-----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, CEDbcvjdvA33MUcEk1iHjmX78plyEIECH1Flsd+h36SJZbZeneZQV5j4QCWlMK2w enVVY2jvwcK/6eiRCgH0iw== 0001015402-02-003117.txt : 20020913 0001015402-02-003117.hdr.sgml : 20020913 20020913143455 ACCESSION NUMBER: 0001015402-02-003117 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20020830 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020913 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: 1934 Act SEC FILE NUMBER: 000-12050 FILM NUMBER: 02763575 BUSINESS ADDRESS: STREET 1: 95 ENTERPRISE T CITY: ALISO VIEJO STATE: CA ZIP: 92656-2601 BUSINESS PHONE: 9494254110 8-K 1 doc1.txt ================================================================================ 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 AUGUST 30, 2002 Date of Report (Date of earliest event reported) SAFEGUARD HEALTH ENTERPRISES, INC. (Exact name of registrant as specified in its charter) DELAWARE 0-12050 52-1528581 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 95 ENTERPRISE, SUITE 100 ALISO VIEJO, CALIFORNIA 92656-2605 (Address of principal executive offices and zip code) (949) 425-4110 (Registrant's telephone number, including area code) (949) 425-4586 (Registrant's facsimile number, including area code) ================================================================================ ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS Effective on August 30, 2002, the Registrant acquired all the capital stock of Paramount Dental Plan, Inc., a Florida dental health maintenance organization, ("Paramount") from its sole stockholder, Nicholas M. Kavouklis, DMD ("Dr. Kavouklis"), and is in the process of completing the merger of Paramount and the Registrant's wholly owned Florida subsidiary, SafeGuard Health Plans, Inc. The total consideration paid by the Registrant was $6,625,000, which consisted of the following components: a. $3,000,000 in cash, the source of which was internal funds of the Registrant; b. A convertible promissory note in the principal amount of $2,625,000, which bears interest at seven percent (7.0%) per annum and is payable in equal monthly installments of principal and interest over three years, beginning in October 2002 (the "Note"). The outstanding principal balance of the Note is convertible into common stock of the Registrant at a conversion price of $1.625 per share, at any time after August 30, 2003. The Note is secured by a pledge of the stock of the merged Florida subsidiary. All outstanding principal and interest on the Note, at the holder's option, would be due and payable upon a sale or change in control of the Registrant or its merged Florida subsidiary, or after one (1) year following a termination without cause of Dr. Kavouklis' employment with the Registrant; and c. 769,231 shares of common stock of the Registrant with demand registration rights exercisable immediately for both this stock and the stock issuable upon conversion of the Note. The number of shares of common stock issued was determined by dividing $1,000,000 by the average closing bid price for the Registrant's common stock in the over-the-counter market for the 30 trading days immediately preceding the date of the Stock Purchase Agreement ($1.30 per share). In connection with the acquisition, the Registrant has entered into a three-year employment agreement with Dr. Kavouklis, under which he will serve as President of the Registrant's Florida operations. The employment agreement provides for annual compensation of $230,000, plus an annual bonus of up to $270,000, depending on the financial performance of the Registrant's Florida operations. The Registrant has also entered into a three-year office lease with Dr. Kavouklis for the office space that will be used as the Registrant's principal administrative offices for its Florida operations beginning in late 2002. Paramount is licensed as a Prepaid Limited Health Service Organization and a Third Party Administrator by the Florida Department of Insurance. Paramount offers dental health maintenance organization plans for both individuals and employer groups in the State of Florida. In addition, Paramount offers indemnity dental plans that are underwritten by an unrelated insurance company. Paramount has established a network of approximately 1,500 licensed dentists in the State of Florida who have contracted with Paramount to provide dental services to enrollees. Paramount currently provides dental coverage to approximately 225,000 members. The description of the acquisition of Paramount contained in this Current Report on Form 8-K is qualified in its entirety by the Stock Purchase Agreement, which is filed without schedules, and all exhibits to the Stock Purchase Agreement filed as Exhibits 10.1 through 10.6 to this Current Report on Form 8-K. (1) A copy of the news release dated September 5, 2002, issued by the Registrant in connection with the completion of this transaction is filed as 99.1 to this Current Report on Form 8-K. - -------------------------------- (1) Registrant agrees to furnish a supplemental copy of schedules to the Stock Purchase Agreement to the Securities and Exchange Commission upon request. * * * (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.) ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (b) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED The financial statements required under Item 7(a) will be filed by amendment to this Current Report on Form 8-K not later than November 13, 2002. (c) PRO FORMA FINANCIAL INFORMATION The pro forma financial information required under Item 7(b) will be filed by amendment to this Current Report on Form 8-K not later than November 13, 2002. (d) EXHIBITS EXHIBIT DESCRIPTION ----------- ----------------------------------------------------------------- 10.1 Stock Purchase Agreement dated as of April 24, 2002. (1) 10.2 First Amendment to Stock Purchase Agreement dated as of June 17, 2002. 10.3 Secured Convertible Promissory Note dated as of August 30, 2002. 10.4 Registration Rights Agreement dated as of August 30, 2002. 10.5 Employment Agreement dated as of August 30, 2002. 10.6 Lease Agreement dated as of August 30, 2002. 10.7 Pledge Agreement dated as of August 30, 2002. 10.8 Guaranty dated as of August 30, 2002. 99.1 News release dated September 5, 2002. - ------------------------------- (1) Incorporated by reference herein and disclosed and filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed as of April 24, 2002. * * * (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned thereunto duly authorized in the city of Aliso Viejo, State of California on the 12th day of September 2002. SAFEGUARD HEALTH ENTERPRISES, INC. By: /s/ Dennis L. Gates --------------------------------------------------- DENNIS L. GATES Senior Vice President and Chief Financial Officer By: /s/ Ronald I. Brendzel --------------------------------------------------- RONALD I. BRENDZEL Senior Vice President and Secretary EX-10.2 3 doc2.txt FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT This FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT (the "Amendment") is entered into as of June 17, 2002 by and between SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware corporation (the "Buyer"), NICHOLAS M. KAVOUKLIS, DMD (the "Seller"), and PARAMOUNT DENTAL PLAN, INC., (the "Company") dated as of April 24, 2002. RECITALS: A. The Buyer, Seller and the Company (sometimes collectively referred to as the "Parties") are parties to that certain Stock Purchase Agreement, dated as of April 24, 2002, (the "Agreement") pursuant to which the Buyer agreed to purchase all the issued and outstanding capital stock of the Company. Unless otherwise defined herein, capitalized terms used herein shall have the respective meanings ascribed thereto in the Agreement. B. The Parties have agreed to amend the Agreement by removing therefrom the requirement that SafeGuard Health Plans, Inc., a Florida Corporation, into which the Company will be merged effective upon the closing under the Agreement, execute and deliver a Security Agreement as described in the Agreement. C. The Parties have agreed to the amendments to the Agreement deleting the requirement of the execution and delivery of the Security Agreement and all references to the Security Agreement as described below. Section references used herein refer to the same section in the Agreement. AMENDMENT: NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties do hereby agree as follows: 1. The Exhibit Section of the Table of Contents is hereby amended to delete the term "Exhibit F Form of Security Agreement" and is replaced with the term "Exhibit F Intentionally Omitted" and Exhibit F to the Agreement is hereby deleted in its entirety. 2. Section 1.2 (b) shall be amended to read as follows: "(b) The execution and delivery by Buyer of its seven percent (7%) Secured Convertible Promissory Note in the original principal amount of $2,625,000, in the form of Exhibit A attached hereto (the "Convertible Note"), secured --------- ---------------- by a pledge of the Pledged Shares pursuant to the Pledge Agreement; and" 3. Section 5.2 (j) is hereby amended to delete the paragraph in its entirety and insert the term "Intentionally Omitted." 4. Section 6.2 (c) shall be amended to read as follows: "(c) the Employment Agreement, the Registration Rights Agreement, the Lease Agreement, and the Pledge Agreement, each duly executed by Seller (or Paramount Properties in the case of the Lease Agreement);" 5. Section 6.3 (g) is hereby amended to delete the paragraph in its entirety and insert the term "Intentionally Omitted." 6. Section 9.7 shall be amended to read as follows: "Remedies; Default; Notice and Cure. If the Closing occurs, each party -------------------------------------- acknowledges and agrees that the sole and exclusive remedy with respect to any and all claims arising under this Agreement or in connection with the transactions contemplated by this Agreement (but excluding claims under the Lease Agreement, Employment Agreement, Convertible Note, and Registration Rights Agreement) shall be pursuant to the indemnification provisions set forth in this Article 9. No party shall be deemed in breach of its obligations hereunder - ---------- unless it has received written notice from the other party of noncompliance with a term or provision of this Agreement specifying the specific item of noncompliance and the defaulting party has failed to cure such noncompliance within 10 days after receipt of such notice; provided, however, that if the -------- ------- nature of such default is such that it cannot be cured solely by the payment of money and that more than 10 days may be reasonably required to effect a cure, then the defaulting party shall not be deemed to be in default if such party shall commence such cure within such 10 day period and thereafter diligently and in good faith prosecutes such cure to successful completion within 60 days after receipt of such notice. Any liability for indemnification under this Agreement will be determined without duplication of recovery by reason of the state of facts giving rise to the liability constituting the breach of more than one representation, warranty, covenant or agreement." 7. The definition of "Related Agreements" in Article 11 shall be amended to read as follows: ""Related Agreements" means the Contracts that are to be entered into at the ------------------- Closing or otherwise pursuant to this Agreement, and includes the Convertible Note, Pledge Agreement, Registration Rights Agreement, Employment Agreement, Lease Agreement, and Guaranty." 8. The term and definition of "Security Agreement" in Article 11 shall be deleted in its entirety. 9. All other references to the Security Agreement contained within the Related Agreements are hereby deleted. 10. All other terms and conditions of the Agreement and the Related Agreements not otherwise amended by this Amendment shall remain the same and unchanged and the Agreement is hereby ratified and confirmed as amended by this First Amendment. FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT BUYER SIGNATURE PAGE The undersigned execute the First Amendment to Stock Purchase Agreement and authorize this signature page to be attached to a counterpart of the First Amendment executed by the other parties to the First Amendment. Executed as of the day and year first above written. BUYER: SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware corporation By: /s/ James E. Buncher ------------------------------------- JAMES E. BUNCHER President and Chief Executive Officer By: /s/ Stephen J. Baker ------------------------------------- STEPHEN J. BAKER Executive Vice President and Chief Operating Officer FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT SELLER AND COMPANY SIGNATURE PAGE The undersigned execute the First Amendment to Stock Purchase Agreement and authorize this signature page to be attached to a counterpart of the First Amendment executed by the other parties to the First Amendment. Executed as of the day and year first above written. SELLER: /s/ Nicholas M. Kavouklis, DMD ------------------------------------------ NICHOLAS M. KAVOUKLIS, DMD COMPANY: PARAMOUNT DENTAL PLAN, INC., a Florida corporation By: /s/ Nicholas M. Kavouklis, DMD ------------------------------------- NICHOLAS M. KAVOUKLIS, DMD President and Chief Executive Officer EX-10.3 4 doc3.txt THIS NOTE AND THE COMMON STOCK ISSUABLE ON EXERCISE OF THE CONVERSION OPTION SET FORTH IN THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF (a) AN EFFECTIVE REGISTRATION STATEMENT FOR THE NOTE AND/OR COMMON STOCK UNDER THE SECURITIES ACT OF 1933 OR (b) AN OPINION REASONABLY SATISFACTORY TO SAFEGUARD HEALTH ENTERPRISES, INC. FROM COUNSEL FOR SAFEGUARD HEALTH ENTERPRISES, INC. OR FROM COUNSEL FOR THE PROPOSED TRANSFEROR TO THE EFFECT THAT THE TRANSFER MAY BE EFFECTED WITHOUT REGISTRATION. TRANSFER OF THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE ARE SUBJECT TO THE TERMS AND PROVISIONS OF A REGISTRATION RIGHTS AGREEMENT DATED THE SAME DATE AS THE NOTE, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF SAFEGUARD HEALTH ENTERPRISES, INC. THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE ON CONVERSION OF THIS NOTE MAY NOT BE SOLD OR OTHERWISE DISPOSED, EXCEPT IN ACCORDANCE WITH THAT AGREEMENT. A COPY OF THE AGREEMENT WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF THIS NOTE ON RECEIPT BY SAFEGUARD HEALTH ENTERPRISES, INC. AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE OF A WRITTEN REQUEST FROM THE HOLDER REQUESTING A COPY. THIS NOTE IS SECURED BY A STOCK PLEDGE AGREEMENT OF EVEN DATE HEREWITH, BETWEEN HOLDER AND SAFEGUARD HEALTH ENTERPRISES, INC. SECURED CONVERTIBLE PROMISSORY NOTE Borrower: SAFEGUARD HEALTH ENTERPRISES, INC. Holder: NICHOLAS M. KAVOUKLIS, DMD Initial Principal Amount: $2,625,000 Date of Note: August 30, 2002 1. PROMISE TO PAY, INTEREST RATE. For value received, SafeGuard Health Enterprises, Inc., a Delaware corporation ("BORROWER"), promises to pay to the order of Nicholas M. Kavouklis, DMD ("KAVOUKLIS", and subsequent holders of this Note are collectively, the "HOLDER"), in lawful money of the United States of America, the sum of Two Million Six Hundred Twenty Five Thousand and 00/100 Dollars ($2,625,000), together with interest assessed on a fixed-rate basis at a rate of seven percent (7%) per annum. Capitalized terms not otherwise defined in this Note have the meanings assigned to them in the Stock Purchase Agreement (the "STOCK PURCHASE AGREEMENT") dated as of April 24, 2002, among Borrower, Kavouklis and Paramount Dental Plan, Inc., a Florida corporation ("PARAMOUNT"). Concurrently with closing of the stock purchase transaction contemplated by the Stock Purchase Agreement, Paramount is merging into SafeGuard Health Plans, Inc., a Florida corporation ("SAFEGUARD FLORIDA"). 2. MATURITY. Borrower shall pay the outstanding principal amount of this Note, together with any accrued unpaid interest, on the earliest of (a) August 30, 2005, (b) at the Holder's election, the occurrence of a Change in Control (as defined in the next sentence), or (c) at the Holder's election, one (1) year after Borrower terminates Kavouklis' employment with Borrower if such termination was "Without Cause" (as such term is defined in Section 6.2 of the Employment Agreement dated the same date as this Note by and between Borrower and Kavouklis, all subject to the right of acceleration described below (the "MATURITY DATE"). A "CHANGE OF CONTROL" means (w) equity holders of Borrower or SafeGuard Florida approve a liquidation of all or substantially all of Borrower's or SafeGuard Florida's assets, as the case may be; (x) a sale, lease, exchange, or other transfer of all or more than 50% in value of the assets of Borrower or SafeGuard Florida in one transaction or a series of transactions; (y) a merger, consolidation, reorganization, tender offer, exchange offer, or share exchange in which securities possessing more than fifty percent (50%) of the total combined voting power of Borrower's or SafeGuard Florida's outstanding securities are transferred to a person or persons different from those persons holding those securities prior to such transaction; or (z) the occurrence of any event, transaction, or arrangement that results in any person or group other than the shareholders of Borrower or SafeGuard Florida, as the case may be, prior to such event, transaction, or arrangement becoming the beneficial owner, either directly or indirectly, of a majority of the outstanding Common Stock or outstanding common stock of SafeGuard Florida, as the case may be. 3. PAYMENTS. Except as otherwise provided in this Note, this Note shall be due and payable in equal monthly installments of principal and interest in the amount of $80,794.56, and in a final payment of all outstanding principal and unpaid accrued interest on the Maturity Date. Each payment will be due and payable on the first Business Day of each month of each year during the term of this Note, commencing on the first Business Day of the first full month that commences more than fifteen days after this Note is executed and delivered. Borrower may not prepay this Note without Holder's prior consent. In the event a portion of this Note is converted into Common Stock of SafeGuard pursuant to Section 11 of this Note, the amount of the monthly installments of principal and interest specified above will be adjusted. The parties will recalculate the amount of the equal monthly installments of principal and interest based on the outstanding principal amount after the conversion and interest thereon over the remaining term of this Note. 4. OTHER TRANSACTION DOCUMENTS. Borrower shall be subject to the terms, conditions, and covenants of and shall comply with the provisions set forth in the Stock Purchase Agreement and Related Agreements. 5. BORROWER'S AFFIRMATIVE COVENANTS. Until full payment and performance of all obligations of Borrower under this Note, Borrower shall: (a) Compliance. Comply, and cause its subsidiaries to comply, in all ---------- material respects with all applicable laws, ordinances, rules, regulations and governmental requirements. (b) Conduct of Business; Maintenance of Corporate Status. Continue, ------------------------------------------------------- and cause each of its subsidiaries to continue, to engage in business of the same general type as now conducted by Borrower and its subsidiaries, and preserve, renew and keep in full force and effect, and cause each subsidiary to preserve, renew and keep in full force and effect, their respective corporate existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided, however, if Borrower in -------- ------- good faith determines the action to be in the best interest of the Borrower and not materially disadvantageous to Borrower, Borrower may terminate the corporate existence of any subsidiary, surrender any license or certificate of authority of any subsidiary or sell the capital stock of any subsidiary, in all cases other than SafeGuard Florida. (c) Deliver Stock Certificates. On conversion of all or part of this ---------------------------- Note, promptly issue and deliver to Holder a certificate for the number of full shares of Common Stock issuable upon such conversion and, if applicable, a new Note evidencing any remaining principal amount not converted, in a form substantially identical to this Note. (d) Reserve Common Stock. Reserve and keep available, free from ---------------------- preemptive rights, from its authorized shares of Common Stock, the maximum number of shares that are issuable upon conversion of this Note. (e) Taxes. Accurately prepare and timely file, and cause each ----- subsidiary to accurately prepare and timely file, all tax returns required by law to be filed on behalf of Borrower or subsidiary, as applicable. Borrower and each subsidiary shall promptly pay and discharge all taxes, assessments and governmental charges or levies imposed by applicable law upon them or upon their income or profit, or upon their properties, real, personal or mixed; provided, -------- however, that neither Borrower nor any subsidiary shall be required to pay or - ------- cause to be paid any such tax, assessment, charge or levy if the same will not at the time be due and payable or if the validity thereof is contested in good faith by appropriate proceedings; provided further, however, that Borrower and -------- ------- ------- each subsidiary shall pay all such taxes, assessments, charges or levies forthwith whenever, as the result of proceedings to foreclose any lien which attached as security therefore, foreclosure on such lien appears imminent, or will obtain a surety bond or take such other steps as will prevent such foreclosure. 6. BORROWER'S NEGATIVE COVENANTS. Until it fully pays and performs all of its obligations under this Note, Borrower shall not: (a) Dividends and Redemptions. Declare any dividends on any --------------------------- shares of any class of its capital stock, or apply any of its property or assets to the purchase, redemption or other retirement of, or set apart any sum for the payment of any dividends on, or for the purchase, retirement of, or make any other distribution or reduction of capital or otherwise in respect of, any shares of its capital stock; provided, however, that -------- ------- Borrower shall be permitted to take any such actions so long as at the time of such action: (i) there is not an Event of Default under this Note or condition with the passage of time or notice will constitute an Event of Default; (ii) the total amount of the consideration paid does not exceed the cumulative net income of Borrower from and after February 28, 2002; and (iii) such action does not result in a disproportionate payment to Borrower's shareholders on an as-converted basis, unless all of Borrower's shareholders first had been given the same opportunity to participate in such action. (b) Restrict Performance. Enter into any agreements that restrict -------------------- its right or ability to perform under this Note. (c) Related Party Transactions. Enter, or cause SafeGuard Florida -------------------------- to enter, into any transaction with a Related Party, except for (i) transactions entered in good faith and on terms comparable to those that could be obtained from an unaffiliated third party, and (ii) the consulting agreement in effect on the date of this Note between Borrower and Steven J. Baileys. For purposes of the foregoing provision, the term "RELATED PARTY" means any person who directly or indirectly controls, is controlled by, or under common control with, Borrower or any subsidiary, including an officer, director, or holder of more than 10% of the Borrower's or any subsidiary's capital stock, a spouse or relative of any of the foregoing persons, and any entity of which any of the foregoing persons is a member, officer, director, employee, partner, trustee, or a direct or indirect beneficial owner of any equity or beneficial interest of 5% or more. (d) SafeGuard FloridaActions. Without the Holder's prior consent, ------------------------ cause or permit SafeGuard Florida to do any of the following: (i) create, assume, issue or incur debt in excess of $50,000 in the aggregate, excluding ordinary trade payables; (ii) issue any more stock or other securities, except to SafeGuard if the additional securities are pledged to Holder as collateral for the Note, or redeem any of its outstanding stock; (iii) create financial obligations (other than traditional (and not synthetic) operating leases) that are not reported as liabilities or obligations to pay on the balance sheet of the financial statements of SafeGuard Florida, whether the obligations are leases, lease-purchases, non-recourse financing, or other means or methods commonly referred to as "off-balance sheet financing"; (iv) extend, endorse, or guarantee, or become a surety, accommodation party, or responsible for, any indebtedness or other obligation of any other person, except for guarantees and endorsements made in connection with the deposit of items for collection; (v) prepay, redeem, retire, or otherwise acquire for value any indebtedness in amounts greater or at times earlier than required, other than payment of accounts payable in the usual and ordinary course of business; (vi) sell, transfer, or otherwise dispose of its assets, or encumber its assets, except for inter-company or dividend payments to Borrower, but only if: (1) at the time of the payment or dividend there is not an Event of Default or a condition that with the passage of time or notice will constitute an Event of Default; and (2) after the payment SafeGuard Florida retains at least the net worth amount required under applicable laws, including, without limitation, regulations of the Florida Department of Insurance; or (vii) incur, create, enter into, or assume a commitment that restricts, conditions, prohibits or otherwise adversely affects SafeGuard Florida's ability to declare or pay dividends, or make other distributions, in cash, property or stock, with respect to its capital stock, provided, however, that Holder acknowledges that the payment of -------- ------- dividends by SafeGuard Florida is restricted by the Florida laws and regulations applicable to SafeGuard Florida as a Limited Prepaid Health Care Organization. 7. SECURITY. This Note is secured by a lien and security interest in all of the shares of stock of SafeGuard Florida granted to Kavouklis pursuant to a Pledge Agreement (the "PLEDGE AGREEMENT") dated the same date as this Note, as amended from time to time, between Borrower and Kavouklis. 