1
EXECUTION COPY
STOCK PURCHASE AGREEMENT
by and among
LAZARD FRERES REAL ESTATE INVESTORS L.L.C.
and
PROMETHEUS ASSISTED LIVING LLC
and
ARV ASSISTED LIVING, INC.
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TABLE OF CONTENTS
Page
ARTICLE I
Definitions
Section 1.1. Action................................................1
Section 1.2. ADA...................................................1
Section 1.3. Advancing Party.......................................1
Section 1.4. Affiliate.............................................2
Section 1.5. Affiliated Limited Partnerships.......................2
Section 1.6. Agreement.............................................2
Section 1.7. Benefit Arrangements..................................2
Section 1.8. Blue Sky Laws.........................................2
Section 1.9. Board.................................................2
Section 1.10. Breakup Fee...........................................2
Section 1.11. Broker................................................2
Section 1.12. Business Day..........................................2
Section 1.13. Buyer.................................................2
Section 1.14. Capital Expenditure Budget and Schedule...............2
Section 1.15. CERCLA................................................2
Section 1.16. CHAMPUS...............................................2
Section 1.17. Claim.................................................2
Section 1.18. Closing...............................................2
Section 1.19. Closing Date..........................................2
Section 1.20. Code..................................................2
Section 1.21. Commitment............................................2
Section 1.22. Company...............................................2
Section 1.23. Company By-laws.......................................2
Section 1.24. Company Charter.......................................3
Section 1.25. Company Common Stock..................................3
Section 1.26. Company Environmental Reports.........................3
Section 1.27. Company Plans.........................................3
Section 1.28. Company Preferred Stock...............................3
Section 1.29. Company Properties....................................3
Section 1.30. Company Registration Statement........................3
Section 1.31. Company Reports.......................................3
Section 1.32. Company Stock.........................................3
Section 1.33. Competing Transaction.................................3
Section 1.34. Contracts.............................................3
Section 1.35. Controlled Group Liability............................3
Section 1.36. Convertible Debt......................................3
Section 1.37. Debt Instruments......................................3
Section 1.38. Development Budget and Schedule.......................3
Section 1.39. Employee Benefit Plans................................3
Section 1.40. Employees.............................................3
Section 1.41. Environmental Claim...................................4
Section 1.42. Environmental Laws....................................4
Section 1.43. Environmental Permits.................................4
Section 1.44. ERISA.................................................4
Section 1.45. ERISA Affiliates......................................4
Section 1.46. Exchange Act..........................................4
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Section 1.47. Executive Committee...................................4
Section 1.48. Fully Diluted Basis...................................4
Section 1.49. GAAP..................................................4
Section 1.50. Government Authority..................................4
Section 1.51. Governmental Entity ..................................4
Section 1.52. HSR Act...............................................4
Section 1.53. Indemnified Party.....................................4
Section 1.54. Initial Closing.......................................5
Section 1.55. Initial Number of Shares..............................5
Section 1.56. Insurance Policies....................................5
Section 1.57. IRS...................................................5
Section 1.58. Laws..................................................5
Section 1.59. Leased Property.......................................5
Section 1.60. Liabilities...........................................5
Section 1.61. Liens.................................................5
Section 1.62. Loss and Expenses.....................................5
Section 1.63. Material Adverse Effect...............................5
Section 1.64. Materials of Environmental Concern....................5
Section 1.65. Medical Reimbursement Programs........................5
Section 1.66. Medicaid..............................................6
Section 1.67. Medicare..............................................6
Section 1.68. OIG...................................................6
Section 1.69. Order.................................................6
Section 1.70. Other Filings.........................................6
Section 1.71. Owned Property........................................6
Section 1.72. Pension Plans.........................................6
Section 1.73. Per Share Purchase Price..............................6
Section 1.74. Permit................................................6
Section 1.75. Permitted Liens.......................................6
Section 1.76. person................................................7
Section 1.77. Projects..............................................7
Section 1.78. Proxy Statement.......................................7
Section 1.79. Purchase Price........................................7
Section 1.80. Purchased Shares......................................7
Section 1.81. Registration Rights Agreement.........................7
Section 1.82. Regulatory Filings....................................7
Section 1.83. Release...............................................7
Section 1.84. Remaining Equity Commitment...........................7
Section 1.85. Schedule Delivery.....................................7
Section 1.86. SEC...................................................7
Section 1.87. Second Closing Date...................................7
Section 1.88. Securities Act........................................7
Section 1.89. Securities Laws.......................................7
Section 1.90. Stock Purchase........................................7
Section 1.91. Stockholders Agreement................................7
Section 1.92. Stockholder Approval..................................7
Section 1.93. Structural Defect.....................................8
Section 1.94. Subsequent Closing....................................8
Section 1.95. Subsequent Purchase Price.............................8
Section 1.96. Subsequent Purchases..................................8
Section 1.97. Subsidiaries..........................................8
Section 1.98. Tax...................................................8
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Section 1.99. Tax Return............................................8
Section 1.100. Termination Event.....................................8
Section 1.101. Tax Asset.............................................8
Section 1.102. Title Policies........................................8
Section 1.103. Total Equity Commitment...............................9
Section 1.104. Transaction Documents.................................9
Section 1.105. Voting Agreements.....................................9
Section 1.106. Welfare Plans.........................................9
ARTICLE 2
Purchase and Sale of Shares; Closing
Section 2.1 Purchase and Sale.....................................9
Section 2.2 Consideration.........................................9
Section 2.3 Initial Closing.......................................9
Section 2.4 Subsequent Purchases and Sales........................9
Section 2.5 Additional Agreements and Closing Deliveries.........10
Section 2.6 Time and Place of Closings...........................11
Section 2.7 Right to Assign......................................11
Section 2.8 Limited Transfer Option..............................11
ARTICLE 3
Representations and Warranties of the Company
Section 3.1 Organization and Qualification; Subsidiaries.........11
Section 3.2 Authority Relative to Agreements; Board Approval.....12
Section 3.3 Capital Stock........................................12
Section 3.4 No Conflicts; No Defaults; Required Filings and
Consents...........................................13
Section 3.5 SEC and Other Documents; Financial Statements;
Undisclosed Liabilities............................13
Section 3.6 Litigation; Compliance With Law......................14
Section 3.7 Absence of Certain Changes or Events.................15
Section 3.8 Tax Matters and Partnership Status...................15
Section 3.9 Compliance with Agreements; Material Agreements......16
Section 3.10 Company Charter and Company By-laws;
Corporate Records..................................18
Section 3.11 Properties...........................................19
Section 3.12 Environmental Matters................................21
Section 3.13 Employees and Employee Benefit Plans.................23
Section 3.14 Labor Matters........................................25
Section 3.15 Affiliate Transactions...............................25
Section 3.16 Insurance............................................25
Section 3.17 Proxy Statement......................................26
Section 3.18 Regulatory Compliance................................26
Section 3.19 Vote Required........................................28
Section 3.20 Brokers or Finders...................................28
Section 3.21 Knowledge Defined....................................29
Section 3.22 Delivery of Schedules................................29
Section 3.23 Certain Information..................................29
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ARTICLE 4
Representations and Warranties of Buyer and the Advancing Party
Section 4.1 Organization.........................................29
Section 4.2 Due Authorization....................................30
Section 4.3 Conflicting Agreements and Other Matters.............30
Section 4.4 Acquisition for Investment; Sophistication;
Source of Funds....................................30
Section 4.5 Proxy Statement......................................30
Section 4.6 Brokers or Finders...................................31
Section 4.7 Investment Company Matters...........................31
ARTICLE 5
Covenants Relating to Closings
Section 5.1 Taking of Necessary Action...........................31
Section 5.2 Registration Rights Agreement........................32
Section 5.3 Stockholders Agreement...............................32
Section 5.4 Public Announcements; Confidentiality................32
Section 5.5 Conduct of the Business..............................33
Section 5.6 No Solicitation of Transactions......................36
Section 5.7 Information and Access...............................36
Section 5.8 Notification of Certain Matters......................37
Section 5.9 HSR Filing...........................................37
Section 5.10 Amendment of Company By-laws.........................37
ARTICLE 6
Certain Additional Covenants
Section 6.1 Resale...............................................38
Section 6.2 Use of Funds.........................................38
Section 6.3 Guarantee............................................38
Section 6.4 Loan.................................................38
ARTICLE 7
Conditions to Closings
Section 7.1 Conditions of Purchase at Initial Closing............38
Section 7.2 Conditions to Purchase at Second Closing.............39
Section 7.3 Conditions of Purchase at All Closings...............39
Section 7.4 Conditions of Sale...................................40
ARTICLE 8
Survival; Indemnification
Section 8.1 Survival..............................................41
Section 8.2 Indemnification by Buyer or the Company...............42
Section 8.3 Third-Party Claims....................................42
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ARTICLE 9
Termination
Section 9.1 Termination...........................................43
Section 9.2 Procedure and Effect of Termination...................44
Section 9.3 Expenses..............................................44
ARTICLE 10
Miscellaneous
Section 10.1 Counterparts..........................................45
Section 10.2 Governing Law.........................................45
Section 10.3 Entire Agreement......................................46
Section 10.4 Notices...............................................46
Section 10.5 Successors and Assigns................................46
Section 10.6 Headings..............................................47
Section 10.7 Amendments and Waivers................................47
Section 10.8 Interpretation; Absence of Presumption................47
Section 10.9 Severability..........................................47
Section 10.10 Further Assurances....................................47
Section 10.11 Specific Performance..................................47
Section 10.12 Joint and Several Liability...........................47
Section 10.13 Interpretation of Schedules...........................48
Section 10.14 Acknowledgment of Company's Right to Take
Certain Actions.....................................48
SCHEDULES
Schedule 1.5 Affiliated Limited Partnerships
Schedule 1.75 Permitted Liens
Schedule 3.1(d) Subsidiaries
Schedule 3.3(a) Capital Stock Commitments
Schedule 3.3(b) Other Equity Interests
Schedule 3.4(d)-A Consents for Initial Closing
Schedule 3.4(d)-B Consents for Second Closing
Schedule 3.5(a) Company Registration Statements and Company Reports
Schedule 3.6(a) Pending Litigation
Schedule 3.8(a) Tax Matters
Schedule 3.8(b) Tax Assets
Schedule 3.8(f) Tax Agreements
Schedule 3.9(c) Contracts
Schedule 3.10(a) Organizational Documents
Schedule 3.11(a) Real Property
Schedule 3.11(b) Letters of Intent or Similar Understandings
Schedule 3.11(c) Rights of First Refusal
Schedule 3.11(d) Non-Compliance and Capital Expenditure Budget and
Schedule
Schedule 3.11(e) Development Properties
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Schedule 3.11(g) Structural and Engineering Matters
Schedule 3.12(e) Environmental Concerns
Schedule 3.12(e) Environmental Concerns
Schedule 3.12(d) Environmental Matters
Schedule 3.12(f) Environmental Reports
Schedule 3.13(a) Employment Agreements
Schedule 3.13(b) Company Plans
Schedule 3.13(c) Company Plan Liabilities
Schedule 3.13(d) New Employee Benefit Plans
Schedule 3.13(g) Termination and Retirement Benefits
Schedule 3.13(k) Employee Benefits Triggered or Accelerated
Schedule 3.14 Collective Bargaining; Labor Union Agreements
Schedule 3.15 Affiliate Transactions
Schedule 3.16 Insurance Policies
Schedule 3.18(a) Regulatory Compliance
Schedule 3.18(b) Billing Practices
Schedule 3.18(e) Third Party Payors
Schedule 5.1(e) Stock Options
Schedule 5.5(a) Contemplated Transactions
EXHIBITS
Exhibit A Registration Rights Agreement
Exhibit B Stockholders Agreement
Exhibit C Form of Amendments to Company By-laws
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THIS STOCK PURCHASE AGREEMENT (the
"Agreement"), dated as of July 14, 1997, is made
by and between ARV Assisted Living, Inc., a
California corporation (the "Company"), Lazard
Freres Real Estate Investors L.L.C., a New York
limited liability company or an Affiliate thereof
(the "Advancing Party") and Prometheus Assisted
Living LLC, a Delaware limited liability company
and an affiliate of the Advancing Party ("Buyer").
RECITALS:
WHEREAS, Buyer wishes to purchase from the Company, and the
Company wishes to sell to Buyer, up to an aggregate of 9,653,325
shares of the Company's common stock (the "Company Common Stock"), at
a price equal to the Per Share Purchase Price;
WHEREAS, Buyer, the Advancing Party, and the Company are entering
into this Agreement to provide for such purchase and sale and to
establish various rights and obligations in connection therewith;
WHEREAS, the Company and Buyer believe that the combination in a
strategic alliance of the Company's leadership, expertise and
experience in development, management and operation of assisted living
communities and the proven investment and capital markets expertise
and access to capital of Buyer and its affiliates will significantly
enhance the Company's ability to pursue its growth and operating
strategies; and
WHEREAS, by separate agreements (the "Voting Agreements"),
certain stockholders of the Company have agreed to support and vote in
favor of this Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE I
Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Section 1.1. "Action" shall mean any action, suit, arbitration,
inquiry, proceeding or investigation by or before any Government
Authority.
Section 1.2. "ADA" shall mean the Americans with Disabilities
Act.
Section 1.3. "Advancing Party" shall have the meaning set forth
in the first paragraph hereof.
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Section 1.4. "Affiliate" shall have the meaning ascribed thereto
in Rule 12b-2 promulgated under the Exchange Act, and as in effect on
the date hereof.
Section 1.5. "Affiliated Limited Partnerships" shall mean those
limited partnerships set forth in Schedule 1.5, which schedule lists
those limited partnerships which the Company is the general partner of
but which are not Subsidiaries.
Section 1.6. "Agreement" shall have the meaning set forth in the
first paragraph hereof.
Section 1.7. "Benefit Arrangements" shall have the meaning set
forth in Section 3.13(h).
Section 1.8. "Blue Sky Laws" shall have the meaning set forth in
Section 3.4(e).
Section 1.9. "Board" shall mean the Board of Directors of the
Company.
Section 1.10. "Breakup Fee" shall have the meaning set forth in
Section 9.3(b).
Section 1.11. "Broker" shall have the meaning set forth in
Section 3.20.
Section 1.12. "Business Day" shall mean any day other than a
Saturday, a Sunday or a bank holiday in New York, N.Y.
Section 1.13. "Buyer" shall have the meaning set forth in the
first paragraph hereof.
Section 1.14. "Capital Expenditure Budget and Schedule" shall
have the meaning set forth in Section 3.11(d).
Section 1.15. "CERCLA" shall have the meaning set forth in
Section 3.12(e).
Section 1.16. "CHAMPUS" means the United States Department of
Defense Civilian Health and Medical Program of the Uniformed Services.
Section 1.17. "Claim" shall have the meaning set forth in Section
3.12(g)(i).
Section 1.18. "Closing" shall mean the consummation of any Stock
Purchase.
Section 1.19. "Closing Date" shall mean, with respect to the
consummation of any Stock Purchase, the date on which the conditions
set forth herein with respect thereto shall be satisfied or duly
waived, or if the Company and Buyer mutually agree on a different
date, the date upon which they have mutually agreed.
Section 1.20. "Code" shall mean the Internal Revenue Code of
1986, as amended, and any successor thereto, including all of the
rules and regulations promulgated thereunder.
Section 1.21. "Commitment" shall have the meaning set forth in
Section 3.7.
Section 1.22. "Company" shall have the meaning set forth in the
first paragraph hereof.
Section 1.23. "Company By-laws" shall mean the by-laws of the
Company and any amendment or supplement thereto, as in effect on the
date hereof.
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Section 1.24. "Company Charter" shall mean the Restated Articles
of Incorporation of the Company and any amendment or supplement
thereto, as in effect on the date hereof.
Section 1.25. "Company Common Stock" shall have the meaning set
forth in the second paragraph hereof.
Section 1.26. "Company Environmental Reports" shall have the
meaning set forth in Section 3.12(f).
Section 1.27. "Company Plans" shall have the meaning set forth in
Section 3.13(b).
Section 1.28. "Company Preferred Stock" shall have the meaning
set forth in Section 3.3(a).
Section 1.29. "Company Properties" shall have the meaning set
forth in Section 3.1l(a).
Section 1.30. "Company Registration Statement" shall have the
meaning set forth in Section 3.5(a).
Section 1.31. "Company Reports" shall have the meaning set forth
in Section 3.5(a).
Section 1.32. "Company Stock" shall mean, collectively, the
Company Common Stock and any other shares of capital stock of the
Company.
Section 1.33. "Competing Transaction" shall mean (i) any
acquisition in any manner, directly or indirectly (including through
any option, right to acquire or other beneficial ownership), of more
than 15% of the equity securities, on a Fully Diluted Basis, of the
Company, or assets representing a material portion of the assets of
the Company, other than any of the transactions contemplated by this
Agreement or (ii) any merger, consolidation, sale of assets, share
exchange, recapitalization, other business combination, liquidation,
or other action out of the ordinary course of business of the Company,
other than any of the transactions contemplated by this Agreement.
Section 1.34. "Contracts" shall have the meaning set forth in
Section 3.9(c).
Section 1.35. "Controlled Group Liability" shall have the meaning
set forth in Section 3.13(h).
Section 1.36. "Convertible Debt" shall mean the Company's 6-3/4%
Convertible Subordinated Notes due 2006.
Section 1.37. "Debt Instruments" shall mean all notes, loan
agreements, mortgages, deeds of trust or similar instruments which
evidence or secure any indebtedness owing by the Company or any of its
Subsidiaries.
Section 1.38. "Development Budget and Schedule" shall have the
meaning set forth in Section 3.11(e).
Section 1.39. "Employee Benefit Plans" shall have the meaning set
forth in Section 3.13(h).
Section 1.40. "Employees" shall have the meaning set forth in
Section 3.13(h).
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Section 1.41. "Environmental Claim" shall have the meaning set
forth in Section 3.12(g)(ii).
Section 1.42. "Environmental Laws" shall have the meaning set
forth in Section 3.12(g)(iii).
Section 1.43. "Environmental Permits" shall have the meaning set
forth in Section 3.12(a).
Section 1.44. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, including all of the rule and
regulations promulgated thereunder and any successor thereto.
Section 1.45. "ERISA Affiliates" shall mean any entity which is
under "common control" with the Company, within the meaning of Section
4001(b)(1) of ERISA.
Section 1.46. "Exchange Act" shall have the meaning set forth in
Section 3.4(e).
Section 1.47. "Executive Committee" shall mean the executive
committee of the Board as provided for in the form of the amendment to
Company By-laws attached hereto as Exhibit C. The Executive Committee
shall initially consist of five members, two of which will be
appointed by Buyer. Any approval of, or action taken by, the Executive
Committee will require the affirmative vote of four members of the
committee acting at a duly convened meeting. The initial members of
the Executive Committee will be Xxxx X. Xxxxxxxx, Xxxxxxx X. XxXxxx,
Xxxx X. Xxxxxxxxx and the two members appointed by Buyer.
Section 1.48. "Fully Diluted Basis" shall mean then outstanding
Company Stock plus any shares of stock or other equity or debt
exchangeable for Company Stock and any shares of stock or other equity
or debt the holders of which, after such exchanges would have the
right to vote with the stockholders of the Company on any matter, and
shall include the Convertible Debt, the instruments listed in Schedule
3.3(a) and Company Common Stock issuable under option or other
equity-incentive plans listed on Schedule 3.13(b) and awards issued
pursuant thereto.
Section 1.49. "GAAP" shall have the meaning set forth in Section
3.5(b).
Section 1.50. "Government Authority" shall mean any government or
state (or any subdivision thereof) of or in the United States, or any
agency, authority, bureau, commission, department or similar body or
instrumentality thereof, or any governmental court or tribunal.
Section 1.51. "Governmental Entity" means any governmental or any
agency, bureau, board, commission, court, department, official,
political subdivision, tribunal or other instrumentality of any
government or any quasi-governmental authority or self-regulatory
organization, whether federal, state or local, domestic or foreign.
Section 1.52. "HSR Act" shall mean the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended.
Section 1.53. "Indemnified Party" shall mean Buyer or the
Company, as the context may require.
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Section 1.54. "Initial Closing" shall have the meaning set forth
in Section 2.3.
Section 1.55. "Initial Number of Shares" shall mean 1,921,012
shares of Company Common Stock.
Section 1.56. "Insurance Policies" shall have the meaning set
forth in Section 3.16.
Section 1.57. "IRS" shall mean the Internal Revenue Service.
Section 1.58. "Laws" means any federal or state constitutional
provision, statute, other rule, law, regulation or interpretation of
any Governmental Entity and any Order, each as interpreted by the
appropriate Governmental Entities prior to the Closing date.
Section 1.59. "Leased Property" shall have the meaning set forth
in Section 3.11(a).
Section 1.60. "Liabilities" shall mean, as to any person, all
debts, adverse claims, liabilities and obligations, direct, indirect,
absolute or contingent of such person, whether known or unknown,
accrued, vested or otherwise, whether in contract, tort, strict
liability or otherwise and whether or not actually reflected, or
required by GAAP to be reflected, in such person's or entity's balance
sheets or other books and records, including without limitation (i)
obligations arising from non-compliance with any law, rule or
regulation of any Government Authority or imposed by any court or any
arbitrator of any kind, (ii) all indebtedness or liability of such
person for borrowed money, or for the purchase price of property or
services (including trade obligations), (iii) all obligations of such
person as lessee under leases, capital or other, (iv) liabilities of
such person in respect of plans covered by Title IV of ERISA, or
otherwise arising in respect of plans for Employees or former
Employees or their respective families or beneficiaries, (v)
reimbursement obligations of such person in respect of letters of
credit, (vi) all obligations of such person arising under acceptance
facilities, (vii) all liabilities of other persons or entities,
directly, or indirectly, guaranteed, endorsed (other than for
collection or deposit in the ordinary course of business) or
discounted with recourse by such person or with respect to which the
person in question is otherwise directly or indirectly liable, (viii)
all obligations secured by any lien on property of such person,
whether or not the obligations have been assumed, and (ix) all other
items which have been, or in accordance with GAAP would be, included
in determining total liabilities on the liability side of the balance
sheet.
Section 1.61. "Liens" shall mean all liens, mortgages, deeds of
trust, deeds to secure debt, security interests, pledges, claims,
charges, easements and other encumbrances of any nature whatsoever.
Section 1.62. "Loss and Expenses" shall have the meaning set
forth in Section 8.2(a).
Section 1.63. "Material Adverse Effect" shall mean, with respect
to the Company and each of its Subsidiaries, a material adverse effect
on the financial condition, results of operations or business of the
Company and such Subsidiaries (to the extent of the Company's
interests therein) taken as a whole.
Section 1.64. "Materials of Environmental Concern" shall have the
meaning set forth in Section 3.12(g)(iv).
Section 1.65. "Medical Reimbursement Programs" means the
Medicare, Medicaid and CHAMPUS programs and any other health care
program operated by or financed in whole or in part by any foreign or
domestic federal, state or local government.
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Section 1.66. "Medicaid" means that means-tested entitlement
program under Title XIX of the Social Security Act that provides
federal grants to states for medical assistance based on specific
eligibility criteria. (Social Security Act of 1965, Title XIX, P.L.
89-97, as amended; 42 U.S.C. 1396 et seq.).
Section 1.67. "Medicare" means that government-sponsored
entitlement program under Title XVIII of the Social Security Act that
provides for a health insurance system for eligible elderly and
disabled individuals. (Social Security Act of 1965, Title XVIII, P.L.
89-87, as amended, 42 U.S.C. 1395 et seq.).
Section 1.68. "OIG" means the Office of the Inspector General of
the United States Department of Health and Human Services.
Section 1.69. "Order" means any decree, injunction, judgment,
order, ruling, assessment or writ.
Section 1.70. "Other Filings" shall have the meaning set forth in
Section 5.1(b).
Section 1.71. "Owned Property" shall have the meaning set forth
in Section 3.11(a).
Section 1.72. "Pension Plans" shall have the meaning set forth in
Section 3.13(h).
Section 1.73. "Per Share Purchase Price" shall mean the price of
$14.00 per share for the Company Common Stock, adjusted for any stock
split or reclassification of Company Common Stock.
Section 1.74. "Permit" means any license, permit, franchise,
certificate of authority, or order, or any waiver of the foregoing,
required to be issued by any Governmental Entity.
Section 1.75. "Permitted Liens" shall mean (i) Liens (other than
Liens imposed under ERISA or any Environmental Law, or in connection
with any Environmental Claim) for taxes or other assessments or
charges of Governmental Authorities that are not yet delinquent or
that are being contested in good faith by appropriate proceedings, in
each case, with respect to which adequate reserves are being
maintained by the Company or its Subsidiaries to the extent required
by GAAP, (ii) statutory Liens of landlords, carriers, warehousemen,
mechanics, materialmen and other Liens (other than Liens imposed under
ERISA or any Environmental Law or in connection with any Environmental
Claim) imposed by law and created in the ordinary course of business
for amounts not yet overdue or which are being contested in good faith
by appropriate proceedings, in each case, with respect to which
adequate reserves or other appropriate provisions are being maintained
by the Company or its Subsidiaries to the extent required by GAAP and
which, to the extent same do not relate to work or materials provided
for in the Capital Expenditure Budget and Schedule, the 1998 and 1999
Preliminary Capital Expenditure Budgets and Schedules or the
Development Budget and Schedule, do not exceed $100,000 in the
aggregate (excluding from such calculation, any amounts disclosed in
writing by the Company to Buyer which (a) are fully covered by
insurance held by the Company under which the Company reasonably
expects full recovery of such amounts, or (b) for which an adequate
escrow has been established and is, at the relevant time, maintained),
(iii) any leases entered into after March 31, 1997 in the ordinary
course of business on commercially reasonable terms and that are
described in Schedule 1.75, (iv) easements, rights-of- way, covenants
and restrictions which are customary and typical for properties
similar to the Company Properties and which do not (x) interfere
materially with the ordinary conduct of any Company Property or the
business of the Company and its Subsidiaries as a whole or (y)
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detract materially from the value or usefulness of the Company
Properties to which they apply and (v) the other Liens, if any,
described in Schedule 1.75.
Section 1.76. "person" shall mean any individual, corporation,
partnership, limited liability company, joint venture, trust,
unincorporated organization, other form of business or legal entity or
Government Authority.
Section 1.77. "Projects" shall have the meaning set forth in
Section 3.11(e).
Section 1.78. "Proxy Statement" shall have the meaning set forth
in Section 5.1(b).
Section 1.79. "Purchase Price" shall mean the Per Share Purchase
Price multiplied by the number of shares of Company Common Stock to be
purchased and sold at a particular Closing.
Section 1.80. "Purchased Shares" shall have the meaning set forth
in Section 2.1.
Section 1.81. "Registration Rights Agreement" shall have the
meaning set forth in Section 2.5(a).
Section 1.82. "Regulatory Filings" shall have the meaning set
forth in Section 3.4(e).
Section 1.83. "Release" shall have the meaning set forth in
Section 3.12(g)(v).
Section 1.84. "Remaining Equity Commitment" shall mean, on any
given date after the Initial Closing, the Total Equity Commitment
minus the Initial Purchase Price and, if any Subsequent Purchases
shall have occurred, minus the Subsequent Purchase Prices. The
Remaining Equity Commitment shall be deemed to be zero on the earlier
of (i) the date that the Remaining Equity Commitment equals zero
pursuant to the previous sentence or (ii) eighteen months after
Stockholder Approval, but not later than June 30, 1999 (unless
otherwise extended by Buyer and the Company in their sole discretion).
Section 1.85. "Schedule Delivery Date" shall have the meaning set
forth in Section 3.22.
Section 1.86. "SEC" shall have the meaning set forth in Section
3.5(a).
Section 1.87. "Second Closing Date" shall mean the Closing next
following Stockholder Approval.
Section 1.88. "Securities Act" shall have the meaning set forth
in Section 3.4(e).
Section 1.89. "Securities Laws" shall have the meaning set forth
in Section 3.5(a).
Section 1.90. "Stock Purchase" shall have the meaning set forth
in Section 2.1.
Section 1.91. "Stockholders Agreement" shall have the meaning set
forth in Section 2.5(a).
Section 1.92. "Stockholder Approval" shall have the meaning set
forth in Section 7.2(a).
15
Section 1.93. "Structural Defect" means a condition of the
structure of any Company Property resulting from faulty engineering,
construction, labor or materials, or from fire or other casualty and
in any event includes any condition that could pose a hazard to life
or safety.
Section 1.94. "Subsequent Closing" shall mean each Closing of a
Subsequent Purchase.
Section 1.95. "Subsequent Purchase Price" shall mean the Per
Share Purchase Price multiplied by the number of Purchased Shares
purchased by Buyer in a Subsequent Purchase.
Section 1.96. "Subsequent Purchases" shall have the meaning set
forth in Section 2.4(a).
