Exhibit 10.12
FORBEARANCE AGREEMENT
This Forbearance Agreement (the "Agreement") is dated as of July 17, 2002,
by and between Xxxx X. Xxxxxxx, D.M.D, Xxxx X. Xxxxxxx, D.M.D, Inc., a
California corporation, and Xxxxxxx Acquisition Company, a California
corporation (collectively "Xxxxxxx"); and CDC of California, Inc, a Delaware
corporation (the "Corporation"), and Castle Dental Centers of California,
L.L.C., a Delaware limited liability company (the "LLC", and sometimes together
with the Corporation collectively referred to as "Castle").
RECITALS
WHEREAS Xxxxxxx holds a judgment against Castle in LACSC Case # BS058068
dated as of October 23, 2000, in the initial amount of $1,108,210.62 plus
interest at 10% (ten percent) per annum from the date of the judgment
(approximately $1,294,114.45 as of June 24, 2002); which amounts are currently
due and owing by Castle to Xxxxxxx (the amount of such judgment plus interest
thereon outstanding at any time is hereinafter defined as the "Claim" or the
"Xxxxxxx Claim"); and
WHEREAS Xxxxxxx asserts that he holds a valid and perfected Judgment Lien
against certain assets of the Corporation and the LLC, which Judgment Lien
secures the Claim; and
WHEREAS the Bank Group, as defined in Paragraph 11 below, asserts that it
holds valid and perfected liens against certain assets of the Corporation and
the LLC, which liens secure the claims of the Bank Group against the
Corporation, the LLC and certain affiliated entities (the "Bank Group Claims");
and
WHEREAS litigation is ongoing by Xxxxxxx against Castle to collect the
Claim and/or enforce the Judgment Lien asserted by Xxxxxxx against certain
assets of the Corporation and the LLC; and
WHEREAS the parties hereto have negotiated the terms of an agreement under
which Xxxxxxx will forbear from further efforts to collect, realize and enforce
his Claim and the asserted Judgment Lien.
NOW therefore, the parties hereto, having exchanged good, valuable and
adequate consideration, the sufficiency of which is acknowledged, agree as
follows:
AGREEMENTS
1. XXXXXXX FORBEARANCE. Xxxxxxx shall forbear from pursuing and
exercising any of his rights remedies and recourse against the Corporation and
the LLC or their respective assets or affiliates, whether such rights and
remedies exist at law or in equity, so long as there is no uncured breach by
Castle of its undertakings to Xxxxxxx under this Agreement or this Agreement
otherwise provides. The period of such forbearance by Xxxxxxx shall be defined
as the "Forbearance Period".
2. PAYMENTS. In exchange for the forbearance by Xxxxxxx as described in
Paragraph 1 above, Castle shall make payments to Xxxxxxx as set forth in this
Paragraph 2 and otherwise perform certain undertakings as set forth herein.
a. As a condition to the effectiveness of this Agreement (as described
in Paragraph 11), Castle shall pay Xxxxxxx, by wire transfer to an account
specified in writing by Xxxxxxx, $100,000.00, to be applied first to outstanding
and unpaid interest on the Claim and then to principal on the Claim.
b. Thirty (30) days after the payment described in Paragraph 2 a.
above (or if any such date is not a business day, on the first business day
thereafter), Castle shall commence making consecutive monthly payments to
Xxxxxxx, by wire transfer to an account specified in writing by Xxxxxxx, in the
amount of $30,000.00 per month for twenty-three months on the same date of
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each such month as the first payment to be made under this paragraph. Each such
payment shall be applied first to outstanding and unpaid interest and then to
principal on the Claim.
c. Thereafter, Castle shall pay consecutive monthly payments to
Xxxxxxx, by wire transfer to an account specified in writing by Xxxxxxx, in the
amount of $25,000 per month (or such lesser amounts for the last payment as may
be necessary to pay the Claim in full) on the same date of each such month as
the payments to be made under paragraph 2(b) until such time as the Claim is
paid in full. Each such payment shall be applied first to outstanding and unpaid
interest and then to principal on the Claim.
d. Castle may, at any time, in lieu of making periodic payments, pay
Xxxxxxx the full amount of the Claim, without penalty.
e. Providing that no case under Title 11 of the United States Code has
been commenced by or against Castle, and that no common law assignment for the
benefit of creditors has been made by Castle, one hundred days following full
payment of the Claim, Xxxxxxx shall execute a full and complete release in favor
of Castle in respect of the Claim and such release of liens and other documents
as shall be required by Castle to effect a release of the Judgment Lien.
