest on this Note has been paid,
or unless no interest has been paid on this Note, the date of this Note, until
(i) payment of said principal sum has been made or duly provided for or (ii)
conversion of this Note to capital stock of the Company in accordance with the
terms hereof.
(b) All payments hereunder shall be made (i) in such coin or
currency of the United States of America as at the time of payment shall be
legal tender therein for the payment of public and private debts or (ii) in the
case of payments of interest on this Note, in accordance with Section 2 hereof.
(c) Interest on this Note shall be calculated on the basis of a
360-day year, consisting of twelve 30-day months.
(d) The principal of and interest on this Note shall be payable
(i) in the case of payment in cash, by wire transfer of immediately available
funds to the account of the Holder as designated in writing by the Holder to the
Company or by certified or official bank check payable to the Holder mailed to
the Holder at the address of the Holder as set forth on the records of the
Company or such other address as shall be designated in writing by the Holder to
the Company, or (ii) in the case of payment of interest on this Note in
accordance with Section 2 hereof by issuance of Additional Notes, by delivery of
such Additional Notes at the address of the Holder as set forth on the records
of the Company or such other address as shall be designated in writing by the
Holder to the Company.
(e) This Note is one of the duly authorized Notes issued by the
Company on the date hereof pursuant to the Securities Purchase Agreement dated
as of May 12, 1998 (the "Purchase Agreement"), among the Company and certain
other signatories thereto, in an aggregate original principal amount of
$30,000,000, and is entitled to the benefit of the Purchase Agreement.
Capitalized terms used herein but not otherwise defined herein shall have the
meanings assigned to such terms in the Purchase Agreement.
SECTION 2. Payment of Interest by Issuance of Additional Notes
Subject to the provisions hereof, on any Interest Payment Date, the
Company may, at its option and in its sole discretion in lieu of payment in part
of interest in cash on this Note (other than upon maturity or acceleration), pay
a portion of the interest due on this Note, in additional Notes ("Additional
Notes") in an aggregate principal amount equal to the amount of such interest
that would otherwise be payable in cash; provided, however, that the Company
shall pay cash in lieu of issuing Additional Notes in any denomination of less
than $1,000. In the event on any Interest Payment Date the amount of interest to
be paid hereunder on such date in the form of Additional Notes shall exceed 60%
of the total interest due on this Note on such Interest Payment Date then the
aggregate principal amount of the Additional Notes to be issued on such Interest
Payment Date which exceeds 60% of the total interest due on this Note on such
date shall be issued as Non-Cash Interest Additional Notes. The Company shall
give written notice to the holder of the Note of its intent to pay such interest
in Additional Notes, not less than 5 nor more than 45 days prior to the record
date immediately preceding a Interest Payment Date on which Additional Notes
will be issued. Any such Additional Notes (including the Non-Cash Interest
Additional Notes) issued by the Company shall be subject to the same terms
(including the interest from time to time
-2-
payable thereon) as this Note except, as the case maybe, with respect to
issuance date and the aggregate principal amount thereof and shall be entitled
to the benefits of the Purchase Agreement.
SECTION 3. Payment.
This Note is subject to prepayment by the Company, in whole or in
part; provided however, that in the event the Company shall prepay all or any
portion of this Note, then the Holder shall be entitled to receive a warrant
(the "Warrant") that is initially exercisable for that number of shares of
Common Stock equal to the Common Stock Equivalents represented by the portion of
the Note prepaid hereunder immediately prior to such prepayment; provided
further however, that in the event this Note shall be prepaid by the Company in
connection with a Change of Control the amount paid by the Company to Holder in
connection with such prepayment shall be equal to 101% of aggregate principal
amount of this Note plus any accrued and unpaid interest thereon, if any, to the
date of such prepayment. The initial exercise price for each share of Common
Stock issuable upon exercise of the Warrant shall be equal to the Conversion
Price in effect immediately prior to the prepayment. The Warrant shall have
customary cashless conversion and exercise provisions, customary anti-dilution
protections economically identical to this Note and shall otherwise be in form
and substance reasonably acceptable to the Holder.
SECTION 4. Conversion.
(a) Optional Conversion of Note into Common Stock. Subject to and
in compliance with the applicable provisions of this Note, the Holder shall have
the right, at such Holder's option, at any time and from time to time, to
convert any or all of the principal amount of this Note, plus any accrued and
unpaid interest on this Note, in whole or in part, into that number of fully
paid and nonassessable shares of Common Stock (provided that in such event the
Holder shall have the option to require that such shares be Qualified
Securities), equal to the quotient obtained by dividing (x) the principal amount
of this Note surrendered for conversion, plus any accrued and unpaid interest
with respect thereto by (y) the Conversion Price, as last adjusted and then in
effect, by surrender of this Note. The Company shall give the Holder reasonable
prior notice of a Sale of the Company, including the price and material terms
and conditions thereof, in order to provide the Holder reasonable opportunity to
consider whether to convert this Note into Common Stock at or prior to such Sale
of the Company. If the price or material terms or conditions of such transaction
thereafter change, the Company shall promptly deliver written notice to the
Holder specifying such changes. Upon conversion, the Company will not issue
fractional shares of its Common Stock, as
-3-
applicable, and shall distribute cash in lieu of such fractional shares.
(b) Mandatory Conversion of Note into Common Stock.
Upon the occurrence of a Mandatory Conversion Event, this Note shall,
at the option of the Company, and simultaneously with the delivery of a notice
by the Company to the Holder notifying the Holder of the occurrence of such
Mandatory Conversion Event, and without any action on the part of the Holders,
be deemed automatically converted in accordance, and subject to prior
compliance, with 4(e)(ii), into that number of fully paid and nonassessable
shares of Common Stock (provided that in such event such shares of Common Stock
are Qualified Securities) into which this Note would have been convertible in
the event of optional conversion at such time pursuant to subsection (a) above.
Upon conversion, the Company will not issue fractional shares of its Qualified
Securities, as applicable, and shall distribute cash in lieu of such fractional
shares.
(c) Mandatory Conversion of this Note into Series B Preferred
Stock.
At any time upon the occurrence of a Series B Conversion Event this
Note shall, simultaneously with the delivery of a notice by the Company to the
Holder notifying the Holder of the occurrence of such Series B Conversion Event,
and without any action on the part of the Holders, be deemed automatically
converted, in accordance and subject to prior compliance with Section 4(e)(ii),
into that number of fully paid and nonassessable shares of Series B Preferred
Stock equal to the quotient obtained by dividing (x) the principal amount of
this Note, plus any accrued and unpaid interest with respect thereto by (y) the
Original Cost of one share of Series B Preferred Stock. Upon such conversion,
the Company shall not issue fractional shares of Series B Preferred Stock and
shall distribute cash in lieu of such fractional shares.
(d) Adjustment of Conversion Price.
(i) The initial Conversion Price was established based upon the
Company's representation and warranty in the Purchase Agreement that 3,257,329
shares of Common Stock represented (the "Target Percentage") no less than 21.37%
of the 15,240,908 aggregate Common Stock Equivalents outstanding as of the date
of the Purchase Agreement (inclusive of 1,042,150 of Common Stock Equivalents
reserved but not necessarily issued under the Equity Incentive Plans and the
4,885,993 shares of Common Stock issuable upon conversion of the Securities to
be issued pursuant to the Purchase Agreement). In the event such representation
and warranty is untrue, the Conversion Price shall
-4-
be reduced (but not increased) to such Conversion Price as would have been
obtained had the initial Conversion Price been properly set to meet the Target
Percentage.
(ii) The Conversion Price shall also be subject to adjustment
from time to time as follows:
(A) If the Company shall, at any time or from time to
time after the Closing Date, issue any shares of Common Stock (other
than Excluded Stock) without consideration or for a consideration per
share less than the Adjusted Market Price, then the Conversion Price
in effect immediately prior to each such issuance shall forthwith be
lowered to a price equal to the sum of (x) the Conversion Premium plus
(y) the quotient obtained by dividing:
(1) an amount equal to the sum of (x) the total
number of shares of Common Stock outstanding immediately prior to
such issuance, multiplied by the Market Price in effect
immediately prior to such issuance, and (y) the consideration
received by the Company upon such issuance; by
(2) the total number of shares of Common Stock
outstanding (including any shares of Common Stock deemed to have
been issued pursuant to subdivision (3) of clause (B) below)
immediately after the issuance of such Common Stock.