8. DEFAULT. Each of the following shall constitute an "Event of Default" under this Note: (a) Non-payment. Borrower fails to pay in full within five (5) days ----------- of the date when due any principal, interest, fee or other amount payable to the Holder under this Note or any other obligation of Borrower to the Holder, whether at maturity or otherwise and fails to cure such default within five (5) days after written notice of such default from Holder to Borrower, provided, -------- however, if Holder previously provided Borrower with two (2) written notices of - ------- default pursuant to this Section 8(a) in any twelve-month period, Holder shall not be required to provide Borrower with a written notice of such default; (b) Breach of Representation or Warranty. A material breach of any ---------------------------------------- representation or warranty made by Borrower or SafeGuard Florida in this Note, the Stock Purchase Agreement, or any Related Agreement and the failure to cure such breach or violation within twenty (20) days after written notice thereof from Holder to Borrower (but only if the breach or violation is of a nature that it can be cured); (c) Breach of Covenant. A breach of or failure by Borrower or -------------------- SafeGuard Florida to perform any covenant or obligation of Borrower or SafeGuard Florida set out or contemplated in this Note, the Stock Purchase Agreement, or any Related Agreement and the failure to cure such breach or violation within twenty (20) days after written notice thereof from Holder to Borrower (but only if the breach or violation is of a nature that it can be cured); (d) Voluntary Bankruptcy and Insolvency Proceedings. Borrower or --------------------------------------------------- SafeGuard Florida files a petition in bankruptcy or for reorganization or for an arrangement or any composition, readjustment, liquidation, dissolution or similar relief pursuant to the Federal Bankruptcy Code or under any similar present or future federal law or the law of any other jurisdiction or shall be adjudicated a bankrupt or become insolvent, or consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequester (or other similar official) of the Borrower or SafeGuard Florida or for all or any substantial part of the property of the Borrower or SafeGuard Florida, or shall make an assignment for the benefit of its creditors, or shall admit in writing its inability to pay its debts generally as they become due, or shall take any corporate action, in furtherance or any of the foregoing; (e) Adjudication of Bankruptcy. A petition or answer is filed ---------------------------- proposing the adjudication of Borrower or SafeGuard Florida as a bankrupt or its reorganization or arrangement, or any composition, readjustment, liquidation, dissolution or similar relief with respect to it pursuant to the Federal Bankruptcy Code or under any similar present or future federal law or the law of any other jurisdiction applicable to Borrower or SafeGuard Florida and such petition is not dismissed within sixty (60) days after the date of service on Borrower or SafeGuard Florida; or (f) Other Defaults. There shall occur any default under any other --------------- indenture, agreement or instrument evidencing or securing indebtedness of Borrower or SafeGuard Florida or under any of Borrower's or SafeGuard Florida's capital leases, which default shall not be cured within any applicable cure period for such default, if such indebtedness of Borrower or SafeGuard Florida is an amount greater than $1,000,000 in each case or in the aggregate, provided, -------- however, neither Borrower nor SafeGuard Florida shall be deemed in default under - ------- any capital lease as a result of a good faith dispute between Borrower and the lessor regarding the exercise price of a fair market value purchase option of the equipment under such capital lease. 9. HOLDER'S RIGHTS ON DEFAULT. On the occurrence of an Event of Default, the Holder may (i) declare this Note to be immediately due and payable, in which case this Note shall become due and payable both as to principal and interest, and initiate legal action for collection of this Note, (ii) pursue its rights under the Pledge Agreement, and (iii) pursue the other remedies under applicable law, the Stock Purchase Agreement, or any Related Agreement that Holder deems appropriate. 10. DEFAULT RATE OF INTEREST. From and after an Event of Default until the default is cured, interest shall accrue on this Note in an amount equal to twelve percent (12%) per annum. 11. CONVERSION. (a) The Holder of this Note has the right at the Holder's option, but only prior to payment in full of the principal balance of this Note, to convert this Note in whole or in part, into fully paid and non-assessable shares of Common Stock of Borrower, at any time after twelve (12) months after the date of this Note, in minimum installments of at least $500,000. The number of shares of Common Stock into which this Note may be converted (the "CONVERSION SHARES") shall be determined by dividing the outstanding principal balance hereof to be converted by the Conversion Price (defined below) in effect at the time of conversion. The "CONVERSION PRICE" initially will be $1.625, and will be adjusted as hereinafter provided, the "CONVERSION PRICE"). (b) To convert this Note, the Holder shall surrender this Note at the principal office of Borrower in Aliso Viejo, California together with written notice to Borrower of the election to convert this Note, and shall state the principal amount to be converted. Unless the shares of Common Stock issuable on conversion are to be issued in the same name as the name in which this Note is registered, this Note shall be accompanied by an instrument of transfer, in form satisfactory to Borrower, duly executed by the Holder or the Holder's authorized attorney, together with an amount sufficient to pay any transfer or similar tax. Borrower shall promptly issue, execute and deliver to the Holder a certificate or certificates for the number of shares of Common Stock to which the Holder shall be entitled upon the conversion. The conversion shall be deemed to have been effected immediately prior to the close of business on the date that the Holder surrenders the Note, and the person entitled to receive shares of Common Stock issuable upon conversion will be treated for all purposes as the record holder or holders of such shares of Common Stock as of that date. All shares of Common Stock delivered on conversion of this Note will upon delivery be duly and validly issued and fully paid and nonassessable, free of all Liens and charges and not subject to any preemptive rights. (c) Borrower shall pay all interest on the principal amount of the Note surrendered for conversion accrued to the date of conversion. Borrower shall pay any and all taxes, documentary, stamp or similar issue or transfer taxes that are payable with respect to the issuance or delivery of Common Stock on conversion of this Note; provided, that the Borrower shall not be required to pay any tax payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the Holder. 12. ADJUSTMENT ON CHANGES IN STOCK. (a) GENERALLY. The Conversion Price and the number of shares of --------- Common Stock issuable upon the conversion of this Note shall be subject to adjustment for transactions entered into after the date of the Stock Purchase Agreement as follows: (i) Except as hereinafter provided in Section 12(c), if Borrower shall at any time after the execution date of the Stock Purchase Agreement issue or sell any shares of Common Stock (including shares held in Borrower's treasury) for a consideration per share less than the Conversion Price (or, if an adjusted Conversion Price shall be in effect by reason of a previous adjustment under this Section 12 as provided below, then less than the adjusted Conversion Price), the Conversion Price shall be reduced to the price (calculated to the nearest cent, a half cent or more being considered a full cent) determined by multiplying the Conversion Price in effect immediately prior to the time of such issue or sale by a fraction, the numerator of which will be the sum of (A) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the Conversion Price in effect immediately prior to such issue or sale plus (B) the consideration received by the Borrower upon such issue or sale, and the denominator of which shall be the product of (Y) the total number of shares of Common Stock outstanding immediately after such issue or sale, multiplied by (Z) the Conversion Price in effect immediately prior to such issue or sale. (i) In case of the issuance or sale of shares of Common Stock for a consideration part or all of which shall be cash, the amount of cash consideration therefor shall be deemed to be the amount of cash received by Borrower for such shares (or, if shares of Common Stock are offered by Borrower for subscription, the subscription price, or, if shares of Common Stock shall be sold to underwriters or dealers for public offering without a subscription offering, the initial public offering price) without deducting therefrom any compensation paid or discount allowed in the sale, underwriting or purchase thereof by underwriters or dealers or others performing similar services or any expenses incurred in connection therewith. (ii) In case of the issuance or sale (otherwise than as a dividend or other distribution on or subdivision of any stock of Borrower or on conversion or exchange of other securities of Borrower) of shares of Common Stock for a consideration part or all of which shall be other than cash, the amount of the consideration therefor other than cash shall be deemed to be the value of such consideration, as determined in good faith by the Board of Directors of Borrower, at or about, but as of, the date of the adoption of the resolution authorizing such issuance for a consideration other than cash of such Common Stock immediately prior to the close of business on the date fixed for the determination of security holders entitled to receive such Common Stock. (iii) Shares of Common Stock issuable by way of dividend or other distribution on or subdivision of any stock of Borrower shall be deemed to have been issued immediately after the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution or subdivision. (b) For purposes of subparagraph (a)(i), the following subparagraphs (b)(i) to (b)(viii) also apply to conversion of this Note to Common Stock: (i) ISSUANCE OF RIGHTS OR OPTIONS. In case the Borrower in ------------------------------- any manner issues (whether directly or by assumption in a merger or otherwise) warrants or other rights to subscribe for or purchase, or options to purchase, Common Stock or stock or securities convertible into or exchangeable for Common Stock (the warrants, rights or options are "OPTIONS" and the convertible or exchangeable stock or securities are "CONVERTIBLE SECURITIES"), whether or not the Options or Convertible Securities are immediately exercisable, and the price per share (determined, for a formula price, based on current circumstances or, if dependent on future circumstances, facts that would result in the lowest price per share) for which Common Stock is issuable on the Options' exercise or on the conversion or exchange of the Convertible Securities (determined by dividing (1) the total amount, if any, payable to the Borrower as consideration for the Option grant, plus the aggregate amount of additional consideration payable to the Borrower on the Option exercise, plus, in the case of any Options that relate to Convertible Securities, any consideration payable on the issue or sale of the Convertible Securities and on their conversion or exchange, by (2) the total number of shares of Common Stock issuable upon the Options' exercise or on the conversion or exchange of Convertible Securities issuable on the Options' exercise) is less than the Conversion Price in effect immediately before the Option grant, the total number of shares of Common Stock issuable on the Options' exercise or on conversion or exchange of any Convertible Securities issuable on the Options' exercise will be deemed issued for such price per share on the date of the Options' grant and thereafter will be deemed outstanding. Except as otherwise provided in subparagraph (b)(iii), the Conversion Price will not be further adjusted when the Common Stock is actually issued on exercise of the Options or conversion or exchange of Convertible Securities. (ii) ISSUANCE OF CONVERTIBLE SECURITIES. In case the ------------------------------------- Borrower in any manner issues (whether directly or by assumption in a merger or otherwise) or sells Convertible Securities, whether or not the rights to exchange or convert the Convertible Securities are immediately exercisable, and the price per share (determined, in the case of a formula price, on the basis of current circumstances or, if dependent on future circumstances, the facts would result in the lowest price per share) for which Common Stock is issuable upon the conversion or exchange (determined by dividing (1) the total amount payable to the Borrower as consideration for the issue or sale of the Convertible Securities, plus the aggregate amount of additional consideration, if any, payable to the Borrower on the their conversion or exchange, by (2) the total number of shares of Common Stock issuable on conversion or exchange of all such Convertible Securities) is less than the Conversion Price in effect immediately before the issue or sale, then the total number of shares of Common Stock issuable upon conversion or exchange of the Convertible Securities will be deemed to be issued for such price per share as of the date of the issue or sale of the Convertible Securities and thereafter will be deemed outstanding, provided that (a) except as provided in subparagraph (b)(iii), no further adjustment of the Conversion Price will be made otherwise when the Common Stock is actually issued on conversion or exchange of the Convertible Securities and (b) the Conversion Price will not be further adjusted pursuant to this subsection for the issue or sale of Convertible Securities on the exercise of Options to purchase the Convertible Securities if the Conversion Price has been or will be adjusted for the transaction pursuant to other provisions of this paragraph (b). (iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon the -------------------------------------------- happening of any of the following events, namely, if the purchase price provided for in any Option referenced in subparagraph (b)(i), the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in subparagraph (b)(i) or (b)(ii), or the rate at which Convertible Securities referred to in subparagraph (b)(i) or (b)(ii) are convertible into or exchangeable for Common Stock changes at any time (including, but not limited to, changes under or by reason of provisions designed to protect against dilution), the Conversion Price in effect at the time of such event will be readjusted to the Conversion Price which would have been effective at that time had the Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, when initially granted, issued or sold; and on the expiration of the Options or the termination of a right to convert or exchange any Convertible Securities, the Conversion Price then in effect will be increased to the Conversion Price that would have been in effect at the time of the expiration or termination had the Options or Convertible Securities never been issued. (iv) STOCK DIVIDENDS AND SUBDIVISIONS. In case the Borrower ---------------------------------- declares a dividend or makes any other distribution on stock of the Borrower payable in Common Stock, Options, or Convertible Securities, the Common Stock, Options, or Convertible Securities, as the case may be, issuable in payment of the dividend or distribution will be deemed to have been issued or sold (as of the record date) without consideration (except for the consideration payable to exercise any Options or convert any Convertible Securities). In case the Borrower subdivides its outstanding shares of Common Stock into a greater number of shares, the Conversion Price then in effect will be proportionately reduced to reflect the subdivision. In case the Borrower combines its outstanding shares of Common Stock into a fewer number of shares, the Conversion Price then in effect will be proportionately increased to reflect the combination. An adjustment made pursuant to this paragraph (b)(iv) will become effective retroactively (x) in the case of any such dividend or distribution, to a date immediately following the close of business on the record date for determination of the holders of Common Stock entitled to receive such dividend or distribution, or (y) in the case of any such subdivision or combination, to the close of business on the day upon which such corporate action becomes effective. (v) CONSIDERATION FOR STOCK. In case any shares of Common ------------------------- Stock, Options, or Convertible Securities are issued or sold for cash, the consideration deemed to be received will be the amount actually received by the Borrower, without deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Borrower in connection with the issuance or sale. In case any shares of Common Stock, Options, or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Borrower will be the fair value of such consideration as determined in good faith by the Borrower's Board of Directors, without deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Borrower in connection with the issuance or sale. (vi) RECORD DATE. If the Borrower does not set a record date ----------- to determine the holders of its Common Stock entitled (1) to receive a dividend or other distribution payable in Common Stock, Options, or Convertible Securities or (2) to subscribe for or purchase Common Stock, Options, or Convertible Securities, the record date will 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 a dividend or the making of another distribution or the date of the granting of such right of subscription or purchase, as the case may be. (vii) TREASURY SHARES. The number of shares of Common Stock ---------------- outstanding at any given time does not include shares owned or held by or for the account of Borrower, and its disposition of these shares will be considered an issue or sale of Common Stock for purposes of this Section 12. (viii) REPORTS AS TO ADJUSTMENTS. Whenever the Conversion ---------------------------- Price is adjusted as provided in this subsection, any adjustment shall be rounded to three decimal points and Borrower will promptly compute the adjustment and furnish to the Holder a certificate, signed by a principal financial officer of Borrower, setting forth the new Conversion Price and the number of shares of Common Stock into which the Note is convertible as a result of the adjustment, a brief statement of the facts requiring the adjustment, the computation of the adjustment, and when the adjustment will become effective. (c) CERTAIN ISSUES OF COMMON STOCK EXCEPTED. Notwithstanding the ---------------------------------------- foregoing provisions, Borrower will not be required to adjust the Conversion Price as a result of the following transactions: (i) the issuance or sale of Common Stock upon the exercise of options or rights or upon the conversion or exchange of convertible or exchangeable securities in any case where the adjustment was made upon the issuance of such options, rights, or convertible or exchangeable securities by reason of the provisions of Section 12. (ii) the issuance to employees, directors, consultants or others with similar relationships with Borrower or its subsidiaries of options to purchase, at a price equal to or in excess of fair market value as determined by the Board of Directors of Borrower at the time of grant, shares of Common Stock and the issuance of shares of Common Stock upon the exercise of any such options. (iii) the issuance or sale of shares of Common Stock to officers, directors or employees of, or consultants to, Borrower pursuant to a grant or plan approved by the Board of Directors of Borrower. (iv) the issuance of shares of Common Stock or any security or instrument exchangeable for or convertible into shares of Common Stock in connection with any acquisition of assets, securities, or a business or any exchange of securities to acquire all or part of any business, provided that such acquisition or exchange has been approved by the Board of Directors of Borrower. (v) the issuance of Common Stock for any contribution by Borrower to its 401(k) plan. (vi) the issuance of Common Stock upon the conversion of the preferred stock of Borrower and the stock options of Borrower that are outstanding on the date of this Note. (vii) the issuance of Common Stock or other securities upon conversion of this Note. (viii) the issuance of Common Stock to the Holder pursuant to the Stock Purchase Agreement. (d) ADJUSTMENTS FOR MERGER, CONSOLIDATION, ETC. In the case of --------------------------------------------- any classification, reclassification, or other reorganization of the Borrower's capital stock, or in the case of the merger or consolidation of the Borrower with or into another corporation, or the conveyance to another corporation of all or any major portion of the Borrower's assets, then, as part of the classification, reclassification, merger, consolidation, or conveyance, adequate provision will be made for the Holder, on exercise of its conversion privilege, to receive on the same basis and conditions set forth in Section 11 (as modified by Section 12) with respect to the Common Stock, the stock, securities, or other property that the Holder would have been entitled to receive on such classification, reclassification, merger, consolidation, or conveyance, if the Holder had exercised the conversion privilege immediately before the classification, reclassification, merger, consolidation, or conveyance, and in any such case appropriate provision will be made with respect to the rights and interests of the Holder to the end that the provisions of Section 11 (including without limitation, provision for adjustment of the Conversion Price in this Section 12) will be applicable to the shares of stock, securities, or other property deliverable on the exercise of the conversion privilege; and, as a condition of any consolidation, merger, or conveyance, any corporation that succeeds to the Borrower by reason of the merger, consolidation or conveyance will assume the obligation to deliver, on exercise of the conversion privilege, the shares of stock, securities or other considerations that the Holder is entitled to receive pursuant to this Note. (e) CERTAIN NOTICES. If at any time Borrower proposes to: ---------------- (i) declare a cash dividend on its Common Stock; (ii) declare a dividend on its Common Stock payable in stock or make a special dividend or other distribution to the holders of its Common Stock; (iii) reorganize, or reclassify the capital stock of the Borrower, or consolidate, merge or otherwise combine with, or sell of all or substantially all of its assets to, another corporation; (iv) voluntarily or involuntarily dissolve, liquidate or wind up of the affairs of the Borrower; or (v) redeem or purchase any shares of its capital stock or securities convertible into its capital stock; then, Borrower shall give to the Holder, by certified or registered mail, (A) at least twenty (20) days' prior written notice of the date on which the books of Borrower shall close or a record shall be taken for the dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, and (B) in the case of such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least twenty (20) days' prior written notice of the date when the event will take place. Any notice required by clause (A) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock will be entitled thereto, and any notice required by clause (B) shall specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. (f) DISTRIBUTIONS TO SHAREHOLDERS. If Borrower does any of the ------------------------------- following (a "DILUTIVE EVENT") after the execution date of the Stock Purchase Agreement (but before conversion of this Note): (i) makes any distribution of its assets to holders of its Common Stock as a liquidation or partial liquidation or return of capital; (ii) declares or distributes to the holders of Common Stock (A) a noncash dividend payable in any property or securities of Borrower, (B) any cash payable by dividend or otherwise out of the capital surplus (as distinguished from the earned surplus) of Borrower, or (C) cash, property, or securities in connection with a spin-off, split-up, or similar transaction; then upon the conversion of this Note after the record date for, or the occurrence of, each Dilutive Event, the Holder will be entitled to receive, in addition to the shares of Common Stock otherwise issuable upon conversion of this Note, the other securities and property (including cash) resulting from every Dilutive Event that the Holder would have been entitled to receive if the Holder had (1) converted this Note immediately before the Dilutive Event and had been the record owner of the number of shares of Common Stock issuable pursuant to the conversion since that time, and (2) had participated in every Dilutive Event as a holder of that number of shares of Common Stock and had retained all shares of Common Stock and other or additional securities and property (including cash) receivable during that period, after giving effect to all the Dilutive Events that occurred during that period. Whenever an adjustment occurs in the number or kind of securities and other property (including cash) issuable or distributable upon conversion of this Note, the Borrower promptly shall deliver to the Holder a notice describing in reasonable detail the facts requiring the adjustment and the number and kind of securities and other property (including cash) issuable upon conversion of this Note after the adjustment. 13. WAIVERS. Except as expressly set forth herein, Borrower waives demand, presentment for payment, protest, notice of protest and notice of nonpayment. Any discharge or release of any party who is or may be liable to Holder for the indebtedness represented by this Note will not have the effect of releasing any other party or parties, which will remain liable to Holder. Holder's acceptance of payment other than in accordance with the terms of this Note, or Holder's subsequent agreement to extend or modify the repayment terms, or Holder's failure or delay in exercising any rights or remedies granted to Holder, will likewise not have the effect of releasing Borrower or any other party or parties from their respective obligations to Holder. In addition, any failure or delay on the part of Holder to exercise any of the rights and remedies granted to Holder shall not have the effect of waiving any of Holder's rights and remedies under this Note. Any partial exercise of any rights and/or remedies granted to Holder shall furthermore not be construed as a waiver of any other rights and remedies, it being Borrower's intent and agreement that Holder's rights and remedies shall be cumulative in nature. Should any default event occur or exist under this Note, any waiver or forbearance on the part of Holder to pursue the rights and remedies available to Holder will bind Holder only to the extent that Holder agrees in writing to the waiver or forbearance. 14. CAPTION HEADINGS. Caption headings of the sections of this Note are for convenience purposes only and are not to be used to interpret or to define their provisions. In this Note, whenever the context so requires, the singular includes the plural and the plural also includes the singular. 15. SEVERABILITY. If any provision of this Note is held to be invalid, illegal or unenforceable by any court, that provision shall be deleted from this Note and the balance of this Note shall be interpreted as if the deleted provision never existed. 