-----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, T3myAdI8+odPi+nsk1NKsiRsOOYzzfe1ZRPtbiYeCWd6kdeJOLo5BpBPQklQKsAK svCWaYgUW/O5Ep05vZlGDg== 0001015402-00-000727.txt : 20000320 0001015402-00-000727.hdr.sgml : 20000320 ACCESSION NUMBER: 0001015402-00-000727 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000301 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAFEGUARD HEALTH ENTERPRISES INC CENTRAL INDEX KEY: 0000727303 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 521528581 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-12050 FILM NUMBER: 572807 BUSINESS ADDRESS: STREET 1: 95 ENTERPRISE T CITY: ALISO VIEJO STATE: CA ZIP: 92656-2601 BUSINESS PHONE: 9494254110 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) MARCH 1, 2000 SAFEGUARD HEALTH ENTERPRISES, INC. ---------------------------------- (Exact Name of registrant as specified in its charter) DELAWARE 0-12050 52-1528581 -------- ------- ---------- (State or other (Commission (IRS Employer jurisdiction of File Number) Identification No.) incorporation) 95 ENTERPRISE, ALISO VIEJO, CALIFORNIA 92656-2601 ------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 949.425.4110 ------------ Item 1. Changes in Control of Registrant and Item 5. Other Events On March 1, 2000, SafeGuard Health Enterprises, Inc. (the "Company") entered into a Term Sheet Agreement (the "Agreement") with CAI Partners and Company II, L.P., CAI Capital Partners and Company II, L.P. (collectively "CAI"), Jack R. Anderson ("Anderson"), Silicon Valley Bank (the "Bank"), John Hancock Life Insurance Company and other holders of senior notes of the Company (collectively, "Hancock") and the Baileys Family Trust ("Baileys"), (the "Investors" and individually "Investor"). Pursuant to the Agreement, CAI, Anderson and Baileys collectively loaned the Company an aggregate of $8 million dollars (the "Loan"). The Investors also agreed to purchase from the Company, and the Company agreed to sell to the Investors, subject to certain conditions, Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred Stock (the "Preferred Stock") and Series A Convertible Notes, Series B Convertible Notes, Series C Convertible Notes and Series D Convertible Notes (the "Convertible Notes") for an aggregate of $30,000,000 through cancellation of the Loan, and the cancellation of all the other existing indebtedness of the Company owed to the Bank and Hancock which is currently approximately $40.5 million. Additionally, the Bank and Hancock agreed to subordinate their existing indebtedness to the Loan and to forebear, until April 30, 2001, enforcement of that existing indebtedness of the Company. On March 1, 2000, John E. Cox resigned from the Board of Directors and President and Chief Operating Officer of the Company, and the Board of Directors appointed Dennis L. Gates, Senior Vice President and Chief Financial Officer of the Company, as a Director. In connection with the execution and delivery of the Agreement, William E. McKenna, Michael M. Mann, Ph.D., George H. Stevens and Bradford M. Boyd, D.D.S. resigned from the Board of Directors. Jack R. Anderson, Leslie B. Daniels and James E. Buncher were then appointed as members of the Board of Directors. Mr. Daniels, Mr. Anderson and Mr. Buncher were appointed pursuant to the Agreement. In addition, Steven J. Baileys, D.D.S. resigned as Chief Executive Officer of the Company and Mr. Buncher was appointed President and Chief Executive Officer of the Company. Dr. Baileys continued as Chairman of the Board. Upon the Company obtaining the appropriate regulatory approvals of the change of control, the Loan from CAI, Anderson and Baileys, and existing indebtedness owed to the Bank and Hancock will be exchanged for the Preferred Stock and the Convertible Notes. Upon approval of the authorization of additional common shares by the Company's stockholders, the Convertible Notes will be exchanged for additional shares of Convertible Preferred Stock. Based upon the current capitalization of the Company as of March 1, 2000, and the agreed upon transactions, and after the closing and conversion of the Convertible Notes, the following table shows, to the Company's knowledge, how the outstanding voting securities of the Company will be held: STOCKHOLDER VOTES PERCENTAGE ----------- ----- ---------- Existing Company Stockholders 4,747,498 13.7% ----------------------------- --------- ----- Hancock 15,000,000 43.2% ------- ---------- ----- Bank 7,000,000 20.1% ---- --------- ----- CAI 5,000,000 14.4% --- --------- ----- Anderson 2,500,000 7.2% -------- --------- ---- Baileys 500,000 1.4% ------- ------------ -------- Total as of March 1, 2000 34,747,498 100.0% ------------------------- ---------- ------ As part of the Agreement, the Investors agreed to vote all voting securities now or hereafter held by them to approve an amendment to the Company's certificate of incorporation to increase the number of shares of common stock, to maintain the size of the Board of Directors at seven (7) and to take any other actions necessary to effectuate the Agreement. After the exchange of the Loan and outstanding indebtedness is completed, and the Preferred Stock and Convertible Notes are issued, the holders of the Series A Preferred Stock, voting as a single class, will be entitled to elect a majority (i.e., four (4)) of the members of the Board of Directors and the holders of the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, voting together as a single class, shall be entitled to elect one (1) director. The above description of the transactions contemplated by the Agreement are qualified by reference to the provisions of such Agreement, filed as an exhibit to this Current Report on Form 8-K. The new directors of the Company are Jack R. Anderson, Leslie B. Daniels, James E. Buncher, and Dennis L. Gates. Mr. Anderson, age 73, has been President of Calver Corporation, a health care consulting and investment firm, and a private investor, since 1982. Mr. Anderson currently serves on the board of directors of PacificCare Health Systems, Inc., Horizon Health Corporation and Genesis Health Ventures, Inc. Mr. Daniels, age 52, was a founder of CAI in 1989 and has been a principal with that entity since that time. Mr. Daniels has had substantial experience investing as a principal in the health care industry. Over the last 20 years, Mr. Daniels has invested in numerous start-up, venture capital and buyout transactions in various sectors across the health care spectrum, including health maintenance organizations, hospitals, nursing homes, cancer treatment centers, psychiatric and substance abuse services, generic drugs, pre-clinical and clinical contract research organizations and pharmacy benefit companies. Mr. Daniels was a past Chairman of Zenith Laboratories, Inc. and has been a director of Ivaz Corp., Comprecare, Inc. and MIM Corp. Mr. Buncher, age 63, has been a health care consultant and private investor since September 1997. Mr. Buncher was also President and Chief Executive Officer of Community Dental Services, Inc., a corporation operating dental practices in California, from October 1997 until July 1998. Mr. Buncher was the President of Health Plans Group of Value Health, Inc., a national specialty managed care company, from September 1995 to September 1997 and served as Chairman, President and Chief Executive Officer of Community Care Network, Inc., a Value Health Subsidiary, from August 1992 to September 1997, when Value Health was acquired by a third party and Mr. Buncher resigned his positions with that company. Mr. Buncher currently serves on the board of directors of Horizon Health Corporation. Mr. Gates, age 43, has been Senior Vice President and Chief Financial Officer of the Company since November 1999, and was appointed a director of the Company in March 2000. From 1997 to 1999, he was Treasurer of Sheridan Healthcare, Inc. ("Sheridan"), a publicly-traded physician practice management company. From 1995 to 1997, he was Chief Financial Officer of Sheridan. From 1994 to 1995, he was Vice President - Finance of the California Health Plans Division of -2- FHP International, Inc. From 1988 to 1994, he was Vice President - Finance, Secretary and Treasurer of TakeCare, Inc., a publicly-traded health maintenance organization. Mr. Gates is a certified public accountant. The following table shows, to the Company's knowledge, the Common Stock (currently the only voting securities of the Company) owned by the Investors as of March 1, 2000, in addition to the rights held by the Investors under the Agreement and the Loan, as described above. Name Of Percent of Beneficial Owner Approximate Amount of Beneficial Ownership Class ---------------- ------------------------------------------ ---------- CAI1 37,155 0.78 - ---- ------ ---- Anderson2 283,000 6.0 - --------- ------- --- Bank 0 0 - ---- - - Hancock 0 0 - ------- - - Baileys3 645,000 13.59 - -------- ------- ----- 1/Leslie B. Daniels, a principal of CAI, an Investor as defined in the Agreement, owns 37,155 shares of Common Stock held as follows: 14,250 shares held directly by Mr. Daniels, 20,905 shares held by a trust of which Mr. Daniels is a trustee, as to which Mr. Daniels has sole voting and dispositive power, 1,000 shares held by Elizabeth A. Learson, the spouse of Mr. Daniels, and 1,000 shares held by Paul B. Daniels, the brother of Mr. Daniels, as to which Mr. Daniels has shared dispositive power. 