(B) For the purposes of any adjustment of the
Conversion Price pursuant to clause (A) above, the following
provisions shall be applicable:
(1) In the case of the issuance of Common Stock
for cash in a public offering or private placement, the
consideration shall be deemed to be the amount of cash paid
therefor prior to deducting therefrom any usual and customary
discounts, commissions or placement fees paid by the Company to
any underwriter or placement agent in connection with the
issuance and sale thereof.
(2) In the case of the issuance of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the Fair
Value thereof.
(3) In the case of the issuance of options to
purchase or rights to subscribe for
-5-
Common Stock, Securities by their terms convertible into or
exchangeable for Common Stock, or options to purchase or rights
to subscribe for such convertible or exchangeable Securities:
(a) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or
rights to subscribe for Common Stock shall be deemed to have
been issued at the time such options or rights were issued
and for a consideration equal to the consideration
(determined in the manner provided in subdivisions (1) and
(2) above), if any, received by the Company upon the issuance
of such options or rights plus the minimum purchase price
provided in such options or rights for the Common Stock
covered thereby;
(b) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable Securities or upon the exercise
of options to purchase or rights to subscribe for such
convertible or exchangeable Securities and subsequent
conversion or exchange thereof shall be deemed to have been
issued at the time such Securities, options, or rights were
issued and for a consideration equal to the consideration
received by the Company for any such Securities and related
options or rights (excluding any cash received on account of
accrued interest or accrued intent), plus the additional
consideration, if any, to be received by the Company upon the
conversion or exchange of such Securities or the exercise of
any related options or rights (the consideration in each case
to be determined in the manner provided in subdivisions (1)
and (2) above);
(c) on any change in the number of shares or exercise price of
Common Stock deliverable upon exercise of any such options or
rights or conversions of or exchange for such Securities, the
Conversion Price shall forthwith be readjusted to such
Conversion Price as would have been obtained had the
adjustment made upon the issuance of such options, rights or
Securities not converted prior to such change or options or
rights related to such Securities not converted
-6-
prior to such change been made upon the basis of such change;
and
(d) on the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related to such
convertible or exchangeable Securities, the Conversion Price
shall forthwith be readjusted to such Conversion Price as
would have obtained had the adjustment made upon the issuance
of such options, rights, Securities or options or rights
related to such Securities been made upon the basis of the
issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options or rights,
upon the conversion or exchange of such Securities, or upon
the exercise of the options or rights related to such
Securities and subsequent conversion or exchange thereof.
(iii) If, at any time after the Closing Date, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, following the record date for the determination of holders of
Common Stock entitled to receive such stock dividend, subdivision or split-up
(or if no record date is set, the date such stock dividend, subdivision or stock
split is consummated), the Conversion Price shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of this Note
shall be increased in proportion to such increase in outstanding shares.
(iv) If, at any time after the Closing Date, the number of shares
of Common Stock outstanding is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date for such combination,
the Conversion Price shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of this Note shall be decreased in
proportion to such decrease in outstanding shares.
(v) In the event of any capital reorganization of the Company,
any reclassification of the stock of the Company (other than a change in par
value or from no par value to par value or from par value to no par value or as
a result of a stock dividend or subdivision, split-up or combination of shares),
or any consolidation or merger of the Company, this Note shall after such
reorganization, reclassification, consolidation, or merger be convertible into
the kind and number of shares of stock or other Securities or property of the
Company or of the company
-7-
resulting from such consolidation or surviving such merger to which the holder
of the number of shares of Common Stock deliverable (immediately prior to the
time of such reorganization, reclassification, consolidation or merger) upon
conversion of this Note would have been entitled upon such reorganization,
reclassification, consolidation or merger. The provisions of this clause shall
similarly apply to successive reorganizations, reclassifications, consolidations
or mergers.
(vi) If any event occurs of the type contemplated by the
provisions of this Section 4 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Board shall
make an appropriate reduction in the Conversion Price so as to protect the
rights of the Holder.
(vii) All calculations under this paragraph shall be made to the
nearest one hundredth (1/100) of a cent.
(viii) In any case in which the provisions of this Section 4(d)
shall require that an adjustment shall become effective immediately after a
record date of an event, the Company may defer until the occurrence of such
event issuing to the Holder of any Note converted after such record date and
before the occurrence of such event the shares of capital stock issuable upon
such conversion by reason of the adjustment required by such event in addition
to the shares of capital stock issuable upon such conversion before giving
effect to such adjustments; provided, however, that the Company shall deliver to
the Holder an appropriate instrument evidencing the Holder's right to receive
such additional shares and such cash.
(ix) Whenever the Conversion Price shall be adjusted as provided
in this paragraph (d), the Company shall make available for inspection during
regular business hours, at its principal executive offices or at such other
place as may be designated by the Company, a statement, signed by its chief
executive officer, showing in detail the facts requiring such adjustment and the
Conversion Price that shall be in effect after such adjustment. The Company
shall also cause a copy of such statement to be sent by first class certified
mail, return receipt requested and postage prepaid, to each Holder at the
Holder's address appearing on the Company's records. Where appropriate, such
copy may be given in advance and may be included as part of any notice required
to be mailed under the provisions of paragraph (x) below.
(x) If the Company shall propose to take any action of the types
described in clauses (iii), (iv) or (v) of this paragraph (c) above, the Company
shall give notice to the Holder, in the manner set forth in paragraph (ix)
above, which notice shall specify the record date, if any, with respect to any
-8-
such action and the date on which such action is to take place. Such notice
shall also set forth such facts with respect thereto as shall be reasonably
necessary to indicate the effect of such action (to the extent such effect may
be known at the date of such notice) on the Conversion Price and the number,
kind or class of shares or other Securities or property which shall be
deliverable or purchasable upon the occurrence of such action or deliverable
upon conversion of this Note. In the case of any action which would require the
fixing of a record date, such notice shall be given at least 10 days prior to
the date so fixed, and in case of all other action, such notice shall be given
at least 10 days prior to the taking of such proposed action. Failure to give
such notice, or any defect therein, shall not affect the legality or validity of
any such action.
(xi) In the event that the Requisite Holders consent in writing
to limit, or waive in its entirety, any anti-dilution adjustment to which the
Holder would otherwise be entitled hereunder, the Company shall not be required
to make any adjustment whatsoever with respect to any Note in excess of such
limit or at all, as the terms of such consent may dictate.
(xii) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the exercise rights of the holders of Note against impairment.
(xiii) The computations of all amounts under this Section 4 shall
be made assuming all other anti-dilution or similar adjustments to be made to
the terms of all other securities resulting from the transaction causing an
adjustment pursuant to this Section 4 have previously been made so as to
maintain the relative economic interest of the Note vis a vis all other
securities issued by the Company.
(xiv) The Company shall take or cause to be taken such steps as
shall be necessary to ensure that the par value per share of Common Stock is at
all time less than or equal to the Conversion Price.
(xv) In the event the Company shall, at any time or from time to
time after the date hereof, distribute pro rata to the record holders of Common
Stock cash, evidences of its indebtedness, other Securities or other properties
or assets, or any options, warrants or other rights to subscribe for or purchase
any of the foregoing, then (unless the Holder shares in such distribution on a
ratable basis based upon the Common Stock
-9-
Equivalents represented by this Note) the Conversion Price shall be decreased to
a price determined by multiplying the Conversion Price then in effect by a
fraction, the numerator of which shall be the Market Price less the sum of (X)
the cash portion, if any, of such distribution per share of Common Stock deemed
outstanding (exclusive of any treasury shares) on the record date for such
distribution plus (Y) the Fair Value of such distribution consisting of
evidences of indebtedness, other Securities, properties, assets, options,
warrants or subscription or purchase rights, per share of Common Stock deemed
outstanding (exclusive of any treasury shares) on the record date for such
distribution of that portion, if any, and the denominator of which shall be such
Market Price of Common Stock. The adjustments required by this paragraph (xv)
shall be made whenever any such distribution occurs retroactive to the record
date for the determination of stockholders entitled to receive such
distribution.
