<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
Regent Assisted Living, Inc.
----------------------------
(Name of Issuer)
Common Stock
------------
(Title of Class of Securities)
758949 10 1
-----------
(CUSIP Number)
Kevin C. Uebelein
Prudential Equity Investors, Inc.
Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
(201) 734-1401
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
December 16, 1996
-----------------
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box.[_]
Check the following box if a fee is being paid with the statement [_]. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
(Continued on following page(s))
Page 1 of 14 Pages
<PAGE>
CUSIP No. 758949 10 1 Page 2 of 14 Pages
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON:
Prudential Private Equity Investors III, L.P.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
00
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) OR 2(E)
[ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
NUMBER OF | 7 SOLE VOTING POWER
|
SHARES | 1,866,667 shares of Common Stock upon
| conversion of 1,283,785 shares of Series A
| Preferred Stock and 382,882 shares of Series B
| Preferred Stock currently held by the
BENEFICIALLY | Reporting Person. These shares are
| convertible into Common Stock on a 1-for-1
OWNED BY | basis, subject to adjustment. 200,000 shares
| of Common Stock, subject to adjustment, upon
EACH | exercise of a Stock Purchase Warrant currently
| held by the Reporting Person.
REPORTING ------------------------------------------------------------
| 8 SHARED VOTING POWER
PERSON |
| -0-
WITH ------------------------------------------------------------
| 9 SOLE DISPOSITIVE POWER
|
| 1,866,667 shares of Common Stock upon
| conversion of 1,283,785 shares of Series A
| Preferred Stock and 382,882 shares of Series B
| Preferred Stock currently held by the
| Reporting Person. These shares are
| convertible into Common Stock on a 1-for-1
| basis, subject to adjustment. 200,000 shares
| of Common Stock, subject to adjustment, upon
| exercise of a Stock Purchase Warrant currently
| held by the Reporting Person.
------------------------------------------------------------
| 10 SHARED DISPOSITIVE POWER
|
| -0-
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,866,667 shares of Common Stock upon conversion of 1,283,785 shares of
Series A Preferred Stock and 382,882 shares of Series B Preferred Stock
currently held by the Reporting Person. These shares are convertible into
Common Stock on a 1-for-1 basis, subject to adjustment. 200,000 shares of
Common Stock, subject to adjustment, upon exercise of a Stock Purchase
Warrant currently held by the Reporting Person.
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[X]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
28.72%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- --------------------------------------------------------------------------------
<PAGE>
CUSIP NO. 758949 10 1 PAGE 3 OF 14
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Prudential Equity Investors, Inc.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
00
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E)
[ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
- --------------------------------------------------------------------------------
NUMBER OF | 7 SOLE VOTING POWER
|
SHARES | -0-
---------------------------------------------------------
BENEFICIALLY | 8 SHARED VOTING POWER
|
OWNED BY | -0-
---------------------------------------------------------
EACH | 9 SOLE DISPOSITIVE POWER
|
REPORTING | -0-
---------------------------------------------------------
PERSON | 10 SHARED DISPOSITIVE POWER
|
WITH | -0-
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
-0-
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[X]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------
<PAGE>
CUSIP No. 758949 10 1 Page 4 of 14 Pages
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
The Prudential Insurance Company of America
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
00
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E)
[ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New Jersey
- --------------------------------------------------------------------------------
NUMBER OF | 7 SOLE VOTING POWER
SHARES | -0-
-------------------------------------------------------------
BENEFICIALLY | 8 SHARED VOTING POWER
OWNED BY | -0-
-------------------------------------------------------------
EACH | 9 SOLE DISPOSITIVE POWER
REPORTING | -0-
-------------------------------------------------------------
PERSON | 10 SHARED DISPOSITIVE POWER
WITH | -0-
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
-0-
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[x]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO, IC
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND ISSUER
This statement (this "Statement") relates to the common stock, no par value
per share (the "Common Stock"), of Regent Assisted Living, Inc. (the "Issuer").
The principal executive office of the Issuer is 121 S.W. Morrison, Suite 1000,
Portland, OR 97204.
ITEM 2. IDENTITY AND BACKGROUND
(a) This Statement constitutes the Transaction Statement on Schedule 13D of
(i) Prudential Private Equity Investors III, L.P., a Delaware limited
partnership ("PPEI"), (ii) Prudential Equity Investors, Inc., a New York
corporation and the sole general partner of PPEI ("PEI") and (iii) the
Prudential Insurance Company of America, a New Jersey corporation ("PIC")
(collectively, the "Reporting Persons") with respect to the acquisition by PPEI
of shares of Common Stock of the Issuer. PEI is an indirect, wholly-owned
subsidiary of PIC.
Information with respect to each of the Reporting Persons is given solely
by such Reporting Person, and no Reporting Person has responsibility for the
accuracy or completeness of the information supplied by another Reporting
Person. By its signature on this Statement, each Reporting Person agrees that
this statement is filed on behalf of such Reporting Person.
Certain information required by Item 2 concerning directors and executive
officers of PEI and PIC is set forth on Schedule A hereto, which Schedule A is
incorporated herein by reference.
The Reporting Persons may be deemed to constitute a "group" for purposes of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Act").
The Reporting Persons disclaim that they have agreed to act as a group other
than as described in this Statement.
(b) The address of the principal business office of each Reporting Person
is as follows:
<TABLE>
<CAPTION>
Reporting Person Address
---------------- -------
<S> <C>
PPEI and PEI 717 Fifth Avenue
New York, New York 10022
PIC Prudential Plaza
751 Broad Street
Newark, New Jersey 07102
</TABLE>
(c) PPEI is a limited partnership engaged in the business of venture
capital investment. PEI is the sole general partner of PPEI. PEI is a
management company and an indirect, wholly-owned subsidiary of PIC. PIC is an
insurance company.
(d) During the past five years, none of the Reporting Persons, and to the
knowledge of each Reporting Person, none of the executive officers or directors
of such Reporting Persons, has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors).
(e) During the past five years, none of the Reporting Persons, and to the
knowledge of each Reporting Person, none of the executive officers or directors
of such Reporting Person, has been a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction as a result of which such
person was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, federal or
state securities laws or finding any violation with respect to such laws.
(f) PPEI is a Delaware limited partnership. PEI is a New York
corporation. PIC is a New Jersey corporation. To the knowledge of PEI and PIC,
each executive officer and director of such
Page 5 of 14 Pages
<PAGE>
Reporting Person is a citizen of the United States, except that Mr. Thomson, a
director of PIC, is a citizen of Canada.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Equity capital of PPEI was provided to PPEI by its general partner and its
limited partners for the purpose of purchasing the Series A Preferred Stock and
the Series B Preferred Stock (collectively, the "Preferred Stock") and the Stock
Purchase Warrant (the "Warrant") of the Issuer reported herein.
ITEM 4. PURPOSE OF TRANSACTION
PPEI acquired and is holding the Issuer's Preferred Stock convertible into
Common Stock and the Issuer's Warrant for the purchase of Common Stock for
investment purposes and without the intention of effecting a change in control
of the Company. Notwithstanding the foregoing, depending on market conditions,
PPEI may choose to acquire additional Common Stock or dispose of some of its
Common Stock. None of the Reporting Persons, or to the best knowledge of any of
the Reporting Persons, any person identified on Schedule A has any plans or
proposals that would result in or relate to any of the transactions described in
paragraphs (a) through (j) of Item 4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) PPEI owns 1,283,785 shares of Series A Preferred Stock and 382,882
shares of Series B Preferred Stock of the Issuer, each of which is convertible
at any time on a 1-for-1 basis into Common Stock of the Issuer, subject to
adjustment. PPEI owns a Stock Purchase Warrant which is convertible at any time
for 200,000 shares of Common Stock of the Issuer, subject to adjustment. Upon
full conversion of the Preferred Stock at the initial conversion price and full
exercise of the Warrant at the initial exercise price, PPEI will own 28.72% of
the issued and outstanding shares of Common Stock as of December 16, 1996.
PEI disclaims beneficial ownership of any equity securities of the Issuer
other than indirect beneficial ownership through PPEI, of which it is the sole
general partner.
PIC disclaims beneficial ownership of any equity securities of the Issuer
other than indirect beneficial ownership through PEI, which is a wholly-owned
subsidiary of PIC.
(b) PPEI has the sole or shared power to vote, direct the vote, dispose or
direct the disposition of any of the Common Stock.
(c) Except as specified above in (a), none of the Reporting Persons has
effected any transactions in the Common Stock during the past 60 days.
(d) [Not applicable.]
(e) [Not applicable.]
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER
PPEI entered into a Preferred Stock and Warrant Purchase Agreement (the
"Purchase Agreement") with the Issuer dated as of December 16, 1996 whereby
Page 6 of 14 Pages
<PAGE>
PPEI purchased Preferred Stock and the Warrant of the Issuer. The Preferred
Stock is convertible into Common Stock on a 1-for-1 basis at a price of $6.00
per share, subject to adjustment, as provided in the Restated Articles of
Incorporation, as amended, of the Issuer. The holders of Series A Preferred
Stock (the "Series A Holders") shall be entitled to vote on all matters
submitted to the stockholders for a vote, together with the holders of the
Common Stock, voting together as a single class, with each share of Common Stock
entitled to one vote per share and each share of Series A Preferred Stock
entitled to one vote for each share of Common Stock issuable upon conversion of
the Series A Preferred Stock. The holders of Series B Preferred Stock shall
have no voting rights and the holders of the Warrant shall have no voting
rights. The foregoing description of the Purchase Agreement is qualified by
reference to such Purchase Agreement, a copy of which is filed as Exhibit II
hereto and is incorporated herein by reference.
PPEI holds a Stock Purchase Warrant (the "Warrant") issued by Issuer on
December 16, 1996. The Warrant is exercisable for 200,000 shares of Common
Stock, subject to adjustment, at a price of $5.50 per share, subject to
adjustment. The foregoing description of the Warrant is qualified by reference
to such Warrant, a copy of which is filed as Exhibit III hereto and is
incorporated herein by reference.