16. SAVINGS CLAUSE. Borrower and Holder intend to comply strictly with applicable law regulating the maximum allowable rate or amount of interest that Holder may charge and collect on the loan by Holder to Borrower evidenced by this Note. Accordingly, and notwithstanding anything in this Note to the contrary, the maximum, aggregate amount of interest and other charges constituting interest under applicable law that are payable, chargeable, or receivable under the Note shall not exceed the maximum amount of interest now allowed by applicable law or any greater amount of interest allowed because of a future amendment to existing law. Borrower is not liable for any interest in excess of the maximum lawful amount, and any excess interest charged or collected by Holder will constitute an inadvertent mistake and, if charged but not paid, will be cancelled automatically, or if paid, will be either refunded to Borrower or credited against the outstanding principal balance of the Note, at the election of Borrower. 17. ATTORNEY'S FEES AND COSTS. In the event of an Event of Default, and in the event that thereafter this Note is placed in the hands of an attorney for collection, or in the event this Note is collected in whole or in part through legal proceedings of any nature, then and in any such case Borrower promises to pay all reasonable costs of collection, including but not limited to reasonable attorneys' fees incurred by the Holder hereof on account of such collection, whether or not suit is filed. 18. WAIVER OF JURY TRIAL. BORROWER AND HOLDER KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ALL RIGHTS TO A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION ARISING UNDER OR RELATING TO THIS NOTE, THE STOCK PURCHASE AGREEMENT AND ANY OF THE RELATED AGREEMENTS. BORROWER AND HOLDER HAVE FULLY DISCUSSED THIS PROVISION AND AGREE THAT THIS WAIVER IS SUBJECT TO NO EXCEPTIONS AND WAS A MATERIAL INDUCEMENT FOR HOLDER TO MAKE THE LOAN TO BORROWER EVIDENCED BY THIS NOTE. 19. GOVERNING LAW; VENUE. The laws of the State of Florida and the federal laws of the United States of America, excluding the laws of those jurisdictions pertaining to the resolution of conflict with laws of other jurisdictions, govern the validity, construction, enforcement, and interpretation of this Note. The exclusive venue for all actions to enforce or interpret the provisions of this Agreement will be courts of the State of Florida or of the United States having jurisdiction over Hillsborough County, Florida. All parties irrevocably waive any objection they may have to the laying of venue of any suit, action or proceeding arising out of or relating hereto brought in any such court, irrevocably waives any claim that any such suit, action or proceeding so brought has been brought in an inconvenient forum, and further waives the right to object that such court does not have jurisdiction over such party. No party will bring a suit, action or proceeding in respect of this Agreement in any other jurisdiction. 20. VOTING RIGHTS. The Holder of this Note shall have no right and power to vote the shares of Common Stock into which this Note is convertible as determined from time to time by the provisions hereof unless and until this Note is converted and such shares are issued to the Holder. 21. TRANSFERABILITY. This Note evidenced hereby may not be pledged, sold, assigned or transferred except upon satisfaction of the conditions specified in the legend on the face of this certificate. 22. SUCCESSORS AND ASSIGNS. All of the covenants, stipulations, promises, and agreements in this Note by or on behalf of Borrower shall bind its successors and assigns, whether so expressed or not; provided, however, that Borrower may not, without the prior written consent of the Holder hereof, assign any rights, duties, or obligations under this Note. Any assignment in violation of the foregoing shall be null and void. [SIGNATURE PAGES TO FOLLOW] SECURED CONVERTIBLE PROMISSORY NOTE SIGNATURE PAGE BORROWER: SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware corporation By: /s/ Stephen J. Baker -------------------------------------------------- Name: Stephen J. Baker -------------------------------------------------- Title: Executive Vice President & Chief Operating Officer -------------------------------------------------- By: /s/ Ronald I. Brendzel -------------------------------------------------- Name: Ronald I. Brendzel -------------------------------------------------- Title: Senior Vice President and Secretary -------------------------------------------------- STATE OF CALIFORNIA COUNTY OF ORANGE, TO WIT: I HEREBY CERTIFY that on this 4th day of September, 2002, before me a Notary Public of said State/Commonwealth, personally appeared Stephen J. Baker, Executive Vice President & Chief Operating Offier of SafeGuard Health Enterprises, Inc., known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged that he executed the same for the purposes therein contained. WITNESS my hand and Notarial Seal. /s/ Kathryn S. Viau -------------------------------------------------- Notary Public My Commission Expires: 9/10/03 STATE OF CALIFORNIA, COUNTY OF ORANGE, TO WIT: I HEREBY CERTIFY that on this 4th day of September, 2002, before me a Notary Public of said State/Commonwealth, personally appeared Ronald I. Brendzel, Senior Vice President and Secretary of SafeGuard Health Enterprises, Inc., known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged that he executed the same for the purposes therein contained. WITNESS my hand and Notarial Seal. /s/ Kathryn S. Viau --------------------------------------------------- Notary Public My Commission Expires:9/10/03 ELECTION TO CONVERT ------------------- To the Chief Financial Officer of SafeGuard Health Enterprises, Inc. The undersigned owner of the accompanying Note hereby irrevocably exercises the option to convert to shares of Common Stock in accordance with the terms of such Note, and directs that the shares issuable and deliverable upon such conversion be issued in the name of and delivered to the undersigned. Dated: -------------------------- COMPLETE FOR REGISTRATION OF SHARES OF COMMON STOCK ON THE STOCK TRANSFER RECORDS MAINTAINED BY THE COMPANY: - -------------------------------------------------------------------------------- Name of Note Holder Name(s) or Entities in which Common Stock Certificate(s) are to be registered: - -------------------------------------------------------------------------------- Address: ------------------------ - --------------------------------- Nicholas M. Kavouklis, DMD - -------------------------------------------------------------------------------- Taxpayer Identification Number Principal Portion to be converted (if less than all) $_______________ Shares of Common Stock to be Issued _______________ shares EX-10.4 5 doc4.txt REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "AGREEMENT") is entered into as of August 30, 2002, by and between SafeGuard Health Enterprises, Inc., a Delaware corporation ("SAFEGUARD"), and Nicholas M. Kavouklis, DMD, a Florida resident ("HOLDER"). BACKGROUND ---------- On the date of this Agreement, Holder acquired 769,231 shares of Common Stock of SafeGuard pursuant to a Stock Purchase Agreement dated as of April 24, 2002, among SafeGuard, Holder, and Paramount Dental Plan, Inc., a Florida corporation (the "STOCK PURCHASE AGREEMENT"). In addition, on the date of this Agreement, Holder acquired a Secured Convertible Promissory Note of SafeGuard (the "NOTE") in the principal amount of $2,625,000, which is convertible into Common Stock of SafeGuard. SafeGuard agreed to grant registration rights with respect to the Common Stock of SafeGuard owned by Holder and issuable upon conversion of the Note on and subject to the terms and conditions of this Agreement. OPERATIVE TERMS --------------- The parties agree as follows: ARTICLE I. DEFINITIONS ----------------------- 1.1 CERTAIN DEFINED TERMS. ----------------------- "Commission" means the Securities and Exchange Commission or any other ---------- federal agency at the time administering the Securities Act. "Common Stock" means the common stock, $.01 par value per share, of ------------- SafeGuard. "Conversion Shares" means any shares of Common Stock issuable or ------------------ issued upon conversion of the Note. "Exchange Act" means the Securities Exchange Act of 1934, as amended. ------------- "Holder" means Nicholas M. Kavouklis, DMD, and each subsequent holder ------ of the Note (or portion of the Note) or shares of Common Stock issued pursuant to the Stock Purchase Agreement or on conversion of the Note. "Registrable Securities" means (i) the 769,231 shares of Common Stock ----------------------- of SafeGuard held by Holder on the date hereof (the "EXISTING SHARES") (ii) any Conversion Shares that may be issued pursuant to the conversion of the Note, and (iii) any Common Stock issued as a dividend or other distribution with respect to or in exchange for or in replacement of the Existing Shares or Conversion Shares. "Securities Act" means the Securities Act of 1933, as amended, or any --------------- similar federal statute, and the rules and regulations of the Commission thereunder, in effect at the time. "Underwritten Public Offering" means a public offering of Common ------------------------------ Shares for cash that is offered and sold in a registered transaction on a firm commitment underwritten basis through one or more underwriters, all pursuant to an underwriting agreement between the Company and such the underwriters. "Underwriters" means a securities dealer that purchases any ------------ Registrable Securities as principal and not as part of such dealer's market-making activities. ARTICLE II. REGISTRATION RIGHTS -------------------------------- 2.1 DEMAND REGISTRATION. -------------------- (a) Rights to Registration. On notice (a "DEMAND NOTICE") from ------------------------ all Holders or Holders of at least fifty (50%) of the Registrable Securities (the "INITIATING HOLDERS"), SafeGuard shall effect one demand registration for those Holders. SafeGuard shall: (1) promptly give written notice to all other Holders of the proposed registration, qualification or compliance; and (2) use its best efforts to promptly effect the registrations, qualifications, and compliances (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualifications under the applicable blue sky or other state securities laws, and appropriate compliance with exemptive regulations issued under the Securities Act and any other governmental requirements or regulations) needed to permit or facilitate the public sale and distribution of the requesting Holders' Registrable Securities specified in the notice and the Registrable Securities of any other Holders that notify SafeGuard of their desire to join in the request within ten (10) business days after they receive SafeGuard's notice specified in part (1). SafeGuard shall use its best efforts to prepare and file with the Commission a registration statement covering the Registrable Securities subject to the registration request within 60 days after it receives the Demand Notice. (b) Underwriting. The Initiating Holders shall include in their ------------ request made pursuant to Section 2.1 the name of the managing underwriter ----------- or underwriters, if any, that the majority in interest of such Initiating Holders propose to underwrite the public offering pursuant to the requested registration. SafeGuard will include these underwriters' names in its written notice to the other Holders pursuant to Section 2.1. If the sale ------------ proposed by the requesting Holders is to be effected pursuant to an Underwritten Public Offering, each Holder's right to registration pursuant to Section 2.1 will be conditioned on its participation in the underwriting ----------- and inclusion of its Registrable Securities in the underwriting to the extent requested (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holders). SafeGuard shall (together with all Holders proposing to distribute their securities through such underwriting) use its best efforts to enter into an underwriting agreement in customary form with the underwriters selected for the underwriting in the manner set forth above. SafeGuard shall take the actions required for compliance with the terms and obligations of the underwriting agreement, and shall furnish the underwriters and their respective representatives reasonable and sufficient access to all information requested for their "due diligence" review of SafeGuard and its operations, subject to the terms of any letter of intent, confidentiality or other agreement between SafeGuard and the underwriter(s). Notwithstanding any other provisions of Section 2.1, if, in connection with ------------ an Underwritten Public Offering, the managing underwriter advises SafeGuard or the Initiating Holders in writing that marketing factors require that the number of shares to be underwritten be limited, the Initiating Holders shall so advise SafeGuard (or vice versa) and Holders with shares that would otherwise be registered and underwritten pursuant to this Agreement, and the number of shares of Registrable Securities to be included in the registration and underwriting will be allocated among all Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities that were proposed to be sold by Holders. The Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation will not be included in the registration. Any Holder that disapproves of the terms of an Underwritten Public Offering may elect to withdraw therefrom by written notice to SafeGuard, the managing underwriter and the Initiating Holders. The Registrable Securities so withdrawn will also be withdrawn from registration; provided, however, if by the withdrawal of the Registrable -------- ------- Securities a greater number of Registrable Securities held by other Holders may be included in such Underwritten Public Offering (subject to any limitation imposed by the underwriters), the requesting Holders will offer to all Holders who have included Registrable Securities in the registration the right to include additional shares in the same proportion used in effecting the limitation referred to above in this Section 2(b). ------------- (c) Additional Shares to be Registered. SafeGuard may include in ----------------------------------- any registration statement described in this Section 2.1, for sale in accordance ----------- with the method of disposition specified by the Initiating Holders, Common Shares to be sold by SafeGuard for its own account or the other SafeGuard shareholders for their own account, except as and to the extent that, in the opinion of the managing underwriter (if such method of disposition is an Underwritten Public Offering), such inclusion would result in any of the Registrable Securities proposed to be sold being excluded from the offering or would materially adversely affect the marketing of such Registrable Securities to be sold. (d) Exceptions to Demand Registration Rights. Anything in this ------------------------------------------- Section 2.1 to the contrary notwithstanding: - ------------ (1) SafeGuard will not be required to register Registrable Securities pursuant to this Section 2.1 unless the aggregate estimated ----------- public offering price of all shares of Registrable Securities, including, without limitation, any shares sold for the account of SafeGuard or any existing shareholder of SafeGuard (based, in the case of Common Shares, upon the highest closing price or bid price, as the case may be, during the 30-day period preceding such request for registration in the principal trading market for the Common Shares, or, if there is no active trading market for the Common Shares, based upon the proposed public offering price estimated in good faith by the requesting holders of Registrable Securities), is at least equal to the lesser of: (i) $400,000 or (ii) the total value of all shares of Common Stock then owned by Holder; (2) SafeGuard will not be required to file a registration statement requested pursuant to this Section 2.1 during the time ------------ period between the last day of SafeGuard's fiscal year and the date on which SafeGuard's audited financial statements for the fiscal year are first available; (3) SafeGuard will not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 2.1 in any ----------- particular jurisdiction in which SafeGuard would be required to execute a general consent to service of process in effecting such registration, qualification, or compliance, unless SafeGuard is already subject to service in such jurisdiction and except as may be required by the Securities Act; (4) SafeGuard will not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 2.1 during ----------- the period starting with the date 30 days prior to SafeGuard's good faith estimate of the date of filing of, and ending on a date 120 days after the effective date of, a SafeGuard-initiated registration; provided that SafeGuard is actively employing in good faith all reasonable efforts to cause the registration statement to become effective; and (5) SafeGuard will not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 2.1 if the ----------- Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 in accordance with Section 2.3. ------------ (6) SafeGuard will be entitled to delay filing a registration statement for up to 90 days upon written notice to all Holders that it is engaged in discussions regarding a material transaction concerning SafeGuard and that it would be disadvantageous to disclose during such period. 2.2 SAFEGUARD REGISTRATION. ---------------------- (a) Rights to Registration. If SafeGuard registers any of its ------------------------ Common Shares in an Underwritten Public Offering for its own account (but not including: (i) an offering initiated at a Holder's request pursuant to Section 2.1, or (ii) an offering that is registered on Commission Forms S-4 ----------- and S-8 or another form not available for registering the Registrable Securities for sale by SafeGuard), SafeGuard shall: (1) Promptly notify each Holder, at least thirty (30) days before the anticipated filing date of the registration (including, to the extent available, the jurisdictions in which SafeGuard intends to qualify the offer and sale of securities under applicable blue sky or other state securities laws); and (2) Use its best efforts to include in the registration (and any related qualification under blue sky laws or other compliance) and in any related Underwritten Public Offering, all the Registrable Securities that the Holder specifies in a written request delivered to SafeGuard within 20 days after SafeGuard's notice. (b) Underwriting. A Holder's right to registration pursuant to ------------ Section 2.2 will be conditioned on the Holder's inclusion of its ------------ Registrable Securities in any related Underwritten Public Offering. All Holders proposing to distribute their securities through an Underwritten Public Offering (together with SafeGuard and any other shareholder distributing its securities through the underwriting) shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for the Underwritten Public Offering. (c) Certain Underwriter Limitations. Notwithstanding any other --------------------------------- provisions of this Section 2.2, if the managing underwriter reasonably ------------ determines that marketing factors require a limitation of the number of shares to be underwritten, the underwriter may limit the Registrable Securities to be included in the registration and Underwritten Public Offering. In such event, the underwriter will so advise all shareholders whose shares would otherwise be registered and underwritten pursuant thereto, and the number of shares that may be included in the registration and Underwritten Public Offering will be allocated: (1) first to SafeGuard; then (2) to the extent that such securities do not exhaust the number of shares determined by such underwriter, among all remaining shareholders of SafeGuard (including the Holders) to whom SafeGuard extended registration rights, in proportion, as nearly as practicable, to the respective amounts of Common Shares that are proposed to be sold by such shareholders. (d) Certain Sales During an Underwritten Public Offering. In the ------------------------------------------------------ event that there is an Underwritten Public Offering and a selling holder of Registrable Securities does not elect to sell its Registrable Securities to the underwriters of SafeGuard's securities in connection with such offering, such holder, on request of SafeGuard or the principal underwriter managing that public offering, will not sell, make a short sale of, grant an option for the purchase of, or otherwise dispose of any Registrable Securities without the prior written consent of SafeGuard or such underwriter as the case may be, for up to 90 days or such other lesser time period that the underwriter specifies. SafeGuard may impose stop transfer instructions with respect to the Common Shares (or other securities) subject to this restriction until the end of these periods. Notwithstanding anything to the contrary, the obligations of the holder of Registrable Securities under this section are conditioned on the officers and directors of SafeGuard entering into similar "lock-up" arrangements. 2.3 REGISTRATION ON FORM S-3. At such time as SafeGuard has qualified ------------------------- for the use of Form S-3 (or any similar form or forms promulgated under the Securities Act), Holders will have the right to request up to two registrations (but no more than one registration each 12 months) on Form S-3 (which request or requests will be in writing, will specify the Registrable Securities intended to be sold or disposed of by the Holder thereof, will state the intended method of disposition of such Registrable Securities by the Holder requesting such registration, and will relate to Registrable Securities having a proposed aggregate gross offering price (before deduction of underwriting discounts and expenses of sale) of at least $100,000 based on the current market price), and SafeGuard will be obligated to use its best efforts to effect the registration or registrations on Form S-3. Any such registration shall satisfy the obligations of SafeGuard with respect to a demand registration under Section 2.1. ------------ 2.4 REGISTRATION EXPENSES. SafeGuard shall pay all expenses of any ---------------------- registrations permitted pursuant to this Agreement (including, but not limited to, the expenses of any interim audit required by any underwriters in the event of an offering requested pursuant to Section 2.1 hereof, any qualifications ----------- under the blue-sky or other state securities laws, compliance with governmental requirements of preparing and filing any post-effective amendments required for the lawful distribution of any securities to the public in connection with registration, of supplying prospectuses, offering circulars or other documents and the reasonable fees and disbursements of a single special counsel retained by a majority in interest of the Holders, but excluding underwriting discounts and selling commissions applicable to the sale of the Registrable Securities, which are payable by the Holders, pro rata on the basis of the number of shares registered). 2.5 REGISTRATION PROCEDURES. In the case of a registration, ------------------------ qualification or compliance effected by SafeGuard pursuant to this Article II in ---------- which any Holder's Registrable Securities are included, SafeGuard shall, at its expense: (a) Prepare and file with the Commission a registration statement with respect to the Common Shares, and use its best efforts to cause such registration statement to become and remain effective for the period that is reasonably necessary to effect the sale of the Common Shares, not to exceed nine (9) months or, if sooner, upon completion by Holders of the contemplated distribution; (b) Prepare and file with the Commission such amendments to the registration statement and supplements to the prospectus contained therein as may be necessary to keep such registration statement effective for such period as may be reasonably necessary to effect the sale of such Common Shares, not to exceed nine (9) months or, if sooner, upon completion by Holders of the contemplated distribution; (c) Furnish to the Holders participating in such registration and to the underwriters of Common Shares being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of the Common Shares; (d) Use its diligent good faith efforts to register or qualify the Common Shares covered by such registration statement under such state securities or blue sky laws of such jurisdictions as such participating Holders may reasonably request in writing within 20 days following the original filing of such registration statement; provided, however, in the -------- ------- case of an Underwritten Public Offering, the managing underwriter will (to the exclusion of the participation of the Holders) advise SafeGuard with respect to blue sky qualification and related matters; (e) Notify counsel for the Holders participating in such registration, promptly after it receives notice thereof, of the time when such registration statement has become effective or a supplement to any prospectus forming a part of such registration statement has been filed; (f) Notify counsel for such Holders promptly of any request by the Commission for the amending or supplementing of the registration statement or prospectus or for additional information; (g) Prepare and file with the Commission, promptly upon the request of any Holders, any amendments or supplements to the registration statement or prospectus which, in the opinion of counsel for such Holders (and concurred in by counsel for SafeGuard), is required under the Securities Act or the rules and regulations thereunder in connection with the distribution of the Common Shares, other than an amendment or supplement required solely as a result of a change by such Holders in the method of distribution of the Common Shares; (h) Prepare and promptly file with the Commission and promptly notify counsel for the Holders of the filing of such amendment or supplement to the registration statement or prospectus as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to such Common Shares is required to be delivered under the Securities Act, any event other than a change in the method of distribution of the Common Shares selected by a Holders has occurred as the result of which any such prospectus or any other prospectus as then in effect would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading; and (i) Not file any amendment or supplement to the registration statement or prospectus if, in the opinion of counsel for such Holders, the amendment or supplement does not comply in all material respects with the requirements of the Securities Act or the rules and regulations thereunder, after having been furnished with a copy substantially in the form thereof at least two business days prior to the filing thereof; provided, however, -------- ------- if in the opinion of counsel for SafeGuard, the filing of the amendment or supplement is reasonably necessary to protect SafeGuard from any liabilities under any applicable federal or state law and the filing will not violate applicable law, SafeGuard may make such filing. 