3. TOLLING OF STATUTES OF LIMITATION. Castle, Xxxxxxx and the Bank Group,
as defined in Paragraph 11 below, agree to the tolling of any unexpired statute
of limitations period with respect to the Claim (including, but not limited to,
the statute of limitations period in which Xxxxxxx could seek to avoid the
alleged lien of the Bank Group against any or all of the assets of Castle) and
any rights or claims held by such party with respect thereto for a period of 60
(Sixty) days after the Forbearance Period terminates, if such period terminates
other than through the full and final payment of the Claim by Castle.
4. OTHER AGREEMENTS. The parties hereto further agree as follows:
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a. During the pendency of this Agreement, there shall not be any new
pledge or other encumbrance of the stock of the Corporation or of the
equity interest in the LLC.
b. During the pendency of this Agreement, the Corporation shall be
maintained in good standing and Castle shall operate in the ordinary
course of business.
c. During the pendency of this Agreement, Castle shall deliver to Xxxxxxx
the financial statements that are required to be provided to the Bank
Group pursuant to the restructured Credit Agreement (as defined in
Paragraph 11 below) at the same time as such information is provided
to the Bank Group.
d. Any amount owing on the Claim shall be fully paid from the proceeds of
the sale of either the Corporation or the LLC, or their respective
assets, provided that Xxxxxxx is determined to have a valid
non-voidable security interest in and to any of such assets sold and
the proceeds thereof, and that the priority of Xxxxxxx'x security
interest entitles him to receive such proceeds; provided further that
the transactions contemplated by the Fozoonmehr Agreement (as defined
below) shall not be deemed to be such a sale. Castle shall give
Xxxxxxx twenty (20) days notice of any scheduled closing of such a
sale. Upon the closing of such sale, the "Forbearance Period" shall
terminate. Nothing in this Paragraph is intended to nor shall be
deemed to release Xxxxxxx'x Judgement Lien on any of the assets of the
Corporation or the LLC, or as a consent to the sale of any or all of
such assets (other than a sale whereby the Xxxxxxx Judgement Lien is
fully paid off to Xxxxxxx), even if such Judgement Lien is junior to
the lien of a creditor whose claim is larger than the projected
purchase price of any sale of any or all of such assets.
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e. Castle shall provide twenty (20) days notice of any transfer of a
Castle asset valued at $100,000 or more, but such notice obligation
shall exclude assets transferred in the ordinary course of business or
as ordinary course payment on debts to Castle lenders existing at the
time of execution of this Agreement.
f. There shall be a five (5) day cure period after written notice by
Xxxxxxx to Castle of a default under this Agreement. If the default
remains uncured or is not waived by Xxxxxxx, the Forbearance Period
shall automatically terminate.
g. It will be an event of default under this Agreement if there is an
event of default under any separate forbearance agreement that may be
entered into by and among Castle, Castle affiliate(s), and the Bank
Group on or after the date hereof ("Bank Group Forbearance
Agreement"). Castle shall give Xxxxxxx immediate written notice of any
event of default under the Bank Group Forbearance Agreement. Moreover,
it shall be an event of default under this Agreement if the Bank Group
commences any action to enforce its remedies against the assets of
Castle on account of its alleged lien against Castle, the Corporation,
or the LLC.
h. It shall be an event of default if from and after the date of this
Agreement, any liens junior to that of Xxxxxxx attach to any of the
assets of Castle, the Corporation, or the LLC; provided, however, that
notwithstanding anything to the contrary contained herein, the
existence of any liens on or security interests in any of the current
or hereafter acquired assets of Castle, the Corporation or the LLC to
secure any claims and indebtedness of Castle to the Bank Group, under
the Credit Agreement, as defined in Paragraph 11 below, or to any
successors or assigns of the Bank Group with respect to the Credit
Agreement and its related documents, shall not constitute an event of
default under this Agreement. Nothing in this
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Xxxxxxxxx or in this Agreement is intended to nor shall be deemed to
change the status quo between Xxxxxxx and the Bank Group in respect of
the relative priorities of their liens on any of the assets of the
Corporation or the LLC.
i. Xxxxxxx Xxxxxxxxxx, D.D.S., Inc. and Xxxxxxx Xxxxxxxxxx, D.D.S.
