-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nbo4p1IBY9X6PSZnMbKn+2DCOhtp9Dfc6ci6f9+DxzEjlLWm830QTX6TRgaQjupx yj+4FpRSuqCB4jUQAipMzQ== 0000897069-03-000603.txt : 20030523 0000897069-03-000603.hdr.sgml : 20030523 20030523154640 ACCESSION NUMBER: 0000897069-03-000603 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20030523 GROUP MEMBERS: ABN AMRO BANK N.V. GROUP MEMBERS: ABN AMRO HOLDINGS N.V. GROUP MEMBERS: ABN AMRO MEZZANINE MANAGEMENT II, INC. GROUP MEMBERS: ABN AMRO MEZZANINE MANAGEMENT II, L.P. GROUP MEMBERS: ABN AMRO NORTH AMERICA HOLDING COMPANY GROUP MEMBERS: LASALLE BANK CORPORATION SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CASTLE DENTAL CENTERS INC CENTRAL INDEX KEY: 0001018152 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 760486898 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-52917 FILM NUMBER: 03718247 BUSINESS ADDRESS: STREET 1: 1360 POST OAK BLVD STREET 2: STE 1300 CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 7134798000 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: MIDWEST MEZZANINE FUND II LP CENTRAL INDEX KEY: 0001060713 IRS NUMBER: 364211970 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 208 S LASALLE ST STREET 2: 10TH FLR CITY: CHICAGO STATE: IL ZIP: 60604 BUSINESS PHONE: 3128557140 MAIL ADDRESS: STREET 1: 208 S. LASALLE ST STREET 2: 10TH FL CITY: CHICAGO STATE: IL ZIP: 60604 SC 13D/A 1 irm344.txt SCHEDULE 13D AMENDMENT NO. 1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D (Rule 13d-101) (Amendment No. 1) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) CASTLE DENTAL CENTERS, INC. (Name of Issuer) ________________________ COMMON STOCK $.000001 PAR VALUE (Title of Class of Securities) 14844P105 (CUSIP Number) _________________________ Paul G. Kreie Midwest Mezzanine Funds 135 South LaSalle Street, Suite 2040 Chicago, Illinois 60603 (312) 992-4584 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) _________________________ May 15, 2003 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this statement because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box: |_| The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 (the "Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). - -------------------------------------------------------------------------------- 13D
CUSIP No. 14844P105 - ------------------------------------------------------------------------------------- ------------------------------------ 1. Name of reporting persons.. . . . . . . . . . . . . . . . . . . . . . . . . . . Midwest Mezzanine Fund II, L.P. I.R.S. Identification Nos. of above persons (entities only).. . . . . . . . . . - ------------------------------------------------------------------------------------- ------------------------------------ 2. Check the appropriate box if a member of a group (a)[ ] (b)[X] - ------------------------------------------------------------------------------------- ------------------------------------ 3. SEC use only - ------------------------------------------------------------------------------------- ------------------------------------ 4. Source of funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OO - ------------------------------------------------------------------------------------- ------------------------------------ 5. Check box if disclosure of legal proceedings is required pursuant to Items 2(d) or 2(e). [ ] - ------------------------------------------------------------------------------------- ------------------------------------ 6. Citizenship or place of organization . . . . . . . . . . . . . . . . . . . . . State of Delaware - ------------------------------------------------ ------------------------------------ ------------------------------------ Number of shares 7. Sole voting power ------------------------------------ ------------------------------------ beneficially owned 8. Shared voting power 194,761,601(1)(2) ------------------------------------ ------------------------------------ by each 9. Sole dispositive power ------------------------------------ ------------------------------------ reporting person with: 10. Shared dispositive power 22,678,609(2) - ------------------------------------------------ ------------------------------------------------------------------------- 11. Aggregate amount beneficially owned by each reporting person. 194,761,601(1) ------------------------------------------------------------------------- 12. Check box if the aggregate amount in Row 11 excludes certain shares. [ ] ------------------------------------------------------------------------- 13. Percent of class represented by amount in Row (11). . . . . . . . . . 96.9% ------------------------------------------------------------------------- 14. Type of reporting person. . . . . . . PN - ------------------------------------------------ -------------------------------------------------------------------------
(1) The reporting person, Sentinel Capital Partners II, L.P., General Electric Capital Corporation, James M. Usdan, Thomas Fitzpatrick and John M. Slack may be deemed to be a "group" within the meaning of Section 13d-3 of the Securities Exchange Act of 1934, as amended, because of the existence of an agreement among them to vote their shares of capital stock of the issuer in favor of certain designees to the issuer's board of directors. Please see Items 1, 3, 4, 5 and 6 below for additional explanation. The reporting person disclaims beneficial ownership of 115,418,061 shares held in the name of Sentinel Capital Partners II, L.P., 35,602,366 shares held in the name of General Electric Capital Corporation, 17,363,176 shares held in the name of James M. Usdan, 2,400,635 shares held in the name of Thomas Fitzpatrick, and 1,298,754 shares held in the name of John M. Slack. (2) 22,678,609 of these shares are held in the name of Midwest Mezzanine Fund II, L.P., and Midwest Mezzanine Fund II, L.P. reports shared voting and dispositive power with respect to these shares because of the affiliation of Midwest Mezzanine Fund II, L.P. with its direct and indirect owners. Although Midwest Mezzanine Fund II, L.P. has agreed in certain limited circumstances to sell its shares if Sentinel Capital Partners II, L.P. sells its shares, Midwest Mezzanine Fund II, L.P. disclaims any "shared dispositive power" with respect to its shares in connection with such obligations. Page 2 of 48
13D CUSIP No. 14844P105 - ------------------------------------------------------------------------------------- ------------------------------------ 1. Name of reporting persons. . . . . . . . . . . . . . . . . . . . . . . . . ABN AMRO Mezzanine Management II, L.P. I.R.S. Identification Nos. of above persons (entities only) . . . . . . . . - ------------------------------------------------------------------------------------- ------------------------------------ 2. Check the appropriate box if a member of a group (a) [ ] (b) [X] - ------------------------------------------------------------------------------------- ------------------------------------ 3. SEC use only - ------------------------------------------------------------------------------------- ------------------------------------ 4. Source of funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OO - ------------------------------------------------------------------------------------- ------------------------------------ 5. Check box if disclosure of legal proceedings is required pursuant to Items 2(d) or 2(e). [ ] - ------------------------------------------------------------------------------------- ------------------------------------ 6. Citizenship or place of organization. . . . . . . . . . . . . . . . . . . . State of Delaware - ------------------------------------------------ ------------------------------------ ------------------------------------ Number of shares 7. Sole voting power ------------------------------------ ------------------------------------ beneficially owned 8. Shared voting power 194,761,601(1)(2) ------------------------------------ ------------------------------------ by each 9. Sole dispositive power ------------------------------------ ------------------------------------ reporting person with: 10. Shared dispositive power 22,678,609 (2) - ------------------------------------------------ ------------------------------------------------------------------------- 11. Aggregate amount beneficially owned by each reporting person. 194,761,601(1) ------------------------------------------------------------------------- 12. Check box if the aggregate amount in Row 11 excludes certain shares. [ ] ------------------------------------------------------------------------- 13. Percent of class represented by amount in Row (11). . . . . . . . . . . . . . . 96.9% ------------------------------------------------------------------------- 14. Type of reporting person . . . . . . . . PN - ------------------------------------------------ -------------------------------------------------------------------------
(1) The reporting person, Sentinel Capital Partners II, L.P., General Electric Capital Corporation, James M. Usdan, Thomas Fitzpatrick and John M. Slack may be deemed to be a "group" within the meaning of Section 13d-3 of the Securities Exchange Act of 1934, as amended, because of the existence of an agreement among them to vote their shares of capital stock of the issuer in favor of certain designees to the issuer's board of directors. Please see Items 1, 3, 4, 5 and 6 below for additional explanation. The reporting person disclaims beneficial ownership of 115,418,061 shares held in the name of Sentinel Capital Partners II, L.P., 35,602,366 shares held in the name of General Electric Capital Corporation, 17,363,176 shares held in the name of James M. Usdan, 2,400,635 shares held in the name of Thomas Fitzpatrick, and 1,298,754 shares held in the name of John M. Slack. (2) 22,678,609 of these shares are held in the name of Midwest Mezzanine Fund II, L.P., and Midwest Mezzanine Fund II, L.P. reports shared voting and dispositive power with respect to these shares because of the affiliation of Midwest Mezzanine Fund II, L.P. with its direct and indirect owners. Although Midwest Mezzanine Fund II, L.P. has agreed in certain limited circumstances to sell its shares if Sentinel Capital Partners II, L.P. sells its shares, Midwest Mezzanine Fund II, L.P. disclaims any "shared dispositive power" with respect to its shares in connection with such obligations. Page 3 of 48
13D CUSIP No. 14844P105 - ------------------------------------------------------------------------------------- ------------------------------------ 1. Name of reporting persons. . . . . . . . . . . . . . . . . . . . . . . . . ABN AMRO Mezzanine Management II, Inc. I.R.S. Identification Nos. of above persons (entities only).. . . . . . . . - ------------------------------------------------------------------------------------- ------------------------------------ 2. Check the appropriate box if a member of a group (a) [ ] (b) [X] - ------------------------------------------------------------------------------------- ------------------------------------ 3. SEC use only - ------------------------------------------------------------------------------------- ------------------------------------ 4. Source of funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OO - ------------------------------------------------------------------------------------- ------------------------------------ 5. Check box if disclosure of legal proceedings is required pursuant to Items [ ] 2(d) or 2(e). - ------------------------------------------------------------------------------------- ------------------------------------ 6. Citizenship or place of organization. . . . . . . . . . . . . . . . . . . . State of Delaware - ------------------------------------------------ ------------------------------------ ------------------------------------ Number of shares 7. Sole voting power ------------------------------------ ------------------------------------ beneficially owned 8. Shared voting power 194,761,601(1)(2) ------------------------------------ ------------------------------------ by each 9. Sole dispositive power ------------------------------------ ------------------------------------ reporting person with: 10. Shared dispositive power 22,678,609 (2) - ------------------------------------------------ ------------------------------------ ------------------------------------ 11. Aggregate amount beneficially owned by each reporting person. 194,761,601(1) ------------------------------------------------------------------------- 12. Check box if the aggregate amount in Row 11 excludes certain shares. [ ] ------------------------------------------------------------------------- 13. Percent of class represented by amount in Row (11). . . . . . . . . . 96.9% ------------------------------------------------------------------------- 14. Type of reporting person. . . . . . . CO - --------------------------------------------------------------------------------------------------------------------------
(1) The reporting person, Sentinel Capital Partners II, L.P., General Electric Capital Corporation, James M. Usdan, Thomas Fitzpatrick and John M. Slack may be deemed to be a "group" within the meaning of Section 13d-3 of the Securities Exchange Act of 1934, as amended, because of the existence of an agreement among them to vote their shares of capital stock of the issuer in favor of certain designees to the issuer's board of directors. Please see Items 1, 3, 4, 5 and 6 below for additional explanation. The reporting person disclaims beneficial ownership of 115,418,061 shares held in the name of Sentinel Capital Partners II, L.P., 35,602,366 shares held in the name of General Electric Capital Corporation, 17,363,176 shares held in the name of James M. Usdan, 2,400,635 shares held in the name of Thomas Fitzpatrick, and 1,298,754 shares held in the name of John M. Slack. (2) 22,678,609 of these shares are held in the name of Midwest Mezzanine Fund II, L.P., and Midwest Mezzanine Fund II, L.P. reports shared voting and dispositive power with respect to these shares because of the affiliation of Midwest Mezzanine Fund II, L.P. with its direct and indirect owners. Although Midwest Mezzanine Fund II, L.P. has agreed in certain limited circumstances to sell its shares if Sentinel Capital Partners II, L.P. sells its shares, Midwest Mezzanine Fund II, L.P. disclaims any "shared dispositive power" with respect to its shares in connection with such obligations. Page 4 of 48
13D CUSIP No. 14844P105 - ------------------------------------------------------------------------------------- ------------------------------------ 1. Name of reporting persons. . . . . . . . . . . . . . . . . . . . . . . . . LaSalle Bank Corporation (f/k/a ABN AMRO North America, Inc.) I.R.S. Identification Nos. of above persons (entities only).. . . . . - ------------------------------------------------------------------------------------- ------------------------------------ 2. Check the appropriate box if a member of a group (a) [ ] (b) [X] - ------------------------------------------------------------------------------------- ------------------------------------ 3. SEC use only - ------------------------------------------------------------------------------------- ------------------------------------ 4. Source of funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OO - ------------------------------------------------------------------------------------- ------------------------------------ 5. Check box if disclosure of legal proceedings is required pursuant to [ ] Items 2(d) or 2(e). - ------------------------------------------------------------------------------------- ------------------------------------ 6. Citizenship or place of organization. . . . . . . . . . . . . . . . . . . . State of Delaware - ------------------------------------------------ ------------------------------------ ------------------------------------ Number of shares 7. Sole voting power ------------------------------------ ------------------------------------ beneficially owned 8. Shared voting power 194,761,601(1)(2) ------------------------------------ ------------------------------------ by each 9. Sole dispositive power ------------------------------------ ------------------------------------ reporting person with: 10. Shared dispositive power 22,678,609 (2) - ------------------------------------------------ ------------------------------------------------------------------------- 11. Aggregate amount beneficially owned by each reporting person. 194,761,601(1) ------------------------------------------------------------------------- 12. Check box if the aggregate amount in Row 11 excludes certain shares. [ ] ------------------------------------------------------------------------- 13. Percent of class represented by amount in Row (11). . . . . . . . . . 96.9% ------------------------------------------------------------------------- 14. Type of reporting person. . . . . . . CO - --------------------------------------------------------------------------------------------------------------------------
(1) The reporting person, Sentinel Capital Partners II, L.P., General Electric Capital Corporation, James M. Usdan, Thomas Fitzpatrick and John M. Slack may be deemed to be a "group" within the meaning of Section 13d-3 of the Securities Exchange Act of 1934, as amended, because of the existence of an agreement among them to vote their shares of capital stock of the issuer in favor of certain designees to the issuer's board of directors. Please see Items 1, 3, 4, 5 and 6 below for additional explanation. The reporting person disclaims beneficial ownership of 115,418,061 shares held in the name of Sentinel Capital Partners II, L.P., 35,602,366 shares held in the name of General Electric Capital Corporation, 17,363,176 shares held in the name of James M. Usdan, 2,400,635 shares held in the name of Thomas Fitzpatrick, and 1,298,754 shares held in the name of John M. Slack. (2) 22,678,609 of these shares are held in the name of Midwest Mezzanine Fund II, L.P., and Midwest Mezzanine Fund II, L.P. reports shared voting and dispositive power with respect to these shares because of the affiliation of Midwest Mezzanine Fund II, L.P. with its direct and indirect owners. Although Midwest Mezzanine Fund II, L.P. has agreed in certain limited circumstances to sell its shares if Sentinel Capital Partners II, L.P. sells its shares, Midwest Mezzanine Fund II, L.P. disclaims any "shared dispositive power" with respect to its shares in connection with such obligations. Page 5 of 48
13D CUSIP No. 14844P105 - ------------------------------------------------------------------------------------- ------------------------------------ 1. Name of reporting persons. . . . . . . . . . . . . . . . . . . . . . . . . ABN AMRO North America Holding Company I.R.S. Identification Nos. of above persons (entities only).. . . . . . . . - ------------------------------------------------------------------------------------- ------------------------------------ 2. Check the appropriate box if a member of a group (a) [ ] (b) [X] - ------------------------------------------------------------------------------------- ------------------------------------ 3. SEC use only - ------------------------------------------------------------------------------------- ------------------------------------ 4. Source of funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OO - ------------------------------------------------------------------------------------- ------------------------------------ 5. Check box if disclosure of legal proceedings is required pursuant to Items 2(d) or 2(e). [ ] - ------------------------------------------------------------------------------------- ------------------------------------ 6. Citizenship or place of organization. . . . . . . . . . . . . . . . . . . . State of Delaware - ------------------------------------------------ ------------------------------------ ------------------------------------ Number of shares 7. Sole voting power ------------------------------------ ------------------------------------ beneficially owned 8. Shared voting power 194,761,601(1)(2) ------------------------------------ ------------------------------------ by each 9. Sole dispositive power ------------------------------------ ------------------------------------ reporting person with: 10. Shared dispositive power 22,678,609 (2) - ------------------------------------------------ ------------------------------------------------------------------------- 11. Aggregate amount beneficially owned by each reporting person. 194,761,601(1) ------------------------------------------------------------------------- 12. Check box if the aggregate amount in Row 11 excludes certain shares. [ ] ------------------------------------------------------------------------- 13. Percent of class represented by amount in Row (11). . . . . . . . . . 96.9% ------------------------------------------------------------------------- 14. Type of reporting person . . . . . . CO - --------------------------------------------------------------------------------------------------------------------------
(1) The reporting person, Sentinel Capital Partners II, L.P., General Electric Capital Corporation, James M. Usdan, Thomas Fitzpatrick and John M. Slack may be deemed to be a "group" within the meaning of Section 13d-3 of the Securities Exchange Act of 1934, as amended, because of the existence of an agreement among them to vote their shares of capital stock of the issuer in favor of certain designees to the issuer's board of directors. Please see Items 1, 3, 4, 5 and 6 below for additional explanation. The reporting person disclaims beneficial ownership of 115,418,061 shares held in the name of Sentinel Capital Partners II, L.P., 35,602,366 shares held in the name of General Electric Capital Corporation, 17,363,176 shares held in the name of James M. Usdan, 2,400,635 shares held in the name of Thomas Fitzpatrick, and 1,298,754 shares held in the name of John M. Slack. (2) 22,678,609 of these shares are held in the name of Midwest Mezzanine Fund II, L.P., and Midwest Mezzanine Fund II, L.P. reports shared voting and dispositive power with respect to these shares because of the affiliation of Midwest Mezzanine Fund II, L.P. with its direct and indirect owners. Although Midwest Mezzanine Fund II, L.P. has agreed in certain limited circumstances to sell its shares if Sentinel Capital Partners II, L.P. sells its shares, Midwest Mezzanine Fund II, L.P. disclaims any "shared dispositive power" with respect to its shares in connection with such obligations. Page 6 of 48
13D CUSIP No. 14844P105 - ------------------------------------------------------------------------------------- ------------------------------------ 1. Name of reporting persons. . . . . . . . . . . . . . . . . . . . . . . . . ABN AMRO Bank N.V. I.R.S. Identification Nos. of above persons (entities only).. . . . . . . . - ------------------------------------------------------------------------------------- ------------------------------------ 2. Check the appropriate box if a member of a group (a) [ ] (b) [X] - ------------------------------------------------------------------------------------- ------------------------------------ 3. SEC use only - ------------------------------------------------------------------------------------- ------------------------------------ 4. Source of funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OO - ------------------------------------------------------------------------------------- ------------------------------------ 5. Check box if disclosure of legal proceedings is required pursuant to Items 2(d) or 2(e). - ------------------------------------------------------------------------------------- ------------------------------------ 6. Citizenship or place of organization. . . . . . . . . . . . . . . . . . . . The Netherlands - ------------------------------------------------ ------------------------------------ ------------------------------------ Number of shares 7. Sole voting power ------------------------------------ ------------------------------------ beneficially owned 8. Shared voting power 194,761,601(1)(2) ------------------------------------ ------------------------------------ by each 9. Sole dispositive power ------------------------------------ ------------------------------------ reporting person with: 10. Shared dispositive power 22,678,609 (2) - ------------------------------------------------ ------------------------------------------------------------------------- 11. Aggregate amount beneficially owned by each reporting person. 194,761,601(1) ------------------------------------------------------------------------- 12. Check box if the aggregate amount in Row 11 excludes certain shares. [ ] ------------------------------------------------------------------------- 13. Percent of class represented by amount in Row (11). . . . . . . . . . 96.9% ------------------------------------------------------------------------- 14. Type of reporting person. . . . . . CO - --------------------------------------------------------------------------------------------------------------------------
(1) The reporting person, Sentinel Capital Partners II, L.P., General Electric Capital Corporation, James M. Usdan, Thomas Fitzpatrick and John M. Slack may be deemed to be a "group" within the meaning of Section 13d-3 of the Securities Exchange Act of 1934, as amended, because of the existence of an agreement among them to vote their shares of capital stock of the issuer in favor of certain designees to the issuer's board of directors. Please see Items 1, 3, 4, 5 and 6 below for additional explanation. The reporting person disclaims beneficial ownership of 115,418,061 shares held in the name of Sentinel Capital Partners II, L.P., 35,602,366 shares held in the name of General Electric Capital Corporation, 17,363,176 shares held in the name of James M. Usdan, 2,400,635 shares held in the name of Thomas Fitzpatrick, and 1,298,754 shares held in the name of John M. Slack. (2) 22,678,609 of these shares are held in the name of Midwest Mezzanine Fund II, L.P., and Midwest Mezzanine Fund II, L.P. reports shared voting and dispositive power with respect to these shares because of the affiliation of Midwest Mezzanine Fund II, L.P. with its direct and indirect owners. Although Midwest Mezzanine Fund II, L.P. has agreed in certain limited circumstances to sell its shares if Sentinel Capital Partners II, L.P. sells its shares, Midwest Mezzanine Fund II, L.P. disclaims any "shared dispositive power" with respect to its shares in connection with such obligations. Page 7 of 48
13D CUSIP No. 14844P105 - ------------------------------------------------------------------------------------- ------------------------------------ 1. Name of reporting persons. . . . . . . . . . . . . . . . . . . . . . . . . ABN AMRO Holding N.V. I.R.S. Identification Nos. of above persons (entities only).. . . . . . . . - ------------------------------------------------------------------------------------- ------------------------------------ 2. Check the appropriate box if a member of a group (a) [ ] (b) [X] - ------------------------------------------------------------------------------------- ------------------------------------ 3. SEC use only - ------------------------------------------------------------------------------------- ------------------------------------ 4. Source of funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OO - ------------------------------------------------------------------------------------- ------------------------------------ 5. Check box if disclosure of legal proceedings is required pursuant to Items 2(d) or 2(e). - ------------------------------------------------------------------------------------- ------------------------------------ 6. Citizenship or place of organization. . . . . . . . . . . . . . . . . . . . The Netherlands - ------------------------------------------------ ------------------------------------ ------------------------------------ Number of shares 7. Sole voting power ------------------------------------ ------------------------------------ beneficially owned 8. Shared voting power 194,761,601(1)(2) ------------------------------------ ------------------------------------ by each 9. Sole dispositive power ------------------------------------ ------------------------------------ reporting person with: 10. Shared dispositive power 22,678,609 (2) - ------------------------------------------------ ------------------------------------------------------------------------- 11. Aggregate amount beneficially owned by each reporting person. 194,761,601(1) ------------------------------------------------------------------------- 12. Check box if the aggregate amount in Row 11 excludes certain shares. [ ] ------------------------------------------------------------------------- 13. Percent of class represented by amount in Row (11). . . . . . . . . . 96.9% ------------------------------------------------------------------------- 14. Type of reporting person. . . . . . CO - --------------------------------------------------------------------------------------------------------------------------
(1) The reporting person, Sentinel Capital Partners II, L.P., General Electric Capital Corporation, James M. Usdan, Thomas Fitzpatrick and John M. Slack may be deemed to be a "group" within the meaning of Section 13d-3 of the Securities Exchange Act of 1934, as amended, because of the existence of an agreement among them to vote their shares of capital stock of the issuer in favor of certain designees to the issuer's board of directors. Please see Items 1, 3, 4, 5 and 6 below for additional explanation. The reporting person disclaims beneficial ownership of 115,418,061 shares held in the name of Sentinel Capital Partners II, L.P., 35,602,366 shares held in the name of General Electric Capital Corporation, 17,363,176 shares held in the name of James M. Usdan, 2,400,635 shares held in the name of Thomas Fitzpatrick, and 1,298,754 shares held in the name of John M. Slack. (2) 22,678,609 of these shares are held in the name of Midwest Mezzanine Fund II, L.P., and Midwest Mezzanine Fund II, L.P. reports shared voting and dispositive power with respect to these shares because of the affiliation of Midwest Mezzanine Fund II, L.P. with its direct and indirect owners. Although Midwest Mezzanine Fund II, L.P. has agreed in certain limited circumstances to sell its shares if Sentinel Capital Partners II, L.P. sells its shares, Midwest Mezzanine Fund II, L.P. disclaims any "shared dispositive power" with respect to its shares in connection with such obligations. Page 8 of 48 Item 1. Security and Issuer. This statement on Schedule 13D (this "Statement") amends and supplements the statement on Schedule 13D of the Reporting Persons (defined below) that was originally filed on August 22, 2002, and relates to the common stock, $.000001 par value per share (the "Common Stock") of Castle Dental Centers, Inc., a Delaware corporation (sometimes referred to herein as "Issuer" or "Castle"). The principal executive offices of Castle are located at 3701 Kirby Drive, Suite 550, Houston, Texas 77098. This Amendment No. 1 to this Statement is being filed jointly by (i) Midwest Mezzanine Fund II, L.P., a Delaware limited partnership ("Midwest"); (ii) ABN AMRO Mezzanine Management II, L.P., a Delaware limited partnership and the general partner of Midwest (the "GP/LP"); (iii) ABN AMRO Mezzanine Management II, Inc., a Delaware corporation and the general partner of the GP/LP (the "Corporate GP"); (iv) LaSalle Bank Corporation, a Delaware corporation (f/k/a ABN AMRO North America, Inc.) and the owner of all the outstanding capital stock of the Corporate GP ("LaSalle Bank Corp."); (v) ABN AMRO North America Holding Company, a Delaware corporation and the owner of all the outstanding capital stock of LaSalle Bank Corp. ("AANA Holding"); (vi) ABN AMRO Bank N.V., a Netherlands corporation and the owner of all the outstanding capital stock of AANA Holding ("ABN AMRO Bank"); and (vii) ABN AMRO Holding N.V., a Netherlands corporation and the owner of all the outstanding capital stock of ABN AMRO Bank ("ABN AMRO Holding"). All of the filers of this Amendment No. 1 to this Statement are collectively, the "Reporting Persons." The joint filing agreement of the Reporting Persons is attached as Exhibit 1. The Reporting Persons, General Electric Capital Corporation ("GE"), Sentinel Capital Partners II, L.P. ("Sentinel"), James Usdan ("Usdan"), Thomas Fitzpatrick ("Fitzpatrick") and John M. Slack ("Slack") may be deemed to be a "group" within the meaning of Section 13d-3 of the Securities Exchange Act of 1934, as amended. The filing of this Amendment No. 1 to this Statement and the information contained in it shall not be deemed an admission by the Reporting Persons that a group exists. The Reporting Persons understand that each of GE, Sentinel, Usdan, Fitzpatrick and Slack (i) has filed or will file an amendment to its separate Schedule 13D filing with respect to the shares of Common Stock owned beneficially by such person or (ii) has filed or will file a Schedule 13D with respect to the shares of Common Stock owned beneficially by such person. Item 2. Identity and Background. 1. Midwest Mezzanine Fund II, L.P. is a Delaware limited partnership. The principal business of Midwest is providing junior capital to middle-market companies. The address of Midwest's principal business is as follows: Midwest Mezzanine Fund II, L.P. 135 South LaSalle Street, Suite 2040 Chicago, Illinois 60603 2. ABN AMRO Mezzanine Management II, L.P. is a Delaware limited partnership. The principal business of the GP/LP is to act as the general partner of Midwest. The address of the GP/LP's principal business is as follows: ABN AMRO Mezzanine Management II, L.P. 135 South LaSalle Street, Suite 2040 Chicago, Illinois 60603 Page 9 of 48 3. ABN AMRO Mezzanine Management II, Inc. is a Delaware corporation. The principal business of the Corporate GP is to act as the general partner of the GP/LP, which is the general partner of Midwest. The Company GP is a wholly-owned subsidiary of LaSalle Bank Corp. The address of the Corporate GP's principal business is as follows: ABN AMRO Mezzanine Management II, Inc. 135 South LaSalle Street, Suite 2040 Chicago, Illinois 60603 4. LaSalle Bank Corporation (f/k/a ABN AMRO North America, Inc.) is a Delaware corporation and a wholly-owned subsidiary of AANA Holding. The principal business of LaSalle Bank Corp., a U.S. multi-bank holding company, is banking and related activities. The address of LaSalle Bank Corp.'s principal office is as follows: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 5. ABN AMRO North America Holding Company is a Delaware corporation and a wholly-owned subsidiary of ABN AMRO Bank. The principal business of AANA Holding, a financial holding company, is banking and related activities. The address of AANA Holding's principal office is as follows: ABN AMRO North America Holding Company 135 South LaSalle Street Chicago, Illinois 60603 6. ABN AMRO Bank N.V. is a Netherlands corporation and a wholly-owned subsidiary of ABN AMRO Holding. The principal business of ABN AMRO Bank is banking. The address of ABN AMRO Bank's principal office is as follows: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands 7. ABN AMRO Holding N.V. is a Netherlands corporation. The principal business of ABN AMRO Holding, an international multi-bank holding company, is banking and related financial services. The address of ABN AMRO Holding's principal executive office is as follows: ABN AMRO Holding N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands 8. None of the Reporting Persons or, to the Reporting Persons' knowledge, the individuals listed in numbered section 10 below, are required to disclose legal proceedings pursuant to Item 2(d). Page 10 of 48 9. None of the Reporting Persons or, to the Reporting Persons' knowledge, the individuals listed in numbered section 10 below, are required to disclose legal proceedings pursuant to Item 2(e). 