2.6 RELATED REGISTRATION MATTERS. SafeGuard shall use its best efforts ---------------------------- to enter into an underwriting agreement in connection with any registration subject to the provisions of this Article II in which any Holder's Common Shares ---------- is included, which agreement will contain such terms, provisions and agreements as are customary and appropriate for such registration. In connection with any Underwritten Public Offering in which any Holder's Common Shares are included, to the extent not provided in the underwriting agreement related to such offering, SafeGuard will use its best efforts to: (a) List the shares of Common Shares included in such offering on any national securities exchange or stock market on which the Common Shares is approved for listing; (b) Engage a bank or other company to act as transfer agent and registrar for the Common Shares; (c) Cause customary opinions of counsel, comfort letters of accountants, and other appropriate documents to be delivered by representatives of SafeGuard; and (d) As soon as practicable after "the effective date of the registration statement" (within the meaning of Rule 158 under the Securities Act), and, in any event, within 16 months thereafter, make "generally available to its securities holders" (within the meaning of Rule 158 under the Securities Act) an earnings statement (which need not be audited) complying with Section 11(a) of the Securities Act and covering a period of at least 12 consecutive months beginning after the effective date of the registration statement. 2.7 INDEMNIFICATION AND CONTRIBUTION. ---------------------------------- (a) In the case of each registration effected by SafeGuard pursuant to this Agreement in which any Holder's Common Shares is included, SafeGuard agrees to indemnify and hold harmless such Holder, including its officers and partners, each underwriter of the shares of Common Shares so registered and each person who controls any such underwriter within the meaning of Section 15 of the Securities Act, against any and all losses, claims, damages or liabilities to which they or any of them may become subject under the Securities Act or any other statute or common law, including any amount paid in settlement of any litigation, commenced or threatened, and to reimburse them for any reasonable legal or other reasonable expenses incurred by them in connection with the investigation of any claims and defenses of any actions (subject to subsection (c) of this Section 2.7), insofar as any such losses, claims, damages, liabilities ----------- or actions arise out of or are based upon: any untrue statement or alleged untrue statement of a material fact contained in the registration statement, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, -------- ------- notwithstanding the foregoing, SafeGuard may agree to indemnify each such underwriter and person who so controls such underwriter to such other extent as SafeGuard and such underwriter will agree; and provided further, -------- ------- however, that the indemnification agreement contained in this subsection ------- (a) will not (1) apply to such losses, claims, damages, liabilities or actions arising out of, or based upon, any such untrue statement or alleged untrue statement, or any such omission or alleged omission, if such statement or omission was made in reliance upon and in conformity with information furnished to SafeGuard in writing by a Holder or such underwriter claiming rights of indemnification pursuant to this Section 2.7 ----------- for use in connection the preparation of the registration statement or any preliminary prospectus or final prospectus contained in the registration statement or any such amendment thereof or supplement thereto; (2) inure to the benefit of any underwriter (or to the benefit of any person controlling such underwriter) from whom the person asserting any such losses, claims, damages, expenses or liabilities purchased the securities which are the subject thereof, if such underwriter failed to send or give a copy of the final prospectus, as then amended or supplemented, to such person and if the untrue statement or omission alleged had been corrected in such final prospectus; or (3) inure to the benefit of any person to the extent such person's claim for indemnification hereunder arises out of or is based on any violation by such person of applicable law. (b) In the case of each registration effected by SafeGuard pursuant to this Agreement in which any Holder's Common Shares is included, such Holder will be obligated, and will cause each underwriter of the shares of Common Shares to be registered on behalf of such person (each Holder and such underwriters being referred to severally in this subsection (b) as the "INDEMNIFYING PERSON") to be obligated, in the same manner and to the same extent as set forth in subsection (a) of this Section 2.7, to ----------- indemnify and hold harmless SafeGuard and each person, if any, who controls SafeGuard within the meaning of Section 15 of the Securities Act, its directors, officers, partners, accountants and legal counsel, with respect to any statement or alleged untrue statement in, or omission or alleged omission from, such registration statement or any post-effective amendment thereof or any preliminary prospectus or final prospectus (as amended or supplemented, if amended or supplemented as aforesaid) contained in such registration statement, if such statement or omission was made in reliance upon and in conformity with information furnished in writing to SafeGuard by such indemnifying person for use in connection with the preparation of such registration statement or any preliminary prospectus or final prospectus contained in such registration statement or any such amendment thereof or supplement thereto; provided, however, the liability of each -------- ------- Holder hereunder is limited to the gross proceeds received by each Holder from the sale of Common Shares covered by such registration statement, amendment, supplement or prospectus, as the case may be. (c) Each person to be indemnified pursuant to this Section 2.7 ----------- will, promptly after its receipt of written notice of the commencement of any action against such indemnified person in respect of which indemnity may be sought from an indemnifying person under this Section 2.7, notify ----------- the indemnifying person in writing of the commencement thereof. The indemnifying person will assume the defense thereof with counsel reasonably satisfactory to such indemnified person and assume the payment of all fees and expenses. In any such proceeding, the indemnified party may retain its own counsel, but the fees and expenses of the counsel will be at the indemnified party's expense, unless (1) the indemnified party has employed counsel in an action in which the indemnified party and indemnifying party are both defendants and there is a conflict of interest between such parties that would prevent counsel from adequately representing both parties, as determined by counsel to the indemnified person, (2) the indemnifying party has not employed counsel satisfactory within the exercise of reasonable judgment of the indemnified party to represent the indemnified party within a reasonable time after the notice of the commencement of the action, or (3) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. The undertaking contained in this Section 2.7 is in ----------- addition to any liabilities that the indemnifying person might have pursuant to law. No indemnifying party will, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought under this Agreement by the indemnified party, unless the settlement includes an unconditional release of the indemnified party from all liability arising from the proceeding. (d) If the indemnification provided for in this Section 2.7 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, will contribute to the amount paid or payable 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. The relative fault of the indemnifying party and of the indemnified party will be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in an underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions of the underwriting agreement will control. 2.8 INFORMATION BY HOLDERS. Each Holder requesting Registrable ------------------------ Securities to be included in any registration shall furnish to SafeGuard such information regarding such Holder and the distribution proposed by such Holder as SafeGuard may request and as is reasonably required in connection with any registration, qualification or compliance described in this Article II. ----------- 2.9 RULE 144 REPORTING. With a view to making available to the Holder ------------------- the benefits of certain rules and regulations of the Commission that may permit the sale of the Registrable Securities to the public without registration, SafeGuard will: (a) Commission Reports. File with the Commission in a timely ------------------- manner all reports and other documents thereafter required of SafeGuard if SafeGuard is or becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; and (b) Other Information. Furnish to each Holder promptly upon its ------------------ request the following information: (1) A written statement by SafeGuard as to SafeGuard's compliance with the public information requirements of Commission Rule 144 (at any time after 90 days after SafeGuard becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act), (2) A copy of the most recent annual or quarterly report of SafeGuard, and (3) Such other reports and documents filed by SafeGuard with the Commission as may be reasonably requested in availing any Holder of any rule or regulation of the Commission permitting the sale of any such securities without registration. 2.10 TRANSFER OF REGISTRATION RIGHTS. The rights to cause SafeGuard to ------------------------------- register securities under this Article II may be assigned following receipt by ---------- SafeGuard of notice of the proposed transfer by any Holder to any assignee or transferee of the Holder's Common Shares or or the Common Shares issued upon conversion of the Note who also qualifies as a Holder; provided that: (a) the transfer is otherwise be effected in accordance with registration requirements imposed by applicable securities laws, and (b) the transferee agrees to be bound by this Agreement. 2.11 NOTICE OF SALE INFORMATION. Any notice from a Holder of ----------------------------- Registrable Securities requesting registration of some or all of such Registrable Securities pursuant to this Article II will: ----------- (a) Specify the number of shares of Registrable Securities intended to be included in such registration; (b) Describe the nature and method of the proposed offering and sale; (c) Include an undertaking to provide all information and materials concerning such Holder and the method of distribution and to take any other actions reasonably requested by SafeGuard to enable SafeGuard to comply with the Securities Act, any state securities law and/or the applicable requirements of the Commission or any state securities commissioner or similar agency or official; and (d) If such Holder is not a party to this Agreement, include such Holder's agreement to be bound by the provisions of this Agreement applicable to Holders of Registrable Securities. 2.12 SUSPENSION. SafeGuard may suspend the Holders' further ---------- disposition of Registrable Securities by notifying the Holders of a state of facts or the occurrence of any event (including pending negotiations regarding a transaction that might require SafeGuard's disclosure of additional material, non-public information in its registration statement, for which SafeGuard believes in good faith it has a bona fide business purpose for preserving confidentiality or circumstances which render SafeGuard unable to comply with the published rules and regulations of the Commission under the Securities Act or the Exchange Act) which might reasonably cause a legal deficiency in the registration statement or the prospectus issued under the registration statement. SafeGuard shall deliver amended disclosure materials to the Holders within 15 days following this notice. At its request, the Holders shall deliver to SafeGuard all copies in their possession of the prospectus covering such Registrable Securities that was current when they received the notice. SafeGuard may not, without the Holders' consent, suspend disposition of Registrable Securities for more than 90 calendar days in any rolling twelve (12) month period. 2.13 OTHER REGISTRATION RIGHTS. SafeGuard represents and warrants that ------------------------- it is not a party to, or otherwise subject to, any other agreement granting registration rights to any other person with respect to any securities of SafeGuard, other than that certain Registration Rights Agreement dated January 31, 2002, between SafeGuard and certain of its stockholders listed therein. SafeGuard shall not grant to any other person the right to request SafeGuard to register any equity securities of SafeGuard, or securities convertible or exchangeable for such securities that are superior in rights to the registration rights granted to the Holders under this Agreement. ARTICLE III MISCELLANEOUS -------------------------- 3.1 REMEDIES. Each party hereto acknowledges that a remedy at law for -------- any breach or attempted breach of this Agreement will be inadequate, agrees that each other party hereto is entitled to specific performance and injunctive and other equitable relief in case of any such breach or attempted breach, and further agrees to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or any other equitable relief. 3.2 EFFECT OF SALE. Any Holder who sells all of his Note and ---------------- Registrable Securities pursuant to the terms of this Agreement will cease to be a party to this Agreement and will have no further rights or obligations hereunder. 3.3 AMENDMENT. This Agreement may be amended from time to time by an --------- instrument in writing signed by SafeGuard and Holders of a majority of the then outstanding Registrable Securities. 3.4 NOTICES. Any notice, request, reply instruction or other ------- communication (herein severally and collectively called "NOTICE") in this Agreement provided or permitted to be given to SafeGuard or to any Holder must be given in writing and may be given or served by overnight delivery service, depositing the same in the United States mail, in certified or registered form postage fully prepaid, addressed to the party or parties to be notified, with return postage fully requested, or by delivering the same in person to such party or parties. Notice deposited in the United States mail, mailed in the manner hereinabove described, will be effective upon deposit. Notice given in any other manner will be effective only if and when received by the party to be notified. For purpose of notice hereunder, until notice is given of a change of address, the address of SafeGuard will be 95 Enterprise, Suite 100, Aliso Viejo, California 92656-2605, and the address of Holder will be the address hereinafter set forth on the signature page. 3.5 LEGAL MATTERS. -------------- (a) Jurisdiction; Venue. The laws of the State of Florida and -------------------- the federal laws of the United States of America, excluding the laws of those jurisdictions pertaining to the resolution of conflict with laws of other jurisdictions, govern the validity, construction, enforcement, and interpretation of this Agreement. The exclusive venue for all actions to enforce or interpret the provisions of this Agreement will be courts of the State of Florida or of the United States having jurisdiction over Hillsborough County, Florida. All parties irrevocably waive any objection they may have to the laying of venue of any suit, action or proceeding arising out of or relating hereto brought in any such court, irrevocably waives any claim that any such suit, action or proceeding so brought has been brought in an inconvenient forum, and further waives the right to object that such court does not have jurisdiction over such party. No party will bring a suit, action or proceeding in respect of this Agreement in any other jurisdiction. (b) WAIVER OF JURY TRIAL. SAFEGUARD AND HOLDER KNOWINGLY, ----------------------- VOLUNTARILY, AND INTENTIONALLY WAIVE ALL RIGHTS TO A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION ARISING UNDER OR RELATING TO THIS AGREEMENT. (c) Costs. In any legal proceeding between SafeGuard and Holder ----- arising out of this Agreement, the losing party shall reimburse the prevailing party, on demand, for all reasonable costs incurred by the prevailing party in enforcing, defending, or prosecuting this Agreement. 3.6 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and inures ---------------------- to the parties contained in this Agreement and their respective heirs, executors, distributees, successors (including successors by merger) and permitted assigns. 3.7 INVALID PROVISIONS. Should any portion of this Agreement be ------------------- adjudged or held to be invalid, unenforceable or void, such holding will not have the effect of invalidating or voiding the remainder of this Agreement and the parties hereby agree that the portion so held invalid, unenforceable or void will, if possible, be deemed amended or reduced in scope, or to otherwise be stricken from this Agreement to the extent required for the purposes of validity and enforcement thereof. 3.8 SECTION HEADINGS. The section and paragraph headings contained ----------------- herein are for reference purposes only and will not in any way affect the meaning and interpretation of this Agreement. 3.9 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any --------------------------- number of counterparts, each of which when so executed and delivered will be deemed an original, and such counterparts together will constitute only one instrument. 3.10 ADJUSTMENTS. In the event SafeGuard declares a stock split, stock ----------- dividend or other distribution of capital stock in respect of, or issues capital stock in replacement of or exchange for, shares of Common Shares, such shares will be subject to this Agreement, and the provisions of this Agreement providing for calculations based on the number of shares of Common Shares will include the shares issued in respect of the Common Shares and the shares converted into Common Shares from the Note. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE The undersigned execute the Registration Rights Agreement and authorize this signature page to be attached to a counterpart of the Registration Rights Agreement executed by the other parties to the Registration Rights Agreement. Executed as of the day and year first above written. "SAFEGUARD" SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware corporation 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 REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE The undersigned executes the Registration Rights Agreement and authorize this signature page to be attached to a counterpart of the Registration Rights Agreement executed by the other parties to the Registration Rights Agreement. Executed as of the day and year first above written. "HOLDER" /s/ Nicholas M. Kavouklis, DMD ------------------------------------- Nicholas M. Kavouklis, DMD 1102 West Cass Street Tampa, Florida 33606 EX-10.5 6 doc5.txt EMPLOYMENT AGREEMENT This Employment Agreement ("AGREEMENT") is effective as of the Closing Date of the Stock Purchase Agreement ("PURCHASE AGREEMENT") among Paramount Dental Plan, Inc., a Florida corporation ("PARAMOUNT"), SafeGuard Health Enterprises, Inc., a Delaware corporation ("SAFEGUARD"), and Nicholas M. Kavouklis, DMD ("EMPLOYEE") which date shall be inserted into this Agreement at the end hereof (the "EFFECTIVE DATE"). Capitalized terms not otherwise defined in this Agreement correspond to the defined terms in the Purchase Agreement. SafeGuard desires the benefits of Employee's knowledge and experience as a full-time employee of SafeGuard. Employee desires to be employed full time by SafeGuard. SafeGuard and Employee desire to enter into an agreement reflecting the terms under which SafeGuard will employ Employee as President and a Director of SafeGuard Health Plans, Inc., a Florida corporation and a wholly-owned subsidiary of SafeGuard ("SAFEGUARD FLORIDA") responsible for the Florida Market, as defined in Section 3.2. Therefore, SafeGuard and Employee agree to ----------- the following terms and conditions: 1. EMPLOYMENT SERVICES AND DUTIES. SafeGuard agrees to employ and retain the full-time services of Employee and Employee hereby agrees to accept full-time employment with SafeGuard as President of SafeGuard Florida under the terms of this Agreement. Employee will also serve as a Director of SafeGuard Florida. Employee agrees to faithfully perform his duties as President and a Director of SafeGuard Florida, to the best of his ability and in the best interests of SafeGuard Florida. Employee's duties and responsibilities shall be commensurate with those customarily associated with the other vice presidents of SafeGuard responsible for its other target markets. 2. TERM OF EMPLOYMENT. The term of this Agreement shall commence on the Effective Date and shall continue until the earlier of the third anniversary of the Effective Date, the date of Employee's death or Permanent Disability (as defined in Section 6.2.3), or the date of termination pursuant to Section 6 or ------------- -------- 7. - - 3. COMPENSATION TERMS. SafeGuard agrees to compensate Employee for his services rendered under this Agreement as follows: 3.1 Base Salary. As of the Effective Date and for the remainder of the ------------ term of employment, Employee shall receive a base salary of Two Hundred Thirty Thousand Dollars ($230,000) per year, payable in equal periodic installments in accordance with SafeGuard's normal payroll policy (the "BASE SALARY"). 3.2 Florida Market. For purposes of this Agreement, the "Florida ---------------- Market" means the members of any of SafeGuard's dental HMO subsidiaries, including Paramount, that are enrolled with a general dentist located in Florida or Illinois, or who have not selected a general dentist, but reside in Florida or Illinois, and all of the groups written by SafeGuard's indemnity insurance subsidiary whose contracts are based in the states of Delaware, Georgia, Florida, Illinois, Kentucky, Maryland, Ohio, South Carolina, Pennsylvania, and Wisconsin. Additional states may be added to the Florida Market from time to time at the sole discretion of SafeGuard. 3.3 Bonuses. ------- 3.3.1 Employee shall be entitled to an annual bonus of up to Two Hundred Seventy Thousand Dollars ($270,000) each calendar year. The bonus earned shall be equal to Twenty Percent (20%) of the increase, if any, in the Florida Market's earnings before interest and income and franchise taxes ("EBIT") (with each component of EBIT to be calculated in accordance with U.S. generally accepted accounting principles consistently applied) for the current calendar year compared to the prior calendar year. An example of the methodology to be used by the parties to calculate EBIT is set forth on Exhibit A to this Agreement. The bonus determined pursuant to --------- this Section 3.3 shall be payable as provided in this Section 3.3. ------------ ----------- 3.3.2 For purposes of this Agreement, EBIT shall include all revenue and direct health care expenses directly attributable to the members enrolled in plans in the Florida Market and all other expenses of SafeGuard that are incurred solely for the benefit of the Florida Market, including but not limited to, any salary, bonus, and other benefits paid pursuant to this Section 3.3. The calculation of EBIT for any period prior ----------- to the Effective Date shall include the operations of Paramount, excluding any extraordinary bonuses paid to Employee in such period, any note forgiveness provided to Employee in such period, and any out-of-pocket expenses directly related to the transactions contemplated by the Purchase Agreement, including but not limited to, the Stay Bonuses, severance payments, and legal fees. 3.3.3 In the event an administrative function is performed by SafeGuard Florida or Paramount for the Florida Market on the Effective Date but is thereafter transferred to SafeGuard's corporate services center, SafeGuard will charge to the Florida Market an administrative fee attributable to such function that will not exceed the cost incurred by SafeGuard to perform such function. SafeGuard will allocate costs to the Florida Market in good faith and in a manner consistent with the allocation of costs for purposes of the audited financial statements of its subsidiaries and regulatory purposes. 3.3.4 EBIT for 2001 shall be prorated over the number of months this Agreement is in effect for the 2002 calendar year. If the transaction represented by the Purchase Agreement closes by November 30, 2002, the base for determining the increase in EBIT subject to bonus for the 2002 calendar year, shall be 1/12th of the combined Paramount and SafeGuard's EBIT for the Florida Market for the 2001 calendar year (as adjusted by this Section ------- 3.3) times the number of full months remaining in the 2002 calendar year --- after the Closing Date. Actual EBIT for the Florida Market for the same remaining months of the 2002 calendar year will be compared for purposes of this partial year calculation. The same concept will apply in the final year if a partial calendar year under the Agreement. The annual maximum bonus will also be so prorated, based on the number of months worked by Employee in the calendar year. 3.3.5 For purposes of computing any bonus to be paid under this Section 3.3, unless SafeGuard and Employee agree otherwise, EBIT shall be ------------ adjusted for any acquisitions or divestitures that occur. Any adjustment for an acquisition shall be made by combining the operations of the acquisition that relate to the Florida Market with the operations of the Florida Market for purposes of determining EBIT for the calendar year prior to the calendar year in which the transaction occurs and EBIT for the calendar year in which the transaction occurs. Any adjustment for a divestiture shall be made by disregarding the operations of the divestiture that relate to the Florida Market for purposes of determining EBIT for the calendar year prior to the calendar year in which the transaction occurs and the EBIT for the calendar year in which the transaction occurs. 3.3.6 SafeGuard shall pay the bonus to Employee within thirty (30) days after the issuance of SafeGuard's audited financial statements for the prior year (but in any event, not later than one hundred twenty (120) days after SafeGuard's year-end), subject to applicable federal income tax withholding, and shall deliver to Employee with the payment a complete and accurate statement showing how EBIT was calculated for the year (the "EBIT STATEMENT"). Employee shall have the right, at its own expense, upon reasonable notice and during normal business hours, to have a representative examine SafeGuard's and SafeGuard Florida's books and records for the purpose of verifying the accuracy of the EBIT Statement. 3.4 Benefits. Subject to satisfaction of all eligibility requirements --------- that are applicable to executive employees of SafeGuard, Employee and his dependents shall be entitled to and shall receive any and all benefits generally available to executive employees of SafeGuard, including participation in health, dental, vision, life insurance and retirement plans. 3.5 Indemnification. SafeGuard shall indemnify Employee to the same ---------------- extent as SafeGuard indemnifies its officers and directors, as provided in SafeGuard's by-laws on the date of this Agreement. This Section 3.5 shall ----------- survive a termination of this Agreement. 