2/Jack R. Anderson, an Investor as defined in the Agreement, owns 283,000 shares of Common Stock held as follows: 183,000 shares are owned directly by Mr. Anderson of which he has sole voting and dispositive power and 100,000 shares owned by his spouse as separate property as to which Mr. Anderson disclaims beneficial ownership but which are reflected in this Report as beneficially owned with shared voting and dispositive power. 3/Steven J. Baileys, D.D.S., Chairman of the Board of Directors of the Company, has sole voting and investment power with respect to the shares indicated. The shares indicated do not include options to purchase 181,666 shares of Common Stock, 700,767 shares of Common Stock owned by the Baileys Family Trust, 303,000 shares of Common Stock held in various trusts for relatives of Dr. Baileys, for both of which Dr. Baileys is Trustee and for which Dr. Baileys has sole power to vote the securities, but for both of which Dr. Baileys disclaims beneficial ownership, and 150,000 shares of Common Stock held by the Alvin and Geraldine Baileys Foundation, for which Dr. Baileys is an officer and director, and for which Dr. Baileys has shared power to vote the securities, but for which Dr. Baileys disclaims beneficial ownership. These shares of Common Stock represent 24.3% of the current voting securities of the Company. In connection with the Agreement, the Company amended its Rights Agreement, dated as of March 22, 1996, to provide that the execution and delivery of the Agreement, and the consummation of the transaction contemplated thereby, will not trigger distribution and exercisability of the Rights described therein. -3- Other than the transactions described herein, the Company is not aware of any arrangements that may result in a change in control subsequent to the date hereof. Item 7. Financial Statements and Exhibits. (c) Exhibits. Exhibit No. Description - ------------ ----------- 4.1 Term Sheet Agreement dated as of March 1, 2000 by and among SafeGuard Health Enterprises, CAI Partners and Company II, L.P., CAI Capital Partners and Company II, L.P., Jack R. Anderson, Silicon Valley Bank, John Hancock Life Insurance Company, and other holders of the 7.91% senior notes of the Company due September 30, 2005 and Steven J. Baileys, D.D.S., on behalf of the Baileys Family Trust. - -------------- 4.2 Second Amendment, dated as of March 9, 2000, to Rights Agreement dated as of March 22, 1996, by and between SafeGuard Health Enterprises, Inc., and American Stock Transfer and Trust Company, as Rights Agent. - -------------- 99.1 Press Release dated March 3, 2000 regarding capital infusion and debt restructuring. - -------------- 99.2 Press Release dated March 9, 2000 regarding chief executive officer. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: March 16, 2000 SAFEGUARD HEALTH ENTERPRISES, INC. (Registrant) By:_/s/_James E. Buncher__ James E. Buncher President and Chief Executive Officer By:_/s/_Ronald I. Brendzel___ Ronald I. Brendzel Senior Vice President and Secretary -4- EX-4.1 2 SAFEGUARD HEALTH ENTERPRISES, INC. _____________________ TERM SHEET AGREEMENT _____________________ DATE: March 1, 2000 (the "Effective Date") PARTIES: 1. SafeGuard Health Enterprises, Inc. (the "Company") 2. CAI Partners and Company II, L.P. and CAI Capital Partners And Company II, L.P. (collectively "CAI") 3. Jack R. Anderson ("Anderson") 4. Silicon Valley Bank ("Bank") 5. John Hancock Mutual Life Insurance Company and the other holders of the 7.91% Senior Notes of the Company due September 30, 2005 (collectively "Hancock") 6. Steven J. Baileys, D.D.S. ("Baileys") _______________ This Term Sheet Agreement (the "Agreement") summarizes various binding agreements between the parties. It is not a letter of intent. The parties contemplate that the agreements evidenced by this Agreement will be memorialized in further documentation which may include a Shareholders Agreement, to be prepared and executed by the parties at a later date. However, the agreements evidenced by this Agreement are not subject to or conditioned upon the execution and delivery of such further documentation. 1. Investor Senior Loan. On the Effective Date hereof, CAI, Anderson, --------------------- and Baileys (collectively the "Investors"), severally and not jointly, shall loan the Company the aggregate amount of $8,000,000 (the "Investor Senior Loan") in the following amounts: CAI - $5,000,000; Anderson - $2,500,000; and Baileys - $500,000. The Investor Senior Loan shall bear interest at the rate of ten percent (10%) per annum. Interest is payable quarterly and at maturity. The maturity date of the Investor Senior Loan is April 30, 2001. The maturity date of the Investor Senior Loan shall be accelerated in the event of a liquidation or dissolution of the Company. The Investor Senior Loan is unsecured but the Company agrees with the Investors to comply with the same negative pledges with respect to liens on its assets as is contained in the Loan Documents between the Company and the Bank and the Note Purchase Agreement between the Company and Hancock. The Company shall not incur any other indebtedness senior or equal to the Investor Senior Loan. Repayment of the Investor Senior Loan in full shall be prior to repayment of the Bank Loan and the Hancock Notes according to the subordination agreement set forth below. In the event of the closing of the sale of the Preferred Stock and Convertible Notes described below, the principal balance of the Investor Senior Loan shall be cancelled as consideration for the purchase of the Series A Preferred Stock and Series A Convertible Notes by the Investors. 2. Sale of Series A Preferred Stock and Series A Convertible Notes to -------------------------------------------------------------------- the Investors. The Investors, severally and not jointly, agree to purchase from - ------------ the Company (a) 64,000 shares of Series A Preferred Stock for an aggregate purchase price of $6.4 million and (b) Series A Convertible Notes having an aggregate principal amount of $1.6 million. The consideration for the Series A Preferred Stock and the Series A Convertible Notes shall be cancellation of the outstanding principal balance of the Investor Senior Loan. Accrued interest due under the Investor Senior Loan shall be payable in cash to the Investors on the date of closing. a. Series A Preferred Stock. The Series A Preferred Stock shall have -------------------------- the following rights, preferences and limitations: i. The Series A Preferred Stock shall have a liquidation preference of $100 per share or an aggregate liquidation preference of $6.4 million. The liquidation preference shall be senior to all other securities of the Company including the Series B, C and D Preferred Stock described below and the Common Stock. ii. The Series A Preferred Stock shall not have specified dividends but shall be entitled to participate on an as-converted basis in any dividends paid on the Common Stock of the Company or the Series B, C or D Preferred Stock. iii. The Series A Preferred Stock shall not be subject to mandatory redemption at the election of the Investors but shall be subject to redemption at a redemption price of $100 per share by the Company at any time on or after ten (10) years after the original date of issuance. iv. The Series A Preferred Stock shall be convertible into shares of Common Stock at a conversion price of $1.00 per share. Each share of Series A Preferred Stock shall be initially convertible into 100 shares of Common Stock based on the $100 liquidation preferential amount thereof. The conversion price and number of shares will be subject to customary anti-dilution adjustments for stock splits, share dividends, recapitalizations, stock issuances, etc., with the anti-dilution adjustment for the issuance of shares at less than the conversion price being determined on the "weighted average method." v. Subject to the provisions of Section 3A hereof, the Series A Preferred Stock, voting as a single class, shall be entitled to elect a majority (4) of the Board of Directors. On all other matters, the holders of the Series A Preferred Stock shall vote together with the holders of the Common Stock and the Series B, C and D Preferred Stock and shall be entitled to cast one vote for each share of Common Stock into which the Series A Preferred Stock is convertible. vi. The approval of the Series A Preferred Stock, voting as a separate class, shall be required for the issuance of any securities having liquidation or other rights senior or superior or equal in any respect to the rights of the Series A Preferred Stock. b. Series A Convertible Notes. The Series A Convertible Notes shall ----------------------------- have the following terms. i. The Series A Convertible Notes shall bear interest at the rate of ten percent (10%) per annum from the date of issuance, payable quarterly and at maturity. ii. The Series A Convertible Notes shall be automatically converted into shares of Series A Preferred Stock upon the approval by the stockholders of the Company of an amendment to its certificate of incorporation increasing the number of authorized shares of Common Stock sufficient for the issuance of Common Stock upon the conversion of the shares of Series A Preferred Stock and the Series B, C and D Preferred Stock issuable upon the automatic conversion of the Series A Convertible Notes and the Series B, C and D Convertible Notes. The conversion price will be $100 per share and subject to the same anti-dilution protection as the Series A Preferred Stock. Initially the Series A Convertible Note will be convertible into an aggregate of 16,000 shares of Series A Preferred Stock. iii. The Series A Convertible Notes shall have no voting rights. iv. The Series A Convertible Notes and the payment thereof shall be senior and superior to the Series B, C and D Convertible Notes. 