10. Identity and Background of each Executive Officer and Director of: (a) Midwest Mezzanine Fund II, L.P. (i) Midwest does not have a separate board of directors or executive officers. Management and investment decisions are made by the GP/LP, which is the general partner of Midwest. The GP/LP acts by and through the board of directors of the Corporate GP, the general partner of the GP/LP. (b) ABN AMRO Mezzanine Management II, L.P. (i) The GP/LP does not have a separate board of directors or executive officers. The GP/LP acts by and through the board of directors of the Corporate GP, the general partner of the GP/LP. (c) ABN AMRO Mezzanine Management II, Inc. (i) Board Members: 1. David A. Gezon (a) Name: See above (b) Business address: 135 South LaSalle Street Suite 2040 Chicago, Illinois 60603 (c) Principal occupation: President and CEO - Corporate GP and ABN AMRO Mezzanine Management, Inc. (d) See 8 above (e) See 9 above (f) Citizenship: United States 2. J. Allan Kayler (a) Name: See above (b) Business address: 135 South LaSalle Street Suite 2040 Chicago, Illinois 60603 (c) Principal occupation: Executive Vice President - Corporate GP and ABN AMRO Mezzanine Management, Inc. (d) See 8 above (e) See 9 above (f) Citizenship: United States Page 11 of 48 3. Thomas C. Heagy (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Director - AANA Holding Director and Vice Chairman - LaSalle Bank Corp. (d) See 8 above (e) See 9 above (f) Citizenship: United States 4. Herman Siegelaar (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Executive Vice President and Chief Risk Officer - LaSalle Bank Corp. Executive Vice President - AANA Holding (d) See 8 above (e) See 9 above (f) Citizenship: United States (ii) Executive Officers: 1. Thomas C. Heagy (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Director - AANA Holding Director and Vice Chairman - LaSalle Bank Corp. (d) See 8 above (e) See 9 above (f) Citizenship: United States Page 12 of 48 2. David A. Gezon (a) Name: See above (b) Business address: 135 South LaSalle Street Suite 2040 Chicago, Illinois 60603 (c) Principal occupation: President and CEO - Corporate GP and ABN AMRO Mezzanine Management, Inc. (d) See 8 above (e) See 9 above (f) Citizenship: United States 3. J. Allan Kayler (a) Name: See above (b) Business address: 135 South LaSalle Street Suite 2040 Chicago, Illinois 60603 (c) Principal occupation: Executive Vice President - Corporate GP and ABN AMRO Mezzanine Management, Inc. (d) See 8 above (e) See 9 above (f) Citizenship: United States 4. C. Michael Foster (a) Name: See above (b) Business address: 135 South LaSalle Street Suite 2040 Chicago, Illinois 60603 (c) Principal occupation: Senior Vice President - Corporate GP and ABN AMRO Mezzanine Management, Inc. (d) See 8 above (e) See 9 above (f) Citizenship: United States 5. Sherry E. Bowden (a) Name: See above (b) Business address: 135 South LaSalle Street Chicago, Illinois 60603 Page 13 of 48 (c) Principal occupation: Group Senior Vice President - LaSalle Bank Corp. (d) See 8 above (e) See 9 above (f) Citizenship: United States (d) LaSalle Bank Corporation (i) Board Members: 1. Norman R. Bobins (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: President and Chief Executive Officer - LaSalle Bank Corp. (d) See 8 above (e) See 9 above (f) Citizenship: United States 2. John A. Canning, Jr. (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: President - Madison Dearborn Partners (d) See 8 above (e) See 9 above (f) Citizenship: United States 3. Nancy C. DeSombre (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: President - Harold Washington College (d) See 8 above (e) See 9 above (f) Citizenship: United States Page 14 of 48 4. Craig J. Duchossois (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Chief Executive Officer - Duchossois Industries, Inc. (d) See 8 above (e) See 9 above (f) Citizenship: United States 5. Thomas L. Fisher (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Chairman of the Board and Chief Executive Officer - Nicor Inc. (d) See 8 above (e) See 9 above (f) Citizenship: United States 6. Donald H. Haider (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Professor - Kellogg School of Management (d) See 8 above (e) See 9 above (f) Citizenship: United States 7. William R. Halling (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Retired Managing Partner and Director - KPMG, LLC Page 15 of 48 (d) See 8 above (e) See 9 above (f) Citizenship: United States 8. Thomas C. Heagy (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Director and Vice Chairman - LaSalle Bank Corp. (d) See 8 above (e) See 9 above (f) Citizenship: United States 9. Scott K. Heitmann (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Director and Vice Chairman - LaSalle Bank Corp. (d) See 8 above (e) See 9 above (f) Citizenship: United States 10. Joost Ch. L. Kuiper (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Member of the Managing Board - ABN AMRO Bank N.V. Director and Chairman - LaSalle Bank Corp. Director, President and CEO - AANA Holding (d) See 8 above (e) See 9 above (f) Citizenship: United States Page 16 of 48 11. Harvey N. Medvin (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Executive Vice President and Chief Financial Officer - Aon Corporation (d) See 8 above (e) See 9 above (f) Citizenship: United States 12. James B. Nicholson (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: President and Chief Executive Officer - PVS Chemicals, Inc. (d) See 8 above (e) See 9 above (f) Citizenship: United States 13. William F. Pickard (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Chairman and Chief Executive Officer - Global Automotive Alliance, LLC (d) See 8 above (e) See 9 above (f) Citizenship: United States 14. Glenda D. Price (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 Page 17 of 48 (c) Principal occupation: President - Marygrove College (d) See 8 above (e) See 9 above (f) Citizenship: United States 15. John Rau (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: President and Chief Executive Officer - Miami Corporation (d) See 8 above (e) See 9 above (f) Citizenship: United States 16. Cordell Reed (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Retired Senior Vice President - Commonwealth Edison Company (d) See 8 above (e) See 9 above (f) Citizenship: United States 17. Jerry M. Reinsdorf (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Chairman - Chicago White Sox Chairman - Chicago Bulls (d) See 8 above (e) See 9 above (f) Citizenship: United States Page 18 of 48 18. Richard A. Stein (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Senior Managing Director - Mesirow Stein Real Estate, Inc. (d) See 8 above (e) See 9 above (f) Citizenship: United States 19. Joseph E. Valenti, Jr. (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: President and Chief Executive Officer - Valenti Builders, Inc. (d) See 8 above (e) See 9 above (f) Citizenship: United States 20. Stephen A. Van Andel (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Chairman - Amway Corporation (d) See 8 above (e) See 9 above (f) Citizenship: United States 21. Arthur R. Velasquez (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Chairman of the Board, President and Chief Executive Officer - Azteca Foods, Inc. Page 19 of 48 (d) See 8 above (e) See 9 above (f) Citizenship: United States 22. James A. Williams (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Chairman and President - Williams, Williams Ruby & Plunkeett PC (d) See 8 above (e) See 9 above (f) Citizenship: United States (ii) Executive Officers: 1. Joost Ch. L. Kuiper (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Member of the Managing Board - ABN AMRO Bank N.V. Director and Chairman - LaSalle Bank Corp. Director, President and CEO - AANA Holding (d) See 8 above (e) See 9 above (f) Citizenship: United States 2. Thomas C. Heagy (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Director and Vice Chairman - LaSalle Bank Corp. Director - AANA Holding (d) See 8 above (e) See 9 above (f) Citizenship: United States Page 20 of 48 3. Scott K. Heitmann (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Director and Vice Chairman - LaSalle Bank Corp. (d) See 8 above (e) See 9 above (f) Citizenship: United States 4. Norman R. Bobins (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: President and CEO - LaSalle Bank Corp. (d) See 8 above (e) See 9 above (f) Citizenship: United States 5. M. Hill Hammock (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Chief Operating Officer and Chief Information Officer - LaSalle Bank Corp. (d) See 8 above (e) See 9 above (f) Citizenship: United States 6. Thomas Goldstein (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 Page 21 of 48 (c) Principal occupation: Executive Vice President and Chief Financial Officer - LaSalle Bank Corp. Director, Chief Financial Officer and Treasurer - AANA Holding (d) See 8 above (e) See 9 above (f) Citizenship: United States 7. Willie J. Miller, Jr. (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Executive Vice President and Chief Legal Officer - LaSalle Bank Corp. Executive Vice President and Chief Legal Officer - AANA Holding (d) See 8 above (e) See 9 above (f) Citizenship: United States 8. Stephen Mack (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Executive Vice President and Chief Audit Officer - LaSalle Bank Corp. Auditor - AANA Holding (d) See 8 above (e) See 9 above (f) Citizenship: United States 9. Herman Siegelaar (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 Page 22 of 48 (c) Principal occupation: Executive Vice President and Chief Risk Officer - LaSalle Bank Corp. Executive Vice President - AANA Holding (d) See 8 above (e) See 9 above (f) Citizenship: United States 10. Jeffrey L. Conner (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Executive Vice President - LaSalle Bank Corp. (d) See 8 above (e) See 9 above (f) Citizenship: United States 11. Albert P. Harker, Jr. (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Executive Vice President - LaSalle Bank Corp. (d) See 8 above (e) See 9 above (f) Citizenship: United States 12. Marty Penstein (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Executive Vice President - LaSalle Bank Corp. (d) See 8 above (e) See 9 above (f) Citizenship: United States 13. Thomas P. Zidar (a) Name: See above Page 23 of 48 (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Executive Vice President - LaSalle Bank Corp. (d) See 8 above (e) See 9 above (f) Citizenship: United States (e) ABN AMRO North America Holding Company (i) Board Members: 1. Thomas M. Goldstein (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Executive Vice President and Chief Financial Officer - LaSalle Bank Corp. Director, Chief Financial Officer and Treasurer - AANA Holding (d) See 8 above (e) See 9 above (f) Citizenship: United States 2. Thomas C. Heagy (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Director and Vice Chairman - LaSalle Bank Corp. Director - AANA Holding (d) See 8 above (e) See 9 above (f) Citizenship: United States 3. Joost Ch. L. Kuiper (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Page 24 of 48 Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Director and Chairman of the Board - LaSalle Bank Corp. Director, President and CEO - AANA Holding Member of the Managing Board - ABN AMRO Bank N.V. (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 4. Kristen M. Fletcher (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Director - AANA Holding (d) See 8 above (e) See 9 above (f) Citizenship: United States (ii) Executive Officers: 1. Joost Ch. L. Kuiper (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Member of the Managing Board - ABN AMRO Bank N.V. Director and Chairman - LaSalle Bank Corp. Director, President and CEO - AANA Holding (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 2. Thomas M. Goldstein (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 Page 25 of 48 (c) Principal occupation: Executive Vice President and Chief Financial Officer - LaSalle Bank Corp. Director, Chief Financial Officer and Treasurer - ANNA Holding (d) See 8 above (e) See 9 above (f) Citizenship: United States 3. Willie J. Miller, Jr. (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Executive Vice President and Chief Legal Officer - LaSalle Bank Corp. Executive Vice President and Chief Legal Officer - AANA Holding (d) See 8 above (e) See 9 above (f) Citizenship: United States 4. Herman Siegelaar (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Executive Vice President and Chief Risk Officer - LaSalle Bank Corp. Executive Vice President - AANA Holding (d) See 8 above (e) See 9 above (f) Citizenship: United States 5. Randall T. Conte (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Vice President and Controller - AANA Holding Page 26 of 48 (d) See 8 above (e) See 9 above (f) Citizenship: United States 6. Stephen C. Mack (a) Name: See above (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: Auditor - AANA Holding Executive Vice President and Chief Auditing Officer - LaSalle Bank Corp. (d) See 8 above (e) See 9 above (f) Citizenship: United States (f) ABN AMRO Bank N.V. (i) Board Members (known as Supervisory Board Members): Same as the individuals who are members of the Supervisory Board of ABN AMRO Holding - see (g)(i) below. (ii) Executive Officers (known as Managing Board Members): Same as the individuals who are members of the Managing Board of ABN AMRO Holding - see (g)(ii) below - plus the following additional individuals: 1. F.C. Barbosa (a) Name: See above (b) Business address: ABN AMRO Brazil Av. Paulista 1374-3rd Floor CEP 01310-916 Sao Paulo, Brazil (c) Principal occupation: Senior Executive Vice President/Consumer & Commercial Clients/CEO of the BU Brazil President of ABN AMRO Brazil (d) See 8 above (e) See 9 above (f) Citizenship: Brazil 2. Norman R. Bobins (a) Name: See above Page 27 of 48 (b) Business address: LaSalle Bank Corporation 135 South LaSalle Street Chicago, Illinois 60603 (c) Principal occupation: President and Chief Executive Offer - LaSalle Bank Corp. (d) See 8 above (e) See 9 above (f) Citizenship: United States 3. A.E.J.M. Cook-Schaapveld (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Senior Executive Vice President/Wholesale Clients/BUHead TMTH (including Health Care) (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 4. T. Cross-Brown (a) Name: See above (b) Business address: ABN AMRO Bank N.V. 82 Bishopsgate London EC2N 4BN United Kingdom (c) Principal occupation: Senior Executive Vice President/Private Clients & Asset Management/Asset Management, London (d) See 8 above (e) See 9 above (f) Citizenship: Great Britain 5. F.G.H. Deckers (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands Page 28 of 48 (c) Principal occupation: Senior Executive Vice President/Consumer & Commercial Clients/CEO of the BU Netherlands (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 6. G.B.J. Hartsink (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Senior Executive Vice President/Corporate Centre/Group Operations (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 7. J.J. Kamp (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Senior Executive Vice President/Corporate Centre/DG Legal & Compliance (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 8. A.M. Kloosterman (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Senior Executive Vice President/Wholesale Clients/Country Coverage (d) See 8 above Page 29 of 48 (e) See 9 above (f) Citizenship: The Netherlands 9. Ir E.H. Kok (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Senior Executive Vice President/Wholesale Clients/Loan Products (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 10. G.J.A. Louw (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Senior Executive Vice President/Corporate Center/Group HR (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 11. J.W. Meeuwis (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Senior Executive Vice President/Wholesale Clients/Country Coverage Head Netherlands (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands Page 30 of 48 12. R.J. Meuter (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Senior Executive Vice President/Wholesale Clients/Client Coverage Officer NL (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 13. H. Mulder (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Senior Executive Vice President/Corporate Centre/Risk Management (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 14. M.B.G.M. Oostendorp (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Senior Executive Vice President/Corporate Center/Group Finance (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 15. R.C. van Paridon (a) Name: See above Page 31 of 48 (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Senior Executive Vice President/Wholesale Clients/GTS Custody & Clearing (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 16. J.P. Schmittmann (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Senior Executive Vice President/Private Clients & Asset Management/Private Clients (+NGM) (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 17. J. Sijbrand (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Senior Executive Vice President/Wholesale Clients/Chief Risk Officer (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 18. R. Teerlink (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands Page 32 of 48 (c) Principal occupation: Senior Executive Vice President/Wholesale Clients/TOPS (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 19. P.N.N. Turner (a) Name: See above (b) Business address: ABN AMRO Bank N.V. 250 Bishopsgate London EC2M 4AA United Kingdom (c) Principal occupation: Senior Executive Vice President/Wholesale Clients/Co -Head Corporate Finance (d) See 8 above (e) See 9 above (f) Citizenship: Great Britain 20. S.M. Zavatti (a) Name: See above (b) Business address: ABN AMRO Asia G.P.O. Box 61 Hong Kong, China (c) Principal occupation: Senior Executive Vice President/Wholesale Clients/Financial Institutions & Public Sector (FIPS) (d) See 8 above (e) See 9 above (f) Citizenship: United States (g) ABN AMRO Holding N.V. (i) Board Members (known as Supervisory Board Members): 1. A. A. Loudon, Chairman (a) Name: See above (b) Business address: AKZO Nobel N.V. P.O. Box 9300 6800 SB Arnhem The Netherlands Page 33 of 48 (c) Principal occupation: Retired Former Chairman - AKZO NOBEL N.V. (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 2. Martin C. van Veen, Vice Chairman (a) Name: See above (b) Home address: Herman Heyermansweg 5 1077 WJ Amsterdam The Netherlands (c) Principal occupation: Retired Former Chairman of the Board of Management of Koninklijke Hoogovens N.V. (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 3. W. Dik (a) Name: See above (b) Home address: Antwerpsebaan 10 5268 KB Helvoirt The Netherlands (c) Principal occupation: Retired Former Chairman of the Board of Management of Royal KPN N.V. (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 4. A. Burgmans (a) Name: See above (b) Business address: Unilever N.V. P.O. Box 760 3000 DK Rotterdam The Netherlands (c) Principal occupation: Chairman of the Board of Unilever N.V. (d) See 8 above (e) See 9 above Page 34 of 48 (f) Citizenship: The Netherlands 5. D.R.J. Baron De Rothschild (a) Name: See above (b) Business address: Rothschild & Cie Banque 17, Avenue Matignon (4th floor) 75008 Paris - France (c) Principal occupation: Senior Partner - Rothschild & Cie Banque (d) See 8 above (e) See 9 above (f) Citizenship: France 6. L.S. Groenman (a) Name: See above (b) Home address: Schippersgracht 12 3603 BC Maarssen The Netherlands (c) Principal occupation: Crownmember Sociaal-Economische Raad (SER) Chairman - Clara Wichman Instituut (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 7. T.A. Maas-de-Brouwer (a) Name: See above (b) Business address: Hay Group bv Arnhemse Bovenweg 140 3708 AH Zeist The Netherlands (c) Principal occupation: Business Developer - Hay Group bv (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 8. P.J. Kalff (a) Name: See above Page 35 of 48 (b) Business address: ABN AMRO Bank N.V. (PAC HQ1091) P.O. Box 23 1000 EA Amsterdam The Netherlands (c) Principal occupation: Former Chairman of the Managing Board of ABN AMRO Holding and ABN AMRO Bank (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 9. Arthur C. Martinez (a) Name: See above (b) Business address: Sears Tower Suite 9800 P.O. Box 061079 Chicago, Illinois 60606 (c) Principal occupation: Former Chairman, President and Chief Executive Officer - Sears, Roebuck & Co., Inc., Chicago (d) See 8 above (e) See 9 above (f) Citizenship: United States 10. M. V. Pratini de Moraes (a) Name: See above (b) Business address: Rua do Passeio 70 12th Floor CEP 22021-290 Rio de Janeiro Brazil (c) Principal occupation: Minister of Agriculture, Livestock and Food Supply (d) See 8 above (e) See 9 above (f) Citizenship: Brazil 11. P. Scaroni (a) Name: See above (b) Business address: Vialo Regina Margharite 137 00198 Roma Italy (c) Principal occupation: Chief Executive Officer Enel S.p.A., Italy (d) See 8 above Page 36 of 48 (e) See 9 above (f) Citizenship: Italy 12. Lord Sharman of Redlynch (a) Name: See above (b) Business address: 1st Floor (c) 43-45 Portman Square London W1H 6LY United Kingdom (d) Principal occupation: Chairman, Aegis Group plc (e) See 8 above (f) See 9 above (g) Citizenship: Great Britain (ii) Executive Officers (known as Managing Board Members) 1. Rijkman Groenink (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Chairman of the Managing Board - ABN AMRO Holding and ABN AMRO Bank (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 2. Wilco Jiskoot (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Managing Board Member - ABN AMRO Holding and ABN AMRO Bank (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands Page 37 of 48 3. Tom de Swaan (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Managing Board Member - ABN AMRO Holding and ABN AMRO Bank (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 4. Joost Ch. L. Kuiper (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Member of the Managing Board - ABN AMRO Bank N.V Director and Chairman - LaSalle Bank Corp. Director, President and CEO - AANA Holding (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands 5. Coenraad Hendrik Adolph Collee (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Managing Board Member - ABN AMRO Holding and ABN AMRO Bank (d) See 8 above (e) See 9 above (f) Citizenship: The Netherlands Page 38 of 48 6. Hugh Scott-Barrett (a) Name: See above (b) Business address: ABN AMRO Bank N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands (c) Principal occupation: Managing Board Member - ABN AMRO Holding and ABN AMRO Bank (d) See 8 above (e) See 9 above (f) Citizenship: Great Britain 11. Identity and Background of Each Person Controlling: (a) Midwest Mezzanine Fund II, L.P.: (i) ABN AMRO Mezzanine Management II, L.P. (ii) ABN AMRO Mezzanine Management II, Inc. (iii) LaSalle Bank Corporation (iv) ABN AMRO North America Holding Company (v) ABN AMRO Bank N.V. (vi) ABN AMRO Holding N.V. (b) ABN AMRO Mezzanine Management II, L.P.: (i) ABN AMRO Mezzanine Management II, Inc. (ii) LaSalle Bank Corporation (iii) ABN AMRO North America Holding Company (iv) ABN AMRO Bank N.V. (v) ABN AMRO Holding N.V. (c) ABN AMRO Mezzanine Management II, Inc.: (i) LaSalle Bank Corporation (ii) ABN AMRO North America Holding Company (iii) ABN AMRO Bank N.V. (iv) ABN AMRO Holding N.V. (d) LaSalle Bank Corporation: (i) ABN AMRO North America Holding Company (ii) ABN AMRO Bank N.V. (iii) ABN AMRO Holding N.V. (e) ABN AMRO North America Holding Company: (i) ABN AMRO Bank N.V. (ii) ABN AMRO Holding N.V. Page 39 of 48 (f) ABN AMRO Bank N.V.: (i) ABN AMRO Holding N.V. (g) ABN AMRO Holding N.V.: None 12. Identity and Background of Each Director of any Corporation or Other Person Ultimately in Control of: (a) Midwest Mezzanine Fund II, L.P.: See 10(b)(i), 10(c)(i), 10(d)(i), 10(e)(i), 10(f)(i) and 10(g)(i) above. (b) ABN AMRO Mezzanine Management II, L.P.: See 10(c)(i), 10(d)(i), 10(e)(i), 10(f)(i) and 10(g)(i) above. (c) ABN AMRO Mezzanine Management II, Inc.: See 10(d)(i), 10(e)(i), 10(f)(i) and 10(g)(i) above. (d) LaSalle Bank Corporation: See 10(e)(i), 10(f)(i) and 10(g)(i) above. (e) ABN AMRO North America Holding Company: See 10(f)(i) and 10(g)(i) above. (f) ABN AMRO Bank N.V.: See 10(g)(i) above. (g) ABN AMRO Holding N.V.: None 13. Identity and Background of Each Executive Officer of any Corporation or Other Person Ultimately in Control of: (a) Midwest Mezzanine Fund II, L.P.: See 10(b)(i), 10(c)(ii), 10(d)(ii), 10(e)(ii), 10(f)(ii) and 10(g)(ii) above. (b) ABN AMRO Mezzanine Management II, L.P.: See 10(c)(ii), 10(d)(ii), 10(e)(ii), 10(f)(ii) and 10(g)(ii) above. (c) ABN AMRO Mezzanine Management II, Inc.: See 10(d)(ii), 10(e)(ii), 10(f)(ii) and 10(g)(ii) above. (d) LaSalle Bank Corporation: See 10(e)(ii), 10(f)(ii) and 10(g)(ii) above. (e) ABN AMRO North America Holding Company: See 10(f)(ii) and 10(g)(ii) above. (f) ABN AMRO Bank N.V.: See 10(g)(ii) above. (g) ABN AMRO Holding N.V.: None Item 3. Source and Amount of Funds or Other Consideration. On May 15, 2003, Midwest, GE, Sentinel, Castle, Usdan, Fitzpatrick and Slack entered into a Preferred Stock and Subordinated Note Purchase Agreement (the "Purchase Agreement") pursuant to which Castle issued to: (1) Midwest 5,644 shares of Series B Convertible Preferred Stock of Castle (the "Series B Preferred Stock") in exchange for all of Midwest's right, title and interest in and to (i) a senior subordinated convertible promissory note of Castle dated July 19, 2002 in the principal amount of $500,000 which, as of May 15, 2003 had a balance of principal and interest in an amount equal to $564,430, and (ii) a stock purchase warrant exercisable for 5,286,489 shares of Common Stock; (2) GE 5,644 shares of Series B Preferred Stock in exchange for all of GE's right, title and interest in and to (i) a senior subordinated convertible promissory note of Castle dated July 19, 2002 in the principal amount of $500,000 which, as of May 15, 2003 had a balance of principal and interest in an amount equal to $564,430 and which convertible note was initially issued to Heller Financial, Inc., GE's wholly-owned subsidiary ("Heller") and was assigned to GE by Heller on or about May 15, 2003, and (ii) a stock Page 40 of 48 purchase warrant exercisable for 5,286,489 shares of Common Stock, which warrant was originally issued to Heller and was assigned to GE by Heller on or about May 15, 2003; (3) Sentinel (a) 55,386 shares of Series B Preferred Stock in exchange for a cash payment of $5,538,600 and (b) a $6,461,700 subordinated note of Castle in exchange for a cash payment of $6,461,700; (4) Usdan (a) 8,022 shares of Series B Preferred Stock in exchange for all of Usdan's right, title and interest in and to (i) a senior subordinated convertible promissory note of Castle dated July 19, 2002 in the principal amount of $700,000 which, as of May 15, 2003 had a balance of principal and interest in an amount equal to $790,203, (ii) a stock purchase warrant exercisable for 7,401,084 shares of Common Stock, and (iii) a cash payment of $12,000, and (b) a $14,000 subordinated note payable of Castle in the original principal amount of $14,000 in exchange for a cash payment of $14,000; (5) Fitzpatrick (a) 1,152 shares of Series B Preferred Stock in exchange for a cash payment of $115,200 and (b) a $134,400 subordinated note of Castle in exchange for a cash payment of $134,400; and (6) Slack (a) 462 shares of Series B Preferred Stock in exchange for a cash payment of $46,200 and (b) a $53,900 subordinated note of Castle in exchange for a cash payment of $53,900. The convertible securities acquired pursuant to the terms of the Purchase Agreement could be converted into the following number of shares of Castle's Common Stock: Midwest 11,761,447 shares of Common Stock, GE 11,761,447 shares of Common Stock, Sentinel 115,418,061 shares of Common Stock, Usdan 16,716,926 shares of Common Stock, Fitzpatrick 2,400,635 shares of Common Stock and Slack 962,754 shares of Common Stock. In addition to the foregoing, Castle has agreed to issue up to 2,880 shares of Series B Preferred Stock for an aggregate purchase price of $288,000 in cash and convertible promissory notes in the aggregate principal amount of up to $336,000 to various persons acceptable to Castle and Sentinel; provided, however, that any such shares or notes that remain unpurchased on September 30, 2003 shall be purchased by Sentinel. All such additional purchasers shall be required to become a party to the Stockholders Agreement (as defined below) and become subject to its terms and conditions. The Certificate of Designations, Rights and Preferences of Series B Convertible Preferred Stock (the "Series B Certificate of Designation") that governs the terms of the Series B Preferred Stock provides that the holders of a majority of the Series B Preferred Stock shall have the exclusive right to elect four of the members of the Board of Directors of Castle (the "Board of Directors") (see Item 4(d)). Upon Castle's filing of the Amendment to the Certificate of Designations, Rights and Preferences of Series A Convertible Preferred Stock (the "Series A Amendment"), the Series A Certificate of Designation, which gave to the holders of Series A-1 Preferred Stock the exclusive right to elect a number of directors equal to a majority of the members of the Board of Directors, will be amended to delete such right. Upon the filing of the Series A Amendment, the Series A Preferred Stock will also be granted anti-dilution rights equivalent to those included in the Series B Certificate of Designation. In connection with the acquisition of the Series B Preferred Stock, Midwest, GE, Sentinel, Castle, Usdan, Fitzpatrick and Slack entered into a Stockholders Agreement, dated as of May 15, 2003 (the "Stockholders Agreement") which provides, among other things, for special voting rights with respect to the designation and election of directors of Castle and its subsidiaries certain "tag along" rights, and certain "drag along" obligations binding on the holders of Castle's capital stock that are a party to such agreement, all in accordance with the terms and conditions contained therein. In connection with the acquisition of the Series B Preferred Stock, Midwest, GE, Sentinel, Castle, Usdan, Fitzpatrick and Slack entered into a Registration Rights Agreement, dated as of May 15, 2003 (the "Registration Rights Agreement") which provides, among other things, for certain "demand registration" and "piggyback registration" rights with respect to the convertible securities held by the parties to such agreement, all in accordance with the terms and conditions contained therein. Page 41 of 48 In connection with the acquisition of the Series B Preferred Stock, Midwest, Heller, Usdan and Castle terminated an Investors Agreement, dated as of July 19, 2002 (the "Investors Agreement"), which had provided, among other things, for certain restrictions on Castle's activities, certain "rights of first refusal," and certain special voting rights with respect to the designation and election of directors of Castle and its subsidiaries, all in accordance with the terms and conditions contained therein. In connection with the acquisition of the Series B Preferred Stock, Midwest, Heller and Usdan terminated, as to themselves, a Registration Rights Agreement dated as of July 19, 2002 (the "Prior Registration Rights Agreement"), which had provided, among other things, for certain registration rights with respect to the shares of Common Stock issuable upon conversion or exchange of the convertible securities acquired by them in the transaction that closed July 19, 2002. In connection with the acquisition of the Series B Preferred Stock, Midwest, Heller and Usdan terminated a Stockholders Agreement dated as of July 19, 2002 (the "Prior Stockholder Agreement"), which had provided, among other things, for certain restrictions on Castle's activities and certain "tag along" rights and preemptive rights applicable to themselves and certain other parties thereto. The termination of the Investors Agreement, the Prior Registration Rights Agreement, and the Prior Stockholders Agreement occurred pursuant to a certain Termination of Investors Agreement, Amendment and Termination of Registration Rights Agreement, and Termination of Stockholders Agreement, each dated as of May 15, 2003. References to, and descriptions of, the Purchase Agreement, the Series A Amendment, the Series B Certificate of Designation, the Stockholders Agreement, and the Registration Rights Agreement and the transactions contemplated thereby as set forth in this Statement are qualified in their entirety by reference to the copies of the Purchase Agreement, the Series A Amendment, the Series B Certificate of Designation, the Stockholders Agreement, and the Registration Rights Agreement, respectively, included as Exhibits 2, 3, 4, 5, and 6, respectively, to this Statement, and are incorporated herein in their entirety where such references and descriptions appear. Item 4. Purpose of Transaction. (a)-(c) Not applicable. (d) Prior to the filing of the Series A Amendment in connection with the issuance of the Series B Preferred Stock, the Certificate of Designations, Rights and Preferences of Series A Convertible Preferred Stock (the "Series A Certificate of Designation") gave the holders of the Series A Preferred Stock the exclusive right to elect a number of directors equal to a majority of the members of the Board of Directors. Series B Certificate of Designation provides that the holders of a majority of the Series B Preferred Stock have the exclusive right to elect four of the members of the Board of Directors of Castle. Pursuant to the Series A Certificate of Designation, as amended by the Series A Amendment, and the Series B Certificate of Designation, the holders of the Series A-1 Preferred Stock, Series A-2 Preferred Stock, and the Series B Preferred Stock vote together with the holders of the Common Stock on all matters submitted to a vote of the stockholders of Castle. The Series A-1 Preferred Stock and the Series A-2 Preferred Stock have the number of votes per share of Preferred Stock equal to 182.7 shares of Common Stock (subject to adjustment pursuant to the terms provided therein). The Series B Preferred Stock have the number of votes per share of Preferred Stock equal 2083.9 shares of Common Stock (subject to adjustment pursuant to the terms provided therein). Page 42 of 48 Pursuant to the Stockholders Agreement, each of Midwest, GE, Sentinel, Usdan, Fitzpatrick and Slack agreed to take all actions necessary at any time and from time to time including, but not limited to, the voting of its shares of stock of Castle, the execution of written consents, and the attending of meetings in person or by proxy so as to (i) cause the number of directors of the Board of Directors to be established at seven (provided such number of directors can be increased at the direction of Sentinel) and (ii) elect to Castle's Board of Directors (x) such number of individuals named by Sentinel as equals a majority of the total number of directors; (y) the Chief Executive Officer of Castle; and (z) the remaining directors as may be named by holders of a majority of the Common Stock represented by the shares of Series A-1 Preferred Stock, the Series A-2 Convertible Preferred Stock of Castle (the "Series A-2 Preferred Stock") and the Series B Preferred Stock (on a fully diluted as if converted basis) held by Midwest, GE, and Usdan. Paul G. Kreie resigned as a Director of Castle effective 10 days after the filing of Castle's Information Statement. David S. Lobel, Fitzpatrick, and Paul F. Murphy will be appointed to the Board of Directors to fill vacancies in the Board of Directors, such appointments to be effective 10 days after the filing of Castle's Information Statement. (e) The Series B Preferred Stock was created by the filing of the Series B Certificate of Designation. The issuance of Series B Preferred Stock increased the number of shares outstanding on a fully diluted as if converted basis by 159,021,270 shares of Common Stock. Pursuant to the Purchase Agreement, Castle has agreed to file an amendment with the Secretary of State of Delaware to increase the number of authorized shares of Common Stock to 250,000,000 (the "Authorized Share Amendment") within 21 days following the mailing of the Information Statement to the stockholders of Castle. (f) Not applicable. (g) On May 15, 2003, the Series B Certificate of Designation was filed with the Secretary of the State of Delaware providing, among other things, that the holders of the Series B Preferred Stock have the right to elect four members of the Board of Directors. The filing of the Series A Amendment and the Authorized Share Amendment will have the effect, among other things, of giving the Series A-1 Preferred Stock anti-dilution rights, eliminating the right of the holders of Series A-1 Preferred Stock to control the election of a majority of the directors and increasing the number of shares of Common Stock to 250,000,000. In addition, the Stockholders Agreement provides that as long as Sentinel and/or its affiliates hold a majority of the shares of Common Stock (on a fully diluted as if converted basis) issued to it on May 15, 2003, (i) Sentinel has the right to name a majority of the directors of Castle and (ii) Sentinel has the right to approve certain material actions by Castle, including, but not limited to, issuances of capital stock, declaration of dividends, amendment of Castle's senior credit facilities, including material indebtedness, and acquisitions. (h)-(i) Not Applicable. (j) Other than described above, neither Midwest nor any other Reporting Person currently has any plan or proposals which relate to, or may result in, any of the matters listed in Items 4(a)-(j) of this Statement. References to, and descriptions of, the Stockholders Agreement, the Series A Preferred Stock, the Series B Preferred Stock and the relative rights of those securities as set forth above in this Item 4 are qualified in their entirety by reference to the copies of such documents included as Exhibits 3, 4, and 5, respectively, to this Statement, and incorporated in this Item 4 in their entirety where such references and descriptions appear. Page 43 of 48 Item 5. Interest in Securities of the Issuer. (a)-(b) As a result of the consummation of the transactions contemplated by the Purchase Agreement, (i) the Reporting Persons may be deemed to be the beneficial owners of the 22,678,609 shares of Common Stock issuable upon the conversion of the Series A-1 Preferred Stock and the Series B Preferred Stock held by Midwest (the "Midwest Shares"), which represent 11.3% of the shares of Common Stock (Midwest reports shared voting and dispositive power with respect to these shares as described in footnotes 1 and 2 on page two of this Statement); (ii) GE is the beneficial owner of the 35,602,366 shares of Common Stock issuable upon conversion of the Series A-1 Preferred Stock and the Series B Preferred Stock and exercise of warrant exercisable for Series A-2 Preferred Stock (and the subsequent conversion of the Series A-2 Preferred Stock issuable upon exercise of such warrant) currently held by GE (the "GE Shares"), which represent 17.7% of the shares of Common Stock; (iii) Sentinel is the beneficial owner of the 115,418,061 shares of Common Stock issuable upon conversion of the Series B Preferred Stock (the "Sentinel Shares"), which represent 57.4% of the shares of Common Stock; (iv) Usdan is the beneficial owner of 17,363,176 shares of Common Stock issuable upon the conversion of the Series A-1 Preferred Stock and Series B Preferred Stock held by Usdan, the exercise of currently vested options for 556,250 shares of Common Stock and 90,000 shares of Common Stock held by Usdan (the "Usdan Shares"), which represent 8.6% of the shares of Common Stock; (f) Fitzpatrick is the beneficial owner of 2,400,635 shares of Common Stock issuable upon the exercise of Series B Preferred Stock held by Fitzpatrick (the "Fitzpatrick Shares"), which represent 1.2% of the shares of Common Stock; and (vi) Slack is the beneficial owner of 1,298,754 shares of Common Stock issuable upon the conversion of the Series B Preferred Stock held by Slack, the exercise of currently exercisable vested options for 321,500 shares of Common Stock held by Slack, and 14,500 shares of Common Stock held by Slack (the "Slack Shares"), which represent 0.6% of the shares of Common Stock. Collectively, the 194,761,601 shares of Common Stock which may be deemed to be beneficially owned by the Reporting Persons GE, Sentinel, Usdan, Fitzpatrick and Slack represent 96.9% of the shares of Common Stock. All of the above ownership percentages are based on the 6,312,706 shares of Common Stock issued and outstanding as of May 15, 2003 (other than the shares of Common Stock included in the definition of Usdan Shares and the definition of Slack Shares), the Midwest Shares, the GE Shares, the Sentinel Shares, the Usdan Shares, the Fitzpatrick Shares and the Slack Shares. Based upon the terms of the Stockholders Agreement, Midwest may be deemed to have a limited form of shared voting power respecting the GE Shares, the Sentinel Shares, the Usdan Shares, the Fitzpatrick Shares and the Slack Shares because each of Midwest, GE, Sentinel, Usdan, Fitzpatrick and Slack have agreed to vote their shares of capital stock of Castle in favor of certain designees to the Board of Directors. However, Midwest (i) is not entitled to any other rights (voting or otherwise) with respect to the GE Shares, the Sentinel Shares, the Usdan Shares, the Fitzpatrick Shares and the Slack Shares, including without limitation any right to dispose of or direct the disposition of any such shares, and (ii) disclaims any beneficial ownership of the GE Shares, the Sentinel Shares, the Usdan Shares, the Fitzpatrick Shares and the Slack Shares. (c) To the knowledge of the Reporting Persons, no transactions in the class of securities reported have been effected during the past sixty (60) days by any person named in paragraph (a) above. (d) To the knowledge of the Reporting Persons, no person other than the holders thereof has the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the securities of Castle that are the subject of the Transaction Documents. (e) Not applicable. Page 44 of 48 Item 6. Contracts, Arrangements, Understanding or Relationships With Respect to Securities of the Issuer. Pursuant to the terms of the Stockholders Agreement, Midwest, GE, Sentinel, Usdan, Fitzpatrick and Slack agreed to permit the other Stockholders to participate in sales of their shares of Series A-1 Preferred Stock, shares of Series A-2 Preferred Stock, shares of Series B Preferred Stock, the Bank Warrant, or shares of Common Stock issuable upon conversion of such convertible securities, in the same transaction and on the same terms as are applicable to the selling stockholder, subject to certain specific enumerated exceptions to the right to "tag along" on such dispositions. In addition, the Stockholders Agreement provides that, in the event Castle proposes to sell and issue any new securities, Midwest and the other stockholders party thereto shall have a right of first refusal to purchase any such new securities which Castle may, from time to time, propose to sell and issue, subject to certain specific enumerated exceptions to the right of first refusal. A copy of the Stockholders Agreement is filed as Exhibit 5 to this Statement and is incorporated by reference herein. Pursuant to the terms of the Stockholders Agreement, as long as Sentinel owns a majority of the shares of Common Stock that it owns on a fully diluted as if converted basis on May 15, 2003, if Sentinel and the Board of Directors approves a sale to an unaffiliated third party of substantially all of the assets of Castle or the capital stock of Castle in a transaction that would constitute a change of control and Sentinel gives each others stockholder that is a party to the Stockholders Agreement notice of such "Approved Sale", each other stockholder must cooperate in such sale and (if such transaction involves a sale of stock) sell their capital stock, with Sentinel and all other holders being entitled to receive proceeds of such sale as if Castle had sold all of its assets and liquidated and distributed the remainder of its assets to its capital stockholders. Pursuant to the Stockholders Agreement, each of Midwest, GE, Sentinel, Usdan, Fitzpatrick and Slack agreed to take all actions necessary at any time and from time to time including, but not limited to, the voting of its shares of stock of Castle, the execution of written consents, and the attending of meetings in person or by proxy so as to elect to Castle's Board of Directors (i) such number of individuals named by Sentinel as equals a majority of the total number of directors; (ii) the Chief Executive Officer of Castle; and (iii) the remaining directors named by holders of a majority of the Common Stock represented by the shares of Series A-1 Preferred Stock, the Series A-2 Preferred Stock and the Series B Preferred Stock (on a fully diluted as if converted basis) that are not Sentinel or one of its affiliates. Paul G. Kreie resigned as a Director of Castle. His resignation will become effective 10 days after the filing of Castle's Information Statement. David S. Lobel, Fitzpatrick, and Paul F. Murphy were appointed to the Board of Directors to fill vacancies in the Board of Directors, such appointment to be effective 10 days after the filing of Castle's Information Statement. Except as set forth or incorporated by reference in this Statement, to the knowledge of the Reporting Persons, there are no contracts, arrangements, understandings or relationships among the persons named in Item 2 and between such persons and any person with respect to any securities of Castle, including, but not limited to, transfer or voting of any of the securities, finder's fees, joint ventures, loan or option arrangement, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. Item 7. Materials to be Filed as Exhibits. The following documents are filed as Exhibits to this Schedule 13D: Page 45 of 48 1. Joint Filing Agreement among the Reporting Persons dated as of the date hereof. 2. Preferred Stock and Subordinated Note Purchase Agreement, dated as of May 15, 2003, by and among Castle, Midwest, GE, Sentinel, Usdan, Fitzpatrick and Slack. 3. Amendment to Certificate of Designations, Rights and Preferences of the Series A-1 Convertible Preferred Stock and Series A-2 Convertible Preferred Stock, in the form to be filed with the Delaware Secretary of State. 4. Certificate of Designations, Rights and Preferences of the Series B Convertible Preferred Stock, as filed with the Delaware Secretary of State on May 15, 2003. 5. Stockholders Agreement, dated as of May 15, 2003, by and among Castle, Midwest, GE, Sentinel, Usdan, Fitzpatrick and Slack. 