PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT
DATED DECEMBER 16, 1996
BETWEEN REGENT ASSISTED LIVING, INC.
AND PRUDENTIAL PRIVATE EQUITY INVESTORS III, L.P.
TABLE OF CONTENTS
1. Authorization and Closing..................................................1
1A. Authorization of the Preferred Stock and the
Warrant...............................................................1
1B. Purchase and Sale of the Preferred Stock and the
Warrant...............................................................1
1C. The Closing...........................................................1
2. Conditions of Purchaser's Obligation at the Closing........................2
2A. Representations and Warranties; Covenants.............................2
2B. Articles of Amendment.................................................2
2C. Registration Agreement................................................2
2D. Stockholders Agreement................................................3
2E. Securities Law Compliance.............................................3
2F. Lease Modification Agreements.........................................3
2G. Opinion of the Company's Counsel......................................3
2H. Closing Documents.....................................................3
2I. Proceedings...........................................................4
2J. Waiver................................................................4
2K. Expenses..............................................................4
3. Covenants..................................................................4
3A. Financial Statements and Other Information............................4
3B. Inspection of Property................................................8
3C. Designation of Directors..............................................8
3D. Restrictions..........................................................9
3E. Affirmative Xxxxxxxxx................................................00
0X. Compliance with Agreements...........................................16
3G. Current Public Information...........................................16
3H. Amendment of Agreements..............................................16
3I. First Refusal Rights.................................................17
4. Transfer of Restricted Securities.........................................18
4A. General Provisions...................................................18
4B. Opinion Delivery.....................................................18
4C. Rule 144A............................................................19
4D. Legend Removal.......................................................19
4E. Restriction on Transfer..............................................19
5. Representations and Warranties of the Company.............................20
5A. Organization, Corporate Power and Licenses...........................20
5B. Capital Stock and Related Matters....................................20
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5C. Subsidiaries; Investments............................................21
5D. Authorization; No Breach.............................................22
5E. Financial Statements.................................................23
5F. Absence of Undisclosed Liabilities...................................23
5G. No Material Adverse Change...........................................24
5H. Absence of Certain Xxxxxxxxxxxx......................................00
0X. Assets...............................................................25
5J. Tax Matters..........................................................29
5K. Contracts and Commitments............................................31
5L. Intellectual Property Rights.........................................33
5M. Litigation, etc......................................................34
5N. Brokerage............................................................35
5O. Governmental Consent, etc............................................35
5P. Insurance............................................................35
5Q. Employees............................................................36
5R. ERISA................................................................36
5S. Compliance with Laws.................................................37
5T. Environmental and Safety Matters.....................................39
5U. Affiliated Transactions..............................................42
5V. Medicare and Medicaid Matters........................................42
5W. Reports with the Securities and Exchange
Commission...........................................................44
5X. Disclosure...........................................................44
5Y. Real Property Holding Corporation....................................45
5Z. Closing Date.........................................................45
5AA. Forward-Looking Information..........................................45
6. Definitions...............................................................46
6A. Definitions..........................................................46
7. Miscellaneous.............................................................53
7A. Expenses.............................................................53
7B. Remedies.............................................................54
7C. Purchaser's Representations..........................................54
7D. Treatment of the Preferred Stock.....................................56
7E. Consent to Amendments................................................56
7F. Survival of Representations and Warranties...........................57
7G. Successors and Assigns...............................................57
7H. Severability.........................................................57
7I. Counterparts.........................................................58
7J. Descriptive Headings; Interpretation.................................58
7K. Governing Law........................................................58
7L. Notices..............................................................58
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7M. Consideration for Warrants...........................................59
7N. No Strict Construction...............................................60
7O. Indemnification......................................................60
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REGENT ASSISTED LIVING, INC.
PURCHASE AGREEMENT
THIS AGREEMENT is made as of December 16, 1996, between Regent
Assisted Living, Inc., an Oregon corporation (the "Company"), and Prudential
Private Equity Investors III, L.P., a Delaware limited partnership
("Purchaser"). Except as otherwise indicated herein, capitalized terms used
herein are defined in Section 6 hereof.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
1A. Authorization of the Preferred Stock and the Warrant. The Company
shall authorize the issuance and sale to Purchaser of (i) 1,283,785 shares of
its Series A Preferred Stock, no par value (the "Series A Preferred"), and
382,882 shares of its Series B Preferred Stock, no par value (the "Series B
Preferred"), each having the rights and preferences set forth in Exhibit A
attached hereto, and (ii) the warrant in the form attached hereto as Exhibit B
(the "Warrant"). The Series A Preferred and the Series B Preferred are
convertible into shares of the Company's Common Stock, no par value (the "Common
Stock"). The Series A Preferred and the Series B Preferred are collectively
referred to herein as the "Preferred Stock."
1B. Purchase and Sale of the Preferred Stock and the Warrant. At the
Closing, the Company shall sell to Purchaser and, subject to the terms and
conditions set forth herein, Purchaser shall purchase from the Company (i)
1,283,785 shares of Series A Preferred and 382,882 shares of Series B Preferred
at an aggregate price of $9,950,000 and (ii) the Warrant at a price of $50,000.
1C. The Closing. The closing of the purchase and sale of the Preferred
Stock and the Warrant (the "Closing") shall take place at the offices of
Xxxxxxxx & Xxxxx, at 10:00 a.m. on December 16, 1996, or at such other place or
on such other date as may be mutually agreeable to the Company and Purchaser. At
the Closing,
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the Company shall deliver to Purchaser stock certificates evidencing the
Preferred Stock to be purchased by Purchaser and the Warrant to be purchased by
Purchaser, registered in Purchaser's or its nominee's name, upon payment of the
purchase price thereof by a cashier's or certified check, or by wire transfer of
immediately available funds pursuant to written instructions provided by the
Company to Purchaser prior to the Closing, in the total amount of $10,000,000.
Section 2. Conditions of Purchaser's Obligation at the Closing. The
obligation of Purchaser to purchase and pay for the Preferred Stock and the
Warrant at the Closing is subject to the satisfaction as of the Closing of the
following conditions:
2A. Representations and Warranties; Covenants. The representations and
warranties contained in Section 5 hereof shall be true and correct in all
material respects at and as of the Closing as though then made, except to the
extent of changes caused by the transactions expressly contemplated herein, and
the Company shall have performed in all material respects all of the covenants
required to be performed by it hereunder prior to the Closing.
2B. Articles of Amendment. The Company shall have duly adopted,
executed and filed with the Secretary of State of Oregon a Articles of Amendment
of Rights and Preferences establishing the terms and the relative rights and
preferences of the Series A Preferred and the Series B Preferred in the form set
forth in Exhibit A hereto (the "Articles of Amendment"), and the Company shall
not have adopted or filed any other document designating terms, relative rights
or preferences of its preferred stock. The Articles of Amendment shall be in
full force and effect as of the Closing under the laws of Oregon and shall not
have been amended or modified.
2C. Registration Agreement. The Company and Purchaser shall have
entered into a registration agreement in form and substance as set forth in
Exhibit C attached hereto (the "Registration Agreement"), and the Registration
Agreement shall be in full force and effect as of the Closing.
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2D. Stockholders Agreement. The Company, Purchaser and Xxxxxx X. Xxxxx
("Xxxxx") shall have entered into a stockholders agreement in form and substance
set forth in Exhibit D attached hereto (the "Stockholders Agreement"), and the
Stockholders Agreement shall be in full force and effect as of the Closing.
2E. Securities Law Compliance. The Company shall have made all filings
under all applicable federal and state securities laws necessary to consummate
the issuance of the Preferred Stock and the Warrant pursuant to this Agreement
in compliance with such laws.
2F. Lease Modification Agreements. The Company and each of the
landlords of the Company's Regency Park and Sterling Park facilities (the
"Landlords") shall have entered into a modification agreement with respect to
the underlying leases (the "Lease Modification Agreements") in form and
substance reasonably satisfactory to Purchaser, and each of the Lease
Modification Agreements shall not have been amended or modified and shall be in
full force and effect at the Closing.
2G. Opinion of the Company's Counsel. Purchaser shall have received
from Stoel Rives LLP, counsel for the Company, an opinion with respect to the
matters set forth in Exhibit E attached hereto, which shall be addressed to
Purchaser, dated the date of the Closing and in form and substance satisfactory
to Purchaser.
2H. Closing Documents. The Company shall have delivered to Purchaser
all of the following documents:
(i) an Officer's Certificate, dated the date of the Closing,
stating that the conditions specified in Section 1 and paragraphs 2A
through 2F, inclusive, have been fully satisfied;
(ii) certified copies of the resolutions duly adopted by the
Company's board of directors authorizing the execution, delivery and
performance of this Agreement, the Registration Agreement and each of the
other agreements contemplated hereby, the filing of the Articles of
Amendment, the issuance and sale of the Preferred Stock, the issuance and
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sale of the Warrant, the reservation for issuance upon conversion of the
Preferred Stock and exercise of the Warrant an aggregate of 2,018,182
shares of Common Stock and the consummation of all other transactions
contemplated by this Agreement;
(iii) certified copies of the Restated Articles of Incorporation,
as amended, the Articles of Amendment and the Company's bylaws, each as in
effect at the Closing; and
(iv) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation of the
transactions hereunder (including, without limitation, all blue sky law
filings and waivers of all preemptive rights and rights of first refusal).
2I. Proceedings. All corporate and other proceedings taken or required
to be taken by the Company in connection with the transactions contemplated
hereby to be consummated at or prior to the Closing and all documents incident
thereto shall be reasonably satisfactory in form and substance to Purchaser and
its special counsel.
2J. Waiver. Any condition specified in this Section 2 may be waived if
consented to by Purchaser; provided that no such waiver shall be effective
against Purchaser unless it is set forth in a writing executed by Purchaser.
2K. Expenses. At the Closing, the Company shall have reimbursed
Purchaser for the reasonable fees and expenses of its special counsel as
provided in paragraph 7A hereof.
Section 3. Covenants.
3A. Financial Statements and Other Information. The Company shall
deliver to Purchaser (so long as Purchaser holds any Underlying Common Stock)
and to each holder of at least 25% of the Underlying Common Stock who is not a
Competitor:
(i) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each
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fiscal year, beginning with the calendar month of January, 1997, unaudited
consolidating and consolidated statements of operations and cash flows of
the Company and its Subsidiaries for such monthly period and for the period
from the beginning of the fiscal year to the end of such month, and
unaudited consolidating and consolidated balance sheets of the Company and
its Subsidiaries as of the end of such monthly period, setting forth in
each case comparisons to the Company's annual budget and to the
corresponding period in the preceding fiscal year, and all such statements
shall be prepared in accordance with generally accepted accounting
principles, consistently applied, subject to the absence of footnote
disclosures and to normal year-end adjustments for recurring accruals, and
shall be certified by the Company's chief financial officer;
(ii) accompanying the financial statements referred to in
subparagraph (i), an Officer's Certificate stating that there is no Event
of Noncompliance in existence or, if any Event of Noncompliance exists,
specifying the nature and period of existence thereof and what actions the
Company and its Subsidiaries have taken and propose to take with respect
thereto;
(iii) within 90 days after the end of each fiscal year,
consolidating and consolidated statements of operations and cash flows of
the Company and its Subsidiaries for such fiscal year, and consolidating
and consolidated balance sheets of the Company and its Subsidiaries as of
the end of such fiscal year, setting forth in each case comparisons to the
Company's annual budget and, beginning with the year ending December 31,
1997, to the preceding fiscal year, all prepared in accordance with
generally accepted accounting principles, consistently applied, and
accompanied by, with respect to the consolidated portions of such
statements, an opinion containing no exceptions or qualifications (except
for qualifications regarding specified contingent liabilities) of an
independent accounting firm of recognized national standing;
(iv) within five business days of its receipt by the Company, a
copy of such independent accounting firm's annual management letter to the
board of directors;
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(v) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's operations or financial affairs given to the
Company by its independent accountants (and not otherwise contained in
other materials provided hereunder);
(vi) promptly when available but in any event within 30 days
after the beginning of each fiscal year, an annual budget prepared on a
monthly basis for the Company and its Subsidiaries for such fiscal year
(displaying anticipated statements of income and cash flows and balance
sheets), and promptly upon preparation thereof any other significant
budgets prepared by the Company and any revisions of such annual
or other budgets, and within 30 days after any monthly period in which
there is a material adverse deviation from the annual budget, an Officer's
Certificate explaining the deviation and what actions the Company has taken
and proposes to take with respect thereto;
(vii) promptly (but in any event within five business days) after
the discovery or receipt of notice of any Event of Noncompliance or any
condition or event which is reasonably likely to result in any material
liability under any federal, state or local statute or regulation relating
to public health and safety, worker health and safety or pollution or
protection of the environment, an Officer's Certificate specifying the
nature and period of existence thereof and what actions the Company and its
Subsidiaries have taken and propose to take with respect thereto;
(viii) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general
written communications which the Company sends to its stockholders and
copies of all registration statements and all regular, special or periodic
reports which it files, or (to its knowledge) any of its officers or
directors file with respect to the Company, with the Securities and
Exchange Commission or with any securities exchange on which any of its
securities are then listed, and copies of all press releases and other
statements made available generally by the
6
Company to the public concerning material developments in the Company's and
its Subsidiaries' businesses; and
(ix) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this paragraph 3A may reasonably
request.