Section 1.97. "Subsidiaries" shall mean with respect to any
person, any corporation, partnership, limited liability company, joint
venture, business trust or other entity of which such person, directly
or indirectly, (i) owns or controls 50% or more of the securities or
other interests entitled to vote in the election of directors or
others performing similar functions with respect to such corporation
or other organization or (ii) otherwise controls such corporation,
partnership, limited liability company, joint venture, business trust
or other entity. Without limiting the generality of the foregoing, the
Company's Subsidiaries include each of the entities set forth on
Schedule 3.1(d) as Subsidiaries, but shall not include Affiliated
Limited Partnerships.
Section 1.98. "Tax" means any federal, state, local, or foreign
income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code Section 59A), customs duties, capital
stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not. The
term "Tax" also includes any amounts payable pursuant to any tax
sharing agreement to which any relevant entity is liable as a
successor or pursuant to contract.
Section 1.99. "Tax Return" means any return, declaration, report,
claim for refund, or information return or statement relating to
Taxes, including any schedule or attachment thereto, and including any
amendment thereof, or any return or declaration of an informational
nature required to be filed with the IRS or any other Government
Authority.
Section 1.100. "Termination Event" shall mean the date on which
the Remaining Equity Commitment is zero and either (i) the Buyer no
longer Beneficially Owns a number of shares of Company Common Stock
equal to at least 5% of the outstanding Company Common Stock, on a
Fully Diluted Basis, or (ii) the Buyer no longer Beneficially Owns
Company Common Stock having an aggregate market value of at least
$25,000,000.
Section 1.101. "Tax Asset" means any net operating loss, net
capital loss, investment tax credit, foreign tax credit, charitable
deduction or any other credit or tax attribute of the Company and any
of its Subsidiaries or Affiliated Limited Partnerships that could
reduce Taxes (including, but not limited to, deductions or credits
relating to alternative minimum Taxes).
Section 1.102. "Title Policies" shall have the meaning set forth
in Section 3.11(a).
16
Section 1.103. "Total Equity Commitment" shall mean
$135,146,550.00.
Section 1.104. "Transaction Documents" shall mean the
Stockholders Agreement and the Registration Rights Agreement.
Section 1.105. "Voting Agreements" shall have the meaning set
forth in the fifth paragraph hereof.
Section 1.106. "Welfare Plans" shall have the meaning set forth
in Section 3.13(h).
ARTICLE 2
Purchase and Sale of Shares; Closing
Section 2.1 Purchase and Sale. Subject to the terms and
conditions hereof, from time to time after the date hereof, at each
Closing, the Company will sell, convey, assign, transfer, and deliver,
and Buyer will purchase and acquire from the Company, an aggregate of
up to 9,653,325 shares of Company Common Stock (the "Purchased
Shares"); provided, however, that the obligation of Buyer to acquire
any Purchased Shares in excess of the number of shares constituting
48.9% of Company Common Stock shall be subject to the condition
specified in Section 7.4(d). Each Closing at which Buyer purchases any
Purchased Shares is herein referred to as a "Stock Purchase."
Section 2.2 Consideration. Subject to the terms and conditions
hereof, at each Closing, Buyer shall deliver to the Company the
Purchase Price with respect to the number of shares of Company Common
Stock to be purchased and sold at such Closing by wire transfer of
immediately available funds in U.S. dollars to the account or accounts
specified by the Company.
Section 2.3 Initial Closing. Subject to the terms and conditions
hereof, as promptly as practicable following the date on which the
applicable conditions set forth in Sections 7.1, 7.3 and 7.4 shall
have been satisfied or duly waived (but in no event prior to August
29, 1997) Buyer will purchase and acquire (and the Advancing Party
shall advance sufficient funds for such purchase) from the Company,
and the Company will sell, convey, assign, transfer and deliver to
Buyer, the Initial Number of Shares of Company Common Stock, and Buyer
will pay to the Company the Purchase Price for such shares of Company
Common Stock (the "Initial Closing").
Section 2.4 Subsequent Purchases and Sales.
(a) Subject to the terms and conditions hereof, following
the Initial Closing Buyer will purchase and acquire (and the Advancing
Party shall advance sufficient funds for such purchase) from the
Company, and the Company will sell and deliver to Buyer, subject to
satisfaction or waiver of the applicable conditions set forth in
Sections 7.2, 7.3 and 7.4, (i) at the Second Closing 3,078,988
Purchased Shares and (ii) after the Second Closing from time to time
as determined by the Company (but in any event on or before the
earlier of eighteen months after the Stockholder Approval and June 30,
1999) at one or more Subsequent Closings an aggregate of 4,653,325
Purchased Shares (each Closing referred to in clauses (i) and (ii)
referred to as a "Subsequent Purchase" and, together, the "Subsequent
Purchases").
17
(b) At least 20 calendar days prior to a Subsequent
Purchase, the Company shall notify (which notice shall be in writing
and shall be irrevocable) Buyer of the anticipated date of the
Subsequent Closing and the number of Purchased Shares the Company is
requiring Buyer to purchase, which shall not be fewer than 715,000
Purchased Shares (or such lesser amount if the number of Purchased
Shares to be purchased under the Remaining Equity Commitment is less
than 715,000); provided, however, that the notice of the stockholders
meeting called to approve the issuance of the Company's Common Stock
shall serve as notice for the Second Closing and the Second Closing
shall occur on the date of Stockholder Approval if the other
conditions thereto specified in this Agreement have been satisfied.
Subject to the terms and conditions hereof, the Closing of any
Subsequent Purchase shall occur as soon as possible following the date
on which the applicable conditions set forth in Sections 7.2, 7.3 and
7.4 shall have been satisfied or duly waived.
(c) If less than all Purchased Shares shall have been issued
and sold at any and all Closings on or before the earlier of eighteen
months after the Stockholder Approval and June 30, 1999, then Buyer
shall, subject to the satisfaction or waiver of the applicable
conditions set forth in Sections 7.3 and 7.4, make a Subsequent
Purchase of all such remaining shares from the Company (and the
Company shall sell to Buyer) on or before the earlier of eighteen
months after Stockholder Approval and June 30, 1999, or as soon
thereafter as all conditions to Buyer's obligation to effect the
Subsequent Purchase hereunder shall have been satisfied or waived;
provided, however, that Buyer may waive the foregoing requirement that
such shares be purchased by such date.
Section 2.5 Additional Agreements and Closing Deliveries.
(a) Concurrently with the execution of this Agreement, (i)
the Company, Buyer and the Advancing Party shall enter into a
registration rights agreement substantially in the form attached as
Exhibit A (the "Registration Rights Agreement"), (ii) the Company,
Buyer and the Advancing Party shall enter into a stockholders
agreement substantially in the form attached as Exhibit B (the
"Stockholders Agreement") and (iii) Buyer shall have entered into the
Voting Agreements with Xxxx X. Xxxxxxxx, Xxxx X. Booty, Xxxxx X.
Xxxxxxx, Xxxxxx X. Xxxxxx-Xxxxx among other persons.
(b) In addition to the other things required to be done
hereby, at each Closing the Company shall deliver or cause to be
delivered to Buyer the following: (i) certificates representing the
number of shares of Company Common Stock to be issued and delivered at
such Closing, free and clear of all Liens (unless created by Buyer or
any of its Affiliates), with all necessary share transfer and other
documentary stamps attached, (ii) a certificate, dated the relevant
Closing Date and validly executed on behalf of the Company, as
contemplated by Section 7.3(a), (iii) evidence or copies of any
consents, approvals, orders, qualifications or waivers required
pursuant to Section 7.3(d), (iv) all certificates and other
instruments and documents required by this Agreement to be delivered
by the Company to Buyer at or prior to each Closing and (v) such other
instruments reasonably requested by Buyer as may be necessary or
appropriate to confirm or carry out the provisions of this Agreement.
(c) In addition to the delivery of the Purchase Price and
the other things required to be done hereby, at each Closing, Buyer
shall deliver, or cause to be delivered, to the Company the following:
(i) a certificate, dated the relevant Closing Date and validly
executed by Buyer, as contemplated by Section 7.4(a), (ii) if not
previously delivered to the Company, all other certificates,
documents, instruments and writings required pursuant hereto to be
delivered by or on behalf of Buyer at or before each Closing and (iii)
such other instruments reasonably requested by the Company as may be
necessary or appropriate to confirm or carry out the provisions of
this Agreement.
18
Section 2.6 Time and Place of Closings. Each Closing shall take
place on the relevant Closing Date at such place and time as the
Company and Buyer shall mutually agree.
Section 2.7 Right to Assign. Buyer and the Advancing Party may
assign their rights and delegate their obligations created hereby to
purchase Company Common Stock in accordance with the provisions of
Section 10.5.
Section 2.8 Limited Transfer Option. In the event that the
Company does not receive Stockholder Approval by December 31, 1997
(other than solely as a result of Buyer's material breach of any of
its obligations hereunder), Buyer will have the right to transfer
Purchased Shares purchased at the Initial Closing subject to the
transfer restrictions set forth in Section 5.2 of the Stockholders
Agreement.
ARTICLE 3
Representations and Warranties of the Company
The Company hereby represents and warrants to Buyer as follows in
Section 3.1 through 3.20:
Section 3.1 Organization and Qualification; Subsidiaries.
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
California. The Company has all requisite corporate power and
authority to own, operate, lease and encumber its properties and carry
on its business as now conducted, and to enter into this Agreement and
the Transaction Documents and to perform its obligations hereunder and
thereunder.
(b) Each of the Subsidiaries of the Company is a
corporation, partnership or limited liability company duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, and has the
corporate, partnership or limited liability company power and
authority to own its properties and to carry on its business as it is
now being conducted.
(c) Each of the Company and its Subsidiaries is duly
qualified to do business and in good standing in each jurisdiction in
which the ownership of its property or the conduct of its business
requires such qualification, except for any failures to be so
qualified or to be in good standing as would not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse
Effect.
(d) Schedule 3.1(d) sets forth the name of each Subsidiary
of the Company (whether owned, directly or indirectly, through one or
more intermediaries) and each Affiliated Limited Partnership. All of
the outstanding shares of capital stock of, or other equity interest
in, each of the Subsidiaries owned by the Company are duly authorized,
validly issued, fully paid and nonassessable, and are owned, directly
or indirectly, by the Company free and clear of all Liens, except as
set forth in Schedule 3.1(d). The following information for each
Subsidiary and Affiliated Limited Partnership is set forth in Schedule
3.1(d), if applicable: (i) its name and jurisdiction of incorporation
or organization, (ii) the type of and percentage interest held by the
Company in the Subsidiary or Affiliated Limited Partnership and the
names of and percentage interest held by the other interest holders,
if any, in the Subsidiaries, and (iii) any loans from the Company to,
or priority payments due to the Company from, the Subsidiary or
Affiliated Limited Partnerships, and the rate of
19
return thereon. Except as contemplated hereby and as set forth on
Schedule 3.1(d), there are no existing options, warrants, calls,
subscriptions, convertible securities or other rights, agreements or
commitments which obligate the Company or any of the Subsidiaries or
Affiliated Limited Partnerships to issue, transfer or sell any shares
of capital stock or equity interests in any of the Subsidiaries or
Affiliated Limited Partnerships except as would not, individually or
in the aggregate, reasonably be expected to result in a Material
Adverse Effect.
Section 3.2 Authority Relative to Agreements; Board Approval.
(a) The execution, delivery and performance of this
Agreement and the Transaction Documents have been duly and validly
authorized by all necessary action on the part of the Company, subject
only to Stockholder Approval. This Agreement and the Transaction
Documents have been duly executed and delivered by the Company for
itself and constitute the valid and legally binding obligation of the
Company, enforceable against the Company in accordance with their
terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights or general principles
of equity.
(b) The Board has, as of the date hereof, approved this
Agreement and the Transaction Documents and the transactions
contemplated hereby and thereby and determined to recommend that the
stockholders of the Company vote in favor of and approve the issuance
of Company Common Stock pursuant to this Agreement subject to the
fiduciary duty provisions of Section 5.6.
(c) The shares of Company Common Stock to be acquired
pursuant to this Agreement have been duly authorized for issuance and
upon issuance will be duly and validly issued, fully paid and
nonassessable.
(d) The issue and sale of the shares of Company Common Stock
hereunder will not give any stockholder of the Company the right to
demand payment for its shares under California law or give rise to any
preemptive or similar rights.
Section 3.3 Capital Stock.
(a) The authorized capital stock of the Company as of the
date hereof consists of 100,000,000 shares of Company Common Stock, no
par value per share, and 10,000 shares of Series A Convertible
Redeemable Preferred Stock, no par value per share ("Company Preferred
Stock"). As of the date hereof there were 9,662,990 shares of Company
Common Stock issued and outstanding and no shares of Company Preferred
Stock issued and outstanding. All issued and outstanding shares of
Company Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Except as set forth on
Schedule 3.3(a), the Company has no outstanding bonds, debentures,
notes or other obligations the holders of which have the right to vote
(or which are convertible into or exercisable for securities the
holders of which have the right to vote) with the stockholders of the
Company on any matter. As of the date hereof, except as set forth in
Schedule 3.3(a) to this Agreement, there are no existing options,
warrants, calls, subscriptions, convertible securities, or other
rights, agreements or commitments which obligate the Company to issue,
transfer or sell any shares of capital stock or other equity interests
of the Company.
(b) Except for interests in the Subsidiaries and the
Affiliated Limited Partnerships of the Company and except as set forth
in Schedule 3.3(b), none of the Company or any of its Subsidiaries own
directly or indirectly any interest or investment (whether equity or
debt) in any corporation, partnership, limited liability company,
joint
20
venture, business, trust or entity (other than investments in
short-term investment securities).
Section 3.4 No Conflicts; No Defaults; Required Filings and
Consents. Neither the execution and delivery by the Company hereof nor
the consummation by the Company of the transactions contemplated
hereby in accordance with the terms hereof, will:
(a) conflict with or result in a breach of any provisions of
the Company Charter or Company By-laws;
(b) result in a breach or violation of, a default under, or
the triggering of any payment or other obligations pursuant to any
Contract;
(c) violate or conflict with any statute, regulation,
judgment, order, writ, decree or injunction applicable to the Company
or its Subsidiaries, except as would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse
Effect;
(d) subject to the Company obtaining the third party
consents set forth in Schedule 3.4(d)-A (with respect to the Initial
Closing), and Schedule 3.4(d)-B (with respect to each Subsequent
Closing), violate or conflict with or result in a breach of any
provision of, or constitute a default (or any event which, with notice
or lapse of time or both, would constitute a default) under, or result
in the termination or in a right of termination or cancelation of, or
accelerate the performance required by, or result in the creation of
any Lien upon any of the properties of the Company or its Subsidiaries
under, or result in being declared void, voidable or without further
binding effect, or change the conversion rate of any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, convertible debenture, or any license, franchise, permit,
lease, contract, agreement or other instrument, commitment or
obligation to which the Company or its Subsidiaries is a party, or by
which the Company or its Subsidiaries or any of their properties is
bound or affected, except for any of the foregoing matters which would
not reasonably be expected to, individually or in the aggregate,
result in a Material Adverse Effect; or
(e) require any consent, approval or authorization of, or
declaration, filing or registration with, any Government Authority,
other than any filings required under the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or state securities laws ("Blue Sky
Laws") (collectively, the "Regulatory Filings"), and any filings
required to be made with the Secretary of State of California or any
national securities exchange on which the Company Common Stock is
listed, except as would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
Section 3.5 SEC and Other Documents; Financial Statements;
Undisclosed Liabilities.
(a) The Company has delivered or made available to Buyer the
registration statement of the Company filed with the Securities and
Exchange Commission ("SEC") in connection with the Company's initial
public offering of Company Common Stock, and all exhibits, amendments
and supplements thereto (collectively, the "Company Registration
Statement"), and each registration statement, report, proxy statement
or information statement and all exhibits thereto prepared by it or
relating to its properties since the effective date of the Company
Registration Statement, which are set forth in Schedule 3.5(a), each
in the form (including exhibits and any amendments thereto) filed with
the SEC (collectively, the "Company Reports"). Except as set forth in
Schedule 3.5(a),
21
the Company Reports were filed with the SEC in a timely manner and
constitute all forms, reports and documents required to be filed by
the Company under the Securities Act, the Exchange Act and the rules
and regulations promulgated thereunder (the "Securities Laws"). As of
their respective dates, the Company Reports (i) complied as to form in
all material respects with the applicable requirements of the
Securities Laws and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. There
is no unresolved violation asserted or comments issued by any
Government Authority with respect to any of the Company Reports.
(b) Each of the balance sheets included in or incorporated
by reference into the Company Reports (including the related notes and
schedules) fairly presented the financial position of the entity or
entities to which it relates as of its date and each of the statements
of operations, stockholders' equity (deficit) and cash flows included
in or incorporated by reference into the Company Reports (including
any related notes and schedules) fairly presented the results of
operations, retained earnings or cash flows, as the case may be, of
the entity or entities to which it relates for the periods set forth
therein, in each case in accordance with United States generally
accepted accounting principles ("GAAP") consistently applied during
the periods involved, except as may be noted therein and except, in
the case of the unaudited statements, normal recurring year-end
adjustments which would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(c) Except as and to the extent set forth in the Company
Reports and the Company's financial statements filed with the SEC or
in any Schedule hereto, to the Company's knowledge, none of the
Company or any of its Subsidiaries has any Liabilities (nor do there
exist any circumstances) that would, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(d) The books of account and other financial records of the
Company and each of its Subsidiaries are in all respects true and
complete, have been maintained in accordance with good business
practices, and are accurately reflected in all respects in the
financial statements included in the Company Reports, except, in each
case, as would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
Section 3.6 Litigation; Compliance With Law.
(a) Except as set forth on Schedule 3.6(a), there are no
Actions pending or, to the Company's knowledge, threatened against the
Company or any of its Subsidiaries that would, individually or in the
aggregate, reasonably be expected to result in a Material Adverse
Effect, or which question the validity of this Agreement or any
Transaction Document or any action taken or to be taken in connection
herewith or therewith. Except as set forth on Schedule 3.6(a), the
maximum liability of the Company with respect to each Action set forth
on Schedule 3.6(a) is fully covered by policies of insurance described
in Section 3.16. Except as disclosed in Schedule 3.6(a), there are no
continuing orders, injunctions or decrees of any Government Authority
to which the Company or any of its Subsidiaries is a party or by which
any of its properties or assets are bound.
(b) None of the Company or its Subsidiaries is in violation
of any statute, rule, regulation, order, writ, decree or injunction of
any Government Authority or any body having jurisdiction over them or
any of their respective properties which, if enforced,
22
would, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect.
Section 3.7 Absence of Certain Changes or Events. Except as
disclosed in the Company Reports filed with the SEC prior to the date
hereof and except as disclosed in Schedule 3.7 since March 31, 1997,
the Company and each of its Subsidiaries has conducted its business
only in the ordinary course and has operated, constructed, developed,
acquired and entered into management contracts and leases in respect
of assisted living facilities only in the ordinary course of such
business, and there has not been (a) any change, circumstance or event
that would reasonably be expected to result in a Material Adverse
Effect, (b) any declaration, setting aside or payment of any dividend
or other distribution with respect to the Company Common Stock, except
in accordance with Section 5.5, (c) any commitment, contractual
obligation, borrowing, capital expenditure or transaction (each, a
"Commitment") entered into by the Company or any of its Subsidiaries,
other than Commitments which would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse
Effect or (d) any change in the Company's accounting principles,
practices or methods which would, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
Section 3.8 Tax Matters and Partnership Status.
(a) The Company, each of its Subsidiaries and each of its
Affiliated Limited Partnerships has timely filed with the appropriate
taxing authority all Tax Returns required to be filed by it or has
timely requested extensions and any such request has been granted and
has not expired. Each such Tax Return, as amended (if applicable), is,
or will be, as the case may be, complete and accurate in all respects.
All Taxes (including Taxes for which no Tax Returns are required to be
filed and including payroll and wage withholding Taxes) of the Company
and any of its Subsidiaries and Affiliated Limited Partnerships, or
for which the Company or any of its Subsidiaries or Affiliated Limited
Partnerships is or could otherwise be held liable, have been duly and
timely paid or accrued, except for Taxes being contested in good faith
and for which adequate reserves have been taken. The Company, each of
its Subsidiaries and each of its Affiliated Limited Partnerships has
properly accrued all Taxes for such periods subsequent to the periods
covered by such Tax Returns as required by GAAP. None of the Company
or any of its Subsidiaries or Affiliated Limited Partnerships has
executed or filed with the IRS or any other taxing authority any
agreement now in effect extending the period for assessment or
collection of any Tax. Except as set forth in Schedule 3.8(a), none of
the Company or any of its Subsidiaries or Affiliated Limited
Partnerships or any of its Employee Benefit Plans or Benefit
Arrangements is being audited or examined by any taxing authority with
respect to any Tax or is a party to any pending action or proceedings
by any taxing authority or other Government Authority for assessment
or collection of any Tax, and no claim for assessment or collection of
any Tax has been asserted against it. True and complete copies of all
federal, state and local income or franchise Tax Returns filed by the
Company, each of its Subsidiaries and each of its Affiliated Limited
Partnerships for 1994 and 1995 and all communications relating thereto
have been delivered to Buyer or made available to representatives of
Buyer prior to the date hereof. No claim has been made in writing or,
to the Company's knowledge, otherwise by an authority in a
jurisdiction where the Company or any of its Subsidiaries or
Affiliated Limited Partnerships does not file Tax Returns that it is
or may be subject to taxation by that jurisdiction. Except as set
forth in Schedule 3.8(a) and except for any Tax appeal filed by the
Company or its Subsidiaries in the ordinary course of business, there
is no dispute or claim concerning any Tax liability of the Company or
any of its Subsidiaries or Affiliated Limited Partnerships, (i)
claimed or raised by any taxing authority, either orally or in writing
or (ii) as to which the Company or any of its Subsidiaries or
Affiliated Limited Partnerships has knowledge.
23
(b) Except as set forth in Schedule 3.8(b), all Tax Assets,
deductions and credits (including, but not limited to, the low-income
housing credit under Section 42 of the Internal Revenue Code of 1986,
as amended) claimed or, in the case a Tax Return for which an
extension has been granted, to be claimed, on a Tax Return of the
Company or any of its Subsidiaries or Affiliated Limited Partnerships
have been or will be, as the case may be, timely and properly claimed.
(c) Any amount or other entitlement that could be received
(whether in cash or property or the vesting of property) as a result
of any of the transactions contemplated hereby by any Employee,
officer, or director of the Company or any of its Affiliates or
independent contractor who is a "disqualified individual" (as such
term is defined in proposed Treasury Regulation Section 1.28OG-1)
under any employment, severance or termination agreement, other
compensation arrangement or plan currently in effect would not be
characterized as an "excess parachute payment" (as such term is
defined in Section 28OG(b)(1) of the Code).
(d) The disallowance of a deduction under Section 162(m) of
the Code for employee remuneration will not apply to any amount paid
or payable by the Company or any of its Subsidiaries under any
contract, stock plan, program, arrangement or understanding currently
in effect.
(e) The Affiliated Limited Partnerships are and will
continue to be classified as partnerships for United States federal
income and all other relevant tax law purposes.
(f) Except as set forth in Schedule 3.8(f), none of the
Company or any of its Subsidiaries or Affiliated Limited Partnerships
is a party to or is bound by any agreement, arrangement or practice
with respect to Taxes. The Company has delivered to Buyer complete and
accurate copies of any such written agreement, arrangement or
practice, and complete and accurate descriptions of any such oral
agreement, arrangement or practice.
Section 3.9 Compliance with Agreements; Material Agreements.
(a) Neither the Company nor any of its Subsidiaries is in
default under or in violation of any provision of the Company Charter
or the Company By-laws or any Contract, except for such defaults or
violations which would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(b) The Company and each of its Subsidiaries have filed all
material reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were
required to file with any Government Authority and all other material
reports and statements required to be filed by them, including any
report or statement required to be filed pursuant to the laws, rules
or regulations of the United States, and have paid all fees or
assessments due and payable in connection therewith, except for such
failures to file or pay which would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse
Effect. There is no unresolved violation asserted by any regulatory
agency of which the Company has received written notice with respect
to any report or statement relating to an examination of the Company
or any of its Subsidiaries which, if resolved in a manner unfavorable
to the Company or such Subsidiary, would, individually or in the
aggregate, reasonably be expected to result in a Material Adverse
Effect.
(c) Except as set forth in Schedule 3.9(c), neither the
Company nor any Subsidiary is a party to or bound by any:
24
(i) employment agreement or employment contract that has an
aggregate future liability in excess of $50,000 and is not
terminable by the Company or a Subsidiary by notice of not more
than 60 days for a cost of less than $50,000;
(ii) employee collective bargaining agreement or other
contract with any labor union;
(iii) covenant of the Company or a Subsidiary not to
compete;
(iv) agreement, contract or other arrangement with any
current or former officer, director, employee, or Affiliate or
relative thereof, of the Company or any Subsidiary (other than
employment agreements covered by clause (i) above);
(v) lease, sublease or similar agreement involving annual
payments in excess of $50,000 with any person (other than the
Company or a Subsidiary) under which the Company or a Subsidiary
is a lessor or sublessor of, or makes available for use to any
person (other than the Company or a Subsidiary), (A) any Company
Property or (B) any portion of any premises otherwise occupied by
the Company or a Subsidiary;
(vi) lease or similar agreement with any person (other than
the Company or a Subsidiary) under which (A) the Company or a
Subsidiary is lessee of, or holds or uses, any machinery,
equipment, vehicle or other tangible personal property owned by
any person or (B) the Company or a Subsidiary is a lessor or
sublessor of, or makes available for use by any person, any
tangible personal property owned or leased by the Company or a
Subsidiary, in any such case which has an aggregate annual future
liability or receivable, as the case may be, in excess of $50,000
and is not terminable by the Company or a Subsidiary by notice of
not more than 60 days for a cost of less than $50,000;
(vii) (A) continuing contract for the future purchase of
materials, supplies or equipment (other than purchase contracts
and orders for inventory in the ordinary course of business
consistent with past practice) in excess of $50,000 annually, (B)
management, service, consulting or other similar type of contract
or (C) advertising agreement or arrangement, in any such case
which has an aggregate future liability to any person (other than
the Company or a Subsidiary) in excess of $50,000 and is not
terminable by the Company or a Subsidiary by notice of not more
than 60 days for a cost of less than $50,000;
(viii) material license, option or other agreement relating
in whole or in part to intellectual property (including any
license or other agreement under which the Company or a
Subsidiary is license or licensor of any such intellectual
property);
(ix) agreement, contract or other instrument under which the
Company or a Subsidiary has borrowed any money from, or issued
any note, bond, debenture or other evidence of indebtedness to,
any person (other than the Company or a Subsidiary) or any other
note, bond, debenture or other evidence of indebtedness issued to
any person (other than the Company or a Subsidiary);
(x) agreement, contract or other instrument (including
so-called take-or-pay or keepwell agreements) under which (A) any
person (including the Company or a Subsidiary) has directly or
indirectly guaranteed indebtedness, liabilities or obligations of
the Company or a Subsidiary or (B) the Company or a Subsidiary
has directly or indirectly guaranteed indebtedness, liabilities
or obligations of any person
25
(in each case other than endorsements for the purpose of
collection in the ordinary course of business);
(xi) agreement, contract or other instrument under which the
Company or a Subsidiary has, directly or indirectly, made any
advance, loan, extension of credit or capital contribution in
excess of $50,000 to, or other investment in, any person (other
than the Company or a Subsidiary);
(xii) mortgage, pledge, security agreement, deed of trust or
other instrument granting a lien or other encumbrance upon any
Company Property;
(xiii) agreement or instrument providing for indemnification
of any person with respect to liabilities relating to any current
or former business of the Company, a Subsidiary or any
predecessor person exclusive of indemnifications included in
other documents on Schedule 3.9(c) or granted to sellers of real
property owned or leased by the Company or its Affiliates; or
(xiv) other agreement, contract, management contract, lease,
license, commitment or instrument to which the Company or any
Subsidiary is a party or by or to which it or any of its assets
or business is bound or subject, none of which are, on an
individual basis, material to the Company (as opposed to the
Company and its Subsidiaries taken as a whole).
Except as set forth in Schedule 3.9(c), all agreements, contracts,
leases, licenses, commitments or instruments of the Company or any
Subsidiary listed in the Schedules hereto (collectively, the
"Contracts") are valid, binding and in full force and effect and are
enforceable by the Company or the relevant Subsidiary in accordance
with its terms. Except as set forth in Schedule 3.9(c), the Company
and the Subsidiaries have performed all material obligations required
to be performed by them to date under the Contracts and they are not
(with or without the lapse of time or the giving of notice, or both)
in breach or default in any material respect thereunder and, to the
knowledge of the Company, no other party to any of the Contracts is
(with or without the lapse of time or the giving of notice, or both)
in breach or default in any material respect thereunder. Except as set
forth in Schedule 3.9(c), there are no change of control or similar
provisions or any obligations arising under any Contract which are
created, accelerated or triggered by the execution, delivery or
performance of this Agreement or the Transaction Documents or the
consummation of the transactions contemplated hereby or thereby.