6. Registration Rights Agreement, dated as of May 15, 2003, by and among Castle, Midwest, GE, Sentinel, Usdan, Fitzpatrick and Slack. Page 46 of 48 SIGNATURE After reasonable inquiry and to the best knowledge and belief of the undersigned, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: May 19, 2003 MIDWEST MEZZANINE FUND II, L.P. By: ABN AMRO Mezzanine Management II, L.P., its general partner By: ABN AMRO Mezzanine Management II, Inc., its general partner By: /s/ Paul G. Kreie ----------------------------------------- Paul G. Kreie, its Vice President ABN AMRO MEZZANINE MANAGEMENT II, L.P. By: ABN AMRO Mezzanine Management II, Inc., its general partner By: /s/ Paul G. Kreie ----------------------------------------- Paul G. Kreie, its Vice President ABN AMRO MEZZANINE MANAGEMENT II, INC. By: /s/ Paul G. Kreie ----------------------------------------- Paul G. Kreie, its Vice President LASALLE BANK CORPORATION By: /s/ Kirk P. Flores ------------------------------------------ Kirk P. Flores, its Senior Vice President and By: /s/ Carol Tenyak ------------------------------------------ Carol Tenyak, its Group Senior Vice President and Deputy General Counsel and Secretary Page 47 of 48 ABN AMRO NORTH AMERICA HOLDING COMPANY By: /s/ Willie J. Miller, Jr. ------------------------------------------ Willie J. Miller, Jr., its Executive Vice President and Chief Legal Officer ABN AMRO BANK N.V. By: /s/ Hans Duijn ------------------------------------------ Hans Duijn, its Corporate Secretary and By: /s/ E. H. Kok ------------------------------------------ E. H. Kok, its Senior Executive Vice President ABN AMRO HOLDING N.V. By: /s/ Hans Duijn ------------------------------------------ Hans Duijn, its Corporate Secretary and By: /s/ E. H. Kok ------------------------------------------ E. H. Kok, its Authorized Signatory Page 48 of 48 EX-99.1 3 irm344f.txt JOINT FILING AGREEMENT EXHIBIT 1 JOINT FILING AGREEMENT THIS JOINT FILING AGREEMENT (this "Agreement") is made and entered into as of May 19, 2003, by and among (i) Midwest Mezzanine Fund II, L.P., a Delaware limited partnership, (ii) ABN AMRO Mezzanine Management II, L.P., a Delaware limited partnership and the general partner of Midwest (the "GP/LP"), (iii) ABN AMRO Mezzanine Management II, Inc., a Delaware corporation and the general partner of the GP/LP (the "Corporate GP"), (iv) LaSalle Bank Corporation, a Delaware corporation and the owner of all the outstanding capital stock of the Corporate GP ("LaSalle Bank Corp."), (v) ABN AMRO North America Holding Company, a Delaware corporation and the owner of all the outstanding capital stock of LaSalle Bank Corp. ("AANA Holding"), (vi) ABN AMRO Bank N.V., a Netherlands corporation and the owner of all the outstanding capital stock of AANA Holding ("ABN AMRO Bank"), and (vii) ABN AMRO Holding N.V., a Netherlands corporation and the owner of all the outstanding capital stock of ABN AMRO Bank. All of the filers of this Schedule 13D are collectively, the "Reporting Persons." WHEREAS, pursuant to paragraph (k) of Rule 13d-1 promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act"), the Reporting Persons have decided to satisfy their filing obligations under Section 13(d) of the 1934 Act by making a single joint filing. NOW, THEREFORE, the undersigned hereby agree as follows: 1. The Reporting Persons are filing this Amendment No. 1 to the Schedule 13D (the "Schedule 13D"), filed on August 22, 2002, respecting the common stock, par value $.001 per share, of Castle Dental Centers, Inc., a Delaware corporation, and will file any subsequent amendments to the Schedule 13D, as a joint filing on behalf of the Reporting Persons. 2. Each of the Reporting Persons is responsible for the completeness and accuracy of the information concerning such person contained in the Schedule 13D and any amendment to the Schedule 13D, but that no person is responsible for the completeness or accuracy of the information concerning any other person making such filing. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. MIDWEST MEZZANINE FUND II, L.P. By: ABN AMRO Mezzanine Management II, L.P., its general partner By: ABN AMRO Mezzanine Management II, Inc., its general partner By: /s/ Paul G. Kreie ----------------------------------------- Paul G. Kreie, its Vice President ABN AMRO MEZZANINE MANAGEMENT II, L.P. By: ABN AMRO Mezzanine Management II, Inc., its general partner By: /s/ Paul G. Kreie ----------------------------------------- Paul G. Kreie, its Vice President ABN AMRO MEZZANINE MANAGEMENT II, INC. By: /s/ Paul G. Kreie ----------------------------------------- Paul G. Kreie, its Vice President LASALLE BANK CORPORATION By: /s/ Kirk P. Flores ----------------------------------------- Kirk P. Flores, its Senior Vice President and By: /s/ Carol Tenyak ----------------------------------------- Carol Tenyak, its Group Senior Vice President and Deputy General Counsel and Secretary ABN AMRO NORTH AMERICA HOLDING COMPANY By: /s/ Kirk P. Flores ----------------------------------------- Kirk P. Flores, its Senior Vice President ABN AMRO BANK N.V. By: /s/ Hans Duijn ----------------------------------------- Hans Duijn, its Corporate Secretary and By: /s/ E. H. Kok ----------------------------------------- E. H. Kok, its Senior Executive Vice President ABN AMRO HOLDING N.V. By: /s/ Hans Duijn ----------------------------------------- Hans Duijn, its Corporate Secretary and By: /s/ E. H. Kok ----------------------------------------- E. H. Kok, its Authorized Signatory EX-99.2 4 irm344b.txt PREFERRED STOCK AND SUBORDINATED NOTE Execution Copy CASTLE DENTAL CENTERS, INC. PREFERRED STOCK AND SUBORDINATED NOTE PURCHASE AGREEMENT Dated as of May 15, 2003 TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS..........................................................1 1.1 Definitions; Interpretation......................................1 ARTICLE II ISSUANCE AND SALE OF PREFERRED STOCK AND NOTES......................8 2.1 Initial Closing..................................................8 2.2 Subsequent Closing...............................................9 ARTICLE III CLOSING; SUBSEQUENT CLOSING.......................................10 3.1 Closing.........................................................10 3.2 Subsequent Closing..............................................10 3.3 Payment for and Delivery of Series B Shares and Notes at Closing............................................10 3.4 Payment for and Delivery of Series B Shares and Notes at Subsequent Closing.................................11 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................11 4.1 Existence; Qualification; Subsidiaries..........................11 4.2 Authorization, Noncontravention and Enforceability; Issuance of Shares..............................................11 4.3 Capitalization..................................................12 4.4 Private Sale; Voting Agreements.................................12 4.5 SEC Reports; Financial Statements...............................13 4.6 Absence of Certain Changes......................................13 4.7 Litigation......................................................14 4.8 Licenses, Compliance with Law, Other Agreements, Etc............14 4.9 Third-Party Approvals...........................................14 4.10 Disclosure......................................................15 4.11 Tangible Assets.................................................15 4.12 Inventory; Accounts Receivable..................................15 4.13 Owned Real Property.............................................15 4.14 Real Property Leases............................................16 4.15 Contracts and Commitments.......................................16 4.16 Intellectual Property...........................................18 4.17 Employees.......................................................19 4.18 ERISA; Employee Benefits........................................19 4.19 Environment, Health and Safety..................................20 4.20 Transactions With Affiliates....................................20 4.21 Taxes...........................................................20 4.22 Investment Company..............................................21 4.23 Certain Fees....................................................21 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS....................21 5.1 Authorization and Enforceability................................21 5.2 Government Approvals............................................21 5.3 Investment Intent of Such Purchaser.............................21 5.4 Status of Securities............................................21 5.5 Sophistication and Financial Condition of Such Purchaser........21 -i- 5.6 Stockholders Agreement..........................................22 ARTICLE VI CONDITIONS PRECEDENT...............................................22 6.1 Conditions to Obligations of the Purchasers at Closing..........22 6.2 Conditions to Obligations of the Company at Closing.............24 6.3 Conditions to Obligations of Sentinel and the Additional Purchasers at Subsequent Closing................................24 6.4 Conditions to Obligations of the Company at Subsequent Closing..............................................25 ARTICLE VII COVENANTS.........................................................26 7.1 Required Actions................................................26 7.2 Use of Proceeds.................................................27 7.3 Information Rights..............................................27 7.4 Access Rights...................................................28 7.5 Certain Actions.................................................29 ARTICLE VIII SURVIVAL.........................................................29 8.1 Survival........................................................29 ARTICLE IX INDEMNIFICATION....................................................29 9.1 Indemnification.................................................29 ARTICLE X GENERAL PROVISIONS..................................................30 10.1 Public Announcements............................................30 10.2 Successors and Assigns..........................................31 10.3 Entire Agreement................................................31 10.4 Notices.........................................................31 10.5 Closing Fee; Fees and Expenses..................................33 10.6 Amendment and Waiver............................................33 10.7 Counterparts....................................................34 10.8 Headings........................................................34 10.9 Specific Performance............................................34 10.10 Remedies Cumulative.............................................34 10.11 GOVERNING LAW...................................................34 10.12 Waiver of Jury Trial............................................34 10.13 No Third Party Beneficiaries....................................34 10.14 Severability....................................................34 10.15 Time of the Essence; Computation of Time........................34 -ii- Schedule 4.1 Qualifications, Subsidiaries Schedule 4.2 Noncontravention Schedule 4.3 Capitalization Schedule 4.4 Voting Agreements Schedule 4.5 SEC Reports Schedule 4.6 Absence of Certain Changes Schedule 4.7 Litigation Schedule 4.9 Third-Party Approvals Schedule 4.11 Tangible Assets Schedule 4.13 Owned Real Property Schedule 4.14 Real Property Leases Schedule 4.15 Contracts Schedule 4.16 Intellectual Property Schedule 4.17 Director and Employee Loans Schedule 4.21 Taxes Schedule 4.23 Certain Fees Exhibit A Form of Subordinated Promissory Note Exhibit B Certificate of Designations Exhibit C Certificate of Incorporation and Bylaws Exhibit D Amended Series A-1 and A-2 Preferred Stock Terms -iii- PREFERRED STOCK AND SUBORDINATED NOTE PURCHASE AGREEMENT THIS PREFERRED STOCK AND SUBORDINATED NOTE PURCHASE AGREEMENT (this "Agreement") is dated as of May 15, 2003 between Castle Dental Centers, Inc., a Delaware corporation (the "Company"), Sentinel Capital Partners II, L.P., a Delaware limited partnership ("Sentinel"), General Electric Capital Corporation, a Delaware corporation ("GE"), Midwest Mezzanine Fund II, L.P., a Delaware limited partnership ("Midwest"), Thomas Fitzpatrick ("Fitzpatrick"), John M. Slack ("Slack"), and James M. Usdan, an individual ("Usdan" and, together with Slack, Fitzpatrick, Midwest, GE, Sentinel and the Additional Purchasers, if any, the "Purchasers"). Sentinel, Fitzpatrick, Slack and Usdan desire to purchase from the Company, and the Company desires to sell and issue to Sentinel, Fitzpatrick, Slack and Usdan, 60,000 shares in the aggregate of the Company's Series B Convertible Preferred Stock, par value $.000001 per share (the "Series B Preferred Stock"), and $7,000,000 in aggregate principal amount of Subordinated Promissory Notes, in the form of Exhibit A hereto (the "Notes"); provided that it is contemplated that certain other Persons will become party to this Agreement after the date hereof and purchase a portion of such Series B Preferred Stock and Notes described above. GE desires to purchase from the Company, and the Company desires to sell and issue to GE, 5,644 shares of Series B Preferred Stock. Midwest desires to purchase from the Company, and the Company desires to sell and issue to Midwest, 5,644 shares of Series B Preferred Stock. In addition to his purchase described above, Usdan desires to purchase from the Company, and the Company desires to sell and issue to Usdan, 7,902 shares of Series B Preferred Stock. In consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions; Interpretation. (a) For purposes of this Agreement, the following terms have the indicated meanings: "Additional Purchasers" has the meaning set forth in Section 2.2 hereof. "Affiliate" of a Person means any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with such Person. "Agreement" has the meaning set forth in the preamble hereof. "Authorized Share Amendment" has the meaning set forth in Section 4.9 hereof. "Audit Date" means December 31, 2002. "Board of Directors" means the board of directors of the Company. "Business Day" means any day excluding Saturday, Sunday, and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close. "Certificate" means the Certificate of Designations of the Company attached hereto as Exhibit B, containing the terms of the Series B Preferred Stock. "Closing" has the meaning set forth in Section 3.1 hereof. "Closing Date" has the meaning set forth in Section 3.1 hereof. "Code" means the Internal Revenue Code of 1986, as amended. "Common Stock" means the Company's common stock, par value $.000001 per share, and any securities into which such Common Stock is hereafter converted or exchanged. "Company" has the meaning set forth in the preamble hereof. "Company Intellectual Property" has the meaning set forth in Section 4.16(c)(i) hereof. "Conversion Shares" means shares of Common Stock issued or issuable upon conversion of the Series B Preferred Stock. "Credit Agreement" means the Credit Agreement, dated as of the date hereof, by and among the Company, as borrower, and the lenders party thereto, as lenders as amended, restated, renewed, extended, restructured, supplemented, or modified from time to time. "Creditors Rights Laws" has the meaning set forth in Section 4.2(a) hereof. "Current Balance Sheet" has the meaning set forth in Section 4.6(b) hereof. "Environmental and Safety Requirements" means all federal, state, local and foreign statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment, including 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 by-products, asbestos, polychlorinated biphenyls, noise or radiation. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Financial Officer" means the chief financial officer, principal accounting officer, treasurer or controller of the Company. "Financial Statements" has the meaning set forth in Section 4.5(b) hereof. "Fitzpatrick" has the meaning set forth in the preamble hereof. -2- "Fitzpatrick B Purchase Price" has the meaning set forth in Section 2.1(b) hereof. "Fitzpatrick B Shares" has the meaning set forth in Section 2.1(b) hereof. "Fitzpatrick Note" has the meaning set forth in Section 2.1(b) hereof. "Fitzpatrick Purchase Price" has the meaning set forth in Section 2.1(b) hereof. "GAAP" means United States generally accepted accounting principles as in effect from time to time, consistently applied. "Governmental Agency" means any federal, state, local, foreign or other governmental agency, instrumentality, commission, authority, board or body. "GE" has the meaning set forth in the preamble hereof. "GE B Shares" has the meaning set forth in Section 2.1(c) hereof. "GE Notes" has the meaning set forth in Section 2.1(c) hereof. "GE Warrants" has the meaning set forth in Section 2.1(c) hereof. "Indebtedness" of any Person means, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (iii) all obligations of such Person upon which interest charges are customarily paid (including margin debt), (iv) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (v) all obligations of such Person in respect of the deferred purchase price of property or services (excluding accounts payable), (vi) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (vii) all guarantees by such Person of Indebtedness of others, (viii) all capital lease obligations of such Person, (ix) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (x) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances, (xi) the principal balance outstanding under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product of the Borrower or any Subsidiary where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an operating lease under GAAP, (xii) all obligations of such Person to pay a specified purchase price for goods or services whether or not delivered or accepted (e.g., take-or-pay obligations) or similar obligations; and (xiii) any unsatisfied obligation for "withdrawal liability" to a "multiemployer plan" as such term is defined under ERISA. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. "Indemnified Liabilities" has the meaning set forth in Section 9.1(a) hereof. "Indemnitees" has the meaning set forth in Section 9.1(a) hereof. "Information Statement" means an information statement containing the information required by Rule 14c-1 describing the Authorized Share Amendment and the Series A Amendment and -3- Rule 14f-1 describing the change in a majority of directors of the Company as contemplated hereby, filed with the SEC and mailed to the stockholders of the Company in accordance with the Exchange Act. "Intellectual Property" means all patents, patent applications and inventions; all trademarks, service marks, trade dress, trade names and corporate names and all goodwill associated therewith; all registered copyrights; all registrations, applications and renewals for any of the foregoing; all trade secrets, know-how, technical and computer data, documentation and software, financial, business and marketing plans, customer and supplier lists and all other intellectual property rights; and all copies and tangible embodiments of the foregoing. "knowledge" or "know" when used with respect to the Company means the actual knowledge of the Company's executive officers after reasonable investigation. "Leased Property" has the meaning set forth in Section 4.14 hereof. "Lien" means any mortgage, charge, pledge, lien (statutory or otherwise), privilege, security interest, hypothecation or other encumbrance upon or with respect to any property of any kind, real or personal, movable or immovable, now owned or hereafter acquired. "Management Agreement" means the Sentinel Management Agreement dated as of the date hereof by and among the Company and Sentinel. "Material Adverse Effect" means, with respect to the Company, any occurrence, event, or effect that either individually or in the aggregate with all other such changes or effects is, or could reasonably be expected to be (whether or not such change, event or effect has, at the time in question, manifested itself in the Company's historical financial statements), materially adverse to the business, operations, results of operations, properties, condition, financial or otherwise, assets or liabilities of the Company and its Subsidiaries taken as a whole on a consolidated basis. "Material Contracts" has the meaning set forth in Section 4.15(b) hereof. "Midwest" has the meaning set forth in the preamble hereof. "Midwest B Shares" has the meaning set forth in Section 2.1(d) hereof. "Midwest Notes" has the meaning set forth in Section 2.1(d) hereof. "Midwest Warrants" has the meaning set forth in Section 2.1(d) hereof. "Notes" has the meaning set forth in the recitals hereof. "Ordinary Course of Business" means the ordinary course of business consistent with past practice (including with respect to quantity, quality and frequency). "Owned Property" has the meaning set forth in Section 4.13 hereof. "Permitted Affiliate Transaction" means any contract, agreement, arrangement or transaction entered into by the Company or any of its Subsidiaries in the Ordinary Course of Business with any Affiliate of any such Person as part of an employment relationship or pursuant to the Stock Option Plan. -4- "Permitted Liens" means: (1) Liens existing on the Closing Date and securing indebtedness of the Company and its Subsidiaries to the extent such indebtedness is disclosed on the Audit Date or incurred since such date in the Ordinary Course of Business, including Liens securing the indebtedness of the Company and its Subsidiaries under the Credit Agreement, the guarantees thereof and any hedging agreements entered into between the Company and any Person; (2) Liens imposed by governmental authorities for taxes, assessments or other charges not yet subject to penalty or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the Company in accordance with GAAP; (3) statutory liens of carriers, warehousemen, mechanics, material men, landlords, repairmen or other like Liens arising by operation of law in the Ordinary Course of Business; provided, that (A) the underlying obligations are not overdue for a period of more than 60 days, or (B) such Liens are being contested in good faith and by appropriate proceedings and adequate reserves with respect thereto are maintained on the books of the Company in accordance with GAAP; (4) Liens securing the performance of bids, trade contracts (other than borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the Ordinary Course of Business; (5) easements, rights-of-way, zoning, similar restrictions and other similar encumbrances or minor imperfections of title which, in the aggregate, do not in any case materially detract from the value of the property subject thereto (as such property is used by the Company or any of its Subsidiaries) or interfere with the ordinary conduct of the business of the Company and any of its Subsidiaries taken as a whole; (6) Liens arising by operation of law in connection with judgments, only to the extent, for an amount and for a period not resulting in an Event of Default (as defined in the Credit Agreement as in effect on the date hereof) under the Credit Agreement with respect thereto; (7) pledges or deposits made in the Ordinary Course of Business in connection with workers' compensation, unemployment insurance and other types of social security legislation; (8) Liens securing indebtedness of a Person existing at the time such Person becomes a Subsidiary or is merged with or into the Company or a Subsidiary or Liens securing Indebtedness incurred in connection with an Acquisition (as defined in the Credit Agreement as in effect on the date hereof); provided, that such Liens were in existence prior to the date of such Acquisition, were not incurred in anticipation thereof, and do not extend to any other assets; (9) leases or subleases granted to other Persons in the Ordinary Course of Business not materially interfering with the conduct of the business of the Company or any of its Subsidiaries or materially detracting from the value of the relative assets of the Company or any Subsidiary; and -5- (10) Liens arising from precautionary Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company or any of its Subsidiaries in the Ordinary Course of Business. "Person" or "person" means any corporation, individual, limited liability company, joint stock company, joint venture, partnership, unincorporated association, Governmental Agency, trust or other entity. "Plan" means any employee benefit plan (as defined in Section 3(3) of ERISA), subject to Title IV of ERISA or the minimum funding requirements of Section 412 of the Code, maintained or contributed to by the Company or any Subsidiary at any time during the 5 calendar years immediately preceding the date of this Agreement. "Purchaser Notes" has the meaning set forth in Section 2.1(e) hereof. "Purchaser Warrants" has the meaning set forth in Section 2.1(e) hereof. "Purchasers" has the meaning set forth in the preamble hereof. "Registration Rights Agreement" means the Registration Rights Agreement dated as of the date hereof by and among the Company and the Purchasers. "Related Documents" means all documents and instruments to be executed or adopted by the Company in connection herewith, including the Certificate, the certificates evidencing the Series B Shares, the Notes, the Stockholders Agreement, the Registration Rights Agreement and the Management Agreement. "SEC" means the Securities and Exchange Commission. "SEC Documents" means all reports, schedules, registration statements, forms and other documents required to be filed by the Company with the SEC. "Securities" means the Series B Shares, the Notes and the Conversion Shares. "Securities Act" means the Securities Act of 1933, as amended. "Senior Notes" has the meaning set forth in Section 2.1(c) hereof. "Sentinel" has the meaning set forth in the preamble hereof. "Sentinel B Purchase Price" has the meaning set forth in Section 2.1(a) hereof. "Sentinel B Shares" has the meaning set forth in Section 2.1(a) hereof. "Sentinel Purchase Price" has the meaning set forth in Section 2.1(a) hereof. "Series A Amendment" has the meaning set forth in Section 4.9 hereof. "Series A-1 Preferred Stock" has the meaning set forth in Section 4.3 hereof. "Series A-2 Preferred Stock" has the meaning set forth in Section 4.3 hereof. -6- "Series B Preferred Stock" has the meaning set forth in the recitals hereof. "Series B Shares" has the meaning set forth in Section 2.2 hereof. "Slack" has the meaning set forth in the preamble hereof. "Slack B Purchase Price" has the meaning set forth in Section 2.1(f) hereof. "Slack B Shares" has the meaning set forth in Section 2.1(f) hereof. "Slack Note" has the meaning set forth in Section 2.1(f) hereof. "Slack Purchase Price" has the meaning set forth in Section 2.1(f) hereof. "Stockholders Agreement" means the Stockholders Agreement dated as of the date hereof by and among the Company, the Purchasers and certain other parties thereto. "Stock Option Plan" means any capital stock plan adopted by the Company for the benefit of the Company's officers, employees, consultants, agents or directors which has been or is approved by the Board of Directors including the Company's 2002 Stock Option Plan. "Subsequent B Purchase Price" has the meaning set forth in Section 2.2 hereof. "Subsequent B Shares" has the meaning set forth in Section 2.2 hereof. "Subsequent Closing" has the meaning set forth in Section 3.2 hereof. "Subsequent Closing Date" has the meaning set forth in Section 3.2 hereof. "Subsequent Note(s)" has the meaning set forth in Section 2.2 hereof. "Subsequent Purchase Price" has the meaning set forth in Section 2.2 hereof. "Subsidiary" means any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by the Company or (ii) if a partnership, limited liability company, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by the Company. For purposes hereof, the Company shall be deemed to have a majority ownership interest in a partnership, limited liability company, association or other business entity if the Company, directly or indirectly, is allocated a majority of partnership, limited liability company, association or other business entity gains or losses, or is or controls the manager, managing member, managing director or general partner of such partnership, limited liability company, association or other business entity. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code ss.59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. -7- "Tax Returns" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. (b) The words "herein", "hereof" and "hereunder" and words of similar import shall, unless otherwise stated, refer to this Agreement as a whole (including all schedules and exhibits) and not to any particular article, section or other subdivision of this Agreement, (ii) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other genders as the context requires, (iii) the word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," unless the context otherwise requires or unless otherwise specified, and (iv) the word "or" shall not be exclusive. "Usdan" has the meaning set forth in the preamble hereof. "Usdan B Shares" has the meaning set forth in Section 2.1(e) hereof. "Usdan Cash Purchase Price" has the meaning set forth in Section 2.1(e) hereof. "Usdan New Note" has the meaning set forth in Section 2.1(e) hereof. "Usdan Notes" has the meaning set forth in Section 2.1(e) hereof. "Usdan Series B Cash Purchase Price" has the meaning set forth in Section 2.1(e) hereof. "Usdan Warrants" has the meaning set forth in Section 2.1(e) hereof. "Warrants" has the meaning set forth in Section 2.1(c) hereof. ARTICLE II ISSUANCE AND SALE OF PREFERRED STOCK AND NOTES 2.1 Initial Closing. On the terms and subject to the conditions of this Agreement, at the Closing, the Company shall issue and sell to: (a) Sentinel, and Sentinel shall purchase from the Company, in the aggregate, 55,386 shares of Series B Preferred Stock (the "Sentinel B Shares"), for an aggregate purchase price of $5,538,600 (the "Sentinel B Purchase Price"), and a Note having a principal amount of $6,461,700 (the "Sentinel Note"), for an aggregate purchase price of $6,461,700 (together with the Sentinel B Purchase Price, the "Sentinel Purchase Price"). (b) Fitzpatrick, and Fitzpatrick shall purchase from the Company, in the aggregate, 1,152 shares of Series B Preferred Stock (the "Fitzpatrick B Shares"), for an aggregate purchase price of $115,200 (the "Fitzpatrick B Purchase Price"), and a Note having a principal amount of $134,400 (the "Fitzpatrick Note"), for an aggregate purchase price of $134,400 (together with the Fitzpatrick B Purchase Price, the "Fitzpatrick Purchase Price"). (c) GE, and GE shall purchase from the Company, in the aggregate, 5,644 shares of Series B Preferred Stock (the "GE B Shares"), in exchange for $564,430.00 of principal and accrued interest to date of the Company's fifteen percent (15%) senior subordinated convertible promissory notes -8- ("Senior Notes") issued in GE's name (the "GE Notes"), plus warrants of the Company ("Warrants") representing the right to acquire 5,286,489 shares of Common Stock (the "GE Warrants") issued in GE's name. (d) Midwest, and Midwest shall purchase from the Company, in the aggregate, 5,644 shares of Series B Preferred Stock (the "Midwest B Shares"), in exchange for $564,430.00 of principal and accrued interest to date of the Senior Notes issued in Midwest's name (the "Midwest Notes"), plus Warrants representing the right to acquire 5,286,489 shares of Common Stock (the "Midwest Warrants") issued in Midwest's name. (e) Usdan, and Usdan shall purchase from the Company, (i) in the aggregate, 8,022 shares of Series B Preferred Stock (the "Usdan B Shares"), in exchange for $12,000 cash (such cash, the "Usdan Series B Cash Purchase Price"), $790,203.00 of principal and accrued interest to date of the Company's Senior Notes issued in Usdan's name (the "Usdan Notes," and, together with the GE Notes and the Midwest Notes, the "Purchaser Notes"), plus Warrants representing the right to acquire 7,401,084 shares of Common Stock (the "Usdan Warrants," and, together with the GE Warrants and the Midwest Warrants, the "Purchaser Warrants") issued in Usdan's name, and (ii) a Note having a principal amount of $14,000 (the "Usdan New Note"), for an aggregate purchase price of $14,000 (together with the Usdan Series B Cash Purchase Price, the "Usdan Cash Purchase Price"). (f) Slack, and Slack shall purchase from the Company, in the aggregate, 462 shares of Series B Preferred Stock (the "Slack B Shares"), for an aggregate purchase price of $46,200 (the "Slack B Purchase Price"), and a Note having a principal amount of $53,900 (the "Slack Note"), for an aggregate purchase price of $53,900 (together with the Slack B Purchase Price, the "Slack Purchase Price"). 2.2 Subsequent Closing. On the terms and subject to the conditions of this Agreement, at the Subsequent Closing, the Company shall issue and sell to Sentinel and the Additional Purchasers, if any, and Sentinel and the Additional Purchasers, if any, shall purchase from the Company, in the aggregate, 2,880 shares of Series B Preferred Stock (the "Subsequent B Shares" and, together with the Sentinel B Shares, the Fitzpatrick B Shares, the GE B Shares, the Midwest B Shares, the Usdan B Shares and the Slack B Shares, the "Series B Shares"), for an aggregate purchase price of $288,000 (the "Subsequent B Purchase Price"), and a Note or Notes having an aggregate principal amount of $336,000 (the "Subsequent Note(s)"), for an aggregate purchase price of $336,000 (together with the Subsequent B Purchase Price, the "Subsequent Purchase Price"). The Subsequent B Shares and Subsequent Notes shall be sold on the same terms as the Series B Shares and Notes sold at the Closing. "Additional Purchasers" shall be such Persons, who shall be reasonably acceptable to the Company and Sentinel, who execute and deliver to the Company a counterpart of this Agreement, a joinder to the Stockholders Agreement and a joinder to the Registration Agreement, and purchase Subsequent B Shares and Subsequent Notes on the Subsequent Closing Date. Each Additional Purchaser shall purchase such number of Subsequent B Shares and a Subsequent Note in such principal amount as agreed to by such Additional Purchaser and Sentinel. Sentinel shall purchase all Subsequent B Shares which the Additional Purchasers, if any, do not purchase. Sentinel shall purchase a Subsequent Note having a principal amount equal to $336,000 minus the aggregate principal amount of the Subsequent Notes, if any, purchased by the Additional Purchasers, if any. Each Additional Purchaser shall be deemed a "Purchaser" hereunder. The respective amounts of Subsequent B Shares and Subsequent Notes purchased by Sentinel and each Additional Purchaser, if any, shall be set forth on a Schedule of Subsequent Purchase and shall be attached hereto on the Subsequent Closing Date. -9- ARTICLE III CLOSING; SUBSEQUENT CLOSING 3.1 Closing. Subject to the satisfaction or waiver of the closing conditions for the Closing set forth in Article VI, the closing of the transactions contemplated by Section 2.1 above (the "Closing") shall take place at Haynes and Boone, LLP, 1000 Louisiana Street, Suite 4300, Houston, TX 77002 on the date hereof (the "Closing Date"). 3.2 Subsequent Closing. The closing of the transactions contemplated by Section 2.2 above (the "Subsequent Closing") shall take place at Haynes and Boone, LLP, 1000 Louisiana Street, Suite 4300, Houston, TX 77002 on September 30, 2003, or such earlier date as is mutually acceptable to the Company and Sentinel (the "Subsequent Closing Date"). 3.3 Payment for and Delivery of Series B Shares and Notes at Closing. (a) At the Closing, the Company shall issue and deliver to Sentinel (i) a stock certificate duly executed and registered in the name of Sentinel evidencing ownership of the number of Sentinel B Shares to be purchased by Sentinel at the Closing, and (ii) the Sentinel Note duly executed and registered in the name of Sentinel, against payment by Sentinel of the Sentinel Purchase Price by wire transfer of immediately-available funds to the account designated by the Company in writing. (b) At the Closing, the Company shall issue and deliver to Fitzpatrick (i) a stock certificate duly executed and registered in the name of Fitzpatrick evidencing ownership of the number of Fitzpatrick B Shares to be purchased by Fitzpatrick at the Closing, and (ii) the Fitzpatrick Note duly executed and registered in the name of Fitzpatrick, against payment by Fitzpatrick of the Fitzpatrick Purchase Price by wire transfer of immediately-available funds to the account designated by the Company in writing. (c) At the Closing, the Company shall issue and deliver to Slack (i) a stock certificate duly executed and registered in the name of Slack evidencing ownership of the number of Slack B Shares to be purchased by Slack at the Closing, and (ii) the Slack Note duly executed and registered in the name of Slack, against payment by Slack of the Slack Purchase Price by wire transfer of immediately-available funds to the account designated by the Company in writing. (d) At the Closing, the Company shall issue and deliver to GE a stock certificate duly executed and registered in the name of GE evidencing ownership of the number of GE B Shares to be purchased by GE at the Closing against delivery by GE of the original GE Notes and GE Warrants together with any instruments of assignment thereof reasonably requested by the Company transferring ownership of such securities back to the Company. (e) At the Closing, the Company shall issue and deliver to Midwest a stock certificate duly executed and registered in the name of Midwest evidencing ownership of the number of Midwest B Shares to be purchased by Midwest at the Closing against delivery by Midwest of the original Midwest Notes and Midwest Warrants together with any instruments of assignment thereof reasonably requested by the Company transferring ownership of such securities back to the Company. (f) At the Closing, the Company shall issue and deliver to Usdan (i) a stock certificate duly executed and registered in the name of Usdan evidencing ownership of the number of Usdan B Shares to be purchased by Usdan at the Closing, and (ii) the Usdan New Note duly executed and registered in the name of Usdan, against (x) payment by Usdan of the Usdan Cash Purchase Price by wire transfer of immediately-available funds to the account designated by the Company in writing, and (y) -10- delivery by Usdan of the original Usdan Notes and Usdan Warrants together with any instruments of assignment thereof reasonably requested by the Company transferring ownership of such securities back to the Company. 3.4 Payment for and Delivery of Series B Shares and Notes at Subsequent Closing. (a) At the Subsequent Closing, the Company shall issue and deliver to Sentinel (i) a stock certificate duly executed and registered in the name of Sentinel evidencing ownership of the number of Subsequent B Shares to be purchased by Sentinel at the Subsequent Closing, and (ii) the Subsequent Note to be purchased by Sentinel at the Subsequent Closing duly executed and registered in the name of Sentinel, against payment by Sentinel of the applicable purchase price by wire transfer of immediately-available funds to the account designated by the Company in writing. (b) At the Subsequent Closing, the Company shall issue and deliver to each Additional Purchaser, if any, (i) a stock certificate duly executed and registered in the name of such Additional Purchaser evidencing ownership of the number of Subsequent B Shares to be purchased by such Additional Purchaser at the Subsequent Closing, and (ii) the Subsequent Note to be purchased by such Additional Purchaser at the Subsequent Closing duly executed and registered in the name of Sentinel, against payment by such Additional Purchaser of the applicable purchase price by wire transfer of immediately-available funds to the account designated by the Company in writing. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY As a material inducement to the Purchasers to enter into this Agreement and to consummate the transactions contemplated hereby, the Company hereby represents and warrants to the Purchasers as follows: 4.1 Existence; Qualification; Subsidiaries. Each of the Company and each Subsidiary is duly organized, validly existing and in good standing under the laws of its applicable jurisdictions of organization and has full corporate power and authority to conduct its business and own and operate its properties as now conducted, owned and operated. The copies of the Certificate of Incorporation and By-laws of the Company and all amendments thereto are attached hereto as Exhibit C, and are true, correct and complete copies of such documents. Each of the Company and each Subsidiary is licensed or qualified as a foreign corporation or company and is in good standing in all jurisdictions where it is required to be so licensed or qualified except where failure to be licensed or qualified would not have Material Adverse Effect. Schedule 4.1 lists all Subsidiaries and their respective jurisdictions of incorporation or organization. Except as set forth on Schedule 4.1, the Company has no Subsidiaries and owns no capital stock or other securities of, and has not made any other investment in, any other entity. All of the issued shares of capital stock of each Subsidiary have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of all Liens other than Liens securing the Indebtedness represented by the Credit Agreement. 4.2 Authorization, Noncontravention and Enforceability; Issuance of Shares. (a) The Company has full power and authority and has taken all required corporate and other action necessary to permit it to execute and deliver this Agreement and the Related Documents and to carry out the terms hereof and thereof and to issue and deliver the Securities, and none of such actions will (i) violate or conflict with any provision of the Certificate of Incorporation of the Company, the By-laws of the Company or of any applicable law, regulation, order, judgment or decree or rule of the -11- stock exchange where the Common Stock is listed, or (ii) except as set forth on Schedule 4.2, result in the breach of or constitute a default (or an event which, with notice or lapse of time or both would constitute a default) under any agreement, instrument or understanding to which the Company is a party or by which it is bound. This Agreement and the Related Documents each constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws of general application related to the enforcement of creditor's rights generally (collectively "Creditors Rights Laws") and except as rights to indemnity thereunder may be limited by applicable federal or state laws. (b) The Series B Shares, when issued and delivered in accordance with this Agreement, and following the filing of the Authorized Share Amendment, the Conversion Shares, when issued upon conversion of the Series B Shares, will be duly authorized, validly issued, fully paid and nonassessable, and will be free of any and all Liens (other than any restrictions on transfer under state and/or federal securities laws, this Agreement and the Related Documents). The Notes, when issued and delivered in accordance with this Agreement, will be duly authorized, validly issued, and will be free of any and all Liens (other than any restrictions on transfer under state and/or federal securities laws, this Agreement and the Related Documents). Following the filing of the Authorized Share Amendment, the Conversion Shares will be duly reserved for issuance upon conversion of the Series B Shares. The issuance and delivery of the Securities is not subject to any preemptive right, right of first refusal, antidilution provision or other similar right in favor of any Person which has not been waived. 