(xvi) In the event the Company grants, issues or sells any
options, convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), at any time or from time to time after the
date hereof, then the Holder shall be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate number or amount of such
stock, warrants, securities or other property which such Holder could have
acquired if such Holder had held the Common Stock acquirable upon complete
conversion of this Note immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of the grant, issue or sale of such Purchase Rights.
(e) Conversion Procedures
(i) Each conversion of Notes into shares of capital stock of the
Company shall be effected by the surrender of the certificate or certificates
representing the Notes to be converted (the "Converting Notes") at the principal
office of the Company (or such other office or agency of the Company as the
Company may designate by written notice to the holders of such class of capital
stock) at any time during its usual business hours, together with written notice
by the Holder, stating that the Holder desires to convert the Converting Notes,
or a stated amount of the Note represented by such certificate or certificates,
into the number of shares of the class into which such Notes may be converted
(the "Converted Shares"). Such notice shall also state the name or names (with
addresses) and denominations in which the certificate or certificates for
Converted Shares are to be issued and shall include instructions for the
delivery thereof. The Holder may make any such notice of conversion, whether
such conversion is in connection with a Sale of the Company or otherwise,
conditional upon the happening of any event or the passage of such time as is
specified by the
-10-
Holder in such conversion notice, and may rescind any notice of conversion prior
to the effective time thereof specified in any such notice. Promptly after such
surrender and the receipt of such written notice of conversion, the Company will
issue and deliver in accordance with the Holder's instructions the certificate
or certificates evidencing the Converted Shares issuable upon such conversion,
and the Company will deliver to the Holder a certificate (which shall contain
such legends as were set forth on the surrendered certificate or certificates)
representing any portion of the Note which was represented by the certificate or
certificates that were delivered to the Company in connection with such
conversion, but which were not converted. Such conversion, to the extent
permitted by law, shall be deemed to have been effected as of the close of
business on the date on which such certificate or certificates shall have been
surrendered and such notice shall have been received by the Company, and at such
time the rights of the holder of the Converting Notes as such holder shall cease
and the person or persons in whose name or names the certificate or certificates
for the Converted Shares are to be issued upon such conversion shall be deemed
to have become the holder or holders of record of the Converted Shares. Upon
issuance of shares in accordance with this Section, such Converted Shares shall
be deemed to be duly authorized, validly issued, fully paid and non-assessable,
with no personal liability attaching to the ownership thereof and free from all
taxes, liens or charges with respect thereto due to any action of the Company.
(ii) The Company shall take all such actions as may be necessary
to assure that all such shares may be so issued without violation of any
Applicable Law or any requirements of any domestic securities exchange upon
which such shares may be listed (except for official notice of issuance which
will be immediately transmitted by the Company upon issuance). The Company shall
not close its books against the transfer of shares in any manner which would
interfere with the timely conversion of the Note. The issuance of certificates
for shares of any class of capital stock (upon conversion of Notes or otherwise)
shall be made without charge to the Holder for any issuance tax in respect
thereof or other cost incurred by the Company in connection with such conversion
and/or the issuance of such shares; provided, however, that the Company shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of the Holder. In the event, in connection with the conversion of this
Note, the Holder and the Company shall be required to file a notification
pursuant to the Xxxx-Xxxxx-Xxxxxx Anti-Trust Improvements Act of 0000 (xxx "XXX
Xxx"), the Company and the Holders shall take all actions necessary to comply
with such notification requirements and the conversion of this Note hereunder
shall become effective upon the expiration of the applicable waiting period. The
Company will pay and save the Holder harmless against all Liability for the
payment of all
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actual and reasonable costs and expenses incurred by the holder in connection
with any requirements to file a notification pursuant to the HSR Act. No
fractional shares of Common Stock or scrip shall be issued upon conversion of
this Note. The number of full shares issuable upon conversion shall be computed
on the basis of the aggregate principal amount of the Notes, plus any accrued
and unpaid interest thereon, to be converted by the Holder. Instead of any
fractional shares which would otherwise be issuable upon conversion of the
Notes, the Company shall pay a cash adjustment in respect of such fractional
interest in an amount equal to the product of (i) the Fair Value of one share of
such Common Stock and (ii) such fractional interest. The holders of
fractional interests shall not be entitled to any rights as stockholders of the
Company in respect of such fractional interests.
SECTION 5. Event of Default.
In case an Event of Default shall occur and be continuing, this Note
may be declared by the Requisite Holders due and immediately payable upon demand
in the amount, in the manner and with the effect provided in the Purchase
Agreement.
SECTION 6. Exchange or Replacement of this Note.
(a) The Holder may, at its option, in person or by duly authorized
attorney, surrender this Note for exchange at the principal business office of
the Company, and receive in exchange therefor, a new Note in the same principal
amount as the unpaid principal amount of this Note and bearing interest at the
same annual rate as this Note, each such new Note to be dated as of the date of
this Note and to be in such principal amount as remains unpaid and payable to
such person or persons, or order, as the Holder may designate in writing.
(b) Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction, or mutilation of this Note, and (in case of loss,
theft or destruction) of an indemnity reasonably satisfactory to it (provided
that if the Holder is a financial institution or an Affiliate thereof its own
indemnity agreement shall be satisfactory), and upon surrender and cancellation
of this Note, if mutilated, the Company will deliver a new Note of like tenor in
lieu of this Note. Any Note delivered in accordance with the provisions of this
Section 6 shall be dated as of the date of this Note.
SECTION 7. Extension of Maturity. Should the principal of or interest
on this Note become due and payable on other than a Business Day, the maturity
date thereof shall be extended to the next succeeding Business Day, and, in the
case of principal, interest shall be payable thereon at the rate per annum
herein specified during such extension.
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SECTION 8. Attorneys' and Collection Fees. Should the indebtedness
evidenced by this Note or any part hereof be collected at law or in equity or in
bankruptcy, receivership or other court proceedings, or this Note be placed in
the hands of attorneys for collection, the Company agrees to pay, in addition to
principal and interest due and payable hereon, all costs of collection,
including reasonable attorneys' fees and expenses, incurred by the Holder in
collecting or enforcing this Note.
SECTION 9. Amendments and Waivers. No provision of this Note may be
amended or waived without the express written consent of both the Company and
the Requisite Holders; provided, however, that any such amendment, modification
or waiver that would adversely affect the rights hereunder of any Holder,
without similarly affecting the rights of all Holders of Notes, in their
capacity as a Holder of Notes, shall not be effective as to such Holder without
its prior written consent. The Company hereby waives presentment, demand for
payment, notice of dishonor, notice of protest and all other notices or demands
in connection with the delivery, acceptance, performance or default of this
Note. No delay by the Holder in exercising any power or right hereunder shall
operate as a waiver of any power or right, nor shall any single or partial
exercise of any power or right preclude other or further exercise thereof, or
the exercise of any other power or right hereunder or otherwise; and no waiver
whatsoever or modification of the terms hereof shall be valid unless set forth
in writing by the Holder and then only to the extent set forth therein.
SECTION 10. Defined Terms. The following terms used in this Note shall
have the meanings set forth below.
"Additional Note" shall have the meaning given to such term in Section
2.
"Adjusted Market Price" shall be an amount equal to 95% of the Market
Price at such time.
