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EXECUTION COPY
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STOCKHOLDERS AGREEMENT
by and among
LAZARD FRERES REAL ESTATE INVESTORS L.L.C.
and
PROMETHEUS ASSISTED LIVING LLC
and
ARV ASSISTED LIVING, INC.
dated as of
July 14, 1997
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TABLE OF CONTENTS
Page
ARTICLE 1
Definitions.........................................................1
Section 1.1 "Adjusted Fully Diluted"..........................1
Section 1.2 "Affiliate" ......................................1
Section 1.3 "Agreement".......................................2
Section 1.4 "Beneficially Own"................................2
Section 1.5 "Board"...........................................2
Section 1.6 "Buyer"...........................................2
Section 1.7 "Code"............................................2
Section 1.8 "Company".........................................2
Section 1.9 "Company Charter".................................2
Section 1.10 "Company Common Stock"...........................2
Section 1.11 "Control"........................................2
Section 1.12 "Convertible Debt"...............................2
Section 1.13 "Covered Transaction"............................2
Section 1.14 "Director".......................................2
Section 1.15 "Early Standstill Termination Event".............2
Section 1.16 "Exercise Notice"................................2
Section 1.17 "Extraordinary Transaction"......................2
Section 1.18 "Fully Diluted Basis"............................3
Section 1.19 "Government Authority"...........................3
Section 1.20 "Group"..........................................3
Section 1.21 "Investor".......................................3
Section 1.22 "Investor Nominees"..............................3
Section 1.23 "Key Committees".................................3
Section 1.24 "Management".....................................3
Section 1.25 "1933 Act".......................................3
Section 1.26 "1934 Act".......................................3
Section 1.27 "Nominating Committee"...........................3
Section 1.28 "Participation Notice"...........................3
Section 1.29 "person".........................................4
Section 1.30 "Stockholder Approval"...........................4
Section 1.31 "Stockholder Approval Date"......................4
Section 1.32 "Standstill Period"..............................4
Section 1.33 "Stock Purchase Agreement".......................4
Section 1.34 "Termination Event"..............................4
Section 1.35 "13D Group"......................................4
Section 1.36 "Transfer".......................................4
Section 1.37 "Voting Securities"..............................4
ARTICLE 2
Board of Directors..................................................4
Section 2.1 Members of the Board..............................4
Section 2.2 Committee Representation; Subsidiary Boards.......5
Section 2.3 Vacancies.........................................7
Section 2.4 Officers..........................................7
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Page
ARTICLE 3
Voting and Participation Rights.....................................7
Section 3.1 Voting Rights.....................................7
Section 3.2 Participation Rights..............................7
ARTICLE 4
Standstill Provisions..............................................10
Section 4.1 Standstill Period................................10
Section 4.2 Restrictions During Standstill Period............11
Section 4.3 Restrictions on Transfer.........................12
Section 4.4 Notice to Company................................12
Section 4.5 Compliance with Xxxxxxx Xxxxxxx Policy...........13
Section 4.6 Investment Company Matters.......................13
Section 4.7 Waiver of Restrictions and Limits................13
ARTICLE 5
Additional Covenants...............................................13
Section 5.1 Restrictions on Investments......................13
Section 5.2 Additional Transfer Restrictions.................13
ARTICLE 6
Miscellaneous......................................................14
Section 6.1 Counterparts.....................................14
Section 6.2 Governing Law....................................14
Section 6.3 Entire Agreement.................................14
Section 6.4 Expenses.........................................14
Section 6.5 Notices..........................................14
Section 6.6 Successors and Assigns...........................15
Section 6.7 Headings.........................................15
Section 6.8 Amendments and Waivers...........................16
Section 6.9 Interpretation; Absence of Presumption...........16
Section 6.10 Severability....................................16
Section 6.11 Further Assurances..............................16
Section 6.12 Specific Performance............................16
Section 6.13 Investor Breach.................................16
Section 6.14 Confidentiality.................................17
Section 6.15 Public Announcements............................17
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THIS STOCKHOLDERS AGREEMENT (the
"Agreement"), dated as of July 14, 1997, is made by
and between Lazard Freres Real Estate Investors
L.L.C., a New York limited liability company (the
"Advancing Party"), Prometheus Assisted Living
LLC, a Delaware limited liability company (the
"Buyer"), and ARV Assisted Living, Inc., a
California corporation (the "Company").
Capitalized terms not otherwise defined herein
have the meaning ascribed to them in the Stock
Purchase Agreement (as hereinafter defined).
RECITALS:
WHEREAS, the Company, the Buyer and the Advancing Party have
entered into a Stock Purchase Agreement, dated as of July 14, 1997 (the
"Stock Purchase Agreement"), pursuant to which the Company has agreed
to sell, and the Buyer has agreed to purchase, certain shares of
common stock, no par value, of the Company (the "Company Common
Stock") upon the terms and subject to the conditions set forth
therein;
WHEREAS, it is a condition to the transactions contemplated
by the Stock Purchase Agreement and the parties believe it to be in
their best interests that they enter into this Agreement and provide
for certain rights and restrictions with respect to the investment by
Investor (as hereinafter defined) in the Company and the corporate
governance of the Company; and
WHEREAS, the Company and the Buyer believe that the
combination in a strategic partnership of the leadership, expertise
and experience in the development of assisted living facilities and
operations of the Company and the investment and capital markets
expertise and access to capital of the Buyer and its Affiliates will
significantly enhance the Company's ability to pursue its growth and
operating strategies;
NOW THEREFORE, in consideration of the premises and the
covenants and agreements contained herein and for good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties
hereto hereby, agree as follows:
ARTICLE 1
Definitions
As used in this Agreement, the following terms shall have
the following respective meanings:
Section 1.1 "Adjusted Fully Diluted" basis shall mean on a
Fully Diluted Basis, except that shares of Common Stock issuable upon
conversion of the Convertible Debt or upon exercise of options granted
under management benefit plans shall not be included.
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Section 1.2 "Affiliate" shall have the meaning ascribed
thereto in Rule 12b-2 promulgated under the 1934 Act, and as in effect
on the date hereof.