Section 3.10 Company Charter and Company By-laws; Corporate
Records.
(a) The Company has delivered to Buyer true and complete
copies of the Company Charter and the Company By-laws, as amended to
date, and the charter, by-laws, organization documents, partnership
agreements of its Subsidiaries, and all amendments thereto. All such
documents are listed in Schedule 3.10(a).
(b) The minute books and other records of corporate
proceedings of the Company and each of its Subsidiaries contain in all
material respects accurate records of all meetings and accurately
reflect in all material respects all other corporate action of the
stockholders and directors and any committees of the Board of
Directors of the Company and their Subsidiaries which are
corporations, except for documentation of discussions relating to or
in connection with the transactions contemplated hereby or matters
related hereto, and except as would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse
Effect. True and complete copies of the foregoing have been
26
delivered to Buyer prior to the date hereof. The Company does not keep
written records of the partnership proceedings of the Company's
Subsidiaries that are partnerships.
Section 3.11 Properties.
(a) Schedule 3.11(a) sets forth a complete and accurate list
and the address of all real property and inter- ests in real property
owned in fee by the Company and the Subsidiaries (individually, an
"Owned Property"). Schedule 3.11(a) sets forth a complete list of all
real property and interests in real property leased by the Company and
the Subsidiaries (individually, a "Leased Property"). The Company or a
Subsidiary has (i) good and insurable fee title to all Owned Property
and (ii) good and valid title to the leasehold estates in all Leased
Property (an Owned Property or Leased Property being sometimes
referred to herein, individually, as a "Company Property" and,
collectively, as "Company Properties"), in each case free and clear of
all mortgages, liens, security interests, encumbrances, leases,
assignments, subleases, easements, covenants, rights-of-way and other
similar restrictions of any nature whatsoever, except (A) such as are
set forth in Schedule 3.11(a) or on Schedule 3.9(c), (B) Permitted
Liens, (C) financing statements, easements, covenants, rights-of-way
and other similar restrictions of record and (D) (I) zoning, building
and other similar restrictions, (II) mortgages, liens, security
interests, encumbrances, easements, covenants, rights-of-way and other
similar restrictions that have been placed by any developer, landlord
or other third party on property over which the Company or any
Subsidiary has easement rights or on any Leased Property and
subordination or similar agreements relating thereto, and (III)
unrecorded easements, covenants, rights-of-way and other similar
restrictions, none of which items set forth in clauses (I), (II) and
(III), individually or in the aggregate, materially impair the
continued use and operation of the property to which they relate in
the business of the Company and the Subsidiaries, taken as a whole, as
presently conducted. Except as set forth on Schedule 3.11(a), to the
knowledge of the Company, the current use by the Company and the
Subsidiaries of the offices and other facilities located on Company
Property does not violate any local zoning or similar land use or
government regulations in any material respect. Except as set forth on
Schedule 3.11(a), American Land Title Association policies of title
insurance (or marked title insurance commitments having the same force
and effect as title insurance policies) have been issued by national
title insurance companies insuring the fee simple title of the Company
or its Subsidiaries, as applicable, to each of the Owned Properties in
sufficient amounts to avoid co- insurance statutes, subject only to
the matters set forth therein (the "Title Policies"), and, to the
Company's knowledge, the Title Policies are valid and in full force
and effect and no claim has been made under any such policy. The
Company has delivered to Buyer true and complete copies of all such
policies and of the most recent surveys of the Owned Properties, and
true and complete copies of all material exceptions referenced in such
policies and the most recent title reports for and surveys of each of
the Owned Properties.
(b) Schedule 3.11(b) sets forth a complete and accurate list
of all material commitments, letters of intent or similar written
understandings made or entered into by the Company or any of its
Subsidiaries as of the date hereof (x) to sell, mortgage, pledge or
hypothecate any Owned Properties, which, individually or in the
aggregate, are material, or to otherwise enter into a material
transaction in respect of the ownership or financing of any Company
Property or (y) to purchase or to acquire an option, right of first
refusal or similar right in respect of any real property, which,
individually or in the aggregate, are material, which, in any such
case, has not yet been reduced to a written lease or contract, and
sets forth with respect to each such commitment, letter of intent or
other understanding the principal terms thereof. The Company has
delivered to Buyer a true and complete copy of each such commitment,
letter of intent or other understanding. Schedule 3.11(b) also sets
27
forth a complete and accurate list of all agreements to purchase real
property to which the Company or any Subsidiary is a party.
(c) Except as set forth in Schedule 3.11(c), none of the
Company Properties is subject to any outstanding purchase options nor
has the Company or any of its Subsidiaries entered into any
outstanding contracts with others for the sale, mortgage, pledge,
hypothecation, assignment, sublease, lease or other transfer of all or
any part of any Company Property, and no person has any right or
option to acquire, or right of first refusal with respect to, the
Company's or any of its Subsidiaries' interest in any Company Property
or any part thereof. None of the Company or any of its Subsidiaries
has any outstanding options or rights of first refusal or has entered
into any outstanding contracts with others for the purchase of any
real property.
(d) Schedule 3.11(d) contains a complete and accurate
description of any noncompliance by any Company Property, to the
Company's knowledge, with any law, ordinance, code, health and safety
regulation or insurance requirement other than such noncompliance as
would not, individually or in the aggregate reasonably be expected to
have a Material Adverse Effect. Schedule 3.11(d) also sets forth the
Company's or any Subsidiary's capital expenditure budget and schedule
for each Company Property, which describes the capital expenditures
which the Company or any Subsidiary has budgeted for such Company
Property for the period ending March 31, 1997 (the "Capital
Expenditure Budget and Schedule"). The Capital Expenditure Budget and
Schedule also describes other capital expenditures as are necessary in
order to bring such Company Property into compliance with applicable
laws, ordinances, codes, health and safety regulations and insurance
requirements (including in respect of fire sprinklers, compliance with
the ADA or which the Company otherwise plans or expects to make in
order to cure or remedy any construction, electrical, mechanical or
other defects, to renovate, rehabilitate or modernize such Company
Property, or otherwise, excluding, however, any tenant improvements
required to be made under any Company Lease). Except as set forth in
the Capital Expenditure Budget and Schedule there are no capital
expenditure budgets or projections for periods after March 31, 1998.
The costs and time schedules set forth in the Capital Expenditure
Budget and Schedule are reasonable estimates and projections. Except
as set forth in Schedule 3.11(d), there are no outstanding or, to the
Company's knowledge, threatened requirements by any insurance company
which has issued an insurance policy covering any Company Property, or
by any board of fire underwriters or other body exercising similar
functions, requiring any repairs or alterations to be made to any
Company Property that would, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(e) Schedule 3.11(e) contains a list of each Company
Property which consists of or includes undeveloped land or which is in
the process of being developed or redeveloped (collectively, the
"Development Properties") and a brief description of the development
or redevelopment intended by the Company or any Subsidiary to be
carried out or completed thereon (collectively, the "Projects"),
including any budget and development schedule therefor prepared by or
for the Company or any Subsidiary (collectively, the "Development
Budget and Schedule"). Except as set forth on Schedule 3.11(e), each
Development Property is zoned for the lawful development or
redevelopment thereon of the applicable Project, and the Company or
its Subsidiaries have obtained all permits, licenses, consents and
authorizations required for the lawful development or redevelopment
thereon of such Project, except only for such failure to meet the
foregoing standards as would not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect. To the
Company's knowledge, there are no material impediments to or
constraints on the development or redevelopment of any Project in all
material respects within the time frame and for the cost set forth in
the Development Budget and Schedule applicable thereto. In
28
the case of each Project the development of which has commenced, to
the Company's knowledge, the costs and expenses incurred in connection
with such Project and the progress thereof are consistent and in
compliance in all material respects with the Development Budget and
Schedule applicable thereto. The Company has made available to Buyer
all feasibility studies, soil tests, due diligence reports and other
studies, tests or reports performed by or for the Company at any time
since the Company's initial public offering, which relate to the
Development Properties or the Projects.
(f) The Company and each of its Subsidiaries have good and
sufficient title to all the personal and non- real properties and
assets reflected in their books and records as being owned by them
(including those reflected in the balance sheets of the Company and
its Subsidiaries as of March 31, 1997, except as since sold or
otherwise disposed of in the ordinary course of business), free and
clear of all Liens, except for Permitted Liens which are not,
individually or in the aggregate, reasonably expected to have a
Material Adverse Effect.
(g) Schedule 3.11(g) sets forth all structural and
engineering reports that are in the Company's possession or control,
true and correct copies of all of which have been heretofore delivered
to Buyer. Except as disclosed in such reports, the Company has
received no notice of, and has no knowledge of any Structural Defect
at any Company Property that would, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
Section 3.12 Environmental Matters.
(a) Except as disclosed in the Company Environmental
Reports, each of the Company and its Subsidiaries has obtained, and
now maintains as currently valid and effective, all permits,
certificates of financial responsibility and other governmental
authorizations required to be obtained by the Company or any
Subsidiary under the Environmental Laws (the "Environmental Permits")
in connection with the operation of their respective businesses and
properties. Except as disclosed in the Company Environmental Reports,
each of the Company and its Subsidiaries, and each of the Company
Properties is and has been in compliance with all terms and conditions
of the Environmental Permits and all Environmental Laws, except only
to an extent which would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect. The
Company has no knowledge of any circumstances or conditions that may
prevent or interfere with such compliance in the future.
(b) Each of the Company and its Subsidiaries has provided to
Buyer evidence of all formal communications, oral or written (whether
from a Government Authority, citizens' group, employee or other
person), which the Company has received regarding (x) alleged or
suspected noncompliance of any of the Company Properties with any
Environmental Laws or Environmental Permits or (y) alleged or
suspected Liability of the Company or its Subsidiaries under any
Environmental Law, which noncompliance or Liability would,
individually or in the aggregate, reasonably be expected to result in
a Material Adverse Effect.
(c) There are no liens or encumbrances on any of the Company
Properties which arose pursuant to or in connection with any
Environmental Law or Environmental Claim and, to the Company's
knowledge, no government actions have been taken or threatened to be
taken or are in process which are reasonably likely to subject any
Company Property to such liens or other encumbrances.
29
(d) Except as disclosed in Schedule 3.12(d) (none of which
matters would, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect), or set forth in the
Company Environmental Reports, no Environmental Claim has been
asserted or, to the Company's knowledge, threatened that may result in
a Liability in excess of $100,000 with respect to the operations or
the businesses of the Company or its Subsidiaries, or with respect to
the Company Properties. Except as set forth in the Company
Environmental Reports, no circumstances, past or present actions,
conditions, events or incidents which exist with respect to the
Company or its Subsidiaries or the Company Properties that would
reasonably be expected to result in any such Environmental Claim in
excess of $100,000 being asserted, in any such case, against (i) the
Company or its Subsidiaries, or (ii) to the Company's knowledge, any
person whose liability for any Environmental Claims the Company or its
Subsidiaries has or may have retained or assumed either contractually
or by operation of law.
(e) Except as disclosed in Schedule 3.12(e) (none of which
matters would, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect), or set forth in the
Company Environmental Reports, (i) none of the Company or its
Subsidiaries has been notified or anticipates being notified of
potential responsibility in connection with any site that has been
placed on, or proposed to be placed on, the National Priorities List
or its state or foreign equivalents pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42
U.S.C. ss. 9601 et seq., or analogous state laws, (ii) no Materials of
Environmental Concern are present on, in or under any Company Property
in a manner or condition that is reasonably likely to give rise to an
Environmental Claim which would reasonably be expected to result in a
Material Adverse Effect, (iii) none of the Company or its Subsidiaries
has Released or arranged for the Release of any Materials of
Environmental Concern at any location to an extent or in a manner
which would reasonably be expected to result in a Material Adverse
Effect, (iv) no underground storage tanks, surface impoundments,
disposal areas, pits, ponds, lagoons, open trenches or disused
industrial equipment is present at any of the Company Properties in a
manner or condition that is reasonably likely to give rise to an
Environmental Claim which would reasonably be expected to result in a
Material Adverse Effect, (v) no transformers, capacitors or other
equipment containing fluid with more than 50 parts per million
polychlorinated biphenyls are present at any of the Company Properties
in a manner or condition that is reasonably likely to give rise to an
Environmental Claim which would reasonably be expected to result in a
Material Adverse Effect, except for any such transformers, capacitors
or other equipment owned by any utility company, and (vi) except as
set forth on Schedule 3.12(e) to the Company's knowledge no friable
asbestos and no friable asbestos- containing material is present at
any of the Company Properties and no Employee, agent, contractor or
subcontractor of the Company or its Subsidiaries or any other person
is now or has in the past been exposed to friable asbestos at any
Company Property, except, in the case of each of the matters set forth
in this subpart (vi), for such matters as would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse
Effect.
(f) Schedule 3.12(f) contains a list of each environmental
report prepared for the Company or its Subsidiaries or otherwise in
the possession of any of them with respect to the environmental
condition of any of the Company Properties (collectively, the "Company
Environmental Reports"). The Company has previously delivered or made
available to Buyer true and complete copies of each Company
Environmental Report. To the Company's knowledge, none of the matters
disclosed by the Company Environmental Reports would, individually or
in the aggregate, be reasonably likely to have a Material Adverse
Effect. The Company has no knowledge of any facts or circumstances
relating to the environmental condition of any property owned, leased
or otherwise held by the
30
Company that is not a Company Property that are reasonably likely to
result in a Material Adverse Effect.
(g) For purposes hereof, the terms listed below shall have
the following meanings:
(i) "Claim" shall mean all actions, causes of action, suits,
judgments, executions, claims, Liabilities and demands
whatsoever, in law or equity.
(ii) "Environmental Claim" shall mean any Claim
investigation or notice by any person alleging potential
liability (including potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources
damages, property damages, personal injuries or fatalities, or
penalties) arising out of, based on or resulting from (A) the
presence, generation, transportation, treatment, use, storage,
disposal or Release of Materials of Environmental Concern or the
threatened Release of Materials of Environmental Concern at any
location, or (B) activities or conditions forming the basis of
any violation, or alleged violation of, or liability or alleged
liability under, any Environmental Law.
(iii) "Environmental Laws" shall mean federal, state, and
local laws, ordinances, common law, orders, statutes, and
regulations relating to the pollution or protection of the
environment or of flora or fauna or their habitat or of human
health and safety, or to the cleanup or restoration of the
environment.
(iv) "Materials of Environmental Concern" shall mean all
chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum or any fraction thereof, petroleum products and
hazardous substances or solid or hazardous wastes as now defined
and regulated under any Environmental Laws.
(v) "Release" shall mean any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge,
dispersal, leaching or migration.
Section 3.13 Employees and Employee Benefit Plans.
(a) Schedule 3.13(a) sets forth a complete and accurate list
of all employment agreements between the Company or any of its
Subsidiaries and employees of the Company or any of its Subsidiaries.
Except for the employees who are parties to such employment
agreements, all of the employees of the Company and each of its
Subsidiaries are employed on an at-will basis (except for restrictions
or limitations on the at-will basis of such employees imposed by law
or equity or general principles of law or equity).
(b) Schedule 3.13(b) sets forth a complete and accurate list
of all Employee Benefit Plans and all material Benefit Arrangements
which cover Employees of the Company or any of its Subsidiaries with
respect to their employment relationship with the Company or any of
its Subsidiaries (the "Company Plans"). With respect to each Company
Plan, the Company has made available to Buyer true and complete copies
of: (i) the plans and related trust documents and amendments thereto,
(ii) the most recent summary plan descriptions, if any, and the most
recent annual report, if any, and (iii) the most recent actuarial
valuation (to the extent applicable).
(c) With respect to each Company Plan, (i) the Company and
each of its Subsidiaries is in compliance in all material respects
with the terms of each Company Plan and with the requirements
prescribed by all applicable statutes, orders or governmental rules or
regulations, (ii) the Company and each of its Subsidiaries has
contributed to each Pension
31
Plan included in the Company Plans not less than the amounts accrued
for such plan for all plan periods for which payment is due, (iii)
none of the Company or any of its Subsidiaries has any funding
commitment or other accrued liabilities except as set forth on
Schedule 3.13(c) or as reserved for in the financial statements in or
incorporated by reference into the Company Reports, and (iv) there are
and have been no prohibited transactions involving any Company Plan
and in the case of each of clauses (i), (ii), (iii) and (iv), except
for such matters as would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(d) Except as set forth on Schedule 3.13(d), none of the
Company or any of its Subsidiaries has made any commitment to
establish any new Employee Benefit Plan, to modify any Employee
Benefit Plan, or to increase benefits or compensation of Employees of
the Company or any of its Subsidiaries (except for normal increases in
compensation consistent with past practices), and to the Company's
knowledge, no intention to do so has been communicated to Employees of
the Company or any of its Subsidiaries.
(e) There are no pending or, to the Company's knowledge,
anticipated claims (excluding claims for benefits incurred in the
ordinary course of Company Plan activities) against or otherwise
involving any of the Company Plans or any fiduciaries thereof with
respect to their duties to the Company Plans and no suit, action or
other litigation (excluding claims for benefits incurred in the
ordinary course of Company Plan activities) has been brought against
or with respect to any such Company Plans.
(f) Neither the Company nor any of the ERISA Affiliates has,
at any time after September 25, 1980, contributed to, or been required
to contribute to, any "multiemployer plan" (as defined in Sections
3(37) and 4001(a)(3) of ERISA).
(g) Except as required by the continuation coverage
requirements of Section 601 et seq. of ERISA and Section 4980B of the
Code or requirements of state law and regulations and except as set
forth on Schedule 3.13(g), the Company and its Subsidiaries do not
maintain or contribute to any plan or arrangement which provides or
has any liability to provide life insurance, medical or other employee
welfare benefits described in Section 3(l) of ERISA to any Employee or
former Employee following his retirement or termination of employment
and, to the Company's knowledge, the Company and its Subsidiaries have
never represented, promised or contracted (whether in oral or written
form) to any Employee or former Employee that such benefits would be
provided.
(h) For purposes hereof, "Employee Benefit Plans" means each
and all "employee benefit plans" as defined in Section 3(3) of ERISA
maintained or contributed to by the Company or a Subsidiary or in
which the Company or a Subsidiary participates or participated and
which provides benefits to Employees, including (i) any such plans
that are "employee welfare benefit plans" as defined in Section 3(l)
of ERISA, including retiree medical and life insurance plans ("Welfare
Plans"), and (ii) any such plans that constitute "employee pension
benefit plans" as defined in Section 3(2) of ERISA ("Pension Plans").
"Benefit Arrangements" means life and health insurance,
hospitalization, savings, bonus, deferred compensation, incentive
compensation, holiday, vacation, severance pay, sick pay, sick leave,
disability, tuition refund, service award, company car, scholarship,
relocation, patent award, fringe benefit, individual employment,
consultancy or severance contracts and other polices or practices of
the Company or a Subsidiary providing employee or executive
compensation or benefits to Employees maintained or contributed to by
the Company or a Subsidiary, other than Employee Benefit Plans.
"Employees" mean all current employees, former employees and retired
employees of the Company or any of its Subsidiaries, including
employees on disability, layoff or leave status. "Controlled Group
Liability" means any and all liabilities (other than such liabilities
that arise solely out of, or relate
32
solely to, the Company Plans) of the ERISA Affiliates (other than the
Company and its Subsidiaries) under (i) Title IV of ERISA, (ii)
Section 302 of ERISA, (iii) Sections 412 and 4971 of the Code, (iv)
the continuation coverage requirements of Section 601 et seq. of ERISA
and Section 4980B of the Code, and (v) corresponding or similar
provisions of foreign laws or regulations.
(i) To the Company's knowledge, with respect to each Company
Plan that is subject to Title IV or Section 302 of ERISA or Section
412 or 4971 of the Code: (i) there does not exist any accumulated
funding deficiency within the meaning of Section 412 of the Code or
Section 302 of ERISA, whether or not waived, (ii) the fair market
value of the assets of such plan equals or exceeds the actuarial
present value of all accrued benefits under such plan, on a
termination basis, (iii) no reportable event within the meaning of
Section 4043(c) of ERISA has occurred, and the consummation of the
transactions contemplated by this Agreement will not result in the
occurrence of any such reportable event, and (iv) all premiums due to
the Pension Benefit Guaranty Corporation have been timely paid in
full.
(j) There does not now exist, nor do any circumstances exist
that could result in, any Controlled Group Liability that would be a
liability of the Company following the Closing. Without limiting the
generality of the foregoing, neither the Company nor any ERISA
Affiliate has engaged in any transaction described in Section 4069 or
Section 4204 of ERISA.
(k) Except as set forth in Schedule 3.13(k), neither the
execution and delivery of this Agreement and the Transaction Documents
nor the consummation of the transactions contemplated hereby or
thereby will (either alone or in conjunction with any other event)
result in, cause the accelerated vesting or delivery of, or increase
the amount or value of, any payment or benefit to any employee of the
Company.
Section 3.14 Labor Matters. Except as set forth in Schedule 3.14,
none of the Company or any of its Subsidiaries is a party to, or bound
by, any collective bargaining agreement, contract or other agreement
or understanding with a labor union or labor union organization.
Except for the matters set forth in Schedule 3.14 (none of which
matters would, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect), there is no unfair labor
practice or labor arbitration proceeding pending or, to the knowledge
of the Company, threatened against the Company or any of its
Subsidiaries. To the Company's knowledge, there are no organizational
efforts with respect to the formation of a collective bargaining unit
presently being made or threatened involving employees of the Company
or any of its Subsidiaries.
Section 3.15 Affiliate Transactions. Schedule 3.15 sets forth a
complete and accurate list of all transactions, series of related
transactions or currently proposed transactions or series of related
transactions entered into by the Company or any of its Subsidiaries
since January 1, 1997 which are of the type required to be disclosed
by the Company pursuant to Item 404 of Regulation S-K of the
Securities Laws. A true and complete copy of all agreements or
contracts relating to any such transaction have been made available to
Buyer prior to the date hereof.
Section 3.16 Insurance. The Company maintains insurance policies,
including liability policies, covering the assets, business,
equipment, properties, operations, employees, officers and directors
of the Company and each of its Subsidiaries (collectively, the
"Insurance Policies"), which are of a type and in amounts customarily
carried by persons conducting businesses similar to those of the
Company. Schedule 3.16 sets forth a complete and accurate summary of
the Insurance Policies. There is no material claim by the
33
Company or any of its Subsidiaries pending under any of the material
Insurance Policies as to which coverage has been questioned, denied or
disputed by the underwriters of such policies.
Section 3.17 Proxy Statement. The Proxy Statement and all of the
information included or incorporated by reference therein (other than
any information supplied or to be supplied by Buyer for inclusion or
incorporation by reference therein) will not, as of the date such
Proxy Statement is first mailed to the stockholders of the Company and
as of the time of the meeting of the stockholders of the Company in
connection with the transactions contemplated hereby, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are
made, not misleading. The Proxy Statement will comply as to form in
all material respects with the provisions of the Exchange Act and the
rules and regulations promulgated by the SEC thereunder.
Section 3.18 Regulatory Compliance.
(a) Compliance with Law. Except as set forth in Schedule
3.18(a), to the knowledge of the Company, neither the Company nor any
Subsidiary is the subject of any investigation, nor has any
investigation or prosecution or other action been threatened by any
Governmental Entity or any private entity or person regarding
non-compliance with any Law and no basis exists for any such
investigation or prosecution. None of the Company, any of the
Subsidiaries, or any individual employed by the Company or any of the
Subsidiaries, to the knowledge of the Company, may reasonably be
expected to have criminal culpability or to be excluded from
participation in any Medical Reimbursement Program for its or his
corporate or individual actions or failure to act. To the Company's
knowledge, there is no executive officer of the Company or any
Subsidiary continuing to be employed by the Company or any of the
Subsidiaries who may reasonably be expected to have individual
culpability for matters under investigation by the OIG or other
Governmental Entity.
(b) Billing. Current billing policies, arrangements,
protocols, and instructions comply in all material respects with
requirements of Medical Reimbursement Programs and are administered by
properly trained personnel, except as set forth in Schedule 3.18(b).
The Company and each Subsidiary has complied with all applicable
Medicare and all other third party pay or billing policies,
procedures, limitations and restrictions, and there is no pending or
threatened recoupment or penalty action or proceedings against the
Company or any Subsidiary under the Medicare program or by any other
third party payor, except for such non-compliance, actions or
proceedings that individually or in the aggregate would not have a
Material Adverse Effect. The Company's current operations do not
require compliance with Blue Cross/Blue Shield, Medicaid or CHAMPUS
policies, procedures, limitations or restrictions.
(c) Licenses and Permits. The Company and each of the
Subsidiaries has obtained, and maintain in force, all Permits required
from any Governmental Entity to operate their respective businesses
and to occupy, operate and use any buildings, improvements, fixtures
and equipment owned or leased in connection with the operation of
assisted living facilities to provide the level one, two and three
services described in the Company's 1997 Form 10-K at all locations by
the Company or any of the Subsidiaries, and all such Permits are valid
and in full force and effect and shall remain so upon consummation of
the transactions contemplated by this Agreement with only such
exceptions that would not, individually or in the aggregate, have a
Material Adverse Effect. All of the Permits referenced in the
foregoing sentence have been issued in the name of the Company or the
applicable Subsidiary or Affiliated Limited Partnership having an
34
ownership or leasehold interest in the facilities referenced therein.
The Company's Subsidiary, Pro Motive Rehabilitative Services, Inc.,
has a valid license to provide rehabilitation therapy services under
Part B of the Medicare Program. No Permits of the Company or any
Subsidiary have been suspended, canceled or terminated and, to the
knowledge of the Company, no suspension, cancelation or termination of
any such Permits is threatened or imminent. Each employee of the
Company and of each of the Subsidiaries (including, but not limited
to, each facility administrator) has obtained, and maintains in force,
all licenses, permits or similar authorizations required to authorize
such employee to perform his or her duties on behalf of the Company
and the Subsidiaries with only such exceptions that, individually and
in the aggregate, would not have a Material Adverse Effect.
(d) Certain Payments. Neither the Company nor any
Subsidiary, nor any director, officer or employee of the Company or
any Subsidiary acting for or on behalf of the Company or any
Subsidiary, has paid or caused to be paid, directly or indirectly, in
connection with the business of the Company or any Subsidiary: (i) any
bribe, kickback or other similar payment to any Governmental Entity or
any agent of any supplier or customer; or (ii) any contribution to any
political party or candidate (other than from personal funds of
directors, officers or employees not reimbursed by their respective
employers or as otherwise permitted by applicable law).
(e) Third Party Payors; Medicare. To the extent required in
the ordinary course of their business, the Company and each Subsidiary
is qualified for the conduct of the Company's business in the ordinary
and regular course, for participation in the Medicare program and is a
party to provider agreements for such programs which are in full force
and effect with no events of default having occurred thereunder,
except as set forth in Schedule 3.18(e) and such exceptions that would
not, individually or in the aggregate, have a Material Adverse Effect.
The Company and each of the Subsidiaries has filed or will timely file
all claims or other reports required to be filed with respect to the
purchase of services by third-party payors, including, but not limited
to, the Medical Reimbursement Programs. All such claims or reports are
or will be complete and accurate in all material respects. The Company
and each of the Subsidiaries has paid or has properly recorded on the
Company's financial statements all actually known and undisputed
refunds, discounts or adjustments which have become due pursuant to
such claims, and neither the Company nor any Subsidiary has any
material liability to any payor with respect thereto, except as has
been fully reserved for in the Company's financial statements. Except
as set forth in Schedule 3.18(e), there are no pending appeals,
overpayment determinations, adjustments, challenges, audits,
litigation, or notices of intent to reopen Medicare claims
determinations or other reports required to be filed by the Company or
any Subsidiary in order to be paid by a payor for services rendered.
Neither the Company nor any of the Subsidiaries, nor any of their
respective directors, officers, employees, partners, consultants or
stockholders has been convicted of, or pled guilty or nolo contendere
to, patient abuse or neglect, or any other Medicare program-related
offense. Neither the Company nor any of the Subsidiaries, nor any of
their respective directors, officers, stockholders, or to the
Company's knowledge, their current employees, partners or consultants,
has committed any offense which may serve as the basis for suspension
or exclusion from the Medicare program, including, but not limited to,
defrauding a government program, loss of a license to provide health
care services, and failure to provide quality care.