PPEI also entered into a Registration Agreement (the "Registration
Agreement") with the Issuer dated as of December 16, 1996. The Registration
Agreement gives PPEI the right to require the Issuer to register the Common
Stock acquirable upon conversion of the Preferred Stock pursuant to the
Securities Act of 1933, as amended (the "Securities Act") at any time, so long
as such request is approved by persons holding at least 66.67% of the
Registrable Securities, as defined in the Registration Rights Agreement. PPEI
also has the right to require the Issuer to register such shares under certain
circumstances when the Issuer otherwise files a registration statement pursuant
to the Securities Act. The foregoing description of the Registration Agreement
is qualified by reference to such Registration Agreement, a copy of which is
filed as Exhibit IV hereto and is incorporated herein by reference.
PPEI also entered into a Stockholders Agreement (the "Stockholders
Agreement") with the Issuer and Walter C. Bowen dated as of December 16, 1996.
Pursuant to the terms of the Stockholders Agreement, PPEI and Walter C. Bowen
have agreed to vote for two representatives recommended by PPEI and two members
of Issuer's management recommended by Walter C. Bowen for positions on Issuer's
board of directors. Walter C. Bowen has also agreed not to vote his shares to
approve a merger, dissolution or stock option plan of Issuer without the consent
of PPEI. The foregoing description of the Stockholders Agreement is qualified by
reference to such Stockholders Agreement, a copy of which is filed as Exhibit V
hereto and is incorporated herein by reference.
TEM 7. MATERIAL TO BE FILED AS EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
I Joint Filing Agreement, dated December 23, 1996 among Prudential
Private Equity Investors III, L.P., Prudential Equity Investors,
Inc. and Prudential Insurance Company of America.
II Preferred Stock and Warrant Purchase Agreement dated December 16,
1996.
III Stock Purchase Warrant dated December 16, 1996.
IV Registration Agreement dated December 16, 1996.
V Stockholders Agreement dated December 16, 1996.
Page 7 of 14 Pages
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this Statement is true,
complete and correct.
Dated: December 23, 1996
PRUDENTIAL PRIVATE EQUITY INVESTORS III, L.P.
By: /s/ Kevin C. Uebelein
---------------------------------------------
Name: Kevin C. Uebelein
Title: President
PRUDENTIAL EQUITY INVESTORS, INC.
By: /s/ Kevin C. Uebelein
---------------------------------------------
Name: Kevin C. Uebelein
Title: President
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By: /s/ Kevin C. Uebelein
---------------------------------------------
Name: Kevin C. Uebelein
Title: Vice President
Page 8 of 14 Pages
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
EXHIBIT NO. EXHIBIT NAME PAGE NO.
- ----------- ------------ --------
<S> <C> <C>
I Joint Filing Agreement dated as of December 23,
1996 by and among Prudential Private Equity
Investors III, L.P., Prudential Equity Investors,
Inc. and Prudential Insurance Company of
America.
II Preferred Stock and Warrant Purchase Agreement
dated as of December 16, 1996 between Regent
Assisted Living, Inc. and Prudential Private
Equity Investors III, L.P.
III Stock Purchase Warrant dated as of December 16,
1996 issued by Regent Assisted Living, Inc. to
Prudential Private Equity Investors III, L.P.
IV Registration Agreement dated as of December 16,
1996 by and among Regent Assisted Living, Inc.
and Prudential Private Equity Investors III, L.P.
V Stockholders Agreement dated as of December 16,
1996 between Regent Assisted Living, Inc.,
Prudential Private Equity Investors, L.P. and
Walter C. Bowen.
</TABLE>
Page 9 of 14 Pages
<PAGE>
SCHEDULE A
Additional information required by Item 2 of Schedule 13D.
Set forth below is the name and business address of each executive officer
or director of PEI and PIC.
DIRECTORS AND EXECUTIVE OFFICERS OF PRUDENTIAL EQUITY INVESTORS, INC.
---------------------------------------------------------------------
Directors*
---------
Mary Jane Flaherty
John R. Strangfeld
James W. Stevens
Kevin C. Uebelein
Executive Officers*
------------------
Kevin C. Uebelein
Peter Eckert
*The business address of each officer and director listed above is c/o
Prudential Insurance Company of America, Prudential Plaza, 751 Broad Street,
Newark, NJ 07102. The principal occupation of each officer named above is as
an employee of PIC.
Page 10 of 14 Pages
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS OF THE
---------------------------------------
PRUDENTIAL INSURANCE COMPANY OF AMERICA
---------------------------------------
Directors
- ---------
Name Principal Occupation Title Address
- ------------------ -------------------------- -------------------------------
<S> <C> <C>
Franklin E. Agnew Business Consultant USX Tower
Suite 660
600 Grant Street
Pittsburgh, PA 15219
Frederic K. Becker President Wilentz Goldman & Spitzer
90 Woodbridge Center Drive
Suite 900
Woodbridge, NJ 07095
William W. Boeschenstein Former Chairman & CEO Owens-Corning Fiberglas
Corporation
One Seagate, Suite 1530
Toledo, OH 43604
Lisle C. Carter, Jr. Former Senior Vice The Prudential Insurance
President and General Company of America
Counsel, United Way of Prudential Plaza
America 751 Broad Street
Newark, NJ 07102
James G. Cullen Vice Chairman Bell Atlantic Corp.
1310 North Court House Road
11th Floor
Arlington, VA 22201
Carolyne K. Davis Health Care Advisor Ernst & Young
1225 Connecticut Avenue, NW
Washington, DC 20036
Roger A. Enrico Chief Executive Officer PepsiCo
700 Anderson Hill Road
Purchase, NY 10577
Allan D. Gilmour Former Vice Chairman, The Prudential Insurance
Ford Motor Company Company of America
751 Broad Street
Newark, NJ 07102
William H. Gray III President and CEO United Negro College Fund, Inc.
8260 Willow Oaks Corp. Drive
P.O. Box 10444
Fairfax, VA 22031-4511
Jon F. Hanson Chairman Hampshire Management
Company
235 Moore Street, Suite 200
Hackensack, NJ 07601
</TABLE>
Page 11 of 14 Pages
-- --
<PAGE>
<TABLE>
<CAPTION>
Name Principal Occupation Title Address
- ---- -------------------------- -------
<S> <C> <C>
Constance J. Horner Guest Scholar The Brookings Institution
1775 Massachusetts Avenue, NW
Washington, DC 20036-2188
Allen F. Jacobson Former Chairman and CEO Minnesota Mining &
Manufacturing (3M)
3050 Minnesota World Trade
Center, 30 Seventh Street East
St. Paul, MN 55101-4901
Burton G. Malkiel Professor Princeton University
Dept. of Economics
110 Fisher Hall
Prospect Avenue
Princeton, NJ 08544-1021
Arthur F. Ryan Chairman, CEO and The Prudential Insurance
President Company of America
751 Broad Street
Newark, NJ 07102
Charles R. Sitter Former President Exxon Corporation
5959 Las Colinas
Boulevard
Irving, TX 75039-2298
Donald L. Staheli Chairman and CEO Continental Grain Company
277 Park Avenue
New York, NY 10172
Richard M. Thomson Chairman and CEO The Toronto-Dominion Bank
P.O. Box 1
Toronto-Dominion Centre
Toronto, Ontario
Canada M5K 1A2
James A. Unruh Chairman and CEO Unisys Corporation
Township Line and Union
Meeting Roads
P.O. Box 500
Blue Bell, PA 19424-0001
P. Roy Vagelos, M.D. Former Chairman and CEO Merck & Co., Inc.
One Crossroads Drive
Building A, 3rd Floor
Bedminster, NJ 07921
</TABLE>
Page 12 of 14 Pages
<PAGE>
<TABLE>
<CAPTION>
Name Principal Occupation Title Address
- ---- -------------------------- -------
<S> <C> <C>
Stanley C. Van Ness, Esq. Counselor at Law Picco Herbert Kennedy
One State Street Square
Suite 1000
Trenton, NJ 08607-1388
Paul A. Volcker Chairman and CEO Bankers Trust Co., Inc.
599 Lexington Avenue
New York, NY 10022
Joseph H. Williams Director The Williams Companies, Inc.
One Williams Center
Tulsa, OK 74172
Executive Officers
- ------------------
Arthur F. Ryan Chairman of the Board, The Prudential Insurance
Chief Executive Officer Company of America
and President Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
E. Michael Caulfield Chief Executive Officer, The Prudential Insurance
Money Management Company of America
Group Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
Mark B. Grier Chief Financial Officer The Prudential Insurance
Company of America
Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
John V. Scicutella Operations and Systems The Prudential Insurance
Executive Officer Company of America
Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
</TABLE>
Page 13 of 14 Pages
<PAGE>
<TABLE>
<CAPTION>
Name Principal Occupation Title Address
- ---- -------------------------- -------
<S> <C> <C>
William F. Yelverton Chief Executive Officer, The Prudential Insurance
Individual Insurance Company of America
Group Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
</TABLE>
Page 14 of 14 Pages
<PAGE>
Page __ of __ Pages
Exhibit I
AGREEMENT RE JOINT FILING OF
SCHEDULE 13D
---------------------
The undersigned agree as follows:
(i) Each of them is individually eligible to use the Schedule 13D to which
this Exhibit is attached, and such Schedule 13D is filed on behalf of each of
them; and
(ii) Each of them is responsible for the timely filing of such Schedule 13D
and any amendments thereto, and for the completeness and accuracy of the
information concerning such person contained therein; but none of them is
responsible for the completeness or accuracy of the information concerning the
other persons making the filing, unless such person knows or has reason to
believe that such information is inaccurate.
Date: December 23, 1996
PRUDENTIAL PRIVATE EQUITY
INVESTORS III, L.P.