Section 1.3 "Agreement" shall have the meaning set forth in
the first paragraph hereof.
Section 1.4 "Beneficially Own" shall mean, with respect to
any security, having direct or indirect (including through any
Subsidiary or Affiliate) "beneficial ownership" of such security, as
determined pursuant to Rule 13d-3 under the 1934 Act, including
pursuant to any agreement, arrangement or understanding, whether or
not in writing; provided, however, that all of the shares of Company
Common Stock which the Buyer has agreed to purchase under the Stock
Purchase Agreement but which have not yet been purchased shall be
deemed to be Beneficially Owned by Investor until the Remaining Equity
Commitment is zero.
Section 1.5 "Board" shall mean the board of directors of the
Company.
Section 1.6 "Buyer" shall have the meaning set forth in the
first paragraph hereof.
Section 1.7 "Code" shall mean the Internal Revenue Code of
1986, as amended, and any successor thereto, including all of the
rules and regulations promulgated thereunder.
Section 1.8 "Company" shall have the meaning set forth in
the first paragraph hereof.
Section 1.9 "Company Charter" shall have the meaning set
forth in the Stock Purchase Agreement.
Section 1.10 "Company Common Stock" shall have the meaning
set forth in the second paragraph hereof.
Section 1.11 "Control" shall mean with respect to any
person, the power to direct the management and policies of such
person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise. "Controlled" shall have a
correlative meaning.
Section 1.12 "Convertible Debt" shall mean the Company's
6-3/4% Convertible Subordinated Notes due 2006.
Section 1.13 "Covered Transaction" shall have the meaning
set forth in Section 4.1.
Section 1.14 "Director" shall mean a member of the Board.
Section 1.15 "Early Standstill Termination Event" shall have
the meaning set forth in Section 4.1.
Section 1.16 "Exercise Notice" shall have the meaning set
forth in Section 3.2(b).
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Section 1.17 "Extraordinary Transaction" shall mean (a) any
merger, consolidation, sale of a material portion of the Company's
assets, recapitalization, other business combination, liquidation, or
other similar action out of the ordinary course of business of the
Company, or (b) any issuance of securities to any person or Group
requiring stockholder approval in accordance with the guidelines of
the NASDAQ National Market (or any stock exchange on which the Company
Common Stock is then listed) as to such matters, as in effect as of
the date of the Stock Purchase Agreement.
Section 1.18 "Fully Diluted Basis" shall mean then
outstanding Company Stock plus any shares of stock or other equity or
debt exchangeable for Company Stock and any shares of stock or other
equity or debt the holders of which have the right to vote with the
stockholders of the Company on any matter, and shall include the
Convertible Debt, the instruments listed in Schedule 3.3(a) of the
Stock Purchase Agreement and Company Stock issuable under option or
other equity-incentive plans listed on Schedule 3.13(b) of the Stock
Purchase Agreement and awards issued pursuant thereto.
Section 1.19 "Government Authority" shall mean any
government or state (or any subdivision thereof) of or in the United
States, or any agency, authority, bureau, commission, department or
similar body or instrumentality thereof, or any governmental court or
tribunal.
Section 1.20 "Group" shall mean a "group" as such term is
used in Section 13(d)(3) of the 1934 Act.
Section 1.21 "Investor" shall mean the Buyer, and shall also
include any permitted assignee of the Buyer pursuant to the Stock
Purchase Agreement and, for purposes only of the provisions of the
Registration Rights Agreement, any bona fide financial institution to
which any Investor has Transferred (including upon foreclosure of a
pledge) shares of Company Common Stock for the purpose of securing
bona fide indebtedness of any Investor and which has agreed to be
bound by this Agreement.
Section 1.22 "Investor Nominees" shall have the meaning set
forth in Section 2.1(a).
Section 1.23 "Key Committees" shall have the meaning set
forth in Section 2.2(a).
Section 1.24 "Management" of the Company shall include,
without limitation, the Company's Chairman.
Section 1.25 "1933 Act" shall mean the Securities Act of
1933, as amended.
Section 1.26 "1934 Act" shall mean the Securities Exchange
Act of 1934, as amended.
Section 1.27 "Nominating Committee" shall mean a committee
of the Board composed of three members, one of whom is an Investor
Nominee, one of whom is an independent director designated by the
Nominating Committee and one of whom is a designee of management of
the Company). The initial members of the Nominating Committee shall be
Xxxx X. Xxxxxxxx, Xxxxxx X. Xxxxxxx, and Xxxx X. Xxxxxxxxx.
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Section 1.28 "Participation Notice" shall have the meaning
set forth in Section 3.2(b).
Section 1.29 "person" shall mean any individual,
corporation, partnership, limited liability company, joint venture,
trust, unincorporated organization, other form of business or legal
entity or Government Authority.
Section .30 "Stockholder Approval" shall have the meaning
set forth in the Stock Purchase Agreement.
Section 1.31 "Stockholder Approval Date" shall mean the date
on which a duly called and held meeting of stockholders of the Company
is held at which meeting (i) a quorum is present and (ii) Stockholder
Approval is obtained.
Section 1.32 "Standstill Period" shall have the meaning set
forth in Section 4.1(a).
Section 1.33 "Stock Purchase Agreement" shall have the
meaning set forth in the second paragraph hereof.
Section 1.34 "Termination Event" shall mean the date on
which the Remaining Equity Commitment is zero and either (i) the Buyer
no longer Beneficially Owns a number of shares of Company Common Stock
equal to at least 5% of the outstanding Company Common Stock, on a
Fully Diluted Basis or (ii) the Buyer no longer Beneficially Owns
Company Common Stock having an aggregate market value of at least
$25,000,000.
Section 1.35 "13D Group" shall mean any group of persons
acquiring, holding, voting or disposing of Voting Securities which
would be required under Section 13(d) of the 1934 Act and the rules
and regulations thereunder (as in effect, and based on legal
interpretations thereof existing, on the date hereof) to file a
statement on Schedule 13D with the Securities and Exchange Commission
as a "person" within the meaning of Section 13(d)(3) of the 1934 Act
if such group beneficially owned Voting Securities representing more
than 5% of any class of Voting Securities then outstanding.