4.3 Capitalization. As of the date hereof, the authorized capital stock of the Company consists of: 100,000,000 shares of Common Stock; 1,000,000 shares of Class B Nonvoting Common Stock, par value $.000001 per share; and 1,000,000 shares of Preferred Stock, par value $.000001 per share, which Preferred Stock consists of 214,000 shares of Series A-1 Convertible Preferred Stock ("Series A-1 Preferred Stock"), 62,000 shares of Series A-2 Convertible Preferred Stock ("Series A-2 Preferred Stock"), and 80,000 shares of Series B Preferred Stock. As of the date hereof, and following the consummation of the transactions contemplated herein, the Company's equity capitalization is set forth on Schedule 4.3, and except as set forth on Schedule 4.3 there will be no outstanding capital stock of the Company. At the time of the Closing, all of the outstanding capital stock will be validly issued, fully paid and nonassessable and will have been issued in compliance with all applicable securities laws (including the provisions of the Securities Act and the rules and regulations promulgated thereunder). Except as set forth on Schedule 4.3, neither the Company nor any of its Subsidiaries has granted or issued any options, convertible securities, warrants, calls, pledges, phantom stock, stock appreciation rights, transfer restrictions (except restrictions imposed by federal and state securities laws), Liens, rights of first offer, rights of first refusal, antidilution provisions or commitments of any character relating to any issued or unissued shares of capital stock of the Company. As of the date hereof there have been no dividends declared or otherwise accrued with respect to any of the Company's capital stock. 4.4 Private Sale; Voting Agreements. (a) The Company has not violated any applicable federal or state securities laws in connection with the offer sale and issuance of any of its capital stock. Assuming the accuracy of the Purchasers' representations contained herein, none of the offer, sale or issuance of the Securities requires registration under the Securities Act or any state securities laws. (b) To the Company's knowledge, except as set forth on Schedule 4.4, there are no agreements obligating any of its stockholders to vote as directed by another Person or any proxies granted by any stockholder other than proxies submitted in connection with the Company's meetings of shareholders. -12- 4.5 SEC Reports; Financial Statements. (a) The Company has filed all SEC Documents required to be filed as of the date hereof. Other than as set forth on Schedule 4.5, the SEC Documents (i) were filed on a timely basis, (ii) were prepared in compliance in all material respects with the applicable requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such SEC Documents, and (iii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated in such SEC Documents or necessary in order to make the statements in such SEC Documents, in the light of the circumstances under which they were made, not misleading. (b) Each of the financial statements (including, in each case, any notes thereto) contained in the SEC Documents and the financial statements (including any notes thereto) required to be delivered to Sentinel by the Company pursuant to Section 6.1(v)(iv) (collectively, the "Financial Statements") complies as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto and was prepared in all material respects in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Rule 10-01 of Regulation S-X promulgated by the SEC) and each fairly presented in all material respects (subject to, in the case of the unaudited statements, normal, recurring audit adjustments, none of which are material) the consolidated financial position, results of operations, stockholders' equity and cash flows of the Company and its Subsidiaries as at the respective dates thereof and for the respective periods indicated therein. As of the dates of the Financial Statements, the Company had no material obligation, indebtedness or liability (whether accrued, absolute, contingent or otherwise, known or unknown, and whether due or to become due), which was not reflected or reserved against in the balance sheets or the notes thereto which are part of the Financial Statements, except for those incurred in the Ordinary Course of Business. 4.6 Absence of Certain Changes. Except as set forth on Schedule 4.6, since the Audit Date, neither the Company nor any Subsidiary has: (a) incurred any liabilities other than current liabilities incurred, or obligations under contracts entered into, in the Ordinary Course of Business and for individual amounts not greater than $25,000; (b) paid, discharged or satisfied any claim, Lien or liability, other than any claim, Lien or liability (A) reflected or reserved against on the balance sheet contained in the Financial Statements as of the Audit Date (the "Current Balance Sheet") and paid, discharged or satisfied in the Ordinary Course of Business or (B) incurred since the Audit Date and paid, discharged or satisfied, in each case in the Ordinary Course of Business; (c) sold, leased, assigned or otherwise transferred any of its assets, tangible or intangible (other than sales of inventory in the Ordinary Course of Business and use of supplies in the Ordinary Course of Business); (d) permitted any of its assets, tangible or intangible, to become subject to any Lien (other than any Permitted Lien); (e) written off as uncollectible any accounts receivable not fully reserved as of the Audit Date other than (i) in the Ordinary Course of Business, or (ii) for an aggregate amount not greater than $50,000; -13- (f) terminated or amended or suffered the termination or amendment of, other than in the Ordinary Course of Business, or failed to perform in all material respects all of its obligations or suffered or permitted any material default to exist under, any material agreement, license or permit; (g) suffered any damage, destruction or loss of tangible property (whether or not covered by insurance) which in the aggregate exceeds $25,000; (h) made any loan (other than intercompany advances) to any other Person (other than advances to employees in the Ordinary Course of Business which do not exceed $10,000 individually or $25,000 in the aggregate); (i) canceled, waived or released any debt, claim or right in an amount or having a value exceeding $10,000; (j) other than a Permitted Affiliate Transaction, paid any amount to or entered into any agreement, arrangement or transaction with any Affiliate (including its officers, directors and employees) outside the Ordinary Course of Business and which was not approved by a majority of the Company's disinterested directors; (k) declared, set aside, or paid any dividend or distribution with respect to its capital stock or redeemed, purchased or otherwise acquired any of its capital stock; (l) other than in the Ordinary Course of Business, granted any increase in the compensation of any officer or made any other favorable change in employment terms of any officer; (m) made any change in any method of accounting or accounting practice; (n) suffered or caused any other occurrence, event or transaction which, individually or together with each other occurrence, event or transaction, has had or could reasonably be expected to have a Material Adverse Effect; or (o) agreed, in writing or otherwise, to any of the foregoing. 4.7 Litigation. Except as set forth on Schedule 4.7, as of the date of this Agreement, no claim, suit, proceeding or investigation is pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any officer or director thereof or the Company's and the Subsidiaries' business which if decided adversely to any such Person could result in a material liability of the Company or a Subsidiary. 4.8 Licenses, Compliance with Law, Other Agreements, Etc. The Company and each Subsidiary have all material franchises, permits, licenses and other rights to allow it to conduct its business and is not in violation in any material respects of any order or decree of any court, or of any law, order or regulation of any Governmental Agency, or of the provisions of any contract or agreement to which it is a party or by which it is bound, and neither this Agreement nor the Related Documents nor the transactions contemplated hereby or thereby will result in any such violation. The Company and each Subsidiary's businesses have been conducted in material compliance with all applicable federal, state and local laws, ordinances, rules and regulations. 4.9 Third-Party Approvals. Assuming the accuracy of the representations and warranties of the Purchasers contained in this Agreement, except as set forth on Schedule 4.9, the Company is not required to obtain any order, consent, approval or authorization of, or to make any declaration or filing -14- with, any Governmental Agency or other third party (including under any state securities or "blue sky" laws) in connection with the execution and delivery of this Agreement or the Related Documents, or the consummation of the transactions contemplated hereby or thereby to occur on the Closing Date, except for (a) filings on Form D under the Securities Act, (b) the filing with the Secretary of State of Delaware of a certificate of amendment to the certificate of incorporation of the Company which increases the number of authorized shares of the Common Stock of the Company to a total of 250,000,000 (the "Authorized Share Amendment"), and (c) the filing with the Secretary of State of Delaware of a certificate of amendment to the certificate of incorporation of the Company which amends the terms of the Series A-1 Preferred Stock and the Series A-2 Preferred Stock as set forth on Exhibit D (the "Series A Amendment"). 4.10 Disclosure. This Agreement, together with all exhibits and schedules hereto, and the agreements, certificates and other documents furnished to the Purchasers by the Company and its Subsidiaries in connection with the transactions contemplated under this Agreement, do not contain any untrue statement of a material fact or, as supplemented by the SEC Documents filed by the Company in the past 12 months, omit to state a material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading. 4.11 Tangible Assets. Except as set forth on Schedule 4.11, (i) the Company and its Subsidiaries own or lease all tangible assets used or reasonably necessary in connection with the conduct of its business, and (ii) all material tangible assets are free from any Liens (other than Permitted Liens), are free from any material defects, have been maintained in accordance with normal industry practice and any regulatory standard or procedure to which such assets are subject, are in good operating condition and repair in all material respects (subject to normal wear and tear) and are suitable in all material respects for the purposes for which such assets are used or proposed to be used. 4.12 Inventory; Accounts Receivable. All inventory of the Company and its Subsidiaries, whether reflected on the Current Balance Sheet or otherwise, consists of a quality and quantity usable or salable in the Ordinary Course of Business, subject to the reserves set forth on the Current Balance Sheet and subject to normal rates of defect or obsolescence not inconsistent with the Company's historical experience. All accounts receivable of the Company and its Subsidiaries, whether reflected on the Current Balance Sheet or otherwise, are valid receivables collectible in the Ordinary Course of Business subject to the reserves set forth on the Current Balance Sheet. 4.13 Owned Real Property. Schedule 4.13 sets forth the address and description of each parcel of real property owned by the Company or any of its Subsidiaries (the "Owned Property"). The Company or its applicable Subsidiary has good and marketable fee simple title in and to all of the Owned Property, subject to no Liens, encroachments, claims, leases, rights of possession or other defects in title, except (i) Liens for Taxes not yet due and payable, (ii) covenants, conditions and restrictions of record and minor title defects none of which individually or collectively could reasonably be expected to interfere with the Company's business as presently conducted or as planned to be conducted and (iii) as described on Schedule 4.13. Other than the Company and its Subsidiaries, there are no parties in possession or parties having any current or future right to occupy any of the Owned Property. The Owned Property is in good condition and repair and is sufficient for the conduct of the business of the Company and its Subsidiaries as currently conducted. The Owned Property and all buildings and improvements located thereon conform in all material respects to all applicable building, zoning and other laws, ordinances, rules and regulations. All permits, licenses and other approvals necessary to the current occupancy and use of the Owned Property have been obtained, are in full force and effect and have not been violated, except where the failure to obtain, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. There exists no violation of any covenant, condition, restriction, easement, agreement or order affecting any portion of the Owned Property. All -15- improvements located on the Owned Property have direct access to a public road adjoining such Owned Property. No such improvements or accessways encroach on land not included in the Owned Property and no such improvement is dependent for its access, operation or utility on any land, building or other improvement not included in the Owned Property, except for those that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. There is no pending or, to the knowledge of the Company or any of its Subsidiaries, any threatened condemnation proceeding affecting any portion of the Owned Property. There are no outstanding options, rights of first offer or rights of first refusal to purchase the Owned Property or any portion thereof or interest therein. 4.14 Real Property Leases. Schedule 4.14 sets forth the address and description of each parcel of real property leased by the Company or any of its Subsidiaries (the "Leased Property"). Except as set forth on Schedule 4.14, other than the Company and the Subsidiaries, there are no parties in possession or parties having any current or future right to occupy any of the Leased Property. The Leased Property is in good condition and repair and is sufficient and appropriate for the conduct of the business of the Company and the Subsidiaries as currently conducted. Except as set forth on Schedule 4.14, there exists no material event of default (nor, to the Company's knowledge, any event which with notice or lapse of time would constitute an event of default) with respect to the Company, any Subsidiary and, to the Company's knowledge, with respect to any other party thereto under any agreement pursuant to which the Company is the lessee or lessor of any real property, and all such agreements are in full force and effect. 4.15 Contracts and Commitments. (a) Except as expressly contemplated by this Agreement or as set forth on Schedule 4.15 attached hereto, the Company is not a party to or bound by any written or oral: (i) pension, profit sharing, stock option, employee stock purchase or other plan or arrangement providing for deferred or other compensation to its current or former directors, officers or employees or any other employee benefit plan, arrangement or practice, whether formal or informal; (ii) collective bargaining agreement or any other contract with any labor union, or severance agreements with executives; (iii) management agreement or contract for the employment of any executive officer, including regional dental directors and regional operations directors, (B) providing for the payment of any cash or other compensation or benefits upon the consummation of the transactions contemplated hereby or (C) otherwise restricting its ability to terminate the employment of any employee at anytime for any lawful reason or for no reason without penalty or liability; (iv) contract or agreement involving any Governmental Agency involving more than $25,000 other than in the Ordinary Course of Business; (v) agreement or indenture relating to borrowed money or other Indebtedness or the mortgaging, pledging or otherwise placing a Lien on any material asset or material group of assets of the Company or any letter of credit arrangements; (vi) guarantee, other than endorsements made for collection in the Ordinary Course of Business consistent with past custom and practice; -16- (vii) lease or agreement under which the Company is (A) lessee of or holds or operates any personal property, owned by any other party, except for any lease of personal property under which the aggregate annual rental payments do not exceed $10,000 or (B) lessor of or permits any third party to hold or operate any property, real or personal, owned or controlled by the Company; (viii) contract or group of related contracts with the same party or group of Affiliated parties for the purchase or sale of raw materials, commodities, supplies, products, equipment or other personal property or services under which the undelivered balance since the Audit Date of such products and services has a selling price in excess of $50,000; (ix) contract relating to the marketing, advertising or promotion of its products or services involving more than $25,000; (x) agreement under which it has granted any Person any registration rights (including demand and piggyback registration rights); (xi) agreements relating to the ownership of, investments in or loans and advances to any Person, including investments in joint ventures and minority equity investments; (xii) license, royalty, indemnification or other agreement with respect to any intangible property (including any Intellectual Property), including any agreements that prohibit or limit the ability of the Company to use or disclose any Intellectual Property or to engage in any line of business, or to compete with any Person or to carry on its business or any other business anywhere in the world other than in the Ordinary Course of Business; (xiii) broker, agent, sales representative, sales or distribution agreement other than in the Ordinary Course of Business; (xiv) power of attorney or other similar agreement or grant of agency; (xv) contract or agreement prohibiting it from freely engaging in any business or competing anywhere in the world, including any nondisclosure or confidentiality agreements; or (xvi) other agreement which involves a consideration in excess of $50,000 annually, other than in the Ordinary Course of Business. (b) The Company has delivered or made available to Sentinel a correct and complete copy (as amended to date) of each contract, agreement, and instrument set forth on Schedule 4.15 (collectively, the "Material Contracts"). With respect to each Material Contract: (i) such Material Contract is legal, valid and binding, enforceable against the Company in accordance with its terms (except to the extent required by Creditors Rights Laws), and in full force and effect; (ii) such Material Contract will continue to be legal, valid and binding, enforceable against the Company in accordance with the terms (except to the extent required by Creditors Rights Laws), and in full force and effect on identical terms following the consummation of the transactions contemplated hereby; (iii) to the Company's knowledge no party to such Material Contract is in breach or default of the terms thereof, and to the Company's knowledge no event has occurred which with notice or lapse of time would constitute a breach or default, or permit termination, modification, or acceleration, under such Material Contract; and (iv) no party to such Material Contract has repudiated any provision thereof. -17- (c) Except as specifically set forth on Schedule 4.15, the Company is not a party to any contract, agreement, instrument or understanding that contains a "change in control," "potential change in control," or similar provision, in each case, that would be triggered by the transactions contemplated hereunder. 4.16 Intellectual Property. (a) Schedule 4.16(a) sets forth a true, complete and correct list of all of the following that are owned or used by the Company in the conduct of its business: (i) patented or registered Intellectual Property and pending patent applications or other applications for registrations of Intellectual Property; (ii) material unregistered trademarks, material unregistered service marks, trade names and corporate names; (iii) material unregistered copyrights, excluding copyrights relating to business records maintained in the Ordinary Course of Business; and (iv) any other material Intellectual Property. (b) Schedule 4.16(b) sets forth a true, complete and correct list of material Intellectual Property that the Company has licensed from or to a third party, along with a list of all such licenses. (c) Except as set forth on Schedule 4.16(c): (i) the Company owns and possesses all right, title, and interest in and to, or has a valid and enforceable written license to use, all of the Intellectual Property set forth on Schedule 4.16(a) and all other material Intellectual Property necessary for the operation of the business of the Company as presently conducted and as presently proposed to be conducted (collectively, the "Company Intellectual Property"); (ii) the Company Intellectual Property is not subject to any Liens (other than Permitted Liens), and is not subject to any restrictions or limitations regarding use or disclosure; (iii) the Company has not infringed or misappropriated or otherwise violated, and the operation of the business, will not infringe, misappropriate or otherwise violate any material Intellectual Property of any third party. To the knowledge of the Company, the Company has not been threatened with any of the foregoing and is not aware of any facts which indicate a likelihood of any of the foregoing. The Company has not received any notices regarding any of the foregoing (including any demands or offers to license any Intellectual Property from any third party); (iv) the Company has taken commercially reasonable actions to maintain and protect all of the Company Intellectual Property so as not to adversely affect the ownership, validity or enforceability thereof; (v) immediately subsequent to the Closing, the Company Intellectual Property will be owned by or available for use by the Company on terms and conditions identical -18- to those under which the Company owned or used the Company Intellectual Property immediately prior to the Closing; (vi) no material claim by any third party contesting the validity, enforceability, use or ownership of any of the Company Intellectual Property has been made, is currently outstanding, or, to the knowledge of the Company, is threatened, and there are no grounds for the same; (vii) no loss or expiration of any of the Company Intellectual Property is threatened, pending or reasonably foreseeable, except for patents and copyrights expiring at the end of their statutory terms (and not as a result of any act or omission by the Company, including a failure by the Company to pay any required maintenance fees); and (viii) to the knowledge of the Company, no third party has infringed or misappropriated any of the Company Intellectual Property owned by the Company and the Company is not aware of any facts that indicate a likelihood of any of the foregoing. 4.17 Employees. Since the Audit Date, no key employees and no group of employees has terminated, or to the knowledge of the Company plans to terminate, employment with the Company or any Subsidiary, as applicable. The Company is not a party to or bound by any collective bargaining agreement, nor has it experienced any strike, material grievance, material claim of unfair labor practice or other collective bargaining dispute. To the knowledge of the Company there is no organizational effort being made or threatened by or on behalf of any labor union with respect to its employees. To the Company's knowledge, the Company has not committed any unfair labor practice or materially violated any federal, state or local law or regulation regulating employers or the terms and conditions of its employees' employment, including laws regulating employee wages and hours, employment discrimination, employee civil rights, equal employment opportunity and employment of foreign nationals. Schedule 4.17 describes each loan or other extension of credit made by the Company or any of its Subsidiaries to or for the account of any director, executive officer or employee of the Company or any of its Subsidiaries in excess of $5,000. 4.18 ERISA; Employee Benefits. Each Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service or has timely filed for a favorable determination letter from the Internal Revenue Service and no event has occurred since the date of the last determination letter that could reasonably be expected to materially adversely affect the qualified status of such Plan. Each Plan is in full force and effect and has been administered in accordance with its terms and is and has been, and each plan administrator and fiduciary of a Plan is acting and has been acting, in compliance with all applicable requirements of the Code and ERISA (including the funding, reporting and disclosure and prohibited transaction provisions thereof) and other applicable laws, regulations and rulings in connection with each such Plan. No Plan has been terminated or partially terminated. The Company has no Plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA. The Company or one of its Subsidiaries has made, accrued or provided for all contributions required under each Plan. To the knowledge of the Company, no event has occurred or is reasonably expected to occur with respect to any employee pension benefit plan of the Company or any member of the Company's controlled group (within the meaning of Section 414 of the Code), which could reasonably be expected to directly or indirectly result in any material liability (other than liability arising in the Ordinary Course of Business) to the Company or any member of its controlled group pursuant to Title IV of ERISA or Section 412 of the Code. No Plan has incurred an "accumulated funding deficiency" within the meaning of Section 412 of the Code or Section 302 of ERISA. -19- 4.19 Environment, Health and Safety. (a) The Company (as used in this Section 4.19, Company shall include the Company's Subsidiaries) has complied and is in compliance in all material respects with all Environmental and Safety Requirements that are applicable to the Company's business; (b) The Company has not treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled or released any substance (including any hazardous substance) or owned, occupied or operated any facility or property (and no such property or facility is contaminated by any such substance) in a manner that has given or could give rise to any material liabilities (including any liability for response costs, corrective action costs, personal injury, natural resource damages, property damage or attorneys fees or any investigative, corrective or remedial obligations) pursuant to any Environmental and Safety Requirements; (c) The Company has not received any written notice, report or other information regarding any liabilities or potential liabilities (whether accrued, absolute, contingent, unliquidated or otherwise), including any investigatory, remedial or corrective obligations, relating to the Company or its facilities and arising under Environmental and Safety Requirements; and (d) Other than pursuant to publicly announced acquisitions, the Company has not, either expressly or by operation of law, assumed or undertaken any liability, including any obligation for corrective or remedial action, of any other Person relating to Environmental and Safety Requirements. 4.20 Transactions With Affiliates. Except as specifically set forth on Schedule 4.15 and for Permitted Affiliate Transactions, neither the Company nor any Subsidiary is party to any agreement, arrangement or transaction with any Affiliate. 4.21 Taxes. Except as set forth on Schedule 4.21: (a) each of the Company and its Subsidiaries has filed all Tax Returns that it was required to file, and has paid all Taxes shown thereon as owing; (b) all such Tax Returns are true, correct and complete in all respects; (c) none of the Company and its Subsidiaries (A) has been a member of an Affiliated group filing a consolidated federal Tax Return (other than a group the common parent of which is the Company) or (B) has any liability for the Taxes of any Person (other than any of the Company and its Subsidiaries) under Treas. Reg. ss.1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise; (d) each of the Company and its Subsidiaries has withheld and paid in all material respects all taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party; and (e) there is no dispute or claim concerning any Tax Liability of any of the Company and its Subsidiaries either (A) claimed or raised by any authority in writing or (B) as to which any of the directors and officers (and employees responsible for Tax matters) of the Company and its Subsidiaries has knowledge based upon personal contact with any agent of such authority and which is material to the Company and its Subsidiaries taken as a whole. -20- 4.22 Investment Company. The Company is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 4.23 Certain Fees. Other than any fees or expenses to be paid in accordance with Section 10.5 and other than fees to be paid to Burnham Securities Inc. (which are set forth on Schedule 4.23), no fees or commissions will be payable by the Company to any broker, financial advisor, finder, investment banker, or bank with respect to the transactions contemplated by this Agreement. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of any Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by this Agreement. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS Each Purchaser hereby, severally and not jointly, represents and warrants to the Company as follows: 5.1 Authorization and Enforceability. Such Purchaser has full power and authority and has taken all action necessary to permit it to execute and deliver this Agreement and the other documents and instruments to be executed by it pursuant hereto and to carry out the terms hereof and thereof. This Agreement and such other documents and instruments each constitutes a legal, valid and binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws of general application related to the enforcement of creditor's rights generally and except as rights to indemnity thereunder may be limited by applicable federal securities laws. 5.2 Government Approvals. Such Purchaser is not required to obtain any order, consent, approval or authorization of, or to make any declaration or filing with, any Governmental Agency in connection with the execution and delivery of this Agreement and the other documents and instruments to be executed by it pursuant hereto or the consummation of the transactions contemplated hereby and thereby (other than Midwest's obligations to file certain notices with the U.S. Small Business Administration), except for such order, consent, approval, authorization, declaration or filing as which has been or will be obtained or made. 5.3 Investment Intent of Such Purchaser. Such Purchaser is acquiring the Securities for its own account, with no present intention of selling or otherwise distributing the same to the public. 5.4 Status of Securities. Such Purchaser has been informed by the Company that the Securities have not been and will not be registered under the Securities Act or under any state securities laws and are being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering. 5.5 Sophistication and Financial Condition of Such Purchaser. Such Purchaser represents and warrants to the Company that it is an "Accredited Investor" as defined in Regulation D under the Securities Act and that it considers itself to be an experienced and sophisticated investor and to have such knowledge and experience in financial and business matters as are necessary to evaluate the merits and risks of an investment in the Securities. Such Purchaser has been given access to such information regarding the Company and its Subsidiaries as it has requested and has had the opportunity to obtain additional information as desired and to ask questions and has received answers regarding such information in order to evaluate the merits and the risks inherent in holding the Securities. The facts set -21- forth in the preceding sentence, shall not affect any representation or warranty in this Agreement of any party hereto or any condition to the obligations of the parties hereto, nor shall it affect the Company's indemnification obligations arising under Article IX hereof. 5.6 Stockholders Agreement. Such Purchaser has been informed by the Company and hereby agrees that the (i) Series B Shares and Conversion Shares may be transferred only in accordance with the terms set forth in the Stockholders Agreement and are otherwise subject to the Stockholders Agreement, and (ii) the Notes may be transferred only in accordance with the terms set forth in the Notes. ARTICLE VI CONDITIONS PRECEDENT 6.1 Conditions to Obligations of the Purchasers at Closing. The obligation of the Purchasers to purchase the Series B Shares and the Notes to be purchased at the Closing in accordance with Section 3.3 shall be subject to the satisfaction or waiver by the Purchasers of the following conditions precedent on or prior to the Closing Date: (a) the Certificate shall have been filed with the Secretary of State of the State of Delaware and shall be in full force and effect as of the Closing Date and shall not have been modified in any manner; (b) as of the Closing Date the representations and warranties made by the Company in Article IV hereof and in any Related Document shall be true and correct in all respects to the extent they are qualified by materiality or Material Adverse Effect, and to the extent not so qualified shall be true and correct in all material respects; (c) as of the Closing Date the Company shall have received all consents and approvals, including, Board of Director, governmental and material third party consents or approvals that are required to be obtained in connection with the transactions contemplated under this Agreement and the Related Documents; (d) David S. Lobel, Paul F. Murphy and Fitzpatrick shall have been duly nominated and elected to serve as members of the Board of Directors, effective as of the tenth day following mailing of the Information Statement to the stockholders of the Company; (e) the following individual shall have resigned his position on the Board of Directors, effective as of the Closing Date, Paul Kreie; (f) as of the Closing Date neither the Company nor any Subsidiary shall have suffered or caused to have been suffered since the Audit Date, any occurrence, event or transaction which, individually or together with each other occurrence, event or transaction, shall have had or could reasonably be expected to have had a Material Adverse Effect; (g) the Stockholders Agreement shall have been duly executed and delivered by the parties thereto and shall be in full force and effect; (h) the Registration Rights Agreement shall have been duly executed and delivered by the parties thereto and shall be in full force and effect; -22- (i) the Management Agreement shall have been duly executed and delivered by the parties thereto and shall be in full force and effect; (j) the Company shall have entered into an employment agreement with James M. Usdan in substitution of his current employment agreement, on terms acceptable to Sentinel; (k) the Company shall have entered into an employment agreement with Elliott Schlang in substitution of his current employment agreement, on terms acceptable to Sentinel; (l) the Company shall have restructured its senior credit financing on terms acceptable to Sentinel; (m) the Company shall have paid the fees and expenses owed to Sentinel pursuant to Section 10.5 hereof; (n) the filing of the Authorized Share Amendment shall have been approved by the holders of securities entitled to cast a majority of the votes entitled to be cast at any meeting of the stockholders of the Company; (o) the filing of the Series A Amendment shall have been approved by the holders of at least 75% of the outstanding Series A-1 Preferred Stock and the holders of warrants to purchase at least 66-2/3% of the Series A-2 Preferred Stock issuable upon exercise of all such warrants; (p) the Holders of at least 75% of the outstanding Series A-1 Preferred Stock and the holders of warrants to purchase at least 66-2/3% of the Series A-2 Preferred Stock issuable upon exercise of all such warrants shall have approved the filing of the Certificate; (q) the Stockholders Agreement dated as of July 19, 2002, by and among the Company, Bank of America Strategic Solutions, Inc., a Delaware corporation ("BofA"), FSC Corp., a Massachusetts corporation ("FSC"), and Amsouth Bank, a national banking association ("Amsouth," and collectively with BofA and FSC, the "Sellers"), GE, Midwest and Usdan shall have been terminated; (r) the Company shall have agreed to purchase 49,875 Warrants from the Sellers for an aggregate purchase price of $625,000, and shall have made an initial payment of $450,000 with respect thereto; (s) the Registration Rights Agreement dated as of July 19, 2002, by and among the Company, the Sellers, GE, Midwest and Usdan shall have been terminated as to the Sellers, GE, Midwest and Usdan; (t) the Investors Agreement dated as of July 19, 2002, by and among the Company, GE, Midwest and Usdan shall have been terminated; (u) the Company shall have duly completed, executed and delivered to Midwest such SBA Forms and a letter agreement concerning SBA matters as Midwest may reasonably request; and (v) the following documents and items shall have been delivered to the Purchasers at the Closing: (i) the written opinion of Haynes and Boone, LLP, counsel to the Company, dated as of the Closing Date and satisfactory in form and substance to the Purchasers; -23- (ii) certificates evidencing ownership of the Series B Shares and the Notes purchased at the Closing by the Purchasers, in each case duly executed and delivered by the Company; (iii) a certificate of a duly authorized officer of the Company dated as of the Closing Date certifying that (A) the closing conditions described in Section 6.1(a) through Section 6.1(v) have been satisfied, and (B) the resolutions of the Board of Directors attached thereto (which resolutions shall have, among other things, authorized all of the transactions contemplated by this Agreement and the Related Documents, and approved this Agreement and the Related Documents (including the Certificate); (iv) a copy of the unaudited consolidated financial statements of the Company and its Subsidiaries for the three-month period ended March 31, 2003 form and substance to the Purchasers in their sole discretion; and (v) such other documents relating to the transactions contemplated hereby as the Purchasers may reasonably request. 6.2 Conditions to Obligations of the Company at Closing. The obligation of the Company to sell and issue the Series B Shares and the Notes to the Purchasers at the Closing in accordance with Section 3.3 shall be subject to: (a) the delivery by the Purchasers of the Sentinel Purchase Price, the Fitzpatrick Purchase Price, the Slack Purchase Price, the Usdan Cash Purchase Price, the Purchaser Warrants and the Purchaser Notes in accordance with Section 3.3; (b) as of the Closing Date, the Purchasers having received all consents and approvals, including governmental and third party consents or approvals that are required to be obtained in connection with the transactions contemplated under this Agreement and the Related Documents; (c) as of the Closing Date, the representations and warranties made by the Purchasers in Article V hereof being true and correct in all respects to the extent they are qualified by materiality or Material Adverse Effect, and to the extent not so qualified shall be true and correct in all material respects; and (d) a certificate of a duly authorized officer of each Purchaser dated as of the Closing Date certifying that the closing conditions described in Sections 6.2(b) and 6.2(c), as they pertain to such Purchaser, have been satisfied. 