By: Prudential Equity Investors, Inc.
Its: General Partner
/s/ Kevin C. Uebelein
By:________________________________________
Name: Kevin C. Uebelein
Title: President
PRUDENTIAL EQUITY INVESTORS, INC.
/s/ Kevin C. Uebelein
By:________________________________________
Name: Kevin C. Uebelein
Title: President
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
/s/ Kevin C. Uebelein
By:________________________________________
Name: Kevin C. Uebelein
Title: Vice President
<PAGE>
PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT
DATED DECEMBER 16, 1996
BETWEEN REGENT ASSISTED LIVING, INC.
AND PRUDENTIAL PRIVATE EQUITY INVESTORS III, L.P.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C> <C>
1. Authorization and Closing............................................ 1
1A. Authorization of the Preferred Stock and the Warrant............ 1
1B. Purchase and Sale of the Preferred Stock and the Warrant........ 1
1C. The Closing..................................................... 1
2. Conditions of Purchaser's Obligation at the Closing................... 2
2A. Representations and Warranties; Covenants....................... 2
2B. Articles of Amendment........................................... 2
2C. Registration Agreement.......................................... 2
2D. Stockholders Agreement.......................................... 3
2E. Securities Law Compliance....................................... 3
2F. Lease Modification Agreements................................... 3
2G. Opinion of the Company's Counsel................................ 3
2H. Closing Documents............................................... 3
2I. Proceedings..................................................... 4
2J. Waiver.......................................................... 4
2K. Expenses........................................................ 4
3. Covenants............................................................. 4
3A. Financial Statements and Other Information...................... 4
3B. Inspection of Property.......................................... 8
3C. Designation of Directors........................................ 8
3D. Restrictions.................................................... 9
3E. Affirmative Covenants........................................... 14
3F. Compliance with Agreements...................................... 16
3G. Current Public Information...................................... 16
3H. Amendment of Agreements......................................... 16
3I. First Refusal Rights............................................ 17
4. Transfer of Restricted Securities..................................... 18
4A. General Provisions.............................................. 18
4B. Opinion Delivery................................................ 18
4C. Rule 144A....................................................... 19
4D. Legend Removal.................................................. 19
4E. Restriction on Transfer......................................... 19
5. Representations and Warranties of the Company......................... 20
5A. Organization, Corporate Power and Licenses...................... 20
5B. Capital Stock and Related Matters............................... 20
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
5C. Subsidiaries; Investments................................... 21
5D. Authorization; No Breach.................................... 22
5E. Financial Statements........................................ 23
5F. Absence of Undisclosed Liabilities.......................... 23
5G. No Material Adverse Change.................................. 24
5H. Absence of Certain Developments............................. 24
5I. Assets...................................................... 25
5J. Tax Matters................................................. 29
5K. Contracts and Commitments................................... 31
5L. Intellectual Property Rights................................ 33
5M. Litigation, etc............................................. 34
5N. Brokerage................................................... 35
5O. Governmental Consent, etc................................... 35
5P. Insurance................................................... 35
5Q. Employees................................................... 36
5R. ERISA....................................................... 36
5S. Compliance with Laws........................................ 37
5T. Environmental and Safety Matters............................ 39
5U. Affiliated Transactions..................................... 42
5V. Medicare and Medicaid Matters............................... 42
5W. Reports with the Securities and Exchange Commission......... 44
5X. Disclosure.................................................. 44
5Y. Real Property Holding Corporation........................... 45
5Z. Closing Date................................................ 45
5AA. Forward-Looking Information................................. 45
6. Definitions....................................................... 46
6A. Definitions................................................. 46
7. Miscellaneous..................................................... 53
7A. Expenses.................................................... 53
7B. Remedies.................................................... 54
7C. Purchaser's Representations................................. 54
7D. Treatment of the Preferred Stock............................ 56
7E. Consent to Amendments....................................... 56
7F. Survival of Representations and Warranties.................. 57
7G. Successors and Assigns...................................... 57
7H. Severability................................................ 57
7I. Counterparts................................................ 58
7J. Descriptive Headings; Interpretation........................ 58
7K. Governing Law............................................... 58
7L. Notices..................................................... 58
</TABLE>
ii
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<TABLE>
<S> <C> <C>
7M. Consideration for Warrants........................... 59
7N. No Strict Construction............................... 60
7O. Indemnification...................................... 60
</TABLE>
iii
<PAGE>
REGENT ASSISTED LIVING, INC.
PURCHASE AGREEMENT
------------------
THIS AGREEMENT is made as of December 16, 1996, between Regent
Assisted Living, Inc., an Oregon corporation (the "Company"), and Prudential
Private Equity Investors III, L.P., a Delaware limited partnership
("Purchaser"). Except as otherwise indicated herein, capitalized terms used
herein are defined in Section 6 hereof.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
-------------------------
1A. Authorization of the Preferred Stock and the Warrant. The Company
shall authorize the issuance and sale to Purchaser of (i) 1,283,785 shares of
its Series A Preferred Stock, no par value (the "Series A Preferred"), and
382,882 shares of its Series B Preferred Stock, no par value (the "Series B
Preferred"), each having the rights and preferences set forth in Exhibit A
attached hereto, and (ii) the warrant in the form attached hereto as Exhibit B
(the "Warrant"). The Series A Preferred and the Series B Preferred are
convertible into shares of the Company's Common Stock, no par value (the "Common
Stock"). The Series A Preferred and the Series B Preferred are collectively
referred to herein as the "Preferred Stock."
1B. Purchase and Sale of the Preferred Stock and the Warrant. At the
Closing, the Company shall sell to Purchaser and, subject to the terms and
conditions set forth herein, Purchaser shall purchase from the Company (i)
1,283,785 shares of Series A Preferred and 382,882 shares of Series B Preferred
at an aggregate price of $9,950,000 and (ii) the Warrant at a price of $50,000.
1C. The Closing. The closing of the purchase and sale of the Preferred
Stock and the Warrant (the "Closing") shall take place at the offices of
Kirkland & Ellis, at 10:00 a.m. on December 16, 1996, or at such other place or
on such other date as may be mutually agreeable to the Company and Purchaser. At
the Closing,
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the Company shall deliver to Purchaser stock certificates evidencing the
Preferred Stock to be purchased by Purchaser and the Warrant to be purchased by
Purchaser, registered in Purchaser's or its nominee's name, upon payment of the
purchase price thereof by a cashier's or certified check, or by wire transfer of
immediately available funds pursuant to written instructions provided by the
Company to Purchaser prior to the Closing, in the total amount of $10,000,000.
Section 2. Conditions of Purchaser's Obligation at the Closing. The
obligation of Purchaser to purchase and pay for the Preferred Stock and the
Warrant at the Closing is subject to the satisfaction as of the Closing of the
following conditions:
2A. Representations and Warranties; Covenants. The representations and
warranties contained in Section 5 hereof shall be true and correct in all
material respects at and as of the Closing as though then made, except to the
extent of changes caused by the transactions expressly contemplated herein, and
the Company shall have performed in all material respects all of the covenants
required to be performed by it hereunder prior to the Closing.
2B. Articles of Amendment. The Company shall have duly adopted,
executed and filed with the Secretary of State of Oregon a Articles of Amendment
of Rights and Preferences establishing the terms and the relative rights and
preferences of the Series A Preferred and the Series B Preferred in the form set
forth in Exhibit A hereto (the "Articles of Amendment"), and the Company shall
not have adopted or filed any other document designating terms, relative rights
or preferences of its preferred stock. The Articles of Amendment shall be in
full force and effect as of the Closing under the laws of Oregon and shall not
have been amended or modified.
2C. Registration Agreement. The Company and Purchaser shall have
entered into a registration agreement in form and substance as set forth in
Exhibit C attached hereto (the "Registration Agreement"), and the Registration
Agreement shall be in full force and effect as of the Closing.
2
<PAGE>
2D. Stockholders Agreement. The Company, Purchaser and Walter C. Bowen
("Bowen") shall have entered into a stockholders agreement in form and substance
set forth in Exhibit D attached hereto (the "Stockholders Agreement"), and the
Stockholders Agreement shall be in full force and effect as of the Closing.
2E. Securities Law Compliance. The Company shall have made all filings
under all applicable federal and state securities laws necessary to consummate
the issuance of the Preferred Stock and the Warrant pursuant to this Agreement
in compliance with such laws.
2F. Lease Modification Agreements. The Company and each of the
landlords of the Company's Regency Park and Sterling Park facilities (the
"Landlords") shall have entered into a modification agreement with respect to
the underlying leases (the "Lease Modification Agreements") in form and
substance reasonably satisfactory to Purchaser, and each of the Lease
Modification Agreements shall not have been amended or modified and shall be in
full force and effect at the Closing.
2G. Opinion of the Company's Counsel. Purchaser shall have received
from Stoel Rives LLP, counsel for the Company, an opinion with respect to the
matters set forth in Exhibit E attached hereto, which shall be addressed to
Purchaser, dated the date of the Closing and in form and substance satisfactory
to Purchaser.
2H. Closing Documents. The Company shall have delivered to Purchaser
all of the following documents:
(i) an Officer's Certificate, dated the date of the Closing,
stating that the conditions specified in Section 1 and paragraphs 2A
through 2F, inclusive, have been fully satisfied;
(ii) certified copies of the resolutions duly adopted by the
Company's board of directors authorizing the execution, delivery and
performance of this Agreement, the Registration Agreement and each of the
other agreements contemplated hereby, the filing of the Articles of
Amendment, the issuance and sale of the Preferred Stock, the issuance and
3
<PAGE>
sale of the Warrant, the reservation for issuance upon conversion of the
Preferred Stock and exercise of the Warrant an aggregate of 2,018,182
shares of Common Stock and the consummation of all other transactions
contemplated by this Agreement;
(iii) certified copies of the Restated Articles of Incorporation,
as amended, the Articles of Amendment and the Company's bylaws, each as in
effect at the Closing; and
(iv) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation of the
transactions hereunder (including, without limitation, all blue sky law
filings and waivers of all preemptive rights and rights of first refusal).