Section 1.36 "Transfer" shall have the meaning set forth in
Section 4.3.
Section 1.37 "Voting Securities" shall mean at any time
shares of any class of capital stock of the Company which are then
entitled to vote generally in the election of Directors.
ARTICLE 2
Board of Directors
Section 2.1 Members of the Board
(a) Subject to the right of the Nominating Committee to
approve nominees for Director as set forth in Section 2.2(a), from and
after the Stockholder Approval Date, if any, the Company shall amend
its By-laws, and the Company and Investor will take all actions
necessary to cause the Board to be structured to consist of
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eleven members, of which four members will be designees of Investor
(at least one in each class of the Board) (the "Investor Nominees"),
and the Company and Investor will take all actions necessary to cause
such nominees to become members of the Board as soon as practicable
after the Stockholder Approval Date. If necessary to effectuate the
placement of Investor Nominees on the Board, the Company shall solicit
the resignations of the appropriate number of Directors to the extent
necessary to permit the Investor Nominees to serve. Thereafter, at
each annual or special meeting of stockholders of the Company at, or
the taking of action by written consent of stockholders of the Company
with respect to which any class of Directors is to be elected,
Investor shall have the right (but not obligation) pursuant to this
Agreement and pursuant to the By-laws of the Company to designate
nominees to the Board (subject to right of the Nominating Committee to
approve nominees for Director as set forth in Section 2.2(a)) such
that Investor shall have on the Board of Directors a number of
representatives equal to a percentage of the total number of members
of the Board of Directors that is equal to the percentage of Company
Common Stock Beneficially Owned by Investor, on a Fully Diluted Basis;
provided, however, that (i) if the Investor would be entitled to a
fractional number of representatives, the Investor shall instead be
entitled to a number of representatives equal to the next higher
number, (ii) in no event shall the Investor be entitled to more than
four representatives and (iii) after the occurrence of a Termination
Event, if any, Investor shall not be entitled to any representatives
on the Board of Directors.
(b) Investor will not name any person as an Investor Nominee
if (i) such person is not reasonably experienced in business,
financial or real estate matters, (ii) such person has been convicted
of, or has pled nolo contendere to a felony, (iii) the election of
such person would violate any law, or (iv) any event required to be
disclosed pursuant to Item 401(f) of Regulation S-K of the 1934 Act
has occurred with respect to such person. Investor shall use its
reasonable efforts to afford the independent directors of the Company
a reasonable opportunity to meet any individual that Investor is
considering naming as an Investor Nominee.
(c) Subject to the right of the Nominating Committee to
approve nominees for Director as set forth in Section 2.2(a), the
Company will support the nomination of and the election of each
Investor Nominee to the Board, and the Company will exercise all
authority under applicable law to cause each Investor Nominee to be
elected to the Board. Without limiting the generality of the
foregoing, with respect to each meeting of stockholders of the Company
at which Directors are to be elected, the Company shall use its
reasonable efforts to solicit from the stockholders of the Company
eligible to vote in the election of Directors proxies in favor of each
Investor Nominee.
(d) During the period that Investor shall have the right to
designate nominees to the Board under this Agreement, the number of
Directors on the Board shall not exceed eleven members at any time.
(e) If Investor's right to nominate directors to the Board
is reduced, Investor shall cause the applicable number of its Investor
Nominees to immediately resign (regardless of the remaining term, if
any) from the Board.
(f) It is hereby agreed that any decision to take or omit to
take any action on the Company's behalf with respect to any
transaction or agreement involving or relating to Investor, including
the timing and amounts of Stock Purchases under the Stock Purchase
Agreement, shall be subject only to the approval of a majority of non-
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Investor Nominee Directors, notwithstanding the supermajority
provisions of the Company Charter and the By-laws required by the
Stock Purchase Agreement but subject to the provisions of Section 5.10
of the Stock Purchase Agreement.
Section 2.2 Committee Representation; Subsidiary Boards
(a) During such time as Investor is entitled pursuant to
Section 2.1(a) to have at least four Investor Nominees on the
Board, the Company shall amend its By-laws to provide that,
unless Investor chooses not to exercise its rights under this
Section 2.2(a), at least one Director who is an Investor Nominee
shall serve on each of the audit committee, the compensation
committee, any special committee(s) of the Board, and any other
committees which shall be charged with exercising substantial
authority on behalf of the Board (other than any committee
charged with the approval of the transactions contemplated by the
Stock Purchase Agreement or this Agreement, or any committee
charged with evaluating any Competing Transaction) (the
foregoing, together with the Executive Committee, the "Key
Committees"). As contemplated by the Stock Purchase Agreement,
Investor will have the right to have two Directors designated by
it serve on the Board's Executive Committee.
During such time as Investor is entitled to have at least
one Investor Nominee on the Board, unless Investor chooses not to
exercise its rights under this Section 2.2(a), at least one
Director who is an Investor Nominee shall serve on the Nominating
Committee of the Board. In addition, the Company's By-laws shall
be amended to provide that (i) the unanimous consent of the
Nominating Committee shall be required prior to the appointment
of a Chairman, Chief Executive Officer or President of the
Company, (ii) the Board of Directors of the Company shall not
make any recommendation or appointment for Directors who are
Chairman, Chief Executive Officer or President without the
unanimous approval of the Nominating Committee as set forth
herein and (iii) notwithstanding (ii) above, all nominees to the
Board of Directors (other than Investor Nominees) will require
the unanimous approval of the Nominating Committee. If the
Nominating Committee cannot, after a reasonable period of good
faith discussions (not to exceed 30 days), unanimously agree on a
nominee pursuant to the foregoing clause (iii), the nomination
will be referred to the entire Board of Directors, which shall
decide the matter based on a simple majority vote notwithstanding
the supermajority provisions of the Company Charter and the
By-laws required by the Stock Purchase Agreement.