3. Sale of Series B, C and D Preferred Stock and Series B, C and D -------------------------------------------------------------------- Convertible Notes. The Bank and Hancock agree to purchase an aggregate of - ------------------ 176,000 shares of Series B, C and D Preferred Stock and Series B, C and D Convertible Notes having an aggregate principal balance of $4.4 million. The consideration for the Series B Preferred Stock and Series B Convertible Notes shall be the cancellation of all indebtedness and obligations of any kind of the Company, whether principal, interest, costs, expenses or other, to the Bank and Hancock, respectively. The amount of shares of Series B, C and D Preferred Stock and principal amount of the Series B, C and D Convertible Notes shall be allocated to the Bank and Hancock, respectively, as follows: (i) the Bank and Hancock shall each purchase 32,000 shares of Series B Preferred Stock (in the aggregate 64,000 shares) and a Series B Convertible Note with a principal balance of $.8 million (in the aggregate $1.6 million); (ii) the Bank shall purchase 24,000 shares of Series C Preferred Stock and a Series C Convertible Note with the principal balance of $.6 million, and (iii) Hancock shall purchase 88,000 shares of Series D Preferred Stock and a Series D Convertible Note with the principal balance of $2.2 million. a. Series B, C and D Preferred Stock. The rights, preferences and -------------------------------------- limitations of the Series B, C and D Preferred Stock shall be identical except as set forth below: i. The Series B, C and D shall have a liquidation preference of $100 per share. The Series B Preferred Stock liquidation preference shall be senior to the Series C Preferred Stock liquidation preference. The Series C Preferred Stock liquidation preference shall be senior to the Series D Preferred Stock liquidation preference. The Series B, C and D Preferred Stock liquidation preferences shall be secondary to the Series A Preferred Stock but prior to any liquidation rights of the Common Stock. ii. The Series B, C and D Preferred Stock shall not have specified dividends but shall be entitled to participate on an as-converted basis in any dividends paid on the Common Stock of the Company or the Series A, B, C or D Preferred Stock as the case may be. iii. The Series B, C and D Preferred Stock shall not be subject to mandatory redemption at the election of the Investors but shall be subject to redemption at a redemption price of $100 per share by the Company at any time on or after ten (10) years after the original date of issuance. iv. The Series B, C and D Preferred Stock shall be convertible into shares of Common Stock at a conversion price of $1.00 per share. Each share of Series B, C and D Preferred Stock shall be initially convertible into 100 shares of Common Stock based on the $100 liquidation preferential amount thereof. The conversion price and number of shares will be subject to customary anti-dilution adjustments for stock splits, share dividends, recapitalizations, stock issuances, etc., with the anti-dilution adjustment for the issuance of shares at less than the conversion price being determined on the "weighted average method." v. Subject to the provisions of Section 3A hereof, the Series B, C and D Preferred Stock voting together as a single class, shall be entitled to elect one director to the Board of Directors. On all other matters, the holders of the Series B, C and D Preferred Stock shall vote together with the holders of the Series A Preferred Stock and the Common Stock and shall be entitled to cast one vote for each share of Common Stock into which the Series B, C and D Preferred Stock is convertible. vi. The approval of the Series B, C and D Preferred Stock, voting as a separate class, shall be required for the issuance of any security of the Company having liquidation or other rights senior and superior or equal in any respect to the rights of the Series B, C and D Preferred Stock. b. Series B, C and D Convertible Notes. The terms of the Series B, C ------------------------------------- and D Convertible Notes shall be identical to the Series A Convertible Notes except that (i) the Series B, C and D Convertible Notes shall be convertible into Series B, C and D Preferred Stock, respectively and (ii) payment of the Series B Convertible Note shall be senior and superior to the Series C Convertible Note, (iii) payment of the Series C Preferred Note shall be senior and superior to payment of the Series D Convertible Note. Initially the Series B, C and D Convertible Notes will be convertible into an aggregate of 16,000 shares of Series B Preferred Stock, 6,000 shares of Series C Preferred Stock and 22,000 shares of Series D Preferred Stock, respectively. 3A. Change in Class Vote Applicable to Elections. In the event that ----------------------------------------------- CAI and Anderson at any time sell fifty percent (50%) or more of their respective Investor Senior Loan or their respective Series A Preferred Stock and Series A Convertible Notes, then, with respect to the election of directors, the Series A, B, C and D Preferred Stock shall be entitled to vote together as a single class to elect five (5) directors to the Board of Directors and the provisions of Section 2.a.v. and Section 3.a.v. hereof with respect to the election of directors shall not be applicable. 4. Closing. The closing of the sale of the Preferred Stock and the ------- Convertible Notes shall occur on the first calendar day of the calendar month following the month in which satisfaction of the following conditions occurs effective immediately prior to the commencement of business on such day: a. Regulatory Approval. Receipt of all required regulatory approvals -------------------- to the transactions contemplated by this Agreement unless otherwise waived by CAI and Anderson; b. Performance. The performance by all of the Investors, the Bank and ----------- Hancock of their obligations to purchase the Preferred Stock and the Convertibles Notes as described above; c. Bankruptcy. The Company shall not have been placed in bankruptcy, ---------- either voluntary or involuntarily; d. Receivership. Neither the Company nor any of its subsidiaries shall ------------ have been placed in a receivership or conservatorship by any regulatory agency unless otherwise waived by CAI and Anderson; and e. Forbearance. The Banks and Hancock have complied with the ----------- forbearance and subordination agreements set forth in this agreement. The Closing shall not be subject to any other conditions precedent. 5. Terminated Purchase Agreement. The Company, the Bank and Hancock ------------------------------- acknowledge and agree that CAI and Anderson properly terminated that certain Debenture and Note Purchase Agreement dated as of June 29, 1999 (the "Terminated Purchase Agreement") pursuant to Sections 8.4(a) and 8.4(b) thereof and waives and releases any contrary claim or assertion. This Agreement does not supersede or extinguish any of the rights of CAI and Anderson under the Terminated Purchase Agreement that survived the termination thereof including, without limitation, their rights to be reimbursed costs and expenses as provided therein. Such costs and expenses which shall not exceed $250,000 in the aggregate, together with the costs and expenses of CAI and Anderson in connection with this Agreement, shall be paid immediately after the execution of this Agreement out of the proceeds of the Investor Senior Loan. 6. Subordination Agreement. The Bank and Hancock agree that the Investor ------------------------ Senior Loan shall be paid 100% in full in cash before any payment of any kind shall be made on the Bank Loan or the Hancock Notes. Any distribution which would otherwise, but for the provision of this Agreement, be payable or deliverable in respect of the Bank Loan or the Hancock Notes shall be paid or delivered directly to the Investors in payment of the Investor Senior Loan until the Investor Senior Loan, principal and interest, is paid 100% in full. For the purpose thereof "distribution" means, with respect to any indebtedness (a) any payment or distribution by any person of cash, securities or other property, by set-off or otherwise, on account of such indebtedness or obligation, (b) any redemption, purchase or other acquisition of such indebtedness or obligation by any person or (c) the granting of any lien or security interest to or for the benefit of the