"Applicable Interest Rate" means, for each Interest Accrual Period (i)
for interest paid in cash or by issuance of an Additional Note on the last day
of such period during which an Event of Default shall not have occurred, a rate
of 7.0% per annum, (ii) in the event (x) any Non-Cash Interest Additional Notes
shall be outstanding, and (y) an Event of Default shall not have occurred and be
continuing, during such period, the Non-Cash Interest Payment Rate and (iii) in
all other circumstances, a rate equal to the greater of (x) 8.25% per annum or
(y) the Non-Cash Interest Payment Rate plus 1.25% per annum; and the Company and
the holders of this Note acknowledge that the difference of 1.25% between the
aforementioned rates represents additional interest payable upon the occurrence
and continuation of an Event of Default.
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"Conversion Premium" shall mean $0.2247.
"Conversion Price" shall initially be $9.21, and shall be subject to
adjustment from time to time as set forth in Section 4(d).
"Converted Shares" has the meaning ascribed to it in Section 4(e).
"Converting Notes" has the meaning ascribed to it in Section 4(e).
"Excluded Stock" means all Common Stock issued upon conversion of
Preferred Stock, Notes or Warrants, shares of Common Stock (as such number is
equitably adjusted for stock splits, stock dividends, share combinations and
similar pro-rata recapitalizations) issued upon the exercise of stock options
issued pursuant to the Equity Incentive Plans, and Securities issued by the
Company in an underwritten Public Offering.
"Fair Value" means, with respect to any listed Security, its Market
Price, and with respect to any property or assets other than cash or listed
Securities, the fair value thereof determined in good faith jointly by the
Company and the Requisite Holders; provided, however, that if the parties are
not able to agree within a reasonable period of time (not to exceed ten (10)
days) what amount constitutes Fair Value, then the Fair Value will be determined
pursuant to the Arbitration Procedure using an appropriate valuation methods
assuming an arms-length sale for an independent party.
"Interest Accrual Period" means (a) the period commencing on the
Original Issuance Date and expiring on the next Interest Payment Date occurring
thereafter, or the date of redemption of this Note, if earlier, and (b)
thereafter each period commencing on a Interest Payment Date and expiring on the
day immediately preceding the next Interest Payment Date, or the date of
redemption of this Note, if earlier.
"Interest Payment Date" shall have the meaning given to such term in
Section 1.
"Measurement Period" means 30 consecutive Business Days.
"Newco" has the meaning given to such term in the Purchase Agreement.
"Non-Cash Interest Additional Notes" means the Additional Notes issued
on an Interest Payment Date pursuant to Section 2, which aggregate principal
amount thereof exceeds 60% of the total interest due on this Note on such
Interest Payment Date.
-14-
"Non-Cash Interest Payment Rate" means during any Interest Accrual
Period where Non-Cash Interest Additional Notes are outstanding and (i) during
the period commencing on the First Closing Date ending prior to the third
anniversary of First Closing Date, a rate of 7%, (ii) during the period
commencing on the third anniversary of the First Closing Date and ending prior
to the fifth anniversary of the First Closing Date, a rate of 8%, and (iii)
during the period commencing on fifth anniversary of the First Closing Date and
at any time thereafter, a rate of 9%.
"Original Issuance Date" shall mean the date hereof.
"Original Cost" shall have the meaning given to such term in the
Series B Certificate of Designation.
"Public Offering" means the closing of a public offering of Securities
pursuant to a registration statement declared effective under the Securities
Act, except that a Public Offering shall not include an offering made in
connection with a business acquisition or an employee benefit plan.
"Qualified Securities" means the Common Stock issued to the Holder as
consideration in any conversion of this Note, provided (i) such Common Stock is
then listed on a national securities exchange or reported on the Nasdaq National
Market and (ii) such Common Stock is registered under the Securities Act or is
freely tradable under Rule 144 of the Securities Act within 6 months of the date
of issuance.
"Requisite Holders" means the holders of Notes representing a majority
of the aggregate principal amount of Notes outstanding at the time in question
provided that so long as CVCA is a Significant Holder, CVCA must be included in
such majority.
"Sale of the Company" means (i) the sale (in one or a series of
related transactions) of all or substantially all of the Company's assets to a
Person or a group of Persons acting in concert, (ii) the sale or transfer (in
one or a series of related transactions) of the outstanding capital stock of the
Company to one Person or a group of Persons acting in concert, or (iii) the
merger or consolidation of the Company with or into another Person who is not an
Affiliate of the Company, in each case in clauses (ii) and (iii) above under
circumstances in which the holders of a majority in voting power of the
outstanding capital stock of the Company, immediately prior to such transaction,
own less than a majority in voting power of the outstanding capital stock of the
Company or the surviving or resulting company or acquirer, as the case may be,
immediately following such transaction. A sale (or multiple related sales) of
one or more subsidiaries of the Company (whether by way of merger,
consolidation, reorganization or sale of all or substantially all assets or
Securities) which constitutes all or substantially all
-15-
of the consolidated assets of the Company shall be deemed a Sale of the Company.
"Series B Preferred Stock" has the meaning given to such term in the
Purchase Agreement.
"Series B Conversion Event" shall occur if, during the period
commencing on the First Closing Date and ending eighteen months after such date,
(i) an event of default under the Senior Credit Facility has been declared by
the requisite lenders thereunder, and all grace periods applicable to such event
of default have expired and such lenders have delivered a notice of such event
of default to the Company and the Holder and in such notice the requisite
lenders have requested that all Notes be converted to Series B Preferred Stock;
(ii) no Event of Default (other than the Event of Default caused by the default
under the Senior Credit Facility) shall have occurred and be continuing
hereunder; and (iii) the reorganization of the Company pursuant to which Newco
has been created shall not have occurred; provided, that the conversion shall
qualify as a tax-free exchange under the Code, or otherwise result in no tax
being payable on such conversion by the Holder, and for purposes of determining
the applicable holding period for the shares of Series B Preferred Stock under
Rule 144(d), the shares issued upon conversion of the Notes shall be deemed to
have been acquired on the date the Note was acquired by the Holder.
"Warrant" has the meaning given to such term in Section 3.
SECTION 11. Reservation of Shares.
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
issuance upon the conversion of this Note hereunder, such number of shares of
such class as are then issuable upon the conversion of all outstanding shares of
such other class which may be converted.
SECTION 12. No Set-Off.
The Company owes its obligations under this Note without any right of
set-off or deduction of any kind.
SECTION 13. Governing Law; Waiver of Jury Trial. Section 12.8 of the
Purchase Agreement is herein incorporated by reference and made a part hereof.
SECTION 14. Successors and Assigns. This Note is binding upon the
successors and assigns of the Company.
* * * * *
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IN WITNESS WHEREOF, the Company has duly executed and delivered this
Note as of the date first written above.
GENTLE DENTAL SERVICE
CORPORATION
By:________________________
Name:
Title:
Exhibit C
Form of Registration Rights Agreement
(see Attached)
REGISTRATION RIGHTS
AGREEMENT dated as of May 18, 1998,
among GENTLE DENTAL SERVICE
CORPORATION, a Washington
corporation (the "Company"), and
the Purchasers (as defined below).
The Purchasers own or have the right to purchase or otherwise acquire
(by the exercise, exchange or conversion of shares of the Company's securities
owned by the Purchasers that are exercisable or exchangeable for or convertible
into Common Stock (as hereinafter defined), without regard to any restrictions
on the ability of any Purchaser to exercise such rights or exercise exchange or
conversion) shares of the Common Stock, no par value (the "Common Stock"), of
the Company (or such other class of common stock of the Company into which the
Common Stock may be converted or reclassified, and all references herein to the
Common Stock shall mean such other class of common stock, if applicable). The
Company and the Purchasers deem it to be in their respective best interests to
set forth the rights of the Purchasers in connection with public offerings and
sales of the capital stock of the Company.
ACCORDINGLY, in consideration of the premises and mutual covenants and
obligations hereinafter set forth, the Company and the Purchasers hereby agree
as follows:
SECTION 1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
"Affiliate" shall have the meaning ascribed to it in the Purchase
Agreement.
"Commission" shall mean the Securities and Exchange Commission or any
other Governmental Authority at the time administering the Securities Act.
"Common Stock" shall have the meaning ascribed to it in the Preamble.