Notwithstanding the foregoing, if none of the Directors who
are Investor Nominees would be considered "independent" of the
Company, "disinterested," "non-employee directors" and "outside
directors" (i) for purposes of any applicable rule of NASDAQ
National Market or any securities exchange or other self-
regulating organization (such as the National Association of
Securities Dealers) requiring that members of the audit committee
of the Board be independent of the Company, (ii) for purposes of
any law or regulation that requires, in order to obtain or
maintain favorable tax, securities, corporate law or other
material legal benefits with respect to any plan or arrangement
for employee compensation or benefits, that the members of the
committee of the Board charged with responsibility for such plan
or arrangement be "independent" of the Company, "disinterested,"
"non- employee directors" or "outside directors," or (iii) for
purposes of any special committee formed in connection with any
transaction
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or potential transaction involving the Company and any of
Investor, its Affiliates or any Group of which Investor is a
member or such other transaction or potential transaction which
would involve an actual or potential conflict of interest on the
part of the Directors who are Investor Nominees, then a Director
who is an Investor Nominee shall not be required to be appointed
to any such committee; provided, however, that the committees of
the Board shall be organized such that, to the extent
practicable, the only items to be considered by a Key Committee
on which no Director who is an Investor Nominee may serve will be
those items which prevent the Director who is an Investor Nominee
from serving on such Key Committee. Any members of any Key
Committee who are Investor Nominees shall, in the event of any
vacancy in such membership, be replaced by a Director who is an
Investor Nominee elected by a majority of the directors who are
Investor Nominees.
(b) During such time as Investor is entitled pursuant to
Section 2.1(a) to have at least one Investor Nominee on the
Board, unless Investor chooses not to exercise its rights under
this Section 2.2(b), one individual designated by Investor shall
serve as a member of the board of directors or comparable
governing body of each Subsidiary of the Company, if any, that is
a corporation or other person with a board of directors or board
of trustees.
Section 2.3 Vacancies. In the event that any Investor
Nominee shall cease to serve as a Director for any reason other than
the fact that Investor no longer has a right to nominate a Director,
as provided in Section 2.1(a), the vacancy resulting thereby shall be
filled by an Investor Nominee designated by Investor; provided,
however, that any Investor Nominee so designated shall satisfy the
qualification requirements set forth in Section 2.1(b).
Section 2.4 Officers. The Investor agrees to cooperate with
the Company in connection with the negotiation, execution and delivery
of employment agreements between the Company and certain key employees
of the Company.
ARTICLE 3
Voting and Participation Rights
Section 3.1 Voting Rights. Subject to the provisions of this
Section 3.1, Investor may vote the shares of Company Stock which it
owns in its sole and absolute discretion. During the Standstill Period
the Advancing Party, the Buyer and Investor and any of their
Controlled Affiliates will vote all shares of Company Common Stock
owned by any of them that represent aggregate ownership in excess of
49.9% of the outstanding shares of Company Common Stock, in one of the
following two manners, at their option: (x) in accordance with the
recommendation of the Board, or (y) proportionally in accordance with
the votes of the other holders of Company Common Stock.
Notwithstanding anything to the contrary in the foregoing, during the
Standstill Period, the Advancing Party, the Buyer and Investor and any
of their Controlled Affiliates shall vote all shares of Company Common
Stock owned by any of them in favor of the election of Directors
nominated by the Nominating Committee or the Board, as set forth in
Section 2.1(a).
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Section 3.2 Participation Rights
(a) Rights to Participate. From and after the date hereof
until a Termination Event, if any, Investor shall be entitled to a
participation right to purchase or subscribe up to that number of
additional shares of capital stock (including as "capital stock" for
purposes of this Section 3.2, any security, option, warrant, call,
commitment, subscription, right to purchase or other agreement of any
character that is convertible into or exchangeable or redeemable for
shares of capital stock of the Company or any Subsidiary (and all
references in this Section 3.2 to capital stock shall, as appropriate,
be deemed to be references to any such securities), and also including
additional shares of capital stock to be issued pursuant to the
conversion, exchange or redemption of any security, option, warrant,
call, commitment, subscription, right to purchase or other agreement
of a character that is convertible into or exchangeable or redeemable
for shares of capital stock, as if the price at which such additional
shares of capital stock is issued pursuant to any such conversion,
exchange or redemption were the market price on the date of such
issuance) to be issued or sold by the Company which represents the
same proportion (the "shareholder percentage") of the total number of
shares of capital stock to be issued or sold by the Company (including
the shares of capital stock to be issued to Investor upon exercise of
its participation rights hereunder; it being understood and agreed
that the Company will accordingly be required to either increase the
number of shares of capital stock to be issued or sold so that
Investor may purchase additional shares to maintain its proportionate
interest, or to reduce the number of shares of capital stock to be
issued or sold to Persons other than Investor) as is represented by
the number of shares of Company Common Stock owned by Investor prior
to such sale or issuance (and including for this purpose any shares of
Company Common Stock to be acquired pursuant to the Stock Purchase
Agreement, but not yet issued) relative to the number of shares of
Company Common Stock outstanding prior to such sale or issuance (and
including for this purpose any shares of Company Common Stock to be
acquired pursuant to the Stock Purchase Agreement, but not yet issued)
(but in no event more than 49.9% of the total number of shares of
capital stock to be issued or sold by the Company at all subsequent
offerings); provided, however, that the provisions of this Section 3.2
shall not to apply to (i) the issuance or sale by the Company of any
of its capital stock issued to the Company or any of its Subsidiaries
or pursuant to options, rights or warrants or other commitments or
securities in effect or outstanding on the date of the Stock Purchase
Agreement (including without limitation, any options issued or to be
issued pursuant to the Employment Agreements), (ii) the issuance of
capital stock pursuant to the conversion, exchange or redemption of
any other capital stock, but shall, without limitation, apply to the
issuance by the Company of any of its capital stock pursuant to
benefit, option, stock purchase, or other similar plans or
arrangements, including pursuant to or upon the exercise of options,
rights, warrants, or other securities or agreements (including those
issued pursuant to the Company's benefit plans) and (iii) the issuance
of stock for consideration other than cash; provided further, however,
that in the case of debt securities of the Company that entitle the
Investor to participation rights hereunder, such participation rights
shall apply only to the issuance of such debt securities, i.e., the
Investor shall have participation rights with respect to such debt
securities, and shall have whatever conversion rights to which holders
of such debt securities are entitled, but shall have no other
participation rights with respect thereto and the Investor shall only
have the right to acquire such debt securities themselves.