6.3 Conditions to Obligations of Sentinel and the Additional Purchasers at Subsequent Closing. The obligation of Sentinel and the Additional Purchasers to purchase the Subsequent B Shares and the Subsequent Notes at the Subsequent Closing in accordance with Section 3.4 shall be subject to the satisfaction or waiver by Sentinel of the following conditions precedent on or prior to the Subsequent Closing Date: (a) the Certificate shall have been filed with the Secretary of State of the State of Delaware and shall be in full force and effect as of the Subsequent Closing Date and shall not have been modified in any manner; (b) as of the Subsequent Closing Date the Company shall have received all consents and approvals, including, Board of Director, governmental and material third party consents or approvals -24- that are required to be obtained in connection with the transactions contemplated under this Agreement and the Related Documents; (c) four individuals designated by Sentinel shall have been duly nominated and elected to serve as members of the Board of Directors, effective prior to the Subsequent Closing Date; (d) as of the Subsequent Closing Date neither the Company nor any Subsidiary shall have suffered or caused to have been suffered since the Closing Date, any occurrence, event or transaction which, individually or together with each other occurrence, event or transaction, shall have had or could reasonably be expected to have had a Material Adverse Effect; (e) the Company shall have paid the fees and expenses owed to Sentinel pursuant to Section 10.5 hereof; (f) the Authorized Share Amendment shall have been filed with the Secretary of State of the State of Delaware and shall be in full force and effect as of the Subsequent Closing Date and shall not have been modified in any manner; (g) the Series A Amendment shall have been filed with the Secretary of State of the State of Delaware and shall be in full force and effect as of the Subsequent Closing Date and shall not have been modified in any manner; and (h) the following documents and items shall have been delivered to Sentinel and the Additional Purchasers, if any, at the Subsequent Closing: (i) certificates evidencing ownership of the Subsequent B Shares and the Subsequent Notes purchased by Sentinel and the Additional Purchasers, if any, in each case duly executed and delivered by the Company; (ii) a certificate of a duly authorized officer of the Company dated as of the Subsequent Closing Date certifying that (A) the closing conditions described in Section 6.3(a) through Section 6.3(g) have been satisfied, and (B) the resolutions of the Board of Directors attached thereto (which resolutions shall have, among other things, authorized all of the transactions contemplated by this Agreement and the Related Documents, and approved this Agreement and the Related Documents (including the Certificate); and (iii) such other documents relating to the transactions contemplated hereby as Sentinel may reasonably request. 6.4 Conditions to Obligations of the Company at Subsequent Closing. The obligation of the Company to sell and issue the Subsequent B Shares and the Subsequent Notes to the Purchasers at the Subsequent Closing in accordance with Section 3.4 shall be subject to: (a) the delivery by Sentinel and each Additional Purchaser, if any, of the applicable purchase price in accordance with Section 3.4; (b) as of the Closing Date, Sentinel and the Additional Purchasers, if any, having received all consents and approvals, including governmental and third party consents or approvals that are required to be obtained in connection with the transactions contemplated under this Agreement and the Related Documents; -25- (c) as of the Subsequent Closing Date, the representations and warranties made by Sentinel and the Additional Purchasers, if any, in Article V hereof being true and correct in all respects to the extent they are qualified by materiality or Material Adverse Effect, and to the extent not so qualified shall be true and correct in all material respects; and (d) a certificate of a duly authorized officer of Sentinel and each Additional Purchaser, if any, dated as of the Subsequent Closing Date certifying that the closing conditions described in Sections 6.4(b) and 6.4(c), as they pertain to such Purchaser, have been satisfied. ARTICLE VII COVENANTS 7.1 Required Actions. For so long as any of the Series B Shares or the Notes remain outstanding, the Company shall and, where applicable, shall cause each Subsidiary to: (a) maintain and keep its properties in good repair, working order and condition, and from time to time make all necessary or desirable repairs, renewals and replacements, so that its businesses may be properly and advantageously conducted in all material respects at all times; (b) maintain or cause to be maintained with financially sound and reputable insurers that have a rating of "A" or better as established by Best's Rating Guide (or an equivalent rating with such other publication of a similar nature as shall be in current use), (i) public liability and property damage insurance with respect to their respective businesses and properties against loss or damage of the kinds and in amounts customarily carried or maintained by companies of established reputation engaged in similar businesses, and (ii) unless the Board of Directors decides in exercising their fiduciary duties that such directors' and officers' liability coverage is not prudent, directors' and officers' liability insurance providing at least the same coverage and amounts and containing terms and conditions which are not less advantageous in any material respect, in each case than the directors' and officers' liability insurance maintained by the Company as of the Closing Date; (c) pay and discharge when due all tax liabilities, assessments and governmental charges or levies imposed upon its properties or upon the income or profits therefrom (in each case before the same become delinquent and before penalties accrue thereon), unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP, consistently applied, are being maintained by the Company; (d) at all times cause to be done all things necessary to maintain, preserve and renew its corporate existence and all material licenses, authorizations and permits necessary to the conduct of its businesses; provided, that the Company may liquidate, merge out of existence or otherwise dissolve immaterial Subsidiaries; (e) comply with all applicable laws, rules and regulations of all Government Agencies and material contracts of the Company, the violation of which could reasonably be expected to have a Material Adverse Effect; (f) maintain proper books of record and account which present fairly in all material respects its financial condition and results of operations and make provisions on its financial statements for all such proper reserves as in each case are required in accordance with GAAP, consistently applied; -26- (g) following filing of the Authorized Share Amendment with the Delaware Secretary of State, reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purposes of issuance upon conversion of the Series B Shares, such number of shares of Common Stock as are issuable upon the conversion of all outstanding Series B Shares. During the period while the Series B Shares are outstanding, the Company will at all times have authorized and reserved at least 100% of the number of Conversion Shares needed to provide for the conversion of the Series B Shares (and if there is ever an insufficient amount of Conversion Shares to provide for the conversion of the Series B Shares, the Company shall immediately take all action necessary to cause the number of Company's authorized shares of Common Stock to be sufficient to accomplish the conversion rights of the Series B Shares). All shares of Common Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all Taxes, liens and charges. The Company shall take all such actions as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which shall be immediately transmitted by the Company upon issuance); (h) use its reasonable best efforts to at all times file all reports (including annual reports, quarterly reports and the information, documentation and other reports) required to be filed by the Company under the Exchange Act and Sections 13 and 15 of the rules and regulations adopted by the SEC thereunder, and the Company shall use its reasonable best efforts to file each of such reports on a timely basis, and take such further action as any holder or holders of Securities may reasonably request, all to the extent required to enable such holders to sell Securities pursuant to Rule 144 adopted by the SEC under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the SEC and to enable the Company to register securities with the SEC on Form S-3 or any similar short-form registration statement and upon the filing of each such report deliver a copy thereof to each holder of the Series B Shares. 7.2 Use of Proceeds. The proceeds from the issuance of the Series B Preferred Stock and the Notes will be used by the Company (i) to repay outstanding indebtedness (ii) to repurchase warrants, (iii) to pay the costs of the transactions contemplated by this Agreement, and (iv) for working capital and general corporate purposes. 7.3 Information Rights. The Company shall furnish to each Purchaser who holds at least 5% of the Common Stock on a fully diluted as if converted basis (and regardless to each of GE and Midwest if such Purchaser holds at least a majority of the Series B Shares such Purchaser purchased hereunder): (a) within 105 days after the end of each fiscal year (or, if required to be filed with the SEC sooner, then concurrently with such filing), its Form 10-K containing its audited consolidated balance sheet and related statements of income, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by PriceWaterhouseCoopers or other independent public accountants of recognized national standing (without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Company and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied; (b) within 105 days after the end of each fiscal year (or, if required to be filed with the SEC sooner, then concurrently with such filing), its consolidated balance sheets and related statements of income, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all certified by one of its Financial -27- Officers as presenting fairly in all material respects the results of operations of the Company on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; (c) within 60 days after the end of each of the first three fiscal quarters of each fiscal year (or, if required to be filed with the SEC sooner, then concurrently with such filing), its Form 10-Q containing its consolidated balance sheet and related statements of income, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year; (d) within 60 days after the end of each of the first three fiscal quarters of each fiscal year, its consolidated balance sheet and related statements of income, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the budget and previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the results of operations of the Company on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; (e) within 30 days after the end of each month which is neither a fiscal year end nor a fiscal quarter end, its consolidated balance sheet and related statements of income, stockholders' equity and cash flows as of the end of and for such month and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the results of operations of the Company on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; (f) by no later than December 15 of each fiscal year, a budget and business plan for the immediately succeeding fiscal year in the form approved by the Company's board of directors, in form, scope and detail satisfactory to the Purchasers and on a quarterly basis for each fiscal quarter of such succeeding fiscal year; (g) promptly after the same become publicly available, (to the extent not available through electronic means) copies of all periodic and other reports, proxy statements and other materials filed by the Company or any Subsidiary with the SEC, or any Governmental Agency succeeding to any or all of the functions of the SEC, or with any national securities exchange, or distributed by the Company to its stockholders generally, as the case may be; (h) promptly after the same are delivered to the members of the Board of Directors, copies of all business plans and other financial plans relating to the Company and/or its Subsidiaries; and (i) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Company or any Subsidiary, or compliance with the terms of the this Agreement or any Related Document, as the Purchasers may reasonably request. 7.4 Access Rights. The Company shall permit the Purchasers, their agents and representatives to have reasonable access to the management personnel, premises, contracts, books and records of the Company and its Subsidiaries upon reasonable notice during regular business hours. -28- 7.5 Certain Actions. As soon as practicable after the Closing Date but in any event by May 23, 2003, the Company shall file the preliminary Information Statement with the SEC, which shall be in a form reasonably acceptable to the Purchasers. As soon as reasonably practicable after receiving SEC approval with respect to such preliminary Information Statement, the Company shall mail the Information Statement to the stockholders of the Company. On the 10th day after mailing the Information Statement to the stockholders of the Company, the Company shall cause the change to the Board of Directors contemplated by Section 6.1(d) to take effect. Within 21 days of mailing the Information Statement to the stockholders of the Company, the Company shall cause the Authorized Share Amendment to be filed with the Delaware Secretary of State. On the day the Information Statement is mailed to the stockholders of the Company, the Company shall cause the Series A Amendment to be filed with the Secretary of State of Delaware. ARTICLE VIII SURVIVAL 8.1 Survival. The representations and warranties of the Purchasers and the Company contained herein shall survive the Closing and expire on the date that is 90 days after the date on which the Company files with the SEC its Form 10-K for the fiscal year ending on December 31, 2003; provided, that (i) the representations and warranties made by the Company in Sections 4.1, 4.2, 4.3, 4.20, and 4.23 shall survive indefinitely, (ii) the representations and warranties made by the Company in Sections 4.18 and 4.19 shall survive until the fourth anniversary of the Closing Date, and (iii) the representations and warranties made by the Company in Section 4.21 shall survive for the duration of any applicable statute of limitations (including any extensions thereof). ARTICLE IX INDEMNIFICATION 9.1 Indemnification. (a) In consideration of the Purchasers' execution and delivery of this Agreement and acquiring the Series B Shares and the Notes hereunder and in addition to all of the Company's other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless the Purchasers and all of their respective Affiliates, officers, managers, advisors, directors, employees and agents (including those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Indemnitees") from and against any and all actions, causes of action, suits, claims (including actions, causes of action, suits and claims brought by or against Person, including stockholders of the Company on behalf of themselves and their respective subsidiaries), losses, costs, penalties, fees, liabilities and damages, and expenses (including costs of suit and all reasonable attorneys' fees and expenses incurred in connection with investigating, preparing for and responding to third party subpoenas or enforcing this Agreement) in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought) or other liabilities, losses or, in the case of clauses (i) and (ii) below, diminution in value (the "Indemnified Liabilities"), incurred by the Indemnitees or any of them as a result of, or arising out of, or relating to (i) the breach of any representation or warranty contained in this Agreement or in any Related Document, or (ii) the breach of any promise, agreement or covenant contained in this Agreement or in any Related Document. (b) The Company shall reimburse the Indemnitees for the Indemnified Liabilities as such Indemnified Liabilities are incurred. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment -29- and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. The indemnification provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the Indemnitee or any officer, director or controlling Person of such Indemnitee and will survive the transfer of securities. (c) Any Person entitled to indemnification hereunder (i) will give prompt written notice to the Company of any claim with respect to which it seeks indemnification and (ii) if the Indemnified Liability arises from a third party claim, unless in such Indemnitee's reasonable judgment a conflict of interest between the Company and such Indemnitee may exist with respect to such third party claim, will permit the Company to assume the defense of such claim with counsel reasonably satisfactory to the Indemnitee. If such defense is assumed, the Company will not be subject to any liability for any settlement made by the Indemnitee without its consent (but such consent will not be unreasonably withheld). If the Company is not entitled to, or elects not to, assume the defense of a claim hereunder, the Company will not be obligated to pay the fees and expenses of more than one counsel for all Indemnitees with respect to such claim, unless in the reasonable judgment of any Indemnitee a conflict of interest may exist between such Indemnitee and any other of such Indemnitees with respect to such claim. In such instance, the conflicting Indemnitees shall have the right to obtain one separate counsel, chosen by the majority of each separate group of conflicting Indemnitees, at the expense of the Company. (d) Payments by the Company pursuant to Section 9.1(a) shall be limited to the amount of any liability or damage that remains after deducting therefrom any insurance proceeds and any indemnity, contribution or other similar payment recovered by the Indemnitees from any third party with respect thereto. (e) Notwithstanding anything to the contrary set forth herein, no Indemnitee shall be entitled to be indemnified pursuant to this Article IX for any Indemnified Liability that arises as a result of the Indemnitee's gross negligence or willful misconduct; provided, however, that the Company shall pay the expenses incurred by any such Indemnitee hereunder, as such expenses are incurred, in connection with any proceeding in advance of the final disposition, so long as the Company receives an undertaking by such Indemnitee to repay the full amount advanced if there is a final determination that such Indemnitee failed the standards set forth above or that such Indemnitee is not entitled to indemnification as provided herein for other reasons; and provided, further, that the termination of any action, suit or proceeding by judgment, order, settlement, conviction, or a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that such Indemnitee was either grossly negligent or engaged in willful misconduct. (f) Notwithstanding anything to the contrary set forth herein, no Purchaser shall pursue any claim for indemnification hereunder unless Sentinel agrees in writing to pursue such claim as well. ARTICLE X GENERAL PROVISIONS 10.1 Public Announcements. Neither Sentinel nor the Company shall make, or permit any agent or Affiliate to make, any public statements, including any press releases, with respect to this Agreement and the transactions contemplated hereby without the prior written consent of the other, except as may be required by law or the rules of any exchange on which the Company's securities may be listed or any inter-dealer quotation system in which the Company's securities may be authorized to be quoted; provided that the Company's consent will not be necessary with respect to statements (not including the initial press release regarding the transactions contemplated herein made on or about the -30- Closing Date) contained in or on, as the case may be, Sentinel's and its Affiliates' marketing materials or websites, provided that Sentinel shall not mention GE, Midwest or their respective Affiliates (which shall not include the Company and its Subsidiaries for this purpose) by name without their consent. 10.2 Successors and Assigns. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, including each subsequent holder of Series B Shares, Notes or Conversion Shares. Except as otherwise specifically provided herein, this Agreement shall not be assignable by any party without the prior written consent of the other parties hereto; provided, that the Purchasers shall be entitled to assign their rights and obligations under this Agreement to any transferee of Series B Shares or Notes without the consent of the Company so long as (i) the transfer of such Series B Shares is made in accordance with the Stockholders Agreement, and (ii) the transfer of such Notes is made in accordance with the terms of the Notes. 10.3 Entire Agreement. This Agreement and the Related Documents and each other writing referred to herein or delivered pursuant hereto constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior arrangements or understandings. 10.4 Notices. All notices, requests, consents and other communications provided for herein shall be in writing and shall be (i) delivered in person, (ii) transmitted by telecopy, (iii) sent by first-class, registered or certified mail, postage prepaid, or (iv) sent by reputable overnight courier service, fees prepaid, to the recipient at the address or telecopy number set forth below, or such other address or telecopy number as may hereafter be designated in writing by such recipient. Notices shall be deemed given upon personal delivery, seven days following deposit in the mail as set forth above, upon acknowledgment by the receiving telecopier or one day following deposit with an overnight courier service. To the Company, to: ------------------ Castle Dental Centers, Inc. 3701 Kirby Drive Suite 550 Houston, TX 77098 Attention: James M. Usdan Facsimile: (713) 490-8420 With a copy, which shall not constitute notice to the Company, to: ----------------------------------------------------------------- Haynes and Boone, LLP 1000 Louisiana Street Suite 4300 Houston, TX 77002 Attention: John W. Menke Facsimile: (713) 236-5560 -31- To Sentinel, to: --------------- Sentinel Capital Partners 777 Third Avenue 32nd Floor New York, NY 10017 Attention: David S. Lobel Paul F. Murphy Facsimile: (212) 688-6513 With a copy, which shall not constitute notice to Sentinel, to: -------------------------------------------------------------- Kirkland & Ellis Citigroup Center 153 East 53rd Street New York, NY 10022-4675 Attention: Frederick Tanne, Esq. Facsimile: (212) 446-4900 To GE, to: --------- GENERAL ELECTRIC CAPITAL CORPORATION c/o Heller Healthcare Financial Services 500 West Monroe Street Chicago, IL 60661 Attention: Jay Sepanski Facsimile: (312) 441-7598 With a copy, which shall not constitute notice to GE, to: -------------------------------------------------------- GENERAL ELECTRIC CAPITAL CORPORATION c/o Heller Healthcare Financial Services 2 Wisconsin Circle, 4th Floor Chevy Chase, MD 20815 Attention: Katherine R. Lofft, Esq. Facsimile: (301) 664-9866 To Midwest, to: -------------- Midwest Mezzanine Fund II, L.P. 135 South LaSalle Street, Suite 2040 Chicago, IL 60603 Attention: Paul Kreie Facsimile: (312) 992-4595 To Usdan, to: ------------ c/o Castle Dental Centers, Inc. 3701 Kirby Drive, Suite 550 -32- Houston, TX 77098 Facsimile: (713) 490-8420 To Slack, to: ------------ c/o Castle Dental Centers, Inc. 3701 Kirby Drive, Suite 550 Houston, TX 77098 Facsimile: (713) 490-8420 To Fitzpatrick, to: ------------------ c/o Sentinel Capital Partners 777 Third Avenue 32nd Floor New York, NY 10017 Attention: David S. Lobel Paul F. Murphy Facsimile: (212) 688-6513 or, in each case, to such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. 10.5 Closing Fee; Fees and Expenses. (a) On the Closing Date, in consideration for the services Sentinel or its Affiliates performed in structuring and arranging the transactions contemplated by this Agreement and the Related Documents, the Company will pay to Sentinel Capital Partners, LLC (or its Affiliate) a transaction fee equal to $485,000 (the "Closing Fee"), by wire transfer of immediately available funds to an account indicated to the Company by Sentinel. In addition, on the Closing Date the Company shall reimburse Sentinel for (i) the reasonable fees and expenses of Kirkland & Ellis, Fulbright & Jaworski LLP and PriceWaterhouseCoopers LLP incurred by Sentinel in connection with the documentation, negotiation and consummation of the transactions contemplated by this Agreement and the Related Documents, and (ii) all other reasonable fees and out-of-pocket expenses incurred by Sentinel in connection with the transactions contemplated hereunder (including fees and expenses of legal counsel, accountants, investment bankers, brokers or other representatives). In addition, on the Closing Date the Company shall reimburse GE and Midwest for the reasonable fees and out-of-pocket expenses incurred by them in connection with the documentation, negotiation and consummation of the transactions contemplated by this Agreement and the Related Documents. After the Closing, the Company agrees to reimburse Sentinel, GE and Midwest for all reasonable fees and expenses (including reasonable legal fees) incurred in connection with the Subsequent Closing, and any future amendment to, waiver of or the enforcement by such Purchaser of any of its rights arising under this Agreement or any of the Related Documents. After the Closing, the Company shall reimburse those observers appointed pursuant to Section 2(e)(ii) of the Stockholders Agreement for the reasonable out-of-pocket expenses incurred by each such observer in connection with attending the meetings of the Board of Directors 10.6 Amendment and Waiver. No amendment or waiver of any provision of this Agreement shall be effective, unless the same shall be in writing and signed by the Company, Sentinel and the holders of a majority of the Series B Shares purchased hereunder other than those purchased by Sentinel; provided, however, no amendment or waiver can be effected if, by its terms, such amendment or -33- waiver adversely affects one Stockholder without having the same relative adverse effect on all Stockholders without the prior written consent of such adversely affected Stockholder. No such waiver shall operate as a waiver of, or estoppel with respect to, any subsequent or other failure. No failure by any party to take any action against any breach of this Agreement or default by any other party shall constitute a waiver of such party's right to enforce any provision hereof or to take any such action. 10.7 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one agreement. 10.8 Headings. The headings of the various sections of this Agreement have been inserted for reference only and shall not be deemed to be a part of this Agreement. 10.9 Specific Performance. The Company, on the one hand, and each Purchaser, on the other hand, acknowledges that money damages may not be a sufficient remedy for any breach of this Agreement. It is accordingly agreed that the parties shall be entitled to seek specific performance and injunctive relief as remedies for any such breach, these remedies being in addition to any of the remedies to which they may be entitled at law or equity. 10.10 Remedies Cumulative. Except as otherwise provided herein, the remedies provided herein shall be cumulative and shall not preclude the assertion by any party hereto of any other rights or the seeking of any other remedies against any other party hereto. 10.11 GOVERNING LAW. ALL ISSUES AND QUESTIONS RELATING TO THE CONSTRUCTION, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS OR CHOICE OF LAW OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION WHICH WOULD RESULT IN THE APPLICATION OF THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. 10.12 Waiver of Jury Trial. Each of the parties hereto waives any right it may have to trial by jury in respect of any litigation based on, arising out of, under or in connection with this Agreement or any course of conduct, course of dealing, verbal or written statement or action of any party hereto. 10.13 No Third Party Beneficiaries. Except as specifically set forth or referred to herein, nothing herein is intended or shall be construed to confer upon any person or entity other than the parties hereto and their successors or assigns, any rights or remedies under or by reason of this Agreement. 10.14 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 10.15 Time of the Essence; Computation of Time. Time is of the essence for each and every provision of this Agreement. Whenever the last day for the exercise of any privilege or the discharge or any duty hereunder shall fall upon a non-Business Day, the party having such privilege or duty may exercise such privilege or discharge such duty on the next succeeding Business Day. * * * * * -34- IN WITNESS WHEREOF, the parties have caused their duly authorized officers to execute this Preferred Stock and Subordinated Note Purchase Agreement as of the date first above written. CASTLE DENTAL CENTERS, INC. By: --------------------------------------------- Name: Title: SENTINEL CAPITAL PARTNERS II, L.P. By: Sentinel Partners II, L.P. Its: General Partner By: Sentinel Managing Company II, LLC Its: General Partner By: --------------------------------------------- Name: Title: MIDWEST MEZZANINE FUND II, L.P. By: ABN AMRO Mezzanine Management II, L.P. Its: General Partner By: ABN AMRO Mezzanine Management II, Inc. Its: General Partner By: --------------------------------------------- Name: Paul Kreie Title: Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: --------------------------------------------- Name: Title: ------------------------------------------------ JAMES M. USDAN ------------------------------------------------ THOMAS FITZPATRICK ------------------------------------------------ JOHN M. SLACK EX-99.3 5 irm344d.txt AMENDMENT TO CERTIFICATE OF DESIGNATIONS H&B Draft dated 5/14/03. CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES A-1 CONVERTIBLE PREFERRED STOCK AND SERIES A-2 CONVERTIBLE PREFERRED STOCK OF CASTLE DENTAL CENTERS, INC. The following resolution, duly adopted by the Board of Directors of Castle Dental Centers, Inc., a Delaware corporation (the "Company"), in accordance with the provisions of Sections 141(f) and 242 of the General Corporation Law of the State of Delaware and by the stockholders of the Company in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware on May 14, 2003, sets forth the Certificate of Amendment to the Certificate of Designations, Preferences and Rights of the Series A-1 Convertible Preferred Stock and Series A-2 Convertible Preferred Stock (the "Certificate of Amendment") of the Company. This Certificate of Amendment amends, restates and integrates certain provisions of the Certificate of the Designations, Preferences and Rights of the Series A-1 Convertible Preferred Stock and Series A-2 Convertible Preferred Stock (the "Certificate of Designations") of the Company, as previously filed with the Secretary of State of the State of Delaware on July 19, 2002. This Certificate of Amendment shall become effective immediately upon the filing thereof with the Secretary of State of the State of Delaware. RESOLVED, that the Certificate of Designations shall be amended as follows: Amend Section 2(a) to add the following definitions: "Adjustment Factor" shall mean (x) $0.04798729 divided by (y) the Share Price from time to time. "Affiliate" shall mean, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise); provided, that beneficial ownership of 10% or more of the voting securities (or the equivalents) of a Person shall be deemed to be control. "Change of Control' means: (i) the sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all the assets of the Company and its subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act), or (ii) the consummation of any transaction (including any merger or consolidation) the result of which is that any "person" (as defined above), other than Sentinel Capital Partners II L.P. or its affiliates, becomes the beneficial owner (as determined in accordance with Rules 13d-3 and 13d-5 under the Exchange Act except that a person will 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 50% of the Voting Securities of the Company. "Common Stock" means shares of the Company's Common Stock, $0.000001 par value per share; provided that if there is a change such that the securities issuable upon conversion of the Preferred Shares are issued by an entity other than the Company or there is a change in the type or class of securities so issuable, then the term "Common Stock" shall mean one share of the security issuable upon conversion of the Preferred Shares if such security is issuable in shares, or shall mean the smallest unit in which such security is issuable if such security is not issuable in shares. "Common Stock Deemed Outstanding" means the number of shares of Common Stock outstanding, determined on a fully diluted as if converted basis giving effect to all outstanding Common Stock and all outstanding securities convertible into or exchangeable for Common Stock ("Common Stock Equivalents") and any options (reserved for issuance as approved by the Board or issued), warrants or other rights to acquire Common Stock or Common Stock Equivalents. "Convertible Securities" means any stock or securities directly or indirectly convertible into or exchangeable for Common Stock. "Market Price" of any security means the average of the closing prices of such security's sales on all securities exchanges on which such security may at the time be listed, or, if there has been no sale 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, 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 successor organization, in each such case averaged over a period of 30 days consisting of the day as of which "Market Price" is being determined and the 29 consecutive trading days prior to such day. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the "Market Price" shall be the fair value thereof determined by the Board. "Options" means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. "Series B Preferred Stock" means the Series B Convertible Preferred Stock of the Company, par value $0.00001 per share. "Share Price" shall have the meaning ascribed to it in Section 2(f). "Stock Option Plan" means any capital stock plan adopted by the Company for the benefit of the Company's officers, employees, consultants, agents or directors which has been or is approved by the Board including the Company's 2002 Stock Option Plan. Amend and restate Section 2(b) to be and read as follows: (b) Holder's Conversion Right; Mandatory Conversion. At any time or times on or after the Issuance Date, any holder of Preferred Shares shall, at the option of such holder, be 2 entitled to convert any whole or fractional number of Preferred Shares into fully paid and nonassessable shares of Common Stock in accordance with Section 2(d), at the Conversion Rate (as defined below). In addition, upon conversion of all of the outstanding shares of Series B Convertible Preferred Stock of the Company, the Preferred Shares shall convert into fully paid and nonassessable shares of Common Stock in accordance with Section 2(d), at the Conversion Rate. The Company shall not issue any fraction of a share of Common Stock upon any conversion. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one Preferred Share by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of a fraction of a share of Common Stock. If, after the aforementioned aggregation, the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up or down to the nearest whole share. Amend and restate Section 2(c) to be and read as follows: (c) Conversion Rate. The number of shares of Common Stock issuable upon conversion of each Preferred Share pursuant to Section 2(b) shall be determined according to the following formula (the "Conversion Rate"). Conversion Amount ----------------- x Adjustment Factor Conversion Price Amend and restate subparagraphs (i), (ii) and (iv) of Section 2(d) to be and read as follows: (i) Delivery Requirements. To convert Preferred Shares into shares of Common Stock on any date (the "Conversion Date"), (A) the holder thereof shall (I) transmit, by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m. New York Time on such date, a copy of an executed conversion notice in the form attached hereto as Exhibit I (the "Conversion Notice") to the Company and (II) if all the Preferred Shares then represented by the certificate are being converted, surrender to a common carrier for delivery to the Company as soon as practicable following such date the original certificates representing the Preferred Shares being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the "Preferred Stock Certificates") or (B) the Company shall transmit, by means of a recognized over-night courier service or other means designed to deliver such notice on the first following business day, a copy of a mandatory conversion notice ("Mandatory Conversion Notice") to each holder of Preferred Shares notifying each such holder that all of the outstanding shares of Series B Convertible Preferred Stock of the Company have been (or will be upon the occurrence of a specified contingency) converted into Common Stock. In the event that the conversion of the Series B Convertible Preferred Stock is made to be contingent upon the occurrence of any event, the Conversion Date shall be the date such contingency occurs. (ii) Response to Conversion Notice or Mandatory Conversion Notice. Upon receipt by the Company of a copy of a Conversion Notice, the Company (I) shall promptly and in no event later than two (2) Business Days after receipt deliver, via facsimile, a confirmation of receipt of such Conversion Notice to such holder and the Company's designated transfer agent 3 (the "Transfer Agent"), which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein, and (II) on or before the third (3rd) Business Day following the date of receipt by the Company of such Conversion Notice (the "Share Delivery Date") (A) provided that the Transfer Agent is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program and provided that the holder is eligible to receive shares through DTC, upon the request of the holder, credit the number of shares of Common Stock to which such holder is entitled to such holder's account with DTC through its Deposit Withdrawal Agent Commission system or (B) issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of such holder, for the number of shares of Common Stock to which such holder is entitled. Upon receipt by a holder of Preferred Shares of a Mandatory Conversion Notice, such holder shall surrender to a common carrier for delivery to the Company as soon as practicable following such date the Preferred Stock Certificates representing all of such holder's Preferred Shares. Upon receipt of such Preferred Stock Certificates, the Company (I) shall promptly and in no event later than two (2) Business Days after receipt (or the later occurrence of any contingency described therein) deliver, via facsimile an instruction to the Transfer Agent to process such Mandatory Conversion Notice in accordance with the terms herein, and (II) on or before the third (3rd) Business Day following the date of receipt by the Company of such Preferred Stock Certificates (or the later occurrence of any contingency described therein) (also, a "Share Delivery Date") (A) provided that the Transfer Agent is participating in DTC Fast Automated Securities Transfer Program and provided that the holder is eligible to receive shares through DTC, upon the request of the holder, credit the number of shares of Common Stock to which such holder is entitled to such holder's account with DTC through its Deposit Withdrawal Agent Commission system or (B) issue and deliver to the address as specified by such holder, a certificate, registered in the name of such holder, for the number of shares of Common Stock to which such holder is entitled. If a certificate is delivered to the Company by a holder and the number of Preferred Shares represented by the Preferred Stock Certificate(s) submitted for conversion is greater than the number of Preferred Shares that have been converted, then the Company shall, as soon as practicable and in no event later than three (3) Business Days after receipt of the Preferred Stock Certificate(s) (the "Preferred Stock Delivery Date") and at its own expense, issue and deliver to the holder a new Preferred Stock Certificate representing the number of Series A-1 Preferred Shares or Series A-2 Preferred Shares, as the case may be, not converted. If a contingency described in a Mandatory Conversion Notice does not occur within 30 days of the date of delivery of such notice, the Company shall promptly return all Preferred Stock Certificates to the holders thereof. (iv) Record Holder. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of Preferred Shares shall be treated for all purposes as the legal and record holder or holders of such shares of Common Stock on the Conversion Date. Following the Conversion Date, the Preferred Stock Certificates representing Preferred Shares convertible into Common Stock pursuant to a Mandatory Conversion Notice shall thereafter represent only such shares of Common Stock issuable upon such conversion and such Preferred Shares shall be deemed to be no longer issued or outstanding. 