2I. Proceedings. All corporate and other proceedings taken or
required to be taken by the Company in connection with the transactions
contemplated hereby to be consummated at or prior to the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Purchaser and its special counsel.
2J. Waiver. Any condition specified in this Section 2 may be waived if
consented to by Purchaser; provided that no such waiver shall be effective
against Purchaser unless it is set forth in a writing executed by Purchaser.
2K. Expenses. At the Closing, the Company shall have reimbursed
Purchaser for the reasonable fees and expenses of its special counsel as
provided in paragraph 7A hereof.
Section 3. Covenants.
---------
3A. Financial Statements and Other Information. The Company shall
deliver to Purchaser (so long as Purchaser holds any Underlying Common Stock)
and to each holder of at least 25% of the Underlying Common Stock who is not a
Competitor:
(i) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each
4
<PAGE>
fiscal year, beginning with the calendar month of January, 1997, unaudited
consolidating and consolidated statements of operations and cash flows of
the Company and its Subsidiaries for such monthly period and for the period
from the beginning of the fiscal year to the end of such month, and
unaudited consolidating and consolidated balance sheets of the Company and
its Subsidiaries as of the end of such monthly period, setting forth in
each case comparisons to the Company's annual budget and to the
corresponding period in the preceding fiscal year, and all such statements
shall be prepared in accordance with generally accepted accounting
principles, consistently applied, subject to the absence of footnote
disclosures and to normal year-end adjustments for recurring accruals, and
shall be certified by the Company's chief financial officer;
(ii) accompanying the financial statements referred to in
subparagraph (i), an Officer's Certificate stating that there is no Event
of Noncompliance in existence or, if any Event of Noncompliance exists,
specifying the nature and period of existence thereof and what actions the
Company and its Subsidiaries have taken and propose to take with respect
thereto;
(iii) within 90 days after the end of each fiscal year,
consolidating and consolidated statements of operations and cash flows of the
Company and its Subsidiaries for such fiscal year, and consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such fiscal year, setting forth in each case comparisons to the Company's annual
budget and, beginning with the year ending December 31, 1997, to the preceding
fiscal year, all prepared in accordance with generally accepted accounting
principles, consistently applied, and accompanied by, with respect to the
consolidated portions of such statements, an opinion containing no exceptions
or qualifications (except for qualifications regarding specified contingent
liabilities) of an independent accounting firm of recognized national standing;
(iv) within five business days of its receipt by the Company, a
copy of such independent accounting firm's annual management letter to the board
of directors;
5
<PAGE>
(v) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's operations or financial affairs given to the
Company by its independent accountants (and not otherwise contained in
other materials provided hereunder);
(vi) promptly when available but in any event within 30 days
after the beginning of each fiscal year, an annual budget prepared on a
monthly basis for the Company and its Subsidiaries for such fiscal year
(displaying anticipated statements of income and cash flows and balance
sheets), and promptly upon preparation thereof any other significant
budgets prepared by the Company and any revisions of such annual or other
budgets, and within 30 days after any monthly period in which there is a
material adverse deviation from the annual budget, an Officer's Certificate
explaining the deviation and what actions the Company has taken and
proposes to take with respect thereto;
(vii) promptly (but in any event within five business days) after
the discovery or receipt of notice of any Event of Noncompliance or any
condition or event which is reasonably likely to result in any material
liability under any federal, state or local statute or regulation relating
to public health and safety, worker health and safety or pollution or
protection of the environment, an Officer's Certificate specifying the
nature and period of existence thereof and what actions the Company and its
Subsidiaries have taken and propose to take with respect thereto;
(viii) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general
written communications which the Company sends to its stockholders and
copies of all registration statements and all regular, special or periodic
reports which it files, or (to its knowledge) any of its officers or direc
tors file with respect to the Company, with the Securities and Exchange
Commission or with any securities exchange on which any of its securities
are then listed, and copies of all press releases and other statements made
available generally by the
6
<PAGE>
Company to the public concerning material developments in the Company's and
its Subsidiaries' businesses; and
(ix) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this paragraph 3A may reasonably
request.
Each of the financial statements referred to in subparagraph (i) and (iii) shall
be true and correct in all material respects as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end adjustments for recurring accruals. Upon
the written request of Purchaser or any holder of Underlying Common Stock
entitled to receive information under this paragraph, the Company shall cease to
send any information otherwise required by this paragraph to Purchaser or such
holder of Underlying Common Stock; provided that Purchaser or such holder of
Underlying Common Stock may at any time thereafter, upon written request, again
receive such information as provided in this paragraph.
Pursuant to this paragraph, the Company may furnish Purchaser or other holders
of Underlying Common Stock with certain information that is non-public,
confidential or proprietary in nature. As used herein, "Confidential
Information" means (i) any material, nonpublic information about the Company and
its Subsidiaries and (ii) any technical, nonfinancial information, data or know-
how which is identified in writing as confidential by the Company, in either
case as furnished by the Company to Purchaser or any other holder of Underlying
Common Stock pursuant to this paragraph but does not include information (x)
which was publicly known, or otherwise known to Purchaser or such other holder
of Underlying Common Stock, at the time of disclosure, (y) which subsequently
becomes publicly known through no act or omission by Purchaser or such other
holder of Underlying Common Stock or (z) which otherwise becomes known to
Purchaser or such other holder of Underlying Common Stock, other than through
disclosure by the Company. Purchaser and other holders of Underlying Common
Stock shall use their reasonable best efforts to hold in confidence and not to
disclose the Confidential Information, except (a) as may be required by law, (b)
to the officers, directors, employees, agents
7
<PAGE>
and professional consultants of Purchaser or any subsidiary of Purchaser or (c)
to any prospective transferee of the Preferred Stock or Underlying Common Stock
provided that such prospective transferee agrees to be bound by the provisions
of this paragraph; and provided that Purchaser or such other holder of
Underlying Common Stock be free, after notice to the Company, to correct any
false or misleading information which may become public concerning the Company
or Purchaser's relationship to the Company or this Agreement. If Purchaser
ceases to hold any Preferred Stock or Underlying Common Stock, Purchaser will,
if requested by the Company, return to the Company all documents furnished by
the Company containing Confidential Information which have not theretofore been
destroyed or returned to the Company.
3B. Inspection of Property. The Company shall permit any
representatives designated by Purchaser (so long as Purchaser holds any
Underlying Common Stock) or any holder of at least 25% of the Underlying Common
Stock who is not a Competitor, upon reasonable notice and during normal business
hours and at such other times as any such holder may reasonably request, to (i)
visit and inspect any of the properties of the Company and its Subsidiaries,
(ii) examine the corporate and financial records of the Company and its
Subsidiaries and make copies thereof or extracts therefrom and (iii) discuss the
affairs, finances and accounts of any such corporations with the directors,
executive officers and independent accountants of the Company and its
Subsidiaries. The presentation of an executed copy of this Agreement by
Purchaser or any such holder of Preferred Stock or Underlying Common Stock to
the Company's independent accountants shall constitute the Company's permission
to its independent accountants to participate in discussions with such Persons.
3C. Designation of Directors. So long as the Preferred Stock
remains outstanding, the holders of the Preferred Stock shall have the right to
select two representatives to be elected to the Company's board of directors,
and the Company shall use its best efforts to cause such representatives to be
nominated for election to the board of directors and solicit proxies from the
Company's stockholders in favor of the election of such representatives. Such
representatives shall initially be Dana O'Brien and Martha Robinson. Purchasers
may in the future select an industry
8
<PAGE>
executive reasonably acceptable to the remaining members of the Company's board
of directors or any employee, partner, adviser or manager of Purchaser or its
general partner as representatives to be elected to the Company's board of
directors. The Company shall use its best efforts to cause such representatives
to be elected to the board of directors (including voting all unrestricted
proxies in favor of such representatives) and shall not take any action which
would diminish the prospects of such representatives being elected to the board
of directors. The Company shall enter into indemnity agreements with any
directors selected by Purchaser that are similar in form and substance to those
that the Company has entered into with its other directors. The Company shall
use its best efforts to cause the appointment of at least one such
representative to be a member of the Compensation Committee and the Audit
Committee of the Company's board of directors. All reasonable out-of-pocket
expenses of each board member incurred in connection with attending regular and
special board meetings and any meeting of any board committee shall be paid by
the Company. The board representatives designated hereunder or elected by the
holders of the Preferred Stock shall be entitled to fees and other compensation
paid to board members who are not employees of the Company or its Subsidiaries.