(f) Fraud and Abuse. The Company, each of the Subsidiaries,
and their respective directors, officers and employees and the other
persons and entities providing professional services for the Company
and the Subsidiaries, have not engaged in any activities which are in
violation of Sections 1128A, 1128B, 1128C or 1877 of the Social
Security Act (42 U.S.C. xx.xx. 1320a-7a, 1320a-7b, 1320a-7c and
1395nn), the False Claims
35
Act (31 U.S.C. ss. 3729 et seq.), the False Statements Acts (18 U.S.C.
ss. 2002), the Program Fraud Civil Penalties Act (31 U.S.C. ss. 3801
et seq.), California Business and Professions Code xx.xx. 650, 650.01
and 650.01, California Labor Code xx.xx. 139.3 and 139.31, California
Health and Safety Code ss. 445, California Welfare and Institutions
Code xx.xx. 14107, 14107.2 and 14107.3, or related regulations or
other federal or state laws and regulations, including, but not
limited to, the following:
(i) knowingly and wilfully making or causing to be made a
false statement or representation of a material fact in any
application for any benefit or payment;
(ii) knowingly and wilfully making or causing to be made a
false statement or representation of a material fact for use in
determining rights to any benefit or payment;
(iii) failure to disclose knowledge by a Medicare or
Medicaid claimant or a claimant under any Medical Reimbursement
Program 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, with intent to fraudulently secure such
benefit or payment;
(iv) knowingly and wilfully offering, paying, soliciting or
receiving any renumeration (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 any
Medical Reimbursement 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 any
Medical Reimbursement Program; or
(v) referring or billing a patient for designated health
services (as defined in 42 U.S.C. ss. 1395nn) or providing
designated health services to a patient upon a referral from an
entity or person with which the physician or an immediate family
member has a financial relationship, and to which no exception
under 42 U.S.C. ss. 1395nn applies.
Section 3.19 Vote Required. The affirmative vote of the holders
of a majority (including the Advancing Party and its Controlled
Affiliates (as defined in the Stockholders Agreement) for purposes of
determining a quorum but not for determining a majority) of the
outstanding shares of Company Common Stock entitled to vote hereon and
duly present in person or by proxy at a meeting duly called to vote
hereon (and with each share of Company Common Stock entitled to one
vote per share) is the only vote of the holders of any class or series
of Company Stock necessary to approve this Agreement, the Transaction
Documents and the transactions contemplated hereby and thereby. The
record date for such vote will be established on or after the date of
the Initial Closing.
Section 3.20 Brokers or Finders. No agent, broker, investment
banker or other firm or person, including any of the foregoing that is
an Affiliate of the Company, is or will be entitled to any broker's or
finder's fee or any other commission or similar fee from the Company
in connection with this Agreement or the Transaction Documents or any
of the transactions contemplated hereby or thereby for which Buyer or
any of its Affiliates will be responsible other than Salomon Brothers
Inc (the "Broker"). The fee of the Broker shall be paid by the Company
pursuant to a separate agreement between the Company and the Broker.
The Company agrees to indemnify and hold harmless Buyer and its
successors and assigns from and against any and all claims, losses,
liabilities and expenses, including
36
without limitation reasonable attorneys' fees, disbursements and
charges, arising out of any claim or demand for commissions or other
compensation for bringing about this transaction by any agent, broker,
investment banker or other firm or person, including without
limitation the Broker, who claims to have dealt with the Company in
connection with this Agreement or the Transaction Documents or any of
the transactions contemplated hereby or thereby.
Section 3.21 Knowledge Defined. As used herein, the phrase "to
the Company's knowledge" (or words of similar import) means the actual
knowledge of any of Xxxx X. Xxxxxxxx, Xxxx X. Booty, Xxxxx X. Xxxxxxx,
Xxxxxx X. Xxxxxx-Xxxxx, Xxxxxx X. Xxxxxxx, Xxxxxxx X. Xxxxxxx, Xxxx X.
Xxxxxxxx, Xxxxx Xxxxxxx and each president of each division of the
Company and includes any facts, matters or circumstances (i) set forth
in the files maintained by such person, (ii) that would be known by
such persons after the exercise of reasonable inquiry and (iii) set
forth in any written notice from any Government Authority or any other
material written notice received by the Company or any of its
Subsidiaries from any other person, and also including any matter of
which Buyer informs the Company in writing.
Section 3.22 Delivery of Schedules. The Company hereby covenants
that all schedules to be delivered pursuant to this Article 3 shall be
delivered by the Company on or prior to the date 7 Business Days from
the date hereof (such date, the "Schedule Delivery Date").
Section 3.23 Certain Information. If Buyer obtains knowledge
prior to the Initial Closing that any of representations or warranties
of the Company set forth in this Article 3 are untrue in any respect
and Buyer nevertheless elects to acquire Company Common Stock at the
Initial Closing, then such breach shall be deemed to have been waived
by the Buyer and the Company shall have no liability to Buyer in
respect thereof. For the purposes of this Section, Buyer shall be
deemed to have knowledge of any such matter only if (i) such matter is
set forth in a schedule to this Agreement, (ii) such matter was set
forth in a letter, memorandum or other written communication from the
Company that specifically states that such letter, memorandum or other
written communication is being delivered pursuant to this Section 3.23
or (iii) Buyer has actual knowledge of such matter a result of its due
diligence review contemplated by this Agreement.
ARTICLE 4
Representations and Warranties of Buyer and the Advancing Party
Buyer and the Advancing Party hereby jointly and severally
represent and warrant to the Company as follows:
Section 4.1 Organization.
(a) Buyer is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of
Delaware. Buyer has all requisite power and authority to enter into
this Agreement and the Transaction Documents to which it is a party
and to perform its obligations hereunder and thereunder.
(b) The Advancing Party is a limited liability company duly
organized, validly existing and in good standing under the laws of the
State of Delaware. The Advancing Party has all requisite power and
authority to enter into this Agreement and the
37
Transaction Documents to which it is a party and to perform its
obligations hereunder and thereunder.
Section 4.2 Due Authorization. The execution, delivery and
performance of this Agreement and the Transaction Documents to which
Buyer and the Advancing Party are parties have been duly and validly
authorized by all necessary action on the part of Buyer and the
Advancing Party. This Agreement and the Transaction Documents to which
Buyer and the Advancing Party are parties have been duly executed and
delivered by each of Buyer and the Advancing Party for itself and
constitute the valid and legally binding obligations of Buyer and the
Advancing Party, enforceable against Buyer or the Advancing Party, as
the case may be, in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights or general principles of equity.
Section 4.3 Conflicting Agreements and Other Matters. Neither the
execution and delivery of this Agreement nor the performance by Buyer
or the Advancing Party, as the case may be, of its obligations
hereunder will conflict with, result in a breach of the terms,
conditions or provisions of, constitute a default under, result in the
creation of any mortgage, security interest, encumbrance, lien or
charge of any kind upon any of the properties or assets of Buyer or
the Advancing Party, as the case may be, pursuant to, or require any
consent, approval or other action by or any notice to or filing with
any Government Authority pursuant to, the organizational documents or
agreements of Buyer or the Advancing Party, as the case may be, or any
agreement, instrument, order, judgment, decree, statute, law, rule or
regulation by which Buyer or the Advancing Party, as the case may be,
is bound, except for filings after any Closing under Section 13(d) or
Section 16 of the Exchange Act.
Section 4.4 Acquisition for Investment; Sophistication; Source of
Funds.
(a) Buyer is acquiring the Company Common Stock being
purchased by it for its own account for the purpose of investment and
not with a view to or for sale in connection with any distribution
thereof, and Buyer has no present intention or plan to effect any
distribution of shares of Company Common Stock, provided that the
disposition of Company Common Stock owned by Buyer shall at all times
be and remain within its control, subject to the provisions of this
Agreement and the Transaction Documents.
(b) Buyer is able to bear the economic risk of the
acquisition of Company Common Stock pursuant hereto and can afford to
sustain a total loss on such investment, and has such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of the proposed investment. At the
Initial Closing and at each subsequent Closing, the Advancing Party
shall have available and shall advance to Buyer all of the funds
necessary to satisfy Buyer's obligations hereunder and to pay any
related fees and expenses in connection with the foregoing.
(c) Each of Buyer and the Advancing Party is an "accredited
investor" as such term is defined in Regulation D promulgated under
the Securities Act.
Section 4.5 Proxy Statement. None of the information supplied or
to be supplied by Buyer for inclusion or incorporation by reference in
the Proxy Statement will, as of the date the Proxy Statement is first
mailed to the stockholders of the Company and as of the time of the
meeting of the stockholders of the Company in connection with the
transactions contemplated hereby, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading.
38
Section 4.6 Brokers or Finders. No agent, broker, investment
banker or other firm or person, including any of the foregoing that is
an Affiliate of Buyer, or the Advancing Party, is or will be entitled
to any broker's or finder's fee or any other commission or similar fee
from Buyer or the Advancing Party in connection with this Agreement or
any of the transactions contemplated hereby for which the Company or
any of its Affiliates will be responsible. Buyer agrees to indemnify
and hold harmless the Company from and against any and all claims,
losses, liabilities and expenses, including without limitation
reasonable attorneys' fees, disbursements and charges, arising out of
any claim or demand for commissions or other compensation for bringing
about this transaction by any agent, broker, investment banker or
other firm or person (excluding the Broker) who claims to have dealt
with the Buyer in connection with this Agreement or the Transaction
Documents or any of the transactions contemplated hereby or thereby.
Section 4.7 Investment Company Matters. Neither the Advancing
Party nor Buyer is, and after giving effect to the purchase of Company
Common Stock contemplated hereby neither will be, an "investment
company" or an entity "controlled" by an "investment Company", as such
terms are defined in the Investment Company Act of 1940, as amended.
ARTICLE 5
Covenants Relating to Closings
Section 5.1 Taking of Necessary Action.
(a) Each party hereto agrees to take or cause to be taken
all action and promptly to do or cause to be done all things
necessary, proper or advisable under applicable laws and regulations
to consummate and make effective the transactions contemplated by this
Agreement and the Transaction Documents, subject to the terms and
conditions hereof and thereof, including all actions and things
necessary to cause all conditions precedent set forth in Article 7 to
be satisfied.
(b) As promptly as practicable after the date hereof, the
Company shall prepare and file with the SEC a preliminary proxy
statement (the "Proxy Statement") by which the Company's stockholders
will be asked to approve, among other things, the issuance of shares
of Company Common Stock contemplated hereby. The Proxy Statement as
initially filed with the SEC, as it may be amended and refiled with
the SEC and as it may be mailed to the Company's stockholders, shall
be in form and substance reasonably satisfactory to Buyer. The Company
shall use its reasonable efforts to respond to any comments of the SEC
and to cause the Proxy Statement to be mailed to the Company's
stockholders at the earliest practicable time. As promptly as
practicable after the date hereof, the Company shall prepare and file
any other filings required of the Company or its Subsidiaries under
the Exchange Act, the Securities Act or any other federal, state or
local laws relating to this Agreement and the transactions
contemplated hereby, and state takeover laws (the "Other Filings").
The Company and Buyer will notify each other promptly of the receipt
of any comments from the SEC or its staff and of any request by the
SEC or its staff or any other government officials for amendments or
supplements to the Proxy Statement or any Other Filing or for
additional information and will supply each other with copies of all
correspondence between each of them or any of their respective
representatives, on the one hand, and the SEC, or its staff or any
other government officials, on the other hand, with respect to the
Proxy Statement or any Other Filing. The Proxy Statement and any Other
Filing shall comply in all material respects with all applicable
requirements of law. Buyer shall provide the Company all information
about Buyer required to be included or incorporated by reference in
the Proxy Statement or any Other Filing and shall otherwise
39
cooperate with the Company in taking the actions described in this
paragraph. Whenever any event occurs which is required to be set forth
in an amendment or supplement to the Proxy Statement or any Other
Filing, the Company or Buyer, as the case may be, shall promptly
inform the other party of such occurrence and cooperate in filing with
the SEC or its staff or any other government officials, and/or mailing
to stockholders of the Company, such amendment or supplement. Subject
to the provisions of Section 5.6, the Proxy Statement shall include
the recommendation of the Board of Directors of the Company that the
stockholders of the Company vote in favor of and approve the Amended
Company Charter and the issuance of Company Common Stock pursuant to
this Agreement.
(c) The Company shall call a meeting of its stockholders to
be held as promptly as practicable (and in no event later than
December 31, 1997) for the purpose of voting upon the transactions
(including the issuance of Company Common Stock) contemplated hereby;
provided that should a quorum not be obtained at such meeting of the
stockholders, the meeting of the stockholders shall be postponed or
adjourned (but in no event to a date later than December 31, 1997) in
order to permit additional time for soliciting and obtaining
additional proxies or votes.
(d) The Company shall obtain the consents set forth in each
of Schedules 3.4(d)-A and 3.4(d)-B.
(e) Except as provided on Schedule 5.1(e), from the date
hereof until the sooner to occur of (A) the date on which the Investor
Nominees (as defined in the Stockholders Agreement) first become
members of the Board, and (B) if the Stockholder Approval vote fails,
the date of the stockholder meeting at which the Stockholder Approval
failed, (i) no grant or award of options or other similar
equity-related or incentive compensation shall be made pursuant to or
by amendment to the agreements listed on Schedule 3.9(e), and (ii) any
employment, stock option or other agreement entered into and which
contains a change-of-control or similar provision shall contain only
a change-of-control provision approved by Buyer.
Section 5.2 Registration Rights Agreement. Concurrent with the
execution of this Agreement, the Company, the Advancing Party and
Buyer shall enter into the Registration Rights Agreement.
Section 5.3 Stockholders Agreement. Concurrent with the execution
of this Agreement, the Company, the Advancing Party and Buyer shall
enter into the Stockholders Agreement.
Section 5.4 Public Announcements; Confidentiality.
(a) Subject to each party's disclosure obligations imposed
by law and any stock exchange or similar rules and the confidentiality
provisions contained in Section 5.4(b), all news releases and other
public information disclosures with respect to this Agreement and the
Transaction Documents and any of the transactions contemplated hereby
or thereby will require the mutual approval of Buyer and the Company
before such release or disclosure is made. If a party is required by
law or any stock exchange or similar rule to issue a news release or
other public announcement, it shall advise the other party in advance
thereof and use reasonable best efforts to cause a mutually agreeable
release or announcement to be issued.
(b) Buyer agrees that all information provided to Buyer or
any of its representatives pursuant to this Agreement shall be kept
confidential, and Buyer shall not (x) disclose such information to any
persons other than the directors, officers, employees,
40
financial advisors, investors, lenders, legal advisors, accountants,
consultants and affiliates of Buyer who reasonably need to have access
to the confidential information and who are advised of the
confidential nature of such information or (y) use such information in
a manner which would be detrimental to the Company; provided, however,
the foregoing obligation of Buyer shall not (i) relate to any
information that (1) is or becomes generally available other than as a
result of unauthorized disclosure by Buyer or by persons to whom Buyer
has made such information available, (2) is or becomes available to
Buyer on a non- confidential basis from a third party that is not, to
Buyer's knowledge, bound by any other confidentiality agreement with
the Company, or (ii) prohibit disclosure of any information if
required by law, rule, regulation, court order or other legal or
governmental process.
(c) When requested by the Company, Buyer shall immediately
return or destroy (and confirm in writing to the Company such fact)
the confidential information, including all copies, reproductions,
summaries, or extracts thereof, then in Buyer's or its
representatives' possession, excluding this Agreement and the
Transaction Documents, and shall not retain any copies, extracts or
other reproductions in whole or in part of such material, other than
this Agreement and the Transaction Documents. Such return shall not
abrogate Buyer's continuing obligations under this Agreement. This
provision shall not survive the Initial Closing.
(d) In the event that Buyer is requested or required (by
interrogatories, requests for information or documents, subpoena,
civil investigative demand or similar process) to disclose any of the
confidential information, Buyer shall provide the Company with prompt
written notice so that the Company may seek a protective order or
other appropriate remedy. In the event such protection or other remedy
is not obtained and Buyer is required to provide such confidential
information or stand subject to contempt or other censure or penalty,
Buyer shall give the Company written notice of the confidential
information to be disclosed as far in advance of its disclosure as is
practicable and, upon the Company's request and at the Company's
expense, use it reasonable efforts to obtain assurances that
confidential treatment will be accorded to such confidential
information. In the event such information is requested, or is the
subject of a subpoena, pursuant to an informal or formal inquiry or
investigation by the SEC, any U.S. state securities or blue sky
authority, and U.S. or foreign stock exchange or regulatory authority,
Buyer shall be free to disclose such information thereto without a
protective order.
(e) Buyer and the Company agree that money damages would not
be a sufficient remedy for any breach of the Agreement by the other
party or its representatives and that in addition to all other
remedies the Company shall be entitled to specific performance and
injunctive or other equitable relief as a remedy for any such breach,
Buyer further agrees to waive and to use its best efforts to cause its
representatives to waive an requirement for the securing or posting of
any bond in connection with such remedy.
Section 5.5 Conduct of the Business.
(a) Except for transactions contemplated hereby, during the
period from the date of this Agreement to the earlier of (A) the date
on which the Investor Nominees (as defined in the Stockholders
Agreement) first become members of the Board and (B) if the
Stockholder Approval vote fails, the date of the stockholder meeting
at which the Stockholder Approval failed, each of the Company and each
Subsidiary, except as otherwise consented to or approved by Buyer in
writing or as permitted or required hereby or set forth
41
on Schedule 5.5(a), (x) will conduct its business and will engage in
transactions only in the ordinary course consistent with past
practice, and (y) will not:
(i) acquire in a single transaction or group of related
transactions, whether by merger, consolidation, purchase of stock
or assets or other business combination, any business or assets
having a value in excess of 1% of the Company's assets;
(ii) sell or dispose in a single transaction or group of
related transactions, whether by merger, consolidation, sale of
stock or assets or other business combination, any business or
assets having a value in excess of 1% of the Company's assets;
(iii) incur or issue any additional indebtedness (including
for this purpose any indebtedness evidenced by notes, debentures,
bonds, leases or other similar instruments, or secured by any
lien on any property, conditional sale obligations, obligations
under any title retention agreement (but excluding trade accounts
payable and other accrued current liabilities arising in the
ordinary course of business) and obligations under letters of
credit or similar credit transactions) in a single transaction or
group of related transactions, enter into a guaranty, or engage
in any other financing arrangement having a value in excess of 1%
of the Company's assets;
(iv) approve any annual operating budgets of the Company;
(v) make any material change in the executive management of
the Company or enter into any material agreement or arrangement
with any members of the executive management of the Company;
(vi) except for grants of options or the issuance of shares
of Company Common Stock pursuant to the agreements listed on
Schedule 3.3(a), change the number of shares of the authorized or
issued capital stock of the Company or issue or grant any option,
warrant, call, commitment, subscription, right to purchase or
agreement of any character relating to the authorized or issued
capital stock of the Company, or any securities convertible into
shares of such stock, or split, combine or reclassify any shares
of the capital stock of the Company or declare, set aside or pay
any extraordinary dividend, other distribution (whether in cash,
stock or property or any combination thereof) in respect of the
capital stock of the Company, or redeem or otherwise acquire any
shares of such capital stock other than, (i) to a wholly owned
Subsidiary thereof or (ii) to directors or employees of the
Company or a Subsidiary in connection with any employee benefit
plan approved by the shareholders of the Company (provided,
however, that in connection with any transaction described in
this clause, Buyer shall be entitled, to the extent so provided
in Section 4.2 of the Stockholders Agreement, to a participation
right on the terms set forth in Section 4.2 of the Stockholders
Agreement as if all of the Purchased Shares were issued and owned
by Buyer at the time of such transaction, with any additional
shares of capital stock (as such term is used in Section 4.2 of
the Stockholders Agreement) which Buyer shall have the right to
purchase by virtue of such participation right to be issued and
purchased only at the time of the Subsequent Closing, and subject
to the satisfaction or waiver of the conditions applicable to the
purchase of Purchased Shares thereat);
(vii) change the Company's dividend policy;
42
(viii) amend or otherwise modify, or terminate, any material
Contract, or enter into any joint venture, lease or management
agreement or other material agreement of the Company;
(ix) request any Subsequent Purchases;
(x) transact with Affiliates;
(xi) enter into any business other than the ownership,
management, operation and development of assisted living
facilities and businesses related thereto;
(xii) pursuant to or within the meaning of any bankruptcy
law, (i) commence a voluntary case, (ii) consent to the entry of
an order for relief against it in an involuntary case, (iii)
consent to the appointment of a custodian of it or for all or
substantially all of its property, (iv) make a general assignment
for the benefit of its creditors;
(xiii) subject to the right of the Company to terminate this
Agreement pursuant to Section 9.1(b)(iii) hereof, (i) sell,
lease, transfer, convey or otherwise dispose (other that by way
of merger or consolidation), in one or a series of related
transactions, all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole to any person, (ii)
adopt a plan relating to the liquidation or dissolution of the
Company, or (iii) the consummate any transaction (including,
without limitation, any merger or consolidation) the result of
which is that any person other than the Buyer, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and
Rule 13d-5 under the Exchange Act), directly or indirectly, of
stock having more than 50% of the voting power of the Company;
(xiv) change any provision of the Company Charter or the
Company By-laws;
(xv) purchase or lease or enter into a binding agreement to
purchase or lease any real property without Buyer's prior written
consent, including the purchase of any of the properties which
are the subject of the purchase agreements, letters of intent or
other arrangements described in Schedule 3.11(b) or the other
Schedules hereto;
(xvi) enter into any employment agreement, or permit any of
its Subsidiaries to enter into any employment agreement with any
officer or other employee;
(xvii) make or change any tax election, change any annual
tax accounting period, adopt or change any method of tax
accounting, file any amended Tax Return, enter into any closing
agreement, settle any Tax claim or assessment, surrender any
right to claim a Tax refund or fail to make any Tax payments or
consent to any extension or waiver of the limitations period
applicable to any Tax claim or assessment if any such actions,
individually or in the aggregate, would have the effect of
materially increasing the Tax liability of or reducing any Tax
Asset of the Company or any of its Subsidiaries or Affiliated
Limited Partnerships; or
(xviii) adopt any "poison pill" or other similar
shareholders' rights plan.
The Buyer will use reasonable efforts to approve any matter as to
which the Company has requested Buyer's consent under this Section;
provided, however, that Buyer shall be
43
deemed to have consented to such matter if Buyer has not approved or
disapproved such matter within ten calendar days of receipt (by any
means other than facsimile transmission) of all documents related to
such matter accompanied by a notice to Buyer stating that if Buyer
fails to approve or disapprove such matter within ten (10) calendar
days Buyer shall be deemed to have approved such matter.
(b) During the period from the date of this Agreement until
the earlier of (i) a Termination Event and (ii) if the Stockholder
Approval vote fails, the date of the stockholder meeting at which the
Stockholder Approval failed, each of the Company and each Subsidiary
will not engage in the actions set forth in Section 5.5(a)(xii)
through (xiv), except as otherwise consented to or approved by Buyer
in writing. The provisions of this Section 5.5(b) shall survive until
a Termination Event, if any, shall have occurred.
Section 5.6 No Solicitation of Transactions. Unless and until
this Agreement is terminated in accordance with its terms, none of the
Company or its Subsidiaries shall, directly or indirectly, through any
officer, director, agent or otherwise, initiate, solicit or knowingly
encourage (including by way of furnishing non-public information or
assistance), or take any other action to facilitate knowingly, any
inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Competing Transaction, or enter
into or maintain or continue discussions or negotiate with any person
or entity in furtherance of such inquiries or to obtain a Competing
Transaction, or agree to or endorse any Competing Transaction, or
authorize or knowingly permit any of the officers, directors or
employees of such party or any of its Subsidiaries or any investment
banker, financial advisor, attorney, accountant or other
representative retained by such party or any of such party's
Subsidiaries to take any such action, and the Company shall notify
Buyer orally (within one Business Day) and in writing (as promptly as
practicable) of all of the relevant details relating to all inquiries
and proposals which any officer or director of the Company may receive
relating to any of such matters and if such inquiry or proposal is in
writing, the Company shall deliver to Buyer a copy of such inquiry or
proposal; provided, however, that nothing contained in this Section
shall prohibit the Board from complying with Rule 14e-2 promulgated
under the Exchange Act with regard to a tender or exchange offer or
prohibit the Board from taking such other actions as may be required
to comply with its fiduciary obligations. If the Board determines with
the advice of counsel that failure to do so could be held to violate
its fiduciary duties, it may provide information in response to an
unsolicited proposal. If the Company receives a bona fide proposal for
a Competing Transaction that the Board determines in good faith (based
on the advice of a nationally recognized financial advisor) may
provide greater value to the Company and its stockholders than the
transactions contemplated by this Agreement, it may enter into
negotiations with respect to such proposal. The Company will notify
Buyer of any such superior proposal not less than two Business Days
prior to entering into any definitive agreement with respect to a
Competing Transaction; provided, however, that in no event shall the
Company enter into a definitive agreement with respect to a Competing
Transaction less than five Business Days after the Company's initial
notification to Buyer of an inquiry or proposal relating to a
Competing Transaction. Within the two-Business-Day or
five-Business-Day period referred to above, Buyer may propose an
improved transaction.
Section 5.7 Information and Access. From the date hereof until
the date on which the Remaining Equity Commitment shall be zero, (i)
the Company and its Subsidiaries shall afford to Buyer and Buyer's
accountants, counsel and other representatives full and reasonable
access during normal business hours (and at such other times as the
parties may mutually agree) to its properties, books, contracts,
commitments, records and personnel and, during such period, shall
furnish promptly to Buyer (1) a copy of each report, schedule and
other document filed or received by it pursuant to the requirements of
the Securities Laws, and (2) all other information concerning their
businesses, personnel and the Company
44
Properties as Buyer may reasonably request, and (ii) without limiting
the generality of the foregoing, Buyer shall have the right to (1)
conduct or cause to be conducted an environmental, physical,
structural, electrical, mechanical and other inspection and review of
any Company Properties, for which inspection Buyer will and hereby
does indemnify and hold the Company harmless from any and all damages
whatsoever caused by such inspection, or (2) request that the Company
update, at Buyer's expense, any existing reports, reviews or
inspections thereof, in which case the Company shall promptly so
update its reports, reviews and inspections and cause them to be
certified to Buyer by the firm or person who prepared such report or
conducted such review or inspection. Buyer and its accountants,
counsel and other representatives shall, in the exercise of the rights
described in this Section, not unduly interfere with the operation of
the businesses of the Company or its Subsidiaries.
Section 5.8 Notification of Certain Matters. Each of Buyer and
the Company shall use its good faith efforts to notify the other party
in writing of its discovery of any matter that would render any of
such party's or the other party's representations and warranties
contained herein untrue or incorrect in any material respect, but the
failure of either party to so notify the other party shall not be
deemed a breach of this Agreement.
Section 5.9 HSR Filing. Each of Buyer and the Company shall use
its best faith efforts to comply as soon as possible with the
requirements of the HSR Act to the extent applicable to the
transactions contemplated by this Agreement and the Transactions
Documents and shall make their initial filings with the Federal Trade
Commission and the United States Department of Justice as soon as
practical. Each of Buyer and the Company agrees to use its best faith
efforts to satisfy any requests for additional information or other
requirements imposed by the Federal Trade Commission or the Department
of Justice in connection with the transactions contemplated by this
Agreement and the Transactions Documents as soon as practical and, if
requested by any party to this Agreement, to request early termination
of any waiting period otherwise imposed by statute.
Section 5.10 Amendment of Company By-laws. The Company shall take
all action necessary to amend the Company By-laws to provide that,
from and after the date on which the Investor Nominees (as defined in
the Stockholders Agreement) first become members of the Board until a
Termination Event, if any, (i) the Board will be increased to eleven
members, (ii) any action other than in the ordinary course and the
appointment of members of the Company's audit and compensation
committees, including without limitation actions described in Section
5.5(a), will require (x) the affirmative vote of at least eight
members of the board acting at a duly convened meeting of the Board or
(y) with respect to certain matters to be agreed upon by the Company
and Buyer prior to the Initial Closing, will require the affirmative
vote or at least four members of the Executive Committee acting at a
duly convened meeting of the Executive Committee and (iii) the
Investor Nominees (as such term is defined in the Stockholders
Agreement) shall be entitled to vote in favor of directing the Company
to make any Subsequent Closing but shall not be entitled to vote if a
proposed request to make any Subsequent Closing has been otherwise
approved by a majority of the members of the Board who are not
Investor Nominees. The Company By-laws shall also provide that to the
maximum extent permitted by law the Executive Committee shall be
delegated the authority to approve any matter described in clause (ii)
of the immediately preceding sentence.