Each of the financial statements referred to in subparagraph (i) and (iii) shall
be true and correct in all material respects as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end adjustments for recurring accruals. Upon
the written request of Purchaser or any holder of Underlying Common Stock
entitled to receive information under this paragraph, the Company shall cease to
send any information otherwise required by this paragraph to Purchaser or such
holder of Underlying Common Stock; provided that Purchaser or such holder of
Underlying Common Stock may at any time thereafter, upon written request, again
receive such information as provided in this paragraph.
Pursuant to this paragraph, the Company may furnish Purchaser or other holders
of Underlying Common Stock with certain information that is non-public,
confidential or proprietary in nature. As used herein, "Confidential
Information" means (i) any material, nonpublic information about the Company and
its Subsidiaries and (ii) any technical, nonfinancial information, data or
know-how which is identified in writing as confidential by the Company, in
either case as furnished by the Company to Purchaser or any other holder
of Underlying Common Stock pursuant to this paragraph but does not include
information (x) which was publicly known, or otherwise known to Purchaser or
such other holder of Underlying Common Stock, at the time of disclosure, (y)
which subsequently becomes publicly known through no act or omission by
Purchaser or such other holder of Underlying Common Stock or (z) which otherwise
becomes known to Purchaser or such other holder of Underlying Common Stock,
other than through disclosure by the Company. Purchaser and other holders of
Underlying Common Stock shall use their reasonable best efforts to hold in
confidence and not to disclose the Confidential Information, except (a) as may
be required by law, (b) to the officers, directors, employees, agents
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and professional consultants of Purchaser or any subsidiary of Purchaser or (c)
to any prospective transferee of the Preferred Stock or Underlying Common Stock
provided that such prospective transferee agrees to be bound by the provisions
of this paragraph; and provided that Purchaser or such other holder of
Underlying Common Stock be free, after notice to the Company, to correct any
false or misleading information which may become public concerning the Company
or Purchaser's relationship to the Company or this Agreement. If Purchaser
ceases to hold any Preferred Stock or Underlying Common Stock, Purchaser will,
if requested by the Company, return to the Company all documents furnished by
the Company containing Confidential Information which have not theretofore been
destroyed or returned to the Company.
3B. Inspection of Property. The Company shall permit any
representatives designated by Purchaser (so long as Purchaser holds any
Underlying Common Stock) or any holder of at least 25% of the Underlying Common
Stock who is not a Competitor, upon reasonable notice and during normal business
hours and at such other times as any such holder may reasonably request, to (i)
visit and inspect any of the properties of the Company and its Subsidiaries,
(ii) examine the corporate and financial records of the Company and its
Subsidiaries and make copies thereof or extracts therefrom and (iii) discuss the
affairs, finances and accounts of any such corporations with the directors,
executive officers and inde pendent accountants of the Company and its
Subsidiaries. The presentation of an executed copy of this Agreement by
Purchaser or any such holder of Preferred Stock or Underlying Common Stock to
the Company's independent accountants shall constitute the Company's permission
to its independent accountants to participate in discussions with such Persons.
3C. Designation of Directors. So long as the Preferred Stock remains
outstanding, the holders of the Preferred Stock shall have the right to select
two representatives to be elected to the Company's board of directors, and the
Company shall use its best efforts to cause such representatives to be nominated
for election to the board of directors and solicit proxies from the Company's
stockholders in favor of the election of such representatives. Such
representatives shall initially be Xxxx X'Xxxxx and Xxxxxx Xxxxxxxx. Purchasers
may in the future select an industry
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executive reasonably acceptable to the remaining members of the Company's board
of directors or any employee, partner, adviser or manager of Purchaser or its
general partner as representatives to be elected to the Company's board of
directors. The Company shall use its best efforts to cause such representatives
to be elected to the board of directors (including voting all unrestricted
proxies in favor of such representatives) and shall not take any action which
would diminish the prospects of such representatives being elected to the board
of directors. The Company shall enter into indemnity agreements with any
directors selected by Purchaser that are similar in form and substance to those
that the Company has entered into with its other directors. The Company shall
use its best efforts to cause the appointment of at least one such
representative to be a member of the Compensation Committee and the Audit
Committee of the Company's board of directors. All reasonable out-of-pocket
expenses of each board member incurred in connection with attending regular and
special board meetings and any meeting of any board committee shall be paid by
the Company. The board representatives designated hereunder or elected by the
holders of the Preferred Stock shall be entitled to fees and other compensation
paid to board members who are not employees of the Company or its Subsidiaries.
3D. Restrictions. So long as any Preferred Stock remains outstanding,
the Company shall not, without the prior written consent of the holders of at
least 662/3% of the outstanding Preferred Stock:
(i) directly or indirectly declare or pay any dividends or make
any distributions upon any of its capital stock or other equity securities
other than the Preferred Stock pursuant to the terms of the Articles of
Amendment, except for dividends payable in shares of Common Stock issued
upon the outstanding shares of Common Stock;
(ii) directly or indirectly redeem, purchase or otherwise
acquire, or permit any Subsidiary to redeem, purchase or otherwise acquire,
any of the Company's or any Subsidiary's capital stock or other equity
securities (including, without limitation, warrants, options and other
rights to acquire such capital stock or other equity securities) other
9
than the Preferred Stock pursuant to the terms of the Articles of
Amendment, or directly or indirectly redeem, purchase or make any payments
with respect to any stock appreciation rights, phantom stock plans or
similar rights or plans;
(iii) except as expressly contemplated by this Agreement,
authorize, issue or enter into any agreement providing for the issuance
(contingent or otherwise) of, (a) any notes or debt securities containing
equity features (including, without limitation, any notes or debt
securities convertible into or exchangeable for capital stock or other
equity securities, issued in connection with the issuance of capital stock
or other equity securities or containing profit participation features),
other than Permitted Debt Securities, or (b) any capital stock or other
equity securities (or any securities convertible into or exchangeable for
any capital stock or other equity securities) which are senior to or on a
parity with the Series A Preferred or the Series B Preferred with respect
to the payment of dividends, redemptions or distributions upon liquidation
or otherwise;
(iv) make, or permit any Subsidiary to make, any loans or
advances to, guarantees for the benefit of, or Investments in, any Person
(other than a Wholly-Owned Subsidiary established under the laws of a
jurisdiction of the United States or any of its territorial possessions),
except for (a) reasonable advances to employees in the ordinary course of
business, (b) acquisitions permitted pursuant to subparagraph (viii) below
and (c) Investments conforming to the Investment Policy adopted from time
to time by the Company's Board of Directors (collectively, the "Permitted
Investments");
(v) merge or consolidate with any Person, unless such merger or
consolidation is approved by the stockholders of the Company as required by
the laws of the State of Oregon (including, without limitation, any
provisions requiring a separate class or series vote), the Restated
Articles of Incorporation, as amended, the Company's bylaws or any other
statute, rule or regulation to which the Company is subject or, except as
permitted by subparagraph (viii) below, permit
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any Subsidiary to merge or consolidate with any Person (other than a
Wholly-Owned Subsidiary);
(vi) sell, lease or otherwise dispose of, or permit any
Subsidiary to sell, lease or otherwise dispose of, any assets of the
Company or its Subsidiaries having a fair market value equal to or in
excess of $250,000 (determined by the Company's board of directors in its
reasonable good faith judgment) in any transaction or series of related
transactions (other than sales in the ordinary course of business and the
sale and leaseback of assisted living facilities) unless such transaction
(or series of transactions) has been approved by a majority of the
directors of the Company who are not officers or employees of the Company);
(vii) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation,
any reorganization into a limited liability company, a partnership or any
other non-corporate entity which is treated as a partnership for federal
income tax purposes), unless approved by the stockholders of the Company as
required by the laws of the State of Oregon (including, without limitation,
any provisions requiring a separate class or series vote), the Restated
Articles of Incorporation, as amended, the Company's bylaws or any other
statute, rule or regulation to which the Company is subject;
(viii) acquire, or permit any Subsidiary to acquire, any interest
in any company or business (whether by a purchase of assets, purchase of
stock, merger or otherwise), or enter into any joint venture, involving an
aggregate consideration (including, without limitation, the assumption of
liabilities whether direct or indirect) exceeding $10,000,000 in any
transaction or series of related transactions unless such transaction (or
series of transactions) has been approved by a majority of the directors of
the Company who are not officers or employees of the Company;
(ix) enter into, or permit any Subsidiary to enter into, the
ownership, management or operation of any business other than owning,
managing or operating of assisted living
11
facilities; as used herein, assisted living facilities includes congregate
care, skilled nursing, stand alone special care facilities, adult day care,
home health care, hospice care and the provision of products and services
ancillary to such businesses;
(x) become subject to, or permit any of its Subsidiaries to
become subject to, (including, without limitation, by way of amendment to
or modification of) any agreement or instrument which by its terms would
(under any circumstances) directly restrict (a) the right of any Subsidiary
to make loans or advances or pay dividends to, transfer property to, or
repay any Indebtedness owed to, the Company or another Subsidiary or (b)
the Company's right to perform the provisions of this Agreement, the
Registration Agreement, the Articles of Amendment, the Restated Articles of
Incorporation, as amended or the Company's bylaws (including, without
limitation, provisions relating to the declaration and payment of dividends
on and the making of redemptions and conversions of the Preferred Stock);
(xi) except as expressly contemplated by this Agreement, make any
amendment to the Articles of Incorporation, the Articles of Amendment or
the Company's bylaws, or file any resolution of the board of directors with
the Oregon Secretary of State containing any provisions, which would
increase the number of authorized shares of the Preferred Stock or
adversely affect or otherwise impair the rights or the relative preferences
and priorities of the holders of the Preferred Stock or the Underlying
Common Stock under this Agreement, the Restated Articles of Incorporation,
as amended, the Articles of Amendment, the Company's bylaws or the
Registration Agreement, unless approved by the stockholders of the Company
as required by the laws of the State of Oregon (including, without
limitation, any provisions requiring a separate class or series vote), the
Restated Articles of Incorporation, as amended, the Company's bylaws or any
other statute, rule or regulation to which the Company is subject;
(xii) enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement,
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any agreement, transaction, commitment or arrangement with any of its or
any Subsidiary's officers, directors, employees, stockholders holding more
than 1% of the outstanding Common Stock or Affiliates or with any
individual related by blood, marriage or adoption to any such individual or
with any entity in which any such Person or individual owns a material
beneficial interest, except for customary employment arrangements and
benefit programs on reasonable terms as approved by a disinterested
majority of the members of the compensation committee of the Company's
board of directors, except for other agreements, transactions, commitments
and arrangements entered into by the Company on an arm's-length basis as
determined by a disinterested majority (including at least one director
designated by the holders of the Preferred Stock) of the members of the
conflicts committee of the Company's board of directors, and except as
otherwise expressly contemplated by this Agreement;
(xiii) increase any compensation (including salary, bonuses and
other forms of current and deferred compensation) payable to any officer or
director of the Company or any Subsidiary, except as approved by a
disinterested majority of the members of the compensation committee of the
Company's board of directors;
(xiv) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any Indebtedness
other than Permitted Indebtedness; and
(xv) amend or modify any stock option plan or employee stock
ownership plan as in existence as of the Closing, other than to increase to
600,000 the number of options for shares of the Company's common stock that
may be issued under the Company's 1995 Stock Incentive Plan, adopt any new
stock option plan or employee stock ownership plan or issue any shares of
Common Stock to its or its Subsidiaries' employees other than pursuant to
the Company's existing stock option and employee stock ownership plans ,
unless approved by the stockholders of the Company as required by the laws
of the State of Oregon (including, without limitation, any provisions
requiring a separate class or series vote), the Restated
13
Articles of Incorporation, as amended, the Company's bylaws or any other
statute, rule or regulation to which the Company is subject.