4 Amend Section 2(f) to be and read as follows: (f) Share Price (i) The initial "Share Price" is $0.04798729. In order to prevent dilution of the conversion rights granted under Section 2, the Share Price shall be subject to adjustment from time to time pursuant to this Section 2(f). (ii) If and whenever on or after the original date of issuance of the Series B Preferred Stock, the Company issues or sells, or in accordance with Section 2(g) below is deemed to have issued or sold, any shares of its Common Stock without consideration or at a price per share less than the Share Price in effect immediately prior to such issuance or sale (or deemed issuance or sale), then in each such case, the Share Price, upon each such issuance or sale, except as hereinafter provided, shall be lowered so as to be equal to an amount determined by multiplying the Share Price in effect immediately prior to such issuance or sale by the following fraction: A (+) B --------- A (+) C where A = the number of shares of Common Stock Deemed Outstanding at any time on or after the date of such calculation B = the number of shares of Common Stock which the gross aggregate consideration, if any, received by the Company for the total number of such additional shares of Common Stock so issued or sold (or deemed issued or sold) would purchase at the Share Price in effect immediately prior to such issuance or sale C = the number of additional shares of Common Stock so issued or sold (or deemed issued or sold) (iii) Notwithstanding the foregoing, there shall be no adjustment in the Share Price pursuant to clause (ii) above as a result of any issue or sale (or deemed issue or sale) of (u) Options to acquire shares of Common Stock to employees, officers, directors, consultants and agents of the Company and its Subsidiaries pursuant to the Stock Option Plan, (v) shares of Common Stock issuable pursuant to the exercise of such Options, (w) shares of Common Stock issued upon conversion of the Preferred Shares, (x) shares of Common Stock or Preferred Shares pursuant to the exercise of Options or Convertible Securities outstanding as of the original date of issuance of the Series B Preferred Stock (and shares of Common Stock pursuant to the conversion of Preferred Shares and Series B Preferred Stock), (y) the type which results in an adjustment to the Share Price pursuant to paragraphs (h) or (i) of this Section 2, or (z) shares of Common Stock, Options or Convertible Securities, if such issue or sale is designated in writing by the 5 holders of a majority of the shares of Series B Preferred Stock then outstanding as an "Exempted Issuance," provided no such Common Stock, Options or Convertible Securities are issued or sold to such holders of Series B Preferred Stock or their Affiliates. add Sections 2(g), (h), (i) and (j) to be and read as follows: (g) Effect on Share Price of Certain Events. For purposes of determining the adjusted Share Price under Section 2(f), the following shall be applicable: (i) Issuance of Rights or Options. Except for Options granted in accordance with the provisions of Section 2(f)(iii) above, if the Company in any manner grants or sells any Options and the price per share for which Common Stock is issuable upon the exercise of such Options, or upon conversion or exchange of any Convertible Securities issuable upon exercise of such Options, is less than the Share Price in effect immediately prior to the time of the granting or sale of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Options for such price per share. For purposes of this paragraph, the "price per share for which Common Stock is issuable" shall be determined by dividing (A) the total amount, if any, received or receivable by the Company as consideration for the granting or sale of such Options, plus the minimum aggregate amount of additional consideration payable to the Company upon exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Company upon the issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. No further adjustment of the Share Price shall be made when Convertible Securities are actually issued upon the exercise of such Options or when Common Stock is actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon conversion or exchange thereof is less than (a) the Share Price in effect immediately prior to the time of such issue or sale, then the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this paragraph, the "price per share for which Common Stock is issuable" shall be determined by dividing (A) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (B) the total 6 maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Share Price shall be made when Common Stock is actually issued upon the conversion or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Share Price had been or are to be made pursuant to other provisions of this Section 2, no further adjustment of the Share Price shall be made by reason of such issue or sale. (iii) Change in Option Price or Conversion Rate. Except for Options granted in accordance with the provisions of Section (f)(iii) above, if (x) the purchase price provided for in any Options, (y) the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities, (z) or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock, changes at any time, the Share Price in effect at the time of such change shall be immediately adjusted to the Share Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 2(g), if the terms of any Option or Convertible Security that was outstanding as of the original date of issuance of the Series B Preferred Stock are changed in the manner described in the immediately preceding sentence (other than as a result of the application of any anti-dilution provisions included in the terms of such Option or Convertible Security), then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change solely to the extent that after such change (x) additional shares of Common Stock can be issued pursuant to the exercise or conversion of such Option or Convertible Security, or (y) shares of Common Stock can be issued for less aggregate consideration upon exercise or conversion of such Option or Convertible Security; provided that no such change shall at any time cause the Share Price hereunder to be increased. (iv) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Security without the exercise of any such Option or right, the Share Price then in effect hereunder shall be adjusted immediately to the Share Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued. For purposes of Section 2(g), the expiration or termination of any Option or Convertible Security which was outstanding as of the date of issuance of the Series B Preferred Stock shall not cause the Share Price hereunder to be adjusted unless, and only to the extent that, a change in the terms of such Option or Convertible Security caused it to be deemed to have been issued after the original date of issuance of the Series B Preferred Stock. (v) Calculation of Consideration Received. If any Common Stock, Option or Convertible Security is issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be the gross amount received by the Company therefor. If any Common Stock, Option or Convertible Security is issued 7 or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company shall be the Market Price thereof as of the date of receipt. If any Common Stock, Option or Convertible Security is issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving Company, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Option or Convertible Security, as the case may be. The fair value of any consideration other than cash and securities shall be determined by the Board. (vi) Integrated Transactions. In case any shares of Common Stock, Options or Convertible Securities are issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction (the "Integrated Securities"), in which no specific consideration is allocated to such shares of Common Stock, Options, or Convertible Securities by the parties thereto, the Common Stock, Options or Convertible Securities shall be deemed to have been issued for a consideration of $.01. Notwithstanding the foregoing, however, in any case any Integrated Securities are issued to any third party, regardless of any allocation of the consideration to such shares of Common Stock, Options, or Convertible Securities by the parties thereto, in determining the price per share for which Common Stock is issuable, the Company shall take into consideration the totality of the consideration to be received for the Integrated Securities being issued and allocate such total consideration among the Integrated Securities taking into consideration the fair market value of each item of the Integrated Securities. (vii) Treasury Shares. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. (vii) Record Date. If the Company sets a record date of the holders of Common Stock for the purpose of entitling them (a) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (b) to subscribe for or purchase Common Stock, Options or Convertible Securities, then the date of payment or subscription shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or upon the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (h) Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Share Price in effect immediately prior to such subdivision shall be proportionately reduced, and if the Company at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Share Price in effect immediately prior to such combination shall be proportionately increased. 8 (i) Certain Events. If any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions, then the Board shall make an appropriate adjustment in the Share Price so as to protect the rights of the holders of the Preferred Shares. (j) Notices. (i) Immediately upon any adjustment of the Share Price, the Company shall give written notice thereof to all holders of Preferred Shares, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Company shall give written notice to all holders of Preferred Shares at least 20 days prior to the date on which the Company closes its books or sets a record date (a) with respect to any dividend or distribution upon Common Stock, (b) with respect to any pro rata subscription offer to holders of Common Stock or (c) for determining rights to vote with respect to any Organic Change or Liquidation. (iii) The Company shall also give written notice to the holders of Preferred Shares at least 10 days prior to the date on which any Organic Change shall take place. amend Section 5(b) to delete such section in its entirety. amend Section 6 to delete the following two sentences: For purposes hereof, a Change of Control (as defined below) shall not be deemed to be a Liquidation. For purposes of this Section 6, "Change of Control" means at any time Heller Financial, Inc., a Delaware corporation, and Midwest Mezzanine Fund II, L.P., a Delaware limited partnership, together, cease to have the right to appoint a majority of the members of the Board of Directors of the Company. and insert in place thereof the following: A Change of Control shall be deemed to be a Liquidation. Notwithstanding the foregoing, at any time that Series B Preferred Stock is outstanding, a Change of Control shall be deemed a Liquidation only at such time as the holders of a majority of the shares of Series B Preferred Stock then outstanding determine under the Certificate of Designation governing the Series B Preferred Stock to treat a "Change of Control" as a "Liquidation Event" as defined in the Certificate of Designations governing the Series B Preferred Stock. Amend Section 7 by adding the following sentence to the end of such section: The Company's Series B Preferred Stock will constitute Senior Securities with respect to the Preferred Shares. 9 Amend and restate Section 9 in its entirety, to be and read as follows: (9) Restriction on Cash Dividends. Until all of the Preferred Shares have been converted or redeemed as provided herein, the Company shall not, directly or indirectly, redeem, or declare or pay any dividend or distribution on, its Capital Stock other than Senior Securities without the prior express written consent of a Majority Interest. [Signature Page Follows] 10 IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment to be signed by Joseph P. Keane, its Chief Financial Officer, as of the __ day of May, 2003. CASTLE DENTAL CENTERS, INC. By: ---------------------------------------- Joseph P. Keane, Chief Financial Officer 11 EX-99.4 6 irm344c.txt CERTIFICATE OF DESIGNATIONS CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES B CONVERTIBLE PREFERRED STOCK OF CASTLE DENTAL CENTERS, INC. Castle Dental Centers, Inc. (the "Company"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the Board of Directors of the Company by the Amended and Restated Certificate of Incorporation of the Company, and pursuant to Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Company at a meeting duly held, adopted resolutions (i) authorizing a new series of the Company's previously authorized preferred stock, par value $.000001 per share, and (ii) providing for the designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of Eighty Thousand (80,000) shares of Series B Convertible Preferred Stock of the Company, as follows: RESOLVED, that the Company is authorized to issue 80,000 shares of Series B Convertible Preferred Stock, par value $.000001 per share (the "Series B Preferred Stock"), which shall have the following powers, designations, preferences and other special rights: 1. Number; Rank. The number of authorized shares (each such share, a "Share") of Series B Convertible Preferred Stock (the "Series B Preferred Stock"), shall be 80,000. The Series B Preferred Stock shall, with respect to dividend rights, redemption rights and rights on liquidation, dissolution and winding up rank senior to the Common Stock, the Company's Series A-1 Convertible Preferred Stock, par value $0.000001 per share (the "Series A-1 Preferred Stock"), the Company's Series A-2 Convertible Preferred Stock, par value $0.000001 per share (the "Series A-2 Preferred Stock"), and to each other class or series of capital stock of the Company now or hereafter established (collectively with the Common Stock, the Series A-1 Preferred Stock and the Series A-2 Preferred Stock, the "Junior Securities"). The definition of Junior Securities shall also include any rights or options exercisable for or convertible into any of the Junior Securities. 1 2. Dividends; Redemptions; Distributions. (a) In case the Company shall fix a record date for the making of any dividend or distribution to holders of Common Stock, whether payable in cash, securities or other property (other than dividends or distributions payable solely in Common Stock), the holder of each Share on such record date shall be entitled to receive an equivalent dividend or distribution based on the number of shares of Common Stock into which such Share is convertible on such record date. (b) So long as any Shares are outstanding, (i) except pursuant to employment agreements entered into with senior management on terms approved by the Compensation Committee of the Board, no Junior Securities shall be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Company, directly or indirectly (except by conversion into or exchange for Junior Securities), and (ii) no dividends or distributions shall be declared or paid on any Junior Security, in each case without the prior written consent of the holders of a majority of the Shares then outstanding. 3. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of the Company (whether voluntary or involuntary) (a "Liquidation Event"), before any payment or distribution of the assets of the Company (whether capital or surplus) shall be made to or set apart for the holders of Junior Securities, the holder of each Share shall be entitled to receive an amount per share equal to the Liquidation Payment of such Share, and such holders shall not be entitled to any further payment. If upon a Liquidation Event the assets of the Company, or proceeds thereof, distributable among the holders of the Shares shall be insufficient to pay in full the preferential amount aforesaid, then such remaining assets, or the proceeds thereof, shall be distributed among the holders of Shares ratably in accordance with the respective amounts that would be payable on such Shares if all amounts payable thereon were paid in full. A Change of Control shall, at the option of the holders of a majority of the Series B Preferred Stock then outstanding, be deemed to be a Liquidation Event. Not less than 30 days prior to the payment date stated therein, the Company shall mail written notice of any Liquidation Event to each record holder of Series B Preferred Stock, setting forth in reasonable detail the amount of proceeds payable with respect to each Share. (b) After payment shall have been made in full to the holders of the Series B Preferred Stock, as provided in this paragraph 3, any other series or class or classes of Junior Securities shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed to holders of capital stock of the Company, and the holders of the Series B Preferred Stock shall not be entitled to share therein. 2 4. Conversion. (a) (i) Each holder of Shares shall have the right, at any time and from time to time, at such holder's option, to convert its outstanding Shares, in whole or in part, into fully paid and non-assessable shares of Common Stock. The number of shares of Common Stock deliverable upon conversion of one Share shall be equal to the Liquidation Value of such Share on the date of conversion, divided by the Conversion Price on the date of conversion. In order to exercise the conversion privilege set forth in this paragraph 4(a), the holder of the Shares to be converted shall surrender the certificate representing such Shares at the principal office of the Company, with a written notice of election to convert completed and signed, specifying the number of Shares to be converted. Each conversion pursuant to paragraph 4(a) shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for Shares shall have been surrendered and such notice received by the Company as aforesaid, and the person in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder of record of the shares of Common Stock represented thereby at such time on such date. Effective upon such conversion, the Shares so converted shall no longer be deemed to be outstanding, and all rights of a holder with respect to such Shares surrendered for conversion shall immediately terminate except the right to receive the Common Stock and other amounts payable pursuant to this paragraph 4. (ii) Notwithstanding any other provision hereof, if a conversion of Shares is to be made in connection with any transaction, the conversion of any Shares may, at the election of the holder thereof, be conditioned upon the consummation of such transaction in which case such conversion shall not be deemed to be effective until immediately prior to the time such transaction has been consummated. (iii) As soon as possible after a conversion has been effected, the Company shall deliver to the converting holder (A) a certificate or certificates representing the number of shares of Common Stock issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified, (B) payment in an amount equal to the amount, if any, payable under paragraph 4(a)(vii) below with respect to such conversion; and (C) a certificate representing any Shares which were represented by the certificate or certificates delivered to the Company in connection with such conversion but which were not converted. (iv) The issuance of certificates for shares of Common Stock upon conversion of Series B Preferred Stock shall be made without charge to the holders of such Series B Preferred Stock for any issuance tax in respect thereof or other cost incurred by the Company in connection with such conversion and the related issuance of shares of Common Stock. Upon conversion of each Share, the Company shall take all such actions as are necessary in order to ensure that the 3 Common Stock issuable with respect to such conversion shall be validly issued, fully paid and nonassessable, and free and clear of all taxes, liens, charges and encumbrances with respect to the issuance thereof. (v) The Company shall not close its books against the transfer of Series B Preferred Stock or of Common Stock issued or issuable upon conversion of Series B Preferred Stock in any manner which interferes with the timely conversion of Series B Preferred Stock. The Company shall assist and cooperate with any holder of Shares required to make any governmental filings or obtain any governmental approval prior to or in connection with any conversion of Shares hereunder (including making any filings required to be made by the Company). (vi) The Company shall at all times following the issuance of the Series B Preferred Stock reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of issuance upon the conversion of the Series B Preferred Stock, such number of shares of Common Stock issuable upon the conversion of all outstanding Series B Preferred Stock (and if there is ever an insufficient number of shares of Common Stock to provide for the conversion of the Shares (an "Authorized Share Failure"), the Company shall immediately take all action necessary to cause the number of the Company's authorized shares of Common Stock to be sufficient to accomplish the conversion rights of the Shares). The Company shall take all such actions as may be necessary to ensure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which shall be delivered by the Company upon each such issuance). The Company shall not take any action which would cause the number of authorized but unissued shares of Common Stock to be less than the number of such shares required to be reserved hereunder for issuance upon conversion of the Series B Preferred Stock. (vii) In connection with the conversion of any Shares, no fractional shares of Common Stock shall be issued, but in lieu thereof the Company shall pay to the holder thereof the value of such fractional share of Common Stock in cash as determined by reference to the Market Price as of the date of conversion. (b) Conversion Price. (i) The initial "Conversion Price" is $0.04798729. In order to prevent dilution of the conversion rights granted under this paragraph 4, the Conversion Price shall be subject to adjustment from time to time pursuant to this paragraph 4. (ii) If and whenever on or after the original date of issuance of the Series B Preferred Stock the Company issues or sells, or in accordance with 4 paragraph (c) below is deemed to have issued or sold, any shares of its Common Stock without consideration or at a price per share less than the Conversion Price in effect immediately prior to such issuance or sale (or deemed issuance or sale), then in each such case, the Conversion Price, upon each such issuance or sale, except as hereinafter provided, shall be lowered so as to be equal to an amount determined by multiplying the Conversion Price in effect immediately prior to such issuance or sale by the following fraction: A (+) B --------- A (+) C where A = the number of shares of Common Stock Deemed Outstanding at any time on or after the date of such calculation B = the number of shares of Common Stock which the gross aggregate consideration, if any, received by the Company for the total number of such additional shares of Common Stock so issued or sold (or deemed issued or sold) would purchase at the Conversion Price in effect immediately prior to such issuance or sale C = the number of additional shares of Common Stock so issued or sold (or deemed issued or sold) (iii) Notwithstanding the foregoing, there shall be no adjustment in the Conversion Price pursuant to clause (ii) above as a result of any issue or sale (or deemed issue or sale) of (u) Options to acquire shares of Common Stock to employees, officers, directors, consultants and agents of the Company and its Subsidiaries pursuant to the Stock Option Plan, (v) shares of Common Stock issuable pursuant to the exercise of such Options, (w) shares of Common Stock issued upon conversion of the Series B Preferred Stock, or (x) shares of Common Stock or Series A-2 Preferred Stock pursuant to the exercise of Options or Convertible Securities outstanding as of the Closing Date (and shares of Common Stock pursuant to the conversion of such Series A-2 Preferred Stock), (y) the type which results in an adjustment to the Conversion Price pursuant to paragraphs (d) or (e) of this paragraph 4, or (z) shares of Common Stock, Options or Convertible Securities, if such issue or sale is designated in writing by the holders of a majority of the Shares then outstanding as an "Exempted Issuance", provided no such Common Stock, Options or Convertible Securities are issued or sold to such holders or their Affiliates. (c) Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under paragraph (b), the following shall be applicable: 5 (i) Issuance of Rights or Options. Except for Options granted in accordance with the provisions of paragraph 4(b)(iii) above, if the Company in any manner grants or sells any Options and the price per share for which Common Stock is issuable upon the exercise of such Options, or upon conversion or exchange of any Convertible Securities issuable upon exercise of such Options, is less than the Conversion Price in effect immediately prior to the time of the granting or sale of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Options for such price per share. For purposes of this paragraph, the "price per share for which Common Stock is issuable" shall be determined by dividing (A) the total amount, if any, received or receivable by the Company as consideration for the granting or sale of such Options, plus the minimum aggregate amount of additional consideration payable to the Company upon exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Company upon the issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. No further adjustment of the Conversion Price shall be made when Convertible Securities are actually issued upon the exercise of such Options or when Common Stock is actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon conversion or exchange thereof is less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this paragraph, the "price per share for which Common Stock is issuable" shall be determined by dividing (A) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Conversion Price shall be made when Common Stock is actually issued upon the conversion or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Conversion Price had been or are to 6 be made pursuant to other provisions of this paragraph 4, no further adjustment of the Conversion Price shall be made by reason of such issue or sale. (iii) Change in Option Price or Conversion Rate. Except for Options granted in accordance with the provisions of paragraph (b)(iii) above, if (x) the purchase price provided for in any Options, (y) the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities, (z) or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock, changes at any time, the Conversion Price in effect at the time of such change shall be immediately adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of paragraph 4(c), if the terms of any Option or Convertible Security that was outstanding as of the original date of issuance of the Series B Preferred Stock are changed in the manner described in the immediately preceding sentence (other than as a result of the application of any anti-dilution provisions included in the terms of such Option or Convertible Security), then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change solely to the extent that after such change (x) additional shares of Common Stock can be issued pursuant to the exercise or conversion of such Option or Convertible Security, or (y) shares of Common Stock can be issued for less aggregate consideration upon exercise or conversion of such Option or Convertible Security; provided that no such change shall at any time cause the Conversion Price hereunder to be increased. (iv) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Security without the exercise of any such Option or right, the Conversion Price then in effect hereunder shall be adjusted immediately to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued. For purposes of paragraph 4(c), the expiration or termination of any Option or Convertible Security which was outstanding as of the date of issuance of the Series B Preferred Stock shall not cause the Conversion Price hereunder to be adjusted unless, and only to the extent that, a change in the terms of such Option or Convertible Security caused it to be deemed to have been issued after the original date of issuance of the Series B Preferred Stock. (v) Calculation of Consideration Received. If any Common Stock, Option or Convertible Security is issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be the gross amount received by the Company therefor. If any Common Stock, Option or Convertible Security is issued or sold for a consideration other than 7 cash, the amount of the consideration other than cash received by the Company shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company shall be the Market Price thereof as of the date of receipt. If any Common Stock, Option or Convertible Security is issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving Company, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Option or Convertible Security, as the case may be. The fair value of any consideration other than cash and securities shall be determined by the Board. (vi) Integrated Transactions. In case any shares of Common Stock, Options or Convertible Securities are issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction (the "Integrated Securities"), in which no specific consideration is allocated to such shares of Common Stock, Options, or Convertible Securities by the parties thereto, the Common Stock, Options or Convertible Securities shall be deemed to have been issued for a consideration of $.01. Notwithstanding the foregoing, however, in any case any Integrated Securities are issued to any third party, regardless of any allocation of the consideration to such shares of Common Stock, Options, or Convertible Securities by the parties thereto, in determining the price per share for which Common Stock is issuable, the Company shall take into consideration the totality of the consideration to be received for the Integrated Securities being issued and allocate such total consideration among the Integrated Securities taking into consideration the fair market value of each item of the Integrated Securities. (vii) Treasury Shares. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. (viii) Record Date. If the Company sets a record date of the holders of Common Stock for the purpose of entitling them (a) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (b) to subscribe for or purchase Common Stock, Options or Convertible Securities, then the date of payment or subscription shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or upon the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (d) Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be 8 proportionately reduced, and if the Company at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased. (e) Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets or other transaction, in each case which is effected in such a manner that the holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock, is referred to herein as an "Organic Change". Prior to the consummation of any Organic Change, the Company shall make appropriate provisions to insure that each of the holders of Series B Preferred Stock shall thereafter have the right to acquire and receive, in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the conversion of such holder's Series B Preferred Stock, such shares of stock, securities or assets as such holder would have received in connection with such Organic Change if such holder had converted its Series B Preferred Stock immediately prior to such Organic Change. In each such case, the Company shall also make appropriate provisions to insure that the provisions of this paragraph 4 shall thereafter be applicable to the Series B Preferred Stock. The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Company) resulting from consolidation or merger or the entity purchasing such assets assumes by written instrument, the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. (f) Certain Events. If any event occurs of the type contemplated by the provisions of this paragraph 4 but not expressly provided for by such provisions, then the Board shall make an appropriate adjustment in the Conversion Price so as to protect the rights of the holders of Series B Preferred Stock. (g) Notices. (i) Immediately upon any adjustment of the Conversion Price, the Company shall give written notice thereof to all holders of Series B Preferred Stock, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Company shall give written notice to all holders of Series B Preferred Stock at least 20 days prior to the date on which the Company closes its books or sets a record date (a) with respect to any dividend or distribution upon Common Stock, (b) with respect to any pro rata subscription offer to holders of Common Stock or (c) for determining rights to vote with respect to any Organic Change or Liquidation Event. 9 (iii) The Company shall also give written notice to the holders of Series B Preferred Stock at least 10 days prior to the date on which any Organic Change shall take place. (h) Conversion at the Option of the Company. In connection with the consummation of a Qualified Public Offering, the Company may elect to cause all or any portion of the outstanding Shares to be converted into Common Stock pursuant to the terms of this paragraph 4, provided that the Company shall deliver written notice of such election to each holder of Series B Preferred Stock no later than ten Market Days prior to the date of conversion. Any such conversion shall be deemed to have been effected immediately prior to the consummation of the applicable Qualified Public Offering. (i) Conversion at the Option of the Majority. At any time the holders of the majority of the outstanding Shares may elect to cause all of the outstanding Shares to be converted into Common Stock pursuant to the terms of this paragraph 4; provided that such holders shall deliver written notice of such election to the Company no later than ten Market Days prior to the date of conversion and the Company shall deliver written notice of such election to each other holder of Series B Preferred Stock no later than five Market Days prior to the date of conversion. 5. Voting Rights. (a) Except as otherwise provided in paragraph 5(b) or as required by law, each holder of Series B Preferred Stock shall be entitled to vote on all matters subject to a stockholders vote and shall be entitled to that number of votes equal to the number of shares of Common Stock into which such holder's Shares could be converted, pursuant to the provisions of paragraph 4 hereof, on the record date for the determination of shareholders entitled to vote on such matter or, if no such record date is established, on the date such vote is taken or any written consent of shareholders is solicited (without regard to any limitations on conversions herein or elsewhere, including, but not limited to, any limitations as a result of the actual number of shares of Common Stock authorized for issuance by the Company). Except as otherwise expressly provided herein or as required by law, the holders of Shares and Common Stock and other Voting Securities shall vote together on an as converted basis as a single class on all matters. (b) For so long as a majority of the Shares initially issued remain outstanding, in the election of directors of the Company, the holders of the Series B Preferred Stock, voting separately as a single class to the exclusion of all other classes of the Company's capital stock and with each Share entitled to one vote, shall be entitled to elect four (4) directors (the "Series B Directors"), to serve on the Board until such directors' successors are duly elected by the holders of the Series B Preferred Stock or such directors are removed from office by the holders of the Series B Preferred Stock. If the holders of the Series B Preferred Stock for any reason fail to elect anyone to fill any such directorship, such position shall remain vacant until such time as the holders of the Series B Preferred Stock elect a director to fill such position and shall not be filled by resolution or vote of the Board or the Company's other stockholders. 10 (c) So long as any Shares remain outstanding the affirmative vote of the holders of a majority of the outstanding Shares shall be necessary to: (i) alter or change the preferences, rights or powers of the Series B Preferred Stock, (ii) create, authorize or issue any capital stock that ranks prior (whether with respect to dividends, redemption or upon liquidation, dissolution, winding up or otherwise) to or pari passu with the Series B Preferred Stock, or (iii) increase the authorized number of Shares. 6. Definitions. The following terms, as used herein, shall have the following meanings: "Affiliate" shall mean, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise); provided, that beneficial ownership of 10% or more of the voting securities (or the equivalents) of a Person shall be deemed to be control. "Change of Control" means: (i) the sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all the assets of the Company and its subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act), or (ii) the consummation of any transaction (including any merger or consolidation) the result of which is that any "person" (as defined above), other than Sentinel Capital Partners II L.P. and/or its Affiliates, becomes the beneficial owner (as determined in accordance with Rules 13d-3 and 13d-5 under the Exchange Act except that a person will 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 50% of the Voting Securities of the Company. "Closing Date" means the date of the initial issuance by the Company of the Series B Preferred Stock. "Common Stock Deemed Outstanding" means the number of shares of Common Stock outstanding, determined on a fully diluted as if converted basis giving effect to all outstanding Common Stock and all outstanding securities convertible into or exchangeable for Common Stock (collectively, "Common Stock Equivalents") and any options (reserved for issuance as approved by the Board or issued), warrants or other rights to acquire Common Stock or Common Stock Equivalents. "Common Stock" means shares of the Company's Common Stock, $0.000001 par value per share; provided that if there is a change such that the securities issuable upon conversion of the Series B Preferred Stock are issued by an entity other than the Company or there is a change in the type or class of securities so issuable, then the term "Common Stock" shall mean one share of the security issuable upon conversion of the 11 Series B Preferred Stock if such security is issuable in shares, or shall mean the smallest unit in which such security is issuable if such security is not issuable in shares. "Convertible Securities" means any stock or securities directly or indirectly convertible into or exchangeable for Common Stock. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Liquidation Payment" means with respect to any Share as of any date, an aggregate amount equal to the Compounded Liquidation Value of such Share as of such date plus the Accrual Amount of such Share as of such date; provided that the "Compounded Liquidation Value" of a Share as of a given date shall be equal to the Liquidation Value as increased from time to time as described in the definition of Accrual Amount below; provided that the "Accrual Amount" of a Share as of a given date shall be the amount that shall have accrued on such Share as of such date, such accrual occurring from the date of issuance of such Share until such Share is no longer outstanding, on a daily basis at the rate of 15% per annum of the Compounded Liquidation Value of such Share, provided that on each March 31, June 30, September 30 and December 31, the Accrual Amount for each Share outstanding shall be added to the Compounded Liquidation Value of such Share and the Accrual Amount for such Share shall be reset to zero. "Liquidation Value" on any date means, with respect to one Share, $100.00 (as such dollar amount is proportionately adjusted to reflect any stock dividend, stock split, reverse stock split or other combination or subdivision of the Series B Preferred Stock after the Closing Date). "Market Day" means a day on which the principal national securities market or exchange on which the Common Stock is listed or admitted for trading is open for the transaction of business. "Market Price" of any security means the average of the closing prices of such security's sales on all securities exchanges on which such security may at the time be listed, or, if there has been no sale 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, 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 successor organization, in each such case averaged over a period of 30 days consisting of the day as of which "Market Price" is being determined and the 29 consecutive trading days prior to such day. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the "Market Price" shall be the fair value thereof determined by the Board. 12 "Options" means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. "Person" as used herein means any corporation, limited liability company, partnership, trust, organization, association, other entity or individual. "Qualified Public Offering" means the underwritten public offering of Common Stock pursuant to an effective registration statement (Form S-1 or any similar long form registration, or Form S-2 or S-3 or any similar short form registration) under the Securities Act in which (i) the price per share of Common Stock paid by the public exceeds [$0.24] (as such dollar amount may be adjusted to reflect any stock dividend, stock split, reverse stock split or other combination or subdivision of Common Stock after the Closing Date), and (ii) the Company receives net proceeds of at least $50,000,000. "Securities Act" means the Securities Act of 1933, as amended. "Stock Option Plan" means any capital stock plan adopted by the Company for the benefit of the Company's officers, employees, consultants, agents or directors which has been or is approved by the Board including the Company's 2002 Stock Option Plan. "Subsidiary" means, with respect to any Person, any company, limited liability company, partnership, association or other business entity of which (i) if a company, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control the managing general partner of such limited liability company, partnership, association or other business entity. "Voting Securities" means securities of the Company ordinarily having the power to vote for the election of directors of the Company; provided that when the term "Voting Securities" is used with respect to any other Person it means the capital stock or other equity interests of any class or kind ordinarily having the power to vote for the election of directors or other members of the governing body of such Person. 