holders of such indebtedness or obligation in or upon any property of any person. The Investor Senior Loan shall continue to be treated as debt that is senior to the Bank Loan and the Hancock Notes and the provisions of this Agreement shall continue to govern the relative rights and priorities of the Investors, the Bank and Hancock even if all or part of the Investor Senior Loan is subordinated, set aside, voided, invalidated or disallowed in connection with any proceeding or sale or transfer or other distribution of all or substantially all of the assets of the Company and this Agreement shall be reinstated if at any time any payment of the Investor Senior Loan is rescinded or must otherwise be returned by any holder of the Investor Senior Loan. The Bank and Hancock agree not to initiate or prosecute any claim, action, or other proceeding challenging the enforceability or validity of the Investor Senior Loan. 7. Forbearance Agreement. Until April 30, 2001, the Bank and Hancock ---------------------- shall not demand or accept any payment, principal or interest, or accelerate or take any enforcement action with respect to the Bank Loan and the Hancock Notes. For the purposes hereof "enforcement action" means any of the following: (a) to take from or for the account of the Company by set-off or in any other manner the whole or any part of any monies which may now or after be owing by the Company with respect to the Bank Loan or the Hancock Notes; (b) to sue for payment of, or initiate or participate in any other suit, action or proceeding against the Company (i) to enforce payment of or to collect the whole or any part of the Bank Loan or the Hancock Notes or (ii) to enforce any other rights, powers, privileges or remedies under the Bank Loan Documents or the Hancock Note Agreement; or (c) to take any action under the provisions of any state or federal law to enforce, foreclose upon, take possession of or sell any property or assets of the Company. In addition, the Bank and Hancock shall agree to cooperate to the extent commercially reasonable with respect to any other forbearance matters which shall be required in order for the Company to receive a "clean" audit report in its financial statements without any qualifications or exceptions. 8. Shareholders Agreement. The Investors, the Bank and Hancock agree ----------------------- to an agreement among such parties having the following provisions: a. Voting. Such parties agree to vote all shares of voting securities ------ of the Company now or hereafter held by such parties (i) to approve an amendment to the certificate of incorporation of the Company increasing the authorized number of shares of Common Stock of the Company to a number sufficient to permit the conversion of the Series A Preferred Stock and the Series B Preferred Stock issuable upon conversion of the Convertible Notes as specified above, and (ii) to maintain the size of the Board of Directors at seven (7), and (iii) to take and authorize any such further actions as may be necessary or required to fully effectuate this Agreement. The holders of the Series A Preferred Stock shall elect as a director an individual designated by the Bank and Hancock and reasonably approved by the holders of the Series A Preferred Stock. Upon the closing, the director designated by the Bank and Hancock shall be elected to the Board of Directors to fill the vacant position as contemplated by Section 9(d) below. b. Drag-Along Rights. CAI and Anderson shall have drag-along rights ------------------ with respect to the shares owned by the Bank and Hancock in connection with a sale of the Company in a transaction approved by the Board of Directors of the Company; provided that if the value of the securities of the Company in such sale is less than $30 million, a fairness opinion by an investment banker shall be provided. 9. Certain Representations. SafeGuard, acting by and through its duly ------------------------ authorized officers, and Baileys, individually, hereby represent and warrant to the Investors, the Bank and Hancock as follows: a. Material Events. To the best knowledge of the Company and Baileys, ---------------- there is no event or claim of any kind whatsoever that has occurred, is pending or is threatened that has had or could have a material adverse effect on the Company or would be considered a material event as such term is defined under federal securities laws (including court decisions interpreting the same) which event or claim has not been publicly disclosed in a report filed by the Company with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, or otherwise publically disclosed in a press release issued by the Company or that certain press release dated December 17, 1999 issued by Berman, Devalerio & Pease, L.L.P. related to a class action lawsuit against the Company. For the purpose hereof, any notice of termination or non-renewal, notice of intent to terminate or non-renew or termination or non-renewal of any group or individual customer contracts which either individually or in the aggregate represent a material number of the members of the plan of the Company shall constitute a material adverse event. b. Regulatory Compliance. Up to $5 million of the proceeds of the ---------------------- Investor Senior Loan will be used immediately for a capital contribution to Safe Health Life Company, the insurance subsidiary of the Company, required to be made on the Effective Date by applicable governmental regulations. Except for such capital infusion, all the other subsidiaries of the Company are in compliance with all material provisions of the laws, rules and regulations applicable to the certificate of authority or license held by such subsidiary and none of the subsidiaries has any deficit in any required reserves, capital or other funds required to be maintained by such subsidiary under applicable regulatory requirements. c. Board Approval. This Agreement and the transactions provided in --------------- this Agreement, including, without limitation, the issuance of the Investor Senior Loan, the Preferred Stock, the Convertible Notes and the approval of the amendment to the certificate of incorporation as contemplated herein, have been approved by the affirmative vote of not less than seventy-five percent (75%) of the current members of the Board of Directors of the Company at a meeting duly called and held in accordance with the Bylaws of the Company. The Board of Directors have taken all action and adopted all approvals necessary in order that the transactions contemplated by this Agreement do not and shall not cause the rights issued to the stockholders of the Company pursuant to that certain Rights Agreement, dated as of March 22, 1996 between the Company and American Stock Transfer and Trust Company, as Rights Agent, to become exercisable or any similar rights under any other rights agreement applicable to the stockholders of the Company to become exercisable. d. Board of Directors. The following changes with respect to the Board ------------------ of Directors of the Company have occurred or have been duly authorized and approved by the Board of Directors of the Company in accordance with the Bylaws of the Company: i. After the Board approvals described in Section 9(c) above, Messrs. Cox, McKenna, Mann, Stevens and Boyd resigned from the Board of Directors of the Company and the incumbent directors of the Company were then Baileys, Brendzel and Dennis Gates; ii. Jack R. Anderson, Leslie B. Daniels and James E. Buncher were then by the Board of Directors appointed as directors of the Company effective upon execution of this Agreement; and iii. One vacancy shall remain on the Board of Directors of the Company to be filled upon the closing by the holders of the Series B, C and D Preferred Stock as provided in Section 8(a)(iii) above. e. Employment Agreements. Messrs. Cox, Brendzel and Kaufman have ---------------------- agreed that any acceleration or vesting of any rights or benefits under his respective employment agreement with the Company or otherwise resulting from a change of control, including severance payments, shall not occur by virtue of the transactions contemplated by this Agreement and have waived any claim that such is the case. 10. Cancellation of Warrants. Upon the closing of the sale of the -------------------------- Preferred Stock and the Convertible Notes, Hancock agrees that those certain Warrants for an aggregate of 382,000 shares of Common Stock of the Company issued pursuant to that certain First Amendment and Waiver to Note Purchase Agreement dated as of May 28, 1999 shall be cancelled in all respects. 11. Registration Rights. None of the Investors, the Bank or Hancock -------------------- shall have any demand registration rights. The Investors, the Bank and Hancock shall have piggyback registration rights with respect to any securities offering by the Company (other than in connection with an acquisition or an employee benefit plan) on a pro rata basis, subject to any underwriter's cutback on the total number of shares available to be sold by stockholders of the Company in the offering. The parties shall have indemnification rights in connection with any such offering as specified in the Registration Rights Agreement attached as an Exhibit to the Terminated Purchase Agreement. The Company will pay all registration expenses but no selling expenses. 