Notwithstanding the foregoing, this Agreement shall not require the consent of
the holders of 662/3% of the outstanding Preferred Stock for actions otherwise
approved by the stockholders of the Company as required by the laws of the State
of Oregon (including, without limitation, any provisions requiring a separate
class or series vote), the Restated Articles of Incorporation, as amended, the
Company's bylaws or any other statute, rule or regulation to which the Company
is subject.
3E. Affirmative Covenants. So long as any Preferred Stock remains
outstanding, the Company shall, and shall cause each Subsidiary to, unless it
has received the prior written consent of the holders of at least 662/3% of the
outstanding Preferred Stock:
(i) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits necessary to the conduct of its
businesses;
(ii) maintain and keep its material properties in good repair,
working order and condition, and from time to time make all necessary or
desirable repairs, renewals and replacements, so that its businesses may be
properly conducted at all times in all material respects;
(iii) pay and discharge when payable all material taxes,
assessments and governmental charges imposed upon its properties or upon
the income or profits therefrom (in each case before the same becomes
delinquent and before penalties accrue thereon) and all material claims for
labor, materials or supplies which if unpaid would by law become a Lien
upon any of its property, unless and to the extent that the same are being
contested in good faith and by appropriate proceedings and xxx xxxxx
reserves (as determined in accordance with generally accepted accounting
principles, consistently
14
applied) have been established on its books with respect thereto;
(iv) comply with all other material obligations which it incurs
pursuant to any contract or agreement, whether oral or written, express or
implied, as such obligations become due, unless and to the extent that the
same are being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with generally accepted
accounting principles, consistently applied) have been established on its
books with respect thereto;
(v) comply with all applicable laws, rules and regulations of all
governmental authorities, the violation of which would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company
and its Subsidiaries taken as a whole;
(vi) apply for and continue in force with financially sound and
reputable insurance companies insurance covering risks of such types and in
such amounts as are customary for corporations of similar size engaged in
similar lines of business;
(vii) make a good faith effort to secure and maintain officers
and directors liability insurance coverage: (A) as of the Closing, in the
amount of $2,000,000, (B) as of January 1, 1997, in the amount of
$3,000,000 and (C) thereafter, in such amounts as are customary for
publicly traded corporations of similar size engaged in similar lines of
business as reasonably determined by the Company's board of directors;
provided, however, that the Company shall not be required to secure and
maintain any such insurance if such insurance is not available on
commercially reasonable terms; and
(viii) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such
proper reserves as in each
15
case are required in accordance with generally accepted accounting
principles, consistently applied;
3F. Compliance with Agreements. The Company shall perform and observe
in all material respects (i) all of its obligations to each holder of the
Preferred Stock and all of its obligations to each holder of the Underlying
Common Stock set forth in the Restated Articles of Incorporation, as amended,
the Articles of Amendment and the Company's bylaws, (ii) all of its obligations
to each holder of the Warrant set forth therein and (iii) all of its obligations
to each holder of Registrable Securities set forth in the Registration
Agreement.
3G. Current Public Information. The Company shall file all reports
required to be filed by it under the Securities Act and the Securities Exchange
Act and the rules and regulations adopted by the Securities and Exchange
Commission thereunder and shall take such further action as any holder or
holders of Restricted Securities may reasonably request, all to the extent
required to enable such holders to sell Restricted Securities pursuant to (i)
Rule 144 adopted by the Securities and Exchange Commission under the Securities
Act (as such rule may be amended from time to time) or any similar rule or
regulation hereafter adopted by the Securities and Exchange Commission or (ii) a
registration statement on Form S-2 or S-3 or any similar registration form
hereafter adopted by the Securities and Exchange Commission. Upon request, the
Company shall deliver to any holder of Restricted Securities a written statement
as to whether it has complied with such requirements.
3H. Amendment of Agreements. The Company shall not amend, modify or
waive any provision of any Lease Modification Agreement, without the prior
written consent of the holders of at least 662/3% the Preferred Stock, and the
Company shall enforce the provisions of the Lease Modification Agreements and
shall exercise all of its rights and remedies thereunder unless it is otherwise
directed by the holders of at least 662/3% of the Preferred Stock.
16
3I. First Refusal Rights.
(i) Except for issuances of Common Stock (a) upon the conversion of
the Preferred Stock or upon the exercise of the Warrant, (b) in connection with
the acquisition of another company or business as contemplated by paragraph
3D(viii), (c) pursuant to a public offering registered under the Securities Act,
or (d) upon the exercise of options granted to any of the Company's or its
Subsidiaries' employees, directors, agents, consultants, advisors or independent
consultants pursuant to any stock option plan adopted by the Company's board of
directors, (e) upon the exercise of any of the warrants sold to the
representatives of the underwriters of the Company's initial public offering,
(f) upon the conversion of any Permitted Debt Securities or (g) as a dividend on
the outstanding Common Stock, if the Company authorizes the issuance or sale of
any shares of Common Stock or any securities containing options or rights to
acquire any shares of Common Stock, the Company shall first offer to sell to
each holder of Underlying Common Stock a portion of such stock or securities
equal to the quotient determined by dividing (1) the number of shares of Under
lying Common Stock held by such holder by (2) the sum of the total number of
shares of Underlying Common Stock and the number of shares of Common Stock
outstanding which are not shares of Underlying Common Stock. Each holder of
Underlying Common Stock shall be entitled to purchase such stock or securities
at the most favorable price and on the most favorable terms as such stock or
securities are to be offered to any other Persons; provided that if all Persons
entitled to purchase or receive such stock or securities are required to also
purchase other securities of the Company, the holders of Underlying Common Stock
exercising their rights pursuant to this paragraph shall also be required to
purchase the same strip of securities (on the same terms and conditions) that
such other Persons are required to purchase and provided that, at the request of
any holder of Underlying Common Stock, the Company shall offer to such holder
stock or securities which have no voting rights (other than required by
applicable law) and which are convertible into voting securities on the same
terms as the Series A Preferred is convertible into Common Stock but which are
otherwise identical to the stock or securities being offered. The purchase price
for all stock and securities offered to the holders of the Underlying Common
Stock shall be
17
payable in cash or, to the extent otherwise required hereunder, notes issued by
such holders.
(ii) In order to exercise its purchase rights hereunder, a holder of
Underlying Common Stock must within 15 days after receipt of written notice from
the Company describing in reasonable detail the stock or securities being
offered, the purchase price thereof, the payment terms and such holder's
percentage allotment deliver a written notice to the Company describing its
election hereunder. If all of the stock and securities offered to the holders of
Underlying Common Stock is not fully subscribed by such holders, the remaining
stock and securities shall be reoffered by the Company to the holders purchasing
their full allotment upon the terms set forth in this paragraph, except that
such holders must exercise their purchase rights within five days after receipt
of such reoffer.
(iii) Upon the expiration of the offering periods described above, the
Company shall be entitled to sell such stock or securities which the holders of
Underlying Common Stock have not elected to purchase during the 180 days
following such expiration on terms and conditions no more favorable to the
purchasers thereof than those offered to such holders. Any stock or securities
offered or sold by the Company after such 180-day period must be reoffered to
the holders of Underlying Common Stock pursuant to the terms of this paragraph.
Section 4. Transfer of Restricted Securities.
4A. General Provisions. Restricted Securities are transferable only
pursuant to (i) public offerings registered under the Securities Act, (ii) Rule
144 or Rule 144A of the Securities and Exchange Commission (or any similar rule
or rules then in force) if such rule is available and (iii) subject to the
conditions specified in paragraph 4B below, any other legally available means of
transfer.
4B. Opinion Delivery. In connection with the transfer of any
Restricted Securities (other than a transfer described in paragraph 4A(i) or
(ii) above), the holder thereof shall deliver written notice to the Company
describing in reasonable detail the
18
transfer or proposed transfer, together with an opinion in form and substance
reasonably satisfactory to the Company's counsel of Xxxxxxxx & Xxxxx or other
counsel which (to the Company's reason able satisfaction) is knowledgeable in
securities law matters to the effect that such transfer of Restricted Securities
may be effected without registration of such Restricted Securities under the
Securities Act. In addition, if the holder of the Restricted Securities delivers
to the Company an opinion of Xxxxxxxx & Xxxxx or such other counsel in form and
substance reasonably satisfactory to the Company's counsel that no subsequent
transfer of such Restricted Securities shall require registration under the
Securities Act, the Company shall promptly upon such contemplated transfer
deliver new certificates for such Restricted Securities which do not bear the
Securities Act legend set forth in paragraph 7C. If the Company is not required
to deliver new certificates for such Restricted Securities not bearing such
legend, the holder thereof shall not transfer the same until the prospective
transferee has confirmed to the Company in writing its agreement to be bound by
the conditions contained in this paragraph and paragraph 7C. The cost of
obtaining any opinion contemplated by this paragraph 4B shall be borne by the
holder of the Restricted Securities being transferred.
4C. Rule 144A. Upon the request of any Purchaser, the Company shall
promptly supply to such Purchaser or its prospective transferees all information
regarding the Company required to be delivered in connection with a transfer
pursuant to Rule 144A of the Securities and Exchange Commission.
4D. Legend Removal. If any Restricted Securities become eligible for
sale pursuant to Rule 144(k), the Company shall, upon the request of the holder
of such Restricted Securities, remove the legend set forth in paragraph 7C from
the certificates for such Restricted Securities.
4E. Restriction on Transfer. The Preferred Stock may not be
transferred to a Competitor without the prior written consent of the Company;
provided that the Common Stock issuable upon the conversion of the Preferred
Stock and the Warrant shall not be subject to such restriction on transfer.
19
Section 5. Representations and Warranties of the Company. As a
material inducement to the Purchasers to enter into this Agreement and purchase
the Preferred Stock and the Warrant hereunder, the Company hereby represents and
warrants that:
5A. Organization, Corporate Power and Licenses. The Company is a
corporation duly organized and validly existing under the laws of Oregon and is
qualified to do business in every jurisdiction in which its ownership of
property or conduct of business requires it to qualify. The Company possesses
all requisite corporate power and authority and all material licenses, permits
and authorizations necessary to own and operate its properties, to carry on its
businesses as now conducted and to carry out the transactions contemplated by
this Agreement. The copies of the Company's and each Subsidiary's charter
documents and bylaws which have been furnished to the Purchasers' special
counsel reflect all amendments made thereto at any time prior to the date of
this Agreement and are correct and complete.
5B. Capital Stock and Related Matters.
(i) As of the Closing and immediately thereafter, the authorized
capital stock of the Company shall consist of (a) 5,000,000 shares of preferred
stock, of which 1,666,667 shares shall be designated as Series A Preferred
(1,283,785 of which shall be issued and outstanding, and 382,882 of which shall
be reserved for issuance upon the conversion of the Series B Preferred) and
382,882 shares shall be designated as Series B Preferred (all of which shall be
issued and outstanding), and (b) 25,000,000 shares of Common Stock, of which
4,633,000 shares shall be issued and outstanding and 2,018,182 shares shall be
reserved for issuance upon conversion of the Preferred Stock or exercise of the
Warrant. As of the Closing, neither the Company nor any Subsidiary shall have
outstanding any stock or securities convertible or exchangeable for any shares
of its capital stock or containing any profit participation features, nor shall
it have outstanding any rights or options to subscribe for or to purchase its
capital stock or any stock or securities convertible into or exchangeable for
its capital stock or any stock appreciation rights or phantom stock plans,
except for the Preferred Stock and except as set forth on the attached
"Capitalization Schedule." The Capitalization
20
Schedule accurately sets forth the following information with respect to all
outstanding options and rights to acquire the Company's capital stock: the
holder, the number of shares covered, the exercise price and the expiration
date. As of the Closing, neither the Company nor any Subsidiary shall be subject
to any obligation (contingent or otherwise) to repurchase or otherwise acquire
or retire any shares of its capital stock or any warrants, options or other
rights to acquire its capital stock, except as set forth on the Capitalization
Schedule and except pursuant to the Articles of Amendment and the Restated
Articles of Incorporation, as amended. As of the Closing, all of the outstanding
shares of the Company's capital stock shall be validly issued, fully paid and
nonassessable.