4. EXPENSES. SafeGuard authorizes Employee to incur reasonable and necessary expenses for promoting the business of SafeGuard Florida according to the policies of SafeGuard applicable to executives of SafeGuard. Such expenses will be reimbursed upon submission of properly supported expense reports which are subject to the approval of SafeGuard's Chief Operating Officer (the "COO"), which approval will not be unreasonably withheld. 5. EXTENT OF SERVICES; VACATION. 5.1 During the term of Employee's employment under this Agreement, except during customary vacation periods and periods of illness, Employee shall devote full-time energy and attention during regular business hours to the benefit and business of SafeGuard Florida as may be reasonably necessary in performing the Employee's duties pursuant to this Agreement. Notwithstanding the foregoing, the Employee may (i) serve on corporate, trade association, civic, religious or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (iii) manage personal investments, so long as such activities do not interfere with the performance of the Employee's duties and responsibilities and do not create a conflict of interest. Employee shall pre-clear with the COO any speaking engagements that will discuss SafeGuard or SafeGuard Florida in any respect. 5.2 Employee shall be entitled to four (4) weeks of paid vacation during any calendar year and a pro rata portion in the initial and final years if partial years. Such vacation shall be taken at such times as are mutually agreed upon by Employee and the COO. It is agreed by the parties hereto that there shall be no carry-over of unused vacation in excess of two (2) weeks from any calendar year to the next calendar year while this Agreement is in effect. 6. TERMINATION BY SAFEGUARD. 6.1 SafeGuard may terminate Employee and this Agreement at any time for any reason Without Cause upon sixty (60) days advance written notice. Employee shall be entitled to continue to receive his base salary for one (1) year following the effective date of termination or the remainder of the term of this Agreement, whichever is less, paid in accordance with SafeGuard's standard payroll polices and procedures, if (a) Employee is terminated Without Cause, (b) the Employee resigns his employment because the Employee is demoted from his position as president of SafeGuard Florida or his responsibilities are reduced significantly without his prior consent, or (c) the Employee resigns his employment because SafeGuard violates this Agreement and fails to cure the violation within thirty (30) days after notice from Employee. In addition, in any of such events, Employee shall be entitled to receive (i) a bonus for the part of a calendar year up to the effective date of termination if any is earned under the plan described in Section 3.3 which shall be paid at the time such ----------- bonus would normally be paid; (ii) any reimbursement of expenses properly submitted pursuant to Section 4; and (iii) the benefits referred to in Section --------- ------- 3.4 to which Employee has a vested right under the terms and conditions of the - --- benefit plans pursuant to which such benefits were granted. 6.2 SafeGuard may terminate Employee for "Cause" which shall mean: 6.2.1 (a) Employee's continuing and willful refusal or failure to perform any material duty with SafeGuard to the extent of his ability to do so (other than any failure due to physical or mental incapacity) after Employee has been given (i) written notice specifying in reasonable detail the nature of the duty that he failed to perform and referencing this provision of this Agreement, and (ii) a reasonable opportunity to comply with such duty on a going forward basis; 6.2.2 The commission by Employee of an act of fraud or embezzlement or an act in material violation of his duties to SafeGuard or the conviction of Employee of a felony; or 6.2.3 The death or "Permanent Disability" of Employee. For purposes of this agreement, Permanent Disability means Employee becomes physically or mentally disabled such that he is substantially unable to perform his duties under this Agreement and such disability continues for three (3) consecutive months. Upon a termination under this Section 6.2, Employee shall be entitled to receive ----------- (i) his Base Salary through the effective date of termination; (ii) any reimbursement of expenses properly submitted pursuant to Section 4; and (iii) --------- the benefits referred to in Section 3.4 to which Employee has a vested right ----------- under the terms and conditions of the benefit plans pursuant to which such benefits were granted. No bonus will be paid for the calendar year in which the termination occurs, unless such termination is as a result of Section 6.2.3, ------------- in which case Employee shall be entitled to receive a bonus for the part of a calendar year up to the effective date of the termination if any is earned under the plan described in Section 3.3, which shall be paid at the time such bonus ----------- would normally be paid. Termination of Employee by SafeGuard other than as expressly set forth in Section 6.2 for Cause shall be deemed to be a termination ----------- of employment by SafeGuard "Without Cause." 6.3 Notice of Termination. SafeGuard's termination of Employee shall ------------------------ be communicated by a written notice of termination delivered to Employee. For purposes of this Agreement, the notice of termination shall specify the termination provision of this Agreement relied upon to effect such termination and shall set forth in reasonable detail the specific facts and circumstances claimed to provide a basis for termination of Employee as well as the effective date of termination. 6.4 No Duty to Mitigate. Employee shall not be required to mitigate ----------------------- the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and any payments due Employee upon termination of employment shall not be reduced in respect of any other employment compensation received by Employee following such termination; provided, however, that such -------- ------- payments may be terminated if SafeGuard shall have provided written notice to Employee of his violation of any provision of Section 8 or 9 and such violation --------- - caused material damage to SafeGuard's or SafeGuard Florida's business. 7. TERMINATION BY EMPLOYEE. At any time, upon sixty (60) days advance written notice of termination delivered to SafeGuard's Chief Operating Officer, Employee may voluntarily terminate his employment with SafeGuard and this Agreement. If Employee terminates his employment and this Agreement under this Section 7, he will be entitled to receive (i) his Base Salary through the - ---------- effective date of termination; (ii) any reimbursement of expenses properly submitted pursuant to Section 4; and (iii) the benefits referred to in Section --------- ------- 3.4 to which Employee has a vested right under the terms and conditions of the - --- benefit plans pursuant to which such benefits were granted. No prorated bonus will be paid. 8. CONFIDENTIAL INFORMATION. Employee agrees that he shall not, during the term of this Agreement, and for a period of three (3) years following its termination, absent SafeGuard's written consent, disclose to any person, or otherwise use or exploit any non-public proprietary or confidential information of SafeGuard and/or its affiliates, including without limitation trade secrets, customer lists, records of research, memoranda, proposals, reports, methods, processes, techniques, non-public financial information, contracts, negotiations, business plans and strategies, marketing data or other non-public information regarding SafeGuard and/or any of its affiliates, their business, properties or affairs ("CONFIDENTIAL INFORMATION") obtained by him at any time prior to or subsequent to the execution of this Agreement, except to the extent required by his performance of his assigned duties for SafeGuard , including its affiliates. Upon termination of employment, Employee shall surrender all Confidential Information and all other property belonging to SafeGuard and its subsidiaries, it being understood by Employee that such documents are the sole property of SafeGuard and that Employee shall not make any copies thereof. Additionally, the terms and conditions of this Agreement shall constitute Confidential Information and shall not be disclosed by Employee except in accordance with this Section 8. --------- 9. NON-COMPETITION AND CONFLICTS OF INTEREST. 9.1 Employee. During the term of this Agreement and for two (2) -------- years after termination of this Agreement, Employee shall not work for, be a consultant to or provide any direct or indirect services to, nor make or cause to be made on his behalf, or maintain an investment in any business which is engaged, either in whole or in part, in any business which is competitive with or detrimental to any businesses of SafeGuard, or its subsidiaries, except that Employee may make or maintain an investment of no more than one percent (1%) of any outstanding class of capital stock of any publicly traded corporation, provided such class of capital stock is regularly traded by the public without prior written permission of SafeGuard. The Non-Competition provisions of this Section 9 shall terminate --------- immediately upon a default on the Convertible Note issued in conjunction with the Purchase Agreement that is not cured within any applicable cure period and be of no further force or effect at any time after the expiration of the cure period applicable to such default. 9.2 SafeGuard and its Subsidiaries. During the term of this --------------------------------- Agreement, SafeGuard and its subsidiaries other than SafeGuard Florida shall not directly or indirectly engage in a business similar to or competitive with the business of SafeGuard Florida in the State of Florida, except through SafeGuard Florida. 10. TAMPA RESIDENCE. The parties acknowledge that Employee resides in Tampa, Florida. SafeGuard agrees that the principal executive offices of the Florida Market will be based in Tampa, Florida during the term of this Agreement. Employee shall not be obligated to move his residence from Tampa, Florida or to travel from Tampa, Florida for extended time periods during the term of this Agreement. 11. FACILITIES. SafeGuard shall provide Employee with a fully-furnished office in Tampa, Florida. The facilities shall be generally available to Employee in the performance of Employee's duties pursuant to this Agreement, it being understood and contemplated by the parties that all equipment, supplies and office personnel required in the performance of Employee's duties under this Agreement shall be provided by and at the sole expense of SafeGuard. The expenses incurred in providing such facilities and personnel shall be expenses of the Florida Market for purposes of determining EBIT of the Florida Market pursuant to Section 3. ---------- 12. SEVERABILITY. The provisions of this Agreement are severable. If a court of competent jurisdiction determines that any one or more provisions of this Agreement is invalid, void, or unenforceable, in whole or in part, it will be severed therefrom. The remaining provisions of this Agreement shall then continue in full force without being impaired or invalidated in any way. 13. ASSIGNMENT; BINDING EFFECT. 13.1 Assignability. This Agreement may be assigned by SafeGuard to any -------------- successor to all or substantially all of the business and/or assets of SafeGuard or to a wholly-owned subsidiary of SafeGuard, although an assignment to a wholly-owned subsidiary will not relieve SafeGuard of its obligations under this Agreement. This Agreement, intending to secure the personal service of Employee, may not be assigned nor its duties delegated by Employee without the written consent of SafeGuard. 13.2 SafeGuard's Obligation Upon Assignment or Succession. SafeGuard ------------------------------------------------------- shall require any successor, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all of the business and/or assets of SafeGuard or assignee of this Agreement, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that SafeGuard would be required to perform it if no such succession had taken place. 14. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding on the parties and their respective successors and assigns. If Employee should die, any amounts payable to him hereunder, unless otherwise provided for herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee, or other designee or, if there be no such designee, to Employee's estate. 15. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding between the parties concerning the subject matter hereof. This Agreement supersedes all negotiations, prior discussions, and preliminary agreements. This Agreement may not be amended except in a writing executed by Employee and SafeGuard. 16. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, regardless of the application of conflicts of laws principles. 17. NOTICES. All notices, requests, demands and other communication required or contemplated under this Agreement, shall be in writing and shall be deemed to have been duly given when delivered personally or when enclosed in a properly sealed and addressed envelope, registered or certified, return receipt requested, and deposited, postage prepaid, in the United States mail, or sent via a recognized overnight delivery service. Any notice to be given to either party shall be addressed to the parties' address as set forth herein, or at such other address as either party may hereafter designate in writing to the other from time to time. 18. WAIVER. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. 19. CONSTRUCTION. Whenever herein the singular number is used, the same shall include the plural, and the masculine gender shall include the feminine and neuter genders. The captions, section numbers, article numbers, and index appearing in this Agreement are inserted only as a matter of convenience and in no way define, limit, construe, or describe the scope or intent of such sections or articles of this Agreement nor in any way affect this Agreement. 20. ARBITRATION. Any dispute regarding any aspect of this Agreement or any act that allegedly has or would violate any provision of this Agreement must be submitted to arbitration in Hillsborough County, Florida, in accordance with the rules of the Judicial Arbitration and Mediations Service ("JAMS") as the exclusive remedy for such claim or dispute. Either party may invoke this clause by serving on the other, in writing, a request to arbitrate. Within thirty (30) days thereafter, either party may institute proceedings in superior court to enforce this clause. If the parties cannot mutually select a judge from the JAMS panel, the superior court shall make the selection. The decision of JAMS will be final and binding. The prevailing party in any such arbitration shall be entitled to reimbursement by the losing party for all reasonable costs and expenses incurred in enforcing this Agreement, including but not limited to reasonable attorneys' fees and expenses. [SIGNATURES APPEAR ON THE NEXT PAGE.] EMPLOYMENT AGREEMENT SIGNATURE PAGE The undersigned execute the Employment Agreement and authorize this signature page to be attached to a counterpart of the Employment Agreement executed by the other parties to the Employment Agreement. Executed as of August 30, 2002 "SAFEGUARD" SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware corporation By: /s/ Stephen J. Baker ----------------------------------- Stephen J. Baker Executive Vice President and Chief Operating Officer By: /s/ Ronald I. Brendzel ----------------------------------- Ronald I. Brendzel Senior Vice President and Secretary Address: 95 Enterprise, Suite 100 Aliso Viejo, California 92656-2605 Attention: Executive Vice President and Chief Operating Officer EMPLOYMENT AGREEMENT SIGNATURE PAGE The undersigned executes the Employment Agreement and authorize this signature page to be attached to a counterpart of the Employment Agreement executed by the other parties to the Employment Agreement. Executed as of August 30, 2002 "EMPLOYEE" /s/ Nicholas M. Kavouklis, DMD ----------------------------------- Nicholas M. Kavouklis, DMD ----------------------------------- Address ----------------------------------- City, State, Zip Code ----------------------------------- Employee's Social Security Number EMPLOYMENT AGREEMENT EXHIBIT A EBIT CALCULATION METHODOLOGY Attachment A is an example of the EBIT calculation for the 2001 calendar year. The methodology used in this example will be used in calculating EBIT for each subsequent calendar year. EX-10.6 7 doc6.txt LEASE AGREEMENT PARAMOUNT PROPERTIES, LLC, A FLORIDA LIMITED LIABILITY COMPANY, AS LANDLORD AND SAFEGUARD HEALTH PLANS, INC. --------------------------------------- AS TENANT LEASE AGREEMENT --------------- THIS LEASE AGREEMENT (the "Lease") is made and effective as of this 30th day of August, 2002, by and between PARAMOUNT PROPERTIES, LLC, a Florida limited liability company, having an address of 2433 West Prospect Road, Tampa, Florida 33629-5353 ("Landlord"), and SAFEGUARD HEALTH PLANS, INC., a Florida corporation, having an address of 95 Enterprise, Suite 100, Aliso Viejo, California 92656-2605 ("Tenant"). W I T N E S S E T H: ARTICLE ONE DEMISED PREMISES, TERM AND CONSTRUCTION OF IMPROVEMENTS ------------------------------------------------------- Section 1.01. Landlord, for and in consideration of the terms, covenants and conditions herein contained, does hereby demise, lease and let to Tenant, and Tenant does hereby hire and take from Landlord, upon and subject to the terms, covenants and conditions herein contained, the interest of Landlord (other than under this Lease), in the following: Approximately 6,775 square feet of useable area and 7,683 square feet of rentable area within the building located at 3410 Henderson Boulevard, Tampa, Florida 33629, the land on which the building is located being legally described on Exhibit A attached hereto and made a part hereof, and said ---------- space within the building being depicted on Exhibit B --------- attached hereto and made a part hereof (the "demised premises"); TO HAVE AND TO HOLD the demised premises for a term of three (3) years commencing on [later of October 1, 2002, or the closing date of Stock Purchase Agreement between Safeguard Health Enterprises, Inc. and Paramount Dental Plan, Inc.] (the "Commencement Date"), and expiring at midnight, three (3) years thereafter (the "term"). As used herein, the term "Lease Year" shall mean the successive twelve (12) month periods commencing as of the Commencement Date. ARTICLE TWO RENT ---- Section 2.01. Tenant covenants and agrees to pay to Landlord, promptly when due, without notice of demand and without deduction or set-off of any amount for any reason whatsoever, a fixed "minimum rent" outlined as follows, together with any applicable rent taxes. The "minimum rent" shall be paid according to the following schedule: (a) For each of the three (3) years of the term of this Lease, Tenant shall pay annual minimum rent in the amount of One Hundred Twenty Seven Thousand Six Hundred Thirty Six and No/100ths Dollars ($127,636.00), which amount shall be payable in monthly equal installments of Ten Thousand Six Hundred Thirty Six and 33/100ths Dollars ($10,636.33) a month. The rent is calculated based upon an assumed useable square footage of 6,600, plus 908 square feet of common area. The minimum rent reserved hereunder shall be payable in equal monthly installments, in advance, on the first (1st) day of each month during the Lease term; provided, however, that upon the execution of this Lease by Tenant, Tenant shall pay to Landlord the installment of minimum rent due for the first (1st) month of the term of this Lease (together with applicable sales tax, as described below). If the term commences on a date other than the first (1st) day of a calendar month or ends on a date other than the last day of a calendar month, monthly rent shall be appropriately prorated based upon the number of days within such month bears to the total number of days in such month. Section 2.02. Tenant shall pay to Landlord, together with the monthly installments of the minimum rent due hereunder and with each installment of additional rent due hereunder, the sales and use tax imposed by the State of Florida on rental payments under commercial leases. Section 2.03. All amounts payable under Section 2.01 of this Article, as well as all other amounts payable by Tenant to Landlord under the terms of this Lease, shall be paid at the office of Landlord set forth above, or at such other place as Landlord shall from time to time designate by notice to Tenant, in lawful money of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment. Section 2.04. Any installment of rent or additional rent herein required to be paid by Tenant which is not paid when due, shall bear interest at a rate equal to fifteen percent (15%) per annum from the date until paid, as a late charge for the purpose of partially reimbursing Landlord for expenses incurred by reason by such failure by Tenant and not as penalty therefore. Section 2.05. For each calendar year during the term of this Lease (or part thereof), Tenant will pay to Landlord, in addition to the other rentals specified in this Article Two, as additional rent, its pro rata share of the common area maintenance costs (the "CAM Costs") for the entire building and all of the improvements located on the real property described on Exhibit A attached --------- hereto (the "Development"). Landlord shall estimate the CAM Costs, and Tenant's pro rata share thereof, at the commencement of each calendar year (or part thereof), and Tenant shall pay one-twelfth (1/12th) thereof monthly, in advance, on the first (1st) day of each month during the term hereof, together with the payment of minimum rent and applicable sales tax described herein. After the end of each calendar year (or part thereof) during the term of this Lease, Landlord shall furnish Tenant a statement of the actual CAM Costs and there shall be an adjustment between Landlord and Tenant, with payment to or repayment by Landlord (within fifteen (15) days of the determination of the actual CAM Costs), as the case may require, to the end that Landlord shall receive the entire amount of Tenant's pro rata share of the actual CAM Costs due hereunder for said calendar year (or part thereof), or, at Landlord's option, any overpayment by Tenant shall be credited on account of the next succeeding payment by Tenant of its pro rata share of the CAM Costs due hereunder. Landlord and Tenant acknowledge and agree that Tenant's "pro rata share" of the CAM Costs, for the purposes of this Lease, shall be deemed to be fifty three and twenty seven one hundredths percent (53.27%). The term "CAM Costs" as used herein shall mean and include the total cost and expense incurred by Landlord in operating, maintaining, and repairing the Development, building and improvements and common facilities, actually used or available for use by Tenant and employees, agents, servants, customers and other invitees of Tenant, excluding only items of expense commonly known and designated as debt service. CAM Costs shall specifically include, without limitation, general maintenance and repairs, the resurfacing, restriping and cleaning of parking and driveway areas, cleaning and repair of sidewalks, maintenance and repair of the building roof and structure, maintenance and repair of the heating, ventilating and air conditioning systems (to the extent not within the sole responsibility of any particular tenant within the building), plumbing and electrical systems serving the Development, a management fee (in an amount consistent with the management fees payable with regard to similar buildings in the Tampa, Florida metropolitan area) payable to Landlord or the company managing the Development (if any), gardening, landscaping, irrigation, and repairs thereto, all utilities serving the common areas and facilities, and sanitary control, removal of trash, rubbish, garbage and other refuse from the Development. Section 2.06. Tenant shall have the right to examine and/or audit the books and records of Landlord with regard to CAM Costs, Real Estate Taxes and Insurance Premiums, at a place and time mutually acceptable to Landlord and Tenant, upon delivery of a written request to Landlord. If Tenant's examination and/or audit of the books and records of Landlord with regard to CAM Costs, Real Estate Taxes and Insurance Premiums determines that the amount shown on the statement exceeded the actual amount owed by Tenant under this Lease for any period, Landlord shall reimburse the difference to Tenant. Any overpayment shall be refunded to Tenant within ten (10) days after Landlord confirms the amount of such overpayment. ARTICLE THREE INSURANCE EXPENSES, TAXES, OTHER CHARGES ---------------------------------------- Section 3.01. For each calendar year during the term of this Lease (or part thereof), Tenant will pay to Landlord as additional rent together with each installment of minimum rent and each installment of CAM costs payable hereunder, Tenant's pro rata share of all Real Estate Taxes (as defined below) and Insurance Premiums (as defined below). Landlord shall estimate the Real Estate Taxes and Insurance Premiums at the commencement of each calendar year (or part thereof), and Tenant shall pay one-twelfth (1/12th) of Tenant's pro rata share thereof monthly, in advance, together with the payment of minimum rent and applicable sales tax described herein. After the end of each calendar year (or part thereof) during the term of this Lease, Landlord shall furnish Tenant a statement of the actual Real Estate Taxes and Insurance Premiums for the previous calendar year and there shall be an adjustment between Landlord and Tenant, with payment to or repayment by Landlord (within fifteen (15) days of the determination of Tenant's pro rata share of the actual Real Estate Taxes and Insurance Premiums), as the case may require, to the end that Landlord shall receive the entire amount of the actual Real Estate Taxes and Insurance Premiums due hereunder for said calendar year (or part thereof), or, at Landlord's option, any overpayment by Tenant shall be credited on account of the next succeeding payment by Tenant of its pro rate share of Real Estate Taxes and Insurance Premiums due hereunder. Section 3.02. For purposes hereof, "Real Estate Taxes" means all ad valorem taxes and assessments of every kind or nature which are now or may hereafter be imposed or assessed by the State of Florida or any political subdivision thereof upon the demised premises during the term of this Lease. For purposes hereof, "Insurance Premiums" means the annual premiums payable with respect to all insurance required to be maintained by Landlord hereunder. Section 3.03. Throughout the term hereof, Tenant will pay and discharge, punctually as and when the same shall become due and payable without penalty, all payment due upon all rent or use taxes, personal property taxes, privilege taxes, excise taxes, business and occupation taxes, gross sales taxes, occupational license taxes, operating permits and licenses and all other governmental impositions and charges of every