3D. Restrictions. So long as any Preferred Stock remains
outstanding, the Company shall not, without the prior written consent of the
holders of at least 66 2/3% of the outstanding Preferred Stock:
(i) directly or indirectly declare or pay any dividends or make
any distributions upon any of its capital stock or other equity securities
other than the Preferred Stock pursuant to the terms of the Articles of
Amendment, except for dividends payable in shares of Common Stock issued
upon the outstanding shares of Common Stock;
(ii) directly or indirectly redeem, purchase or otherwise
acquire, or permit any Subsidiary to redeem, purchase or otherwise acquire,
any of the Company's or any Subsidiary's capital stock or other equity
securities (including, without limitation, warrants, options and other
rights to acquire such capital stock or other equity securities) other
9
<PAGE>
than the Preferred Stock pursuant to the terms of the Articles of
Amendment, or directly or indirectly redeem, purchase or make any payments
with respect to any stock appreciation rights, phantom stock plans or
similar rights or plans;
(iii) except as expressly contemplated by this Agreement,
authorize, issue or enter into any agreement providing for the issuance
(contingent or otherwise) of, (a) any notes or debt securities containing
equity features (including, without limitation, any notes or debt
securities convertible into or exchangeable for capital stock or other
equity securities, issued in connection with the issuance of capital stock
or other equity securities or containing profit participation features),
other than Permitted Debt Securities, or (b) any capital stock or other
equity securities (or any securities convertible into or exchangeable for
any capital stock or other equity securities) which are senior to or on a
parity with the Series A Preferred or the Series B Preferred with respect
to the payment of dividends, redemptions or distributions upon liquidation
or otherwise;
(iv) make, or permit any Subsidiary to make, any loans or
advances to, guarantees for the benefit of, or Investments in, any Person
(other than a Wholly-Owned Subsidiary established under the laws of a
jurisdiction of the United States or any of its territorial possessions),
except for (a) reasonable advances to employees in the ordinary course of
business, (b) acquisitions permitted pursuant to subparagraph (viii) below
and (c) Investments conforming to the Investment Policy adopted from time
to time by the Company's Board of Directors (collectively, the "Permitted
Investments");
(v) merge or consolidate with any Person, unless such merger or
consolidation is approved by the stockholders of the Company as required by
the laws of the State of Oregon (including, without limitation, any
provisions requiring a separate class or series vote), the Restated
Articles of Incorporation, as amended, the Company's bylaws or any other
statute, rule or regulation to which the Company is subject or, except as
permitted by subparagraph (viii) below, permit
10
<PAGE>
any Subsidiary to merge or consolidate with any Person (other than a
Wholly-Owned Subsidiary);
(vi) sell, lease or otherwise dispose of, or permit any
Subsidiary to sell, lease or otherwise dispose of, any assets of the
Company or its Subsidiaries having a fair market value equal to or in
excess of $250,000 (determined by the Company's board of directors in its
reasonable good faith judgment) in any transaction or series of related
transactions (other than sales in the ordinary course of business and the
sale and leaseback of assisted living facilities) unless such transaction
(or series of transactions) has been approved by a majority of the
directors of the Company who are not officers or employees of the Company);
(vii) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation,
any reorganization into a limited liability company, a partnership or any
other non-corporate entity which is treated as a partnership for federal
income tax purposes), unless approved by the stockholders of the Company as
required by the laws of the State of Oregon (including, without limitation,
any provisions requiring a separate class or series vote), the Restated
Articles of Incorporation, as amended, the Company's bylaws or any other
statute, rule or regulation to which the Company is subject;
(viii) acquire, or permit any Subsidiary to acquire, any interest
in any company or business (whether by a purchase of assets, purchase of
stock, merger or otherwise), or enter into any joint venture, involving an
aggregate consideration (including, without limitation, the assumption of
liabilities whether direct or indirect) exceeding $10,000,000 in any
transaction or series of related transactions unless such transaction (or
series of transactions) has been approved by a majority of the directors of
the Company who are not officers or employees of the Company;
(ix) enter into, or permit any Subsidiary to enter into, the
ownership, management or operation of any business other than owning,
managing or operating of assisted living
11
<PAGE>
facilities; as used herein, assisted living facilities includes congregate
care, skilled nursing, stand alone special care facilities, adult day care,
home health care, hospice care and the provision of products and services
ancillary to such businesses;
(x) become subject to, or permit any of its Subsidiaries to
become subject to, (including, without limitation, by way of amendment to
or modification of) any agreement or instrument which by its terms would
(under any circumstances) directly restrict (a) the right of any
Subsidiary to make loans or advances or pay dividends to, transfer property
to, or repay any Indebtedness owed to, the Company or another Subsidiary or
(b) the Company's right to perform the provi sions of this Agreement, the
Registration Agreement, the Articles of Amendment, the Restated Articles of
Incorporation, as amended or the Company's bylaws (including, without
limitation, provisions relating to the declaration and payment of dividends
on and the making of redemptions and conversions of the Preferred Stock);
(xi) except as expressly contemplated by this Agreement, make any
amendment to the Articles of Incorpo ration, the Articles of Amendment or
the Company's bylaws, or file any resolution of the board of directors with
the Oregon Secretary of State containing any provisions, which would
increase the number of authorized shares of the Preferred Stock or
adversely affect or otherwise impair the rights or the relative preferences
and priorities of the holders of the Preferred Stock or the Underlying
Common Stock under this Agreement, the Restated Articles of Incorporation,
as amended, the Articles of Amendment, the Company's bylaws or the
Registration Agreement, unless approved by the stockholders of the Company
as required by the laws of the State of Oregon (including, without
limitation, any provisions requiring a separate class or series vote), the
Restated Articles of Incorporation, as amended, the Company's bylaws or any
other statute, rule or regulation to which the Company is subject;
(xii) enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supple-
12
<PAGE>
ment, any agreement, transaction, commitment or arrangement with any of its
or any Subsidiary's officers, directors, employees, stockholders holding
more than 1% of the outstanding Common Stock or Affiliates or with any
individual related by blood, marriage or adoption to any such individual or
with any entity in which any such Person or individual owns a material
beneficial interest, except for customary employment arrangements and
benefit programs on reasonable terms as approved by a disinterested
majority of the members of the compensation committee of the Company's
board of directors, except for other agreements, transactions, commitments
and arrangements entered into by the Company on an arm's-length basis as
determined by a disinterested majority (including at least one director
designated by the holders of the Preferred Stock) of the members of the
conflicts committee of the Company's board of directors, and except as
otherwise expressly contemplated by this Agreement;
(xiii) increase any compensation (including salary, bonuses and
other forms of current and deferred compensation) payable to any officer or
director of the Company or any Subsidiary, except as approved by a
disinterested majority of the members of the compensation committee of the
Company's board of directors;
(xiv) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any Indebtedness
other than Permitted Indebtedness; and
(xv) amend or modify any stock option plan or employee stock
ownership plan as in existence as of the Closing, other than to increase to
600,000 the number of options for shares of the Company's common stock that
may be issued under the Company's 1995 Stock Incentive Plan, adopt any new
stock option plan or employee stock ownership plan or issue any shares of
Common Stock to its or its Subsidiaries' employees other than pursuant to
the Company's existing stock option and employee stock ownership plans ,
unless approved by the stockholders of the Company as required by the laws
of the State of Oregon (including, without limitation, any provisions
requiring a separate class or series vote), the Restated
13
<PAGE>
Articles of Incorporation, as amended, the Company's bylaws or any other
statute, rule or regulation to which the Company is subject.
Notwithstanding the foregoing, this Agreement shall not require the consent of
the holders of 66% of the outstanding Preferred Stock for actions otherwise
approved by the stockholders of the Company as required by the laws of the State
of Oregon (including, without limitation, any provisions requiring a separate
class or series vote), the Restated Articles of Incorporation, as amended, the
Company's bylaws or any other statute, rule or regulation to which the Company
is subject.
3E. Affirmative Covenants. So long as any Preferred Stock
remains outstanding, the Company shall, and shall cause each Subsidiary to,
unless it has received the prior written consent of the holders of at least 66%
of the outstanding Preferred Stock:
(i) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits necessary to the conduct of its
businesses;
(ii) maintain and keep its material properties in good repair,
working order and condition, and from time to time make all necessary or
desirable repairs, renewals and replacements, so that its businesses may
be properly conducted at all times in all material respects;
(iii) pay and discharge when payable all material taxes,
assessments and governmental charges imposed upon its properties or upon
the income or profits therefrom (in each case before the same becomes
delinquent and before penalties accrue thereon) and all material claims
for labor, materials or supplies which if unpaid would by law become a
Lien upon any of its property, unless and to the extent that the same are
being contested in good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with generally accepted accounting
principles, consistently
14
<PAGE>
applied) have been established on its books with respect thereto;
(iv) comply with all other material obligations which it incurs
pursuant to any contract or agreement, whether oral or written, express or
implied, as such obligations become due, unless and to the extent that the
same are being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with generally accepted
accounting principles, consistently applied) have been established on its
books with respect thereto;
(v) comply with all applicable laws, rules and regulations of
all governmental authorities, the violation of which would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company
and its Subsidiaries taken as a whole;
(vi) apply for and continue in force with financially sound and
reputable insurance companies insurance covering risks of such types and in
such amounts as are customary for corporations of similar size engaged in
similar lines of business;
(vii) make a good faith effort to secure and maintain officers and
directors liability insurance coverage: (A) as of the Closing, in the
amount of $2,000,000, (B) as of January 1, 1997, in the amount of
$3,000,000 and (C) thereafter, in such amounts as are customary for
publicly traded corporations of similar size engaged in similar lines of
business as reasonably determined by the Company's board of directors;
provided, however, that the Company shall not be required to secure and
maintain any such insurance if such insurance is not available on
commercially reasonable terms; and
(viii) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such
proper reserves as in each
15
<PAGE>
case are required in accordance with generally accepted accounting
principles, consistently applied;
3F. Compliance with Agreements. The Company shall perform and observe
in all material respects (i) all of its obligations to each holder of the
Preferred Stock and all of its obligations to each holder of the Underlying
Common Stock set forth in the Restated Articles of Incorporation, as amended,
the Articles of Amendment and the Company's bylaws, (ii) all of its obligations
to each holder of the Warrant set forth therein and (iii) all of its obligations
to each holder of Registrable Securities set forth in the Registration
Agreement.
3G. Current Public Information. The Company shall file all reports
required to be filed by it under the Securities Act and the Securities Exchange
Act and the rules and regulations adopted by the Securities and Exchange
Commission thereunder and shall take such further action as any holder or
holders of Restricted Securities may reasonably request, all to the extent
required to enable such holders to sell Restricted Securities pursuant to (i)
Rule 144 adopted by the Securities and Exchange Commission under the Securities
Act (as such rule may be amended from time to time) or any similar rule or
regulation hereafter adopted by the Securities and Exchange Commission or (ii) a
registration statement on Form S-2 or S-3 or any similar registration form
hereafter adopted by the Securities and Exchange Commission. Upon request, the
Company shall deliver to any holder of Restricted Securities a written statement
as to whether it has complied with such requirements.