(ii) There are no statutory or, to the best of the Company's
knowledge, contractual stockholders' preemptive rights or rights of refusal with
respect to the issuance of the Preferred Stock or the Warrant hereunder or the
issuance of the Common Stock upon conversion of the Preferred Stock or upon
exercise of the Warrant. The Company has not violated any applicable federal or
state securities laws in connection with the offer, sale or issuance of any of
its capital stock, and the offer, sale and issuance of the Preferred Stock or
the Warrant hereunder do not require registration under the Securities Act or
any applicable state securities laws. To the best of the Company's knowledge,
there are no agreements between the Company's stockholders with respect to the
voting or transfer of the Company's capital stock or with respect to any other
aspect of the Company's affairs.
5C. Subsidiaries; Investments. The attached "Subsidiary Schedule"
correctly sets forth the name of each Subsidiary, the jurisdiction of its
organization and the Persons owning the membership interests of such Subsidiary.
Each Subsidiary is duly organized and validly existing under the laws of the
jurisdiction of its organization, possesses all requisite limited liability
company power and authority and all material licenses, permits and
authorizations necessary to own its properties and to carry on its businesses as
now being conducted and is qualified to do business in every jurisdiction in
which its ownership of property or the conduct of business requires it to
qualify. The Company has made all contributions required to date pursuant to the
operating
21
agreement for each Subsidiary, and all membership interests are owned by the
Company free and clear of any Lien and, except as described on the Subsidiary
Schedule, are not subject to any option or right to purchase any such membership
interests. Except as set forth on the Subsidiary Schedule, neither the Company
nor any Subsidiary owns or holds the right to acquire any shares of stock or any
other security or interest in any other Person.
5D. Authorization; No Breach. The execution, delivery and performance
of this Agreement, the Warrant, the Registration Agreement and all other
agreements contemplated hereby to which the Company is a party and the filing of
the Articles of Amendment have been duly authorized by the Company. This
Agreement, the Warrant, the Registration Agreement, the Restated Articles of
Incorporation, as amended, the Articles of Amendment and all other agreements
contemplated hereby to which the Company is a party each constitutes a valid and
binding obligation of the Company, enforceable in accordance with its terms. The
execution and delivery by the Company of this Agreement, the Registration
Agreement and all other agreements contemplated hereby to which the Company is a
party, the offering, sale and issuance of the Preferred Stock and the Warrants
hereunder, the issuance of the Common Stock upon conversion of the Preferred
Stock, the issuance of the Series A Preferred upon conversion of the Series B
Preferred, the issuance of Warrants hereunder, the issuance of Common Stock upon
exercise of Warrants, the filing of the Articles of Amendment and the
fulfillment of and compliance with the respective terms hereof and thereof by
the Company, do not and shall not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under, (iii)
result in the creation of any lien, security interest, charge or encumbrance
upon the Company's or any Subsidiary's capital stock or assets pursuant to, (iv)
give any third party the right to modify, terminate or accelerate any obligation
under, (v) result in a violation of, or (vi) require any authorization, consent,
approval, exemption or other action by or notice or declaration to, or filing
with, any court or administrative or governmental body or agency pursuant to,
the Articles of Amendment or the charter or bylaws of the Company or any
Subsidiary, or any law, statute, rule or regulation to which the Company or any
Subsidiary is subject, or
22
any material agreement, instrument, order, judgment or decree to which the
Company or any Subsidiary is subject.
5E. Financial Statements. Attached hereto as the "Financial Statements
Schedule" are the following financial statements:
(i) the audited balance sheet of the Company as of December 31,
1995 and the related statement of operations and cash flows (or the
equivalent) for the twelve-month period then ended; and
(ii) the unaudited balance sheet of the Company as of September
30, 1996 (the "Latest Balance Sheet"), and the related statement of
operations and cash flows (or the equivalent) for the nine-month period
then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with generally accepted accounting principles, consistently applied.
5F. Absence of Undisclosed Liabilities. Except as set forth on the
attached "Liabilities Schedule," the Company and its Subsidiaries do not have
any material obligation or liability (whether accrued, absolute, contingent,
unliquidated or otherwise, whether or not known to the Company or any
Subsidiary, whether due or to become due and regardless of when asserted)
arising out of transactions entered into at or prior to the Closing, or any
action or inaction at or prior to the Closing, or any state of facts existing at
or prior to the Closing other than: (i) liabilities set forth on the Latest
Balance Sheet (including any notes thereto), (ii) liabilities and obligations
which have arisen after the date of the Latest Balance Sheet in the ordinary
course of business (none of which is a liability resulting from breach of
contract, breach of warranty, tort, infringement, claim or lawsuit) and (iii)
other liabilities and obligations expressly disclosed in the other Schedules to
this Agreement.
23
5G. No Material Adverse Change. Since the date of the Latest Balance
Sheet, there has been no material adverse change in the financial condition,
operating results, assets, operations, business prospects, employee relations or
customer or supplier relations of the Company and its Subsidiaries taken as a
whole.
5H. Absence of Certain Developments.
(i) Except as expressly contemplated by this Agreement or as set forth
on the attached "Developments Schedule," since the date of the Latest Balance
Sheet, neither the Company nor any Subsidiary have
(a) issued any notes, bonds or other debt securities or any
capital stock or other equity securities or any securities convertible,
exchangeable or exercisable into any capital stock or other equity
securities;
(b) borrowed any amount or incurred or become subject to any
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities under contracts entered into in the ordinary
course of business;
(c) discharged or satisfied any Lien or paid any obligation or
liability, other than current liabilities paid in the ordinary course of
business;
(d) declared or made any payment or distribution of cash or other
property to its stockholders with respect to its capital stock or other
equity securities or purchased or redeemed any shares of its capital stock
or other equity securities (including, without limitation, any warrants,
options or other rights to acquire its capital stock or other equity
securities);
(e) mortgaged or pledged any of its properties or assets or
subjected them to any Lien, except Liens for current property taxes not yet
due and payable;
(f) sold, assigned or transferred any of its tangible assets,
including any sale-leaseback transactions,
24
except in the ordinary course of business, or canceled any debts or
claims;
(g) sold, assigned or transferred any patents or patent
applications, trademarks, service marks, trade names, corporate names,
copyrights or copyright registrations, trade secrets or other intangible
assets;
(h) suffered any extraordinary losses or waived any rights of
value, whether or not in the ordinary course of business or consistent with
past practice;
(i) made capital expenditures or commitments therefor in excess
of $150,000;
(j) made any loans or advances to, guarantees for the benefit of,
or any Investments (other than Permitted Investments) in, any Persons in
excess of $200,000 in the aggregate;
(k) made any charitable contributions or pledges in excess of
$10,000 in the aggregate;
(l) suffered any damage, destruction or casualty loss exceeding
in the aggregate $10,000, whether or not covered by insurance;
(m) made any Investment in or taken steps to incorporate any
Subsidiary; or
(n) entered into any other transaction other than in the ordinary
course of business or entered into any other material transaction, whether
or not in the ordinary course of business.
(ii) Neither the Company nor any Subsidiary has at any time made any
payments for political contributions or made any bribes, kickback payments or
other illegal payments.
5I. Assets. Except as set forth on the attached "Assets Schedule," the
Company and each Subsidiary have good and marketable
25
title to, or a valid leasehold interest in, all of the material properties and
assets used by them, located on their premises or shown on the Latest Balance
Sheet or acquired thereafter. Except as described on the Assets Schedule, the
Company's and each Subsidiary's material equipment and other tangible assets are
in good operating condition in all material respects and are fit for use in the
ordinary course of business. The Company and each Subsidiary own, or have a
valid leasehold interest in, all assets necessary for the conduct of their
respective businesses as presently conducted.
(i) Owned Properties. The Assets Schedule sets forth a list of all
owned real property (the "Owned Real Property") used by the Company or any
Subsidiary in the operation of the Company's business. Except as set forth on
the Assets Schedule, with respect to each such parcel of Owned Real Property:
(a) such parcel is free and clear of all encumbrances, except Permitted
Encumbrances; (b) there are no leases, subleases, licenses, concessions, or
other agreements, written or oral, granting to any person the right of use or
occupancy of any portion of such parcel; and (c) there are no outstanding
actions or rights of first refusal to purchase such parcel, or any portion
thereof or interest therein.
(ii) Leased Properties. The Assets Schedule sets forth a list of all
of the leases and subleases ("Leases") of real property in which the Company or
any subsidiary has a leasehold and subleasehold interest (the "Leased Real
Property") (the Owned Real Property and the Leased Real Property are
collectively referred to herein as the "Real Property"). Each of the Leases are
in full force and effect and the Company holds a valid and existing leasehold or
subleasehold interest under each of the Leases. The Company has delivered to
Purchaser true, correct, complete and accurate copies of each of the Leases
described in the Assets Schedule. Except as described on the Assets Schedule,
with respect to each Lease listed on the Assets Schedule: (a) the Lease is
legal, valid, binding, enforceable and in full force and effect; (b) the Lease
will continue to be legal, valid, binding, enforceable and in full force and
effect on identical terms following the Closing; (c) neither the Company nor any
other party to the Lease is in breach or default, and no event has occurred
which, with notice or lapse of time, would constitute such a breach
26
or default or permit termination, modification or acceleration under the Lease;
(d) no party to the Lease has repudiated any provision thereof; (e) there are no
disputes, oral agreements, or forbearance programs in effect as to the Lease;
(f) the Lease has not been modified in any respect, except to the extent that
such modifications are disclosed by the documents delivered to Purchaser; (g)
the Company has not assigned, transferred, conveyed, mortgaged, deeded in trust
or encumbered any interest in the Lease; and (h) the purchase and transfer of
stock and warrants of the Company, as contemplated by this Agreement, will not
require the consent of the landlords or any other party under the Leases or
Seller shall obtain all necessary consents prior to the Closing. Purchaser
acknowledges that the Company subleases the operation of the beauty salon at
each property to a third party.
(iii) Real Property Disclosure. Except as disclosed on the Assets
Schedule, there is no real property leased or owned by the Company or any
subsidiary and used in the Company's business.
(iv) No Proceedings. There are no pending or, to the best of the
Company's knowledge, threatened proceedings in eminent domain or other similar
proceedings affecting any portion of the Real Property. There exists no writ,
injunction, decree, order or judgment outstanding, nor any litigation, pending
or, to the best of the Company's knowledge, threatened, relating to the
ownership, lease, use, occupancy or operation by any person of the Real
Property.
(v) Current Use. The current use or occupancy of the Real Property
does not violate in any material respect any instrument of record or agreement
affecting such Real Property or any covenant, condition, restriction, easement,
agreement or order of any governmental authority having jurisdiction over any of
the Real Property. No damage or destruction has occurred with respect to any of
the Real Property that, individually or in the aggregate, has had or resulted
in, or will have or result in, a material adverse effect on the operation of the
Company's business.