Notwithstanding the foregoing, any participation rights provided for
in this Section which arise as a result of the exception contained in
clause (ii) of the preceding sentence shall be deferred until such
time as participation rights shall otherwise arise under this Section
3.2. The provisions of this Section 3.2 shall apply to the Convertible
Debt only
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upon conversion, in which event the Company agrees from time to time
to issue the number of additional shares necessary to permit the Buyer
to maintain its shareholder percentage (as defined above), provided
that the purchase price for such shares shall be the closing price of
the Company Common Stock on the date of each such conversion; provided
further that the Company shall provide the Buyer within 15 days after
the end of each calendar quarter with a schedule of the conversions
during such quarter (and the related closing prices for the Common
Stock on the dates of conversion), the number of additional shares of
Common Stock the Buyer is entitled to purchase hereunder and the
purchase price therefor; provided further that Buyer shall have until
15 days after receipt of such schedule to purchase such additional
shares. Any conversion or exercise of securities acquired by Investor
pursuant to this Section 3.2 shall be deferred by Investor if it would
result in Investor's share percentage exceeding 49.9%.
(b) Notice. In the event the Company proposes to issue or
sell any shares of capital stock in a transaction giving rise to the
participation rights provided for in this Section, the Company shall
send a written notice (the "Participation Notice") to Investor setting
forth the number of shares of such capital stock of the Company that
the Company proposes to sell or issue, the price (before any
commission or discount) at which such shares are proposed to be issued
(or, in the case of an underwritten or privately placed offering in
which the price is not known at the time the Participating Notice is
given, the method of determining such price and an estimate thereof),
and all other relevant information as to such proposed transaction as
may be necessary for Investor to determine whether or not to exercise
the rights granted in this Section. At any time within 20 days after
its receipt of the Participation Notice, Investor may exercise its
participation rights to purchase or subscribe for shares of such
shares of capital stock, as provided for in this Section, by so
informing the Company in writing (an "Exercise Notice"). Each Exercise
Notice shall state the percentage of the proposed sale or issuance
that the Investor elects to purchase. Each Exercise Notice shall be
irrevocable, subject to the conditions to the closing of the
transaction giving rise to the participation right provided for in
this Section.
(c) Abandonment of Sale or Issuance. The Company shall have
the right, in its sole discretion, at all times prior to consummation
of any proposed sale or issuance giving rise to the participation
right granted by this Section, to abandon, rescind, annul, withdraw or
otherwise terminate such sale or issuance, whereupon all participation
rights in respect of such proposed sale or issuance pursuant to this
Section shall become null and void, and the Company shall have no
liability or obligation to Investor or any Affiliate thereof who has
acquired shares of Company Stock pursuant to the Stock Purchase
Agreement or from Investor with respect thereto by virtue of such
abandonment, rescission, annulment, withdrawal or termination.
(d) Terms of Sale. The purchase or subscription by Investor
or an Affiliate thereof, as the case may be, pursuant to this Section
shall be on the same price and other terms and conditions, including
the date of sale or issuance, as are applicable to the purchasers or
subscribers of the additional shares of capital stock of the Company
whose purchases or subscriptions give rise to the participation rights
(except that the price to Investor to make such purchase or
subscription shall be net of payment of any underwriting, placement
agent or similar fee associated with such purchase or subscription),
which price and other terms and conditions shall be substantially as
stated in the relevant Participation Notice (which standard shall be
satisfied if the price, in the case of a negotiated transaction, is
not greater than 110% of the estimated price set forth in the relevant
Participation Notice or, in the case of an underwritten or privately
placed
13
offering, is not greater than of (i) 110% of the estimated price set
forth in the relevant Participation Notice, and (ii) the most recent
closing price on or prior to the date of the pricing of the offering);
provided, however, that in the event the purchases or subscriptions
giving rise to the participation rights are effected by an offering of
securities registered under the 1933 Act and in which offering it is
not legally permissible for the securities to be purchased by Investor
to be included, such securities to be purchased by Investor will be
purchased in a concurrent private placement.
(e) Timing of Sale. If, with respect to any Participation
Notice, Investor fails to deliver an Exercise Notice within the
requisite time period, the Company shall have 120 days after the
expiration of the time in which the Exercise Notice is required to be
delivered in which to sell not more than 110% of the number of shares
of capital stock of the Company described in the Participation Notice
(plus, in the event such shares are to be sold in an underwritten
public offering, an additional number of shares of capital stock of
the Company, not in excess of 15% of 110% of the number of shares of
capital stock of the Company described in the Participation Notice, in
respect of any underwriters over allotment option) and not less than
90% of the number of shares of capital stock of the Company described
in the Participation Notice at a price of not less than 90% of the
estimated price set forth in the Participation Notice. If, at the end
of 120 days following the expiration of the time in which the Exercise
Notice is required to be delivered, the Company has not completed the
sale or issuance of capital stock of the Company in accordance with
the terms described in the Participation Notice (or at a price which
is at least 90% of the estimated price set forth in the Participation
Notice), or in the event of any contemplated sale or issuance within
such 120-day period but outside such price parameters, the Company
shall again be obligated to comply with the provisions of this Section
with respect to, and provide the opportunity to participate in, any
proposed sale or issuance of shares of capital stock of the Company;
provided, however, that notwithstanding the foregoing, if the price at
which such capital stock is to be sold in an underwritten offering (or
a privately placed offering in which the price is not less than 97% of
the most recent closing price at the time of the pricing of the
offering) is not at least 90% of the estimated price set forth in the
Participation Notice, the Company may inform Investor of such fact and
Investor shall be entitled to elect, by written notice delivered
within two Business Days following such notice from the Company, to
participate in such offering in accordance with the provisions of this
Section 4.2.