(collectively, "Fozoonmehr"), and the Corporation have entered into a
Memorandum of Understanding dated May 30, 2002 (the "Fozoonmehr
Agreement"). The Fozoonmehr Agreement requires Fozoonmehr to: (x) pay
the Corporation $500,000 by October 1, 2002 or (y), if such payments
are not paid in full by such date, enter into a stipulated judgement
requiring Fozoonmehr to pay the unpaid amounts to the Corporation and
surrender to the Corporation possession, right, title and interest to
the professional and nonprofessional assets of the dental practice
located at 00000 Xxxxxxxxx Xxxx., Xxxxxxxx, Xxxxxxxxxx 00000 (the
"Hawthorne Practice"). $50,000 of the amount owing under the
Fozoonmehr Agreement has previously been paid to Xxxxxxx and shall be
credited against amounts otherwise owed hereunder by Castle and shall
be applied first to outstanding and unpaid interest and then to
principal due on the Claim. Castle and each member of the Bank Group
hereby agree not to challenge in any manner Xxxxxxx'x right to retain
such $50,000 payment. Castle, the Bank Group and Xxxxxxx hereby agree
that any further proceeds of the Fozoonmehr Agreement, including the
Hawthorne Practice (collectively, the "Fozoonmehr Proceeds"), shall be
paid and delivered one-half to Xxxxxxx and one-half to the Bank Group,
subject to the prior payment of legal fees of no more than $50,000 to
Castle's attorneys, Xxxxxx & Xxxxxxx, who claim a security interest in
the Fozoonmehr Proceeds. In the event that Xxxxxx & Xxxxxxx'x fees
secured by the
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Fozoonmehr Proceeds exceed $50,000, Castle shall pay and be solely
responsible for payment of such excess and shall indemnify and hold
harmless Xxxxxxx and the Bank Group from any claim regarding such
excess. The value of the Hawthorne Practice shall be as set forth in
the Fozoonmehr Agreement. Prepayments of the Claim under this
Paragraph 4 shall not affect the payment schedule set forth in
Paragraph 2 until the Claim has been paid in full. In no event shall
the forbearance agreed to in Paragraph 1 prohibit Xxxxxxx from taking
the actions necessary to pursue the Fozoonmehr Proceeds in accordance
with this Paragraph 4(i).
5. TERMINATION OF AGREEMENT. This Agreement shall terminate at the time
of full payment of the Xxxxxxx Claim or at the earlier termination of the
Forbearance Period as set forth herein.
6. RESERVATION OF RIGHTS; TOLLING. Xxxxxxx and the Bank Group hereby
acknowledge and agree that (i) the Bank Group and Xxxxxxx and any of their
respective successors and assigns with respect to the Credit Agreement, reserve
all of their respective rights, remedies, claims, causes of action and defenses
in respect to the Xxxxxxx Claim or the Bank Group Claim or otherwise, (ii)
nothing herein shall in any way waive, limit or modify such respective rights,
remedies, claims, causes of action and defenses with respect to the Xxxxxxx
Claim or the Bank Group Claims or otherwise, and (iii) any applicable statutes
of limitations and periods of laches, waiver or estoppel relating to such
respective rights, remedies, claims, causes of action or defenses with respect
to the Xxxxxxx Claim, the Bank Group Claim or otherwise are hereby tolled from
the date hereof through and including the date of termination of the Forbearance
Period. Castle shall notify Xxxxxxx and the Bank Group in writing of any breach
of or default under this Agreement or any termination of the Forbearance Period.
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7. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without regard to the rules
of conflict of laws of the State of California or any other jurisdiction.