kind and nature within the contemplation of the parties hereto (each such charge which Tenant is obligated to pay hereunder being hereinafter sometimes called a "Tax"), it being the intention of the parties hereto that, insofar as the same may lawfully be done, Landlord shall be free from all such expenses and all such rent or use taxes, personal property taxes, privilege taxes, excise taxes, business and occupation taxes, gross sale taxes, occupational license taxes, operating permits and licenses. Tenant covenants to furnish to Landlord, within forty-five (45) days after the last date when any Tax must be paid by Tenant as provided in this Article, official receipts of the appropriate taxing authority or other proof satisfactory to Landlord, evidencing the payment thereof. Section 3.04. It is expressly understood and agreed that Tenant shall not be required to pay any of the following taxes or governmental impositions which shall be imposed against Landlord by any governmental authority, whether federal, state, county, city, municipal, or otherwise, to-wit: (a) any capital stock tax or other tax imposed against Landlord for the privilege or franchise of doing business as a corporation; (b) any income tax levied upon or against the income of Landlord, including any rental income derived by Landlord from the demised premises; it being further expressly understood and agreed, however, that nothing in this Article Three shall relieve Tenant of the obligation for the payment of any gross sales, occupational license, privilege, excise or other present or future tax, license, fee or other charge imposed against Landlord by any governmental authority, whether federal, state, county, city, municipal or otherwise, in respect to the ownership, leasing, use, occupation, management, operation, maintenance, repair or rebuilding of the demised premises or any portion thereof, irrespective of whether the same shall be measured in whole or in part by the rental or other income derived therefrom by Landlord. ARTICLE FOUR USE AND COMPLIANCE WITH LAWS ---------------------------- Section 4.01. Tenant agrees that, unless and to the extent that it shall obtain Landlord's prior approval, it will not use the demised premises, nor will it suffer or permit the same to be used, for any purpose other than for general office purposes. Section 4.02. Tenant shall throughout the term hereof, and at no expense whatsoever to Landlord, promptly comply, or cause compliance, with all laws and ordinances and the rules, regulations and requirements of all federal, state, county and municipal governments, and appropriate departments, commissions, boards and officers thereof, foreseen or unforeseen, ordinary as well as extraordinary, and whether or not the same shall presently be within the contemplation of the parties hereto or shall involve any change of governmental policy or require structural or extraordinary repairs, alterations or additions and irrespective of the cost thereof, which may be applicable to the demised premises, including, without limitation, the fixtures and equipment thereof and the sidewalks and curbs adjoining the demised premises or the use or manner of use of the demised premises. Section 4.03. Prior to the Commencement Date, Landlord shall construct within the demised premises those leasehold improvements which are depicted on the site plan attached thereto as Exhibit B and made a part hereof, all at Landlord's sole cost and expense. ARTICLE FIVE UTILITY CHARGES --------------- Section 5.01. Tenant agrees to pay or cause to be paid all charges for gas, water, sewer, electricity, light, heat, power, telephone or other communication service or other utility or service used, rendered or supplied to the demised premises throughout the term hereof, and to indemnify Landlord and save it harmless against any liability or damages on such account. Tenant acknowledges that the electricity serving the demised premises will be separately metered and Tenant shall be responsible for establishing an account with the utility provider and paying the utility provider directly for all electrical service provided to the demised premises. Tenant further acknowledges that Tenant shall, at its cost, be responsible for obtaining any janitorial service which may be desired within the demised premises. Tenant expressly agrees that, during the term hereof, any water, sewer, gas, heat, electricity, light, power or any other utilities shall be furnished by third party utility companies and not by Landlord. ARTICLE SIX INDEMNIFICATION AND NO LIABILITY OF LANDLORD -------------------------------------------- Section 6.01. Tenant covenants and agrees, at its sole cost and expense, to indemnify and save harmless Landlord against and from any and all loss, cost, damage or claims by or on behalf of any person, firm or corporation, arising from, in or about the demised premises during the term hereof (other than claims arising from the gross negligence or willful misconduct of Landlord, its servants, agents or employees), and further to indemnify and save Landlord harmless against and from any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant to be performed, pursuant to the terms of this Lease, or arising from any act or negligence of Tenant, or any of its agents, contractors, servants, employees or licensees, or arising from any accident, injury or damage whatsoever caused to any person, firm or corporation (other than those caused by Landlord or its servants, agents or employees) occurring during the term hereof, in or about the demised premises, and from and against all costs, counsel fees, expenses and liabilities incurred in or about any such claim, action or proceeding brought thereon; and in case any action or proceeding be brought against Landlord by reason of any such claim, Tenant upon notice from Landlord covenants to resist or defend such action or proceeding by counsel satisfactory to Landlord. Section 6.02. In the event of any judicial proceeding commenced by Landlord or Tenant against the other under this Lease, the reasonable costs and expenses (including reasonable attorneys' fees) of the prevailing party shall be paid by the other party. Section 6.03. Tenant further covenants and agrees that Landlord shall not be responsible or liable to Tenant, or any person, firm or corporation claiming by, through or under Tenant for, or by reason of, any defect in any building or buildings on the demised premises, or in any engines, boilers, elevators, machinery, electric wiring or fixtures, or other equipment or apparatus or appliances in any such building, or for any failure or defect of water, heat, electric light or power supply, or of any apparatus or appliance in connection therewith, or from any injury or loss or damage to person or property resulting therefrom, and Landlord shall not be responsible or liable to Tenant, or any person, firm or corporation claiming by, through or under Tenant, for any injury, loss or damage to any persons or to the demised premises, or to any property of Tenant, or of any other person, contained in or upon the demised premises, caused by or arising or resulting from the electric wiring, or plumbing, water, steam, sewerage, or other pipes, or by or from any machinery or apparatus, or by or from any other defect whatsoever, or by or from any injury or damage caused by, arising or resulting from lightning, wind, tempest, water, in, upon or coming through or falling from the roof, skylight, trapdoors, windows, marquees, metal or glass awning, or by or from other actions of the elements, or from any injury or damage caused by or arising, or resulting from acts or negligence of any occupant or occupants of adjacent, contiguous or neighboring premises, or any other cause whatsoever; unless, however, such events occur as a result of Landlord's default hereunder or the grossly negligent act or omission of Landlord, its servants, agents or employees. ARTICLE SEVEN MAINTENANCE AND REPAIRS ----------------------- Section 7.01. Tenant shall, throughout the term hereof until the surrender of the demised premises (which is governed by Article Sixteen hereof), and at no expense whatsoever to Landlord, take good care of the demised premises and, subject to the rights of Tenant under Article Nine of this Lease, shall not do or suffer any waste with respect thereto, and Tenant shall promptly make all repairs to maintain the demised premises in good and lawful order and condition. When used in this Article, the term "repairs" shall include replacement, restoration and/or renewals when necessary. The provisions and conditions of Article Nine applicable to changes or alterations shall similarly apply to repairs required to be done by Tenant under this Article. Tenant shall keep and maintain all portions of the demised premises, including, without limitation, the interior of the demised premises and all equipment and plumbing serving the demised premises, in good working order and condition, free of accumulation of water, dirt and rubbish. Except as otherwise provided in Article Fifteen, nothing herein contained shall be construed to prevent Tenant from removing from the demised premises its own trade fixtures, furniture, and equipment on the condition, however, that Tenant shall, at its own cost and expense, and it hereby agrees to, repair any and all damages to the demised premises resulting from or caused by the removal thereof, and not from ordinary wear and tear. Landlord shall be responsible for maintaining the HVAC systems serving the demised premises and the remainder of the building, and all costs incurred by Landlord in maintaining and repairing the HVAC systems serving the demised premises and the remainder of the building shall be included in CAM costs and reimbursed to Landlord in accordance with the terms of Section 2.05 above. Section 7.02. Tenant shall permit Landlord and the authorized representatives of Landlord to enter the demised premises at all reasonable times during usual business hours for the purpose of exhibiting or inspecting the same and of making any necessary repairs to the demised premises and performing any work therein that may be necessary to comply with any laws, ordinances, rules, regulations or requirements of any public authority, or that may be necessary to prevent waste or deterioration in connection with the demised premises, which Tenant is obligated, but has failed, to make, perform, or prevent, as the case may be. Nothing in this Lease shall imply any duty upon the part of Landlord to do any such work or to make any alterations, repairs, additions or improvements to the demised premises, of any kind whatsoever. The performance thereof by Landlord shall not constitute a waiver of Tenant's default in failing to perform the same. Landlord shall not in any event (except for events caused by Landlord's default hereunder) be liable for inconvenience, annoyance, disturbance, loss of business or other damage of Tenant or any other occupant of the demised premises or part thereof, by reason of making repairs or the performance of any work on the demised premises or on account of bringing materials, supplies and equipment into or through the demised premises during the course thereof and the obligations of Tenant under this Lease shall not thereby be affected in any manner whatsoever. Landlord shall, however, in connection with the doing of any such work cause as little inconvenience, annoyance, disturbance, loss of business or other damage to Tenant or any such other occupant as may be reasonably possible in the circumstances. ARTICLE EIGHT MECHANICS' LIEN --------------- Section 8.01. Tenant shall not suffer or permit any liens to stand against the demised premises or any part thereof by reason of any work, labor, services or materials done for, or supplied, or claimed to have been done for, or supplied to, Tenant or anyone holding the demised premises or any part thereof through or under Tenant. If any such lien shall at any time be filed against the demised premises, Tenant shall cause the same to be discharged of record within thirty (30) days after the date of filing the same, by either payment, deposit or bond. If Tenant shall fail to discharge any such lien within such period, then, in addition to any other right or remedy of Landlord, Landlord may, but shall not be obligated to, procure the discharge of the same either by paying amount claimed to be due by deposit in court or bonding. Any amount paid or deposited by Landlord for any of the aforesaid purposes, and all legal and other expenses of Landlord, including counsel fees, in defending any such action or in or about procuring the discharge of such lien, with all necessary disbursements in connection therewith, together with interest thereon at a rate of eighteen percent (18%) per annum from the date of payment or deposit, shall become due and payable forthwith by Tenant to Landlord, or, at the option of Landlord, shall be payable by Tenant to Landlord as additional rent, as provided in Article Twelve hereof. Section 8.02. Nothing in this Lease shall be deemed to be, or construed in any way as constituting, the consent or request of Landlord, expressed or implied, by inference or otherwise, to any person, firm or corporation for the performance of any labor or the furnishing of any materials for any construction, rebuilding, alteration or repair of or to the demised premises or any part thereof, nor as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials which might in any way give rise to the right to file any lien against Landlord's interest in the demised premises. Landlord shall have the right to post and keep posted at all reasonable times on the demised premises any notices which Landlord shall be required so to post for the protection of Landlord and the demised premises from any such lien. Tenant agrees to promptly execute such instruments in recordable form in accordance with the terms and provisions of Florida Statute 713.10. ARTICLE NINE ALTERATIONS ----------- Section 9.01. Tenant agrees that it will make no alterations to the building's structure or systems or construct any additional improvements on the demised premises without the prior written consent of Landlord, which consent may be withheld in Landlord's sole discretion except for non-structural improvements to the interior of the demised premises, in which case the consent of Landlord shall not be unreasonably withheld. Tenant further agrees that it will not make any other alterations or improvements which would change the character of said building or buildings, or which would weaken or impair the structural integrity, or lessen the value of said building or buildings. Section 9.02. Tenant is granted the right, at its own cost, to make such non-structural alterations, additions, enlargements and improvements in and to the building or buildings now or hereafter erected upon the demised premises as it may deem desirable for its use, but subject, however, to the following provisions: (a) The same shall be performed in a first-class workmanlike manner. (b) Tenant shall cause such plans and specifications to be prepared and will furnish copies thereof to Landlord prior to the commencement of such alterations, and no work shall be done except in accordance with plans and specifications approved by Landlord. Tenant further agrees that, before the commencement of any such alterations, it will file such plans and specifications with, and obtain the approval thereof by, all municipal or other governmental departments or authorities having jurisdiction thereof. The originals of all such approvals, authorizations, permits and consents of governmental authorities shall be delivered to and retained by Landlord. Landlord shall execute and deliver to Tenant such consents by Landlord as may be required by any such departments or authorities, it being understood, however, that any such consent or consents by Landlord shall not operate or be construed as a consent by Landlord for the purpose of filing any lien or making any charge of any kind whatsoever against either Landlord or the demised premises. (c) All such alteration work shall be done subject to, and in accordance with, all applicable laws, rules, regulations, and other requirements of all governmental authorities having jurisdiction thereof and of the local Board of Fire Underwriters or of any similar body. (d) Tenant shall procure and maintain such insurance, payment and performance bonds and other forms of indemnification, if any, as Landlord may reasonably require in connection with such alteration work. (e) Tenant shall promptly pay and discharge all costs, expenses, damages and other liabilities which may arise in connection with or by reason of such alteration work. (f) Tenant shall pay the amount of any increase in premiums on insurance policies occasioned by the making of any such alterations. (g) Tenant's contractor must be approved by Landlord, which approval shall not be unreasonably withheld. Section 9.03. All such alterations made by Tenant shall immediately be and become part of the realty and the sole and absolute property of Landlord and shall remain upon and be surrendered with the demised premises at the expiration or other termination of this Lease. ARTICLE TEN INSURANCE AND DAMAGE -------------------- Section 10.01. Tenant shall at all times during the term of this Lease and at its sole cost and expense, maintain in effect workers' compensation insurance, comprehensive general, public liability and property damage insurance, issued by insurance companies licensed to do business in the State of Florida, having minimum limits of coverage as Landlord may reasonably request from time to time but not less than Two Million Dollars ($2,000,000.00). Said insurance shall be endorsed to name Landlord as an additional insured thereunder. Said insurance shall be primary insurance as it respects Landlord and not participating with any other available insurance. In no event shall the limits of said policies be considered as limiting the liability of Tenant under this Lease. Section 10.02. Subject to Tenant's agreement to reimburse to Landlord Tenant's pro rata share of all of the premiums and other charges payable by Landlord in obtaining the insurance coverages listed below (collectively, the "Insurance Premiums") as provided in Section 3.01 above, Landlord agrees to maintain, throughout the term hereof, in insurance companies licensed to do business in the State of Florida, (a) public liability insurance protecting Landlord and Tenant against claims of any and all persons, firms and corporations for personal injury, death or property damage occurring upon, in or about the demised premises, or any elevators or escalators therein or thereon, or in or about the adjoining streets, sidewalks and passageways, such insurance to afford protection to the limit of not less than One Million Dollars ($1,000,000.00) in respect to any one occurrence, not less than Two Million Dollars ($2,000,000.00) of general aggregate coverage, not less than Two Million Dollars ($2,000,000.00) of products/completed operations aggregate coverage, and not less than One Million Dollars ($1,000,000.00) of personal and advertising injury coverage, with an "umbrella" affording not less than Three Million Dollars ($3,000,000.00) of liability coverage, (b) "all risk" hazard insurance insuring the fixtures and improvements (specifically including, but not limited to, the Building) located on the demised premises against loss or damage by fire and other risks, (c) flood insurance in an amount up to the full insurable value of the building (if applicable), and (d) such other coverages as may ordinarily be maintained by a reasonable and prudent landlord in the Tampa, Florida metropolitan area. Notwithstanding the foregoing, in no event shall Landlord be responsible for maintaining any insurance coverage with respect to Tenant's personal property, furniture and fixtures. Section 10.03. The proceeds of any insurance policy required to be maintained hereunder shall belong to Landlord. However, any proceeds derived from insurance policies which Tenant may choose to carry on its own personal property, furniture and fixtures shall belong to Tenant. Section 10.04. If the demised premises are made materially untenantable by fire or other casualty, Landlord may elect, at Landlord's sole discretion: (a) to terminate this Lease as of the date of the fire or casualty by notice to Tenant within thirty (30) days after that date; or (b) undertake to repair, restore or rebuild the demised premises, to the extent insurance proceeds are available for the same, in which latter event this Lease shall not terminate but rent shall be abated on a per diem basis while the premises are untenantable. In the event of termination of the Lease pursuant to this Section, rent shall be apportioned on a per diem basis and be paid to the date of the fire or casualty. In no event shall Landlord be liable to Tenant for any damages resulting to Tenant from the happening of such fire or casualty or from the repairing or reconstruction of the demised premises or from the termination of this Lease as herein provided, nor shall Tenant be relieved thereby or in any such event from Tenant's obligations hereunder except to the extent and upon the conditions expressly stated in this Section. If the demised premises are damaged but not rendered materially untenantable by any of the events set forth above, rental shall abate from the date of said occurrence in such proportion as the demised premises have been damaged, and Landlord shall, to the extent of available insurance proceeds, restore the demised premises as speedily as practicable whereupon full rent shall commence. In no event shall rent abate if the damage or destruction of the demised premises, whether total or partial, is the result of the negligence of Tenant, its agents, employees, guests or invitees. In no event shall Landlord be required to repair or replace any of the furniture, equipment, fixtures, and other improvements which may have been placed by tenant on the demised premises. As used herein, "materially untenantable" shall mean more than twenty-five percent (25%) of the demised premises are rendered unuseable by reason of the casualty. Notwithstanding anything to the contrary provided herein, in no event shall Landlord be obligated to restore the demised premises following a casualty in the event the damage is not covered by standard "all risks" property insurance, or if Landlord's lender requires that the insurance proceeds be applied to its loan. Section 10.05. Landlord and Tenant agree to cooperate with each other, to such extent as such other party may reasonably require, in connection with the prosecution or defense of any action or proceeding arising out of, or for the collection of any insurance monies that may be due in the event of, any loss or damage, and that it will execute and deliver to such other party such instruments as may be required to facilitate the recovery of any insurance monies. Section 10.06. Tenant agrees to give prompt notice to Landlord with respect to all fires or other casualties occurring upon the demised premises. ARTICLE ELEVEN CONDEMNATION ------------ Section 11.01. If title to the fee of the whole of the demised premises or so much thereof as to render the remainder no longer useful for its intended use herein shall be taken or condemned by any competent authority, for any public or quasi-public use, or the demised premises cannot be restored to a useful condition within six (6) months after being taken, this Lease shall cease and terminate, and all annual rent, additional rent and other charges paid or payable by Tenant hereunder shall be apportioned, as of the date of vesting of title in such condemnation proceeding, and the total award made with respect to the demised premises shall be paid to Landlord. Section 11.02. If title to the fee of less than the whole of the demised premises shall be so taken or condemned or conveyed by Landlord in lieu thereof, but the remainder is useful for its intended use herein and can be restored to a useful condition within six (6) months after being taken, then: (a) Landlord shall be entitled to, and shall receive, the entire award made with respect to the demised premises except such portion thereof, if any, as shall be specifically allowed hereinafter as damages to Tenant, and Tenant hereby irrevocably assigns to Landlord all of Tenant's right, title and interest in and to all such awards, except as to any such specific award made with respect to relocation damages to Tenant. (b) Landlord shall be entitled to terminate this Lease. If this Lease is not terminated by Landlord, Landlord shall restore the untaken portion of any building or buildings on the demised premises, so that each such building, respectively, shall constitute a complete architectural unit of the same general character and condition (as nearly as may be possible under the circumstances) as the building existing immediately prior to such condemnation or taking. ARTICLE TWELVE LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS ---------------------------------------------- Section 12.01. Tenant covenants and agrees that if it shall at any time fail to make any payment or perform any act which Tenant is obligated to make or perform under this Lease, then Landlord may, without waiving or releasing Tenant from any obligations of Tenant in this Lease contained, and after written notice thereof to Tenant, do so on Tenant's behalf, in such manner and to such extent as shall be necessary, and, in exercising any such rights, pay necessary and incidental costs and expenses, employ counsel and incur and pay reasonable attorneys' fees. All sums so paid by Landlord and all necessary and incidental costs and expenses in connection with the performance of any such act by Landlord, together with interest thereon at a rate of fifteen percent (15%) per annum from the date of the making of such expenditure by Landlord, shall be deemed additional rent hereunder and, except as otherwise in this Lease expressly provided, shall be payable to Landlord on demand or at the option of Landlord may be added to any rent then due or thereafter becoming due under this Lease, and Tenant covenants to pay any such sum or sums with interest as aforesaid and Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of the non-payment thereof by Tenant as in the case of default by Tenant in the payment of the rent. ARTICLE THIRTEEN DEFAULT PROVISIONS AND REMEDIES ------------------------------- Section 13.01. This Lease and the demised term are subject to the limitation that if, at any time during the term hereof, any one or more of the following events (herein called an "event of default") shall occur, that is to say: (a) if Tenant shall fail to pay any installment of the rent set forth in Section 2.01 of this Lease, or any part thereof, when the same shall become due and payable, and such failure shall continue for five (5) days after written notice thereof from Landlord to Tenant; or (b) if Tenant shall fail to pay any sum or other charge required to be paid by Tenant hereunder (other than the payment of the rental as set forth in said Section 2.01), and such failure shall continue for thirty (30) days after written notice thereof from Landlord to Tenant; or (c) if Tenant shall make an assignment for the benefit of its creditors; or (d) if any petition shall be filed against Tenant in any court, whether or not pursuant to