ARTICLE 4
Standstill Provisions
Section 4.1 Standstill Period. The "Standstill Period" shall
be the period commencing on the date of this Agreement and ending on
the earlier of (x) the third anniversary of the Stockholder Approval
Date or (y) the earliest of:
(i) the occurrence of any event of default on the part of
the Company or any Subsidiary under any debt agreements,
instruments or arrangements that would reasonably be expected to
result in a Material Adverse Effect, and, in the case of a
non-monetary event of default, which event of default cannot be,
or is not, cured by the Company within the applicable cure period
under such debt agreement, instrument or arrangement and that
would reasonably be expected to result in a Material Adverse
Effect;
14
(ii) the authorization by the Company or the Board or any
committee thereof (with all Investor Nominees abstaining or
voting against) of the solicitation of offers or proposals or
indications of interest with respect to any merger,
consolidation, other business combination, liquidation, sale of
the Company or all or substantially all of the assets of the
Company or any other change of control of the Company or similar
extraordinary transaction, but excluding any merger,
consolidation or other business combination in which the Company
is the surviving and acquiring corporation and in which the
business or assets so acquired do not, or would not reasonably be
expected to, have a value greater than 50% of the assets of the
Company prior to such merger, consolidation or other business
combination (any of the foregoing, a "Covered Transaction");
(iii) the written submission by any person or Group other
than Investor or any Affiliate thereof of a proposal to the
Company (including to the Board or any agent, representative or
Affiliate of the Company ) with respect to, or otherwise
expressing an interest in pursuing, a Covered Transaction;
provided, however, that the Standstill Period shall not terminate
pursuant to this Section 4.1(a)(iii), if, as soon as practicable
after receipt of any such proposal, the Board determines that
such proposal is not in the best interest of the Company and its
stockholders and for so long as the Board continues to reject
such proposal as a result of such determination;
(iv) in connection with any actual or proposed Covered
Transaction, the removal of any rights plan, provisions of the
Company Charter relating to staggered terms of office for
directors, provisions of the Company Charter or the By-laws of
the Company relating to supermajority voting of the Company's
stockholders, "excess share" provisions of the Company Charter or
the By-laws of the Company, or any other similar arrangements,
agreements, commitments or provisions in the Company Charter or
the By-laws of the Company which would reasonably be expected to
impede the consummation of such actual or proposed Covered
Transaction by action of any Government Authority, the Board, the
stockholders of the Company or otherwise;
(v) 90 days after the occurrence of a Termination Event;
(vi) any material violation of any material covenant of the
Company set forth in Section 5.5 of the Stock Purchase Agreement;
(vii) any breach by the Company of the Stock Purchase
Agreement (other than as contemplated by clause (vi) above) which
is neither cured nor desisted from within 30 days of receipt of
written notice from Investor of such breach and which would
reasonably be expected to materially adversely affect Investor or
cause a Material Adverse Effect; or
(viii) any breach of this Agreement by the Company which is
neither cured nor desisted within 30 days of receipt of written
notice from Investor of such breach and which would reasonably be
expected to materially adversely affect Investor or cause a
Material Adverse Effect.
Any event set forth in Section 4.1(a) shall be an "Early Standstill
Termination Event."
15
Section 4.2 Restrictions During Standstill Period
(a) During the Standstill Period, the Advancing Party, the
Buyer, and Investor will not, and will cause each of their Controlled
Affiliates not to, directly or indirectly:
(i) act in concert with any other person or Group by
becoming a member of a 13D Group, other than any 13D Group
comprised exclusively of Investor and one or more of its
Affiliates;
(ii) purchase or otherwise acquire shares of Company Common
Stock (or options, rights or warrants or other commitments to
purchase and securities convertible into (or exchangeable or
redeemable for) shares of Company Common Stock) as a result of
which, after giving effect to such purchase or acquisition, the
Advancing Party, the Buyer, and Investor and their Controlled
Affiliates will Beneficially Own in the aggregate more than 49.9%
of the outstanding shares of Company Common Stock on an Adjusted
Fully Diluted basis;
(iii) solicit, encourage or propose to effect or negotiate
any Covered Transaction;
(iv) solicit, initiate, encourage or participate in any
"solicitation" of "proxies" or become a "participant" in any
"election contest" (as such terms are defined or used in
Regulation 14A under the 1934 Act, disregarding clause (iv) of
Rule 14a-1(1)(2) and including an exempt solicitation pursuant to
Rule 14a-2(b)(1)); call, or in any way encourage or participate
in a call for, any special meeting of stockholders of the Company
(or take any action with respect to acting by written consent of
the stockholders of the Company); request, or take action to
obtain or retain, any list of holders of any securities of the
Company; or initiate or propose any stockholder proposal or
participate in or encourage the making of, or solicit
stockholders of the Company for the approval of, one or more
stockholder proposals; provided, however, that Investor shall not
be prohibited from communicating with a security holder who is
engaged in any "solicitation" of "proxies" or who is a
"participant" in any "election contest";
(v) seek representation on the Board or a change in the
composition or size of the Board other than as permitted by
Article 2;
(vi) request the Company or any of its directors, officers,
employees or agents to amend or waive any provisions of this
Section 4.2 or seek to challenge the legality or effect thereof;
or
(vii) assist, advise, encourage or act in concert with any
person with respect to, or seek to do, any of the foregoing.
Section 4.3 Restrictions on Transfer. Until the earlier of
(i) a Termination Event or (ii) two years after the Stockholder
Approval Date, the Advancing Party, the Buyer, and Investor will not,
and will cause each of their Controlled Affiliates not to, directly or
16
indirectly, sell, transfer or otherwise dispose of (collectively,
"Transfer") any shares of Company Common Stock. Thereafter, and during
the remaining term, if any, of the Standstill Period, the Advancing
Party, the Buyer and Investor will not, and will cause each of their
Controlled Affiliates not to, directly or indirectly, Transfer any
shares of Company Common Stock except for: (a) Transfers made in
compliance with the requirements of Rule 144 of the 1933 Act, (b)
Transfers pursuant to negotiated transactions with third parties
provided that any such Transfer is not made to any public or private
company the principal business of which is, or that derives more than
$15 million of annual revenue from (in either case as of the date of
such Transfer), the ownership, management, operation and development
of assisted living facilities in the United States, unless 75% of the
Directors of the Company (other than Investor Nominees) have consented
to such Transfer and provided further that the transferee acknowledges
that it is subject to the provisions of Article 5 of this Agreement,
(c) Transfers pursuant to or in accordance with the Registration
Rights Agreement in a bona fide public offering, (d) Transfers to one
or more Controlled Affiliates of Investor who agree to be bound by the
terms and conditions of this Agreement, who make the representations
set forth in Sections 4.8, 4.10 and 4.11 of the Stock Purchase
Agreement and who satisfy the ownership criteria in the definition of
"Investor", and (e) Transfers to a bona fide financial institution for
the purpose of securing bona fide indebtedness of any Investor. After
the expiration of the Standstill Period, there shall be no
restrictions on the ability of the Advancing Party, the Buyer,
Investor and their Controlled Affiliates to Transfer any shares of
Company Common Stock.