"Common Stock Equivalent" shall mean one share of Common Stock or the
right to acquire, whether or not such right is immediately exercisable, one
share of Common Stock, whether evidenced by a Note, Warrant, Preferred Stock,
option, warrant, convertible security or other instrument or agreement.
"Notes" shall have the meaning ascribed to it in the Purchase
Agreement.
"CVCA" shall mean Chase Venture Capital Associates, L.P., a California
limited partnership.
"Exchange Act" shall mean the Securities Exchange Act of 1934 or any
successor Federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Governmental Authority" shall mean any domestic or foreign government
or political subdivision thereof, whether on a federal, state or local level and
whether executive, legislative or judicial in nature, including any agency,
authority, board, bureau, commission, court, department or other instrumentality
thereof.
"Material Transaction" shall mean any material transaction in which
the Company or any of its subsidiaries proposes to engage or is engaged,
including a purchase or sale of assets or securities, financing, merger,
consolidation, tender offer or any other transaction that would require
disclosure pursuant to the Exchange Act, and with respect to which the Board of
Directors of the Company reasonably has determined in good faith that compliance
with this Agreement may reasonably be expected to either materially interfere
with the Company's or such subsidiary's ability to consummate such transaction
in a timely fashion or require the Company to disclose material, non-public
information prior to such time as it would otherwise be required to be
disclosed.
"Other Shares" shall mean at any time those shares of Common Stock
which do not constitute Primary Shares or Registrable Shares.
"Person" shall be construed as broadly as possible and shall include
an individual person, a partnership (including a limited liability partnership),
a corporation, an association, a joint stock company, a limited liability
company, a trust, a joint venture, an unincorporated organization and a
Governmental Authority.
"Preferred Stock" shall have the meaning ascribed to it in the
Purchase Agreement.
"Primary Shares" shall mean, at any time, the authorized but unissued
shares of Common Stock held by the Company in its treasury.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any prospectus subject to completion, and any such
prospectus as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Shares and, in
each case, by all other amendments and supplements to such prospectus, including
post-effective amendments, and in each case including all material incorporated
by reference therein.
-2-
"Purchase Agreement" means the Securities Purchase Agreement dated as
of May 12, 1998, between the Company and the Purchasers, as amended from time to
time.
"Purchasers" shall mean, collectively, (i) the Persons listed on
Schedule I attached to this Agreement and (ii) any successor to, or assignee or
transferee of Restricted Securities held by a Purchaser who or which agrees in
writing to be treated as a Purchaser hereunder and to be bound by and comply
with all of the applicable terms and provisions hereof.
"Registrable Shares" shall mean, at any time, and with respect to any
Purchaser, the shares of Common Stock held by such Purchaser which constitute
Restricted Securities. As to any particular Registrable Shares, once issued,
such Registrable Shares shall cease to be Registrable Shares (A) when such
Registrable Shares have been registered under the Securities Act, the
Registration Statement in connection therewith has been declared effective and
they have been disposed of pursuant to and in the manner described in such
effective Registration Statement, (B) when such Registrable Shares are sold or
distributed pursuant to Rule 144, (C) in the case of any Purchaser who, together
with its Affiliates, holds Common Stock Equivalents that constitute less than
two percent of the issued and outstanding shares of Common Stock of the Company,
one year after the date on which such Purchaser may first sell such Registrable
Shares under Rule 144 (provided that such Purchaser is still able, at such time,
to sell such Registrable Shares under Rule 144), or (D) when such Registrable
Shares have ceased to be outstanding.
"Registration Statement" shall mean any registration statement of the
Company which covers any of the Registrable Shares, and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Representative" of a Person shall be construed broadly and shall
include such Person's partners, officers, directors, employees, agents, counsel,
accountants and other representatives.
"Requisite Purchasers" shall mean those Purchasers who hold in the
aggregate in excess of a majority the Restricted Securities (based on Common
Stock Equivalents) held by all of the Purchasers, provided that so long as CVCA,
or its Affiliates, is a Significant Holder, CVCA must be included in such
majority.
"Restricted Securities" shall mean, at any time and with respect to
any Purchaser, the Common Stock Equivalents and any other securities received
with respect to any such Common Stock Equivalents, which are held by such
Purchaser and which
-3-
theretofore have not been sold to the public pursuant to a Registration
Statement or pursuant to Rule 144.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act or
any successor rule thereto.
"Securities" shall have the meaning ascribed to it in the Purchase
Agreement.
"Securities Act" shall mean the Securities Act of 1933 or any
successor Federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Significant Holder" shall have the meaning ascribed to it in the
Purchase Agreement.
"Suspension Period" shall have the meaning ascribed to it in Section
10.
"Transfer" shall mean any disposition of any Restricted Securities or
of any interest therein which would constitute a sale thereof within the meaning
of the Securities Act, other than any such disposition pursuant to a
Registration Statement and in compliance with all applicable state securities
and "blue sky" laws.
"Warrants" shall have the meaning ascribed to it in the Purchase
Agreement.
SECTION 2. Required Registration.
(a) If at any time the Company shall be requested by CVCA to effect
the registration under the Securities Act of Registrable Shares, it shall
promptly give written notice to the other Purchasers of its requirement to so
register such Registrable Shares and, upon the written request, delivered to the
Company within 30 days after delivery of any such notice by the Company, of the
other Purchasers to include in such registration Registrable Shares (which
request shall specify the number of Registrable Shares proposed to be included
in such registration), the Company shall, subject to Section 2(b) below,
promptly use its best efforts to effect such registration under the Securities
Act of the Registrable Shares which the Company has been so requested to
register.
(b) Anything contained in Section 2(a) to the contrary
notwithstanding, the Company shall not be obligated to effect pursuant to
Section 2(a) any registration under the Securities Act except in accordance with
the following provisions:
-4-
(i) the Company shall not be obligated to use its best efforts to
file and cause to become effective (A) more than one Registration Statement
initiated pursuant to Section 2(a) (provided, that if the Company, shall
consummate a "shelf" registration pursuant to this Agreement such
registration shall be deemed to count as one demand registration by the
Purchasers); provided however, that if the Purchasers were unable to sell
at least 90% of the Registrable Shares requested to be included in the
registration pursuant to Section 2(a) as a result of an underwriter's
cutback, then an additional registration shall be added to this Section
2(b)(i) until the foregoing condition is satisfied, (B) any Registration
Statement during any period in which any other registration statement
(other than on Form S-4 or Form S-8 promulgated under the Securities Act or
any successor forms thereto pursuant to which Primary Shares are to be or
were sold has been filed and not withdrawn or has been declared effective
within the prior 90 days, or (C) any Registration Statement if the
aggregate market value of the Registrable Shares to be registered
thereunder, whether held by CVCA or others, shall be less than $5 million;
(ii) the Company may delay the filing or effectiveness of any
Registration Statement for a period of up to 90 days after the date of a
request for registration pursuant to Section 2(a) if at the time of such
request the Company is engaged in a Material Transaction; and
(iii) with respect to any registration pursuant to Section 2(a),
the Company may include in such registration any Primary Shares or Other
Shares; provided, however, that if the managing underwriter advises the
Company that the inclusion of all Registrable Shares, Primary Shares and
Other Shares proposed to be included in such registration would interfere
with the successful marketing (including pricing) of all such securities,
then the number of Registrable Shares, Primary Shares and Other Shares
proposed to be included in such registration shall be included in the
following order:
(A) first, the Registrable Shares held by the Purchasers
requesting that their Registrable Shares be included in such
registration pursuant to Section 2(a), pro rata based upon the number
of Restricted Securities owned by each such Purchaser at the time of
such registration;
(B) second, the Primary Shares; and
(C) third, the Other Shares.
-5-
(c) A requested registration under this Section 2
may be rescinded prior to such registration being declared effective by the
Commission by written notice to the Company from CVCA; provided, however, that
such rescinded registration shall not count as a registration initiated pursuant
to this Section 2 for purposes of subclause (A) of clause (i) of subsection (b)
above if the Company shall have been reimbursed (pro rata by the Purchasers
requesting registration or in such other proportion as they may agree) for all
out-of-pocket expenses incurred by the Company in connection with such rescinded
registration.