any statute of the United States or of any state, in any bankruptcy, reorganization, composition, extension, arrangement or insolvency proceedings, and Tenant shall thereafter be adjudicated bankrupt, or such petition shall be approved by the court, or the court shall assume jurisdiction of the subject matter, or if such proceedings shall not be dismissed within sixty (60) days after the institution of the same; or if any such petition shall be so filed by Tenant; or (e) if, in any proceeding, a receiver or trustee be appointed for all or any portion of Tenant's property, and such receivership or trusteeship shall not be vacated or set aside within sixty (60) days after the appointment of such receiver or trustee; or (f) if Tenant shall assign, mortgage or encumber this Lease, or sublet the whole or any part of the demised premises, otherwise than as expressly permitted hereunder, or if this Lease or the estate of Tenant hereunder shall be transferred, or passed to, or devolve upon, any person, firm or corporation other than Tenant herein named, except in the manner permitted hereunder; or (g) if Tenant shall fail to perform or observe any other requirement of this Lease (not hereinbefore in this Section 13.01 specifically referred to) on the part of Tenant to be performed or observed, and such failure shall continue for thirty (30) days after notice thereof from Landlord to Tenant unless a shorter period of time is allowed under this Lease; then, upon the happening of any one or more of the aforementioned events of default, and the expiration of the period of time prescribed in any such notice, Landlord may exercise any and all rights and remedies under this Lease and Florida law. Upon the election of Landlord, this Lease and the term hereof, as well as all of the right, title and interest of Tenant hereunder, shall wholly cease and expire and Tenant shall then quit and surrender the demised premises to Landlord, but Tenant shall nonetheless and in all events remain liable as hereinafter provided. Section 13.02. Upon an event of default by Tenant, Landlord may at any time thereafter, with or without further notice or demand and without limiting Landlord in the exercise of any other right or remedy which Landlord may have by reason of such default or breach: (a) terminate Tenant's possession of the demised premises by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the demised premises to Landlord. In such event, Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Landlord's default, including, but not limited to, the cost of recovering possession of the demised premises, expenses of reletting, including necessary renovation and alteration of the demised premises, reasonable attorneys' fees, and any real estate commission actually paid or required to be paid; (b) re-enter and retake possession of the demised premises and relet the same for Tenant's account, holding Tenant liable in damages for all expenses incurred by Landlord in any such reletting (including attorneys' fees, brokers' fees and commissions, repairs and remodeling) and for any difference between the amount of rents received from such reletting and those due and payable under the terms of this Lease. In the event Landlord relets the demised premises, Landlord shall have the right to lease or let the demised premises or portions thereof for such periods of time and such rentals and for such use and upon such covenants and conditions as Landlord, in its sole discretion, may elect, and Landlord may make such repairs and improvements to the demised premises as may be necessary. Landlord shall be entitled to bring such actions or proceedings advisable, without being obligated to wait until the end of the Term. Neither Landlord's commencement or maintenance of any one or more actions shall bar Landlord from bringing other or subsequent actions or further accruals, nor shall anything in this subparagraph (b) limit or prohibit Landlord's right at any time to accelerate all rents and charges due from Tenant to the end of the Term or to terminate this Lease by giving notice to Tenant; (c) declare all additional rents and charges due hereunder immediately due and payable, and thereupon all such rents and charges to the end of the term shall thereupon be accelerated; provided, however, such accelerated amounts shall be discounted to their present value using a discount rate of four percent (4%) per annum; and provided further, however, that nothing contained herein shall be deemed to relieve Landlord from its duty to endeavor to mitigate any damages suffered by Landlord to the extent required by Florida law. In the event that any charges due hereunder cannot exactly be determined as of the date of acceleration, the amount of such charges shall be determined by Landlord in a reasonable manner based upon historical increases in such charges; (d) pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions in the State of Florida. Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law. Tenant hereby waives any statutory notice of default. Forbearance by Landlord to enforce one or more of remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of any other violation or default, including without limitation any notices required pursuant to Florida Statute 83.20. ARTICLE FOURTEEN CUMULATIVE REMEDIES-WAIVER-ORAL CHANGE -------------------------------------- Section 14.01. Every term, condition, agreement or provision contained in this Lease shall be deemed to be also a covenant. Section 14.02. The specified remedies to which Landlord may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which Landlord may be lawfully entitled in case of any breach or threatened breach by Tenant of any provision of this Lease. Section 14.03. The failure of Landlord to insist in any one or more cases upon the strict performance of any of the terms, covenants, conditions, provisions or agreements of this Lease or to exercise any option herein contained shall not be construed as a waiver or a relinquishment for the future of any such term, covenant, condition, provision, agreement or option. A receipt and acceptance by Landlord of rent or any other payment, or the acceptance of performance of anything required by this Lease to be performed, with knowledge of the breach of any term, covenant, condition, provision or agreement of this Lease, shall not be deemed a waiver of such breach, nor shall any such acceptance of rent in a lesser amount than is herein provided for (regardless of any endorsement on any check, or any statement in any letter accompanying any payment of rent) operate or be construed either as an accord and satisfaction or in any manner other than as a payment on account of the earliest rent then unpaid by Tenant, and no waiver by Landlord of any term, covenant, condition, provision or agreement of this Lease shall be deemed to have been made unless expressed in writing and signed by Landlord. Section 14.04. In addition to the other remedies provided Landlord in this Lease, Landlord shall be entitled to the immediate restraint by injunction of any violation or attempted or threatened violation, of any of the terms, covenants, conditions, provisions or agreements of this Lease. Section 14.05. This Lease may not be changed orally, but only by agreement in writing signed by the party against whom enforcement of the change, modification or discharge is sought or by his agent. Section 14.06. Whenever the context hereof shall so require, the singular shall include the plural, the male gender shall include the female gender and neuter and vice versa. This Lease and any related instruments shall not be construed more strictly against one party than against the other by virtue of the fact that initial drafts were made and prepared by counsel for one of the parties, it being recognized that this Lease and any related instruments are the product of extensive negotiations between the parties hereto and that both parties hereto have contributed substantially and materially to the final preparation of this Lease and all related instruments. ARTICLE FIFTEEN SURRENDER OF PREMISES --------------------- Section 15.01. Tenant shall, upon the expiration or termination of this Lease for any reason whatsoever, surrender to Landlord the buildings, structures and building equipment then upon the demised premises, together with all alterations and replacements thereof then on the demised premises, in the same good order, condition and repair, that the demised premises are in upon the completion of the construction contemplated hereby, except for reasonable and ordinary wear and tear. (Wherever the term "reasonable and ordinary wear and tear" is used in this Lease, it should be understood to contemplate that Tenant will have performed a reasonable maintenance program during the term hereof.) At the expiration of termination of this Lease for any reason whatsoever, Landlord shall have the right to inspect the demised premises through an independent licensed engineer and/or contractor in order to determine that all portions of the demised premises are in such good condition, ordinary wear and tear excepted. Any repairs deemed necessary in the opinion of the inspecting agent may be paid for out of proceeds of the security deposit. Title to all of Tenant's trade fixtures, furniture and equipment installed in the demised premises shall remain in Tenant, and upon expiration or other termination of this Lease, the same may and, upon the demand of Landlord, shall be removed and any resultant damage to the demised premises shall be repaired, by and at the expense of Tenant; provided, however, that if, upon any such expiration or other termination of this Lease, Tenant shall be delinquent or in default under any of the provisions hereof, Tenant shall not, without Landlord's prior written consent, be entitled to remove any such trade fixtures, furniture or equipment unless and until such delinquency or default shall have been cured, and if such delinquency or default shall not have been cured by Tenant within thirty (30) days after the date of such expiration or termination, all such trade fixtures, furniture and equipment of Tenant shall, at Landlord's option, be and become the absolute property of Landlord; and provided further, however, that notwithstanding anything contained herein to the contrary, Tenant acknowledges and agrees that any pictures, wall hangings and other artwork, oriental rugs and vending machines located within the demised premises on the Commencement Date shall not be deemed to be the property of Tenant, but instead shall be deemed to be the property of Landlord and shall remain in the demised premises upon the expiration or earlier termination of this Lease. Section 15.02. If Tenant fails to vacate the demised premises at the end of the term, then Tenant shall be a tenant at sufferance and, in addition to all other damages and remedies to which Landlord may be entitled for such holding over, Tenant shall pay, in addition to the other charges provided hereunder, a daily minimum rent equal to 150% of the daily minimum rent payable during the last month of the term. ARTICLE SIXTEEN ASSIGNMENT, SUBLETTING AND ENCUMBRANCES --------------------------------------- Section 16.01. Tenant shall not assign, mortgage or otherwise encumber this Lease, or sublet all or any part of the demised premises, without the prior written consent of Landlord, which consent may be withheld in Landlord's sole and absolute discretion; provided, however, that Tenant may assign this Lease to Safeguard Health Enterprises, Inc., a Delaware corporation, or any other wholly-owned subsidiary of Safeguard Health Enterprises, Inc., without the prior consent or approval of Landlord so long as (a) Tenant notifies Landlord upon the occurrence of such assignment, and (b) Tenant remains liable for all of the duties and obligations of "Tenant" hereunder. No permitted assignment or sublease of the whole or any part of the demised premises by Tenant shall in any way affect or reduce any of the obligations of Tenant under this Lease, but this Lease shall continue in full force and effect, it being the intention and meaning of the parties hereto that Tenant shall be and remain liable to Landlord for any and all acts and omissions of any and all assignees, subtenants and similar occupants. The consent by Landlord to an assignment, encumbrance, or subletting shall not be construed in any way to relieve Tenant from obtaining the express consent in writing of Landlord to any further assignment, encumbrance, or subletting. ARTICLE SEVENTEEN SUBORDINATION ------------- Section 17.01. Tenant agrees and acknowledges that all of Tenant's right, title and interest under this Lease is automatically subordinate to the lien of any existing or future lender without any further act by Tenant; provided that any future lender agrees not to disturb the rights of Tenant under this Lease as long as Tenant is not in default hereunder and Tenant agrees to attorn to Landlord as part of a commercially reasonable form of subordination, non-disturbance and attornment agreement. However, in order to manifest and confirm the foregoing, Tenant shall subordinate its leasehold interest in the demised premises to the mortgage lien of any financing Landlord may wish to obtain at any time during the Lease term; provided that any future lender agrees not to disturb the rights of Tenant under this Lease as long as Tenant is not in default hereunder and Tenant agrees to attorn to Landlord as part of a commercially reasonable form of subordination, non-disturbance and attornment agreement. The failure of Tenant to so deliver any such instrument or instruments within ten (10) days after demand in writing by Landlord shall constitute a default hereunder, and Landlord shall be entitled to all of its remedies. Furthermore, Tenant hereby appoints Landlord as Tenant's attorney-in-fact to execute such instruments of subordination in the event Tenant fails to execute such instruments within ten (10) days after demand. ARTICLE EIGHTEEN GOVERNING LAW ------------- Section 18.01. This Lease shall be governed by the laws of the State of Florida. Tampa, Florida, shall be the location for the handling of all disputes hereunder, and all parties hereby consent to personal jurisdiction of any court of competent jurisdiction for Tampa, Florida. ARTICLE NINETEEN ESTOPPEL CERTIFICATE -------------------- Section 19.01. Tenant agrees at any time and from time to time, upon not less than ten (10) days prior request by Landlord to execute, acknowledge and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been modifications that the same is in full force and effect as modified and stating the modifications), and the dates to which the rent and other charges have been paid in advance, if any, it being intended that any such statement delivered pursuant to this Article may be relied upon by any prospective purchaser of the fee or mortgagee or assignee of any mortgage upon the fee of the demised premises. Furthermore, Tenant hereby appoints Landlord as Tenant's attorney-in-fact to execute such instruments of subordination in the event Tenant fails to execute such instruments within ten (10) days after demand. ARTICLE TWENTY NOTICES ------- Section 20.01. All notices which are required or permitted hereunder must be in writing and shall be deemed to have been given, delivered or made, as the case may be, (notwithstanding lack of actual receipt by the addressee) (i) when delivered by personal delivery or (ii) three (3) business days after having been deposited in the United States mail, certified or registered, return receipt requested, sufficient postage affixed and prepaid, or (iii) one (1) business day after having been deposited with an expedited, overnight courier service (such as by way of example but not limitation, U.S. Express Mail or Federal Express), addressed to the party to whom notice is intended to be given at the address set forth below: Landlord: Paramount Properties, LLC 2433 West Prospect Road Tampa, Florida 33629-5353 With a copy to: Jonathan P. Jennewein, Esquire Hill, Ward & Henderson, P.A. Suite 3700 - Bank of America Plaza 101 East Kennedy Boulevard Tampa, Florida 33602 Tenant: Safeguard Health Plans, Inc c/o Safeguard Health Enterprises, Inc. 95 Enterprise, Suite 100 Aliso Viejo, California 92656-2605 Attn: James E. Buncher, President With a copy to: Safeguard Health Plans, Inc. c/o Safeguard Health Enterprises, Inc. 95 Enterprise, Suite 100 Aliso Viejo, California 92656-2605 Attn: Ronald I. Brendzel, Senior Vice-President Any party may change the address to which its notices are sent by giving the other party written notice of any such change in the manner provided in this Section, but notice of change of address is effective only upon receipt. ARTICLE TWENTY-ONE INVALIDITY OF PARTICULAR PROVISIONS ----------------------------------- Section 21.01. If any term or provision of this Lease or the application thereof to any person or circumstance, shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and enforced to the fullest extent permitted by law. ARTICLE TWENTY-TWO EXCULPATION OF LANDLORD ----------------------- Section 22.01. Notwithstanding anything to the contrary that may be provided in this Lease, it is specifically understood and agreed, such agreement being a primary consideration of the execution of this Lease by Landlord, that there shall be absolutely no personal liability on the part of Landlord, its successors, assigns or any mortgagee in possession (for the purposes of this paragraph, collectively referred to "Landlord"), with respect to any of the terms, covenants and conditions of this Lease, and Tenant shall look solely to the equity of Landlord in the demised premises for the satisfaction of each and every remedy of Tenant in the event of any breach by Landlord of any of the terms, covenants and conditions of this Lease to be performed by Landlord, such exculpation of liability to be absolute and without any exceptions whatsoever. Section 22.02. In the event the original Landlord hereunder, or any successor owner of the demised premises, shall sell or convey the demised premises, all liabilities and obligations on the part of the original Landlord, or such successor owner, under this Lease accruing thereafter shall terminate, and thereupon all such liabilities and obligations shall be binding upon the new owner. Tenant agrees to attorn to such new owner. ARTICLE TWENTY-THREE BINDING COVENANTS AND BENEFITS ------------------------------ Section 23.01. Subject to the provisions of this Lease, the terms, conditions, covenants, provisions and agreements herein contained shall be binding upon and inure to the benefit of Landlord, its successors and assigns, and Tenant, its permitted successors and assigns. ARTICLE TWENTY-FOUR NO PARTNERSHIP OR JOINT VENTURE ------------------------------- Section 24.01. Landlord and Tenant are not and shall not in any way be considered joint venturers, partners or agents of each other, it being expressly understood that the relationship between them is solely that of lessor and lessee and nothing more. Neither party shall have the power to bind or obligate the other in any way unless and except as may be set forth specifically in this Lease. ARTICLE TWENTY-FIVE POSSESSION ---------- Section 25.01. Tenant shall have full rights of possession commencing on the Commencement Date. ARTICLE TWENTY-SIX BROKERS ------- Section 26.01. Landlord and Tenant warrant each and to the other that they have not contracted with any other broker or real estate salesperson in connection with this transaction nor are they responsible for any other brokerage fees, commissions or finders fees arising out of this Lease. Each party to this Agreement shall hold the other party harmless of and from any and all real estate brokers' or salesperson's commissions or finders' fees in connection with this transaction which are determined to be due from said indemnifying party by a court of competent and final jurisdiction. ARTICLE TWENTY-SEVEN RADON GAS --------- Section 27.01. Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. ARTICLE TWENTY-EIGHT CAPTIONS AND HEADINGS --------------------- Section 28.01. The captions and headings throughout this Lease are for convenience and reference only and the words contained therein shall in no way be held or deemed to define, limit, describe, explain, modify, amplify or add to the interpretation, construction or meaning of any provision of or the scope or intent of this Lease nor in any way affect this Lease. ARTICLE TWENTY-NINE WAIVER OF JURY TRIAL -------------------- Section 29.01. AS A MATERIAL INDUCEMENT TO THE EXECUTION OF THIS LEASE, LANDLORD AND TENANT AGREE THAT IN THE EVENT ANY LITIGATION ARISING OUT OF THE TERMS AND PROVISIONS OF THIS LEASE OR THE RELATIONSHIP BETWEEN LANDLORD AND TENANT, THEN NEITHER PARTY SHALL SEEK A JURY TRIAL IN SUCH PROCEEDING, IT BEING EXPRESSLY AGREED AND STIPULATED BY THE PARTIES HERETO THAT ANY DISPUTES ARE BETTER RESOLVED BY A JUDGE. IN WITNESS WHEREOF, the parties hereto have caused this Lease to be executed as of the day and year first above written. "LANDLORD" PARAMOUNT PROPERTIES, LLC, a Florida limited liability company By: /s/ Nicholas M. Kavouklis -------------------------------------- Nicholas M. Kavouklis, Managing Member "TENANT" SAFEGUARD HEALTH PLANS, INC., a Florida corporation By: /s/ Stephen J. Baker ------------------------------------- Name: Stephen J. Baker ------------------------------------- Title: Executive Vice President and Chief ------------------------------------- Operating Officer ------------------- By: /s/ Ronald I. Brendzel ------------------------------------- Name: Ronald I. Brendzel ------------------------------------- Title: Senior Vice President and Secretary ------------------------------------- (Corporate Seal) LIST OF EXHIBITS ---------------- EXHIBIT A - Legal Description of Development - ---------- EXHIBIT B - Diagram of Demised Premises (attached to original lease agreement) - ---------- EX-10.7 8 doc8.txt PLEDGE AGREEMENT This is a PLEDGE AGREEMENT (this "AGREEMENT") dated as of August 30, 2002, between SafeGuard Health Enterprises, Inc., a Delaware corporation ("SAFEGUARD"), and Nicholas M. Kavouklis, DMD, a Florida resident ("SELLER"). BACKGROUND ---------- Seller sold to SafeGuard all of the issued and outstanding common stock of Paramount Dental Plan, Inc., a Florida corporation ("PARAMOUNT") pursuant to a Stock Purchase Agreement dated April 24, 2002 (the "STOCK PURCHASE AGREEMENT") among SafeGuard, Seller, and Paramount. As part of its purchase price for the Paramount shares, SafeGuard executed and delivered to Seller a Secured Convertible Promissory Note dated the same date as this Agreement (the "NOTE"), in the principal amount of $2,625,000. Concurrently with closing of this transaction, Paramount merged into SafeGuard Health Plans, Inc., a Florida corporation ("SAFEGUARD FLORIDA"), and Paramount's outstanding shares were cancelled. This Agreement evidences the terms on which SafeGuard, to secure repayment of the Note, grants to Seller a security interest in SafeGuard Florida's outstanding shares of common stock. Capitalized terms not otherwise defined in this Agreement have the meanings ascribed to them in the Stock Purchase Agreement. OPERATIVE TERMS --------------- SafeGuard and Seller agree as follows: 1. GRANT OF SECURITY INTEREST. To secure prompt payment and ----------------------------- performance of its obligations under the Note and this Agreement, subject to the provisions of Section 10 of this Agreement, SafeGuard pledges and grants to ----------- Seller a security interest in the following property (the "PLEDGED COLLATERAL"): (a) SECURITIES. All securities of SafeGuard Florida now owned or ---------- later acquired by SafeGuard, and all new, substituted, and additional documents, instruments, and general intangibles issued with respect to those securities (collectively, the "PLEDGED SHARES"), and all now existing and later arising rights of the holder of the Pledged Shares. Unless an Event of Default (as defined below) occurs, SafeGuard will be entitled to all voting rights associated with the Pledged Shares. (b) PROCEEDS. All proceeds of the Pledged Collateral. For -------- purposes of this Agreement, the term "proceeds" includes whatever is receivable or received when Pledged Collateral or proceeds of the Pledged Collateral are sold, collected, exchanged, or otherwise disposed of, whether the disposition is voluntary or involuntary, and includes, without limitation, all rights to payment in whatever form and however arising. 2. REPRESENTATIONS AND WARRANTIES. SafeGuard represents and warrants -------------------------------- the following, both on execution of this Agreement and continuously during its term: (a) OWNERSHIP OF PLEDGED COLLATERAL. SafeGuard is sole legal and -------------------------------- equitable owner of and has good and marketable title to the Pledged Collateral (or, in the case of after-acquired Pledged Collateral, at the time SafeGuard Florida acquires rights in the Pledged Collateral, will be the sole legal and equitable owner) and is record and beneficial owner of the Pledged Shares. The Pledged Shares constitute all of the issued and outstanding securities of SafeGuard Florida. (b) CREATION, PERFECTION, ANDPRIORITY. The parties' execution of ---------------------------------- this Agreement and SafeGuard's delivery to Seller of a certificate evidencing the Pledged Shares create in favor of Seller a perfected security interest in the Pledged Shares. Except for this security interest, no person or entity has (or, in the case of after-acquired Pledged Collateral, at the time SafeGuard Florida acquires rights therein, will have) any right, title, claim, or interest (by way of security interest or other lien or charge) in the Pledged Collateral. The Pledged Shares do not include any uncertificated securities. 