(vi) Condition and Operation of Improvements. All buildings and all
components of all buildings, structures and other
27
improvements included within the Owned Real Property (the "Improvements"), are
in good condition and repair and are adequate to operate such facilities as
currently used. To the best of the Company's knowledge and belief, there are no
facts or conditions affecting any of the Improvements and the Leased Real
Property which would, individually or in the aggregate, interfere in any
significant respect with the use, occupancy or operation thereof as currently
used, occupied or operated or intended to be used, occupied or operated. To the
best of the Company's knowledge and belief, there are no material structural
deficiencies or latent defects affecting any Improvements. All water, gas,
electrical, steam, compressed air, telecommunication, sanitary and storm sewage
lines and systems and other similar systems serving the Real Property are
installed and operating and are sufficient to enable the Real Property to
continue to be used and operated in the manner currently being used and
operated. Each such utility or other service is provided by a public or private
utility or service company and enters the Owned Real Property from an adjacent
public street or valid private easement owned by the supplier of such utility or
other service. Each Improvement has direct access to a public street adjoining
the Real Property on which such Improvement is situated over the driveways and
accessways currently being used in connection with the use and operation of such
Improvement and no existing accessway crosses or encroaches upon any property or
property interest not owned by the Company. No Improvement or portion thereof is
dependent for its access, operation or utility on any land, building or other
improvement not included in the Owned Real Property.
(vii) Permits. All certificates of occupancy, permits, licenses,
franchises, approvals and authorizations (collectively, the "Real Property
Permits") of all governmental authorities having jurisdiction over the Real
Property, required or appropriate to have been issued to the Company to enable
the Real Property in all material respects to be lawfully occupied and used for
all of the purposes for which it is currently occupied and used, have been
obtained by the Company and, to the Company's best knowledge, have been lawfully
issued and are, as of the date hereof, in full force and effect, with no
suspension, revocation or modification of any Real Property Permit pending or
threatened.
28
(viii) Compliance with Laws. The Real Property is in full compliance
with all applicable building, zoning, subdivision, health and safety and other
land use and similar laws affecting the Real Property (collectively, the "Real
Property Laws"), and the Company has not received any notice of violation or
claimed violation of any Real Property Law. To the best of the Company's
knowledge, there is no pending or anticipated change in any Real Property Law
that will have or result in a material adverse effect upon the ownership,
alteration, use, occupancy or operation of the Real Properties or any portion
thereof. No current use by the Company of the Real Properties is dependent on a
nonconforming use or other approval from a governmental authority, the absence
of which would significantly limit the use of any of the properties or assets in
the operation of the Company's business.
5J. Tax Matters.
(i) Except as set forth on the attached "Taxes Schedule": the Company
and each Subsidiary have filed all Tax Returns which they are required to file
under applicable laws and regulations; all such Tax Returns are complete and
correct in all material respects and have been prepared in compliance with all
applicable laws and regulations in all material respects; the Company, each
Subsidiary have paid in all material respects all Taxes due and owing by them
(whether or not such Taxes are required to be shown on a Tax Return) and have
withheld and paid over to the appropriate taxing authority all Taxes which they
are required to withhold from amounts paid or owing to any employee,
stockholder, creditor or other third party; neither the Company nor any
Subsidiary has waived any statute of limitations with respect to any Taxes or
agreed to any extension of time with respect to any Tax assessment or
deficiency; the accrual for Taxes on the Latest Balance Sheet would be adequate
to pay all Tax liabilities of the Company and its Subsidiaries if their current
tax year were treated as ending on the date of the Latest Balance Sheet
(excluding any amount recorded which is attributable solely to timing
differences between book and Tax income); since the date of the Latest Balance
Sheet, the Company and its Subsidiaries have not incurred any liability for
Taxes other than in the ordinary course of business; the assessment of any
additional Taxes for periods for which Tax Returns have been filed by the
Company and each Subsidiary shall
29
not exceed the recorded liability therefor on the Latest Balance Sheet
(excluding any amount recorded which is attributable solely to timing
differences between book and Tax income); no foreign, federal, state or local
tax audits or administrative or judicial proceedings are pending or being
conducted with respect to the Company or any Subsidiary, no information related
to Tax matters has been requested by any foreign, federal, state or local taxing
authority and no written notice indicating an intent to open an audit or other
review has been received by the Company from any foreign, federal, state or
local taxing authority; and there are no material unresolved questions or claims
raised or made by any taxing authority concerning the Company's or any
Subsidiary's Tax liability.
(ii) Neither the Company nor any of its Subsidiaries has made an
election under ss.341(f) of the Internal Revenue Code of 1986, as amended.
Neither the Company nor any Subsidiary is liable for the Taxes of another Person
that is not a Subsidiary in a material amount under (a) Treasury Regulation ss.
1.1502-6 (or comparable provisions of state, local or foreign law), (b) as a
transferee or successor, (c) by contract or indemnity or (d) otherwise. Neither
the Company nor any Subsidiary is a party to any tax sharing agree ment. The
Company, each Subsidiary have disclosed on their federal income Tax Returns any
position taken for which substantial authority (within the meaning of IRC
ss.6662(d)(2)(B)(i)) did not exist at the time the return was filed. Neither the
Company nor any Subsidiary has made any payments, is obligated to make payments
or is a party to an agreement that could obligate it to make any payments that
would not be deductible under IRC ss.280G.
(iii) "Tax" or "Taxes" means federal, state, county, local, foreign or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not. "Tax Return" means any return, information
report or filing with
30
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
5K. Contracts and Commitments.
(i) Except as expressly contemplated by this Agreement or as set forth
on the attached "Contracts Schedule" or the attached "Employee Benefits
Schedule," neither the Company nor any Subsidiary is a party to or bound by any
written or oral:
(a) pension, profit sharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or other
compensation to employees or any other employee benefit plan or
arrangement, or any collective bargaining agreement or any other contract
with any labor union, or severance agreements, programs, policies or
arrangements;
(b) contract for the employment of any officer, individual
employee or other Person on a full-time, part-time, consulting or other
basis providing annual compensation in excess of $50,000 or contract
relating to loans to officers, directors or Affiliates;
(c) contract under which the Company or Subsidiary has advanced
or loaned any other Person amounts in the aggregate exceeding $50,000;
(d) agreement or indenture relating to borrowed money or other
Indebtedness or the mortgaging, pledging or otherwise placing a Lien on any
material asset or material group of assets of the Company and its
Subsidiaries;
(e) guarantee of any obligation;
(f) lease or agreement under which the Company or any Subsidiary
is lessee of or holds or operates any property, real or personal, owned by
any other party, except for any lease of real or personal property under
which the aggregate annual rental payments do not exceed $50,000;
31
(g) lease or agreement under which the Company or any Subsidiary
is lessor of or permits any third party to hold or operate any property,
real or personal, owned or controlled by the Company or any Subsidiary;
(h) contract or group of related contracts with the same party or
group of affiliated parties the performance of which involves consideration
in excess of $100,000;
(i) assignment, license, indemnification or agreement with
respect to any intangible property (including, without limitation, any
Intellectual Property);
(j) warranty agreement with respect to its services rendered or
its products sold or leased;
(k) agreement under which it has granted any Person any
registration rights (including, without limitation, demand and piggyback
registration rights);
(l) sales, distribution or franchise agreement;
(m) material agreement with a term of more than six months which
is not terminable by the Company or any Subsidiary upon less than 30 days
notice without penalty;
(n) contract or agreement prohibiting it from freely engaging in
any business or competing anywhere in the world; or
(o) any other agreement which is material to its operations or
relating to the acquisition of additional properties.
(ii) All of the contracts, agreements and instruments set forth on the
Contracts Schedule are valid, binding and enforceable in accordance with their
respective terms. The Company and each Subsidiary have performed all material
obligations required to be performed by them on or prior to the date of this
Agreement and are not in default under or in breach of nor in receipt of any
claim of default or breach under any material contract, agreement or instrument
to which the Company or any Subsidiary is subject; no event has occurred which
with the passage of time or the giving of notice or both would result in a
default, breach or event of noncompliance by the Company or any Subsidiary under
any material contract, agreement or
32
instrument to which the Company or any Subsidiary is subject; neither the
Company nor any Subsidiary has any present expectation or intention of not fully
performing all such material obligations; and neither the Company nor any
Subsidiary has knowledge of any breach or anticipated breach by the other
parties to any material contract, agreement, instrument or commitment to which
it is a party.
(iii) The Company has delivered or made available to the Purchasers'
special counsel a true and correct copy of each of the written instruments,
plans, contracts and agreements and an accurate description of each of the oral
arrangements, contracts and agreements which are referred to on the Contracts
Schedule, together with all amendments, waivers or other changes thereto.
5L. Intellectual Property Rights.
(i) The attached "Intellectual Property Schedule" contains a complete
and accurate list of all (a) material patented or registered Intellectual
Property Rights owned or used by the Company or any Subsidiary, (b) material
pending patent applications and applications for registrations of other
Intellectual Property Rights filed by the Company or any Subsidiary, (c)
material unregistered trade names and corporate names owned or used by the
Company or any Subsidiary and (d) material unregistered trademarks, service
marks, copyrights, mask works and computer software owned or used by the Company
or any Subsidiary. The Intellectual Property Schedule also contains a complete
and accurate list of all licenses and other rights granted by the Company or any
Subsidiary to any third party with respect to any material Intellectual Property
Rights and all licenses and other rights granted by any third party to the
Company or any Subsidiary with respect to any material Intellectual Property
Rights, in each case identifying the subject Intellectual Property Rights.
Except as set forth on the Intellectual Property Schedule, the Company or one of
its Subsidiaries owns all right, title and interest to, or has the right to use
pursuant to a valid license, all Intellectual Property
33
Rights necessary for the operation of the businesses of the Company and its
Subsidiaries as presently conducted free and clear of all Liens.
(ii) Except as set forth on the Intellectual Property Schedule, (a)
the Company and its Subsidiaries own all right, title and interest in and to all
of the Intellectual Property Rights listed on such schedule, free and clear of
all Liens, (b) there have been no claims made against the Company or any
Subsidiary asserting the invalidity, misuse or unenforceability of any of such
Intellectual Property Rights, and, to the best of the Company's knowledge, there
are no valid grounds for the same, (c) neither the Company nor any Subsidiary
has received any notices of, and is not aware of any facts which indicate a
likelihood of, any infringement or misappropriation by, or conflict with, any
third party with respect to such Intellectual Property Rights (including,
without limitation, any demand or request that the Company or any Subsidiary
license any rights from a third party) and (d) to the best of the Company's
knowledge, the conduct of the Company's and each Subsidiary's business has not
infringed, misappropriated or conflicted with and does not infringe, misappro
priate or conflict with any Intellectual Property Rights of other Persons, nor
would any future conduct as presently contemplated infringe, misappropriate or
conflict with any Intellectual Property Rights of other Persons.
5M. Litigation, etc. Except as set forth on the attached "Litigation
Schedule," there are no actions, suits, proceedings, orders, investigations or
claims pending or, to the best of the Company's knowledge, threatened against or
affecting the Company or any Subsidiary (or to the best of the Company's
knowledge, pending or threatened against or affecting any of the officers,
directors or employees of the Company and its Subsidiaries with respect to their
businesses or proposed business activities), at law or in equity, or before or
by any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, any actions, suit, proceedings
or investigations with respect to the transactions contemplated by this
Agreement); neither the Company nor any Subsidiary is subject to any arbitration
proceedings under collective bargaining agreements or otherwise or, to the best
of the Company's knowledge,
34
any governmental investigations or inquiries (including, without limitation,
inquiries as to the qualification to hold or receive any license or permit);
and, to the best of the Company's knowledge, there is no basis for any of the
foregoing. Neither the Company nor any Subsidiary is subject to any judgment,
order or decree of any court or other governmental agency.
5N. Brokerage. Except for the fees that will be payable by the Company
to each of Xxxxxxx & Company, Inc. and Coopers & Xxxxxxx L.L.P. in connection
with the transactions contemplated by this Agreement, there are no claims for
brokerage commissions, finders' fees or similar compensation in connection with
the transactions contemplated by this Agreement based on any arrangement or
agreement binding upon the Company or any Subsidiary. The Company shall pay, and
hold Purchaser harmless against, any liability, loss or expense (including,
without limitation, reasonable attorneys' fees and out-of-pocket expenses)
arising in connection with any such claim.
5O. Governmental Consent, etc. No permit, consent, approval or
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the execution, delivery and performance by the
Company of this Agreement or the other agreements contemplated hereby, or the
consummation by the Company of any other transactions contemplated hereby or
thereby, except as expressly contemplated herein or in the exhibits hereto.