45
ARTICLE 6
Certain Additional Covenants
Section 6.1 Resale. Buyer acknowledges and agrees that the
Company Common Stock that Buyer will acquire in any Stock Purchase
will not be registered under the Securities Act and may only be sold
or otherwise disposed of in one or more transactions registered under
the Securities Act and, where applicable, relevant state securities
laws or as to which an exemption from the registration requirements of
the Securities Act and, where applicable, such state securities laws
is available, and Buyer agrees that the certificates representing such
Company Common Stock shall bear a legend with respect to the
restrictions on transfer under the Securities Act and under applicable
state securities laws. Prior to any proposed transfer of the Purchased
Shares, unless such transfer is made pursuant to an effective
registration statement under the Securities Act, Buyer will deliver to
the Company an opinion of counsel, reasonably satisfactory in form and
substance to the Company, to the effect that the Purchased Shares may
be sold or otherwise transferred without registration under the
Securities Act. The Company will remove the legend relating to
Securities Act restrictions from any Purchased Shares at any time two
years after issuance if Buyer delivers to the Company an opinion of
counsel, reasonably satisfactory in form and substance to the Company,
to the effect that such Purchased Shares are no longer subject to
transfer restrictions under the Securities Act. Upon original issuance
thereof, and until such time as the same shall have been registered
under the Securities Act or sold pursuant to Rule 144 promulgated
thereunder (or any similar rule or regulation) each stock certificate
for the Purchased Shares shall bear any restricted securities legend
required pursuant to the Stockholders Agreement, unless such legend is
no longer required thereunder.
Section 6.2 Use of Funds. The Company shall use the funds
received from Stock Purchases to (i) reduce indebtedness of the
Company, (ii) fund the acquisition, development and redevelopment of
assisted living facilities and (iii) pay expenses pursuant to Section
9.3.
Section 6.3 Guarantee. The Advancing Party hereby unconditionally
and irrevocably guarantees and agrees to be responsible for the
payment and performance of all of Buyer's obligations hereunder.
Section 6.4 Loan. The Advancing Party will arrange a $15 million
bank loan for the Company on commercially reasonable terms by August
15, 1997, which loan will be repaid in full by the Company from
proceeds of the sale of Purchased Shares at the Initial Closing.
ARTICLE 7
Conditions to Closings
Section 7.1 Conditions of Purchase at Initial Closing. The
obligation of Buyer to purchase and pay for the Purchased Shares at
the Initial Closing is subject to satisfaction or waiver of each of
the following conditions precedent:
(a) HSR Filing. Buyer and the Company shall have received
authorization under the HSR Act to enter into the transactions
contemplated by this Agreement.
(b) Due Diligence. Buyer shall have completed its due
diligence investigations of the Company and shall not have elected to
terminate this Agreement as provided in Section 9.1(a).
46
(c) Loan Repayment. The Company shall repay in full any
loans made pursuant to Section 6.4 from the proceeds of the sale of
Purchased Shares at the Initial Closing.
Section 7.2 Conditions to Purchase at Second Closing. The
obligations of Buyer to purchase and pay for the Purchased Shares at
the Second Closing are subject to satisfaction or waiver of each of
the following conditions precedent:
(a) Stockholder Approval. The issuance of Company Common
Stock pursuant to this Agreement and the other transactions
contemplated by this Agreement and the Transaction Documents shall
have been approved by the majority vote (including Company Common
Stock owned by the Advancing Party and its Controlled Affiliates (as
defined in the Stockholders Agreement) for purposes of determining a
quorum but not for determining a majority) of the Company's
stockholders ("Stockholder Approval").
(b) Company Charter. The Company Charter shall be amended to
allow the expansion of the Board of Directors as provided for in the
Stockholders Agreement.
(c) Company By-laws. The Company By-laws shall be amended
substantially in the form attached hereto as Exhibit C, which form (i)
amends Section 3.10 of the Company By-laws to require a supermajority
vote of the Board for all actions taken by the Board and (ii) requires
Board approval for all actions specified in Section 5.10 of this
Agreement.
Section 7.3 Conditions of Purchase at All Closings. The
obligations of Buyer to purchase and pay for the Purchased Shares at
each Closing (including the Initial Closing and any Subsequent
Closing, except where otherwise indicated) are subject to satisfaction
or waiver of each of the following conditions precedent:
(a) Representations and Warranties; Covenants. The
representations and warranties of the Company contained herein shall
be true and correct in all respects on and as of the relevant Closing
Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date (except for
representations and warranties that speak as of a specific date or
time other than such Closing Date (which need only be true and correct
in all respects as of such date or time)), other than, in all such
cases, such failures to be true and/or correct as would not in the
aggregate reasonably be expected to have a Material Adverse Effect;
provided, however, that if any of the representations and warranties
is already qualified in any respect by materiality or as to Material
Adverse Effect for purposes of this Section 7.3(a) such materiality or
Material Adverse Effect qualification will be in all respects ignored
(but subject to the overall standard as to Material Adverse Effect set
forth immediately prior to this proviso). The covenants and agreements
of the Company to be performed on or before the relevant Closing Date
in accordance with this Agreement shall have been duly performed in
all respects, other than (except for the Company's obligation to
deliver the relevant shares of Company Common Stock at the relevant
Closing and in, the case of the Initial Closing, the covenants set
forth in Sections 5.1(e), 5.2 and 5.3, as to which the proviso set
forth in this other-than clause shall not apply) for such failures to
have been performed as would not in the aggregate reasonably be
expected to have a Material Adverse Effect (provided, however that if
any such covenant or agreement is already qualified in any respect by
materiality or as to Material Adverse Effect for purposes of
determining whether this condition has been satisfied, such
materiality or Material Adverse Effect or qualification will be in all
respects ignored and such covenant or agreement shall have been
performed in all respects without regard to such qualification (but
subject to the overall exception as to Material Adverse Effect set
forth immediately prior to this proviso)). As to each Closing other
than the Initial Closing, no condition to the
47
obligations of Buyer to purchase and pay for the Purchased Shares at
the Initial Closing, and that was not duly waived by Buyer, shall have
failed to be satisfied as of the Initial Closing. The Company shall
have delivered to Buyer at the relevant Closing a certificate of an
appropriate officer in form and substance reasonably satisfactory to
Buyer dated the relevant Closing Date to such effect. In making any
determination as to Material Adverse Effect under this Section 7.3(a),
the matters set forth in such Section shall be aggregated and
considered together.
(b) No Material Breach. The Company shall be in compliance
in all material respects with its covenants and other obligations
under this Agreement and the Transaction Documents. The Company shall
have satisfied the conditions of Section 7.3(a), except in each case
for any Breaching Matters waived by Buyer in accordance with the terms
hereof.
(c) No Injunction. There shall not be in effect any final
order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits consummation of the
transactions contemplated hereby and there shall be no pending Actions
which would reasonably be expected to have a material adverse effect
on the ability of the Company to consummate the transactions
contemplated hereby or to issue the Purchased Shares.
(d) Consents. The Company shall have obtained (i) the
consents set forth in Schedule 3.4(d)-A in the case of the Initial
Closing, (ii) the consents set forth in Schedule 3.4(d)-B in the case
of Subsequent Closings and (iii) with respect to any Subsequent
Closing that would result in Buyer owning more than 48.9% of then
outstanding Company Common Stock, the written consent of Meditrust
Acquisition Corporation III satisfactory in form and substance to
Buyer.
(e) No Material Adverse Change. Since March 31, 1997, there
shall not have been any change, circumstance or event which has had or
would reasonably be expected to have a Material Adverse Effect.
Section 7.4 Conditions of Sale. The obligation of the Company to
issue and sell any Purchased Shares at any Closing (including the
Initial Closing and each Subsequent Closing, except where otherwise
indicated below) is subject to satisfaction or waiver of each of the
following conditions precedent:
(a) Representations and Warranties; Covenants. The
representations and warranties of Buyer and the Advancing Party
contained herein shall have been true and correct in all respects on
and as of the date hereof, and shall be true and correct in all
respects on and as of the relevant Closing Date with the same effect
as though such representations and warranties had been made on and as
of the relevant Closing Date (except for representations and
warranties that speak as of a specific date or time other than such
Closing Date (which need only be true and correct in all respects as
of such date or time)), other than, in all such cases, such failures
to be true and/or correct as would not in the aggregate reasonably be
expected to have a Material Adverse Effect on the Company or Buyer's
ability to consummate the transactions contemplated hereby; provided,
however, that if any of the representations and warranties is already
qualified in any respect by materiality or as to Material Adverse
Effect for purposes of this Section 7.4(a) such materiality or
Material Adverse Effect qualification will be in all respects ignored
(but subject to the overall standard as to Material Adverse Effect set
forth immediately prior to this proviso). The covenants and agreement,
of Buyer to be performed on or before the relevant Closing Date in
accordance with this Agreement shall have been duly performed in all
respects, other than (except for Buyer's obligation to pay the
relevant Purchase Price at
48
the relevant Closing, and, as to the Initial Closing, except for
Buyer's covenants set forth in Sections 5.2 and 5.3, as to which the
proviso set forth in this other-than clause shall not apply) for such
failures to have been performed as would not in the aggregate
reasonably be expected to have a Material Adverse Effect on the
Company or Buyer's ability to consummate the transactions contemplated
hereby (provided, however, that if any such covenant or agreement is
already qualified in any respect by materiality or as to Material
Adverse Effect for purposes of determining whether this condition has
been satisfied, such materiality or Material Adverse Effect
qualification will be in all respects ignored and such covenant or
agreement shall have been performed in all respects without regard to
such qualification (but subject to the overall exception as to
Material Adverse Effect set forth immediately prior to this proviso)).
Buyer shall have delivered to the Company at the relevant Closing a
certificate of an appropriate officer in form and substance reasonably
satisfactory to the Company dated the relevant Closing Date to such
effect.
(b) Stockholder Approval. Except in the case of the Initial
Closing, the issuance of the Company Common Stock pursuant to this
Agreement shall have received Stockholder Approval.
(c) No Injunction. There shall not be in effect any final
order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits consummation of the
transactions contemplated hereby and there shall be no pending Actions
which would reasonably be expected to have a material adverse effect
on the ability of Buyer to consummate the transactions contemplated
hereby or to acquire the Purchased Shares.
(d) Consents. The Company shall have obtained (i) the
consents set forth in Schedule 3.4(d)-A in the case of the Initial
Closing, (ii) the consents set forth in Schedule 3.4(d)-B in the case
of Subsequent Closings and (iii) with respect to any Subsequent
Closing resulting in Buyer acquiring more than 48.9% of then
outstanding Company Common Stock, the consent of Meditrust Acquisition
Corporation III with respect to that portion of the Subsequent Closing
that exceeds 48.9% of then outstanding Company Common Stock, provided,
however, that such consent will only be required with respect to
Purchased Shares of the Subsequent Closing exceeding 48.9% and failure
to receive such consent will be a condition precedent only with
respect to such Purchased Shares.
ARTICLE 8
Survival; Indemnification
Section 8.1 Survival. Except as otherwise provided in this
Agreement, all representations, warranties and (except as provided by
the last sentence of this Section 8.1) covenants and agreements of the
parties contained herein, including indemnity or indemnification
agreements contained herein, or in any Schedule or Exhibit hereto, or
any certificate, document or other instrument delivered in connection
herewith shall survive the Initial Closing and any Subsequent Closing
until the first anniversary of the latest of the Initial Closing and
any Subsequent Closing. No Action or proceeding may be brought with
respect to any of the representations and warranties, or any of the
49
covenants or agreements which survive until such first anniversary,
unless written notice thereof, setting forth in reasonable detail the
claimed misrepresentation or breach of warranty or breach of covenant
or agreement, shall have been delivered to the party alleged to have
breached such representation or warranty or such covenant or agreement
prior to such first anniversary; provided, however, that, if Buyer
shall have complied with this Section 8.1, the damages for breach by
the Company of any of the representations and warranties, or any of
the covenants or agreements which survive until such first
anniversary, shall be measured with respect to all of Buyer's
purchases of Company Common Stock hereunder and not with respect only
to Buyer's purchases hereunder made prior to such first anniversary,
but such measurement shall not in any event include any shares of
Company Stock that Buyer may have purchased other than from the
Company. Those covenants or agreements that contemplate or may involve
actions to be taken or obligations in effect after the Initial Closing
(including Section 5.5(b)) shall survive in accordance with their
terms.
Section 8.2 Indemnification by Buyer or the Company.
(a) Subject to Section 8.1, from and after any Closing Date,
Buyer shall indemnify and hold harmless the Company, its successors
and assigns, from and against any and all damages, claims, losses,
expenses, costs, obligations, and liabilities, including liabilities
for all reasonable attorneys' fees and expenses (including attorney
and expert fees and expenses incurred to enforce the terms of this
Agreement) (collectively, "Loss and Expenses") suffered, directly or
indirectly, by the Company by reason of, or arising out of, (i) any
breach as of the date made or deemed made or required to be true of
any representation or warranty made by Buyer in or pursuant to this
Agreement, or (ii) any failure by Buyer or the Advancing Party to
perform or fulfill any of its covenants or agreements set forth
herein. Notwithstanding any other provision of this Agreement to the
contrary, in no event shall Loss and Expenses include a party's
incidental or consequential damages.
(b) Subject to Section 8.1, from and after any Closing Date,
the Company shall indemnify and hold harmless Buyer, its successors
and assigns, from and against any and all Loss and Expenses, suffered,
directly or indirectly, by Buyer by reason of, or arising out of, (i)
any breach as of the date made or deemed made or required to be true
of any representation or warranty made by the Company in or pursuant
to this Agreement and any statements made in any certificate delivered
pursuant to this Agreement, or (ii) any failure by the Company to
perform or fulfill any of its covenants or agreements set forth
herein. Notwithstanding any other provision of this Agreement to the
contrary, in no event shall Loss and Expenses include a party's
incidental or consequential damages.
(c) Notwithstanding the foregoing, (i) neither Buyer nor the
Company shall be responsible for any Loss and Expenses as provided by
paragraphs (a) and (b), respectively, of this Section 8.2 until the
cumulative aggregate amount of such Loss and Expenses suffered by
Buyer or the Company, as the case may be, exceeds $100,000, in which
case Buyer or the Company, as the case may be, shall then be liable
for all such Loss and Expenses, and (ii) the cumulative aggregate
indemnity obligation of each of Buyer and the Company under this
Section 8.2 shall in no event exceed the actual aggregate amount paid
by Buyer for the shares of Company Common Stock purchased by it from
the Company pursuant to this Agreement. Except with respect to
third-party claims being defended in good faith or claims for
indemnification with respect to which there exists a good faith
dispute, the indemnifying party shall satisfy its obligations
hereunder within 30 days of receipt of a notice of claim under this
Article 8.
Section 8.3 Third-Party Claims. If a claim by a third party is
made against an Indemnified Party and if such Indemnified Party
intends to seek indemnity with respect thereto under this Article,
such Indemnified Party shall promptly notify the indemnifying party in
writing of such claims setting forth such claims in reasonable detail;
provided, however, the foregoing notwithstanding, the failure of any
Indemnified Party to give any notice required to be given hereunder
shall not affect such Indemnified Party's right to indemnification
hereunder except to the extent the indemnifying party from whom such
50
indemnity is sought shall have been prejudiced in its ability to
defend the claim or action for which such indemnification is sought by
reason of such failure. The indemnifying party shall have 20 days
after receipt of such notice to undertake, through counsel of its own
choosing and at its own expense, the settlement or defense thereof,
and the Indemnified Party shall cooperate with it in connection
therewith; provided, however, that the Indemnified Party may
participate in such settlement or defense through counsel chosen by
such Indemnified Party, provided that the fees and expenses of such
counsel shall be borne by such Indemnified Party. The Indemnified
Party shall not pay or settle any claim which the indemnifying party
is contesting. Notwithstanding the foregoing, the Indemnified Party
shall have the right to pay or settle any such claim, provided that in
such event it shall waive any right to indemnity therefor by the
indemnifying party. If the indemnifying party does not notify the
Indemnified Party within 20 days after the receipt of the Indemnified
Party's notice of a claim of indemnity hereunder that it elects to
undertake the defense thereof, the Indemnified Party shall have the
right to contest, settle or compromise the claim but shall not thereby
waive any right to indemnity therefor pursuant to this Agreement.
ARTICLE 9
Termination
Section 9.1 Termination. (a) This Agreement may be terminated at
any time prior to the Initial Closing by:
(i) the mutual consent of the Company and Buyer;
(ii) Buyer (if it is not in breach of any of its material
obligations hereunder) in the event of a breach or failure by the
Company that is material in the context of the transactions
contemplated hereby of any representation, warranty, covenant or
agreement by the Company contained herein;
(iii) the Company (if it is not in breach of any of its
material obligations hereunder) in the event of a breach or
failure by Buyer that is material in the context of the
transactions contemplated hereby of any representation, warranty,
covenant or agreement by Buyer contained herein which has not
been, or cannot be, cured within 30 Business Days after written
notice of such breach is given to Buyer;
(iv) Buyer, acting in its sole discretion, shall have
elected to terminate this Agreement for any reason by notice to
the Company given on or before the later to occur of July 23,
1997 and six Business Days after the date on which all the
schedules contemplated by Section 3.22 are delivered to Buyer; or
(v) either the Company or Buyer, if the Initial Closing
shall not occur prior to December 31, 1997, unless the failure of
such occurrence shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe any material
covenant or agreement set forth herein required to be performed
or observed by such party on or before the date of the Initial
Closing.
(b) This Agreement may be terminated at any time by:
(i) either the Company or Buyer, in the event that the
stockholders of the Company vote upon and fail to approve the
issuance of Company Common Stock contemplated hereby (it being
understood that the Initial Closing shall have occurred
51
prior to the date of the meeting of holders of shares of Company
Stock to so approve);
(ii) Buyer, (1) if the Board shall have withdrawn, modified
or failed to make or refrained from making its recommendation
that the stockholders of the Company approve the issuance of
Company Common Stock pursuant to this Agreement as provided for
in Section 3.2(b) and Section 5.1(b) or (2) if the Board of
Directors of the Company at any time refuses to reaffirm, at
Buyer's request, such recommendation and its determination to
make such recommendation to the stockholders of the Company,
except, in each case, as permitted by Section 5.6, or (3) if no
meeting at which the stockholders of the Company are asked to
vote upon the transactions contemplated by this Agreement shall
have duly occurred on or prior to December 31, 1997; or
(iii) The Company, if the Board in compliance with Section
5.6 hereof determines in good faith to terminate in favor of a
Competing Transaction, subject to the Company's obligation to pay
Buyer certain fees pursuant to Section 9.3 hereof.
Section 9.2 Procedure and Effect of Termination. In the event of
termination of this Agreement by either or both of the Company and
Buyer pursuant to Section 9.1, written notice thereof shall forthwith
be given by the terminating party to the other party hereto, and this
Agreement shall thereupon terminate and become void and have no
effect, and the transactions contemplated hereby shall be abandoned
without further action by the parties hereto, except that the
provisions of Sections 3.20 and 4.7 (Brokers or Finders), 5.4 (Public
Announcements; Confidentiality), 9.3 (Expenses), 10.2 (Governing law),
and 10.4 (Notices), and, in the event of any termination following any
Closing hereunder, the provisions of Article 8 (Survival;
Indemnification), and any related definitional, interpretive or other
provisions necessary for the logical interpretation of such
provisions, shall survive the termination of this Agreement; provided,
however, that such termination shall not relieve any party hereto of
any liability for any breach of this Agreement.
Section 9.3 Expenses.
(a) Except as set forth in this Agreement, whether or not
any Stock Purchase is consummated and regardless of any reason for
which this Agreement may have been terminated pursuant to Section 9.1
(other than Section 9.1(a)(iv)), all costs and expenses incurred by
Buyer in connection with this Agreement and the transactions
contemplated hereby, including without limitation, reasonable fees,
expenses and reimbursements of counsel to Buyer, reasonable
out-of-pocket expenses incurred by Buyer and Buyer's agents and
representatives incurred in performing due diligence and all other
reasonable out-of-pocket expenses incurred by Buyer in connection with
this Agreement and the other Transaction Documents and the
transactions contemplated hereby and thereby (collectively, "Buyer's
Expenses") shall be paid by the Company. In the event this Agreement
shall be terminated pursuant to Section 9.1(a)(iv), the Company's
obligation to pay Buyer's Expenses shall be limited to the first
$250,000 of Buyer's Expenses and one-half of the next $750,000 of
Buyer's Expenses.
(b) In addition to the rights of Buyer pursuant to Section
2.8 of this Agreement, if (i) the Board shall have not recommended
stockholder approval of this Agreement and the transactions
contemplated hereby (or shall have withdrawn or modified such a
recommendation) and the Company's stockholders shall have failed for
any reason (other than as a result of Buyer's breach of any of its
material obligations hereunder) to approve the same by the requisite
vote (as set forth in the definition of the term "Stockholder
Approval") at the Company's stockholders' meeting held in accordance
with
52
the terms hereof, (ii) the Company shall have failed to duly convene
such stockholders' meeting on or prior to December 31, 1997 or (iii)
the Board shall have not recommended stockholder approval of this
Agreement and the transactions contemplated hereby (or shall have
withdrawn or modified such a recommendation) and the Second Closing
has not occurred on or before January 31, 1997 (provided that Buyer is
not in material default under this Agreement, that Buyer has not
breached any of its representations and warranties in any material
respect, and that Buyer has satisfied in all material respects its
covenants relating to the Second Closing and contemplated by the terms
hereof to be performed at or prior to the time of the Company's
stockholders' meeting), then the Company shall make payment to Buyer
by wire transfer, within five Business Days after the earliest to
occur of the conditions set forth in clauses (i) through (iii) above,
of the amount equal to the sum of (1) all amounts due Buyer pursuant
to Section 9.3(a), (2) $6,000,000 as an adjustment to the purchase
price of the Initial Number of Shares and (3) a breakup fee in the
amount equal to $7,000,000 (the "Breakup Fee"). Alternatively, if the
Board shall have recommended stockholder approval of this Agreement
and the transactions contemplated hereby (and not withdrawn or
modified such a recommendation) and either (i) the Company's
stockholders shall have failed for any reason (other than as a result
of Buyer's breach of any of its material obligations hereunder) to
approve the same or (ii) the Second Closing has not occurred on or
before January 31, 1998 (provided that Buyer is not in material
default under this Agreement, that Buyer has not breached any of its
representations and warranties in any material respect, and that Buyer
has satisfied in all material respects its covenants relating to the
Second Closing and contemplated by the terms hereof to be performed at
or, prior to the Company's stockholder meeting) then the Company shall
make payment to Buyer by wire transfer, within five Business Days
after the stockholders' vote, of an amount equal to the sum of (1) all
amounts due Buyer pursuant to Section 9.3(a) and (2) $8,650,000 as an
adjustment to the purchase price of the Initial Number of Shares. If
the transactions contemplated by this Agreement do not close as the
result of the Company's knowing and wilful breach of a material
representation, warranty or covenant contained herein or in any of the
Transaction Documents (and Buyer shall not be in breach of any of its
material obligations hereunder), the Company shall make payment to
Buyer by wire transfer, within five Business Days after notice from
Buyer to the Company of the occurrence of such event, of an amount
equal to the sum of (1) all amounts due Buyer pursuant to Section
9.3(a) and (2) $13,000,000 as an adjustment to the purchase price of
the Initial Number of Shares and as a breakup fee.
ARTICLE 10
Miscellaneous
Section 10.1 Counterparts. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the
same agreement, and shall become effective when one or more
counterparts have been signed by each party hereto and delivered to
the other party. Copies of executed counterparts transmitted by
telecopy, telefax or other electronic transmission service shall be
considered original executed counterparts for purposes of this
Section, provided receipt of copies of such counterparts is confirmed.
Section 10.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA
WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF.
53
Section 10.3 Entire Agreement. This Agreement (including
agreements incorporated herein) and the Schedules and Exhibits hereto
contain the entire agreement between the parties with respect to the
subject matter hereof and there are no agreements, understandings,
representations or warranties between the parties other than those set
forth or referred to herein. This Agreement is not intended to confer
upon any person not a party hereto (and their successors and assigns)
any rights or remedies hereunder.
Section 10.4 Notices. All notices and other communications
hereunder shall be sufficiently given for all purposes hereunder if in
writing and delivered personally, sent by documented overnight
delivery service or, to the extent receipt is confirmed, telecopy,
telefax or other electronic transmission service to the appropriate
address or number as set forth below. Notices to the Company shall be
addressed to:
ARV Assisted Living, Inc.
000 Xxxxxxx Xxxxxx, X-0
Xxxxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxxxx and Xxxxxx Xxxxxxx
Telecopy Number: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxxxx
000 Xxxx Xxxxxx Xxxxx, 00xx Xxxxx
Xxxxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx
Telecopy Number: (000) 000-0000
or at such other address and to the attention of such other person as
the Company may designate by written notice to Buyer. Notices to Buyer
shall be addressed to:
Lazard Freres Real Estate Investors L.L.C.
Thirty Xxxxxxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx, Xxxxx X. Xxxxx & Xxxxx Xxxxxxxxxxx
Telecopy Number: (000) 000-0000
with a copy to:
Cravath, Swaine & Xxxxx
000 Xxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxx, Esq.
Telecopy Number: (000) 000-0000
Section 10.5 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors. Buyer and the Advancing Party shall be
permitted to assign any of their rights hereunder to any Affiliate of
Buyer or the Advancing Party, provided that such Affiliate agrees to
be bound hereby and by the Stockholders Agreement, and provided that
Buyer and the Advancing Party shall remain liable hereunder, and
provided that any bona fide financial institution to which any Buyer,
the Advancing Party or any permitted transferee has Transferred (as
that term is used in the Stockholders Agreement) (including upon
foreclosure of a pledge) shares of Company Stock for the purpose of
securing bona fide indebtedness of any Buyer and which has agreed to
be
54
bound by this Agreement and the Stockholders Agreement shall also be
entitled to enforce the rights of Buyer and the Advancing Party
hereunder.
Section 10.6 Headings. The Section, Article and other headings
contained in this Agreement are inserted for convenience of reference
only and will not affect the meaning or interpretation of this
Agreement. All references to Sections or Articles contained herein
mean Sections or Articles of this Agreement unless otherwise stated.
Section 10.7 Amendments and Waivers. This Agreement may not be
modified or amended except by an instrument or instruments in writing
signed by the party against whom enforcement of any such modification
or amendment is sought. Either party hereto may, only by an instrument
in writing, waive compliance by the other party hereto with any term
or provision hereof on the part of such other party hereto to be
performed or complied with. The waiver by any party hereto of a breach
of any term or provision hereof shall not be construed as a waiver of
any subsequent breach.
Section 10.8 Interpretation; Absence of Presumption.
(a) For the purposes hereof, (i) words in the singular shall
be held to include the plural and vice versa and words of one gender
shall be held to include the other gender as the context requires,
(ii) the terms "hereof", "herein", and "herewith" and words of similar
import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all of the Schedules and Exhibits
hereto) and not to any particular provision of this Agreement, and
Article, Section, paragraph, Exhibit and Schedule references are to
the Articles, Sections, paragraphs, Exhibits and Schedules to this
Agreement unless otherwise specified, (iii) the word "including" and
words of similar import when used in this Agreement shall mean
"including, without limitation," unless the context otherwise requires
or unless otherwise specified, (iv) the word "or" shall not be
exclusive, and (v) provisions shall apply, when appropriate, to
successive events and transactions.
(b) This Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation against
the party drafting or causing any instrument to be drafted.
Section 10.9 Severability. Any provision hereof which is invalid
or unenforceable shall be ineffective to the extent of such invalidity
or unenforceability, without affecting in any way the remaining
provisions hereof.
Section 10.10 Further Assurances. The Company and Buyer agree
that, from time to time, whether before, at or after any Closing Date,
each of them will execute and deliver such further instruments of
conveyance and transfer and take such other action as may be necessary
to carry out the purposes and intents hereof.
Section 10.11 Specific Performance. Buyer and the Company each
acknowledge that, in view of the uniqueness of the parties hereto, the
parties hereto would not have an adequate remedy at law for money
damages in the event that this Agreement were not performed in
accordance with its terms, and therefore agree that the parties hereto
shall be entitled to specific enforcement of the terms hereof in
addition to any other remedy to which the parties hereto may be
entitled at law or in equity.
Section 10.12 Joint and Several Liability. The obligations and
liabilities of Buyer and the Advancing Party under or in connection
with this Agreement are joint and several.
55
Section 10.13 Interpretation of Schedules. Any matter set forth
on any Schedule shall be deemed to be referred to on all other
Schedules to which such matter logically relates and where such
reference would be appropriate and can reasonably be inferred from the
matters disclosed on the first Schedule as if set forth on such other
Schedules.
Section 10.14 Acknowledgment of Company's Right to Take Certain
Actions. Notwithstanding anything to the contrary herein, the Company
may, at its sole discretion, reincorporate the Company under the laws
of the State of Delaware.
56
IN WITNESS WHEREOF, this Agreement has been signed by or on
behalf of each of the parties hereto as of the day first above
written.