12. Certain Covenants. ------------------ a. Regulatory Filings. Each party hereto agrees to proceed in good ------------------- faith and as soon as practicable to make and pursue all regulatory filings and to obtain of all regulatory approvals required for the transactions specified in this Agreement. b. Stockholder Meeting. Upon the closing of the sale of the Preferred -------------------- Stock and the Convertible Notes, SafeGuard shall immediately take all actions required to call and hold a special meeting of the stockholders for the purposes of approving an amendment to the certificate of incorporation of the Company to increase the number of authorized shares of Common Stock of the Company as contemplated by this Agreement. 13. Other Understandings. --------------------- a. Board of Directors. So long as the Investor Senior Loan is -------------------- outstanding, three (3) directors of the Company shall be designees of CAI and Anderson. b. Senior Debt. Notwithstanding any provision of this Agreement to the ----------- contrary, the Board of Directors of the Company may borrow up to $3,500,000 for working capital purposes on a basis senior and superior to the Investor Senior Loan, the Bank Loan, the Hancock Notes, the Preferred Stock and the Convertible Notes without the consent of the Investors, the Bank or Hancock. c. Outstanding Shares. In connection with the transactions provided in ------------------ this Agreement, the issued and outstanding shares of Common Stock of the Company on the Effective Date shall remain issued and outstanding and the stock options granted to employees and officers of the Company under the stock option plan of the Company prior to the Effective Date shall remain issued and outstanding in accordance with their terms. d. Costs and Expenses. Whether or not the transactions contemplated by ------------------ this Agreement are consummated, the Company will pay (or reimburse upon request) all costs and expenses of CAI and Anderson including, without limitation, reasonable fees and expenses of their consultants, counsel and accountants, in connection with or leading to the preparation, negotiation and execution of this Agreement and the consummation of the transactions contemplated by this Agreement. e. Indemnity. The Company will pay and indemnify the Investors, the --------- Bank and Hancock and their respective stockholders, partners, trustees, officers, employees and agents, against all liability and loss with respect to (i) all claims for fees or commissions of brokerage or finders engaged by the Company with respect to the transactions contemplated by this Agreement, (ii) all taxes, fees and other public charges payable in connection with the issuance of any of the Preferred Stock or Convertible Notes or the execution, delivery, and enforcement of this Agreement for any of the rights of the Preferred Stock or Convertible Notes, and (iii) all claims and suits, either direct or derivative, commenced by or on behalf of the Company or the stockholders of the Company relating to or arising out of this Agreement or the transactions contemplated herein. Such rights shall survive the termination or consummation of this Agreement. The Company shall indemnify the three directors designated by CAI and Anderson to the fullest extent permitted by applicable law. f. Waiver. Baileys, the Bank and Hancock agree that they shall not assert, ------ and hereby waive, any claims in their capacity as a shareholder or creditor of the Company against the three directors designated by CAI and Anderson for acts or omissions in their capacity as directors of the Company at any time during the period from the Effective Date through the closing date except for intentional acts of fraud or dishonesty. g. Employment Agreement. Baileys agrees that any acceleration or vesting of -------------------- any rights or benefits under his employment agreement or otherwise resulting from a change of control, including severance payments, shall not occur by virtue of the occurrence of the transactions contemplated by this Agreement and waives any claim that such is the case. In addition, Baileys agrees to voluntarily resign his position as chief executive officer of the Company as of the Effective Date and the Company shall have no obligation to make any severance payments of any kind thereunder as a result thereof. Baileys shall remain as Chairman of the Board of Directors of the Company. All other provisions of his employment agreement shall remain in full force and effect. 14. Miscellaneous. ------------- a. Notices. All notices and other communications under this Agreement ------- shall be in writing and shall be deemed given upon (i) confirmation or receipt of a facsimile transmission (ii) confirmed delivered by standard overnight carrier, (iii) when delivered by hand or (iv) the expiration of five (5) business days after the date when mailed by registered or certified mail (postage prepaid, return receipt requested), addressed to respective parties as set forth in the prior Purchase Agreement, the Bank Loan Documents or the Hancock Note Agreement, as applicable. b. Entire Agreement. This Agreement constitutes the entire agreement ----------------- and supersedes all prior agreements and understandings (other than the provisions of the Terminated Purchase Agreement that survive termination thereof), both written or oral, among the parties or any of them, with respect to the subject matter hereof. c. Assignment. This Agreement shall not be assigned by operation in ---------- law or otherwise, except that (i) Anderson may assign part of his respective rights and obligations hereunder to up to two third parties and (ii) CAI may assign all or any part of its respective rights and obligations hereunder to any affiliated investment partnership. d. Amendment. This Agreement may not be amended except by instrument --------- in writing signed on behalf of each of the parties hereto. e. Binding Effect. This Agreement shall be binding upon the parties --------------- hereto, their respective heirs, representatives, successors and permitted assigns specifically including any transferees of the Bank Loan, the Hancock Notes, the Investor Senior Loan, the Preferred Stock and the Convertible Notes. f. Exculpation. Among Investors, Bank and Hancock. Each of the --------------------------------------------------- Investors, the Bank and Hancock acknowledges that such party is not relying upon any person, firm or corporation, other than the representations of the Company contained herein, in making its investment or decision to invest in the Investor Senior Loan, the Preferred Stock or the Convertible Notes and specifically each such party has not relied on any representation or warranty of any of such other parties in making such investment or decision. The Company acknowledges that it is not relying upon any representation or warranty of the Investors, the Bank and Hancock in entering into this Agreement. g. Arbitration. In the event of any dispute between any one or more or ----------- all of the parties to this Agreement with respect to the respective rights and obligations of the parties under this Agreement, such dispute shall be settled by arbitration in accordance with the arbitration procedures set forth in the Terminated Purchase Agreement. h. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Delaware without giving effect to the provisions thereof relating to conflicts of laws. i. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have executed this Term Sheet Agreement as of the Effective Date.
CAI PARTNERS AND COMPANY II, L.P. JOHN HANCOCK LIFE INSURANCE COMPANY f/k/a JOHN HANCOCK MUTUAL LIFE INSURANCE By: CAI PARTNERS G.P. AND COMPANY, L.P., COMPANY GENERAL PARTNER By:____________________________ By: Name:__________________________ Leslie B. Daniels Title:_________________________ CAI CAPITAL PARTNERS AND COMPANY II, L.P. JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY By: CAI CAPITAL PARTNERS G.P. AND COMPANY, L.P., GENERAL PARTNER By:____________________________ Name:__________________________ By: _________________________ Title:_________________________ Leslie B. Daniels INVESTORS PARTNER LIFE INSURANCE COMPANY _________________________ (f/k/a JOHN HANCOCK LIFE INSURANCE COMPANY Jack R. Anderson OF AMERICA) _________________________ By:____________________________ Steven J. Baileys, D.D.S. Name:__________________________ Title:_________________________ SAFEGUARD HEALTH ENTERPRISES, INC. MELLON BANK, N.A., solely in its capacity as Trustee for By: _________________________ Bell Atlantic Master Trust Steven J. Baileys, D.D.S., (f/k/a Nynex Master Pension Trust), (as directed by John Chairman and Chief Executive Officer Hancock Mutual Life Insurance Company) and not in its individual capacity By:_________________________ Ronald I. Brendzel, Secretary By:_________________________ Name:_________________________ Title:_________________________ SILICON VALLEY BANK By:_________________________ Name:_________________________ Title:_________________________