5P. Insurance. The attached "Insurance Schedule" contains a
description of each insurance policy maintained by the Company and its
Subsidiaries with respect to its properties, assets and businesses, and each
such policy is in full force and effect as of the Closing. Neither the Company
nor any Subsidiary is in default with respect to its material obligations under
any insurance policy maintained by it, and neither the Company nor any
Subsidiary has been denied insurance coverage. The insurance coverage of the
Company and its Subsidiaries is customary for corporations of similar size
engaged in similar lines of business. Except as set forth on the Insurance
Schedule, the Company and its Subsidiaries do not have any self-insurance or
co-insurance programs, and the reserves set forth on the Latest Balance Sheet
35
are adequate to cover all anticipated liabilities with respect to any such
self-insurance or co-insurance programs.
5Q. Employees. The Company is not aware that any executive or key
employee of the Company or any Subsidiary or any group of employees of the
Company or any Subsidiary has any plans to terminate employment with the Company
or any Subsidiary. The Company and each Subsidiary have complied in all material
respects with all laws relating to the employment of labor (including, without
limitation, provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes), and
the Company is not aware that it or any Subsidiary has any material labor
relations problems (including, without limitation, any union organization
activities, threatened or actual strikes or work stoppages or material
grievances). Except as set forth on the attached "Employees Schedule," neither
the Company, its Subsidiaries nor, to the best of the Company's knowledge, any
of their employees is subject to any noncompete, nondisclosure, confidentiality,
employment, consulting or similar agreements relating to, affecting or in
conflict with the present or proposed business activities of the Company and its
Subsidiaries, except for agreements between the Company and its present and
former employees.
5R. ERISA. Except as set forth on the attached "Employee Benefits
Schedule":
(i) Multiemployer Plans. The Company does not have any obligation to
contribute to (or any other liability, including current or potential withdrawal
liability, with respect to) any "multiemployer plan" (as defined in Section
3(37) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")).
(ii) Retiree Welfare Plans. The Company does not maintain or have any
obligation to contribute to (or any other liability with respect to) any plan or
arrangement whether or not terminated, which provides medical, health, life
insurance or other welfare-type benefits for current or future retired or
terminated employees (except for limited continued medical benefit coverage
required to be provided under Section 4980B of the IRC or as required under
applicable state law).
36
(iii) Defined Benefit Plans. The Company does not maintain, contribute
to or have any liability under (or with respect to) any employee plan which is a
tax-qualified "defined benefit plan" (as defined in Section 3(35) of ERISA),
whether or not terminated.
(iv) Defined Contribution Plans. The Company does not maintain,
contribute to or have any liability under (or with respect to) any employee plan
which is a tax-qualified "defined contribution plan" (as defined in Section
3(34) of ERISA), whether or not terminated.
(v) Other Plans. The Company does not maintain, contribute to or have
any liability under (or with respect to) any plan or arrangement providing
benefits to current or former employees, including any bonus plan, plan for
deferred compensation, employee health or other welfare benefit plan or other
arrangement, whether or not terminated.
(vi) The Company. For purposes of this paragraph 5R, the term
"Company" includes all organizations under common control with the Company
pursuant to Section 414(b) or (c) of the IRC.
5S. Compliance with Laws.
(i) Neither the Company nor any Subsidiary has violated any law or any
governmental regulation or requirement which violation has had or would
reasonably be expected to have a material adverse effect upon the financial
condition, operating results, assets, operations or business prospects of the
Company and its Subsidiaries taken as a whole, and neither the Company nor any
Subsidiary has received notice of any such violation.
(ii) Neither the Company or any Subsidiary nor their officers and
employees, nor any persons who provide professional services under agreements
with the Company or its Subsidiaries have engaged in any activities which are
prohibited under any laws related to the operation of the business of the
Company or any Subsidiary, or the regulations promulgated pursuant to such laws,
including, without limitation, the following activities:
37
(a) making or causing to be made a false statement or
representation of a material fact in any application for any benefit or
payment;
(b) making or causing to be made any false statement or
representation of a material fact for use in determining rights to any
benefit or payment;
(c) presenting or causing to be presented a claim for
reimbursement for services under Medicare, Medicaid, or other state health
care programs that is for an item or service that is (i) not provided as
claimed, or (ii) false or fraudulent;
(d) failing to disclose knowledge by a claimant of the occurrence
of any event affecting the initial or continued right to any benefit or
payment on its own behalf or on behalf of another, regardless of whether
there was intent to fraudulently secure such benefit or payment;
(e) offering, paying, soliciting or receiving any remuneration
(including any kickback, bribe, or rebate), directly or indirectly, overtly
or covertly, in cash or in kind (i) in return for referring an individual
to a person for the furnishing or arranging for the furnishing of any item
or service for which payment may be made in whole or in part by Medicare or
Medicaid, or other state health care program, or (ii) in return for
purchasing, leasing, or ordering or arranging for or recommending
purchasing, leasing, or ordering any good, facility, service, or item for
which payment may be made in whole or in part by Medicare or Medicaid or
other state health care program;
(f) making a payment, directly or indirectly, to a physician as
an inducement to reduce or limit services to individuals who are under the
direct care of the physician and who are entitled to benefits under
Medicare, Medicaid, or other state health care programs;
(g) providing to any person information that is false or
misleading that could reasonably be expected to
38
influence the decision when to discharge a patient from a facility;
(h) making or causing to be made or inducing or seeking to induce
the making of any false statement or representation (or omitting to state a
fact required to be stated therein or necessary to make the statements
contained therein not misleading) of a material fact with respect to (i)
the conditions or operations of a facility in order that the facility may
qualify for Medicare, Medicaid or other state health care program
certification, (ii) information required to be provided under ss. 1124A of
the Social Security Act (42 U.S.C. ss. 1320a-3), or (iii) information
otherwise required by Medicare Regulations, Medicaid Regulations, or Other
Healthcare Regulations; and
(i) charging money or other consideration for any Medicaid
service at a rate in excess of the rates established by the state, or
charging, soliciting, accepting or receiving, in addition to amounts paid
by Medicaid, any gift money, donation or other consideration as a
precondition of admitting a patient or as a requirement for the patient's
continued stay in a facility.
5T. Environmental and Safety Matters.
(i) For purposes of this Agreement, the term "Environmental and Safety
Requirements" shall mean all federal, state and local statutes, regulations,
ordinances and other provisions having the force or effect of law, all judicial
and administrative orders and determinations and all common law, in each case
concerning public health and safety, worker health and safety and pollution or
protection of the environment (including, without limitation, all those relating
to the presence, use, production, generation, handling, transport, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
Release, threatened Release, control or cleanup of any hazardous materials,
substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation); "Release" shall have the meaning
set forth in CERCLA (as defined below); and
39
"Environmental Lien" shall mean any Lien, whether recorded or unrecorded, in
favor of any governmental entity, relating to any liability of the Company or
any Subsidiary arising under any Environmental and Safety Requirements.
(ii) Except as set forth on the attached "Environmental Schedule":
(a) The Company and its Subsidiaries have complied with and are
currently in compliance with all Environmental and Safety Requirements, and
neither the Company nor its Subsidiaries have received any written notice,
report or information regarding any liabilities (whether accrued, absolute,
contingent, unliqui dated or otherwise) or any corrective, investigatory or
remedial obligations arising under Environmental and Safety Requirements
which relate to the Company or its Subsidiaries or any of their properties
or facilities, except for any such noncompliance, liability or obligation
which has not had or would not reasonably be expected to have a material
adverse effect on the financial condition, operating results, assets,
operations or business prospects of the Company and its Subsidiaries taken
as a whole.
(b) Without limiting the generality of the foregoing, the Company
and its Subsidiaries have obtained and complied with, and are currently in
compliance with, all permits, licenses and other authorizations that may be
required pursuant to any Environmental and Safety Requirements for the
occupancy of their properties or facilities or the operation of their
businesses, except for any such failure to obtain or comply which has not
had or would not reasonably be expected to have a material adverse effect
on the financial condition, operating results, assets, operations or
business prospects of the Company and its Subsidiaries taken as a whole. A
list of all such permits, licenses and other authorizations which are
material to the Company and its Subsidiaries is set forth on the attached
Environmental Schedule.
40
(c) Neither this Agreement nor the consummation of the
transactions contemplated by this Agreement shall impose any obligations on
the Company and its Subsidiaries or otherwise for site investigation or
cleanup, or notification to or consent of any government agencies or third
parties under any Environmental and Safety Requirements (including, without
limitation, any so called "transaction-triggered" or "responsible property
transfer" laws and regulations).
(d) None of the following exists at any property or facility
owned, occupied or operated by the Company or any of its Subsidiaries:
(1) underground storage tanks or surface impoundments;
(2) asbestos-containing materials in any form or condition; or
(3) materials or equipment containing polychlorinated biphenyls.
(e) Neither the Company nor any of its Subsidiaries has treated,
stored, disposed of, arranged for or permitted the disposal of,
transported, handled or Released any substance (including, without
limitation, any hazardous substance) or owned, occupied or operated any
facility or property, so as to give rise to liabilities of the Company or
its Subsidiaries for response costs, natural resource damages or attorneys
fees pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), as amended, or any other Environmental
and Safety Requirements except for any liabilities which would not
reasonably be expected to have a material adverse effect.
(f) Without limiting the generality of the foregoing, no facts,
events or conditions relating to the past or present properties, facilities
or operations of the Company or its Subsidiaries shall prevent, hinder or
limit continued compliance with Environmental and Safety Requirements, give
rise to any corrective, investigatory or remedial obligations
41
pursuant to Environmental and Safety Requirements or give rise to any other
liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise) pursuant to Environmental and Safety Requirements (including,
without limitation, those liabilities relating to onsite or offsite
Releases or threatened Releases of hazardous materials, substances or
wastes, personal injury, property damage or natural resources damage,
except for any such noncompliance, obligation or liability which has not
had or would not reasonably be expected to have a material adverse effect
on the financial condition, operating results, assets, operations or
business prospects of the Company and its Subsidiaries taken as a whole.
(g) Neither the Company nor any of its Subsidiaries has, either
expressly or by operation of law, assumed or undertaken any material
liability or corrective, investigatory or remedial obligation of any other
Person relating to any Environmental and Safety Requirements.
(h) No Environmental Lien has attached to any property owned,
leased or operated by the Company or any of its Subsidiaries.
5U. Affiliated Transactions. Except as set forth on the attached
"Affiliated Transactions Schedule," no officer, director, employee, stockholder
or Affiliate of the Company or any Subsidiary or any individual related by
blood, marriage or adoption to any such individual or any entity in which any
such Person or individual owns any beneficial interest, is a party to any
agreement, contract, commitment or transaction with the Company or any
Subsidiary or has any material interest in any material property used by the
Company or any Subsidiary.
5V. Medicare and Medicaid Matters. Except as set forth on the
"Healthcare Schedule":
(i) neither the Company nor any of its Subsidiaries (nor, as
applicable, each facility owned, managed or leased by the Company and its
Subsidiaries) currently receives or has in the past (while under the control or
management of the Company) received any
42
reimbursements under the Medicare program ("Medicare") or is or has in the past
been required to have a Medicare Provider Agreement or is or has in the past
been required to obtain or maintain a Medicare Certification;
(ii) the Company and each of its Subsidiaries (and, as applicable,
each facility of the Company and its Subsidiaries) is certified for
participation in the Medical Assistance ("Medicaid") program for the state in
which it is located, has a current and valid Medicaid Provider Agreement, and
the Company (and, as applicable, each facility of the Company and its
Subsidiaries has obtained and maintains the Medicaid Certification necessary for
capital reimbursement of the Company's assets;
(iii) neither the Company nor any Subsidiary nor the respective
officers and directors of the Company and its Subsidiaries (acting in their
individual and non-representative capacities), nor Persons who provide
professional services under agreements with the Company or its Subsidiaries,
have engaged in any activities which (i) could subject such Person to sanctions
under 42 U.S.C. ss. 1320a-7 or (ii) at the time such activities were engaged in
were prohibited under Federal Medicare and Medicaid statutes, 42 U.S.C. xx.xx.