ARV ASSISTED LIVING, INC.
by: /s/ Xxxx X. Xxxxxxxx
-----------------------------------
Name: Xxxx X. Xxxxxxxx
Title: Chairman
& Chief Executive Officer
PROMETHEUS ASSISTED LIVING LLC
by: Lazard Freres Real Estate Investors
L.L.C., its sole member
by: /s/ Xxxxxx X. Xxxxxxx
---------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President
LAZARD FRERES REAL ESTATE INVESTORS L.L.C.
by: /s/ Xxxxxx X. Xxxxxxx
-------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President
57
EXHIBIT A
-------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
by and among
ARV ASSISTED LIVING, INC.
and
PROMETHEUS ASSISTED LIVING LLC
dated as of
July 14, 1997
-------------------------------------------------------
58
TABLE OF CONTENTS
Page
Section 1. Definitions............................................1
(a) "Agreement"..............................................1
(b) "Buyer"..................................................1
(c) "Commencement Date"......................................1
(d) "Commission".............................................1
(e) "Company"................................................1
(f) "Company Registration Expenses"..........................1
(g) "Demand Registration"....................................1
(h) "Exchange Act"...........................................1
(i) "NASD"...................................................2
(j) "Registrable Securities".................................2
(k) "Registration Expenses"..................................2
(l) "Registration Suspension Period".........................2
(m) "Securities Act".........................................2
(n) "Stock Purchase Agreement"...............................2
(o) "Suspension Notice"......................................2
(p) "Underwritten/Placed Offering"...........................2
Section 2. Demand Registration....................................2
(a) Obligation to File.......................................2
(b) Black-Out Periods of Buyer...............................3
(c) Number of Demand Registrations...........................4
(d) Size of Demand Registration..............................4
(e) Notice...................................................4
(f) Expenses.................................................4
(g) Selection of Underwriters................................4
Section 3. Incidental Registrations...............................5
(a) Notification and Inclusion...............................5
(b) Cut-back Provisions......................................5
(c) Expenses.................................................6
(d) Duration of Effectiveness................................6
(e) Limitation on Availability...............................6
Section 4. Registration Procedures................................6
Section 5. Requested Underwritten Offerings.......................9
Section 6. Preparation; Reasonable Investigation..................9
Section 7. Indemnification.........................................9
(a) Indemnification by the Company...........................9
(b) Indemnification by Buyer................................10
(c) Notices of Claims, etc..................................10
(d) Other Indemnification...................................11
(e) Indemnification Payments................................11
(f) Contribution............................................11
Section 8. Covenants Relating to Rule 144........................11
59
Page
Section 9. Miscellaneous.........................................12
(a) Counterparts............................................12
(b) Governing Law...........................................12
(c) Entire Agreement........................................12
(d) Notices.................................................12
(e) Successors and Assigns..................................13
(f) Headings................................................13
(g) Amendments and Waivers..................................13
(h) Interpretation; Absence of Presumption..................13
(i) Severability............................................14
60
REGISTRATION RIGHTS AGREEMENT (the
"Agreement") dated as of July 14, 1997, by and
among ARV Assisted Living, Inc., a California
corporation (the "Company"), and Prometheus
Assisted Living LLC, a Delaware limited liability
company ("Buyer"). Capitalized terms not otherwise
defined herein have the meaning ascribed to them
in the Stock Purchase Agreement (as hereinafter
defined).
RECITALS:
WHEREAS, the Company, the Advancing Party and Buyer have
entered into a Stock Purchase Agreement, dated as of July 14, 1997
(the "Stock Purchase Agreement") that provides for the purchase by
Buyer and sale by the Company to Buyer of shares of Company Common
Stock; and
WHEREAS, in order to induce Buyer to enter into the Stock
Purchase Agreement, the Company has agreed to provide the registration
rights set forth herein;
NOW, THEREFORE, in consideration of the premises and the
covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
Section 1. Definitions. As used herein, the following terms
shall have the following meanings:
(a) "Agreement" shall have the meaning set forth in the
first paragraph hereof.
(b) "Buyer" shall mean Buyer together with any other
Investor as defined in the Stockholders Agreement.
(c) "Commencement Date" shall mean the second anniversary of
the date of this Agreement.
(d) "Commission" shall mean the Securities and Exchange
Commission, and any successor thereto.
(e) "Company" shall have the meaning set forth in the first
paragraph hereof.
(f) "Company Registration Expenses" shall mean the fees and
disbursements of counsel and independent public accountants for
the Company incurred in connection with the Company's performance
of or compliance with this Agreement, including the expenses of
any special audits or "cold comfort" letters required by or
incident to such performance and compliance, and any premiums and
other costs of policies of insurance obtained by the Company
against liabilities arising out of the sale of any securities.
61
(g) "Demand Registration" shall have the meaning set forth
in Section 2(a).
(h) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and any successor thereto, and the rules and
regulations thereunder.
(i) "NASD" shall mean the National Association of Securities
Dealers, Inc.
(j) "Registrable Securities" shall mean (i) any and all
shares of Company Common Stock acquired by Buyer pursuant to the
Stock Purchase Agreement, (ii) any and all securities acquired by
Buyer pursuant to Section 3.2 of the Stockholders Agreement, and
(iii) any securities issued or issuable with respect to any
Company Common Stock or other securities referred to in clause
(i) or (ii) by way of conversion, exchange, stock dividend or
stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization
or otherwise. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities
when (A) a registration statement with respect to the sale of
such securities shall have become effective under the Securities
Act and such securities shall have been disposed of in accordance
with such registration statement, (B) such securities shall have
been sold in accordance with Rule 144 (or any successor
provision) under the Securities Act or (C) such securities are
eligible to be resold pursuant to Rule 144(k).
(k) "Registration Expenses" shall mean all registration,
filing and stock exchange or NASD fees, all fees and expenses of
complying with securities or blue sky laws, all printing
expenses, messenger and delivery expenses, any fees and
disbursements of any separate counsel retained by Buyer, and
transfer taxes, if any, and any premiums and other costs of
policies of insurance obtained by Buyer against liabilities
arising out of the public offering of securities, including
Company Registration expenses, but specifically excludes any fees
and disbursements of underwriters customarily paid by sellers of
securities who are not the issuers of such securities and all
underwriting discounts and commissions.
(l) "Registration Suspension Period" shall have the meaning
set forth in Section 2(b).
(m) "Securities Act" shall mean the Securities Act of 1933,
as amended, and any successor thereto, and the rules and
regulations thereunder.
(n) "Stock Purchase Agreement" shall have the meaning set
forth in the second paragraph hereof.
(o) "Suspension Notice" shall have the meaning set forth in
Section 2(b).
(p) "Underwritten/Placed Offering" shall mean a sale of
securities of the Company to an underwriter or underwriters for
reoffering to the public or on behalf of a person other than the
Company through an agent for sale to the public.
62
Section 2. Demand Registration
(a) Obligation to File. At any time following the
Commencement Date, promptly upon the written request of Buyer,
the Company will use its reasonable best efforts to file with the
Commission a registration statement under the Securities Act for
the offering of all of the Registrable Securities which Buyer
requests to be registered (the "Demand Registration"). The Demand
Registration shall be on an appropriate form and the Demand
Registration and any form of prospectus included therein shall
reflect such plan of distribution or method of sale as Buyer
notifies the Company, including the sale of some or all of the
Registrable Securities in a public offering or, if requested by
Buyer, subject to receipt by the Company of such information
(including information relating to purchasers) as the Company
reasonably may require, (i) in a transaction constituting an
offering outside the United States which is exempt from the
registration requirements of the Securities Act in which the
seller undertakes to effect registration after the completion of
such offering in order to permit such shares to be freely
tradeable in the United States, (ii) in a transaction
constituting a private placement under Section 4(2) of the
Securities Act in connection with which the seller undertakes to
effect a registration after the conclusion of such placement to
permit such shares to be freely tradeable by the purchasers
thereof, or (iii) in a transaction under Rule 144A of the
Securities Act, if available, in connection with which the seller
undertakes to effect a registration after the conclusion of such
transaction to permit such shares to be freely tradeable by the
purchasers thereof. The Company shall use its reasonable best
efforts to cause the Demand Registration to become effective,
and, upon the request of Buyer, keep the Demand Registration
effective for up to 90 days, unless the distribution of
securities registered thereunder has been earlier completed;
provided, however, that if such Demand Registration will require
the Company to prepare or file audited financial statements with
respect to any fiscal year by a date prior to the date on which
the Company would otherwise be required to prepare and file such
audited financial statements, then Buyer must notify the Company
at least thirty days in advance of the date upon which such
audited financial statements will be required to be filed. During
the period during which the Demand Registration is effective, the
Company shall supplement or make amendments to the Demand
Registration, if required by the Securities Act or if reasonably
requested by Buyer or an underwriter of Registrable Securities,
including to reflect any specific plan of distribution or method
of sale, and shall use its reasonable best efforts to have such
supplements and amendments declared effective, if required, as
soon as practicable after filing.
(b) Black-Out Periods of Buyer. Notwithstanding anything
herein to the contrary, (i) the Company shall have the right from
time to time to require Buyer not to sell under the Demand
Registration or to suspend the effectiveness thereof during the
period starting with the date 30 days prior to the Company's good
faith estimate, as certified in writing by an executive officer
of the Company to Buyer, of the proposed date of filing of a
registration statement or a preliminary prospectus supplement
relating to an existing shelf registration statement, in either
case, pertaining to an underwritten public offering of equity
securities of the Company for the account of the Company, and
ending on the date 75 days following the effective date of such
registration statement or the date of filing of the final
prospectus supplement, and (ii) the Company shall be
63
entitled to require Buyer not to sell under the Demand
Registration or to suspend the effectiveness thereof (but not for
a period exceeding 75 days in any calendar year) if the Company
determines, in its good faith judgment, that such offering or
continued effectiveness would interfere with any material
financing, acquisition, disposition, corporate reorganization or
other material transaction involving the Company or any of its
subsidiaries or public disclosure thereof would be required prior
to the time such disclosure might otherwise be required, or when
the Company is in possession of material information that it
deems advisable not to disclose in a registration statement.
Once any registration statement filed pursuant to this
Section 2 or in which Registrable Securities are included
pursuant to Section 3 has been declared effective, any period
during which the Company fails to keep such registration
statement effective and usable for resale of Registrable
Securities for the period required by Section 4(b) shall be
referred to as a "Registration Suspension Period". A Registration
Suspension Period shall commence on and include the date that the
Company gives written notice to Buyer of its determination that
such registration statement is no longer effective or usable for
resale of Registrable Securities (the "Suspension Notice") to and
including the date when the Company notifies Buyer that the use
of the prospectus included in such registration statement may be
resumed for the disposition of Registrable Securities.
(c) Number of Demand Registrations. The Company shall be
obligated to effect, under this Section 2, only six Demand
Registrations (no more than two of which may be requested in any
two-year period). A Demand Registration shall not be deemed to
have been effected, nor shall it be sufficient to reduce the
number of Demand Registrations available to Buyer under this
Section 2, if such registration cannot be used by Buyer for more
than 60 days as a result of any stop order, injunction or other
order of the Commission or other Government Authority for any
reason other than an act or omission of Buyer and all the
Registerable Securities registered thereunder are not sold.
(d) Size of Demand Registration. The Company shall not be
required to effect a Demand Registration of less than a fair
market value, based on the closing market price on the trading
day immediately prior to the date of notice (as reported in the
Wall Street Journal), of $10,000,000, except that if the fair
market value, based on the closing market price on the trading
day immediately prior to the date of notice (as reported in the
Wall Street Journal), of the Registrable Securities outstanding
is less than $10,000,000, then the Company shall be required to
effect a Demand Registration of all of the remaining Registrable
Securities outstanding.
(e) Notice. The Company shall give Buyer prompt notice in
the event that the Company has suspended sales of Registrable
Securities under Section 2(b).
(f) Expenses. All Registration Expenses incurred in
connection with the first four Demand Registrations which may be
requested under this Section 2 shall be borne by the Company,
with Buyer only paying underwriting fees and discounts. All
Registration Expenses and underwriting fees and discounts
64
incurred in connection with any further Demand Registrations
which may be requested under this Section 2 shall be borne by
Buyer.
(g) Selection of Underwriters. Any and all underwriters or
other agents involved in any sale of Registrable Securities
pursuant to a registration statement contemplated by this Section
2 shall include such underwriter(s) or other agent(s) as selected
by Buyer and approved by the Company, which approval shall not be
unreasonably withheld; provided that any Affiliate of Buyer shall
in all events be approved by the Company.
Section 3. Incidental Registrations
(a) Notification and Inclusion. If the Company proposes to
register for its own account any common equity securities of the
Company or any securities convertible into common equity
securities of the Company under the Securities Act (other than a
registration relating solely to the sale of securities to
participants in a dividend reinvestment plan, a registration on
Form S-4 relating to a business combination or similar
transaction permitted to be registered on such Form S-4, a
registration on Form S-8 relating solely to the sale of
securities to participants in a stock or employee benefit plan, a
registration permitted under Rule 462 under the Securities Act
registering additional securities of the same class as were
included in an earlier registration statement for the same
offering, and declared effective) the Company shall, at each such
time after the Commencement Date until Buyer no longer holds
Registerable Securities, promptly give written notice of such
registration to Buyer. Upon the written request of Buyer given
within 10 days after receipt of such notice by Buyer, the Company
shall seek to include in such proposed registration such
Registrable Securities as Buyer shall request be so included and
shall use its reasonable best efforts to cause a registration
statement covering all of the Registrable Securities that Buyer
has requested to be registered to become effective under the
Securities Act. The Company shall be under no obligation to
complete any offering of securities it proposes to make under
this Section 3 and shall incur no liability to Buyer for its
failure to do so. If, at any time after giving written notice of
its intention to register any securities and prior to the
effective date of the registration statement filed in connection
with such registration, the Company shall determine for any
reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice
of such determination to Buyer and, thereupon, (i) in the case of
a determination not to register, the Company shall be relieved of
its obligation to register any Registrable Securities in
connection with such registration (but not from its obligation to
pay the Registration Expenses incurred in connection therewith)
and (ii) in the case of a determination to delay registering, the
Company shall be permitted to delay registering any Registrable
Securities for the same period as the delay in registering such
other securities.
(b) Cut-back Provisions. If a registration pursuant to this
Section 3 involves an Underwritten/Placed Offering of the
securities so being registered, whether or not solely for sale
for the account of the Company, which securities are to be
distributed by or through one or more underwriters of recognized
standing under underwriting terms customary for such transaction,
and the underwriter or the managing underwriter, as the case may
be, of such
65
Underwritten/Placed Offering shall inform the Company of its
belief that the amount of securities requested to be included in
such registration or offering exceeds the amount which can be
sold in (or during the time of) such offering without delaying or
jeopardizing the success of the offering (including the price per
share of the securities to be sold), then the Company will
include in such registration (i) first, all the securities of the
Company which the Company proposes to sell for its own account or
the account of others (other than Buyer) requesting inclusion in
such registration pursuant to rights to registration on request,
and (ii) second, to the extent of the amount which the Company is
so advised can be sold in (or during the time of) such offering,
Registrable Securities and other securities requested to be
included in such registration, pro rata among Buyer and others
exercising incidental registration rights, on the basis of the
shares of Company Common Stock owned by all such persons.
(c) Expenses. The Company shall bear and pay all Company
Registration Expenses incurred in connection with any
registration of Registrable Securities pursuant to this Section 3
for Buyer and all Registration Expenses incurred in connection
with any registration of any securities for the Company's own
account referred to in the first sentence of Section 3(a), and
Buyer shall bear and pay all Registration Expenses (other than
Company Registration Expenses) and all underwriting fees and
discounts incurred in connection with any registration of
Registrable Securities pursuant to this Section 3 for Buyer.
(d) Duration of Effectiveness. At the request of Buyer, the
Company shall, subject to Section 2(b), use its reasonable best
efforts to keep any registration statement for which Registrable
Securities are included under this Section 3 effective and usable
for up to 90 days (subject to extension for the length of any
Registration Suspension Period), unless the distribution of
securities registered thereunder has been earlier completed;
provided, however, that in no event will the Company be required
to prepare or file audited financial statements with respect to
any fiscal year by a date prior to the date on which the Company
would be so required to prepare and file such audited financial
statements if such registration statement were no longer
effective and usable.
(e) Limitation on Availability. The registration rights set
forth in Section 2 shall not be exercisable unless Buyer is at
the time permitted to sell Registrable Securities pursuant to
Section 4.3 of the Stockholders Agreement and the registration
rights set forth in this Section 3 shall not be exercisable
unless Buyer is at the time permitted to sell Registrable
Securities pursuant to Section 4.3 or 5.2 of the Stockholders
Agreement.
Section 4. Registration Procedures. In connection with the
filing of any registration statement as provided in Section 2 or 3,
the Company shall use its reasonable best efforts to, as expeditiously
as reasonably practicable:
(a) prepare and file with the Commission the requisite
registration statement (including a prospectus therein) to effect
such registration and use its reasonable best efforts to cause
such registration statement to become effective, provided that
before filing such registration statement or any amendments or
supplements thereto, the Company will furnish to the counsel
selected by Buyer copies of all such documents proposed to be
filed, which documents will be
66
subject to the review of such counsel before any such filing is
made, and the Company will comply with any reasonable request
made by such counsel to make changes in any information contained
in such documents relating to Buyer;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to maintain the
effectiveness of such registration and to comply with the
provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement until
the earlier of such time as all of such securities have been
disposed of and the date which is 90 days after the date of
initial effectiveness of such registration statement;
(c) furnish to Buyer such number of conformed copies of such
registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of
copies of the prospectus contained in such registration
statements (including each complete prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under
the Securities Act, in conformity with the requirements of the
Securities Act, and such other documents, including documents
incorporated by reference, as Buyer may reasonably request;
(d) register or qualify all Registrable Securities under
such other securities or blue sky laws of such jurisdictions as
Buyer shall reasonably request, to keep such registration or
qualification in effect for so long as such registration
statement remains in effect, and take any other action which may
be reasonably necessary or advisable to enable Buyer to
consummate the disposition in such jurisdictions of the
securities owned by Buyer, except that the Company shall not for
any such purpose be required to qualify generally to do business
as a foreign corporation in any jurisdiction wherein it would not
but for the requirements of this paragraph be obligated to be so
qualified, or to consent to general service of process in any
such jurisdiction, or to subject the Company to any material tax
in any such jurisdiction where it is not then so subject;
(e) cause all Registrable Securities covered by such
registration statement to be registered with or approved by such
other Government Authority as may be reasonably necessary to
enable Buyer to consummate the disposition of such Registrable
Securities;
(f) furnish to Buyer a signed counterpart, addressed to
Buyer (and the underwriters, if any), of
(i) an opinion of counsel for the Company, dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, dated
the date of the closing under the underwriting agreement),
reasonably satisfactory in form and substance to Buyer, and
(ii) to the extent permitted by then applicable rules
of professional conduct, a "comfort" letter, dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, dated
the date of the closing under the underwriting
67
agreement), signed by the independent public accountants who
have certified the Company's financial statements included
in such registration statement, covering substantially the
same matters with respect to such registration statement
(and the prospectus included therein) and, in the case of
the accountants' letter, with respect to events subsequent
to the date of such financial statements, all as are
customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to the underwriters in
underwritten public offerings of securities;
(g) immediately notify Buyer at any time when the Company
becomes aware that a prospectus relating thereto is required to
be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under
which they were made, and at the request of Buyer promptly
prepare and furnish to Buyer a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of
such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under
which they were made;
(h) comply or continue to comply in all material respects
with the Securities Act and the Exchange Act and with all
applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at
least 12 months, but not more than 18 months, beginning with the
first full calendar month after the effective date of such
registration statement, which earnings statement shall satisfy
the provisions of Section 11 (a) of the Securities Act, and not
file any amendment or supplement to such registration statement
or prospectus to which Buyer shall have reasonably objected on
the grounds that such amendment or supplement does not comply in
all material respects with the requirements of the Securities
Act, having been furnished with a copy thereof at least five
Business Days prior to the filing thereof;
(i) provide a transfer agent and registrar for all
Registrable Securities covered by such registration statement not
later than the effective date of such registration statement; and
(j) list all Company Common Stock covered by such
registration statement on any securities exchange on which any of
the Company Common Stock is then listed.
Buyer shall furnish in writing to the Company such information
regarding Buyer (and any of its affiliates), the Registrable
Securities to be sold, the intended method of distribution of such
Registrable Securities, and such other information requested by the
Company as is necessary for inclusion in the registration statement
relating to such offering pursuant to the Securities Act and the rules
of the Commission thereunder. Such writing shall expressly state that
it is being furnished to the Company for use in the
68
preparation of a registration statement, preliminary prospectus,
supplementary prospectus, final prospectus or amendment or supplement
thereto, as the case may be.
Buyer agrees by acquisition of the Registrable Securities that
upon receipt of any notice from the Company of the happening of any
event of the kind described in paragraph (g) of this Section 4, Buyer
will forthwith discontinue its disposition of Registrable Securities
pursuant to the registration statement relating to such Registrable
Securities until Buyer's receipt of the copies of the supplemented or
amended prospectus contemplated by paragraph (g) of this Section 4.
Section 5. Requested Underwritten Offerings. If requested by
the underwriters for any underwritten offerings by Buyer, under a
registration requested pursuant to Section 2(a), the Company will
enter into a customary underwriting agreement with such underwriters
for such offering, to contain such representations and warranties by
the Company and such other terms as are customarily contained in
agreements of this type, including indemnities to the effect and to
the extent provided in Section 7. Buyer shall be a party to such
underwriting agreement and may, at its option, require that any or all
of the conditions precedent to the obligations of such underwriters
under such underwriting agreement be conditions precedent to the
obligations of Buyer. Buyer shall not be required to make any
representations or warranties to or agreement with the Company or the
underwriters other than representations, warranties or agreements
regarding Buyer and Buyer's intended method of distribution and any
other representation or warranty required by law.
Section 6. Preparation; Reasonable Investigation. In
connection with the preparation and filing of the registration
statement under the Securities Act, the Company will give Buyer, its
underwriters, if any, and their respective counsel, the opportunity to
participate in the preparation of such registration statement, each
prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each of them
such access to its books and records and such opportunities to discuss
the business of the Company with its officers, its counsel and the
independent public accountants who have certified its financial
statements as shall be necessary, in the opinion of Buyer's and such
underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
Section 7. Indemnification
(a) Indemnification by the Company. In the event of any
registration of any Registrable Securities of the Company under
the Securities Act, the Company will, and hereby does, indemnify
and hold harmless Buyer, each other person who participates as an
underwriter in the offering or sale of such securities and each
other person who controls any such underwriter within the meaning
of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which Buyer or any such
underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of
any material fact contained in the registration statement under
which such Registrable Securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or
supplement thereto, or any
69
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading, and the Company will reimburse Buyer and
each such underwriter and controlling person for any reasonable
legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
liability, action or proceedings; provided, however, that the
Company shall not be liable in any such case to the extent that
any such loss, claim, damage, liability (or action or proceeding
in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by Buyer or any
other person who participates as an underwriter in the offering
or sale of such securities, in either case, specifically stating
that it is for use in the preparation thereof, and provided,
further, that the Company shall not be liable to any person who
participates as an underwriter in the offering or sale of
Registrable Securities or any other person, if any, who controls
such underwriter within the meaning of the Securities Act in any
such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense
arises out of such person's failure to send or give a copy of the
final prospectus or supplement to the persons asserting an untrue
statement or alleged untrue statement or omission or alleged
omission at or prior to the written confirmation of the sale of
Registrable Securities to such person if such statement or
omission was corrected in such final prospectus or supplement.
Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of Buyer or any such
underwriter or controlling person and shall survive the transfer
of such securities by Buyer.
(b) Indemnification by Buyer. The Buyer will, and hereby
does, indemnify, and hold harmless (in the same manner and to the
same extent as set forth in paragraph (a) of this Section 7) the
Company, each director of the Company, each officer of the
Company and each other person, if any, who controls the Company
within the meaning of the Securities Act, and each other person
who participates as an underwriter in the offering or sale of
such securities and each other person who controls any such
underwriter within the meaning of the Securities Act, with
respect to any untrue statement or alleged untrue statement of a
material fact in or omission or alleged omission to state a
material fact from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such untrue
statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written
information furnished to the Company by Buyer specifically
stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any such director,
officer, or controlling person and shall survive the transfer of
such securities by Buyer.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or
proceeding involving a
70
claim referred to in the preceding paragraphs of this Section 7,
such indemnified party will, if a claim in respect thereof is to
be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided, however,
that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its
obligations under the preceding paragraphs of this Section 7,
except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in
respect of such claim, the indemnifying party shall be entitled
to participate in and to assume the defense thereof, jointly with
any other indemnifying party similarly notified to the extent
that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party
to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to
the indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation.
(d) Other Indemnification. Indemnification similar to that
specified in the preceding paragraphs of this Section 7 (with
appropriate modifications) shall be given by the Company and
Buyer with respect to any required registration or other
qualification of securities under any federal or state law or
regulation of Governmental Authority other than the Securities
Act.
(e) Indemnification Payments. The Indemnification required
by this Section 7 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense,
as and when bills are received or expense, loss, damage or
liability is incurred.
(f) Contribution. If, for any reason, the foregoing
indemnity is unavailable, or is insufficient to hold harmless an
indemnified party, then the indemnifying party shall contribute
to the amount paid or payable by the indemnified party as a
result of the expense, loss, damage or liability, (i) in such
proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified party on
the other (determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact
or omission relates to information supplied by the indemnifying
party or the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission), or (ii) if the
allocation provided by clause (i) above is not permitted by
applicable law or provides a lesser sum to the indemnified party
than the amount hereinafter calculated, in the proportion as is
appropriate to reflect not only the relative fault of the
indemnifying party and the indemnified party, but also the
relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other, as well as any other
relevant equitable considerations. No indemnified party guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any
indemnifying party who was not guilty of such fraudulent
misrepresentation.
71
Section 8. Covenants Relating to Rule 144. The Company will
file in a timely manner (taking into account any extensions granted by
the Commission), information, documents and reports in compliance with
the Exchange Act and will, at its expense, forthwith upon the request
of Buyer, deliver to Buyer a certificate, signed by the Company's
principal financial officer, stating (a) the Company's name, address
and telephone number (including area code), (b) the Company's Internal
Revenue Service identification number, (c) the Company's Commission
file number, (d) the number of shares of Company Common Stock and the
number of shares of Company Preferred Stock outstanding as shown by
the most recent report or statement published by the Company, and (e)
whether the Company has filed the reports required to be filed under
the Exchange Act for a period of at least 90 days prior to the date of
such certificate and in addition has filed the most recent annual
report required to be filed thereunder. If at any time the Company is
not required to file reports in compliance with either Section 13 or
Section 15(d) of the Exchange Act, the Company will, at its expense,
forthwith upon the written request of Buyer, make available adequate
current public information with respect to the Company within the
meaning of paragraph (c)(2) of Rule 144 of the General Rules and
Regulations promulgated under the Securities Act.
Section 9. Miscellaneous
(a) Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the
same agreement, and shall become effective when one or more
counterparts have been signed by each of the parties and
delivered to the other party. Copies of executed counterparts
transmitted by telecopy, telefax or other electronic transmission
service shall be considered original executed counterparts for
purposes of this Section 9, provided receipt of copies of such
counterparts is confirmed.
(b) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA
WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF.
(c) Entire Agreement. This Agreement (including agreements
incorporated herein) contains the entire agreement between the
parties with respect to the subject matter hereof and there are
no agreements or understandings between the parties other than
those set forth or referred to herein. This Agreement is not
intended to confer upon any person not a party hereto (and their
successors and assigns) any rights or remedies hereunder.
(d) Notices. All notices and other communications hereunder
shall be sufficiently given for all purposes hereunder if in
writing and delivered personally, sent by documented overnight
delivery service or, to the extent receipt
72
is confirmed, telecopy, telefax or other electronic transmission
service to the appropriate address or number as set forth below.
Notices to the Company shall be addressed to:
ARV Assisted Living, Inc.
000 Xxxxxxx Xxxxxx, X-0
Xxxxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxxxx and
Xxxxxx Xxxxxxx
Telecopy Number: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxxxx
000 Xxxx Xxxxxx Xxxxx
00xx Xxxxx
Xxxxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx
Telecopy: (000) 000-0000
or at such other address and to the attention of such other person as
the Company may designate by written notice to Buyer. Notices to Buyer
shall be addressed to:
Prometheus Assisted Living LLC
c/o Lazard Freres Real Estate Investors L.L.C.
00 Xxxxxxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx, Xxxxx X. Xxxxx and
Xxxxx Xxxxxxxxxxx
Telecopy Number: (000) 000-0000
with a copy to:
Cravath, Swaine & Xxxxx
000 Xxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxx, Esq.
Telecopy Number: (000) 000-0000
(e) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their
respective successors. Neither party shall be permitted to assign
any of its rights hereunder to any third party, except that if
(i) Buyer transfers or pledges any or all Registrable Securities
to a bona fide financial institution as security for any bona
fide indebtedness of any Buyer and such financial institution
agrees to be bound by the Stockholders Agreement, the pledgee of
the Registrable Securities shall be considered an intended
beneficiary hereof and may exercise all rights of Buyer
hereunder, and (ii) any person included within the definition of
the term Buyer shall be permitted to assign its rights hereunder
to any other person included within such definition.