Section 4.4 Notice to Company. During the period specified
in Section 4.3, if any party wishes to sell pursuant to subsection
4.3(a), (b) or (c) any shares of Company Common Stock, such party
shall give the Company 15 days' prior written notice of such proposed
sale, setting forth the number of shares of Company Common Stock that
such party proposes to sell, the expected timing of the proposed sale,
and the expected selling price of such sale, in order to enable the
Company to make an offer to purchase such shares. During the period
described in the preceding sentence, such party shall also notify the
Company if such party reaches a formal board-level decision to sell
shares of Company Common Stock representing more than 2% of the then
outstanding shares of Company Common Stock.
Section 4.5 Compliance with Xxxxxxx Xxxxxxx Policy. For as
long as the Advancing Party, the Buyer or Investor Beneficially Owns
any shares of Company Common Stock, such parties will, and will use
their commercially reasonable efforts to cause their directors,
officers, employees, agents, and representatives to, comply with any
written policy of the Company reasonably designed to prevent
violations of xxxxxxx xxxxxxx and similar laws.
Section 4.6 Investment Company Matters. From and after the
Stockholder Approval Date, if any, until a Termination Event, if any,
Investor shall use its reasonable best efforts to not be or become an
"investment company" or any entity "controlled" by an "investment
company", as such terms are defined in the Investment Company Act of
1940, as amended.
Section 4.7 Waiver of Restrictions and Limits. Provided that
Stockholder Approval is obtained, the Company shall take all actions,
including by providing any necessary conditional exemptions from or
amendments to any agreement or instrument which governs ownership of
shares of Company Stock by any person, necessary to permit Investor to
Beneficially Own up to and including 49.9% of the outstanding shares
of Company Common Stock on an Adjusted Fully Diluted basis. If any
third party shall be given the right to Beneficially Own more than
49.9% of the outstanding shares of Company Common Stock on an Adjusted
Fully Diluted basis, the Company shall take all
17
actions (including by providing the foregoing exemptions and
amendments) to waive any and all restrictions or limits on Investor.
Notwithstanding the foregoing but subject to the provisions of Section
5.1, Investor or the Company may at any time acquire Beneficial
Ownership of the securities of such other party or its Affiliates to
the extent permitted by applicable law and the provisions of the
organizational documents of such party or its Affiliates, as
applicable, and other agreements from time to time governing the
ownership of such securities.
ARTICLE 5
Additional Covenants
Section 5.1 Restrictions on Investments. From the date of
this Agreement until the occurrence of a Termination Event, the
Advancing Party, the Buyer, Investor and their Controlled Affiliates
shall not, directly or indirectly, own any equity interest (other than
a de minimis amount) in any public or private company the principal
business of which is the ownership, management, operation and
development of assisted living facilities in the United States, unless
75% of the Directors of the Company (other than the Investor Nominees)
have consented to such ownership.
Section 5.2 Additional Transfer Restrictions. In the event
that Stockholder Approval is not obtained on or prior to December 31,
1997, the Advancing Party, the Buyer, Investor and their Controlled
Affiliates shall have the right to Transfer the shares purchased from
the Company at the Initial Closing, provided, that until December 31,
2000 any such Transfer shall be made in a manner permitted by clause
(a) through (e) of the second sentence of Section 4.3.
ARTICLE 6
Miscellaneous
Section 6.1 Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the
same instrument, and shall become effective when one or more
counterparts have been signed by each of the parties and delivered to
the other party. Copies of executed counterparts transmitted by
telecopy, telefax or other electronic transmission service shall be
considered original executed counterparts for purposes of this
Section, provided receipt of copies of such counterparts is confirmed.
Section 6.2 Governing Law. THIS AGREEMENT SHALL BE GOV-
ERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF.
Section 6.3 Entire Agreement. This Agreement (including
agreements incorporated herein) and the Schedules and Exhibits hereto
contain the entire agreement between the parties with respect to the
subject matter hereof and there are no agreements, understandings,
representations or warranties between the parties and other than those
set forth or referred to herein. This Agreement is not intended to
confer upon any person not a party hereto (and their successors and
assigns) any rights or remedies hereunder.
18
Section 6.4 Expenses. Except as set forth in the Stock
Purchase Agreement, all legal and other costs and expenses incurred in
connection with this Agreement and the transactions contemplated
hereby shall be paid by the Company including, without limitation,
those specified in Section 9.3(a) of the Stock Purchase Agreement.
Section 6.5 Notices. All notices and other communications
hereunder shall be sufficiently given for all purposes hereunder if in
writing and delivered personally, sent by documented overnight
delivery service or, to the extent receipt is confirmed, telecopy,
telefax or other electronic transmission service to the appropriate
address or number as set forth below. Notice to the Company shall be
addressed to:
ARV Assisted Living, Inc.
000 Xxxxxxx Xxxxxx, X-0
Xxxxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxxxx and Xxxxxx Xxxxxxx
Telecopy: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxxxx
000 Xxxx Xxxxxx Xxxxx
00xx Xxxxx
Xxxxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx
Telecopy: (000) 000-0000
or at such other address and to the attention of such other person as
the Company may designate by written notice to Investor. Notices to
the Advancing Party, the Buyer or Investor shall be addressed to:
Lazard Freres Real Estate Investors L.L.C.