3. COVENANTS AND AGREEMENTS OF SAFEGUARD. ----------------------------------------- (a) DELIVERY. SafeGuard shall deliver to Seller the certificate -------- representing the Pledged Shares and a stock power with respect to the Pledged Shares, endorsed in blank. SafeGuard shall also deliver to Seller all instruments, documents, chattel paper, and other items of Pledged Collateral for which a security interest may be perfected by possession, together with the additional writings (including assignments and stock powers) that Seller reasonably requests, provided, however, that the -------- ------- assignments and stock powers may be used to transfer or assign the Pledged Collateral only when an Event of Default occurs. Seller shall cause all securities included in the Pledged Shares to be or remain certificated securities. Seller will retain possession of the foregoing documents for so long as the Note remains outstanding. (b) PRESERVE PLEDGED COLLATERAL. SafeGuard shall do all acts ----------------------------- necessary to maintain, preserve, and protect the Pledged Collateral. (c) USE OF PLEDGED COLLATERAL. SafeGuard shall not use and shall --------------------------- not permit any Pledged Collateral to be used unlawfully or in violation of any provision of this Pledge Agreement, any other agreement with Seller related to the Pledged Collateral, or any applicable statute, regulation, or ordinance or any policy of insurance covering the Pledged Collateral. (d) PAY TAXES. SafeGuard shall pay promptly when due all taxes, ---------- assessments, charges, encumbrances and liens imposed upon or affecting any Pledged Collateral. (e) DEFEND LITIGATION. SafeGuard shall appear in and defend any ------------------ action or proceeding that might affect SafeGuard's title to or Seller's interest in the Pledged Collateral. (f) POSSESSION OF PLEDGED COLLATERAL. SafeGuard shall not ----------------------------------- surrender or lose possession of (other than to Seller), sell, encumber, lease, rent, or otherwise dispose of or transfer any Pledged Collateral, and shall keep the Pledged Collateral free of all levies and security interests or other liens or charges (including, but not limited to junior liens), except those that Seller approves in writing. (g) COMPLY WITH LAW. SafeGuard shall comply with all laws, ----------------- regulations, and ordinances relating to possession, maintenance, and control of the Pledged Collateral. (h) MAINTAIN RECORDS; NOTIFY OF CHANGES. SafeGuard shall keep --------------------------------------- separate, accurate, and complete records of the Pledged Collateral at its principal place of business and provide to Seller the records, reports, and information relating to the Pledged Collateral that Seller requests from time to time. SafeGuard shall give Seller thirty (30) days prior written notice of any change in SafeGuard Florida's principal place of business or legal name or trade name(s). (i) FURTHER ASSURANCES. SafeGuard shall procure, execute, and ------------------- deliver from time to time any stock powers, endorsements, notifications, registrations, assignments, financing statements, certificates and other writings deemed necessary or appropriate by Seller to perfect, maintain, and protect its security interest in the Pledged Collateral and the priority of the security interest. (j) PAY SELLER'S COSTS AND EXPENSES. SafeGuard shall reimburse ----------------------------------- Seller on demand for costs and expenses, including reasonable attorney fees and disbursements, that Seller incurs in properly exercising any right, power, or remedy provided by this Agreement or by law. (k) DIVIDENDS ON PLEDGED SHARES. SafeGuard shall account fully for --------------------------- and promptly deliver to Seller, in the form received, any dividend or any other distribution on account of the Pledged Shares whether in securities or property by way of stock-split, spin-off, split-up or reclassification, combination of shares or the like, or in case of any reorganization, consolidation, or merger; provided, however, that until there shall have -------- ------- occurred an Event of Default or a condition that with the passage of time or notice will constitute an Event of Default, SafeGuard may retain any cash dividends paid on account of the Pledged Shares. SafeGuard shall permit SafeGuard Florida to pay cash dividends only to the extent permitted by the terms of the Note. 4. TERM OF PLEDGE; RELEASE. Except as otherwise provided in this -------------------------- Agreement, equitable title to the Pledged Shares remains vested in SafeGuard. Seller holds the Pledged Shares only as security for the repayment of the Note. Seller shall not encumber or dispose of the Pledged Shares, except in accordance with the provisions of this Agreement. The Pledged Shares shall remain pledged to Seller until all sums due under the Note and this Agreement have been paid in full. Any release of the Pledged Collateral from this Agreement will not release SafeGuard from continuing obligations under the Note. Upon the payment and performance in full of the Note, SafeGuard shall be entitled to the return, upon its written request and at its expense, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms of this Agreement. 5. EVENT OF DEFAULT. An "Event of Default" under this Agreement means ----------------- an Event of Default under the Note. 6. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default, ---------------------- subject to the provisions of Section 10, Seller shall have, and may exercise any ---------- one or more of, the following rights: (a) Seller may vote the Pledged Shares on all corporate matters and sign written consents in lieu of meeting as owner of the Pledged Shares; (b) Seller may take absolute title to the Pledged Shares by completing the stock power with respect to the Pledged Shares, and after this transfer Seller will solely own the Pledged Shares; (c) Seller may, at its option, exercise any rights to convert or exchange the Pledged Shares for other securities of SafeGuard Florida, and any and all other rights, privileges, options or powers pertaining or relating to the Pledged Shares. SafeGuard irrevocably constitutes and appoints Seller its proxy and attorney-in-fact with full power of substitution to exercise any and all rights, privileges, options, or powers of SafeGuard pertaining or relating to the Pledged Shares; or (d) Seller may sell, assign, and deliver all or any part of the Pledged Shares at any private sale or at public auction, with or without demand or advertisement of the time or place of sale or adjournment thereof or otherwise, for cash, for credit or for other property or consideration, for immediate or future delivery. Any sale or offer of the Pledged Shares by Seller pursuant to the terms of this Agreement shall be at SafeGuard's expense. SafeGuard shall reimburse Seller for his costs and other expenses in having the Pledged Shares sold or offered for sale, including attorneys' fees. 7. APPLICATION OF PROCEEDS. Seller shall apply the proceeds of any ------------------------- sale of all or any part of the Pledged Shares and any dividends or other distributions that it directs to himself pursuant to the provisions of Section ------- 3(k), together with any other funds held by Seller under the provisions of this - ---- Agreement, after deducting all costs and expenses of collection, sale and delivery (including without limitation, attorneys' fees, paralegal fees and expenses, for all proceedings, trials and appeals and all costs and expenses incurred by Seller) incurred by Seller, to the payment of all amounts due and payable on the Note and all other liabilities of SafeGuard to Seller. After it pays in full these amounts, Seller shall pay to SafeGuard the balance of any such proceeds. 8. PRIVATE SALE OF PLEDGED SHARES. Subject to the provisions of ---------------------------------- Section 10, Seller may effect a private sale of Pledged Shares. In effecting - ----------- such private sale, SafeGuard waives for itself or its assigns, to the extent it is legally able to do so, any requirement (statutory or otherwise) of advertisement (general or limited) or public announcement as to the time and place of the sale of the Pledged Shares by Seller. 9. RIGHT TO BID OR PURCHASE. At any sale made pursuant to Section ---------------------------- ------- 6(d), Seller may bid for or purchase, free from any right of redemption on the - ---- part of SafeGuard (all said rights being also waived and released), all or any portion of Pledged Shares offered for sale and may make payment on account thereof by using any outstanding balance of the Note as a credit against the purchase price, and Seller may, upon compliance with the terms of sale, hold, retain and dispose of such Pledged Shares without further accountability. However, notwithstanding any of the foregoing, nothing in this Agreement shall be construed as a requirement of Seller to sell, or attempt to sell, Pledged Shares upon an Event of Default. 10. GOVERNMENTAL REQUIREMENTS. SafeGuard Florida is licensed as a -------------------------- Prepaid Limited Health Service Organization under the laws of the State of Florida. Any transfer or voting of the Pledged Shares by Seller requires the prior approval of the Florida Department of Insurance (the "DEPARTMENT"). This Agreement and the obligations of SafeGuard and the rights of Seller are subject to the Department's requirements and obtaining the Department's prior approval, notwithstanding any provision of this Agreement to the contrary. In the event of an Event of Default under this Agreement, SafeGuard shall assist and cooperate in all respects in the process pursuant to which Seller secures approval of the transfer by the Department. 11. POWER OF ATTORNEY. ------------------- (a) SafeGuard irrevocably constitutes and appoints Seller (and his personal representative in the event of Seller's death or disability) the true and lawful attorney-in-fact of SafeGuard to make, execute, acknowledge, swear to and file after an Event of Default: (i) any application, request, certificate or other instrument which may be required to be filed with the Department or any other governmental authority in the State of Florida or any other jurisdiction whose laws may be applicable to effectuate any transfer or voting of the Pledged Shares by Seller, in accordance with the provisions of this Agreement; and (ii) any instrument which the Seller deems necessary or appropriate to facilitate the implementation of the terms of this Agreement, so long as such instruments do not alter the rights or obligations of SafeGuard under the terms of this Agreement. (b) It is expressly acknowledged by SafeGuard that the foregoing power of attorney is coupled with an interest, is irrevocable and shall survive the bankruptcy or insolvency of SafeGuard or any assignment of the Pledged Shares for the benefit of creditors. The foregoing grant of authority: (i) may be exercised by Seller (or Seller's personal representative) by a facsimile signature, and (ii) shall not cause SafeGuard to be liable in any manner for the act or omissions of Seller (or Seller's personal representative) and is granted only to permit Seller (or Seller's personal representatives) to carry out the provisions of this Agreement. 12. MISCELLANEOUS. ------------- (a) NOTICES. All demands, notices and other communications to ------- Seller or SafeGuard provided for under this Agreement shall be provided as set forth in the Stock Purchase Agreement. (b) GOVERNING LAW. The validity, construction, interpretation, -------------- and enforceability of this Agreement shall be governed by the laws of the State of Florida without giving effect to the choice of laws rules thereof. (c) COUNTERPARTS. This Agreement may be executed in any number of ------------ counterparts, each of which when so executed will be deemed to be an original and all of which when taken together will constitute one and the same agreement. (d) SUCCESSORS AND ASSIGNS. This Agreement is not assignable by ------------------------ any party without the prior written consent of the other parties, and any attempted assignment without the prior written consent of the other parties shall be invalid and unenforceable against the other parties. This Agreement is binding upon, and inures to the benefit of, the respective heirs, authorized assignees, successors and personal representatives of the parties to it. The terms "SafeGuard Florida," "SafeGuard" and "Seller" as used in this Agreement shall include such persons' successors, authorized assigns, heirs and personal representatives. (e) HEADINGS, CAPTIONS AND PRONOUNS. The Section headings, ---------------------------------- captions or abbreviations are included solely for convenient reference and shall not control the meanings or interpretation of any of the provisions of this Agreement. As used herein, words in the singular include the plural and the words in the masculine include the feminine and neuter gender, and vice versa whenever the context so requires. (f) WAIVER. No waiver of any breach or default under this ------ Agreement shall be deemed to be a waiver of any subsequent breach or default. SafeGuard waives any right to require Seller to proceed against any person or entity to exhaust any Pledged Collateral or to pursue any remedy in Seller's power. (g) INCORPORATION OF RECITALS. The recitals set forth at the --------------------------- beginning of this Agreement are hereby incorporated into this Agreement by this reference and this Agreement shall be interpreted with reference to such recitals. (h) ENTIRE AGREEMENT;SEVERABILITY. This Agreement contains the ------------------------------ entire pledge agreement between SafeGuard and Seller. This Agreement shall not be severable in any way, but if any provision shall be held to be invalid, the invalidity shall not affect the validity of the remainder of this Agreement and the remainder of this Agreement shall continue in full force and effect. (i) AMENDMENT. This Agreement may not be amended or modified --------- except by a writing signed by each of the parties. (j) CUMULATIVE RIGHTS. The rights, powers, and remedies of Seller ----------------- under this Agreement shall be in addition to all rights, powers, and remedies given to Seller by virtue of any statute or rule of law, the Stock Purchase Agreement or any Related Agreement, all of which rights, powers, and remedies shall be cumulative and may be exercised successively or concurrently without impairing Seller's security interest in the Pledged Collateral. {The remainder of this page is intentionally left blank.} STOCK PLEDGE AGREEMENT SIGNATURE PAGE The undersigned execute the Stock Pledge Agreement and authorize this signature page to be attached to a counterpart of the Stock Pledge Agreement executed by the other parties to the Stock Pledge Agreement. Executed as of the day and year first above written. "SAFEGUARD" SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware corporation By: /s/ Stephen J. Baker --------------------------------------- Stephen J. Baker Executive Vice President & Chief Operating Officer By: /s/ Ronald I. Brendzel --------------------------------------- Ronald I. Brendzel Senior Vice President and Secretary STOCK PLEDGE AGREEMENT SIGNATURE PAGE The undersigned executes the Stock Pledge Agreement and authorize this signature page to be attached to a counterpart of the Stock Pledge Agreement executed by the other parties to the Stock Pledge Agreement. Executed as of the day and year first above written. "SELLER" /s/ Nicholas M. Kavouklis, DMD ---------------------------------- Nicholas M. Kavouklis, DMD IRREVOCABLE STOCK POWER For value received, the undersigned does hereby sell, assign and transfer to Nicholas M. Kavouklis, DMD __________ shares of the common stock of SafeGuard Health Plans, Inc., a Florida corporation represented by certificate number __________ standing in the name of the under-signed on the books of said company. The undersigned does hereby irrevocably constitute and appoint ____________________ attorney to transfer the said stock on the books of said company, with full power of substitution in the premises. Dated August 30, 2002 SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware corporation By: /s/ James E. Buncher ------------------------------------ James E. Buncher President and Chief Executive Officer By: /s/ Ronald I. Brendzel ------------------------------------ Ronald I. Brendzel Senior Vice President and Secretary EX-10.8 9 doc9.txt GUARANTY -------- This is an absolute and unconditional guaranty of that certain Lease Agreement dated August 30, 2002, (the "Lease") by and between PARAMOUNT PROPERTIES, LLC, a Florida limited liability company (hereinafter called "Landlord") and SAFEGUARD HEALTH PLANS, INC., a Florida corporation (hereinafter called "Tenant"), concerning that certain premises known as Suite 100, containing approximately 7,231 square feet of useable area, which is located within the building located at 3410 Henderson Boulevard, Tampa, Florida 33629. FOR VALUE RECEIVED, and in consideration for, and as an inducement to Landlord to enter into the aforementioned Lease, the undersigned hereby guaranties to Landlord, its successors and assigns, the payment of all rentals specified in the Lease and hereunder and all other payments to be made by Tenant under said Lease, and the full performance and observance by Tenant of all the terms, covenants, conditions and agreements therein provided to be performed and observed by Tenant for which the undersigned shall be jointly and severally liable with Tenant, without requiring any notice of nonpayment, nonperformance or nonobservance, or proof of notice or demand, whereby to charge the undersigned, all of which the undersigned does hereby expressly waive, and the undersigned expressly agrees that the Landlord, its successors and assigns, may proceed against the undersigned, separately or jointly, before, after or simultaneously with the proceedings against the Tenant for default, and that this Guaranty shall not be terminated, affected or impaired in any way or manner whatsoever by reason of the assertion by Landlord against Tenant of any of the rights or remedies reserved to Landlord pursuant to the provisions of said Lease, or by reason of summary or other proceedings against Tenant, or by the omission of Landlord to enforce any of its rights against Tenant or by reason of any extensions of time or indulgence granted by Landlord to Tenant. The undersigned further covenants and agrees (i) that the undersigned will be bound by all of the provisions, terms, conditions, restrictions, and limitations contained in said Lease, the same as though the undersigned was named therein as Tenant; and (ii) that this Guaranty shall be absolute and unconditional and shall remain and continue in full force and effect as to any renewal, extension, amendment, addition, assignment, sublease, transfer or other modification of said Lease, whether or not the undersigned shall have any knowledge or have been notified of or agreed or consented to any such renewal, extension, amendment, addition, assignment, sublease, transfer or other modification of said Lease, and the undersigned agrees to be bound by any and all modifications to the Lease. If Landlord at any time is compelled to take any action or proceeding in court or otherwise to enforce or compel compliance with the terms of this Guaranty, the undersigned shall, in addition to any other rights and remedies to which the Landlord may be entitled hereunder or as a matter of law or in equity, be obligated to pay all costs, including reasonable attorneys' fees, incurred or expended by Landlord in connection therewith. Further, the undersigned hereby covenants and agrees to assume said Lease and to perform all of the terms and conditions thereunder for the balance of the original term should said Lease be disaffirmed by any Trustee in Bankruptcy for Tenant, or at the option of Landlord, the undersigned shall, in the event of Tenant's bankruptcy, make and enter into a new lease which shall be in form and substance identical to said Lease. All obligations and liabilities of the undersigned pursuant to this Guaranty shall be binding upon the heirs, legal representatives, successors and assigns of the undersigned, and the undersigned, its heirs, legal representatives, successors and assigns shall remain fully liable under the Lease and this Guaranty regardless of any merger, corporate reorganization or restructuring involving Tenant regardless of the resulting organization, structure or ownership of Tenant. This Guaranty shall be governed by and construed in accordance with the laws of the State of Florida. THE UNDERSIGNED HEREBY UNCONDITIONALLY CONSENTS AND AGREES THAT ANY LEGAL ACTION BROUGHT UNDER THIS GUARANTY MAY BE BROUGHT IN ANY STATE COURT OF THE STATE OF FLORIDA OR IN A FEDERAL UNITED STATES COURT IN FLORIDA AND THE UNDERSIGNED HEREBY UNCONDITIONALLY CONSENTS TO THE JURISDICTION OF SUCH COURTS IN CONNECTION WITH ANY CAUSE OF ACTION BROUGHT BY OR AGAINST TENANT AND/OR THE UNDERSIGNED IN ANY WAY DIRECTLY OR INDIRECTLY RELATED TO THE AFOREMENTIONED LEASE OR THIS GUARANTY. THE UNDERSIGNED HEREBY WAIVES ANY RIGHT THE UNDERSIGNED MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST THE UNDERSIGNED IN ACCORDANCE WITH THIS GUARANTY, AND THE UNDERSIGNED ALSO AGREES NOT TO SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER LITIGATION PROCEEDING BASED UPON OR ARISING OUT OF THIS GUARANTY. If Landlord is required to or agrees to repay any amount received by Landlord on account of any payments, obligations and liabilities of Tenant to Landlord as a result of a judgment, order or decree of a court of competent jurisdiction or as a result of a settlement or compromise concerning a claim for repayment by any party to such payments, obligations and liability, the undersigned shall remain fully liable to Landlord for the amount repaid notwithstanding the revocation or termination of this Guaranty or the cancellation or termination of the Lease. At any time that Tenant is required to furnish a certificate pursuant to the Lease, the undersigned, by guarantying the terms and conditions of the Lease, agree that itwill, upon twenty (20) days prior written request to Tenant, certify (by written instrument, duly executed, acknowledged and delivered to Landlord and to any third person designated by Landlord in such request) that the undersigned concurs with the statements set forth in said certificate by Tenant and that this Guaranty remains in full force and effect as to all obligations of Tenant under this Lease. Failure to deliver such certificate to Landlord (and any such designated third party) within such twenty (20) day period shall constitute automatic approval of the requested certificate as though such certificate had been fully executed and delivered by the undersigned to Landlord and such designated third party. 2 IN WITNESS WHEREOF, the undersigned has executed this Guaranty this 30th day of August, 2002. SAFEGUARD HEALTH ENTERPRISES, INC., a Delaware corporation By: /s/ Stephen J. Baker ----------------------------------------- Name: Stephen J. Baker ----------------------------------------- Title: Executive V. P. & Chief Operating Officer ----------------------------------------- By: /s/ Ronald I. Brendzel ----------------------------------------- Name: Ronald I. Brendzel ----------------------------------------- Title: Senior Vice President and Secretary ----------------------------------------- STATE OF CALIFORNIA COUNTY OF ORANGE The foregoing instrument was acknowledged before me this 4th day of September, 2002 by Stephen J. Baker as Executive Vice President and Chief Operating Officer of SafeGuard Health Enterprises, Inc., a Delaware corporation, on behalf of the corporation. He is personally known to me. /s/ Kathryn S. Viau ---------------------- Notary Public Kathryn S. Viau ----------------- (Print, Type or Stamp Name) My Commission Expires: 9/10/03 3 STATE OF CALIFORNIA COUNTY OF ORANGE The foregoing instrument was acknowledged before me this 4th day of September, 2002 by Ronald I. Brendzel as Senior Vice President and Secretary of SafeGuard Health Enterprises, Inc., a Delaware corporation, on behalf of the corporation. He is personally known to me. /s/ Kathryn S. Viau ---------------------------- Notary Public Kathryn S. Viau ---------------------------- (Print, Type or Stamp Name) My Commission Expires: 9/10/03 4 EX-99.1 10 doc7.txt CONTACT: FOR SAFEGUARD HEALTH ENTERPRISES, INC. FOR PARAMOUNT DENTAL PLAN James E. Buncher Nicholas M. Kavouklis D.M.D. President and Chief Executive Officer Chairman and Chief Executive (949) 425-4300 Officer (813) 221-4048 x223 SAFEGUARD COMPLETES MERGER OF PARAMOUNT DENTAL PLAN WITH SAFEGUARD'S FLORIDA DENTAL HMO ----------------------------------------------- TRANSACTION EXPECTED TO BE IMMEDIATELY ACCRETIVE TO EARNINGS ALISO VIEJO, CALIFORNIA, and TAMPA, FLORIDA (SEPTEMBER 5, 2002) - SafeGuard Health Enterprises, Inc. (OTC Bulletin Board: SFGD) and privately held Paramount Dental Plan, Inc. today jointly announced the completion of the previously announced acquisition and merger of Paramount with SafeGuard's Florida Dental HMO. Although specific terms were not disclosed, the purchase price was paid in a combination of cash, SafeGuard stock and a convertible note. The transaction is expected to be immediately accretive to earnings. Founded in 1995 by Nicholas M. Kavouklis D.M.D., Paramount currently has over 225,000 members primarily in the Tampa, St. Petersburg, and Orlando areas. Dr. Kavouklis will join SafeGuard as president of SafeGuard's Florida operations, which will encompass over 275,000 dental HMO, PPO/Indemnity and Vision members. SafeGuard also announced the completion of the sale of its Utah Dental HMO. SafeGuard does not expect to report a significant gain or loss on this sale. James E. Buncher, SafeGuard's president and chief executive officer, said, "We are pleased to have completed the acquisition and merger of Paramount with our Florida dental HMO. We expect the transaction will be immediately accretive to earnings. Our due diligence confirmed our belief that joining the two companies would create a strong SafeGuard presence in Florida. We are looking forward to working with the Paramount management to ensure a smooth integration of Paramount's members into the combined company. This transaction strengthens our position in Central and Southern Florida by increasing our Florida membership to over 275,000 members. Through our new headquarters in Tampa and our satellite office in Ft. Lauderdale, we anticipate significant growth as well as expansion into Northern Florida. We are also excited about Dr. Kavouklis joining our management team as president of SafeGuard - Florida." Dr. Kavouklis, Paramount's president and chief executive officer, said, "We are very excited about this merger. SafeGuard has a substantial amount of industry knowledge, experience and technology that will complement the strengths of Paramount. I have had extensive discussions with SafeGuard's senior management and found that our business philosophies are congruent. I am looking forward to being part of the combined management team and continuing to build on our existing business in the Florida market." Mr. Buncher added, "SafeGuard continues to strengthen the Company by focusing on our core business and divesting managed dental care operations not located within our three primary markets of California, Florida and Texas. We are fortunate to have identified a local buyer for our Utah Dental HMO. They have also agreed to serve new managed dental care members located in Utah that are part of groups we sell in our primary markets. SafeGuard will continue to market and administer dental PPO/indemnity and vision products in Utah. These transactions are yet another step in our steady progress toward focus and growth in our target markets." SafeGuard provides dental benefit plans with HMO and PPO/indemnity plan designs, vision benefit plans, administrative services, and preferred provider organization services. With the completion of these transactions, the Company serves approximately 825,000 members, primarily in California, Florida and Texas. SafeGuard notes that statements contained in this news release that are not based on historical facts are forward-looking statements, and as such, are subject to uncertainties and risks that could cause actual results to differ materially from those projected or implied by such statements. These risks, contingencies and uncertainties, many of which are beyond the control of the Company, include the possibility that the Company may be unable to successfully integrate Paramount and SafeGuard's Florida operation, and those risk factors and other information that are set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, and June 30, 2002, and the Company's Current Report on Form 8-K dated as of April 24, 2002, on file with the U.S. Securities and Exchange Commission. -END- -----END PRIVACY-ENHANCED MESSAGE-----