8. EXPENSES. All costs and expenses incurred in connection with this
Agreement shall be borne by and paid by the party incurring such costs and
expenses.
9. AMENDMENT. This Agreement may not be amended except by an instrument
in writing signed on behalf of the parties hereto.
10. COUNTERPARTS AND EFFECTIVENESS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed to be an original but all of
which shall constitute the same agreement. This Agreement shall be effective
after each party signs this Agreement and the condition precedent set forth in
Paragraph 11 hereto has been timely satisfied.
11. CONDITION TO EFFECTIVENESS OF AGREEMENT. Contemporaneously with the
restructuring of the Credit Agreement, as defined below: (a) the Bank Group
shall execute and deliver to Xxxxxxx and Castle an instrument evidencing the
consent of the Bank Group to Castle entering into this Agreement and performing
its undertakings hereunder and the Bank Group agreeing to the Tolling Provisions
contained in Paragraphs 3 and 6 of this Agreement and (b) Castle shall make the
initial $100,000 payment to Xxxxxxx required by Paragraph 2(a) above. For the
purposes of this Agreement, the "Bank Group" shall mean: Bank of America, N. A.,
as Agent for the Bank Group, Banc of America Strategic Solutions, Inc., Fleet
National Bank, Amsouth Bank and Xxxxxx Financial, Inc. as lenders under that
certain Amended and Restated Credit Agreement dated December 18, 1998 as amended
on July 20, 1999, September 30, 1999, October 31, 1999 and January 31, 2000 (the
"Credit Agreement"). Notwithstanding anything to the contrary herein, this
Agreement shall be void and of no effect if the restructuring of the
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Credit Agreement has not been fully executed and effective, the initial $100,000
payment has not been paid, and this Agreement has not otherwise become
effective, on or before July 31, 2002.
12. SUCCESSORS AND ASSIGNS. This Agreement is binding on the parties
hereto and their respective successors and assigns.
13. NOTICES. All notices, claims, demands and other communications
hereunder shall be in writing and shall be deemed given upon (a) confirmation of
receipt of a facsimile transmission, (b) confirmed delivery by a standard
overnight carrier or when delivered by hand, or (c) the expiration of five (5)
business days after the day when mailed by registered or certified mail (postage
prepaid, return receipt requested), addressed to the respective parties at the
following addresses (or such other address for a party as shall be specified by
like notice):
(a) If to Castle, to: CDC of California, Inc.
Castle Dental Center of California, LLC
0000 Xxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attn: Chief Financial Officer
Telecopy: (000) 000-0000
with copies to:
Xxxxxx and Xxxxx, LLP
0000 Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx
(b) If to Xxxxxxx:
Xxxx X. Xxxxxxx
000 X. Xxxx Xxxxxx
Xxxxxxxx, XX 00000
Telecopy: (000) 000-0000
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with copies to:
Xxxxxxxx & Xxxxx
000 Xxxxx Xxxxxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx
14. AUTHORITY. Each party hereby represents to each of the other parties
that: (a) such party has all necessary power and authority to execute, deliver
and perform its respective obligations under this Agreement; (b) the execution,
delivery and performance by such party of its obligations under this Agreement
have been duly authorized by all necessary corporate action on its part; (c) the
person executing this Agreement on such party's behalf is duly authorized to do
so; and (d) this Agreement constitutes the legal, valid and binding obligation
of such party enforceable in accordance with its terms.
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Signed and executed by the parties hereto as of the date first set forth
above.
Xxxx X. Xxxxxxx, D.M.D. CDC of California, Inc.
/s/ Xxxx X. Xxxxxxx, D.M.D. By: /s/ Xxxx X. Xxxxx
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Its: Vice President
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Xxxx X Xxxxxxx, D.M.D., Inc. Castle Dental Centers of California, L.L.C.
By: /s/ Xxxx X. Xxxxxxx, D.M.D. By: /s/ Xxxx X. Xxxxx
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Its: Chief Executive Officer Its: Vice President
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Xxxxxxx Acquisition Company
By: /s/ Xxxx X. Xxxxxxx, D.M.D.
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Its: Chief Executive Officer
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