1320a-7 and 1320a-7b, or the regulations promulgated pursuant to such statutes
or related state or local statutes or regulations or which are prohibited by
rules of professional conduct;
(iv) neither the Company nor any Subsidiary has received notice from
any Authority of any pending or threatened investigations or surveys, and
neither the Company nor any Subsidiary has any reason to believe that any such
investigations or surveys are pending, threatened or imminent; and
(v) the Company and its Subsidiaries have complied with all applicable
Medicare Regulations, Medicaid Regulations, and Other Healthcare Regulations and
have filed all returns, cost reports and other filings in any manner prescribed.
All returns, cost reports and other filings made by the Company and its
Subsidiaries to Medicare, Medicaid or any other Authority are true and complete.
No deficiency in any such returns, cost reports and other filings, including
deficiencies for late filings, has been
43
asserted or threatened by any Authority, and to the best of the company's
knowledge, after reasonable investigation, there is no basis for any claims or
requests for reimbursement from any Authority. Neither the Company nor any of
its Subsidiaries has been subject to any audit relating to fraudulent Medicare
or Medicaid procedure or practices.
5W. Reports with the Securities and Exchange Commission. The Company
has furnished the Purchasers with complete and accurate copies of its annual
report on Form 10-K for its most recent fiscal year, all other reports or
documents required to be filed by the Company pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act since the filing of the most recent annual report
on Form 10-K and its most recent annual report to its shareholders. At their
respective times of filing with the Securities and Exchange Commission, such
reports and filings did not contain any material false statements or any
misstatement of any material fact and did not omit to state any fact necessary
to make the statements set forth therein not misleading. The Company has made
all filings with the Securities and Exchange Commission which it is required to
make, and the Company has not received any request from the Securities and
Exchange Commission to file any amendment or supplement to any of the reports
described in this paragraph.
5X. Disclosure. Neither this Agreement nor any of the exhibits,
schedules, attachments, written statements, documents, certificates or other
items prepared or supplied to Purchaser by or on behalf of the Company with
respect to the transactions contemplated hereby (the "Disclosed Information")
contain any untrue statement of a material fact or omit a material fact
necessary to make each statement contained herein or therein not misleading;
provided that with respect to the financial projections furnished to Purchaser
by the Company, the Company represents and warrants only that such projections
were based upon assumptions reasonably believed by the Company to be reasonable
and fair as of the date of the projections. There is no fact which the Company
has not disclosed to Purchaser in writing and of which any of its officers or
directors is aware and which has had or would reasonably be expected to have a
material adverse effect upon the existing or expected financial condition,
operating results, assets, customer or supplier relations, employee relations or
44
business prospects of the Company and its Subsidiaries taken as a whole.
5Y. Real Property Holding Corporation. Since its date of
incorporation, the Company has not been, and as of the date of the Closing shall
not be, a "United States real property holding corporation", as defined in
Section 897(c)(2) of the IRC and in Section 1.897-2(b) of the Treasury
Regulations. The Company has filed with the IRS all statements, if any, with its
United States income tax returns which are required under Section 1.897-2(h) of
the Treasury Regulations.
5Z. Closing Date. The representations and warranties of the Company
contained in this Section 5 and elsewhere in this Agreement and all information
contained in any exhibit, schedule or attachment hereto or in any certificate or
other writing delivered by, or on behalf of, the Company to Purchaser shall be
true and correct in all material respects on the date of the Closing as though
then made, except as affected by the transactions expressly contemplated by this
Agreement.
5AA. Forward-Looking Information. The Company believes that the
Disclosed Information contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended. Certain factors that
could cause results to differ materially from those projected in the
forward-looking statements are set forth in the "Risk Factors" section of the
Company's Prospectus related to its initial public offering and in the reports
filed by the Company pursuant to the Securities Exchange Act of 1934. Many of
these factors are beyond the Company's control, and they include the risk that
the Company will be unable to locate suitable sites for the development of new
assisted living facilities, risks relating to the inability to obtain, or delays
in obtaining, necessary zoning, land use, building, occupancy and other required
governmental permits and authorizations, risks that financing may not be
available to the Company on satisfactory terms, environmental risks, risks that
construction costs may exceed original estimates, risks that construction and
lease-up may not be completed on schedule, risks that occupancy rates at a newly
completed community may not be
45
achieved or be sustained at expected levels and risks relating to the
competitive environment for development.
Section 6. Definitions.
6A. Definitions. For the purposes of this Agreement, the following
terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Authority" means any Governmental Agency, JCAHO, Medicare, Medicaid,
any member of the Blue Cross and Blue Shield Association, private insurance
company, health maintenance organization, preferred provider organization,
exclusive provider organization, alternative delivery system, managed care
system, the Civilian Health and Medical Program of the Uniformed Services, other
third-party payor, other industry group or any other agency, group,
instrumentality or authority having contractual or mandatory authority in
respect of the business of the Company or any Subsidiary.
"Competitor" means any Person that directly or indirectly derives a
substantial portion of its revenue or income from the provision of
accommodations or health care to the elderly.
"Event of Noncompliance" has the meaning set forth in the Articles of
Amendment.
"Governmental Agency" means any federal, state, local, foreign or
other governmental agency, instrumentality, commission, authority, board or
body.
"HCFA" means the Healthcare Financing Administration of HHS and any
Person succeeding to the functions thereof.
46
"HHS" means the Department of Health and Human Services and any Person
succeeding to the functions thereof.
"Indebtedness" means at a particular time, without duplication, (i)
any indebtedness for borrowed money or issued in substitution for or exchange of
indebtedness for borrowed money, (ii) any indebtedness evidenced by any note,
bond, debenture or other debt security, (iii) any indebtedness for the deferred
purchase price of property or services with respect to which a Person is liable,
contingently or otherwise, as obligor or otherwise (other than trade payables
and other current liabilities incurred in the ordinary course of business which
are not more than six months past due), (iv) any commitment by which a Person
assures a creditor against loss (including, without limitation, contingent
reimbursement obligations with respect to letters of credit), (v) any
indebtedness guaranteed in any manner by a Person (including, without
limitation, guarantees in the form of an agreement to repurchase or reimburse),
(vi) any obligations under capitalized leases with respect to which a Person is
liable, contingently or otherwise, as obligor, guarantor or otherwise, or with
respect to which obligations a Person assures a creditor against loss, (vii) any
indebtedness secured by a Lien on a Person's assets and (viii) any unsatisfied
obligation for "withdrawal liability" to a "multiemployer plan" as such terms
are defined under ERISA.
"Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documentation thereof, (vi) trade
secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatent able
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable
47
works, financial and marketing plans and customer and supplier lists and
information), (vii) other intellectual property rights and (viii) copies and
tangible embodiments thereof (in whatever form or medium).
"Investment" as applied to any Person means (i) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
"JCAHO" means the Joint Commission for Accreditation of Healthcare
Organizations or any Governmental Authority succeeding to the functions thereof.
"Liens" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company, any Subsidiary or any Affiliate,
any filing or agreement to file a financing statement as debtor under the
Uniform Commercial Code or any similar statute other than to reflect ownership
by a third party of property leased to the Company or any Subsidiaries under a
lease which is not in the nature of a conditional sale or title retention
agreement, or any subordination arrangement in favor of another Person (other
than any subordination arising in the ordinary course of business).
"Medicaid Certification" means certifications by HCFA or a state
agency or entity under contract with HCFA that the facility fully complies with
all the conditions of participation set forth in Medicaid Regulations.
48
"Medicaid Regulations" means, collectively, (i) all federal statutes
(whether set forth in Title XIX of the Social Security Act or elsewhere)
affecting the medical assistance program established by Title XIX of the Social
Security Act (42 U.S.C. xx.xx. 1396, et seq.) and any statutes succeeding
thereto; (ii) all orders and administrative, reimbursement and other guidelines
of all Governmental Authorities (whether or not having the force of law)
promulgated pursuant to or in connection with the statutes described in clause
(i) above; (iii) all state statutes and plans for medical assistance enacted in
connection with the statutes and provisions described in clauses (i) and (ii)
above; and (i) all applicable provisions of all rules, regulations, manuals,
orders and administrative, reimbursement and other guidelines of all
Governmental Authorities (whether or not having the force of law) promulgated
pursuant to or in connection with any of the foregoing, in each case as may be
amended, supplemented or otherwise modified from time to time.
"Medicare Certification" means certifications by HCFA or a state
agency or entity under contract with HCFA that the facility fully complies with
all the conditions of participation set forth in Medicare Regulations.
"Medicare Regulations" means, collectively, all federal statutes
(whether set forth in Title XVIII of the Social Security Act or elsewhere)
affecting the health insurance program for the aged and disabled established by
Title XVIII of the Social Security Act (42 U.S.C. xx.xx. 1395, et seq.) and any
statutes succeeding thereto, together with all applicable provisions of all
rules, regulations, manuals, orders and administrative, reimbursement and other
guidelines of all Governmental Authorities (whether or not having the force of
law) promulgated pursuant to or in connection with any of the foregoing, in each
case as may be amended, supplemented or otherwise modified from time to time.
"Officer's Certificate" means a certificate signed by the Company's
president or its chief financial officer on behalf of the Company, stating that
(i) the officer signing such certificate has made or has caused to be made such
investigations as are necessary in order to permit him to verify the accuracy of
the information set forth in such certificate and (ii) to the best of such
49
officer's knowledge, such certificate does not misstate any material fact and
does not omit to state any fact necessary to make the certificate not
misleading.
"Other Healthcare Regulations" means, collectively, all statutes,
rules (including, without limitation, rules of professional conduct),
regulations, manuals, orders and guidelines of all Authorities, other than
Medicare Regulations and Medicaid Regulations, relating to the operation of
hospitals, healthcare or insurance.
"Permitted Debt Securities" means any convertible debt securities, the
proceeds from the sale of which are used for the purchase, lease, development or
construction of additional assisted living facilities and assets used in
connection therewith.
"Permitted Encumbrances" shall mean: (a) statutory liens for current
taxes or other governmental charges with respect to the Real Property not yet
due and payable or the amount or validity of which is being contested in good
faith by appropriate proceedings by the Company and for which appropriate
reserves have been established in accordance with GAAP; (b) mechanics, carriers
workers, repairers and similar statutory liens arising or incurred in the
ordinary course of business for amounts which are not delinquent and which are
not, individually or in the aggregate, material to the Company's business; (c)
zoning, entitlement, building and other land use regulations imposed by
governmental agencies having jurisdiction over the Real Property which are not
violated by the current use and operation of the Real Property; (d) covenants,
conditions, restrictions, easements and other similar matters of record
affecting title to the Real Property which do not materially impair the
occupancy or use of the Real Property for the purposes for which it is currently
used in connection with the Company's business; and (e) the Lease with respect
to any Leased Real Property.
"Permitted Indebtedness" means any indebtedness for borrowed money
incurred or assumed in connection with (i) the purchase, lease, development or
construction of additional assisted living facilities, (ii) the refinancing of
any indebtedness set forth on the attached "Contracts Schedule" or described in
clause
50
(i) above, or (iii) a line of credit with a financial institution for up
to $5,000,000 for working capital purposes.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Restricted Securities" means (i) the Preferred Stock issued
hereunder, (ii) the Warrant issued hereunder, (iii) the Common Stock issued upon
conversion of Preferred Stock or upon exercise of the Warrant and (iv) any
securities issued with respect to the securities referred to in clauses (i),
(ii) or (iii) above by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Restricted Securities, such securities
shall cease to be Restricted Securities when they have (a) been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, (b) been distrib uted to the public
through a broker, dealer or market maker pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act or become eligible for sale
pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act or (c) been otherwise transferred and new certificates for them
not bearing the Securities Act legend set forth in paragraph 7C have been
delivered by the Company in accordance with paragraph 4B. Whenever any
particular securities cease to be Restricted Securities, the holder thereof
shall be entitled to receive from the Company, without expense, new securities
of like tenor not bearing a Securities Act legend of the character set forth in
paragraph 7C.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended, or any similar federal law then in force.