INVESTOR SENIOR LOAN NOTE SAFEGUARD HEALTH ENTERPRISES, INC. THIS NOTE WAS ISSUED IN A PRIVATE PLACEMENT, WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED, --- PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING THE TRANSFER OR AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH REGISTRATION UNDER THE ACT IS NOT REQUIRED. $2,500,000.00 March 1, 2000 FOR VALUE RECEIVED, the undersigned, SafeGuard Health Enterprises, Inc., a Delaware corporation (the "Issuer") HEREBY PROMISES TO PAY to the order of Jack ------ R. Anderson (the "Payee"), on or before April 30, 2001, the principal sum of ----- $Two Million Five Hundred Thousand Dollars ($2,500,000.00). The unpaid principal amount of this Note from time to time shall accrue and bear interest at the rate of ten percent (10%) per annum (computed on the basis of a 360-day year of twelve 30-day months), and overdue principal and, to the extent not prohibited by applicable law, overdue installments of interest, shall accrue and bear interest at the rate of 2% per annum in excess of the interest rate --- ----- specified above. Both principal and interest are payable in cash or by wire transfer of immediately available funds at the depositary institution specified in writing by the Payee. 1. THE NOTES. This Note is one of an issue of Short Term Senior Loan Notes of the Issuer (the "Notes") issued pursuant to the Term Sheet Agreement dated ----- March 1, 2000, by and between the Issuer and the parties named therein. 2. PAYMENT PROVISIONS. The Issuer covenants that so long as any of the Notes is outstanding: 2.1 Payment at Maturity of Notes. On the last Business Day on or prior to ------------------------------- April 30, 2001, or on any accelerated maturity of the Notes, the Issuer will pay the entire principal amount of all of the Notes then outstanding together with all accrued and unpaid interest thereon. 2.2 Payment and Accrual of Interest. Interest shall accrue on the unpaid ----------------------------------- principal amount of the Notes from and including March 1, 2000 and shall be payable quarterly in arrears on the last Business Day of each March, June, September and December commencing on June 30, 2000. 2.3 Prepayment of Notes. This Note is not subject to prepayment without the -------------------- consent of the Payee. 2.4 Payments on Business Days. Whenever any payment to be made hereunder ---------------------------- shall be stated to be due on a day that is not a Business Day, such payment shall be made on the immediately succeeding Business Day. 3. SENIOR INDEBTEDNESS. This Note is senior indebtedness of the Issuer to the extent and as provided in the Term Sheet Agreement. This Note and the holder shall be entitled to all the rights and privileges set forth in the Term Sheet Agreement. 4. MISCELLANEOUS. Presentment for payment, demand, notice of dishonor, protest and notice of protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note are hereby waived. Issuer agrees that this Note shall be construed, governed and enforced in accordance with the laws of the State of Delaware without regard to principles of conflicts of law. SAFEGUARD HEALTH ENTERPRISES, INC. By:_________________________ Steven J. Baileys, D.D.S. Chairman and Chief Executive Officer By:_________________________ Ronald I. Brendzel, Secretary INVESTOR SENIOR LOAN NOTE SAFEGUARD HEALTH ENTERPRISES, INC. THIS NOTE WAS ISSUED IN A PRIVATE PLACEMENT, WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED, --- PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING THE TRANSFER OR AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH REGISTRATION UNDER THE ACT IS NOT REQUIRED. $380,779 March 1, 2000 FOR VALUE RECEIVED, the undersigned, SafeGuard Health Enterprises, Inc., a Delaware corporation (the "Issuer") HEREBY PROMISES TO PAY to the order of CAI ------ Capital Partners & Co. II-C, L.P. (the "Payee"), on or before April 30, 2001, ----- the principal sum of Three Hundred Eighty Thousand Seven Hundred and Seventy-Nine Dollars ($380,779). The unpaid principal amount of this Note from time to time shall accrue and bear interest at the rate of ten percent (10%) per annum (computed on the basis of a 360-day year of twelve 30-day months), and overdue principal and, to the extent not prohibited by applicable law, overdue installments of interest, shall accrue and bear interest at the rate of 2% per --- annum in excess of the interest rate specified above. - ----- Both principal and interest are payable in cash or by wire transfer of immediately available funds at the depositary institution specified in writing by the Payee. 1. THE NOTES. This Note is one of an issue of Short Term Senior Loan Notes of the Issuer (the "Notes") issued pursuant to the Term Sheet Agreement dated ----- March 1, 2000, by and between the Issuer and the parties named therein. 2. PAYMENT PROVISIONS. The Issuer covenants that so long as any of the Notes is outstanding: 2.1 Payment at Maturity of Notes. On the last Business Day on or prior to ------------------------------- April 30, 2001, or on any accelerated maturity of the Notes, the Issuer will pay the entire principal amount of all of the Notes then outstanding together with all accrued and unpaid interest thereon. 2.2 Payment and Accrual of Interest. Interest shall accrue on the unpaid ----------------------------------- principal amount of the Notes from and including March 1, 2000 and shall be payable quarterly in arrears on the last Business Day of each March, June, September and December commencing on June 30, 2000. 2.3 Prepayment of Notes. This Note is not subject to prepayment without the -------------------- consent of the Payee. 2.4 Payments on Business Days. Whenever any payment to be made hereunder ---------------------------- shall be stated to be due on a day that is not a Business Day, such payment shall be made on the immediately succeeding Business Day. 3. SENIOR INDEBTEDNESS. This Note is senior indebtedness of the Issuer to the extent and as provided in the Term Sheet Agreement. This Note and the holder shall be entitled to all the rights and privileges set forth in the Term Sheet Agreement. 4. MISCELLANEOUS. Presentment for payment, demand, notice of dishonor, protest and notice of protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note are hereby waived. Issuer agrees that this Note shall be construed, governed and enforced in accordance with the laws of the State of Delaware without regard to principles of conflicts of law. SAFEGUARD HEALTH ENTERPRISES, INC. By:_________________________ Steven J. Baileys, D.D.S. Chairman and Chief Executive Officer By:_________________________ Ronald I. Brendzel, Secretary INVESTOR SENIOR LOAN NOTE SAFEGUARD HEALTH ENTERPRISES, INC. THIS NOTE WAS ISSUED IN A PRIVATE PLACEMENT, WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED, --- PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING THE TRANSFER OR AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH REGISTRATION UNDER THE ACT IS NOT REQUIRED. $3,095,503 March 1, 2000 FOR VALUE RECEIVED, the undersigned, SafeGuard Health Enterprises, Inc., a Delaware corporation (the "Issuer") HEREBY PROMISES TO PAY to the order of CAI ------ Capital Partners & Co. II, L.P. (the "Payee"), on or before April 30, 2001, the ----- principal sum of Three Million Ninety-Five Thousand Five Hundred and Three Dollars ($3,095,503). The unpaid principal amount of this Note from time to time shall accrue and bear interest at the rate of ten percent (10%) per annum (computed on the basis of a 360-day year of twelve 30-day months), and overdue principal and, to the extent not prohibited by applicable law, overdue installments of interest, shall accrue and bear interest at the rate of 2% per --- annum in excess of the interest rate specified above. - ----- Both principal and interest are payable in cash or by wire transfer of immediately available funds at the depositary institution specified in writing by the Payee. 1. THE NOTES. This Note is one of an issue of Short Term Senior Loan Notes of the Issuer (the "Notes") issued pursuant to the Term Sheet Agreement dated ----- March 1, 2000, by and between the Issuer and the parties named therein. 2. PAYMENT PROVISIONS. The Issuer covenants that so long as any of the Notes is outstanding: 2.1 Payment at Maturity of Notes. On the last Business Day on or prior to ------------------------------- April 30, 2001, or on any accelerated maturity of the Notes, the Issuer will pay the entire principal amount of all of the Notes then outstanding together with all accrued and unpaid interest thereon. 2.2 Payment and Accrual of Interest. Interest shall accrue on the unpaid ----------------------------------- principal amount of the Notes from and including March 1, 2000 and shall be payable quarterly in arrears on the last Business Day of each March, June, September and December commencing on June 30, 2000. 2.3 Prepayment of Notes. This Note is not subject to prepayment without the -------------------- consent of the Payee. 2.4 Payments on Business Days. Whenever any payment to be made hereunder ---------------------------- shall be stated to be due on a day that is not a Business Day, such payment shall be made on the immediately succeeding Business Day. 3. SENIOR INDEBTEDNESS. This Note is senior indebtedness of the Issuer to the extent and as provided in the Term Sheet Agreement. This Note and the holder shall be entitled to all the rights and privileges set forth in the Term Sheet Agreement. 