00 Xxxxxxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx,
Xxxxx X. Xxxxx and
Xxxxx Xxxxxxxxxxx
Telecopy: (000) 000-0000
with a copy to:
Cravath, Swaine & Xxxxx
Worldwide Plaza
000 Xxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxx, Esq.
Telecopy: (000) 000-0000
Section 6.6 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors (including, in the case of the Advancing Party,
any successor to the principal business of the Advancing Party). No
party shall be permitted to assign any of its rights hereunder to
19
any third party, except that the Buyer, the Advancing Party and any
Investor shall be permitted to assign its rights hereunder to the same
extent as the Buyer or the Advancing Party is permitted to assign its
rights under the Stock Purchase Agreement, provided that such person
agrees to be bound by this Agreement.
Section 6.7 Headings. The Section, Article and other
headings contained in this Agreement are inserted for convenience of
reference only and will not affect the meaning or interpretation of
this Agreement. All references to Sections or Articles contained
herein means Sections or Articles of this Agreement unless otherwise
stated.
Section 6.8 Amendments and Waivers. This Agreement may not
be modified or amended except by an instrument or instruments in
writing signed by the party against whom enforcement of any such
modification or amendment is sought. Any party hereto may, only by an
instrument in writing, waive compliance by another party hereto with
any term or provision hereof on the part of such other party hereto to
be performed or complied with. The waiver by any party hereto of a
breach of any term or provision hereof shall not be construed as a
waiver of any subsequent breach.
Section 6.9 Interpretation; Absence of Presumption.
(a) For the purposes hereof, (i) words in the singular shall
be held to include the plural and vice versa and words of one gender
shall be held to include the other gender as the context requires,
(ii) the terms "hereof", "herein", and "herewith" and words of similar
import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all of the Schedules and Exhibits
hereto) and not to any particular provision of this Agreement, and
Article, Section, paragraph, Schedule and Exhibit references are to
the Articles, Sections, paragraphs, Schedules and Exhibits to this
Agreement unless otherwise specified, (iii) the word "including" and
words of similar import when used in this Agreement shall mean
"including, without limitation," unless the context otherwise requires
or unless otherwise specified, (iv) the word "or" shall not be
exclusive, (v) provisions shall apply, when appropriate, to successive
events and transactions and (vi) terms used herein but not otherwise
defined herein shall have the meanings assigned to such terms in the
Stock Purchase Agreement.
(b) This Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation against
the party drafting or causing any instrument to be drafted.
Section 6.10 Severability. Any provision hereof which is
invalid or unenforceable shall be ineffective to the extent of such
invalidity or unenforceability, without affecting in any way the
remaining provisions hereof.
Section 6.11 Further Assurances. The Company and Investor
agree that, from time to time, each of them will, and will cause their
respective Affiliates to, execute and deliver such further instruments
and take such other action as may be necessary to carry out the
purposes and interests hereof.
Section 6.12 Specific Performance. The Company and Investor
each acknowledge that, in view of the uniqueness of arrangements
contemplated by this Agreement, the parties hereto would not have an
adequate remedy at law for money damages in the event that this
Agreement were not performed in accordance with its terms, and
therefore agree that the parties hereto shall be entitled to specific
enforcement
20
of the terms hereof in addition to any other remedy to which the
parties hereto may be entitled at law or in equity.
Section 6.13 Investor Breach. In the event Investor shall
have breached (i) its obligation to effect a purchase of Company
Common Stock pursuant to the Stock Purchase Agreement which breach is
neither cured nor desired from within 30 days of receipt of written
notice of such breach, or (ii) any of its obligations under this
Agreement which breach is neither cured nor desisted from within 30
days of receipt of written notice of such breach and which would
reasonably be expected to materially adversely affect the Company, the
Company shall no longer be required to perform any of its obligations
hereunder.
Section 6.14 Confidentiality. The Advancing Party, the Buyer
and Investor agree that all information provided to any of them or any
of their representatives pursuant to this Agreement shall be kept
confidential, and such parties shall not (x) disclose such information
to any persons other than the directors, officers, employees,
financial advisors, legal advisors, accountants, consultants and
affiliates of such parties who reasonably need to have access to the
confidential information and who are advised of the confidential
nature of such information or (y) use such information in a manner
which would be detrimental to the Company; provided, however, the
foregoing obligation of such parties shall not (a) relate to any
information that (i) is or becomes generally available other than as a
result of unauthorized disclosure by such parties or by persons to
whom such parties have made such information available; (ii) is or
becomes available to such parties on a non- confidential basis from a
third party that is not, to such parties' knowledge, bound by any
other confidentiality agreement with the Company, or (b) prohibit
disclosure of any information if required by law, rule, regulation,
court order or other legal or governmental process.
Section 6.15 Public Announcements. Subject to each party's
disclosure obligations imposed by law and any stock exchange or
similar rules and the confidentiality provisions contained herein and
in Section 5.4(b) of the Stock Purchase Agreement, all news releases
and other public information disclosures with respect to this
Agreement, the Stock Purchase Agreement and the Transaction Documents
and any of the transactions contemplated hereby or thereby will
require the mutual approval of Buyer and the Company before such
release or disclosure is made. If a party is required by law or any
stock exchange or similar rule to issue a news release or other public
announcement, it shall advise the other party in advance thereof and
use reasonable best efforts to cause a mutually agreeable release or
announcement to be issued.
21
IN WITNESS WHEREOF, this Agreement has been signed by or on
behalf of each of the parties hereto as of the day first above
written.
LAZARD FRERES REAL ESTATE INVESTORS
L.L.C.,
by /s/ Xxxxxx X. Xxxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President
PROMETHEUS ASSISTED LIVING LLC,
by LAZARD FRERES REAL ESTATE
INVESTORS L.L.C.,
by /s/ Xxxxxx X. Xxxxxxx
----------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President
ARV ASSISTED LIVING, INC.,
by /s/ Xxxx X. Xxxxxxxx
-------------------------------------
Name: Xxxx X. Xxxxxxxx
Title: Chairman
& Chief Executive Officer