51
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
"Treasury Regulations" means the United States Treasury Regulations
promulgated under the IRC, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
"Underlying Common Stock" means (i) the Common Stock issued or
issuable upon conversion of the Preferred Stock or upon exercise of the Warrant
and (ii) any Common Stock issued or issuable with respect to the securities
referred to in clause (i) above by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. For purposes of this Agreement, any Person who holds
Preferred Stock or Warrants shall be deemed to be the holder of the Underlying
Common Stock obtainable upon conversion of the Preferred Stock or exercise of
the Warrants in connection with the transfer thereof or otherwise regardless of
any restriction or limitation on the conversion of the Preferred Stock or
exercise of the Warrants, such Underlying Common Stock shall be deemed to be in
52
existence, and such Person shall be entitled to exercise the rights of a holder
of Underlying Common Stock hereunder. As to any particular shares of Underlying
Common Stock, such shares shall cease to be Underlying Common Stock when they
have been (a) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (b) distributed to the
public through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act (or any similar provision then in force) or (c) repurchased by
the Company or any Subsidiary.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
Subsidiary of which all of the outstanding capital stock or other ownership
interests are owned by such Person or another Wholly-Owned Subsidiary of such
Person.
Section 7. Miscellaneous.
7A. Expenses. The Company shall pay, and hold Purchaser and all
holders of Preferred Stock, Warrants and Underlying Common Stock harmless
against liability for the payment of, (i) the reasonable fees and expenses of
its special counsel arising in connection with the negotiation and execution of
this Agreement and the consummation of the transactions contemplated by this
Agreement and the reasonable expenses incurred by Purchaser in connection with
its due diligence review of the Company, in each case which shall be payable at
the Closing, (ii) the reasonable fees and expenses incurred with respect to any
amendments or waivers (whether or not the same become effective) under or in
respect of this Agreement, the agreements contemplated hereby, the Restated
Articles of Incorporation, as amended or the Articles of Amendment, (including,
without limitation, in connection with any proposed merger, sale or
recapitalization of the Company), (iii) stamp and other taxes which may be
payable in respect of the execution and delivery of this Agreement or the
issuance, delivery or acquisition of any shares of Preferred Stock or any shares
of Common Stock issuable upon conversion of Series A Preferred or exercise of
the Warrant, (iv) the reasonable fees and expenses incurred with respect to the
enforcement of the rights granted under this Agreement, the agreements
contemplated hereby, the Restated Articles of Incorporation, as amended, the
Warrants and the
53
Articles of Amendment, and (v) the reasonable fees and expenses incurred by each
such Person in any filing with any governmental agency with respect to its
investment in the Company or in any other filing with any governmental agency
with respect to the Company which mentions such Person.
7B. Remedies. Each holder of Preferred Stock and Underlying Common
Stock shall have all rights and remedies set forth in this Agreement, the
Restated Articles of Incorporation, as amended and the Articles of Amendment and
all rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the rights which such holders have
under any law. Any Person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
7C. Purchaser's Representations.
(i) Authorization. Purchaser has full power and authority to enter
into this Agreement and to consummate the transactions contemplated by this
Agreement, and this Agreement constitutes its valid and legally binding
obligation, enforceable in accordance with its terms.
(ii) Purchase Entirely for Own Account. This Agreement is made with
Purchaser in reliance upon its representation to the Company that the Restricted
Securities to be received by Purchaser will be acquired for investment for
Purchaser's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that Purchaser has no present
intention of selling, granting any participation in, or otherwise distributing
the same. Purchaser further represents that it does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Restricted Securities.
(iii) Disclosure of Information. Purchaser believes it has received
all the information it considers necessary or
54
appropriate for deciding whether to purchase the Restricted Securities.
Purchaser further represents that it has had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of the
offering of the Restricted Securities and the business, properties, prospects
and financial condition of the Company. The foregoing, however, does not limit
or modify the representations and warranties of the Company in Section 5 of this
Agreement or the right of Purchaser to rely thereon.
(iv) Investment Experience. Purchaser is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment, and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Restricted Securities. Purchaser also
represents it has not been organized for the purpose of acquiring the Restricted
Securities.
(v) Accredited Investor. Purchaser is an "accredited investor" within
the meaning of Securities and Exchange Commission Rule 501 of Regulation D, as
presently in effect.
(vi) Brokerage. Assuming the Company's representations in paragraph 5N
are accurate, there are no claims for brokerage commissions, finders' fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement binding upon Purchaser.
(vii) Restricted Securities. Purchaser understands that the Restricted
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act of 1933 only in certain limited circumstances. In this
connection, Purchaser represents that it is familiar with Securities and
Exchange Commission Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
55
(viii) Legend. Each certificate or instrument representing Restricted
Securities shall be imprinted with a legend in substantially the following form:
"The securities represented by this certificate were
originally issued on December 16, 1996, and have not been
registered under the Securities Act of 1933, as amended. The
transfer of the securities represented by this certificate
is subject to the conditions specified in the Preferred
Stock and Warrant Purchase Agreement, dated as of December
16, 1996, and as amended and modified from time to time,
between the issuer (the "Company") and certain investors,
and the Company reserves the right to refuse the transfer of
such securities until such conditions have been fulfilled
with respect to such transfer. A copy of such conditions
shall be furnished by the Company to the holder hereof upon
written request and without charge."
7D. Treatment of the Preferred Stock. The Company covenants and agrees
that (i) so long as federal income tax laws prohibit a deduction for
distributions made by the Company with respect to preferred stock, it shall
treat all distributions paid by it on the Preferred Stock as non-deductible
dividends on all of its tax returns and (ii) it shall treat the Preferred Stock
as preferred stock in all of its financial statements and other reports and
shall treat all distributions paid by it on the Preferred Stock as dividends on
preferred stock in such statements and reports. The Company acknowledges and
agrees that the increased dividend rate on the Preferred Stock provided for in
the Articles of Amendment upon the occurrence of certain Events of Noncompliance
has been negotiated by (and is intended by) the Company and the Purchasers as a
reasonable increase in yield necessitated by the increased risk to the holders
of the Preferred Stock which would arise upon any such occurrence.
7E. Consent to Amendments. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of
56
at least 662/3% of the outstanding Preferred Stock; provided that if there is no
Preferred Stock outstanding, the provisions of this Agreement may be amended and
the Company may take any action herein prohibited, only if the Company has
obtained the written consent of the holders of at least 662/3% of the Underlying
Common Stock. No other course of dealing between the Company and the holder of
any Preferred Stock, Warrant or Underlying Common Stock or any delay in
exercising any rights hereunder or under the Restated Articles of Incorporation,
as amended or Articles of Amendment shall operate as a waiver of any rights of
any such holders. For purposes of this Agreement, shares of Preferred Stock or
Underlying Common Stock held by the Company or any Subsidiaries shall not be
deemed to be outstanding. If the Company pays any consideration to any holder of
Preferred Stock or Underlying Common Stock for such holder's consent to any
amendment, modification or waiver hereunder, the Company shall also pay each
other holder granting its consent hereunder equivalent consideration computed on
a pro rata basis.
7F. Survival of Representations and Warranties. All representations
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by any Purchaser or on its behalf.
7G. Successors and Assigns. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Purchaser's benefit as a
purchaser or holder of Preferred Stock , the Warrant or Underlying Common Stock
are also for the benefit of, and enforceable by, any subsequent holder of such
Preferred Stock, such Warrant or such Underlying Common Stock.
7H. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable
57
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
7I. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Agreement.
7J. Descriptive Headings; Interpretation. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
7K. Governing Law. The corporate law of the State of Oregon shall
govern all issues and questions concerning the relative rights and obligations
of the Company and its stockholders. All other issues and questions concerning
the construction, validity, enforcement and interpretation of this Agreement and
the exhibits and schedules hereto shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to any
choice of law or conflict of law rules or provisions (whether of the State of
New York or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of New York.
7L. Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service (charges
prepaid) or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to Purchaser and to the Company at the addresses
indicated below:
58
To Purchaser:
Prudential Equity Investors, Inc.
Attn: Xxxx X. X'Xxxxx
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
To the Company:
Before December 27, 1996:
Regent Assisted Living, Inc.
Attn: Chief Financial Officer
2260 U.S. Bancorp Tower
000 X.X. Xxxxx Xxxxxx
Xxxxxxxx, XX 00000
After December 27, 1996:
Regent Assisted Living, Inc.
Attn: Chief Financial Officer
000 X.X. Xxxxxxxx, Xxxxx 0000
Xxxxxxxx, XX 00000
At any time with a copy to:
Stoel Rives LLP
Attn: Xx. Xxxx X. Xxxxxx
000 X.X. Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, XX 00000-0000
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
7M. Consideration for Warrants. Purchaser and the Company acknowledge
and agree that the fair market value of the Preferred Stock issued hereunder is
$9,950,000 and the fair market value of the Warrant issued hereunder is $50,000
and that, for all purposes (including tax and accounting), the consideration for
the issuance of the Warrant shall be allocated as set forth in
59
paragraph 1B. Purchaser and the Company shall file their respective federal,
state and local tax returns in a manner which is consistent with such valuation
and allocation and shall not take any contrary position with any taxing
authority.
7N. No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
7O. Indemnification.
(i) General. In consideration of the Purchaser's execution and
delivery of this Agreement and acquiring the Preferred Stock and Warrant
hereunder and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless
Purchaser and each other holder of Preferred Stock or Warrant and all of their
officers, directors, employees and agents (including, without limita tion, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and reasonable expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(except for fees of counsel in connection with the preparation for or attendance
at a deposition) (the "Indemnified Liabilities"), incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Warrant, the Registration Agreement or the
Stockholders Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, the Warrant, the
Registration Agreement or the Stockholders Agreement or any other certificate,
instrument or document contemplated hereby or thereby, or (c) any
60
cause of action, suit or claim brought or made against such Indemnitee and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the Indemnitees, other than a cause of
action, suit or claim brought or made by a Person affiliated with the Indemnitee
or by or on behalf of the Company, except for any such Indemnified Liabilities
arising on account of the particular Indemnitee's gross negligence or willful
misconduct. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
(ii) Environmental Liabilities. Without limiting the generality of the
indemnity set out in paragraph 7O(i) above, the Company shall defend, protect,
indemnify and hold harmless Purchaser and all other Indemnitees from and against
any and all actions, causes of action, suits, liabilities, penalties, fees,
expenses and claims of any and every kind whatsoever paid, incurred or suffered
by, or asserted against, each Purchaser or any other Indemnitee for, with
respect to, or as a direct or indirect result of, the past, present or future
environmental condition of any property owned, operated or used by the Company,
any Subsidiary, their predecessors or successors or of any offsite treatment,
storage or disposal location associated therewith, including, without
limitation, the presence on or under, or the escape, seepage, leakage, spillage,
discharge, emission, release, or threatened release into, onto or from, any such
property or location of any toxic, chemical or hazardous substance, material or
waste (including, without limitation, any liabilities, penalties, fees, expenses
or claims asserted or arising under the Comprehensive Environmental Response,
Compensation and Liability Act, any so-called "Superfund" or "Superlien" law, or
any other federal, state, local or foreign statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to or imposing liability or
standards on conduct concerning, any toxic, chemical or hazardous substance,
material or waste), regardless of whether caused by, or within the control of,
the Company or any Subsidiary.
* * * * *
61
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
REGENT ASSISTED LIVING, INC.
By XXXXXX X. XXXXX
--------------------------------------
Its PRESIDENT
-------------------------------------
PRUDENTIAL PRIVATE EQUITY
INVESTORS III, L.P.
By Prudential Equity Investors, Inc.
Its General Partner
By Cornerstone Equity
Investors, L.L.C.
Its Investment Adviser
By XXXX X. X'XXXXX
---------------------------------
Its SENIOR MANAGING DIRECTOR
--------------------------------
LIST OF DISCLOSURE SCHEDULES
----------------------------
Capitalization Schedule
Subsidiary Schedule Financial
Statements Schedule
Liabilities Schedule
Developments Schedule
Assets Schedule
Taxes Schedule
Contracts Schedule
Intellectual Property Schedule
Litigation Schedule
Insurance Schedule
Employees Schedule
Employee Benefits Schedule
Environmental Schedule
Affiliated Transactions Schedule
Healthcare Schedule