4. MISCELLANEOUS. Presentment for payment, demand, notice of dishonor, protest and notice of protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note are hereby waived. Issuer agrees that this Note shall be construed, governed and enforced in accordance with the laws of the State of Delaware without regard to principles of conflicts of law. SAFEGUARD HEALTH ENTERPRISES, INC. By: _________________________ Steven J. Baileys, D.D.S. Chairman and Chief Executive Officer By: _________________________ Ronald I. Brendzel, Secretary INVESTOR SENIOR LOAN NOTE SAFEGUARD HEALTH ENTERPRISES, INC. THIS NOTE WAS ISSUED IN A PRIVATE PLACEMENT, WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED, --- PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING THE TRANSFER OR AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH REGISTRATION UNDER THE ACT IS NOT REQUIRED. $1,523,718 March 1, 2000 FOR VALUE RECEIVED, the undersigned, SafeGuard Health Enterprises, Inc., a Delaware corporation (the "Issuer") HEREBY PROMISES TO PAY to the order of CAI ------ Partners & Co. II, L.P. (the "Payee"), on or before April 30, 2001, the ----- principal sum of One Million Five Hundred Twenty-Three Thousand Seven Hundred and Eighteen Dollars ($1,523,718). The unpaid principal amount of this Note from time to time shall accrue and bear interest at the rate of ten percent (10%) per annum (computed on the basis of a 360-day year of twelve 30-day months), and overdue principal and, to the extent not prohibited by applicable law, overdue installments of interest, shall accrue and bear interest at the rate of 2% per --- annum in excess of the interest rate specified above. - ----- Both principal and interest are payable in cash or by wire transfer of immediately available funds at the depositary institution specified in writing by the Payee. 1. THE NOTES. This Note is one of an issue of Short Term Senior Loan Notes of the Issuer (the "Notes") issued pursuant to the Term Sheet Agreement dated ----- March 1, 2000, by and between the Issuer and the parties named therein. 2. PAYMENT PROVISIONS. The Issuer covenants that so long as any of the Notes is outstanding: 2.1 Payment at Maturity of Notes. On the last Business Day on or prior to ------------------------------- April 30, 2001, or on any accelerated maturity of the Notes, the Issuer will pay the entire principal amount of all of the Notes then outstanding together with all accrued and unpaid interest thereon. 2.2 Payment and Accrual of Interest. Interest shall accrue on the unpaid ----------------------------------- principal amount of the Notes from and including March 1, 2000 and shall be payable quarterly in arrears on the last Business Day of each March, June, September and December commencing on June 30, 2000. 2.3 Prepayment of Notes. This Note is not subject to prepayment without the -------------------- consent of the Payee. 2.4 Payments on Business Days. Whenever any payment to be made hereunder ---------------------------- shall be stated to be due on a day that is not a Business Day, such payment shall be made on the immediately succeeding Business Day. 3. SENIOR INDEBTEDNESS. This Note is senior indebtedness of the Issuer to the extent and as provided in the Term Sheet Agreement. This Note and the holder shall be entitled to all the rights and privileges set forth in the Term Sheet Agreement. 4. MISCELLANEOUS. Presentment for payment, demand, notice of dishonor, protest and notice of protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note are hereby waived. Issuer agrees that this Note shall be construed, governed and enforced in accordance with the laws of the State of Delaware without regard to principles of conflicts of law. SAFEGUARD HEALTH ENTERPRISES, INC. By: _________________________ Steven J. Baileys, D.D.S. Chairman and Chief Executive Officer By: _________________________ Ronald I. Brendzel, Secretary INVESTOR SENIOR LOAN NOTE SAFEGUARD HEALTH ENTERPRISES, INC. THIS NOTE WAS ISSUED IN A PRIVATE PLACEMENT, WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED, --- PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING THE TRANSFER OR AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH REGISTRATION UNDER THE ACT IS NOT REQUIRED. $500,000.00 March 1, 2000 FOR VALUE RECEIVED, the undersigned, SafeGuard Health Enterprises, Inc., a Delaware corporation (the "Issuer") HEREBY PROMISES TO PAY to the order of ------ Baileys Family Trust (the "Payee"), on or before April 30, 2001, the principal ----- sum of Five Hundred Thousand Dollars ($500,000.00). The unpaid principal amount of this Note from time to time shall accrue and bear interest at the rate of ten percent (10%) per annum (computed on the basis of a 360-day year of twelve 30-day months), and overdue principal and, to the extent not prohibited by applicable law, overdue installments of interest, shall accrue and bear interest at the rate of 2% per annum in excess of the interest rate specified above. --- ----- Both principal and interest are payable in cash or by wire transfer of immediately available funds at the depositary institution specified in writing by the Payee. 1. THE NOTES. This Note is one of an issue of Short Term Senior Loan Notes of the Issuer (the "Notes") issued pursuant to the Term Sheet Agreement dated ----- March 1, 2000, by and between the Issuer and the parties named therein. 2. PAYMENT PROVISIONS. The Issuer covenants that so long as any of the Notes is outstanding: 2.1 Payment at Maturity of Notes. On the last Business Day on or prior to ------------------------------- April 30, 2001, or on any accelerated maturity of the Notes, the Issuer will pay the entire principal amount of all of the Notes then outstanding together with all accrued and unpaid interest thereon. 2.2 Payment and Accrual of Interest. Interest shall accrue on the unpaid ----------------------------------- principal amount of the Notes from and including March 1, 2000 and shall be payable quarterly in arrears on the last Business Day of each March, June, September and December commencing on June 30, 2000. 2.3 Prepayment of Notes. This Note is not subject to prepayment without the -------------------- consent of the Payee. 2.4 Payments on Business Days. Whenever any payment to be made hereunder ---------------------------- shall be stated to be due on a day that is not a Business Day, such payment shall be made on the immediately succeeding Business Day. 3. SENIOR INDEBTEDNESS. This Note is senior indebtedness of the Issuer to the extent and as provided in the Term Sheet Agreement. This Note and the holder shall be entitled to all the rights and privileges set forth in the Term Sheet Agreement. 4. MISCELLANEOUS. Presentment for payment, demand, notice of dishonor, protest and notice of protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note are hereby waived. Issuer agrees that this Note shall be construed, governed and enforced in accordance with the laws of the State of Delaware without regard to principles of conflicts of law. SAFEGUARD HEALTH ENTERPRISES, INC. By: _________________________ Steven J. Baileys, D.D.S. Chairman and Chief Executive Officer By: _________________________ Ronald I. Brendzel, Secretary EX-4.2 3 SECOND AMENDMENT TO RIGHTS AGREEMENT This SECOND AMENDMENT TO RIGHTS AGREEMENT (the "Amendment") is entered into as of March 9, 2000 by and between SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware corporation (the "Company"), and AMERICAN STOCK TRANSFER & TRUST COMPANY, as Rights Agent (in such capacity, the "Rights Agent"). RECITALS: A. The Company and the Rights Agent are parties to that certain Rights Agreement, dated as of March 22, 1996, as amended (the "Rights Agreement"). Unless otherwise defined herein, capitalized terms used herein shall have the respective meanings ascribed thereto in the Rights Agreement. B. The Company has entered into a Term Sheet Agreement, dated as of March 1, 2000 (the "Term Sheet Agreement"), by and among the Company, CAI Partners and Company II, L.P., CAI Capital Partners and Company II, L.P. Jack R. Anderson, Silicon Valley Bank, John Hancock Mutual Life Insurance Company and other holders of Senior Notes of the Company and Steven J. Baileys, DDS (the "Investors" and individually, an "Investor"), pursuant to which, among other things, certain Investors have loaned an aggregate of $8,000,000 to the Company (the "Loan"). In addition, the Investors agreed to purchase from the Company, and the Company agreed to sell, subject to certain conditions, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock (the "Preferred Stock") for an aggregate of $20,000,000 and Series A Convertible Notes, Series B Convertible Notes, Series C Convertible Notes and Series D Convertible Notes (the "Convertible Notes") an aggregate principal amount of $5,000,000. The Preferred Stock and the Convertible Notes shall be subject to certain conditions, convertible into Common Stock. C. In addition, pursuant to the Term Sheet, the Investors agreed to vote for certain matters facilitating the