73
(f) Headings. The Section and other headings contained in
this Agreement are inserted for convenience of reference only and will
not affect the meaning or interpretation of this Agreement. All
references to Sections or other headings contained herein mean
Sections or other headings of this Agreement unless otherwise stated.
(g) Amendments and Waivers. This Agreement may not be
modified or amended except by an instrument or instruments in
writing signed by the party against whom enforcement of any such
modification or amendment is sought. Either party hereto may,
only by an instrument in writing, waive compliance by the other
party hereto with any term or provision hereof on the part of
such other party hereto to be performed or complied with. The
waiver by any party hereto of a breach of any term or provision
hereof shall not be construed as a waiver of any subsequent
breach.
(h) Interpretation; Absence of Presumption. For the purposes
hereof, (i) words in the singular shall be held to include the
plural and vice versa and words of one gender shall be held to
include the other gender as the context requires, (ii) the terms
"hereof", "herein", and "herewith" and words of similar import
shall, unless otherwise stated, be construed to refer to this
Agreement as a whole and not to any particular provision of this
Agreement, and Section, paragraph or other references are to the
Sections, paragraphs, or other references to this Agreement
unless otherwise specified, (iii) the word "including" and words
of similar import when used in this Agreement shall mean
"including, without limitation," unless the context otherwise
requires or unless otherwise specified, (iv) the word "or" shall
not be exclusive, and (v) provisions shall apply, when
appropriate, to successive events and transactions.
This Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation
against the party drafting or causing any instrument to be
drafted.
(i) Severability. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such
invalidity or unenforceability, without affecting in any way the
remaining provisions hereof.
IN WITNESS WHEREOF, this Agreement has been signed by or on
behalf of each of the parties hereto as of the day first above
written.
ARV ASSISTED LIVING, INC.
by
-----------------------
Name: Xxxx X. Xxxxxxxx
Title: Chairman & Chief
Executive Officer
PROMETHEUS ASSISTED LIVING LLC
by
-----------------------
Name: Xxxxxx X. Xxxxxxx
Title: President
74
EXHIBIT B
------------------------------------------------
STOCKHOLDERS AGREEMENT
by and among
LAZARD FRERES REAL ESTATE INVESTORS L.L.C.
and
PROMETHEUS ASSISTED LIVING LLC
and
ARV ASSISTED LIVING, INC.
dated as of
July 14, 1997
------------------------------------------------
75
TABLE OF CONTENTS
Page
ARTICLE 1
Definitions.........................................................1
Section 1.1 "Adjusted Fully Diluted"..........................1
Section 1.2 "Affiliate" ......................................1
Section 1.3 "Agreement".......................................2
Section 1.4 "Beneficially Own"................................2
Section 1.5 "Board"...........................................2
Section 1.6 "Buyer"...........................................2
Section 1.7 "Code"............................................2
Section 1.8 "Company".........................................2
Section 1.9 "Company Charter".................................2
Section 1.10 "Company Common Stock"...........................2
Section 1.11 "Control"........................................2
Section 1.12 "Convertible Debt"...............................2
Section 1.13 "Covered Transaction"............................2
Section 1.14 "Director".......................................2
Section 1.15 "Early Standstill Termination Event".............2
Section 1.16 "Exercise Notice"................................2
Section 1.17 "Extraordinary Transaction"......................2
Section 1.18 "Fully Diluted Basis"............................3
Section 1.19 "Government Authority"...........................3
Section 1.20 "Group"..........................................3
Section 1.21 "Investor".......................................3
Section 1.22 "Investor Nominees"..............................3
Section 1.23 "Key Committees".................................3
Section 1.24 "Management".....................................3
Section 1.25 "1933 Act".......................................3
Section 1.26 "1934 Act".......................................3
Section 1.27 "Nominating Committee"...........................3
Section 1.28 "Participation Notice"...........................3
Section 1.29 "person".........................................4
Section 1.30 "Stockholder Approval"...........................4
Section 1.31 "Stockholder Approval Date"......................4
Section 1.32 "Standstill Period"..............................4
Section 1.33 "Stock Purchase Agreement".......................4
Section 1.34 "Termination Event"..............................4
Section 1.35 "13D Group"......................................4
Section 1.36 "Transfer".......................................4
Section 1.37 "Voting Securities"..............................4
ARTICLE 2
Board of Directors..................................................4
Section 2.1 Members of the Board..............................4
Section 2.2 Committee Representation; Subsidiary Boards.......5
Section 2.3 Vacancies.........................................7
Section 2.4 Officers..........................................7
76
Page
ARTICLE 3
Voting and Participation Rights.....................................7
Section 3.1 Voting Rights.....................................7
Section 3.2 Participation Rights..............................7
ARTICLE 4
Standstill Provisions..............................................10
Section 4.1 Standstill Period................................10
Section 4.2 Restrictions During Standstill Period............11
Section 4.3 Restrictions on Transfer.........................12
Section 4.4 Notice to Company................................12
Section 4.5 Compliance with Xxxxxxx Xxxxxxx Policy...........13
Section 4.6 Investment Company Matters.......................13
Section 4.7 Waiver of Restrictions and Limits................13
ARTICLE 5
Additional Covenants...............................................13
Section 5.1 Restrictions on Investments......................13
Section 5.2 Additional Transfer Restrictions.................13
ARTICLE 6
Miscellaneous......................................................14
Section 6.1 Counterparts.....................................14
Section 6.2 Governing Law....................................14
Section 6.3 Entire Agreement.................................14
Section 6.4 Expenses.........................................14
Section 6.5 Notices..........................................14
Section 6.6 Successors and Assigns...........................15
Section 6.7 Headings.........................................15
Section 6.8 Amendments and Waivers...........................16
Section 6.9 Interpretation; Absence of Presumption...........16
Section 6.10 Severability....................................16
Section 6.11 Further Assurances..............................16
Section 6.12 Specific Performance............................16
Section 6.13 Investor Breach.................................16
Section 6.14 Confidentiality.................................17
Section 6.15 Public Announcements............................17
77
THIS STOCKHOLDERS AGREEMENT (the
"Agreement"), dated as of July 14, 1997, is made by
and between Lazard Freres Real Estate Investors
L.L.C., a New York limited liability company (the
"Advancing Party"), Prometheus Assisted Living
LLC, a Delaware limited liability company (the
"Buyer"), and ARV Assisted Living, Inc., a
California corporation (the "Company").
Capitalized terms not otherwise defined herein
have the meaning ascribed to them in the Stock
Purchase Agreement (as hereinafter defined).
RECITALS:
WHEREAS, the Company, the Buyer and the Advancing Party have
entered into a Stock Purchase Agreement, dated as of July 14, 1997 (the
"Stock Purchase Agreement"), pursuant to which the Company has agreed
to sell, and the Buyer has agreed to purchase, certain shares of
common stock, no par value, of the Company (the "Company Common
Stock") upon the terms and subject to the conditions set forth
therein;
WHEREAS, it is a condition to the transactions contemplated
by the Stock Purchase Agreement and the parties believe it to be in
their best interests that they enter into this Agreement and provide
for certain rights and restrictions with respect to the investment by
Investor (as hereinafter defined) in the Company and the corporate
governance of the Company; and
WHEREAS, the Company and the Buyer believe that the
combination in a strategic partnership of the leadership, expertise
and experience in the development of assisted living facilities and
operations of the Company and the investment and capital markets
expertise and access to capital of the Buyer and its Affiliates will
significantly enhance the Company's ability to pursue its growth and
operating strategies;
NOW THEREFORE, in consideration of the premises and the
covenants and agreements contained herein and for good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties
hereto hereby, agree as follows:
ARTICLE 1
Definitions
As used in this Agreement, the following terms shall have
the following respective meanings:
Section 1.1 "Adjusted Fully Diluted" basis shall mean on a
Fully Diluted Basis, except that shares of Common Stock issuable upon
conversion of the Convertible Debt or upon exercise of options granted
under management benefit plans shall not be included.
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Section 1.2 "Affiliate" shall have the meaning ascribed
thereto in Rule 12b-2 promulgated under the 1934 Act, and as in effect
on the date hereof.
Section 1.3 "Agreement" shall have the meaning set forth in
the first paragraph hereof.
Section 1.4 "Beneficially Own" shall mean, with respect to
any security, having direct or indirect (including through any
Subsidiary or Affiliate) "beneficial ownership" of such security, as
determined pursuant to Rule 13d-3 under the 1934 Act, including
pursuant to any agreement, arrangement or understanding, whether or
not in writing; provided, however, that all of the shares of Company
Common Stock which the Buyer has agreed to purchase under the Stock
Purchase Agreement but which have not yet been purchased shall be
deemed to be Beneficially Owned by Investor until the Remaining Equity
Commitment is zero.
Section 1.5 "Board" shall mean the board of directors of the
Company.
Section 1.6 "Buyer" shall have the meaning set forth in the
first paragraph hereof.
Section 1.7 "Code" shall mean the Internal Revenue Code of
1986, as amended, and any successor thereto, including all of the
rules and regulations promulgated thereunder.
Section 1.8 "Company" shall have the meaning set forth in
the first paragraph hereof.
Section 1.9 "Company Charter" shall have the meaning set
forth in the Stock Purchase Agreement.
Section 1.10 "Company Common Stock" shall have the meaning
set forth in the second paragraph hereof.
Section 1.11 "Control" shall mean with respect to any
person, the power to direct the management and policies of such
person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise. "Controlled" shall have a
correlative meaning.
Section 1.12 "Convertible Debt" shall mean the Company's
6-3/4% Convertible Subordinated Notes due 2006.
Section 1.13 "Covered Transaction" shall have the meaning
set forth in Section 4.1.
Section 1.14 "Director" shall mean a member of the Board.
Section 1.15 "Early Standstill Termination Event" shall have
the meaning set forth in Section 4.1.
Section 1.16 "Exercise Notice" shall have the meaning set
forth in Section 3.2(b).
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Section 1.17 "Extraordinary Transaction" shall mean (a) any
merger, consolidation, sale of a material portion of the Company's
assets, recapitalization, other business combination, liquidation, or
other similar action out of the ordinary course of business of the
Company, or (b) any issuance of securities to any person or Group
requiring stockholder approval in accordance with the guidelines of
the NASDAQ National Market (or any stock exchange on which the Company
Common Stock is then listed) as to such matters, as in effect as of
the date of the Stock Purchase Agreement.
Section 1.18 "Fully Diluted Basis" shall mean then
outstanding Company Stock plus any shares of stock or other equity or
debt exchangeable for Company Stock and any shares of stock or other
equity or debt the holders of which have the right to vote with the
stockholders of the Company on any matter, and shall include the
Convertible Debt, the instruments listed in Schedule 3.3(a) of the
Stock Purchase Agreement and Company Stock issuable under option or
other equity-incentive plans listed on Schedule 3.13(b) of the Stock
Purchase Agreement and awards issued pursuant thereto.
Section 1.19 "Government Authority" shall mean any
government or state (or any subdivision thereof) of or in the United
States, or any agency, authority, bureau, commission, department or
similar body or instrumentality thereof, or any governmental court or
tribunal.
Section 1.20 "Group" shall mean a "group" as such term is
used in Section 13(d)(3) of the 1934 Act.
Section 1.21 "Investor" shall mean the Buyer, and shall also
include any permitted assignee of the Buyer pursuant to the Stock
Purchase Agreement and, for purposes only of the provisions of the
Registration Rights Agreement, any bona fide financial institution to
which any Investor has Transferred (including upon foreclosure of a
pledge) shares of Company Common Stock for the purpose of securing
bona fide indebtedness of any Investor and which has agreed to be
bound by this Agreement.
Section 1.22 "Investor Nominees" shall have the meaning set
forth in Section 2.1(a).
Section 1.23 "Key Committees" shall have the meaning set
forth in Section 2.2(a).
Section 1.24 "Management" of the Company shall include,
without limitation, the Company's Chairman.
Section 1.25 "1933 Act" shall mean the Securities Act of
1933, as amended.
Section 1.26 "1934 Act" shall mean the Securities Exchange
Act of 1934, as amended.
Section 1.27 "Nominating Committee" shall mean a committee
of the Board composed of three members, one of whom is an Investor
Nominee, one of whom is an independent director designated by the
Nominating Committee and one of whom is a designee of management of
the Company). The initial members of the Nominating Committee shall be
Xxxx X. Xxxxxxxx, Xxxxxx X. Xxxxxxx, and Xxxx X. Xxxxxxxxx.
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Section 1.28 "Participation Notice" shall have the meaning
set forth in Section 3.2(b).
Section 1.29 "person" shall mean any individual,
corporation, partnership, limited liability company, joint venture,
trust, unincorporated organization, other form of business or legal
entity or Government Authority.
Section .30 "Stockholder Approval" shall have the meaning
set forth in the Stock Purchase Agreement.
Section 1.31 "Stockholder Approval Date" shall mean the date
on which a duly called and held meeting of stockholders of the Company
is held at which meeting (i) a quorum is present and (ii) Stockholder
Approval is obtained.
Section 1.32 "Standstill Period" shall have the meaning set
forth in Section 4.1(a).
Section 1.33 "Stock Purchase Agreement" shall have the
meaning set forth in the second paragraph hereof.
Section 1.34 "Termination Event" shall mean the date on
which the Remaining Equity Commitment is zero and either (i) the Buyer
no longer Beneficially Owns a number of shares of Company Common Stock
equal to at least 5% of the outstanding Company Common Stock, on a
Fully Diluted Basis or (ii) the Buyer no longer Beneficially Owns
Company Common Stock having an aggregate market value of at least
$25,000,000.
Section 1.35 "13D Group" shall mean any group of persons
acquiring, holding, voting or disposing of Voting Securities which
would be required under Section 13(d) of the 1934 Act and the rules
and regulations thereunder (as in effect, and based on legal
interpretations thereof existing, on the date hereof) to file a
statement on Schedule 13D with the Securities and Exchange Commission
as a "person" within the meaning of Section 13(d)(3) of the 1934 Act
if such group beneficially owned Voting Securities representing more
than 5% of any class of Voting Securities then outstanding.
Section 1.36 "Transfer" shall have the meaning set forth in
Section 4.3.
Section 1.37 "Voting Securities" shall mean at any time
shares of any class of capital stock of the Company which are then
entitled to vote generally in the election of Directors.
ARTICLE 2
Board of Directors
Section 2.1 Members of the Board
(a) Subject to the right of the Nominating Committee to
approve nominees for Director as set forth in Section 2.2(a), from and
after the Stockholder Approval Date, if any, the Company shall amend
its By-laws, and the Company and Investor will take all actions
necessary to cause the Board to be structured to consist of
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eleven members, of which four members will be designees of Investor
(at least one in each class of the Board) (the "Investor Nominees"),
and the Company and Investor will take all actions necessary to cause
such nominees to become members of the Board as soon as practicable
after the Stockholder Approval Date. If necessary to effectuate the
placement of Investor Nominees on the Board, the Company shall solicit
the resignations of the appropriate number of Directors to the extent
necessary to permit the Investor Nominees to serve. Thereafter, at
each annual or special meeting of stockholders of the Company at, or
the taking of action by written consent of stockholders of the Company
with respect to which any class of Directors is to be elected,
Investor shall have the right (but not obligation) pursuant to this
Agreement and pursuant to the By-laws of the Company to designate
nominees to the Board (subject to right of the Nominating Committee to
approve nominees for Director as set forth in Section 2.2(a)) such
that Investor shall have on the Board of Directors a number of
representatives equal to a percentage of the total number of members
of the Board of Directors that is equal to the percentage of Company
Common Stock Beneficially Owned by Investor, on a Fully Diluted Basis;
provided, however, that (i) if the Investor would be entitled to a
fractional number of representatives, the Investor shall instead be
entitled to a number of representatives equal to the next higher
number, (ii) in no event shall the Investor be entitled to more than
four representatives and (iii) after the occurrence of a Termination
Event, if any, Investor shall not be entitled to any representatives
on the Board of Directors.
(b) Investor will not name any person as an Investor Nominee
if (i) such person is not reasonably experienced in business,
financial or real estate matters, (ii) such person has been convicted
of, or has pled nolo contendere to a felony, (iii) the election of
such person would violate any law, or (iv) any event required to be
disclosed pursuant to Item 401(f) of Regulation S-K of the 1934 Act
has occurred with respect to such person. Investor shall use its
reasonable efforts to afford the independent directors of the Company
a reasonable opportunity to meet any individual that Investor is
considering naming as an Investor Nominee.
(c) Subject to the right of the Nominating Committee to
approve nominees for Director as set forth in Section 2.2(a), the
Company will support the nomination of and the election of each
Investor Nominee to the Board, and the Company will exercise all
authority under applicable law to cause each Investor Nominee to be
elected to the Board. Without limiting the generality of the
foregoing, with respect to each meeting of stockholders of the Company
at which Directors are to be elected, the Company shall use its
reasonable efforts to solicit from the stockholders of the Company
eligible to vote in the election of Directors proxies in favor of each
Investor Nominee.
(d) During the period that Investor shall have the right to
designate nominees to the Board under this Agreement, the number of
Directors on the Board shall not exceed eleven members at any time.
(e) If Investor's right to nominate directors to the Board
is reduced, Investor shall cause the applicable number of its Investor
Nominees to immediately resign (regardless of the remaining term, if
any) from the Board.
(f) It is hereby agreed that any decision to take or omit to
take any action on the Company's behalf with respect to any
transaction or agreement involving or relating to Investor, including
the timing and amounts of Stock Purchases under the Stock Purchase
Agreement, shall be subject only to the approval of a majority of non-
82
Investor Nominee Directors, notwithstanding the supermajority
provisions of the Company Charter and the By-laws required by the
Stock Purchase Agreement but subject to the provisions of Section 5.10
of the Stock Purchase Agreement.
Section 2.2 Committee Representation; Subsidiary Boards
(a) During such time as Investor is entitled pursuant to
Section 2.1(a) to have at least four Investor Nominees on the
Board, the Company shall amend its By-laws to provide that,
unless Investor chooses not to exercise its rights under this
Section 2.2(a), at least one Director who is an Investor Nominee
shall serve on each of the audit committee, the compensation
committee, any special committee(s) of the Board, and any other
committees which shall be charged with exercising substantial
authority on behalf of the Board (other than any committee
charged with the approval of the transactions contemplated by the
Stock Purchase Agreement or this Agreement, or any committee
charged with evaluating any Competing Transaction) (the
foregoing, together with the Executive Committee, the "Key
Committees"). As contemplated by the Stock Purchase Agreement,
Investor will have the right to have two Directors designated by
it serve on the Board's Executive Committee.
During such time as Investor is entitled to have at least
one Investor Nominee on the Board, unless Investor chooses not to
exercise its rights under this Section 2.2(a), at least one
Director who is an Investor Nominee shall serve on the Nominating
Committee of the Board. In addition, the Company's By-laws shall
be amended to provide that (i) the unanimous consent of the
Nominating Committee shall be required prior to the appointment
of a Chairman, Chief Executive Officer or President of the
Company, (ii) the Board of Directors of the Company shall not
make any recommendation or appointment for Directors who are
Chairman, Chief Executive Officer or President without the
unanimous approval of the Nominating Committee as set forth
herein and (iii) notwithstanding (ii) above, all nominees to the
Board of Directors (other than Investor Nominees) will require
the unanimous approval of the Nominating Committee. If the
Nominating Committee cannot, after a reasonable period of good
faith discussions (not to exceed 30 days), unanimously agree on a
nominee pursuant to the foregoing clause (iii), the nomination
will be referred to the entire Board of Directors, which shall
decide the matter based on a simple majority vote notwithstanding
the supermajority provisions of the Company Charter and the
By-laws required by the Stock Purchase Agreement.
Notwithstanding the foregoing, if none of the Directors who
are Investor Nominees would be considered "independent" of the
Company, "disinterested," "non-employee directors" and "outside
directors" (i) for purposes of any applicable rule of NASDAQ
National Market or any securities exchange or other self-
regulating organization (such as the National Association of
Securities Dealers) requiring that members of the audit committee
of the Board be independent of the Company, (ii) for purposes of
any law or regulation that requires, in order to obtain or
maintain favorable tax, securities, corporate law or other
material legal benefits with respect to any plan or arrangement
for employee compensation or benefits, that the members of the
committee of the Board charged with responsibility for such plan
or arrangement be "independent" of the Company, "disinterested,"
"non- employee directors" or "outside directors," or (iii) for
purposes of any special committee formed in connection with any
transaction
83
or potential transaction involving the Company and any of
Investor, its Affiliates or any Group of which Investor is a
member or such other transaction or potential transaction which
would involve an actual or potential conflict of interest on the
part of the Directors who are Investor Nominees, then a Director
who is an Investor Nominee shall not be required to be appointed
to any such committee; provided, however, that the committees of
the Board shall be organized such that, to the extent
practicable, the only items to be considered by a Key Committee
on which no Director who is an Investor Nominee may serve will be
those items which prevent the Director who is an Investor Nominee
from serving on such Key Committee. Any members of any Key
Committee who are Investor Nominees shall, in the event of any
vacancy in such membership, be replaced by a Director who is an
Investor Nominee elected by a majority of the directors who are
Investor Nominees.
(b) During such time as Investor is entitled pursuant to
Section 2.1(a) to have at least one Investor Nominee on the
Board, unless Investor chooses not to exercise its rights under
this Section 2.2(b), one individual designated by Investor shall
serve as a member of the board of directors or comparable
governing body of each Subsidiary of the Company, if any, that is
a corporation or other person with a board of directors or board
of trustees.
Section 2.3 Vacancies. In the event that any Investor
Nominee shall cease to serve as a Director for any reason other than
the fact that Investor no longer has a right to nominate a Director,
as provided in Section 2.1(a), the vacancy resulting thereby shall be
filled by an Investor Nominee designated by Investor; provided,
however, that any Investor Nominee so designated shall satisfy the
qualification requirements set forth in Section 2.1(b).
Section 2.4 Officers. The Investor agrees to cooperate with
the Company in connection with the negotiation, execution and delivery
of employment agreements between the Company and certain key employees
of the Company.
ARTICLE 3
Voting and Participation Rights
Section 3.1 Voting Rights. Subject to the provisions of this
Section 3.1, Investor may vote the shares of Company Stock which it
owns in its sole and absolute discretion. During the Standstill Period
the Advancing Party, the Buyer and Investor and any of their
Controlled Affiliates will vote all shares of Company Common Stock
owned by any of them that represent aggregate ownership in excess of
49.9% of the outstanding shares of Company Common Stock, in one of the
following two manners, at their option: (x) in accordance with the
recommendation of the Board, or (y) proportionally in accordance with
the votes of the other holders of Company Common Stock.
Notwithstanding anything to the contrary in the foregoing, during the
Standstill Period, the Advancing Party, the Buyer and Investor and any
of their Controlled Affiliates shall vote all shares of Company Common
Stock owned by any of them in favor of the election of Directors
nominated by the Nominating Committee or the Board, as set forth in
Section 2.1(a).
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Section 3.2 Participation Rights
(a) Rights to Participate. From and after the date hereof
until a Termination Event, if any, Investor shall be entitled to a
participation right to purchase or subscribe up to that number of
additional shares of capital stock (including as "capital stock" for
purposes of this Section 3.2, any security, option, warrant, call,
commitment, subscription, right to purchase or other agreement of any
character that is convertible into or exchangeable or redeemable for
shares of capital stock of the Company or any Subsidiary (and all
references in this Section 3.2 to capital stock shall, as appropriate,
be deemed to be references to any such securities), and also including
additional shares of capital stock to be issued pursuant to the
conversion, exchange or redemption of any security, option, warrant,
call, commitment, subscription, right to purchase or other agreement
of a character that is convertible into or exchangeable or redeemable
for shares of capital stock, as if the price at which such additional
shares of capital stock is issued pursuant to any such conversion,
exchange or redemption were the market price on the date of such
issuance) to be issued or sold by the Company which represents the
same proportion (the "shareholder percentage") of the total number of
shares of capital stock to be issued or sold by the Company (including
the shares of capital stock to be issued to Investor upon exercise of
its participation rights hereunder; it being understood and agreed
that the Company will accordingly be required to either increase the
number of shares of capital stock to be issued or sold so that
Investor may purchase additional shares to maintain its proportionate
interest, or to reduce the number of shares of capital stock to be
issued or sold to Persons other than Investor) as is represented by
the number of shares of Company Common Stock owned by Investor prior
to such sale or issuance (and including for this purpose any shares of
Company Common Stock to be acquired pursuant to the Stock Purchase
Agreement, but not yet issued) relative to the number of shares of
Company Common Stock outstanding prior to such sale or issuance (and
including for this purpose any shares of Company Common Stock to be
acquired pursuant to the Stock Purchase Agreement, but not yet issued)
(but in no event more than 49.9% of the total number of shares of
capital stock to be issued or sold by the Company at all subsequent
offerings); provided, however, that the provisions of this Section 3.2
shall not to apply to (i) the issuance or sale by the Company of any
of its capital stock issued to the Company or any of its Subsidiaries
or pursuant to options, rights or warrants or other commitments or
securities in effect or outstanding on the date of the Stock Purchase
Agreement (including without limitation, any options issued or to be
issued pursuant to the Employment Agreements), (ii) the issuance of
capital stock pursuant to the conversion, exchange or redemption of
any other capital stock, but shall, without limitation, apply to the
issuance by the Company of any of its capital stock pursuant to
benefit, option, stock purchase, or other similar plans or
arrangements, including pursuant to or upon the exercise of options,
rights, warrants, or other securities or agreements (including those
issued pursuant to the Company's benefit plans) and (iii) the issuance
of stock for consideration other than cash; provided further, however,
that in the case of debt securities of the Company that entitle the
Investor to participation rights hereunder, such participation rights
shall apply only to the issuance of such debt securities, i.e., the
Investor shall have participation rights with respect to such debt
securities, and shall have whatever conversion rights to which holders
of such debt securities are entitled, but shall have no other
participation rights with respect thereto and the Investor shall only
have the right to acquire such debt securities themselves.
Notwithstanding the foregoing, any participation rights provided for
in this Section which arise as a result of the exception contained in
clause (ii) of the preceding sentence shall be deferred until such
time as participation rights shall otherwise arise under this Section
3.2. The provisions of this Section 3.2 shall apply to the Convertible
Debt only
85
upon conversion, in which event the Company agrees from time to time
to issue the number of additional shares necessary to permit the Buyer
to maintain its shareholder percentage (as defined above), provided
that the purchase price for such shares shall be the closing price of
the Company Common Stock on the date of each such conversion; provided
further that the Company shall provide the Buyer within 15 days after
the end of each calendar quarter with a schedule of the conversions
during such quarter (and the related closing prices for the Common
Stock on the dates of conversion), the number of additional shares of
Common Stock the Buyer is entitled to purchase hereunder and the
purchase price therefor; provided further that Buyer shall have until
15 days after receipt of such schedule to purchase such additional
shares. Any conversion or exercise of securities acquired by Investor
pursuant to this Section 3.2 shall be deferred by Investor if it would
result in Investor's share percentage exceeding 49.9%.
(b) Notice. In the event the Company proposes to issue or
sell any shares of capital stock in a transaction giving rise to the
participation rights provided for in this Section, the Company shall
send a written notice (the "Participation Notice") to Investor setting
forth the number of shares of such capital stock of the Company that
the Company proposes to sell or issue, the price (before any
commission or discount) at which such shares are proposed to be issued
(or, in the case of an underwritten or privately placed offering in
which the price is not known at the time the Participating Notice is
given, the method of determining such price and an estimate thereof),
and all other relevant information as to such proposed transaction as
may be necessary for Investor to determine whether or not to exercise
the rights granted in this Section. At any time within 20 days after
its receipt of the Participation Notice, Investor may exercise its
participation rights to purchase or subscribe for shares of such
shares of capital stock, as provided for in this Section, by so
informing the Company in writing (an "Exercise Notice"). Each Exercise
Notice shall state the percentage of the proposed sale or issuance
that the Investor elects to purchase. Each Exercise Notice shall be
irrevocable, subject to the conditions to the closing of the
transaction giving rise to the participation right provided for in
this Section.
(c) Abandonment of Sale or Issuance. The Company shall have
the right, in its sole discretion, at all times prior to consummation
of any proposed sale or issuance giving rise to the participation
right granted by this Section, to abandon, rescind, annul, withdraw or
otherwise terminate such sale or issuance, whereupon all participation
rights in respect of such proposed sale or issuance pursuant to this
Section shall become null and void, and the Company shall have no
liability or obligation to Investor or any Affiliate thereof who has
acquired shares of Company Stock pursuant to the Stock Purchase
Agreement or from Investor with respect thereto by virtue of such
abandonment, rescission, annulment, withdrawal or termination.