3H. Amendment of Agreements. The Company shall not amend, modify or
waive any provision of any Lease Modification Agreement, without the prior
written consent of the holders of at least 66% the Preferred Stock, and the
Company shall enforce the provisions of the Lease Modification Agreements and
shall exercise all of its rights and remedies thereunder unless it is otherwise
directed by the holders of at least 66% of the Preferred Stock.
16
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3I. First Refusal Rights.
(i) Except for issuances of Common Stock (a) upon the conversion
of the Preferred Stock or upon the exercise of the Warrant, (b) in connection
with the acquisition of another company or business as contemplated by paragraph
3D(viii), (c) pursuant to a public offering registered under the Securities Act,
or (d) upon the exercise of options granted to any of the Company's or its
Subsidiaries' employees, directors, agents, consultants, advisors or independent
consultants pursuant to any stock option plan adopted by the Company's board of
directors, (e) upon the exercise of any of the warrants sold to the
representatives of the underwriters of the Company's initial public offering,
(f) upon the conversion of any Permitted Debt Securities or (g) as a dividend on
the outstanding Common Stock, if the Company authorizes the issuance or sale of
any shares of Common Stock or any securities containing options or rights to
acquire any shares of Common Stock, the Company shall first offer to sell to
each holder of Underlying Common Stock a portion of such stock or securities
equal to the quotient determined by dividing (1) the number of shares of Under
lying Common Stock held by such holder by (2) the sum of the total number of
shares of Underlying Common Stock and the number of shares of Common Stock
outstanding which are not shares of Underlying Common Stock. Each holder of
Underlying Common Stock shall be entitled to purchase such stock or securities
at the most favorable price and on the most favorable terms as such stock or
securities are to be offered to any other Persons; provided that if all Persons
entitled to purchase or receive such stock or securities are required to also
purchase other securities of the Company, the holders of Underlying Common Stock
exercising their rights pursuant to this paragraph shall also be required to
purchase the same strip of securities (on the same terms and conditions) that
such other Persons are required to purchase and provided that, at the request of
any holder of Underlying Common Stock, the Company shall offer to such holder
stock or securities which have no voting rights (other than required by
applicable law) and which are convertible into voting securities on the same
terms as the Series A Preferred is convertible into Common Stock but which are
otherwise identical to the stock or securities being offered. The purchase price
for all stock and securities offered to the holders of the Underlying Common
Stock shall be
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payable in cash or, to the extent otherwise required hereunder, notes issued by
such holders.
(ii) In order to exercise its purchase rights hereunder, a holder
of Underlying Common Stock must within 15 days after receipt of written notice
from the Company describing in reasonable detail the stock or securities being
offered, the purchase price thereof, the payment terms and such holder's
percentage allotment deliver a written notice to the Company describing its
election hereunder. If all of the stock and securities offered to the holders of
Underlying Common Stock is not fully subscribed by such holders, the remaining
stock and securities shall be reoffered by the Company to the holders purchasing
their full allotment upon the terms set forth in this paragraph, except that
such holders must exercise their purchase rights within five days after receipt
of such reoffer.
(iii) Upon the expiration of the offering periods described above,
the Company shall be entitled to sell such stock or securities which the holders
of Underlying Common Stock have not elected to purchase during the 180 days
following such expiration on terms and conditions no more favorable to the
purchasers thereof than those offered to such holders. Any stock or securities
offered or sold by the Company after such 180-day period must be reoffered to
the holders of Underlying Common Stock pursuant to the terms of this paragraph.
Section 4. Transfer of Restricted Securities.
4A. General Provisions. Restricted Securities are transferable only
pursuant to (i) public offerings registered under the Securities Act, (ii) Rule
144 or Rule 144A of the Securities and Exchange Commission (or any similar rule
or rules then in force) if such rule is available and (iii) subject to the
conditions specified in paragraph 4B below, any other legally available means of
transfer.
4B. Opinion Delivery. In connection with the transfer of any Restricted
Securities (other than a transfer described in paragraph 4A(i) or (ii) above),
the holder thereof shall deliver written notice to the Company describing in
reasonable detail the
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transfer or proposed transfer, together with an opinion in form and substance
reasonably satisfactory to the Company's counsel of Kirkland & Ellis or other
counsel which (to the Company's reasonable satisfaction) is knowledgeable in
securities law matters to the effect that such transfer of Restricted Securities
may be effected without registration of such Restricted Securities under the
Securities Act. In addition, if the holder of the Restricted Securities
delivers to the Company an opinion of Kirkland & Ellis or such other counsel in
form and substance reasonably satisfactory to the Company's counsel that no
subsequent transfer of such Restricted Securities shall require registration
under the Securities Act, the Company shall promptly upon such contemplated
transfer deliver new certificates for such Restricted Securities which do not
bear the Securities Act legend set forth in paragraph 7C. If the Company is not
required to deliver new certificates for such Restricted Securities not bearing
such legend, the holder thereof shall not transfer the same until the
prospective transferee has confirmed to the Company in writing its agreement to
be bound by the conditions contained in this paragraph and paragraph 7C. The
cost of obtaining any opinion contemplated by this paragraph 4B shall be borne
by the holder of the Restricted Securities being transferred.
4C. Rule 144A. Upon the request of any Purchaser, the Company shall
promptly supply to such Purchaser or its prospective transferees all information
regarding the Company required to be delivered in connection with a transfer
pursuant to Rule 144A of the Securities and Exchange Commission.
4D. Legend Removal. If any Restricted Securities become eligible for
sale pursuant to Rule 144(k), the Company shall, upon the request of the holder
of such Restricted Securities, remove the legend set forth in paragraph 7C from
the certificates for such Restricted Securities.
4E. Restriction on Transfer. The Preferred Stock may not be
transferred to a Competitor without the prior written consent of the Company;
provided that the Common Stock issuable upon the conversion of the Preferred
Stock and the Warrant shall not be subject to such restriction on transfer.
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Section 5. Representations and Warranties of the Company. As a
material inducement to the Purchasers to enter into this Agreement and purchase
the Preferred Stock and the Warrant hereunder, the Company hereby represents and
warrants that:
5A. Organization, Corporate Power and Licenses. The Company is a
corporation duly organized and validly existing under the laws of Oregon and is
qualified to do business in every jurisdiction in which its ownership of
property or conduct of business requires it to qualify. The Company possesses
all requisite corporate power and authority and all material licenses, permits
and authorizations necessary to own and operate its properties, to carry on its
businesses as now conducted and to carry out the transactions contemplated by
this Agreement. The copies of the Company's and each Subsidiary's charter
documents and bylaws which have been furnished to the Purchasers' special
counsel reflect all amendments made thereto at any time prior to the date of
this Agreement and are correct and complete.
5B. Capital Stock and Related Matters.
(i) As of the Closing and immediately thereafter, the authorized
capital stock of the Company shall consist of (a) 5,000,000 shares of preferred
stock, of which 1,666,667 shares shall be designated as Series A Preferred
(1,283,785 of which shall be issued and outstanding, and 382,882 of which shall
be reserved for issuance upon the conversion of the Series B Preferred) and
382,882 shares shall be designated as Series B Preferred (all of which shall be
issued and outstanding), and (b) 25,000,000 shares of Common Stock, of which
4,633,000 shares shall be issued and outstanding and 2,018,182 shares shall be
reserved for issuance upon conversion of the Preferred Stock or exercise of the
Warrant. As of the Closing, neither the Company nor any Subsidiary shall have
outstanding any stock or securities convertible or exchangeable for any shares
of its capital stock or containing any profit participation features, nor shall
it have outstanding any rights or options to subscribe for or to purchase its
capital stock or any stock or securities convertible into or exchangeable for
its capital stock or any stock appreciation rights or phantom stock plans,
except for the Preferred Stock and except as set forth on the attached
"Capitalization Schedule." The Capitalization
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Schedule accurately sets forth the following information with respect to all
outstanding options and rights to acquire the Company's capital stock: the
holder, the number of shares covered, the exercise price and the expiration
date. As of the Closing, neither the Company nor any Subsidiary shall be
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital stock or any warrants, options or
other rights to acquire its capital stock, except as set forth on the
Capitalization Schedule and except pursuant to the Articles of Amendment and the
Restated Articles of Incorporation, as amended. As of the Closing, all of the
outstanding shares of the Company's capital stock shall be validly issued, fully
paid and nonassessable.
(ii) There are no statutory or, to the best of the Company's
knowledge, contractual stockholders' preemptive rights or rights of refusal with
respect to the issuance of the Preferred Stock or the Warrant hereunder or the
issuance of the Common Stock upon conversion of the Preferred Stock or upon
exercise of the Warrant. The Company has not violated any applicable federal or
state securities laws in connection with the offer, sale or issuance of any of
its capital stock, and the offer, sale and issuance of the Preferred Stock or
the Warrant hereunder do not require registration under the Securities Act or
any applicable state securities laws. To the best of the Company's knowledge,
there are no agreements between the Company's stockholders with respect to the
voting or transfer of the Company's capital stock or with respect to any other
aspect of the Company's affairs.
5C. Subsidiaries; Investments. The attached "Subsidiary Schedule"
correctly sets forth the name of each Subsidiary, the jurisdiction of its
organization and the Persons owning the membership interests of such Subsidiary.
Each Subsidiary is duly organized and validly existing under the laws of the
jurisdiction of its organization, possesses all requisite limited liability
company power and authority and all material licenses, permits and
authorizations necessary to own its properties and to carry on its businesses as
now being conducted and is qualified to do business in every jurisdiction in
which its ownership of property or the conduct of business requires it to
qualify. The Company has made all contributions required to date pursuant to the
operating
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agreement for each Subsidiary, and all membership interests are owned by the
Company free and clear of any Lien and, except as described on the Subsidiary
Schedule, are not subject to any option or right to purchase any such membership
interests. Except as set forth on the Subsidiary Schedule, neither the Company
nor any Subsidiary owns or holds the right to acquire any shares of stock or any
other security or interest in any other Person.