effectuation of the Term Sheet Agreement and for certain designees to the Board of Directors of the Company. D. The Board of Directors of the Company has unanimously approved the execution and delivery of the Term Sheet and the transactions contemplated thereby, including, without limitation, Loan, the issuance of the Preferred Stock and Convertible Notes to the Investors and the issuance of the shares of Common Stock issuable upon the exercise or conversion thereof; NOW, THEREFORE, in consideration of the premises, the parties hereby agree as follows: "Section 36. The March 1, 2000 Term Sheet Agreement. Notwithstanding any -------------------------------------- provision of this Agreement to the contrary, none of the Investors under that certain Term Sheet Agreement dated March 2, 2000, of the Company shall be deemed to become an Acquiring Person and no Distribution Date or Stock Acquisition Date shall occur or be deemed to occur, in any case, solely by reason of: (i) the execution or delivery by the Company of the Term Sheet Agreement or the performance by the Company of its obligations thereunder; (ii) issuance by the Company to the Investors under the Term Sheet Agreement of the securities described therein; (iii) the issuance to, or the acquisition by, any of such Investors or any of their respective Affiliates or Associates of shares of common stock of the Company issued or issuable upon securities; or (iv) the announcement, commencement or consummation of any of the foregoing. IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the day and year first above written. SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware corporation By:____________________________________ Name:__________________________________ Title:_________________________________ By:____________________________________ Name:__________________________________ Title:_________________________________ AMERICAN STOCK TRANSFER & TRUST COMPANY By::___________________________________ Authorized Officer EX-99.1 4 CONTACTS: DENNIS L. GATES - --------- Chief Financial Officer 949-425-4531 FOR IMMEDIATE RELEASE SAFEGUARD HEALTH ENTERPRISES, INC. ANNOUNCES CAPITAL INFUSION AND DEBT RESTRUCTURING ALISO VIEJO, California-March 3, 2000 -- SafeGuard Health Enterprises, Inc. (OTC BB: SFGDE.OB) announced today that it has executed a binding agreement between the Company, an investor group comprised of CAI Partners, Jack R. Anderson, and the Baileys Family Trust, and its current lenders Silicon Valley Bank and John Hancock Life Insurance Company. The investor group loaned $8 million to the Company, which will be converted into equity upon regulatory approvals. The current lenders agreed to convert all of the Company's outstanding debt into equity at the same time. The investor group loan and all other outstanding debt will automatically be exchanged for convertible preferred stock upon regulatory approval of the change of control and the authorization of additional common shares by the Company's shareholders. When the exchange is completed, ownership of the Company will be Silicon Valley Bank and John Hancock approximately 63%, the investor group approximately 23%, and the existing equity holders approximately 14%. A reconstituted Board of Directors will be comprised of investor group representatives Jack R. Anderson, Leslie B. Daniels, and James E. Buncher. The Board will also include Ronald I. Brendzel, a current Director, Dennis L. Gates, the Company's Chief Financial Officer and a recently elected Director, and Dr. Steven J. Baileys who will continue as Chairman and a Director. An additional board member will be selected by the Bank and John Hancock when the debt conversion occurs. "We are pleased to have completed this restructuring, which could not have been accomplished without the cooperation of the investor group, Silicon Valley Bank and John Hancock. This agreement creates a solid financial foundation on which the Company can now move forward," said Steven J. Baileys, D.D.S., Chairman of the Board of Directors. "We are pleased to have invested in the Company and assisted in facilitating this debt restructuring agreement," said Leslie B. Daniels, a principal of the investor group. "We have been interested in the Company for some time and are excited about its future. The solid financial base created through this transaction will position the Company to take advantage of the opportunities which exist in the dental benefits market place today," Mr. Daniels said. The conversions provided for in the agreement are subject only to regulatory approvals of the change in control in the states in which the Company operates and an increase in the Company's authorized common shares. There are no other conditions required prior to the issuance of the preferred stock and the cancellation of the Company's existing debt. SafeGuard provides managed care dental plans, indemnity dental plans, vision benefit plans, administrative services, and preferred provider services. EX-99.2 5 95 Enterprise Aliso Viejo, California 92656-2601 949.425.4300 Contact: Dennis Gates Senior Vice President and Chief Financial Officer (949) 425-4531 SAFEGUARD HEALTH ENTERPRISES, INC. NAMES JAMES E. BUNCHER PRESIDENT AND CHIEF EXECUTIVE OFFICER ALISO VIEJO, CALIF. (MARCH 9, 2000) - Steven J. Baileys, D.D.S., chairman of SafeGuard Health Enterprises, Inc. (OTC/BB:SFGDE.OB), today announced that James E. Buncher has been named president and chief executive officer of the Company. He has also joined the Company's board of directors. John E. Cox, former president, chief operating officer and director, recently resigned to pursue other interests. Mr. Buncher said, "I look forward to assuming a leadership role in working with the management and employees of SafeGuard to reestablish the Company as a market leader. My focus will be to restore credibility in the marketplace through strong leadership, a disciplined financial structure and an aggressive sales and marketing campaign. We intend to build upon our reputation for quality and service. "I have taken this position because I believe in the Company and see enormous potential. I expect challenges, but we have a solid operational platform and now a strong financial base on which to build. The recently announced capital infusion and debt restructuring substantially improve our balance sheet and give us the momentum we need to gain traction in the marketplace to reestablish SafeGuard as a leader in the dental benefits industry." As previously announced on March 1, an investor group made an $8 million loan to the Company, which will be converted into equity. The Company also announced that its lenders had agreed to convert all of the Company's outstanding debt into equity as well. When the transaction is completed following regulatory approval, 63% of the Company will be owned by John Hancock Life Insurance Co. and Silicon Valley Bank, 23% by the investor group, and 14% by existing equity holders. SafeGuard Health Names New President Page 2 March 9, 2000 Steven J. Baileys, D.D.S., said, "Jim Buncher's extensive experience in the health care industry and the insight he brings from his service as a director of health care companies -- both public and private, reinforce the strong leadership and diversity of expertise shared by the management team of our company. Because of his direct experience with our industry, his insight regarding the dynamics of our business, and his lifelong involvement with corporate governance, he is a great addition to our management team and Board of Directors. With the addition of Jim to our management team, we are confident we will achieve the true potential of the Company." Buncher has more than 24 years experience in health care management and directorships, most recently as a consultant to the industry. He served as president and CEO of Community Dental Services, Inc., a dental practice management company; as president and CEO of Community Care Network, Inc., which merged with Value Health, Inc.; and as president and CEO of Republic Health Corporation. In addition, Buncher was president and CEO of CIGNA Health Plans. Buncher has held various management positions with Hospital Affiliates, Inc., Abbott Laboratories and SCM Corporation, and began his career as a staff auditor for Peat, Marwick, Mitchell & Co. Buncher currently serves on the boards of directors of American Home Care Corporation, PriCare, Inc., Consensus Health, and Horizon Health Corporation. He has held directorships of Community Dental Services, Inc., United Dental Care, Inc., Alliance Imaging, Inc., Community Care Network, Inc., United Medical Plan of Virginia, Republic Health Corporation, INA Health Care Group, Inc., Tulane Medical Center Hospital, and Hospital Affiliates International. Buncher received a Bachelor of Science in Accountancy from the University of Illinois, where he was a Sloan Scholar. He also received a Master of Accounting Science from the University of Illinois. He is a Certified Public Accountant. SafeGuard Health Enterprises, Inc., a leader in the dental benefits industry, provides managed care dental plans, indemnity dental plans, vision benefit plans, administrative services, and preferred provider services. -END- -----END PRIVACY-ENHANCED MESSAGE-----