SECTION 3. Shelf Registration. If at any time the Company shall be
requested by the Requisite Purchasers to file a shelf registration statement for
an offering to be made on a continuous basis pursuant to Rule 415 promulgated
under the Securities Act covering the Registrable Shares, then:
(i) the Company shall, as expeditiously as practicable, file a
shelf registration statement under the Securities Act permitting
registration of such Purchasers' Registrable Shares for resale by
Purchasers in the manner or manners designated by them (including, without
limitation, one or more underwritten offerings);
(ii) the Company shall use its best efforts to keep such shelf
registration statement continuously effective under the Securities Act
until the date which is 18 months from its effective date, or such shorter
period ending when all the Registrable Shares covered by such shelf
registration statement have been sold in the manner set forth and as
contemplated in the shelf registration statement; and
(iii) the Company shall promptly supplement and amend the shelf
registration statement if required by the rules, regulations or
instructions applicable to the registration form used for such shelf
registration statement, if required by the Securities Act, or if reasonably
requested by CVCA or by any underwriter of the Registrable Shares
registered thereunder.
SECTION 4. Piggyback Registration. If the Company at any time proposes
for any reason to register Primary Shares or Other Shares under the Securities
Act (other than on Form S-4 or Form S-8 promulgated under the Securities Act or
any successor forms thereto), it shall promptly give written notice to each
Purchaser of its intention so to register the Primary Shares or Other Shares
and, upon the written request, given within 20 days after delivery of any such
notice by the Company, of any such Purchaser to include in such registration
Registrable Shares (which request shall specify the number of Registrable Shares
proposed to be included in such registration), the Company shall use its best
efforts to cause all such Registrable Shares to be
-6-
included in such registration on the same terms and conditions as the securities
otherwise being sold in such registration; provided, however, that if the
managing underwriter advises the Company that the inclusion of all Registrable
Shares or Other Shares proposed to be included in such registration would
interfere with the successful marketing (including pricing) of Primary Shares
proposed to be registered by the Company, then the number of Primary Shares,
Registrable Shares and Other Shares proposed to be included in such registration
shall be included in the following order:
(i) first, the Primary Shares;
(ii) second, the Registrable Shares held by the Purchasers,
pro rata based upon the number of Restricted Securities owned by each
such Purchaser at the time of such registration; and
(iii) third, the Other Shares.
SECTION 5. Holdback Agreement.
(a) If the Company at any time shall register shares of Common
Stock under the Securities Act in an underwritten offering pursuant to any
registration so long as the Requisite Purchasers agree in writing that this
holdback provision applies to such registration, then the Purchasers shall not
sell, make any short sale of, grant any option for the purchase of, or otherwise
dispose of any Restricted Securities (other than those Registrable Shares
included in such registration pursuant to Section 2, 3 or 4) without the prior
written consent of the Company for a period as shall be determined by the
managing underwriters, which period cannot begin more than 10 days prior to the
effectiveness of such Registration Statement and cannot last more than 180 days
after the effective date of such Registration Statement.
(b) If the Company at any time pursuant to Sections 2, 3 or 4 of
this Agreement shall register under the Securities Act Registrable Shares held
by Purchasers for sale to the public pursuant to an underwritten offering, the
Company shall not, without the prior written consent of the Requisite
Purchasers, effect any public sale or distribution of securities similar to
those being registered or any securities convertible into or exercisable or
exchangeable for such securities, for such period as shall be determined by the
managing underwriters, which period shall not begin more than 10 days prior to
the effectiveness of the Registration Statement pursuant to which such public
offering shall be made and shall not last more than 180 days after the closing
of sale of shares pursuant to such Registration Statement.
-7-
SECTION 6. Preparation and Filing. If and whenever the Company is
under an obligation pursuant to the provisions of this Agreement to use its best
efforts to effect the registration of any Registrable Shares, the Company shall,
as expeditiously as practicable:
(i) use its best efforts to cause a Registration Statement
that registers such Registrable Shares to become and remain effective for a
period of 90 days or until all of such Registrable Shares have been
disposed of (if earlier);
(ii) furnish, at least five business days before filing a
Registration Statement that registers such Registrable Shares, a Prospectus
relating thereto and any amendments or supplements relating to such
Registration Statement or Prospectus, to one counsel selected by CVCA (the
"Purchasers' Counsel"), copies of all such documents proposed to be filed
(it being understood that such five-business-day period need not apply to
successive drafts of the same document proposed to be filed so long as such
successive drafts are supplied to such counsel in advance of the proposed
filing by a period of time that is customary and reasonable under the
circumstances);
(iii) prepare and file with the Commission such amendments
and supplements to such Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective for at least a period of 90 days or until all of such
Registrable Shares have been disposed of (if earlier) and to comply with
the provisions of the Securities Act with respect to the sale or other
disposition of such Registrable Shares;
(iv) notify the Purchasers' Counsel promptly in writing (A)
of any comments by the Commission with respect to such Registration
Statement or Prospectus, or any request by the Commission for the amending
or supplementing thereof or for additional information with respect
thereto, (B) of the issuance by the Commission of any stop order suspending
the effectiveness of such Registration Statement or Prospectus or any
amendment or supplement thereto or the initiation of any proceedings for
that purpose and (C) of the receipt by the Company of any notification with
respect to the suspension of the qualification of such Registrable Shares
for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purposes;
(v) use its best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions as any seller of Registrable Shares reasonably requests and
do any and all
-8-
other acts and things which may be reasonably necessary or advisable to
enable such seller of Registrable Shares to consummate the disposition in
such jurisdictions of the Registrable Shares owned by such seller;
provided, however, that the Company will not be required to qualify
generally to do business, subject itself to general taxation or consent to
general service of process in any jurisdiction where it would not otherwise
be required so to do but for this clause (v);
(vi) furnish to each seller of such Registrable Shares such
number of copies of a summary Prospectus or other Prospectus, including a
preliminary Prospectus, in conformity with the requirements of the
Securities Act, and such other documents as such seller of Registrable
Shares may reasonably request in order to facilitate the public sale or
other disposition of such Registrable Shares;
(vii) use its best efforts to cause such Registrable Shares
to be registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of
the Company to enable the seller or sellers thereof to consummate the
disposition of such Registrable Shares;
(viii) notify on a timely basis each seller of such
Registrable Shares at any time when a Prospectus relating to such
Registrable Shares is required to be delivered under the Securities Act
within the appropriate period mentioned in clause (i) of this Section 6 of
the happening of any event as a result of which the Prospectus included in
such Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing and, at the request
of such seller, prepare and furnish to such seller a reasonable number of
copies of a supplement to or an amendment of such Prospectus as may be
necessary so that, as thereafter delivered to the offerees of such shares,
such Prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances
then existing;
(ix) make available for inspection by any seller of such
Registrable Shares, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney, accountant or
other agent retained by any such seller or underwriter (collectively, the
"Inspectors"), all pertinent financial,
-9-
business and other records, pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably necessary
to enable them to exercise their due diligence responsibility, and cause
the Company's officers, directors and employees to supply all information
(together with the Records, the "Information") reasonably requested by any
such Inspector in connection with such Registration Statement (and any of
the Information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified,
shall not be disclosed by the Inspectors unless (A) the disclosure of such
Information is necessary to avoid or correct a misstatement or omission in
the Registration Statement, (B) the release of such Information is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction, (C) such Information has been made generally available to the
public, and (D) the seller of Registrable Shares agrees that it will, upon
learning that disclosure of such Information is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company,
at the Company's expense, to undertake appropriate action to prevent
disclosure of the Information deemed confidential);
(x) use its best efforts to obtain from its independent
certified public accountants a "cold comfort" letter in customary form and
covering such matters of the type customarily covered by cold comfort
letters;
(xi) use its best efforts to obtain, from its counsel, an
opinion or opinions in customary form (which shall also be addressed to the
Purchasers selling Registrable Shares in such registration);
(xii) provide a transfer agent and registrar (which may be
the same entity and which may be the Company) for such Registrable Shares;
(xiii) issue to any underwriter to which any seller of
Registrable Shares may sell shares in such offering certificates evidencing
such Registrable Shares;
(xiv) list such Registrable Shares on any national
securities exchange on which any shares of the Common Stock are listed or,
if the Common Stock is not listed on a national securities exchange, use
its best efforts to qualify such Registrable Shares for inclusion on the
automated quotation system of the National Association of Securities
Dealers, Inc. (the "NASD"), National Market System ("NMS"), or such other
national securities exchange as the holders of a majority of such
Registrable Shares shall request included in such registration;
-10-
(xv) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its securityholders, as soon as reasonably practicable, earnings statements
which need not be audited covering a period of 12 months beginning within
three months after the effective date of the Registration Statement, which
earnings statements shall satisfy the provisions of Section 11(a) of the
Securities Act; and
(xvi) use its best efforts to take all other steps necessary
to effect the registration of such Registrable Shares contemplated hereby.