7. Registration of Transfer. The Company will keep at its principal office a register for the registration of Series B Preferred Stock. Upon the surrender of any certificate representing Series B Preferred Stock at such place, the Company will, at the request of the record holder of such certificate, execute and deliver (at the Company's 13 expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of Shares represented by the surrendered certificate. Each such new certificate will be registered in such name and will represent such number of Shares as is requested by the holder of the surrendered certificate and will be substantially identical in form to the surrendered certificate. 8. Replacement. Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the registered holder will be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing Shares, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Company (provided, that if the holder is an institutional investor its own agreement will be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Company will (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of Shares represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. 9. Remedies. The remedies provided in this Certificate of Designations shall be cumulative and in addition to all other remedies available under this Certificate of Designations, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designations. The Company covenants to each holder of Shares that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of the Shares and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holders of the Shares shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. No failure or delay on the part of the holders of Shares in the exercise of any right hereunder shall operate as a waiver thereof. 10. Amendment and Waiver. No amendment, modification or waiver will be binding or effective with respect to any provision of this Certificate of Designations without the prior written consent of the holders of a majority of the Shares then outstanding and the holders of a majority of the shares of Series A-1 Preferred Stock then outstanding; provided, however, no amendment, modification, supplement or waiver can be effected if, by its terms, such amendment, modification, supplement or waiver adversely affects one holder of Shares without having the same relative adverse effect on all holders of Shares without the prior written consent of such adversely affected holder of Shares. 14 11. Notices. Except as otherwise expressly provided, all notices referred to herein will be in writing and will be delivered by registered or certified mail, return receipt requested, postage prepaid and will be deemed to have been given when so mailed (i) to the Company, at its principal executive offices and (ii) to any shareholder, at such holder's address as it appears in the stock records of the Company (unless otherwise indicated by any such holder). 15 IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to be signed by Joseph P. Keane, its Chief Financial Officer, as of the __ day of May, 2003. CASTLE DENTAL CENTERS, INC. By: ---------------------------------------- Joseph P. Keane, Chief Financial Officer 16 EXHIBIT I ISSUER CONVERSION NOTICE Reference is made to the Certificate of Designations, Preferences and Rights for the Series B Convertible Preferred Stock of Castle Dental Centers, Inc. (the "Certificate of Designations"). In accordance with and pursuant to the Certificate of Designations, the undersigned hereby elects to convert the number of shares of Series B Convertible Preferred Stock, par value $.000001 per share (the "Preferred Shares") of Castle Dental Centers, Inc., a Delaware corporation (the "Company"), indicated below into shares of Common Stock, par value $.000001 per share (the "Common Stock"), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below. Date of Conversion:________________________________________________________ Number and Series of Preferred Shares to be converted:_____________________ Stock certificate no(s). of Preferred Shares to be converted:______________ Please confirm the following information: Conversion Price:__________________________________________________________ Number of shares of Common Stock to be issued:_____________________________ Please issue the Common Stock into which the Preferred Shares are being converted in the following name and to the following address: Issue to:__________________________________________________________________ ___________________________________________________________________________ Facsimile Number:__________________________________________________________ Authorization:_____________________________________________________________ By:____________________________________________________________________ Title:_________________________________________________________________ Dated:_____________________________________________________________________ Account Number (if electronic book entry transfer):________________________ Transaction Code Number (if electronic book entry transfer):_______________ ACKNOWLEDGMENT The Company hereby acknowledges this Conversion Notice and hereby directs [TRANSFER AGENT] to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated ___________ ___, 20__ from the Company and acknowledged and agreed to by [TRANSFER AGENT]. CASTLE DENTAL CENTERS, INC. By:_______________________________ Name:_____________________________ Its:______________________________ EX-99.5 7 irm344a.txt STOCKHOLDERS AGREEMENT Execution Copy STOCKHOLDERS AGREEMENT STOCKHOLDERS AGREEMENT dated as of May 15, 2003, by and among Castle Dental Centers, Inc., a Delaware corporation (the "Company"), Sentinel Capital Partners II, L.P. ("Sentinel"), General Electric Capital Corporation, a Delaware corporation ("GE"), Midwest Mezzanine Fund II, L.P., a Delaware limited partnership ("Midwest"), James M. Usdan ("Usdan"), John M. Slack ("Slack"), and Thomas Fitzpatrick ("Fitzpatrick"). Sentinel, GE, Midwest, Usdan, Slack and Fitzpatrick and any other Person who becomes a party hereto and their Permitted Transferees are collectively referred to as the "Stockholders" and individually as a "Stockholder." Capitalized terms used herein but not otherwise defined have the meaning set forth in Section 1. WHEREAS, the Company, Sentinel, Fitzpatrick, GE, Midwest, Slack and Usdan are parties to a Preferred Stock and Subordinated Note Purchase Agreement dated as of the date hereof (the "Purchase Agreement"). In order to induce Sentinel, Fitzpatrick, GE, Midwest, Slack and Usdan to enter into the Purchase Agreement, the Stockholders have agreed to enter into this Agreement for the purposes, among others, of (i) establishing the composition of the Board, (ii) assuring continuity in the management and ownership of the Company and (iii) limiting the manner and terms by which the Stockholder Shares may be transferred. The execution and delivery of this Agreement is a condition to the Closing under the Purchase Agreement. It is acknowledged that certain other parties shall become a party to this Agreement following the date hereof in conjunction with such parties' execution of a joinder to the Purchase Agreement and their purchase of certain securities of the Company thereunder. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Definitions. As used herein, the following terms shall have the following meanings: "Affiliate" shall mean, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise); provided, that beneficial ownership of 10% or more of the voting securities (or the equivalents) of a Person shall be deemed to be control. "Agreement" has the meaning given thereto in the preamble. "Approved Sale" means a Sale of the Company which has been approved by both the Board and Sentinel so long as Sentinel holds as least a majority of the Sentinel Stockholder Shares outstanding on the date of this Agreement; provided that the purchaser (or the equivalent) with respect to such Sale of the Company is not Sentinel or an Affiliate of Sentinel. "Board" means the Company's board of directors. "Bylaws" means the Bylaws of the Company and subsequent amendments thereto. "Certificate of Incorporation" means the Certificate of Incorporation of the Company, as amended from time to time. "Change of Control" means: (i) the sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all the assets of the Company and its Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Securities Exchange Act), or (ii) the consummation of any transaction (including any merger or consolidation) the result of which is that any "person" (as defined above), other than Sentinel Capital Partners II L.P. and/or its Affiliates, becomes the beneficial owner (as determined in accordance with Rules 13d-3 and 13d-5 under the Securities Exchange Act except that a person will 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 50% of the Voting Securities of the Company. "Common Stock" means the Company's Common Stock, par value $0.000001 per share. "Common Stock Deemed Outstanding" means the number of shares of Common Stock outstanding, determined on a fully diluted as if converted basis giving effect to all outstanding Common Stock and all outstanding securities convertible into or exchangeable for Common Stock and any options (reserved for issuance as approved by the Board or issued), warrants or other rights to acquire Common Stock (collectively, "Common Stock Equivalents"). "Company" has the meaning given thereto in the preamble. "Election Notice" has the meaning given thereto in Section 6(a). "Family Group" means, with respect to an individual Stockholder, such Stockholder's spouse and descendants (whether natural or adopted) and any trust solely for the benefit of such Stockholder and/or such Stockholder's spouse, their respective ancestors and/or descendants (whether natural or adopted). "Fitzpatrick" has the meaning given thereto in the preamble. "GE" has the meaning given thereto in the preamble. "Immediate Family" means an individual's spouse, descendants (whether natural or adopted), siblings, parents or grandparents. "Indebtedness" means at a particular time, without duplication, (i) any indebtedness for borrowed money or issued in substitution for or exchange of indebtedness for borrowed money, (ii) any indebtedness evidenced by any note, bond, debenture, or other debt security, (iii) any indebtedness for the deferred purchase price of property or services with -2- respect to which a Person is liable, contingently or otherwise, as obligor or otherwise (other than trade payables and other current liabilities), (iv) any commitment by which a Person assures a creditor against loss (including contingent reimbursement obligations with respect to letters of credit), (v) any indebtedness guaranteed in any manner by a Person (including guarantees in the form of an agreement to repurchase or reimburse), (vi) any obligations under capitalized leases with respect to which a Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, with respect to which obligations a Person assures a creditor against loss, (vii) any indebtedness secured by a lien on a Person's assets and (viii) any unsatisfied obligation for "withdrawal liability" to a "multiemployer plan" as such terms are defined under the Employee Retirement Income Security Act of 1974, as amended. "Issuance Notice" has the meaning given thereto in Section 6(a). "Joinder Agreement" means an agreement, in the form of Exhibit A, pursuant to which a holder of Stockholder Shares becomes a party to, and subject to the obligations of, this Agreement. "Midwest" has the meaning given thereto in the preamble. "Non-Sentinel Directors" has the meaning given thereto in Section 2(a)(i)(B). "Non-Sentinel Stockholder Shares" means the Stockholder Shares issued or issuable to, or otherwise held by, GE, Midwest, Usdan and their respective Affiliates. Any reference herein to a "holders of a majority of the Non-Sentinel Stockholder Shares", means the holders of a majority of the Non-Sentinel Stockholder Shares on a fully diluted as if converted basis. "Notes" means the Subordinated Promissory Notes issued to Sentinel, Fitzpatrick, Slack, Usdan and certain other parties pursuant to the Purchase Agreement. "Offered Shares" has the meaning given thereto in Section 6(a). "Other Stockholders" means, with respect to a Stockholder, all Stockholders other than such Stockholder. "Ownership Ratio" means, as to a holder of Stockholder Shares at the time of determination, the percentage obtained by dividing the number of shares of Common Stock owned by such holder at such time on a fully diluted as if converted basis, by the aggregate number of shares of Common Stock Deemed Outstanding at such time. "Permitted Transferees" has the meaning given thereto in Section 4(c). "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof. "Preemptive Period" has the meaning given thereto in Section 6(a). -3- "Public Sale" means any sale of Stockholder Shares to the public pursuant to an offering registered under the Securities Act or to the public effected through a broker, dealer or market maker pursuant to the provisions of Rule 144 (or any similar rule or rules then in effect) under the Securities Act. "Purchase Agreement" has the meaning given thereto in the preamble. "Sale Notice" has the meaning given thereto in Section 4(b). "Sale of the Company" means (i) a transaction or series of related transactions closing contemporaneously (including by way of merger, consolidation, or sale of equity) the result of which is that the holders of the Common Stock immediately prior to such transaction(s) (on a fully diluted as if converted basis) are after giving effect to such transaction(s) no longer, in the aggregate, the "beneficial owners" (as such term is defined in Rule 13d-3 and Rule 13d-5 promulgated under the Securities Exchange Act), directly or indirectly through one or more intermediaries, of more than 50% of the Common Stock Deemed Outstanding, or (ii) the sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions closing contemporaneously, of all or substantially all of the Company's assets determined on a consolidated basis. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Sentinel" has the meaning given thereto in the preamble. "Sentinel Directors" has the meaning given thereto in Section 2(a)(i)(A). "Sentinel Stockholder Shares" means all Stockholder Shares issued or issuable to, or otherwise held by, Sentinel and its Affiliates. Any reference herein to a "holders of a majority of the Sentinel Stockholder Shares", means the holders of a majority of the Sentinel Stockholder Shares on a fully diluted as if converted basis. "Series A-1 Stock" means the Convertible Preferred Stock, Series A-1, of the Company, par value $0.000001 per share. "Series A-2 Stock" means the Convertible Preferred Stock, Series A-2, of the Company, par value $0.000001 per share. "Series B Stock" means the Company's Series B Convertible Preferred Stock, par value $0.000001 per share. "Slack" has the meaning given thereto in the preamble. -4- "Stock Option Plan" means any capital stock plan adopted by the Company for the benefit of the Company's officers, employees, consultants, agents or directors which has been or is approved by the Board of Directors, including the Company's 2002 Stock Option Plan. "Stockholder" has the meaning given thereto in the preamble. "Stockholder Shares" means (i) any Common Stock, Series A-1 Stock, Series A-2 Stock, Series B Stock or Warrants held by the Stockholders, (ii) any Common Stock or Series A-2 Stock issuable upon conversion, exercise or exchange of the securities referred to in clause (i) above, and (iii) any equity securities of the Company issued or issuable directly or indirectly with respect to the securities referred to in clauses (i) or (ii) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular shares constituting Stockholder Shares, such shares will cease to be Stockholder Shares when they have been sold in a Public Sale or an Approved Sale. "Sub Board" has the meaning given thereto in Section 2(a)(ii). "Subsidiary" means, with respect to any Person, any corporation, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a partnership, association or other business entity if such Person or Persons shall be allocated a majority of partnership, association or other business entity gains or losses or shall be or control the managing director or a general partner of such partnership, association or other business entity. "Transaction Documents" means the Purchase Agreement and the other documents expressly contemplated thereby. "Transfer" has the meaning given thereto in Section 4(a). "Transferring Stockholder" has the meaning given thereto in Section 4(b). "Voting Securities" means securities of the Company ordinarily having the power to vote for the election of directors of the Company; provided that when the term "Voting Securities" is used with respect to any other Person it means the capital stock or other interests of any class or kind ordinarily having the power to vote for the election of directors or other members of the governing body of such Person. "Usdan" has the meaning given thereto in the preamble. -5- "Warrants" means the warrants to purchase Series A-2 Stock issued to or held by GE. 2. Voting Matters. (a) To the extent permitted by law, each Stockholder shall vote all voting securities of the Company over which such Stockholder has voting control, and shall take all other necessary or desirable actions within such Stockholder's control (whether in such Stockholder's capacity as a stockholder, director, member of a board committee or officer of the Company or otherwise, and including, without limitation, attendance at meetings in person or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings), and the Company shall take all necessary and desirable actions within its control (including, without limitation, calling special Board and stockholder meetings), so that: (i) the authorized number of directors on the Board shall be established at 7 persons; provided that the Board shall be enlarged upon the affirmative written consent of the holders of a majority of the Sentinel Stockholder Shares; (ii) the following persons shall be elected to the Board: (A) so long as Sentinel and its Affiliates own at least a majority of the Sentinel Stockholder Shares outstanding on the date of this Agreement, 4 persons designated by holders of a majority of the Sentinel Stockholder Shares, who shall initially include David S. Lobel, Fitzpatrick, Paul F. Murphy and Edward Kuntz; provided that if the Board is enlarged as described in clause (i) above, the holders of a majority of the Sentinel Stockholder Shares shall be permitted to designate the smallest number of directors greater than 4 which would be a majority of the Board (i.e., 5 of 8, 5 of 9, 6 of 10) (all such persons designated pursuant to this clause (A), the "Sentinel Directors"); (B) so long as GE, Midwest, Usdan and their Affiliates own at least a majority of the Non-Sentinel Stockholder Shares outstanding on the date of this Agreement, 2 persons designated by holders of a majority of the Non-Sentinel Stockholder Shares; provided that if the Board is enlarged as described in clause (i) above, the holders of a majority of the Non-Sentinel Stockholder Shares shall be permitted to designate such number of directors as are on the enlarged Board and not designated pursuant to clause (A) above and clause (C) below (all such persons designated pursuant to this clause (B), the "Non-Sentinel Directors"); (C) the Chief Executive Officer of the Company; (iii) the Company shall cause the board of directors of each Subsidiary of the Company (each a "Sub Board") to be comprised of the same members as are on the Board; (iv) except as otherwise required by law, two Sentinel Directors and one Non-Sentinel Director, who shall be appointed by the holders of a majority of the Sentinel Stockholder Shares and the holders of a majority of the Non-Sentinel Stockholder Shares respectively (and who may appoint different directors for each such committee), shall be appointed to the executive committee, nominating committee, compensation committee and audit committee of the Board (each of which shall have no more than three (3) members) and such -6- other committees of the Board and of the board of directors of each Subsidiary of the Company as requested by the holders of a majority of the Sentinel Stockholder Shares; notwithstanding the foregoing, the Non-Sentinel Directors and the CEO shall be appointed to a committee of the Board which committee shall be delegated the sole and exclusive power and authority to determine (x) when and if the debt, or any portion thereof, represented by the Notes is prepaid pursuant to Section 3 of the Notes, and (y) any debt financing arrangements of the Company necessary to acquire the funds to affect such prepayment, subject to any restrictions on such financing set forth in Section 3 of the Notes and provided that the aggregate proceeds of such debt financing arrangement do not materially exceed the amount necessary for such prepayment; (v) Sentinel Directors shall be removed from the Board or any committee thereof (without cause) at the written request of the holders of a majority of the Sentinel Stockholder Shares, but only upon such written request and under no other circumstances, except as required by law, and Non-Sentinel Directors shall be removed from the Board or any committee thereof (without cause) at the written request of the holders of a majority of the Non-Sentinel Stockholder Shares, but only upon such written request and under no other circumstances, except as required by law; (vi) in the event that any Sentinel Director for any reason ceases to serve as a member of the Board or any committee thereof during such representative's term of office, the resulting vacancy on the Board or committee shall be filled by a representative designated by the holders of a majority of the Sentinel Stockholder Shares and in the event that any Non-Sentinel Director for any reason ceases to serve as a member of the Board or any committee thereof during such representative's term of office, the resulting vacancy on the Board or committee shall be filled by a representative designated by the holders of a majority of the Non-Sentinel Stockholder Shares. (b) In addition, so long as Sentinel and its Affiliates own at least a majority of the Sentinel Stockholder Shares outstanding on the date of this Agreement, the Company shall not, without the affirmative vote of the holders of a majority of the outstanding Sentinel Stockholder Shares: (i) alter or change the preferences, rights or powers of the Series B Stock, (ii) create, authorize or issue any capital stock that ranks prior (whether with respect to dividends, redemption or upon liquidation, dissolution, winding up or otherwise) to or pari passu with the Series B Stock, (iii) increase the authorized number of shares of Series B Stock, (iv) create, authorize or issue any capital stock of the Company or any Subsidiary of the Company or any security convertible into, exchangeable for, or that otherwise gives the holder the right to obtain, capital stock of the Company or any Subsidiary of the Company (other than (x) the shares of Common Stock or Series A-2 Stock issuable upon conversion, exercise or exchange of the Stockholder Shares outstanding as of the date hereof, or (y) options to acquire shares of Common Stock issued to employees, officers, directors, consultants and agents of the Company, or shares of Common Stock issuable pursuant to the exercise of such options, pursuant to the Stock Option Plan, (v) declare or pay a dividend with respect to any Stockholder Shares, (vi) amend the Company's Certificate of Incorporation or Bylaws except as specifically contemplated in the Purchase Agreement, (vii) materially amend the terms of the Company's senior credit facility entered into on the date hereof, except as required to prepay the debt represented by the Notes pursuant to Section 3 of the Notes, (viii) effect a Change of Control, (ix) create or incur, or permit any Subsidiary of the Company to create or incur, Indebtedness other than Indebtedness -7- existing on the date hereof, Indebtedness approved in an annual budget approved by the Board and other Indebtedness not to exceed $1,000,000 in the aggregate, except as required to prepay the debt represented by the Notes pursuant to Section 3 of the Notes, (x) effect a voluntary liquidation, dissolution or winding up of the Company, (xi) acquire, or permit any Subsidiary of the Company to acquire, any interest in any company or business (whether by a purchase of assets, purchase of stock, merger or otherwise), or enter into any joint venture involving the operation of a business, or make any investment in any company or business, (xii) enter into, amend, modify or supplement, or permit any Subsidiary of the Company to enter into, amend, modify or supplement, any agreement, transaction, commitment or arrangement with any of its or any Subsidiary's officers, directors, or stockholders holding at least 2% of the Common Stock, with any Affiliate or with any Immediate Family of any such individual or with any entity in which any such Person or individual owns a beneficial interest, except for employment arrangements and benefit programs approved by the Board or the applicable board of directors of the Company's Subsidiaries or authorized committees thereof, (xiii) become subject to, or permit any of its Subsidiaries to become subject to, (including by way of amendment to or modification of) any agreement or instrument which by its terms would (under any circumstances) restrict the Company's right to comply (but not the Company's ability to comply) with these terms of the Series B Stock, or (xiv) terminate the employment of any senior executive. (c) The Company shall pay the reasonable out-of-pocket expenses incurred by each director in connection with attending the meetings of the Board or any Sub Board and any committee thereof. (d) In the event that any provision of the Bylaws or Certificate of Incorporation is inconsistent with any provision of this Section 2, the Stockholders shall take such action as may be necessary to amend any such provision in the Bylaws or the Certificate of Incorporation to remedy such inconsistency. (e) The Company hereby agrees that as long as GE owns a majority of the Stockholder Shares held by it on the date of this Agreement and as long as Midwest owns a majority of the Stockholder Shares held by it on the date of this Agreement: (i) each of GE and Midwest, as the case may be, will be given reasonable and adequate notice of each meeting of the Board, which shall be no less notice than that given to a majority of the members of the Board: (ii) each of GE and Midwest, as the case may be, shall each have the right to have one observer attend each such meeting; (iii) each of GE and Midwest, as the case may be, shall be entitled to observe such meeting by phone or other method whereby they can hear all of the participants in the meeting; (iv) each of GE and Midwest, as the case may be, shall be entitled to receive all materials provided to the members of the Board of Directors in connection with such meeting; and (v) if the Board intends to take any action pursuant to a written consent, each of GE and Midwest, as the case may be, will be forwarded copies of such written consents no later than the date copies are distributed to the members of the Board. (f) Notwithstanding anything herein to the contrary, nothing contained in this Agreement shall (i) affect, limit or impair the rights and/or remedies of GE in its capacity as a lender to the Company or any of its Subsidiaries pursuant to any agreement under which the Company or any of its Subsidiaries has or have borrowed money or (ii) be deemed otherwise to -8- require or cause GE to take or omit to take any action in its capacity as a lender or any other holder of debt of the Company or any of its Subsidiaries. 3. Conflicting Agreements. Each Stockholder represents that such Stockholder has not granted and is not a party to any proxy, voting trust or other agreement which is inconsistent with or conflicts with the provisions of this Agreement, and no holder of Stockholder Shares shall grant any proxy or become party to any voting trust or other agreement which is inconsistent with or conflicts with the provisions of this Agreement. 4. Restrictions on Transfer of Stockholder Shares. (a) Transfer of Stockholder Shares. No holder of Stockholder Shares shall sell, transfer, assign, pledge or otherwise dispose (a "Transfer") of (whether with or without consideration and whether voluntarily or involuntarily or by operation of law) any interest in such holder's Stockholder Shares, except (i) pursuant to the provisions of Section 4(b) below, (ii) in a Public Sale, (iii) pursuant to an Approved Sale, or (iv) to a Permitted Transferee. (b) Tag Along Rights. At least 30 days prior to any Transfer of Stockholder Shares by a Stockholder (other than those Transfers described in clauses (ii), (iii) and (iv) of Section 4(a) above) (the "Transferring Stockholder"), the Transferring Stockholder shall deliver a written notice (the "Sale Notice") to the Company, which shall promptly deliver the Sale Notice to the Other Stockholders, specifying in reasonable detail the identity of the prospective transferee(s) and the terms and conditions of the Transfer. The Other Stockholders may elect to participate in the contemplated Transfer by delivering written notice to Sentinel within 10 days after delivery of the Sale Notice. If any Other Stockholders have elected to participate in such Transfer, each of the Transferring Stockholder and such Other Stockholders shall be entitled to sell in the contemplated Transfer, at the same price and on the same terms (provided that adequate provision shall be made to account for any exercise or conversion prices payable by any Stockholder with respect to any rights to acquire Stockholder Shares), a number of shares of Common Stock (or Stockholder Shares exercisable for or convertible into such number) equal to the product of (i) the quotient determined by dividing the number of shares of Common Stock owned by such Stockholder on a fully diluted as if converted basis by the aggregate number of shares of Common Stock owned by the Stockholders participating in such Transfer on a fully diluted as if converted basis, and (ii) the aggregate number of shares of Common Stock to be sold to the proposed transferee in the contemplated Transfer on a fully diluted as if converted basis. Upon consummation of a Transfer contemplated by this clause (b), each Stockholder shall receive in exchange for the Stockholder Shares Transferred by such Stockholder pursuant to such Transfer, its pro rata portion of the aggregate consideration received pursuant to such Transfer based upon the percentage of all Stockholder Shares on a fully diluted as if converted basis Transferred pursuant to such Transfer held by such Stockholder. All Stockholders will bear their pro rata share (based upon the consideration received pursuant to the Transfer) of the reasonable costs of such Transfer to the extent such costs are incurred for the benefit of all participating Stockholders and are not otherwise paid by the Company or the acquiring party. Costs incurred by any Stockholder on its own behalf will not be considered costs of the transaction hereunder. (c) Permitted Transfers. The restrictions contained in Sections 4(a) and 4(b) shall not apply with respect to any Transfer of Stockholder Shares by any Stockholder (i) to -9- another Stockholder who is party to this Agreement, (ii) in the case of an individual Stockholder, pursuant to applicable laws of descent and distribution or to any member of such Stockholder's Family Group, or (iii) in the case of an entity, (x) among its Affiliates, partners or employees, or consultants, or (y) to any employee or director of the Company or any Affiliate of the Company. All transferees permitted under this Section 4(c) are collectively referred to herein as "Permitted Transferees." (d) Provisions of General Applicability. Each transaction of purchase and sale of Stockholder Shares pursuant to this Agreement shall be completed by delivery of the certificates representing such shares endorsed in blank and by actual registration of the transfer of such shares on the books of the Company upon payment of the purchase price to the seller of such shares. 5. Sale of the Company. (a) In the event of an Approved Sale, each Stockholder will (i) consent to and raise no objections against the Approved Sale or the process pursuant to which the Approved Sale was arranged, (ii) waive any dissenter's rights and other similar rights, and (iii) if the Approved Sale is structured as a sale of securities, each Stockholder will agree to sell its Stockholder Shares (and any other capital stock of the Company) on the terms and conditions of the Approved Sale; provided that it is acknowledged that each Stockholder retains his, her or its right to object to the Approved Sale on the basis that the members of the Board are in breach of their fiduciary duty as members of the Board. (b) The obligations of each Stockholder under this Section 5 are subject to the satisfaction of the following conditions: (i) upon consummation of an Approved Sale, each Stockholder shall receive in exchange for the Stockholder Shares (and any other capital stock of the Company) held by such Stockholder the same portion of the aggregate consideration from such sale or exchange that such Stockholder would have received if such aggregate consideration had been distributed by the Company in complete liquidation pursuant to the rights and preferences set forth in the Certificate of Incorporation, (ii) if the holders of a class or series of capital stock of the Company are given an option as to the form of consideration to be received, all holders of shares of such class or series of capital stock shall be given the same option (excluding any options or similar securities given to an executive of the Company as an incentive to remain an employee following the Approved Sale; provided that such incentive compensation is reasonable under the circumstances and is negotiated by the Company, such executive and the applicable purchaser in good faith without the intention of allocating incentive consideration to an executive in excess of what such purchaser would normally allocate in lieu of paying a larger purchase price for the Company), (iii) each holder of then currently exercisable rights to acquire Stockholder Shares shall be given no less than ten (10) days notice to exercise such rights prior to the consummation of the Approved Sale and participate in such sale as a holder of such Stockholder Shares, and (iv) with respect to any Approved Sale that implies an equity value of less than the aggregate "Liquidation Payment" of the outstanding Series B Stock as of the date of consummation of the Approved Sale, the Company shall receive a customary fairness opinion with respect to such Approved Sale from an investment bank reasonably acceptable to the holders of a majority of the Sentinel Stockholder Shares and the holders of a majority of the Non-Sentinel Stockholder Shares. -10- (c) All Stockholders will bear their pro rata share (based upon the consideration received pursuant to the Approved Sale) of the reasonable costs of an Approved Sale to the extent such costs are incurred for the benefit of all Stockholders and are not otherwise paid by the Company or the acquiring party. Costs incurred by any Stockholder on its own behalf will not be considered costs of the transaction hereunder. (d) Sentinel and the Company covenant that so long as Sentinel holds at least a majority of the Sentinel Stockholder Shares outstanding on the date of this Agreement, they will give GE and Midwest prompt written notice of the commencement of a process intended to consummate in a Sale of the Company; provided that GE shall be entitled to such notice only so long as GE owns a majority of the Stockholder Shares held by it on the date of this Agreement and Midwest shall be entitled to such notice only so long as Midwest owns a majority of the Stockholder Shares held by it on the date of this Agreement. (e) Each Stockholder will take all necessary and desirable actions as directed by the Board and the Approving Stockholders in connection with the consummation of any Approved Sale, including without limitation executing the applicable purchase agreement and granting identical indemnification rights; provided that (i) each Stockholder shall only be severally obligated to join on a pro rata basis (based on such Stockholder's share of the aggregate proceeds paid with respect to his or its interest) in any indemnification obligation agreed to in connection with such Approved Sale, other than any such obligations that relate to breaches of covenants by such Stockholder or breaches of representations specifically concerning such Stockholder (i.e. such Stockholder's ownership of shares, title, authority, investment intent, etc.), for which such Stockholder shall be fully liable, and (ii) each Stockholder's indemnity obligation shall be limited to an amount equal to the net cash proceeds paid to such Stockholder in connection with such Approved Sale (other than obligations resulting from breaches of covenants by such Stockholder or breaches of representations specifically concerning such Stockholder, as to which no limitation shall apply). 6. Pre-emptive Rights. (a) Subject to Section 6(b) below, if the Company proposes to issue any shares of Common Stock or any Common Stock Equivalents, in each case after the date of this Agreement, the Company will offer to sell to each Stockholder a number of such securities ("Offered Shares") so that the Ownership Ratio for such holder immediately after the issuance of such securities (and assuming the purchase of such Offered Shares) would be equal to the Ownership Ratio for such holder immediately prior to such issuance of securities. The Company shall give each such holder at least twenty (20) days prior written notice of any proposed issuance, which notice shall disclose in reasonable detail the proposed terms and conditions of such issuance (the "Issuance Notice"). Each such Stockholder will be entitled to purchase such securities at the same price, on the same terms (including, if more than one type of security is issued, the same proportionate mix of such securities), and at the same time as the securities are issued by delivery of irrevocable written notice (the "Election Notice") to the Company of such election within ten (10) days after delivery of the Issuance Notice (the "Preemptive Period"). If any such Stockholder has elected to purchase any Offered Shares, the sale of such shares shall be consummated as soon as practical after the delivery of the Election Notice. To the extent such Stockholders do not elect to, or are not entitled to purchase all of the Offered Shares, then the -11- Company may issue the remaining Offered Shares at a price and on terms no more favorable to the transferee(s) thereof specified in the Issuance Notice during the 120-day period following the Preemptive Period. (b) The rights contained in Section 6(a) shall not apply to the issuance of Common Stock or Common Stock Equivalents: (i) as a stock dividend or upon any subdivision or stock split of the outstanding shares of Common Stock; (ii) upon exercise of any warrants or options outstanding as of the date of this Agreement; (iii) upon exercise or conversion of any Stockholder Shares; (iv) to officers, directors, consultants and other employees or agents of the Company; (v) pursuant to the acquisition of another business entity by the Company by merger, purchase of substantially all of the assets of such entity, or other transaction whereby the Company acquires not less than a majority of the voting power of such entity, or (vi) if such issuance is designated in writing by the holders of a majority of the Sentinel Stockholder Shares as an issuance which will not be subject to Section 6(a), provided no Common Stock or Common Stock Equivalents are issued to such holders or their Affiliates pursuant to such issuance. 7. Legend. In addition to any legend required by any other agreement, each certificate evidencing Stockholder Shares and each certificate issued in exchange for or upon the transfer of any Stockholder Shares (if such shares remain Stockholder Shares as defined herein after such transfer) shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON __________, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND ANY INTEREST THEREIN MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS OR (ii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACTS. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO A STOCKHOLDERS AGREEMENT DATED AS OF MAY 15, 2003, BY AND AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND CERTAIN OF THE COMPANY'S STOCKHOLDERS. A COPY OF SUCH STOCKHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST." The Company shall imprint such legend on certificates evidencing Stockholder Shares outstanding prior to the date hereof. The legend set forth above shall be removed from the certificates evidencing any shares which cease to be Stockholder Shares. -12- 8. Transfers in Violation of Agreement. Any Transfer or attempted Transfer of any Stockholder Shares in violation of any provision of this Agreement shall be null and void, and the Company shall not record such Transfer on its books or treat any purported transferee of such Stockholder Shares as the owner of such shares for any purpose. 9. Transfer of Stockholder Shares. (a) In connection with the Transfer of any Stockholder Shares other than a Transfer to the public pursuant to an offering registered under the Securities Act, the holder thereof shall deliver written notice to the Company describing in reasonable detail the Transfer or proposed Transfer, together with an opinion of counsel reasonably acceptable to the Company to the effect that such Transfer of Stockholder Shares may be effected without registration of such Stockholder Shares under the Securities Act (provided that no such opinion shall be necessary in conjunction with a Transfer to a Permitted Transferee). No Transfer of Stockholder Shares (including a Transfer to a Permitted Transferee) shall be permitted unless and until the prospective transferee agrees to become a party to this Agreement and be bound by all the terms and conditions hereof by executing and delivering to the Company, a Joinder Agreement in the form attached hereto as Exhibit A. (b) Upon the request of a holder of Stockholder Shares, the Company shall promptly supply to such Person or its prospective transferees all information regarding the Company required to be delivered in connection with a Transfer pursuant to Rule 144A (or any similar rule or rules then in effect) of the SEC. 10. Conversion. Each Stockholder agrees that if at any time a majority of the Series B Stock then outstanding is converted into Common Stock, such Stockholder will immediately convert all Series A-1 Stock, Series A-2 Stock and Series B Stock that such Stockholder then holds into Common Stock. 11. Amendment; Waiver and Termination. Except as otherwise provided herein, no amendment, waiver or termination of any provision of this Agreement shall be effective against the Company or the Stockholders unless such amendment, waiver or termination is approved in writing by the Company, the holders of a majority of the Sentinel Stockholder Shares, and the holders of a majority of the Non-Sentinel Stockholder Shares; provided, however, no amendment or waiver can be effected if, by its terms, such amendment, modification, supplement or waiver adversely affects one Stockholder without having the same relative adverse effect on all Stockholders without the prior written consent of such adversely affected Stockholder. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. 12. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, -13- construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 13. Entire Agreement. Except as otherwise expressly set forth herein, this document and the other Transaction Documents embody the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 14. Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and the Stockholders and any subsequent holders of Stockholder Shares and the respective permitted successors and assigns of each of them, so long as they hold Stockholder Shares. 15. Counterparts. This Agreement may be executed in separate counterparts each of which shall be an original and all of which taken together shall constitute one and the same agreement. 16. Remedies. The parties hereto shall be entitled to enforce their rights under this Agreement specifically to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that the Company, and may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief (without posting a bond or other security) in order to enforce or prevent any violation of the provisions of this Agreement. 17. Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when delivered personally, mailed by certified or registered mail, return receipt requested and postage prepaid, or sent via a nationally recognized overnight courier, or sent via facsimile to the recipient accompanied by a certified or registered mailing. Such notices, demands and other communications will be sent to the Company at its executive office, and to each Stockholder at the address set forth for such Stockholder in the Company's records. 18. GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF 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. -14- 19. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 20. Waiver of Jury Trial. Each of the parties hereto waives any right it may have to trial by jury in respect of any litigation based on, arising out of, under or in connection with this Agreement or any course of conduct, course of dealing, verbal or written statement or action of any party hereto. * * * * * -15- IN WITNESS WHEREOF, the parties hereto have executed this Stockholders Agreement as of the date first above written. CASTLE DENTAL CENTERS, INC. By: ------------------------------------------ Name: Title: SENTINEL CAPITAL PARTNERS II, L.P. By: Sentinel Partners II, L.P. Its: General Partner By: Sentinel Managing Company II, LLC Its: General Partner By: ------------------------------------------ Name: Title: MIDWEST MEZZANINE FUND II, L.P. By: ABN AMRO Mezzanine Management II, L.P. Its: General Partner By: ABN AMRO Mezzanine Management II, INC. Its: General Partner By: ------------------------------------------ Name: Paul Kreie Title: Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: ------------------------------------------ Name: Title: -16- /s/ --------------------------------------------- JAMES M. USDAN /s/ --------------------------------------------- THOMAS FITZPATRICK /s/ --------------------------------------------- JOHN M. SLACK -17- EXHIBIT A FORM OF JOINDER TO STOCKHOLDERS AGREEMENT THIS JOINDER to the Stockholders Agreement, dated as of May 15, 2003 by and among Castle Dental Centers, Inc., a Delaware corporation (the "Company"), and certain stockholders of the Company (the "Agreement"), is made and entered into as of _________ by and between the Company and _________________ ("Holder"). Capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Agreement. WHEREAS, Holder has acquired certain shares of [________________] ("Holder Stock"), and the Agreement and the Company requires Holder, as a holder of Holder Stock, to become a party to the Agreement, and Holder agrees to do so in accordance with the terms hereof. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Joinder hereby agree as follows: 1. Agreement to be Bound. Holder hereby agrees that upon execution of this Joinder, it shall become a party to the Agreement and shall be fully bound by, and subject to, all of the covenants, terms and conditions of the Agreement as though an original party thereto and shall be deemed a Stockholder for all purposes thereof. In addition, Holder hereby agrees that all Holder Stock held by Holder shall be deemed Stockholder Shares for all purposes of the Agreement. 2. Successors and Assigns. Except as otherwise provided herein, this Joinder shall bind and inure to the benefit of and be enforceable by the Company, the Stockholders and their successors and assigns and Holder and any subsequent holders of Holder Stock and the respective successors and assigns of each of them, so long as they hold any shares of Holder Stock. 3. Counterparts. This Joinder may be executed in separate counterparts each of which shall be an original and all of which taken together shall constitute one and the same agreement. 4. Governing Law. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS JOINDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF 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. -18- 5. Descriptive Headings. The descriptive headings of this Joinder are inserted for convenience only and do not constitute a part of this Joinder. * * * * * -19- IN WITNESS WHEREOF, the parties hereto have executed this Joinder as of the date first above written. CASTLE DENTAL CENTERS, INC. By:________________________________ Name: Title: [HOLDER] By:_________________________________ -20- EX-99.6 8 irm344e.txt REGISTRATION RIGHTS AGREEMENT Execution Copy REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of May 15, 2003, by and among Castle Dental Centers, Inc., a Delaware corporation (the "Company"), Sentinel Capital Partners II, L.P., a Delaware limited partnership ("Sentinel"), General Electric Capital Corporation, a Delaware corporation ("GE"), Midwest Mezzanine Fund II, L.P., a Delaware limited partnership ("Midwest"), James M. Usdan ("Usdan"), Thomas Fitzpatrick ("Fitzpatrick"), and John M. Slack ("Slack"). Sentinel, Fitzpatrick, GE, Midwest, Usdan, Slack and the Company are parties to a Preferred Stock and Subordinated Note Purchase Agreement dated as of the date hereof (the "Purchase Agreement"). In order to induce Sentinel, Fitzpatrick, GE, Midwest, Usdan and Slack to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the Closing under the Purchase Agreement. It is acknowledged that certain other parties shall become a party to this agreement following the date hereof in conjunction with such parties' execution of a joinder to the Purchase Agreement and their purchase of certain securities of the Company thereunder. GE, Midwest, Usdan and the Company are parties to a Registration Rights Agreement dated as of July 19, 2002 (the "Existing Registration Rights Agreement"). By entering into this Agreement, GE, Midwest and Usdan are terminating their rights under the Existing Registration Rights Agreement. Unless otherwise provided in this Agreement, capitalized terms used herein shall have the meanings set forth in Section 9 hereof. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: 1. Demand Registrations. (a) Requests for Registration. Subject to the terms of this Section 1, at any time and from time to time, the holders of a majority of the Sentinel Registrable Securities may request registration under the Securities Act of all or any portion of their Registrable Securities. All registrations requested pursuant to this Section 1(a) are referred to herein as "Demand Registrations". Each request for a Demand Registration shall specify the approximate number of Registrable Securities requested to be registered, the anticipated per share price range for such offering and the intended method of distribution. Within ten days after receipt of any such request, the Company shall give written notice of such requested registration to all other holders of Registrable Securities and, subject to the terms of Section 1(d) hereof, shall include in such registration (and in all related registrations and qualifications under state blue sky laws or in compliance with other registration requirements and in any related underwriting) all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 15 days after the receipt of the Company's notice. (b) Long-Form Registrations. The holders of a majority of the Sentinel Registrable Securities shall be entitled to request 2 registrations under the Securities Act on Form S-1 or any similar long-form registrations (the "Long-Form Registrations") in which the Company shall pay all Registration Expenses. A registration shall not count as one of the permitted Long-Form Registrations until it has become effective and the holders of Registrable Securities are able to register at least 90% of the Registrable Securities requested to be included in such registration; it being understood and agreed that the requisite holders of Registrable Securities making a request for a Demand Registration hereunder may withdraw from such registration at any time prior to the effective date of such Demand Registration, in which case such request will not count as one of the permitted Demand Registrations for such holders. All Long Form Registrations shall be underwritten registrations. (c) Short-Form Registrations. In addition to the Long-Form Registrations provided pursuant to Section 1(b), the holders of a majority of the Sentinel Registrable Securities shall be entitled to request 2 registrations under the Securities Act on Form S-2 or S-3 or any similar short-form registrations (the "Short-Form Registrations") in which the Company shall pay all Registration Expenses. Demand Registrations shall be Short-Form Registrations whenever the Company is permitted to use any applicable short form and if the managing underwriters (if any) agree to the use of a Short-Form Registration. The Company shall use its best efforts to make Short-Form Registrations available for the sale of Registrable Securities. A registration shall not count as one of the permitted Short-Form Registrations until it has become effective and the holders of Registrable Securities are able to register at least 90% of the Registrable Securities requested to be included in such registration . (d) Priority on Demand Registrations. The Company shall not include in any Demand Registration any securities which are not Registrable Securities without the prior written consent of the holders of at least a majority of the Registrable Securities initially requesting such registration. If a Demand Registration is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the number of Registrable Securities and, if permitted hereunder, other securities requested to be included in such offering exceeds the number of Registrable Securities and other securities, if any, which can be sold therein without adversely affecting the marketability of the offering, the Company shall include in such registration the number which can be sold which in the opinion of such underwriters can be sold without adversely affecting the marketability of the offering, in the following order of priority: (i) first, the Registrable Securities requested to be included, pro rata among the respective holders thereof on the basis of the number of Registrable Securities owned by each such holder, and (ii) second, other securities requested to be included by holders having registration rights with respect to the Company's securities (including those holders who are granted rights that are subordinate to the rights set forth herein, as described in Section 1(f) below), pro rata among the respective holders thereof on the basis of the number of other securities owned by each such holder. 2 (e) Selection of Underwriters. In the case of an underwritten Demand Registration, the holders of a majority of the Registrable Securities initially requesting such Demand Registration hereunder shall have the right to select the investment banker(s) and manager(s) to administer the offering, so long as such firms are reasonably acceptable to the Company. (f) Other Registration Rights. Except as provided on Exhibit A hereto, the Company represents and warrants that it is not a party to, or otherwise subject to, any other agreement granting registration rights to any Person with respect to any securities of the Company. Except as provided in this Agreement, the Company shall not grant to any Persons the right to request or require the Company to register any equity securities of the Company, or any securities convertible or exchangeable into or exercisable for such securities, without the prior written consent of the holders of a majority of the Registrable Securities, unless such registration rights are expressly made subordinate to the rights set forth herein. (g) Registration Deferral Right. Notwithstanding the foregoing, if the Company shall furnish to holders requesting a registration statement pursuant to this Section 1, a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than 60 days after receipt of the request of the holders; provided, however, that the Company may not utilize this right more than once in any twelve-month period. 2. Piggyback Registrations. (a) Right to Piggyback. Whenever the Company proposes to register any of its securities under the Securities Act (other than pursuant to a Demand Registration) and the registration form to be used may be used for the registration of Registrable Securities (a "Piggyback Registration"), the Company shall give prompt written notice (in any event within three business days after its receipt of notice of any exercise of demand registration rights other than under this Agreement) to all holders of Registrable Securities of its intention to effect such a registration and, subject to the terms of Sections 2(c) and 2(d) hereof, shall include in such registration (and in all related registrations or qualifications under blue sky laws or in compliance with other registration requirements and in any related underwriting) all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 20 days after the giving of the Company's notice. (b) Piggyback Expenses. The Registration Expenses of the holders of Registrable Securities shall be paid by the Company in all Piggyback Registrations. (c) Priority on Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, the Company shall include in such 3 registration the number which can be sold which in the opinion of such underwriters can be sold without adversely affecting the marketability of the offering, in the following order of priority: (i) first, the securities the Company proposes to sell, (ii) second, the Registrable Securities requested to be included and other securities requested to be included by holders having registration rights with respect to the Company's securities (not including those holders who are granted rights that are subordinate to the rights set forth herein, as described in Section 1(f) above), pro rata among the respective holders thereof on the basis of the number of securities owned by each such holder, and (iii) third, securities requested to be included by holders having registration rights with respect to the Company's securities that are subordinate to the rights set forth herein, as described in Section 1(f) above. (d) Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Company's securities, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, the Company shall include in such registration the number which can be sold which in the opinion of such underwriters can be sold without adversely affecting the marketability of the offering, in the following order of priority: (i) first, the Registrable Securities requested to be included and other securities requested to be included by holders having registration rights with respect to the Company's securities (not including those holders who are granted rights that are subordinate to the rights set forth herein, as described in Section 1(f) above), pro rata among the respective holders thereof on the basis of the number of securities owned by each such holder, and (ii) second, securities requested to be included by holders having registration rights with respect to the Company's securities that are subordinate to the rights set forth herein, as described in Section 1(f) above. (e) Selection of Underwriters. If any Piggyback Registration is an underwritten offering, the selection of investment banker(s) and manager(s) for the offering will be selected by the Company and shall be reasonably acceptable to holders of a majority of the Sentinel Registrable Securities. (f) Other Registrations. If the Company has previously filed a registration statement with respect to Registrable Securities pursuant to Section 1 or pursuant to this Section 2, and if such previous registration has not been withdrawn or abandoned, the Company shall not file or cause to be effected, any other registration of any of its equity securities or securities convertible or exchangeable into or exercisable for its equity securities under the Securities Act (except on Form S-4, Form S-8 or any successor form), whether on its own behalf or at the request of any holder or holders of such securities, until a period of at least 180 days has elapsed from the effective date of such previous registration. 3. Holdback Agreements. (a) Each holder of Registrable Securities shall not effect any public sale or distribution (including sales pursuant to Rule 144 of the Securities Act) of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, 4 during the seven days prior to and the 180-day period beginning on the effective date of any underwritten public offering of the Company's equity securities (except as part of such underwritten registration), unless the underwriters managing the registered public offering otherwise agree. (b) The Company (i) shall not effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and during the 180-day period beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration or pursuant to registrations on Form S-4, Form S-8 or any successor form), unless the underwriters managing the registered public offering otherwise agree, and (ii) shall use its best efforts to cause each officer and director of the Company to agree not to effect any public sale or distribution (including sales pursuant to Rule 144 of the Securities Act) of any such securities during such period (except as part of such underwritten registration, if otherwise permitted), unless the underwriters managing the registered public offering otherwise agree. 4. Registration Procedures. Whenever the holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement, the Company shall use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company shall as expeditiously as possible: (a) prepare and file with the Securities and Exchange Commission a registration statement, and all amendments and supplements thereto and related prospectuses as may be necessary to comply with applicable securities laws, with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company shall furnish to the counsel selected by the holders of a majority of the Registrable Securities covered by such registration statement copies of all such documents proposed to be filed, which documents shall be subject to the review and comment of such counsel); (b) notify each holder of Registrable Securities of the effectiveness of each registration statement filed hereunder and prepare and file with the Securities and Exchange 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 a period of not less than 90 days and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (c) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as 5 such seller may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities owned by such seller; (d) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller (provided that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph, (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction); (e) notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company shall prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; (f) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed and, if not so listed, to be listed on the NASD automated quotation system and, if listed on the NASD automated quotation system, use its best efforts to secure designation of all such Registrable Securities covered by such registration statement as a NASDAQ "national market system security" within the meaning of Rule 11Aa2-1 of the Securities and Exchange Commission or, failing that, to secure NASDAQ authorization for such Registrable Securities and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Securities with the NASD; (g) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement; (h) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including effecting a stock split or a combination of shares); (i) make available for inspection by any seller of Registrable Securities, 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, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees and independent accountants to supply all information 6 reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; (j) otherwise use its best efforts to comply with all applicable rules and regulations of the Securities and Exchange Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first day of the Company's first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; (k) permit any holder of Registrable Securities which holder, in its sole and exclusive judgment, might be deemed to be an underwriter or a controlling person of the Company, to participate in the preparation of such registration or comparable statement and to require the insertion therein of material, furnished to the Company in writing, which in the reasonable judgment of such holder and its counsel should be included; (l) If any such registration or comparable statement refers to any holder by name or otherwise as the holder of any securities of the Company and if in its sole and exclusive judgment, such holder is or might be deemed to be an underwriter or a controlling person of the Company, such holder shall have the right to require (i) the insertion therein of language, in form and substance satisfactory to such holder and presented to the Company in writing, to the effect that the holding by such holder of such securities is not to be construed as a recommendation by such holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such holder shall assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such holder by name or otherwise is not required by the Securities Act or any similar Federal statute then in force, the deletion of the reference to such holder; provided that with respect to this clause (ii) such holder shall furnish to the Company an opinion of counsel to such effect, which opinion and counsel shall be reasonably satisfactory to the Company; (m) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any common stock included in such registration statement for sale in any jurisdiction, the Company shall use its best efforts promptly to obtain the withdrawal of such order; (n) use its best efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the sellers thereof to consummate the disposition of such Registrable Securities; and (o) obtain a cold comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters as the holders of a majority of the Registrable Securities being sold reasonably request (provided that such Registrable Securities constitute at least 10% of the securities covered by such registration statement). 7 5. Registration Expenses. (a) All expenses incident to the Company's performance of or compliance with this Agreement, including without limitation all registration, qualification and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, fees and disbursements of custodians, and fees and disbursements of counsel for the Company and all independent certified public accountants, underwriters (excluding discounts and commissions) and other Persons retained by the Company (all such expenses being herein called "Registration Expenses"), shall be borne as provided in this Agreement, except that the Company shall, in any event, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed or on the NASD automated quotation system. (b) In connection with each Demand Registration and each Piggyback Registration, the Company shall reimburse the holders of Registrable Securities included in such registration for the reasonable fees and disbursements of one counsel chosen by the holders of a majority of the Registrable Securities included in such registration. 6. Indemnification. (a) The Company agrees to indemnify, to the extent permitted by law, each holder of Registrable Securities, its officers and directors and each Person who controls such holder (within the meaning of the Securities Act) against all losses, claims, actions, damages, liabilities and expenses caused by (i) any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and to pay to each holder of Registrable Securities, its officers and directors and each Person who controls such holder (within the meaning of the Securities Act), as incurred, any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein or by such holder's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto. In connection with an underwritten offering, the Company shall indemnify such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of Registrable Securities. (b) In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder shall furnish to the Company in writing 8 such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, shall indemnify the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses resulting from (i) any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such holder, or (ii) by such holder's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto; provided that the obligation to indemnify shall be individual, not joint and several, for each holder and shall be limited (except in the case of willful fraud by such holder) to the net amount of proceeds received by such holder from the sale of Registrable Securities pursuant to such registration statement. (c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any Person's right to indemnification hereunder to the extent such failure has not prejudiced the indemnifying party) and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. In such instance, the conflicting indemnified parties shall have a right to retain one separate counsel, chosen by the holders of a majority of the Registrable Securities included in the registration, at the expense of the indemnifying party. No indemnifying party, in the defense of such claim or litigation, shall, except with the consent of each indemnified party, consent to the entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (d) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and shall survive the transfer of securities. (e) If the indemnification provided for in this Section 6 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable 9 by such indemnified party as a result of such loss, liability, claim, damage, or expense 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 in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations; provided, that in no event shall any contribution by a holder under this Section 6(e) exceed the net proceeds from the offering received by such holder, except in the case of willful fraud by such holder. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of competent jurisdiction. (f) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 7. Participation in Underwritten Registrations. No Person may participate in any registration hereunder which is underwritten unless such Person (i) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided, that (a) the holders of Registrable Securities to be distributed by such underwriters shall be parties to such underwriting agreement and may, at their option, require that any or all of the representations and warranties by the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such holders of Registrable Securities and (b) no holder of Registrable Securities included in any underwritten registration shall be required to make any representations or warranties to the Company or the underwriters (other than representations and warranties regarding such holder, such holder's ownership of securities being included in the registration, and related customer matters, and such holder's intended method of distribution) or to undertake any indemnification obligations to the Company with respect thereto, except as otherwise provided in Section 6(b) hereof. 8. Rule 144 Reporting. With a view to making available to the holders of Registrable Securities the benefits of certain rules and regulations of the Securities and Exchange Commission which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its reasonable best efforts to: (a) make and keep current public information available, within the meaning of Rule 144 or any similar or analogous rule promulgated under the Securities Act; (b) file with the Securities and Exchange Commission, in a timely manner, all reports and other documents required of the Company under the Securities Act and Exchange Act; and (c) so long as any party hereto owns any Registrable Securities, furnish to such party forthwith upon request, a written statement by the Company as to its compliance with the reporting requirements of said Rule 144, the Securities Act and the Exchange Act; a copy of 10 the most recent annual or quarterly report of the Company; and such other reports and documents as such Person may reasonably request in availing itself of any rule or regulation of the Securities and Exchange Commission allowing it to sell any such securities without registration. 9. Definitions. As used in this Agreement, the following terms shall have the following meanings: "Business Day" means any day excluding Saturday, Sunday, and any day which is a legal holiday under the laws of the State of New York or California or is a day on which banking institutions located in such states are authorized or required by law or other governmental action to close. "Common Stock" means the Company's Common Stock, par value $0.000001 per share. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Person" means 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 entity or any department, agency or political subdivision thereof. "Registrable Securities" means (i) any of the Common Stock issued or issuable upon the exercise or conversion of any Series B Stock, Series A-1 Stock, Series A-2 Stock or Warrants issued to or held by the Stockholders, and (ii) any Common Stock issued or issuable with respect to the securities referred to in clause (i) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when they have been distributed to the public pursuant to a offering registered under the Securities Act or sold to the public through a broker, dealer or market maker in compliance with Rule 144 under the Securities Act (or any similar rule then in force), repurchased by the Company or any subsidiary of the Company. For purposes of this Agreement, a Person shall be deemed to be a holder of Registrable Securities, and the Registrable Securities shall be deemed to be in existence, whenever such Person has the right to acquire directly or indirectly such Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected, and such Person shall be entitled to exercise the rights of a holder of Registrable Securities hereunder. "Securities Act" means the Securities Act of 1933, as amended. "Sentinel Registrable Securities" means the Registrable Securities initially issued to or held by Sentinel. "Series A-1 Stock" means the Convertible Preferred Stock, Series A-1, of the Company, par value $0.000001 per share. 11 "Series A-2 Stock" means the Convertible Preferred Stock, Series A-2, of the Company, par value $0.000001 per share. "Series B Stock" means the Company's Series B Convertible Preferred Stock, par value $0.000001 per share. "Stockholders" means Sentinel, GE, Midwest, Usdan, Fitzpatrick, Slack and their respective transferees and any other Person becoming party to this Agreement. "Warrants" means the warrants to purchase Series A-2 Stock issued to GE. 10. Miscellaneous. (a) No Inconsistent Agreements. The Company shall not hereafter enter into any agreement with respect to its securities which is inconsistent with or violates the rights granted to the holders of Registrable Securities in this Agreement. (b) Adjustments Affecting Registrable Securities. The Company shall not take any action with respect to its securities which would adversely affect the ability of the holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement or which would materially and adversely affect the marketability of such Registrable Securities in any such registration. (c) Remedies. Any Person having rights under any provision of this Agreement shall be entitled to enforce such rights specifically to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that, in addition to any other rights and remedies existing in its favor, any party shall be entitled to specific performance and/or other injunctive relief from any court of law or equity of competent jurisdiction (without posting any bond or other security) in order to enforce or prevent violation of the provisions of this Agreement. (d) Amendments, Waivers and Terminations. Except as otherwise provided herein, the provisions of this Agreement may be amended, waived or terminated, on behalf of all holders of Registrable Securities, only upon the prior written consent of the Company, the holders of a majority of the Sentinel Registrable Securities, and the holders of a majority of all Registrable Securities other than Sentinel Registrable Securities; provided, however, no amendment or waiver can be effected if, by its terms, such amendment or waiver adversely affects one Stockholder without having the same relative adverse effect on all Stockholders without the prior written consent of such adversely affected Stockholder. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. (e) Successors and Assigns. All covenants and agreements in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective 12 successors and assigns of the parties hereto whether so expressed or not. In addition, whether or not any express assignment has been made, the provisions of this Agreement which are for the benefit of purchasers or holders of Registrable Securities are also for the benefit of, and enforceable by, any subsequent holder of Registrable Securities. (f) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. (g) Counterparts. This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Agreement. (h) Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. (i) Governing Law. All issues and questions relating to the construction, interpretation and enforcement of this Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to principles of conflicts of laws or choice of law of the State of New York or any other jurisdiction which would result in the application of the law of any jurisdiction other than the State of New York. (j) Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally to the recipient, sent to the recipient by reputable overnight courier service (charges prepaid) or mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Such notices, demands and other communications shall be sent to the Company and Sentinel at the address indicated below: To the Company, to: Castle Dental Centers, Inc. 3701 Kirby Drive Suite 550 Houston, TX 77098 Attention: James M. Usdan Facsimile: (713) 490-8420 13 With a copy, which shall not constitute notice to the Company, to: Haynes and Boone, LLP 1000 Louisiana Street Suite 4300 Houston, TX 77002 Attention: John W. Menke Facsimile: (713) 236-5560 To Sentinel, to: Sentinel Capital Partners 777 Third Avenue 32nd Floor New York, NY 10017 Attention: David S. Lobel Paul F. Murphy Facsimile: (212) 688-6513 With a copy, which shall not constitute notice to Sentinel, to: Kirkland & Ellis Citigroup Center 153 East 53rd Street New York, NY 10022 Attention: Frederick Tanne, Esq. Facsimile: (212) 446-4900 14 To GE, to: General Electric Capital Corporation c/o Heller Healthcare Financial Services 500 West Monroe Street Chicago, IL 60661 Attention: Jay Sepanski Facsimile: (312) 441-7598 With a copy to: General Electric Capital Corporation c/o Heller Healthcare Financial Services 2 Wisconsin Circle, 4th Floor Chevy Chase, MD 20815 Attention: Katherine R. Lofft, Esq. Facsimile: (301) 664-9866 To Midwest, to: Midwest Mezzanine Fund II, L.P. 135 South LaSalle Street, Suite 2040 Chicago, IL 60603 Attention: Paul Kreie Facsimile: (312) 992-4595 To Usdan, to: c/o Castle Dental Centers, Inc. 3701 Kirby Drive, Suite 550 Houston, TX 77098 Facsimile: (713) 490-8420 To Fitzpatrick, to: c/o Sentinel Capital Partners 777 Third Avenue 32nd Floor New York, NY 10017 Attention: David S. Lobel Paul F. Murphy Facsimile: (212) 688-6513 15 To Slack, to: c/o Castle Dental Centers, Inc. 3701 Kirby Drive, Suite 550 Houston, TX 77098 Facsimile: (713) 490-8420 or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. (k) Waiver of Jury Trial Each of the parties hereto waives any right it may have to trial by jury in respect of any litigation based on, arising out of, under or in connection with this Agreement or any course of conduct, course of dealing, verbal or written statement or action of any party hereto. (l) Time of the Essence; Computation of Time. Time is of the essence for each and every provision of this Agreement. Whenever the last day for the exercise of any privilege or other discharge or any duty hereunder shall fall upon a Non-Business Day, the party having such privilege or duty may exercise such privilege or discharge such duty on the next succeeding day which is a regular Business Day. (m) Termination. GE, Midwest, Usdan and the Company hereby agree that all registration and other rights granted to Heller Financial, Inc. (or GE as successor to Heller), Midwest and Usdan under the Existing Registration Rights Agreement are hereby terminated. (n) Rights Transfer. If at any time Sentinel and its affiliates no longer hold any Sentinel Registrable Securities, any and all rights hereunder which may be exercised by the holders of a majority of the Sentinel Registrable Securities, will thereafter be exercisable by the holders of a majority of the Registrable Securities. * * * * * 16 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. CASTLE DENTAL CENTERS, INC. By: ----------------------------------- Name: James M. Usdan Title: President and CEO SENTINEL CAPITAL PARTNERS II, L.P. By Sentinel Partners II, L.P. Its: General Partner By: Sentinel Managing Company II, LLC Its: General Partner By: ----------------------------------- Name: Title: MIDWEST MEZZANINE FUND II, L.P. By: ABN AMRO Mezzanine Management II, L.P. Its: General Partner By: ABN AMRO Mezzanine Management II, Inc. Its: General Partner By: ----------------------------------- Name: Paul Kreie Title: Vice President 17 GENERAL ELECTRIC CAPITAL CORPORATION By: ----------------------------------- Name: Title: --------------------------------------- JAMES M. USDAN --------------------------------------- THOMAS FITZPATRICK --------------------------------------- JOHN M. SLACK 18 Exhibit A 19 -----END PRIVACY-ENHANCED MESSAGE-----