5D. Authorization; No Breach. The execution, delivery and performance
of this Agreement, the Warrant, the Registration Agreement and all other
agreements contemplated hereby to which the Company is a party and the filing of
the Articles of Amendment have been duly authorized by the Company. This
Agreement, the Warrant, the Registration Agreement, the Restated Articles of
Incorporation, as amended, the Articles of Amendment and all other agreements
contemplated hereby to which the Company is a party each constitutes a valid and
binding obligation of the Company, enforceable in accordance with its terms. The
execution and delivery by the Company of this Agreement, the Registration
Agreement and all other agreements contemplated hereby to which the Company is a
party, the offering, sale and issuance of the Preferred Stock and the Warrants
hereunder, the issuance of the Common Stock upon conversion of the Preferred
Stock, the issuance of the Series A Preferred upon conversion of the Series B
Preferred, the issuance of Warrants hereunder, the issuance of Common Stock upon
exercise of Warrants, the filing of the Articles of Amendment and the
fulfillment of and compliance with the respective terms hereof and thereof by
the Company, do not and shall not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under, (iii)
result in the creation of any lien, security interest, charge or encumbrance
upon the Company's or any Subsidiary's capital stock or assets pursuant to, (iv)
give any third party the right to modify, terminate or accelerate any obligation
under, (v) result in a violation of, or (vi) require any authorization, consent,
approval, exemption or other action by or notice or declaration to, or filing
with, any court or administrative or governmental body or agency pursuant to,
the Articles of Amendment or the charter or bylaws of the Company or any
Subsidiary, or any law, statute, rule or regulation to which the Company or any
Subsidiary is subject, or
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any material agreement, instrument, order, judgment or decree to which the
Company or any Subsidiary is subject.
5E. Financial Statements. Attached hereto as the "Financial
Statements Schedule" are the following financial statements:
(i) the audited balance sheet of the Company as of December 31,
1995 and the related statement of operations and cash flows (or the
equivalent) for the twelve-month period then ended; and
(ii) the unaudited balance sheet of the Company as of September
30, 1996 (the "Latest Balance Sheet"), and the related statement of
operations and cash flows (or the equivalent) for the nine-month period
then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with generally accepted accounting principles, consistently applied.
5F. Absence of Undisclosed Liabilities. Except as set forth on the
attached "Liabilities Schedule," the Company and its Subsidiaries do not have
any material obligation or liability (whether accrued, absolute, contingent,
unliquidated or otherwise, whether or not known to the Company or any
Subsidiary, whether due or to become due and regardless of when asserted)
arising out of transactions entered into at or prior to the Closing, or any
action or inaction at or prior to the Closing, or any state of facts existing at
or prior to the Closing other than: (i) liabilities set forth on the Latest
Balance Sheet (including any notes thereto), (ii) liabilities and obligations
which have arisen after the date of the Latest Balance Sheet in the ordinary
course of business (none of which is a liability resulting from breach of
contract, breach of warranty, tort, infringement, claim or lawsuit) and (iii)
other liabilities and obligations expressly disclosed in the other Schedules to
this Agreement.
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5G. No Material Adverse Change. Since the date of the Latest Balance
Sheet, there has been no material adverse change in the financial condition,
operating results, assets, operations, business prospects, employee relations or
customer or supplier relations of the Company and its Subsidiaries taken as a
whole.
5H. Absence of Certain Developments.
(i) Except as expressly contemplated by this Agreement or as set
forth on the attached "Developments Schedule," since the date of the Latest
Balance Sheet, neither the Company nor any Subsidiary have
(a) issued any notes, bonds or other debt securities or any
capital stock or other equity securities or any securities convertible,
exchangeable or exercisable into any capital stock or other equity
securities;
(b) borrowed any amount or incurred or become subject to any
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities under contracts entered into in the ordinary
course of business;
(c) discharged or satisfied any Lien or paid any obligation or
liability, other than current liabilities paid in the ordinary course of
business;
(d) declared or made any payment or distribution of cash or
other property to its stockholders with respect to its capital stock or
other equity securities or purchased or redeemed any shares of its capital
stock or other equity securities (including, without limitation, any
warrants, options or other rights to acquire its capital stock or other
equity securities);
(e) mortgaged or pledged any of its properties or assets or
subjected them to any Lien, except Liens for current property taxes not
yet due and payable;
(f) sold, assigned or transferred any of its tangible assets,
including any sale-leaseback transactions,
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except in the ordinary course of business, or canceled any debts or claims;
(g) sold, assigned or transferred any patents or patent
applications, trademarks, service marks, trade names, corporate names,
copyrights or copyright registrations, trade secrets or other intangible
assets;
(h) suffered any extraordinary losses or waived any rights of
value, whether or not in the ordinary course of business or consistent with
past practice;
(i) made capital expenditures or commitments therefor in excess
of $150,000;
(j) made any loans or advances to, guarantees for the benefit
of, or any Investments (other than Permitted Investments) in, any Persons
in excess of $200,000 in the aggregate;
(k) made any charitable contributions or pledges in excess of
$10,000 in the aggregate;
(l) suffered any damage, destruction or casualty loss exceeding
in the aggregate $10,000, whether or not covered by insurance;
(m) made a ny Investment in or taken steps to incorporate any
Subsidiary; or
(n) entered into any other transaction other than in the
ordinary course of business or entered into any other material transaction,
whether or not in the ordinary course of business.
(ii) Neither the Company nor any Subsidiary has at any time made any
payments for political contributions or made any bribes, kickback payments
or other illegal payments.
5I. Assets. Except as set forth on the attached "Assets Schedule,"
the Company and each Subsidiary have good and marketable
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title to, or a valid leasehold interest in, all of the material properties and
assets used by them, located on their premises or shown on the Latest Balance
Sheet or acquired thereafter. Except as described on the Assets Schedule, the
Company's and each Subsidiary's material equipment and other tangible assets are
in good operating condition in all material respects and are fit for use in the
ordinary course of business. The Company and each Subsidiary own, or have a
valid leasehold interest in, all assets necessary for the conduct of their
respective businesses as presently conducted.
(i) Owned Properties. The Assets Schedule sets forth a list of
all owned real property (the "Owned Real Property") used by the Company or any
Subsidiary in the operation of the Company's business. Except as set forth on
the Assets Schedule, with respect to each such parcel of Owned Real Property:
(a) such parcel is free and clear of all encumbrances, except Permitted
Encumbrances; (b) there are no leases, subleases, licenses, concessions, or
other agreements, written or oral, granting to any person the right of use or
occupancy of any portion of such parcel; and (c) there are no outstanding
actions or rights of first refusal to purchase such parcel, or any portion
thereof or interest therein.
(ii) Leased Properties. The Assets Schedule sets forth a list of
all of the leases and subleases ("Leases") of real property in which the Company
or any subsidiary has a leasehold and subleasehold interest (the "Leased Real
Property") (the Owned Real Property and the Leased Real Property are
collectively referred to herein as the "Real Property"). Each of the Leases are
in full force and effect and the Company holds a valid and existing leasehold or
subleasehold interest under each of the Leases. The Company has delivered to
Purchaser true, correct, complete and accurate copies of each of the Leases
described in the Assets Schedule. Except as described on the Assets Schedule,
with respect to each Lease listed on the Assets Schedule: (a) the Lease is
legal, valid, binding, enforceable and in full force and effect; (b) the Lease
will continue to be legal, valid, binding, enforceable and in full force and
effect on identical terms following the Closing; (c) neither the Company nor any
other party to the Lease is in breach or default, and no event has occurred
which, with notice or lapse of time, would constitute such a breach
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or default or permit termination, modification or acceleration under the Lease;
(d) no party to the Lease has repudiated any provision thereof; (e) there are no
disputes, oral agreements, or forbearance programs in effect as to the Lease;
(f) the Lease has not been modified in any respect, except to the extent that
such modifications are disclosed by the documents delivered to Purchaser; (g)
the Company has not assigned, transferred, conveyed, mortgaged, deeded in trust
or encumbered any interest in the Lease; and (h) the purchase and transfer of
stock and warrants of the Company, as contemplated by this Agreement, will not
require the consent of the landlords or any other party under the Leases or
Seller shall obtain all necessary consents prior to the Closing. Purchaser
acknowledges that the Company subleases the operation of the beauty salon at
each property to a third party.
(iii) Real Property Disclosure. Except as disclosed on the Assets
Schedule, there is no real property leased or owned by the Company or any
subsidiary and used in the Company's business.
(iv) No Proceedings. There are no pending or, to the best of the
Company's knowledge, threatened proceedings in eminent domain or other similar
proceedings affecting any portion of the Real Property. There exists no writ,
injunction, decree, order or judgment outstanding, nor any litigation, pending
or, to the best of the Company's knowledge, threatened, relating to the
ownership, lease, use, occupancy or operation by any person of the Real
Property.
(v) Current Use. The current use or occupancy of the Real
Property does not violate in any material respect any instrument of record or
agreement affecting such Real Property or any covenant, condition, restriction,
easement, agreement or order of any governmental authority having jurisdiction
over any of the Real Property. No damage or destruction has occurred with
respect to any of the Real Property that, individually or in the aggregate, has
had or resulted in, or will have or result in, a material adverse effect on the
operation of the Company's business.