SECTION 7. Expenses. All expenses incurred by the Company in
complying with Section 6, including, without limitation, all registration and
filing fees (including all expenses incident to filing with the NASD), fees and
expenses of complying with securities and blue sky laws, printing expenses, fees
and expenses of the Company's counsel and accountants and fees and expenses of
one special legal counsel to the Purchasers selected by CVCA, shall be paid by
the Company; provided, however, that all underwriting discounts and selling
commissions applicable to the Registrable Shares shall not be borne by the
Company but shall be borne by the seller or sellers thereof, in proportion to
the number of Registrable Shares sold by such seller or sellers.
SECTION 8. Indemnification.
(a) In connection with any registration of any Registrable Shares
under the Securities Act pursuant to this Agreement, the Company shall indemnify
and hold harmless the seller of such Registrable Shares, each underwriter,
broker or any other Person acting on behalf of such seller, each other Person,
if any, who controls any of the foregoing Persons within the meaning of the
Securities Act and each Representative of any of the foregoing Persons, against
any losses, claims, damages or liabilities, joint or several, to which any of
the foregoing Persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement under which
such Registrable Shares were registered, any preliminary Prospectus or final
Prospectus contained therein, any amendment or supplement thereto or any
document incident to registration or qualification of any Registrable Shares, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading or, with respect to any Prospectus, necessary
to make the statements therein in light of the circumstances under which they
were made not misleading, or any violation by the Company of the Securities Act
or state
-11-
securities or blue sky laws applicable to the Company and relating to action or
inaction required of the Company in connection with such registration or
qualification under such state securities or blue sky laws, and the Company
shall promptly reimburse such seller, such underwriter, such broker, such
controlling Person or such Representatives for any legal or other expenses
incurred by any of them in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the Company
shall not be liable to any such Person to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
Registration Statement, preliminary Prospectus, amendment, supplement or
document incident to registration or qualification of any Registrable Shares in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such Person, or a Person duly
acting on their behalf, specifically for use in the preparation thereof;
provided further, however, that the foregoing indemnity agreement is subject to
the condition that, insofar as it relates to any untrue statement, allegedly
untrue statement, omission or alleged omission made in any preliminary
Prospectus but eliminated or remedied in the final Prospectus (filed pursuant to
Rule 424 of the Securities Act), such indemnity agreement shall not inure to the
benefit of any indemnified party from whom the Person asserting any loss, claim,
damage, liability or expense purchased the Registrable Shares which are the
subject thereof, if a copy of such final Prospectus had been timely made
available to such Indemnified Person and such final Prospectus was not delivered
to such Person with or prior to the written confirmation of the sale of such
Registrable Shares to such Person.
(b) In connection with any registration of Registrable Shares
under the Securities Act pursuant to this Agreement, each seller of Registrable
Shares shall indemnify and hold harmless (in the same manner and to the same
extent as set forth in the paragraph (a) of this Section 8) the Company, each
underwriter or broker involved in such offering, each other seller of
Registrable Shares under such Registration Statement, each Person who controls
any of the foregoing Persons within the meaning of the Securities Act and any
Representative of the foregoing Persons with respect to any statement or
omission from such Registration Statement, any preliminary Prospectus or final
Prospectus contained therein, any amendment or supplement thereto or any
document incident to registration or qualification of any Registrable Shares, if
such statement or omission was made in reliance upon and in conformity with
written information furnished to the Company or such underwriter through an
instrument duly executed by such seller or a Person duly acting on their behalf
specifically for use in connection with the preparation of such Registration
Statement, preliminary Prospectus, final Prospectus, amendment or supplement;
provided, however, that the maximum amount of liability in respect of such
-12-
indemnification shall be limited, in the case of each seller of Registrable
Shares, to an amount equal to the net proceeds actually received by such seller
from the sale of Registrable Shares effected pursuant to such registration.
(c) Promptly after receipt by an indemnified party of notice of
the commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 8, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action (provided however, that an indemnified
party's failure to give such notice in a timely manner shall only relieve the
indemnification obligations of an indemnifying party to the extent such
indemnifying party is prejudiced by such failure). In case any such action is
brought against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be responsible for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof; provided, however, that if any indemnified
party shall have reasonably concluded that there may be one or more legal or
equitable defenses available to such indemnified party which are in addition to
or conflict with those available to the indemnifying party, or that such claim
or litigation involves or could have an effect upon matters beyond the scope of
the indemnity agreement provided in this Section 8, the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party and such indemnifying party shall reimburse such indemnified
party and any Person controlling such indemnified party for that portion of the
fees and expenses of any one lead counsel (plus appropriate special and local
counsel) retained by the indemnified party which are reasonably related to the
matters covered by the indemnity agreement provided in this Section 8.
(d) If the indemnification provided for in this Section 8 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, claim, damage or liability referred to herein, then
the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amounts paid or payable by such indemnified
party as a result of such loss, claim, damage or liability in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other hand in connection with the
statements or omissions which resulted in such loss, claim, damage or liability
as well as any other relevant equitable considerations; provided, however, that
the maximum amount of
-13-
liability in respect of such contribution shall be limited, in the case of each
seller of Registrable Shares, to an amount equal to the net proceeds actually
received by such seller from the sale of Registrable Shares effected pursuant to
such registration. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) The indemnification and contribution provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party and will survive the transfer of
securities.
SECTION 9. Underwriting Agreement.
(a) Notwithstanding the provisions of Sections 6 and 8, to the
extent that the Purchasers selling Registrable Shares in a proposed registration
shall enter into an underwriting or similar agreement, which agreement contains
provisions covering one or more issues addressed in such Sections of this
Agreement, the provisions contained in such Sections of this Agreement
addressing such issue or issues shall be of no force or effect with respect to
such registration, but this provision shall not apply to the Company if the
Company is not a party to the underwriting or similar agreement.
(b) If any registration pursuant to Section 2 is requested to be
an underwritten offering, the Company shall negotiate in good faith to enter
into a reasonable and customary underwriting agreement with the underwriters
thereof. The Company shall be entitled to receive indemnities from lead
institutions, underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, to the same
extent as provided above with respect to information so furnished in writing by
such Persons specifically for inclusion in any Prospectus or Registration
Statement and to the extent customary given their role in such distribution.
(c) No Purchaser may participate in any registration hereunder
that is underwritten unless such Purchaser agrees to (i) sell such
Purchaser's Registrable Shares proposed to be included therein on the basis
provided in any underwriting arrangements acceptable to the Company and CVCA and
(ii) as expeditiously as possible, notify the Company of the occurrence of any
event concerning such Purchaser as a result of which the Prospectus relating to
such registration contains an untrue statement of a material fact or omits to
state a material fact
-14-
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
SECTION 10. Suspension. Anything contained in this Agreement to the
contrary notwithstanding, the Company may (not more than once with respect to
each registration), by notice in writing to each holder of Registrable Shares to
which a Prospectus relates, require such holder to suspend, for up to 90 days
(the "Suspension Period"), the use of any Prospectus included in a Registration
Statement filed under Section 2, 3 or 4 if a Material Transaction exists that
would require an amendment to such Registration Statement or supplement to such
Prospectus (including any such amendment or supplement made through
incorporation by reference to a report filed under Section 13 of the Exchange
Act). The period during which such Prospectus must remain effective shall be
extended by a period equal to the Suspension Period. The Company may (but shall
not be obligated to) withdraw the effectiveness of any Registration Statement
subject to this provision.