(d) Terms of Sale. The purchase or subscription by Investor
or an Affiliate thereof, as the case may be, pursuant to this Section
shall be on the same price and other terms and conditions, including
the date of sale or issuance, as are applicable to the purchasers or
subscribers of the additional shares of capital stock of the Company
whose purchases or subscriptions give rise to the participation rights
(except that the price to Investor to make such purchase or
subscription shall be net of payment of any underwriting, placement
agent or similar fee associated with such purchase or subscription),
which price and other terms and conditions shall be substantially as
stated in the relevant Participation Notice (which standard shall be
satisfied if the price, in the case of a negotiated transaction, is
not greater than 110% of the estimated price set forth in the relevant
Participation Notice or, in the case of an underwritten or privately
placed
86
offering, is not greater than of (i) 110% of the estimated price set
forth in the relevant Participation Notice, and (ii) the most recent
closing price on or prior to the date of the pricing of the offering);
provided, however, that in the event the purchases or subscriptions
giving rise to the participation rights are effected by an offering of
securities registered under the 1933 Act and in which offering it is
not legally permissible for the securities to be purchased by Investor
to be included, such securities to be purchased by Investor will be
purchased in a concurrent private placement.
(e) Timing of Sale. If, with respect to any Participation
Notice, Investor fails to deliver an Exercise Notice within the
requisite time period, the Company shall have 120 days after the
expiration of the time in which the Exercise Notice is required to be
delivered in which to sell not more than 110% of the number of shares
of capital stock of the Company described in the Participation Notice
(plus, in the event such shares are to be sold in an underwritten
public offering, an additional number of shares of capital stock of
the Company, not in excess of 15% of 110% of the number of shares of
capital stock of the Company described in the Participation Notice, in
respect of any underwriters over allotment option) and not less than
90% of the number of shares of capital stock of the Company described
in the Participation Notice at a price of not less than 90% of the
estimated price set forth in the Participation Notice. If, at the end
of 120 days following the expiration of the time in which the Exercise
Notice is required to be delivered, the Company has not completed the
sale or issuance of capital stock of the Company in accordance with
the terms described in the Participation Notice (or at a price which
is at least 90% of the estimated price set forth in the Participation
Notice), or in the event of any contemplated sale or issuance within
such 120-day period but outside such price parameters, the Company
shall again be obligated to comply with the provisions of this Section
with respect to, and provide the opportunity to participate in, any
proposed sale or issuance of shares of capital stock of the Company;
provided, however, that notwithstanding the foregoing, if the price at
which such capital stock is to be sold in an underwritten offering (or
a privately placed offering in which the price is not less than 97% of
the most recent closing price at the time of the pricing of the
offering) is not at least 90% of the estimated price set forth in the
Participation Notice, the Company may inform Investor of such fact and
Investor shall be entitled to elect, by written notice delivered
within two Business Days following such notice from the Company, to
participate in such offering in accordance with the provisions of this
Section 4.2.
ARTICLE 4
Standstill Provisions
Section 4.1 Standstill Period. The "Standstill Period" shall
be the period commencing on the date of this Agreement and ending on
the earlier of (x) the third anniversary of the Stockholder Approval
Date or (y) the earliest of:
(i) the occurrence of any event of default on the part of
the Company or any Subsidiary under any debt agreements,
instruments or arrangements that would reasonably be expected to
result in a Material Adverse Effect, and, in the case of a
non-monetary event of default, which event of default cannot be,
or is not, cured by the Company within the applicable cure period
under such debt agreement, instrument or arrangement and that
would reasonably be expected to result in a Material Adverse
Effect;
87
(ii) the authorization by the Company or the Board or any
committee thereof (with all Investor Nominees abstaining or
voting against) of the solicitation of offers or proposals or
indications of interest with respect to any merger,
consolidation, other business combination, liquidation, sale of
the Company or all or substantially all of the assets of the
Company or any other change of control of the Company or similar
extraordinary transaction, but excluding any merger,
consolidation or other business combination in which the Company
is the surviving and acquiring corporation and in which the
business or assets so acquired do not, or would not reasonably be
expected to, have a value greater than 50% of the assets of the
Company prior to such merger, consolidation or other business
combination (any of the foregoing, a "Covered Transaction");
(iii) the written submission by any person or Group other
than Investor or any Affiliate thereof of a proposal to the
Company (including to the Board or any agent, representative or
Affiliate of the Company ) with respect to, or otherwise
expressing an interest in pursuing, a Covered Transaction;
provided, however, that the Standstill Period shall not terminate
pursuant to this Section 4.1(a)(iii), if, as soon as practicable
after receipt of any such proposal, the Board determines that
such proposal is not in the best interest of the Company and its
stockholders and for so long as the Board continues to reject
such proposal as a result of such determination;
(iv) in connection with any actual or proposed Covered
Transaction, the removal of any rights plan, provisions of the
Company Charter relating to staggered terms of office for
directors, provisions of the Company Charter or the By-laws of
the Company relating to supermajority voting of the Company's
stockholders, "excess share" provisions of the Company Charter or
the By-laws of the Company, or any other similar arrangements,
agreements, commitments or provisions in the Company Charter or
the By-laws of the Company which would reasonably be expected to
impede the consummation of such actual or proposed Covered
Transaction by action of any Government Authority, the Board, the
stockholders of the Company or otherwise;
(v) 90 days after the occurrence of a Termination Event;
(vi) any material violation of any material covenant of the
Company set forth in Section 5.5 of the Stock Purchase Agreement;
(vii) any breach by the Company of the Stock Purchase
Agreement (other than as contemplated by clause (vi) above) which
is neither cured nor desisted from within 30 days of receipt of
written notice from Investor of such breach and which would
reasonably be expected to materially adversely affect Investor or
cause a Material Adverse Effect; or
(viii) any breach of this Agreement by the Company which is
neither cured nor desisted within 30 days of receipt of written
notice from Investor of such breach and which would reasonably be
expected to materially adversely affect Investor or cause a
Material Adverse Effect.
Any event set forth in Section 4.1(a) shall be an "Early Standstill
Termination Event."
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Section 4.2 Restrictions During Standstill Period
(a) During the Standstill Period, the Advancing Party, the
Buyer, and Investor will not, and will cause each of their Controlled
Affiliates not to, directly or indirectly:
(i) act in concert with any other person or Group by
becoming a member of a 13D Group, other than any 13D Group
comprised exclusively of Investor and one or more of its
Affiliates;
(ii) purchase or otherwise acquire shares of Company Common
Stock (or options, rights or warrants or other commitments to
purchase and securities convertible into (or exchangeable or
redeemable for) shares of Company Common Stock) as a result of
which, after giving effect to such purchase or acquisition, the
Advancing Party, the Buyer, and Investor and their Controlled
Affiliates will Beneficially Own in the aggregate more than 49.9%
of the outstanding shares of Company Common Stock on an Adjusted
Fully Diluted basis;
(iii) solicit, encourage or propose to effect or negotiate
any Covered Transaction;
(iv) solicit, initiate, encourage or participate in any
"solicitation" of "proxies" or become a "participant" in any
"election contest" (as such terms are defined or used in
Regulation 14A under the 1934 Act, disregarding clause (iv) of
Rule 14a-1(1)(2) and including an exempt solicitation pursuant to
Rule 14a-2(b)(1)); call, or in any way encourage or participate
in a call for, any special meeting of stockholders of the Company
(or take any action with respect to acting by written consent of
the stockholders of the Company); request, or take action to
obtain or retain, any list of holders of any securities of the
Company; or initiate or propose any stockholder proposal or
participate in or encourage the making of, or solicit
stockholders of the Company for the approval of, one or more
stockholder proposals; provided, however, that Investor shall not
be prohibited from communicating with a security holder who is
engaged in any "solicitation" of "proxies" or who is a
"participant" in any "election contest";
(v) seek representation on the Board or a change in the
composition or size of the Board other than as permitted by
Article 2;
(vi) request the Company or any of its directors, officers,
employees or agents to amend or waive any provisions of this
Section 4.2 or seek to challenge the legality or effect thereof;
or
(vii) assist, advise, encourage or act in concert with any
person with respect to, or seek to do, any of the foregoing.
Section 4.3 Restrictions on Transfer. Until the earlier of
(i) a Termination Event or (ii) two years after the Stockholder
Approval Date, the Advancing Party, the Buyer, and Investor will not,
and will cause each of their Controlled Affiliates not to, directly or
89
indirectly, sell, transfer or otherwise dispose of (collectively,
"Transfer") any shares of Company Common Stock. Thereafter, and during
the remaining term, if any, of the Standstill Period, the Advancing
Party, the Buyer and Investor will not, and will cause each of their
Controlled Affiliates not to, directly or indirectly, Transfer any
shares of Company Common Stock except for: (a) Transfers made in
compliance with the requirements of Rule 144 of the 1933 Act, (b)
Transfers pursuant to negotiated transactions with third parties
provided that any such Transfer is not made to any public or private
company the principal business of which is, or that derives more than
$15 million of annual revenue from (in either case as of the date of
such Transfer), the ownership, management, operation and development
of assisted living facilities in the United States, unless 75% of the
Directors of the Company (other than Investor Nominees) have consented
to such Transfer and provided further that the transferee acknowledges
that it is subject to the provisions of Article 5 of this Agreement,
(c) Transfers pursuant to or in accordance with the Registration
Rights Agreement in a bona fide public offering, (d) Transfers to one
or more Controlled Affiliates of Investor who agree to be bound by the
terms and conditions of this Agreement, who make the representations
set forth in Sections 4.8, 4.10 and 4.11 of the Stock Purchase
Agreement and who satisfy the ownership criteria in the definition of
"Investor", and (e) Transfers to a bona fide financial institution for
the purpose of securing bona fide indebtedness of any Investor. After
the expiration of the Standstill Period, there shall be no
restrictions on the ability of the Advancing Party, the Buyer,
Investor and their Controlled Affiliates to Transfer any shares of
Company Common Stock.
Section 4.4 Notice to Company. During the period specified
in Section 4.3, if any party wishes to sell pursuant to subsection
4.3(a), (b) or (c) any shares of Company Common Stock, such party
shall give the Company 15 days' prior written notice of such proposed
sale, setting forth the number of shares of Company Common Stock that
such party proposes to sell, the expected timing of the proposed sale,
and the expected selling price of such sale, in order to enable the
Company to make an offer to purchase such shares. During the period
described in the preceding sentence, such party shall also notify the
Company if such party reaches a formal board-level decision to sell
shares of Company Common Stock representing more than 2% of the then
outstanding shares of Company Common Stock.
Section 4.5 Compliance with Xxxxxxx Xxxxxxx Policy. For as
long as the Advancing Party, the Buyer or Investor Beneficially Owns
any shares of Company Common Stock, such parties will, and will use
their commercially reasonable efforts to cause their directors,
officers, employees, agents, and representatives to, comply with any
written policy of the Company reasonably designed to prevent
violations of xxxxxxx xxxxxxx and similar laws.
Section 4.6 Investment Company Matters. From and after the
Stockholder Approval Date, if any, until a Termination Event, if any,
Investor shall use its reasonable best efforts to not be or become an
"investment company" or any entity "controlled" by an "investment
company", as such terms are defined in the Investment Company Act of
1940, as amended.
Section 4.7 Waiver of Restrictions and Limits. Provided that
Stockholder Approval is obtained, the Company shall take all actions,
including by providing any necessary conditional exemptions from or
amendments to any agreement or instrument which governs ownership of
shares of Company Stock by any person, necessary to permit Investor to
Beneficially Own up to and including 49.9% of the outstanding shares
of Company Common Stock on an Adjusted Fully Diluted basis. If any
third party shall be given the right to Beneficially Own more than
49.9% of the outstanding shares of Company Common Stock on an Adjusted
Fully Diluted basis, the Company shall take all
90
actions (including by providing the foregoing exemptions and
amendments) to waive any and all restrictions or limits on Investor.
Notwithstanding the foregoing but subject to the provisions of Section
5.1, Investor or the Company may at any time acquire Beneficial
Ownership of the securities of such other party or its Affiliates to
the extent permitted by applicable law and the provisions of the
organizational documents of such party or its Affiliates, as
applicable, and other agreements from time to time governing the
ownership of such securities.
ARTICLE 5
Additional Covenants
Section 5.1 Restrictions on Investments. From the date of
this Agreement until the occurrence of a Termination Event, the
Advancing Party, the Buyer, Investor and their Controlled Affiliates
shall not, directly or indirectly, own any equity interest (other than
a de minimis amount) in any public or private company the principal
business of which is the ownership, management, operation and
development of assisted living facilities in the United States, unless
75% of the Directors of the Company (other than the Investor Nominees)
have consented to such ownership.
Section 5.2 Additional Transfer Restrictions. In the event
that Stockholder Approval is not obtained on or prior to December 31,
1997, the Advancing Party, the Buyer, Investor and their Controlled
Affiliates shall have the right to Transfer the shares purchased from
the Company at the Initial Closing, provided, that until December 31,
2000 any such Transfer shall be made in a manner permitted by clause
(a) through (e) of the second sentence of Section 4.3.
ARTICLE 6
Miscellaneous
Section 6.1 Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the
same instrument, and shall become effective when one or more
counterparts have been signed by each of the parties and delivered to
the other party. Copies of executed counterparts transmitted by
telecopy, telefax or other electronic transmission service shall be
considered original executed counterparts for purposes of this
Section, provided receipt of copies of such counterparts is confirmed.
Section 6.2 Governing Law. THIS AGREEMENT SHALL BE GOV-
ERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF.
Section 6.3 Entire Agreement. This Agreement (including
agreements incorporated herein) and the Schedules and Exhibits hereto
contain the entire agreement between the parties with respect to the
subject matter hereof and there are no agreements, understandings,
representations or warranties between the parties and other than those
set forth or referred to herein. This Agreement is not intended to
confer upon any person not a party hereto (and their successors and
assigns) any rights or remedies hereunder.
91
Section 6.4 Expenses. Except as set forth in the Stock
Purchase Agreement, all legal and other costs and expenses incurred in
connection with this Agreement and the transactions contemplated
hereby shall be paid by the Company including, without limitation,
those specified in Section 9.3(a) of the Stock Purchase Agreement.
Section 6.5 Notices. All notices and other communications
hereunder shall be sufficiently given for all purposes hereunder if in
writing and delivered personally, sent by documented overnight
delivery service or, to the extent receipt is confirmed, telecopy,
telefax or other electronic transmission service to the appropriate
address or number as set forth below. Notice to the Company shall be
addressed to:
ARV Assisted Living, Inc.
000 Xxxxxxx Xxxxxx, X-0
Xxxxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxxxx and Xxxxxx Xxxxxxx
Telecopy: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxxxx
000 Xxxx Xxxxxx Xxxxx
00xx Xxxxx
Xxxxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx
Telecopy: (000) 000-0000
or at such other address and to the attention of such other person as
the Company may designate by written notice to Investor. Notices to
the Advancing Party, the Buyer or Investor shall be addressed to:
Lazard Freres Real Estate Investors L.L.C.
00 Xxxxxxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx,
Xxxxx X. Xxxxx and
Xxxxx Xxxxxxxxxxx
Telecopy: (000) 000-0000
with a copy to:
Cravath, Swaine & Xxxxx
Worldwide Plaza
000 Xxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxx, Esq.
Telecopy: (000) 000-0000
Section 6.6 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors (including, in the case of the Advancing Party,
any successor to the principal business of the Advancing Party). No
party shall be permitted to assign any of its rights hereunder to
92
any third party, except that the Buyer, the Advancing Party and any
Investor shall be permitted to assign its rights hereunder to the same
extent as the Buyer or the Advancing Party is permitted to assign its
rights under the Stock Purchase Agreement, provided that such person
agrees to be bound by this Agreement.
Section 6.7 Headings. The Section, Article and other
headings contained in this Agreement are inserted for convenience of
reference only and will not affect the meaning or interpretation of
this Agreement. All references to Sections or Articles contained
herein means Sections or Articles of this Agreement unless otherwise
stated.
Section 6.8 Amendments and Waivers. This Agreement may not
be modified or amended except by an instrument or instruments in
writing signed by the party against whom enforcement of any such
modification or amendment is sought. Any party hereto may, only by an
instrument in writing, waive compliance by another party hereto with
any term or provision hereof on the part of such other party hereto to
be performed or complied with. The waiver by any party hereto of a
breach of any term or provision hereof shall not be construed as a
waiver of any subsequent breach.
Section 6.9 Interpretation; Absence of Presumption.
(a) For the purposes hereof, (i) words in the singular shall
be held to include the plural and vice versa and words of one gender
shall be held to include the other gender as the context requires,
(ii) the terms "hereof", "herein", and "herewith" and words of similar
import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all of the Schedules and Exhibits
hereto) and not to any particular provision of this Agreement, and
Article, Section, paragraph, Schedule and Exhibit references are to
the Articles, Sections, paragraphs, Schedules and Exhibits to this
Agreement unless otherwise specified, (iii) the word "including" and
words of similar import when used in this Agreement shall mean
"including, without limitation," unless the context otherwise requires
or unless otherwise specified, (iv) the word "or" shall not be
exclusive, (v) provisions shall apply, when appropriate, to successive
events and transactions and (vi) terms used herein but not otherwise
defined herein shall have the meanings assigned to such terms in the
Stock Purchase Agreement.
(b) This Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation against
the party drafting or causing any instrument to be drafted.
Section 6.10 Severability. Any provision hereof which is
invalid or unenforceable shall be ineffective to the extent of such
invalidity or unenforceability, without affecting in any way the
remaining provisions hereof.
Section 6.11 Further Assurances. The Company and Investor
agree that, from time to time, each of them will, and will cause their
respective Affiliates to, execute and deliver such further instruments
and take such other action as may be necessary to carry out the
purposes and interests hereof.
Section 6.12 Specific Performance. The Company and Investor
each acknowledge that, in view of the uniqueness of arrangements
contemplated by this Agreement, the parties hereto would not have an
adequate remedy at law for money damages in the event that this
Agreement were not performed in accordance with its terms, and
therefore agree that the parties hereto shall be entitled to specific
enforcement
93
of the terms hereof in addition to any other remedy to which the
parties hereto may be entitled at law or in equity.
Section 6.13 Investor Breach. In the event Investor shall
have breached (i) its obligation to effect a purchase of Company
Common Stock pursuant to the Stock Purchase Agreement which breach is
neither cured nor desired from within 30 days of receipt of written
notice of such breach, or (ii) any of its obligations under this
Agreement which breach is neither cured nor desisted from within 30
days of receipt of written notice of such breach and which would
reasonably be expected to materially adversely affect the Company, the
Company shall no longer be required to perform any of its obligations
hereunder.
Section 6.14 Confidentiality. The Advancing Party, the Buyer
and Investor agree that all information provided to any of them or any
of their representatives pursuant to this Agreement shall be kept
confidential, and such parties shall not (x) disclose such information
to any persons other than the directors, officers, employees,
financial advisors, legal advisors, accountants, consultants and
affiliates of such parties who reasonably need to have access to the
confidential information and who are advised of the confidential
nature of such information or (y) use such information in a manner
which would be detrimental to the Company; provided, however, the
foregoing obligation of such parties shall not (a) relate to any
information that (i) is or becomes generally available other than as a
result of unauthorized disclosure by such parties or by persons to
whom such parties have made such information available; (ii) is or
becomes available to such parties on a non- confidential basis from a
third party that is not, to such parties' knowledge, bound by any
other confidentiality agreement with the Company, or (b) prohibit
disclosure of any information if required by law, rule, regulation,
court order or other legal or governmental process.
Section 6.15 Public Announcements. Subject to each party's
disclosure obligations imposed by law and any stock exchange or
similar rules and the confidentiality provisions contained herein and
in Section 5.4(b) of the Stock Purchase Agreement, all news releases
and other public information disclosures with respect to this
Agreement, the Stock Purchase Agreement and the Transaction Documents
and any of the transactions contemplated hereby or thereby will
require the mutual approval of Buyer and the Company before such
release or disclosure is made. If a party is required by law or any
stock exchange or similar rule to issue a news release or other public
announcement, it shall advise the other party in advance thereof and
use reasonable best efforts to cause a mutually agreeable release or
announcement to be issued.
94
IN WITNESS WHEREOF, this Agreement has been signed by or on
behalf of each of the parties hereto as of the day first above
written.
LAZARD FRERES REAL ESTATE INVESTORS
L.L.C.,
by
------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President
PROMETHEUS ASSISTED LIVING LLC,
by LAZARD FRERES REAL ESTATE
INVESTORS L.L.C.,
by
----------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President
ARV ASSISTED LIVING, INC.,
by
-------------------------------------
Name: Xxxx X. Xxxxxxxx
Title: Chairman
& Chief Executive Officer
95
EXHIBIT C
FIRST AMENDMENT OF BYLAWS
OF
ARV ASSISTED LIVING, INC.
The undersigned, being the duly elected and acting secretary
of ARV Assisted Living, Inc., a California corporation (the
"Company"), hereby certifies that the following resolutions amending
the Bylaws of the Company were duly adopted by written consent of the
Board of Directors of the Company dated as of , 1997,
and that such resolutions have not been amended, modified or revoked
and continue in full force and effect as of the date hereof.
"RESOLVED, that the Bylaws of the Company are hereby amended by
removing Section 3.2 in its entirety and replacing it with the
following paragraph:
"3.2 Number of Directors. Subject to the right of the
Nominating Committee to approve nominees for Director as set
forth in Section 4.7, the Board of Directors shall consist
of eleven members, of which four members (the "Investor
Nominees") will be designees of Lazard Freres Real Estate
Investors L.L.C. ("Investor") (at least one in each class of
the Board). Thereafter, at each annual or special meeting of
shareholders of the Company with respect to which any class
of Directors is to be elected, Investor shall have the right
(but not the obligation) to designate nominees to the Board
(subject to the right of the Nominating Committee to approve
nominees for Director as set forth in Section 4.7) such that
Investor shall have on the Board of Directors a number of
representatives equal to a percentage of the total number of
members of the Board of Directors that is equal to the
percentage of Company Common Stock (as defined in the Stock
Purchase Agreement dated as of July 14, 1997, by and among
Investor, Prometheus Assisted Living LLC and the Company
(the "Stock Purchase Agreement")) Beneficially Owned (as
defined in the Stockholders Agreement dated as of July 14,
1997, by and among Investor, Prometheus Assisted Living LLC
and the Company (the "Stockholder's Agreement") by Investor,
on a Fully Diluted Basis (as defined in the Stock Purchase
Agreement); provided, however, that (i) if the Investor
would be entitled to a fractional number of representatives,
the Investor shall instead be entitled to a number of
representatives equal to the next higher number, (ii) in no
event shall the Investor be entitled to more than four
representatives and (iii) after the occurrence of a
Termination Event (as defined in the Stock Purchase
Agreement), if any, Investor shall not be entitled to any
representatives on the Board of Directors."
RESOLVED, that the Bylaws of the Company are hereby amended by
removing Section 3.3 in its entirety and replacing it with the
following paragraph:
96
"3.3 Election, Classification and Term of Directors.
The Directors shall be elected at each annual meeting in
accordance with, and for the term specified in, the Articles
of Incorporation. Upon the consummation of the Public
Offering, the Board of Directors will be divided into
classes. The appointment of Directors to their respective
classes shall be made by the Board of Directors. Each class
shall contain at least one Director who is not affiliated
with the Company (an "Independent Director") and, subject to
Section 3.10, one Investor Nominee. Each Director, including
a Director elected to fill a vacancy, shall hold office
until the expiration of the term for which elected and until
a successor has been elected and qualified. No reduction of
the authorized number of Directors shall have the effect of
removing any Director before his or her term of office
expires."
RESOLVED, that the Bylaws of the Company are hereby amended by
removing Section 3.10 in its entirety and replacing it with the
following paragraph:
"3.10 Quorum. Eight of the eleven Directors (a
"Supermajority") shall constitute a quorum for the
transaction of business, except for adjournment. Except as
otherwise required by the Articles of Incorporation, Code
Section 310 (approval of contracts or transactions in which
a Director has a material financial interest), Code Section
311 (appointment of committees), and Code Section 317(e)
(indemnification of Directors), every act done or decision
made by a Supermajority of Directors present at a meeting
duly held shall be deemed the act of the Board of Directors.
The Investor Nominees shall be entitled to vote in favor of
directing the Company to make any Subsequent Closing but
shall not be entitled to vote if a proposed request to make
any Subsequent Closing has been otherwise approved by a
majority of the members of the Board who are not Investor
Nominees."
RESOLVED, that the Bylaws of the Company are hereby amended by
adding the following paragraph after the end of Section 3.13:
"3.14 Actions Requiring Board Approval. Subject to the
approval rights of the Executive Committee set forth in
Section 4.6, the affirmative vote of a Supermajority of the
Board of Directors shall be required for the Company to take
any action other than in the ordinary course and the
appointment of the Audit Committee and the Compensation
Committee, including without limitation all actions
specified in Section 5.5(a) of the Stock Purchase
Agreement."
RESOLVED, that the Bylaws of the Company are hereby amended by removing
Section 4.1 in its entirety and replacing it with the following paragraph:
"4.1 Executive and Other Committees of the Board. The
Board of Directors, by resolution adopted by a Supermajority
of Directors, may create one or more committees with the
authority of the Board ("Board Committees" or
97
"Committees of the Board"), including an executive
committee. Each Board Committee shall consist of two or
more Directors and may have one or more alternate members
(who also must be Directors). Appointment of members and
alternate members requires the affirmative vote of a
Supermajority of Directors. During such time as Investor is
entitled pursuant to Section 3.2 to have at least four
Investor Nominees on the Board, and unless Investor chooses
not to exercise its rights under this Section 4.1, at least
one Director who is an Investor Nominee shall serve on each
of the Audit Committee, the Compensation Committee, any
special committee(s) of the Board, and any other committees
which shall be charged with exercising substantial
authority on behalf of the Board (other than any committee
charged with the approval of the transactions contemplated
by the Stock Purchase Agreement or the Stockholders
Agreement, or any committee charged with evaluating any
Competing Transaction, as defined in the Stock Purchase
Agreement.) Investor will have the right to have two
Directors designated by it serve on the Board's Executive
Committee. Subject to Section 4.6, committees of the Board,
to the extent provided in the Board resolution establishing
the committee, may be granted any or all of the powers and
authority of the Board except for the following:
1. Approving any action for which the California General
Corporation Law also requires the approval of the
shareholders or of the outstanding shares;
2. Filling vacancies on the Board of Directors or any
Committee of the Board;
3. Fixing Directors' compensation for serving on the Board
or a Committee of the Board;
4. Adopting, amending, or repealing bylaws;
5. Amending or repealing any resolution of the Board of
Directors which by its express terms is not so
amendable or repealable;
6. Making distributions to shareholders, except at a rate
or in a periodic amount or within a price range
determined by the Board of Directors; or
7. Appointing other Committees of the Board or their
members."
RESOLVED, that the Bylaws of the Company are hereby amended by
adding the following paragraph after the end of Section 4.5:
"4.6 Executive Committee. (a) The Board of Directors
will promptly establish an Executive Committee, which shall
be delegated the authority to the maximum extent permitted
by law to approve any matter set forth in Section 4.6(b);
(b) any action other than in the ordinary course and the
appointment of
98
the Audit Committee and the Compensation Committee,
including without limitation all actions specified in
Section 5.5(a) of the Stock Purchase Agreement will require
either (i) the Board approval specified in Section 3.14 or
(ii) the affirmative vote of at least four members of the
Executive Committee acting at a duly convened meeting of
the Executive Committee; (c) Investor will have the right
to have two Directors designated by it serve on the Board's
Executive Committee."
RESOLVED, that the Bylaws of the Company are hereby amended by
adding the following paragraph after the end of Section 4.6:
"4.7 Nominating Committee. The Board of Directors will
promptly establish a Nominating Committee. During such time
as Investor is entitled to have at least one Investor
Nominee on the Board, unless Investor chooses not to
exercise its rights under this Section 4.7, at least one
Director who is an Investor Nominee shall serve on the
Nominating Committee of the Board. The unanimous consent of
the Nominating Committee shall be required prior to the
appointment of a Chairman, Chief Executive Officer or
President of the Company, (ii) the Board of Directors of the
Company shall not make any recommendation or appointment of
Directors who are Chairman, Chief Executive Officer or
President without the unanimous approval of the Nominating
Committee as set forth herein and (iii) all nominees to the
Board of Directors (other than Investor Nominees) will
require the unanimous approval of the Nominating Committee,
provided that if the Nominating Committee cannot unanimously
agree on such a nominee, the nomination will be referred to
the entire Board of Directors, which shall decide the matter
based on a simple majority vote notwithstanding the
Supermajority provisions herein."
IN WITNESS WHEREOF, I have set my hand and the corporate
seal of the Company this day of , 1997.
------------------------
Xxxxxx X. Xxxxxxx
Vice President, Secretary and General Counsel