SECTION 11. Information by Holder. Each holder of Registrable Shares
to be included in any registration shall furnish to the Company and the managing
underwriter such written information regarding such holder and the distribution
proposed by such holder as the Company or the managing underwriter may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in this
Agreement.
SECTION 12. Exchange Act Compliance. From and after the Registration
Date or such earlier date as a registration statement filed by the Company
pursuant to the Exchange Act relating to any class of the Company's securities
shall have become effective, the Company shall comply with all of the reporting
requirements of the Exchange Act (whether or not it shall be required to do so)
and shall comply with all other public information reporting requirements of the
Commission which are conditions to the availability of Rule 144 for the sale of
the Common Stock. The Company shall cooperate with each Purchaser in supplying
such information as may be necessary for such Purchaser to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of Rule 144.
SECTION 13. No Conflict of Rights. The Company represents and warrants
to the Purchasers that the registration rights granted to the Purchasers hereby
do not conflict with any other registration rights granted by the Company. The
Company shall not, after the date hereof, grant any registration rights which
conflict with or impair, or have any priority over, the registration rights
granted hereby. In any underwritten public offering initiated pursuant to
Section 2(a), the managing
-15-
underwriter shall be a nationally recognized investment banking firm selected by
the Company, and reasonably acceptable to CVCA.
SECTION 14. Termination. This Agreement shall terminate and be of no
further force or effect when there shall not be any Restricted Securities;
provided however, that Sections 7 and 8 shall survive the termination of this
Agreement.
SECTION 15. Successors and Assigns. This Agreement shall bind and
inure to the benefit of the Company and the Purchasers and, subject to Section
16, their respective successors and assigns.
SECTION 16. Assignment. Each Purchaser may assign its rights hereunder
to any purchaser from such Purchaser of Restricted Securities; provided,
however, that such purchaser shall, as a condition to the effectiveness of such
assignment, be required to execute a counterpart to this Agreement agreeing to
be treated as a Purchaser hereunder whereupon such purchaser shall have the
benefits of, and shall be subject to the restrictions contained in, this
Agreement as an Purchaser.
SECTION 17. Entire Agreement. This Agreement contains the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior arrangements or understandings with respect hereto.
SECTION 18. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument and shall be deemed to have been duly given
when delivered in Person, by telex, telegram or telecopy, by overnight courier,
or by first class registered or certified mail, postage prepaid, addressed to
such party at the address set forth below or such other address as may hereafter
be designated in writing by the addressee to the sender:
(i) if to the Company, to:
Gentle Dental Service Corporation
000 Xxxxx Xxxxxxxxx Xxxxxxxxx
Xx Xxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx
President and Chief Executive
Officer;
-16-
with a copy to:
XxXxxxxxx, Will & Xxxxx
One Newport Place
0000 Xxxx Xxxxxx, Xxxxx 000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, Esq.;
(ii) if to any Purchaser, to him, her or its
address set forth on Schedule I or, if
none, in the books of the Company;
with a copy to:
X'Xxxxxxxx Graev & Karabell, LLP
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxxx, Esq.
All such notices, requests, consents and other communications shall be deemed to
have been delivered (a) in the case of personal delivery, telex, telegram or
telecopy, on the date of such delivery, (b) in the, case of overnight courier,
on the next business day, and (c) in the case of mailing, on the fifth business
day following such mailing.
SECTION 19. Modifications; Amendments; Waivers. The terms and
provisions of this Agreement may not be modified or amended, nor may any
provision applicable to the Purchasers be waived, except pursuant to a writing
signed by the Company and Requisite Purchasers; provided, however, that (i) any
such amendment, modification, or waiver that would adversely affect the rights
hereunder of any Purchaser, in its capacity as an Purchaser, without similarly
affecting the rights hereunder of all Purchasers of such class, in their
capacities as Purchasers of such class, shall not be effective as to such
Purchaser without its prior written consent and (ii) Schedule I to this
Agreement shall be deemed to be automatically amended from time to time to
reflect the addition to this Agreement of any Person identified in clause (ii)
of the definition of Purchaser without requiring the consent of any party, and
the Company will, from time to time, distribute to the Purchasers a revised
Schedule I to reflect any such changes.
SECTION 20. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
-17-
SECTION 21. Severability. It is the desire and intent of the parties
that the provisions of this Agreement be enforced to the fullest extent
permissible under the law and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any provision of this Agreement
would be held in any jurisdiction to be invalid, prohibited or unenforceable for
any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 22. Governing Law; Etc. All questions concerning the
construction, interpretation and validity of this Agreement shall be governed by
and construed and enforced in accordance with the domestic laws of the State of
New York, without giving effect to any choice or conflict of law provision or
rule (whether in the State of New York or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
New York. In furtherance of the foregoing, the internal law of the State of New
York will control the interpretation and construction of this Agreement, even if
under such jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
SECTION 23. Counterparts; Validity. This Agreement may be executed in
any number of counterparts, each of which shall be an original, but all of which
taken together shall constitute one and the same agreement, and telecopied
signatures shall be effective. The failure of any Person holding Registrable
Shares to execute this Agreement shall not render this Agreement invalid as
between the Company and any other Person holding Registrable Shares.
SECTION 24. Entire Agreement This Agreement and the other documents,
certificates, instruments, writings and agreements referred to herein or
delivered pursuant hereto contain the entire understanding of the parties with
respect to the subject matter hereof and supersede in their entirety any and all
prior agreements and understandings between any of the parties hereto, all of
which are hereby terminated in their entirety and of no further force or effect.
* * * *
-18-
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement on the date first written above.
THE COMPANY:
-----------
GENTLE DENTAL SERVICE CORPORATION
By:_______________________________________
Name:
Title:
THE PURCHASERS:
--------------
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By: Chase Capital Partners,
its General Partner
By:_______________________________________
Name:
Title:
DLJ CAPITAL CORP.
By:_______________________________________
Xxxxxxxx XxXxxxx
Attorney In Fact
DLJ FIRST ESC L.L.C.
By: DLJ LBO Plans Management
Corporation
its Manager
By:_______________________________________
Xxxxxxxx XxXxxxx
Attorney In Fact
SPROUT CAPITAL VII, L.P.
By: DLJ Capital Corp.
its Managing General Partner
By:_______________________________________
Xxxxxxxx XxXxxxx
Attorney In Fact
SPROUT GROWTH II, L.P.
By: DLJ Capital Corp.
its Managing General Partner
By:_______________________________________
Xxxxxxxx XxXxxxx
Attorney In Fact
THE SPROUT CEO FUND, L.P.
By: DLJ Capital Corp.
its General Partner
By:_______________________________________
Xxxxxxxx XxXxxxx
Attorney In Fact
SCHEDULE I
----------
Purchasers
----------
Chase Venture Capital Associates, L.P.
c/o Chase Capital Partners
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxxx
Xxxx Xxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
DLJ Capital Corp.
c/o The Sprout Group
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx
Xxxxxxxx XxXxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
DLJ First ESC L.L.C.
c/o The Sprout Group
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx
Xxxxxxxx XxXxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
Sprout Capital VII, L.P.
c/o The Sprout Group
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx
Xxxxxxxx XxXxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
SCHEDULE I
----------
Purchasers
----------
Sprout Growth II, L.P.
c/o The Sprout Group
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx
Xxxxxxxx XxXxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
The Sprout CEO Fund, L.P.
c/o The Sprout Group
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx
Xxxxxxxx XxXxxxx
Tel: (000) 000-0000