(vi) Condition and Operation of Improvements. All buildings and
all components of all buildings, structures and other
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improvements included within the Owned Real Property (the "Improvements"), are
in good condition and repair and are adequate to operate such facilities as
currently used. To the best of the Company's knowledge and belief, there are no
facts or conditions affecting any of the Improvements and the Leased Real
Property which would, individually or in the aggregate, interfere in any
significant respect with the use, occupancy or operation thereof as currently
used, occupied or operated or intended to be used, occupied or operated. To the
best of the Company's knowledge and belief, there are no material structural
deficiencies or latent defects affecting any Improvements. All water, gas,
electrical, steam, compressed air, telecommunication, sanitary and storm sewage
lines and systems and other similar systems serving the Real Property are
installed and operating and are sufficient to enable the Real Property to
continue to be used and operated in the manner currently being used and
operated. Each such utility or other service is provided by a public or private
utility or service company and enters the Owned Real Property from an adjacent
public street or valid private easement owned by the supplier of such utility or
other service. Each Improvement has direct access to a public street adjoining
the Real Property on which such Improvement is situated over the driveways and
accessways currently being used in connection with the use and operation of such
Improvement and no existing accessway crosses or encroaches upon any property or
property interest not owned by the Company. No Improvement or portion thereof is
dependent for its access, operation or utility on any land, building or other
improvement not included in the Owned Real Property.
(vii) Permits. All certificates of occupancy, permits, licenses,
franchises, approvals and authorizations (collectively, the "Real Property
Permits") of all governmental authorities having jurisdiction over the Real
Property, required or appropriate to have been issued to the Company to enable
the Real Property in all material respects to be lawfully occupied and used for
all of the purposes for which it is currently occupied and used, have been
obtained by the Company and, to the Company's best knowledge, have been lawfully
issued and are, as of the date hereof, in full force and effect, with no
suspension, revocation or modification of any Real Property Permit pending or
threatened.
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(viii) Compliance with Laws. The Real Property is in full
compliance with all applicable building, zoning, subdivision, health and safety
and other land use and similar laws affecting the Real Property (collectively,
the "Real Property Laws"), and the Company has not received any notice of
violation or claimed violation of any Real Property Law. To the best of the
Company's knowledge, there is no pending or anticipated change in any Real
Property Law that will have or result in a material adverse effect upon the
ownership, alteration, use, occupancy or operation of the Real Properties or any
portion thereof. No current use by the Company of the Real Properties is
dependent on a nonconforming use or other approval from a governmental
authority, the absence of which would significantly limit the use of any of the
properties or assets in the operation of the Company's business.
5J. Tax Matters.
(i) Except as set forth on the attached "Taxes Schedule": the
Company and each Subsidiary have filed all Tax Returns which they are required
to file under applicable laws and regulations; all such Tax Returns are complete
and correct in all material respects and have been prepared in compliance with
all applicable laws and regulations in all material respects; the Company, each
Subsidiary have paid in all material respects all Taxes due and owing by them
(whether or not such Taxes are required to be shown on a Tax Return) and have
withheld and paid over to the appropriate taxing authority all Taxes which they
are required to withhold from amounts paid or owing to any employee,
stockholder, creditor or other third party; neither the Company nor any
Subsidiary has waived any statute of limitations with respect to any Taxes or
agreed to any extension of time with respect to any Tax assessment or
deficiency; the accrual for Taxes on the Latest Balance Sheet would be adequate
to pay all Tax liabilities of the Company and its Subsidiaries if their current
tax year were treated as ending on the date of the Latest Balance Sheet
(excluding any amount recorded which is attributable solely to timing
differences between book and Tax income); since the date of the Latest Balance
Sheet, the Company and its Subsidiaries have not incurred any liability for
Taxes other than in the ordinary course of business; the assessment of any
additional Taxes for periods for which Tax Returns have been filed by the
Company and each Subsidiary shall
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not exceed the recorded liability therefor on the Latest Balance Sheet
(excluding any amount recorded which is attributable solely to timing
differences between book and Tax income); no foreign, federal, state or local
tax audits or administrative or judicial proceedings are pending or being
conducted with respect to the Company or any Subsidiary, no information related
to Tax matters has been requested by any foreign, federal, state or local taxing
authority and no written notice indicating an intent to open an audit or other
review has been received by the Company from any foreign, federal, state or
local taxing authority; and there are no material unresolved questions or claims
raised or made by any taxing authority concerning the Company's or any
Subsidiary's Tax liability.
(ii) Neither the Company nor any of its Subsidiaries has made an
election under (S)341(f) of the Internal Revenue Code of 1986, as amended.
Neither the Company nor any Subsidiary is liable for the Taxes of another Person
that is not a Subsidiary in a material amount under (a) Treasury Regulation (S)
1.1502-6 (or comparable provisions of state, local or foreign law), (b) as a
transferee or successor, (c) by contract or indemnity or (d) otherwise. Neither
the Company nor any Subsidiary is a party to any tax sharing agreement. The
Company, each Subsidiary have disclosed on their federal income Tax Returns any
position taken for which substantial authority (within the meaning of IRC
(S)6662(d)(2)(B)(i)) did not exist at the time the return was filed. Neither the
Company nor any Subsidiary has made any payments, is obligated to make payments
or is a party to an agreement that could obligate it to make any payments that
would not be deductible under IRC (S)280G.
(iii) "Tax" or "Taxes" means federal, state, county, local,
foreign or other income, gross receipts, ad valorem, franchise, profits, sales
or use, transfer, registration, excise, utility, environmental, communications,
real or personal property, capital stock, license, payroll, wage or other
withholding, employ ment, social security, severance, stamp, occupation,
alternative or add-on minimum, estimated and other taxes of any kind whatsoever
(including, without limitation, deficiencies, penalties, additions to tax, and
interest attributable thereto) whether disputed or not. "Tax Return" means any
return, information report or filing with
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respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
5K. Contracts and Commitments.
(i) Except as expressly contemplated by this Agreement or as set
forth on the attached "Contracts Schedule" or the attached "Employee Benefits
Schedule," neither the Company nor any Subsidiary is a party to or bound by any
written or oral:
(a) pension, profit sharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or other
compensation to employees or any other employee benefit plan or
arrangement, or any collective bargaining agreement or any other contract
with any labor union, or severance agreements, programs, policies or
arrange ments;
(b) contract for the employment of any officer, individual
employee or other Person on a full-time, part-time, consulting or other
basis providing annual compensation in excess of $50,000 or contract
relating to loans to officers, directors or Affiliates;
(c) contract under which the Company or Subsidiary has advanced
or loaned any other Person amounts in the aggregate exceeding $50,000;
(d) agreement or indenture relating to borrowed money or other
Indebtedness or the mortgaging, pledging or otherwise placing a Lien on any
material asset or material group of assets of the Company and its
Subsidiaries;
(e) guarantee of any obligation;
(f) lease or agreement under which the Company or any Subsidiary
is lessee of or holds or operates any property, real or personal, owned by
any other party, except for any lease of real or personal property under
which the aggregate annual rental payments do not exceed $50,000;
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(g) lease or agreement under which the Company or any Subsidiary
is lessor of or permits any third party to hold or operate any property,
real or personal, owned or controlled by the Company or any Subsidiary;
(h) contract or group of related contracts with the same party
or group of affiliated parties the performance of which involves
consideration in excess of $100,000;
(i) assignment, license, indemnification or agreement with
respect to any intangible property (including, without limitation, any
Intellectual Property);
(j) warranty agreement with respect to its services rendered or
its products sold or leased;
(k) agreement under which it has granted any Person any
registration rights (including, without limitation, demand and piggyback
registration rights);
(l) sales, distribution or franchise agreement;
(m) material agreement with a term of more than six months which
is not terminable by the Company or any Subsidiary upon less than 30 days
notice without penalty;
(n) contract or agreement prohibiting it from freely engaging in
any business or competing anywhere in the world; or
(o) any other agreement which is material to its operations or
relating to the acquisition of additional properties.
(ii) All of the contracts, agreements and instruments set forth
on the Contracts Schedule are valid, binding and enforceable in accordance with
their respective terms. The Company and each Subsidiary have performed all
material obligations required to be performed by them on or prior to the date of
this Agreement and are not in default under or in breach of nor in receipt of
any claim of default or breach under any material contract, agreement or
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instrument to which the Company or any Subsidiary is subject; no event has
occurred which with the passage of time or the giving of notice or both would
result in a default, breach or event of noncompliance by the Company or any
Subsidiary under any material contract, agreement or instrument to which the
Company or any Subsidiary is subject; neither the Company nor any Subsidiary has
any present expectation or intention of not fully performing all such material
obligations; and neither the Company nor any Subsidiary has knowledge of any
breach or anticipated breach by the other parties to any material contract,
agreement, instrument or commitment to which it is a party.
(iii) The Company has delivered or made available to the
Purchasers' special counsel a true and correct copy of each of the written
instruments, plans, contracts and agreements and an accurate description of each
of the oral arrangements, contracts and agreements which are referred to on the
Contracts Schedule, together with all amendments, waivers or other changes
thereto.
5L. Intellectual Property Rights.
(i) The attached "Intellectual Property Schedule" contains a
complete and accurate list of all (a) material patented or registered
Intellectual Property Rights owned or used by the Company or any Subsidiary, (b)
material pending patent applications and applications for registrations of other
Intellectual Property Rights filed by the Company or any Subsidiary, (c)
material unregistered trade names and corporate names owned or used by the
Company or any Subsidiary and (d) material unregistered trademarks, service
marks, copyrights, mask works and computer software owned or used by the Company
or any Subsidiary. The Intellectual Property Schedule also contains a complete
and accurate list of all licenses and other rights granted by the Company or any
Subsidiary to any third party with respect to any material Intellectual Property
Rights and all licenses and other rights granted by any third party to the
Company or any Subsidiary with respect to any material Intellectual Property
Rights, in each case identifying the subject Intellectual Property Rights.
Except as set forth on the Intellectual Property Schedule, the Company or one of
its Subsidiaries owns all right, title and interest to, or has the right to use
pursuant to a valid license, all Intellectual Property
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Rights necessary for the operation of the businesses of the Company and its
Subsidiaries as presently conducted free and clear of all Liens.
(ii) Except as set forth on the Intellectual Property Schedule,
(a) the Company and its Subsidiaries own all right, title and interest in and to
all of the Intellectual Property Rights listed on such schedule, free and clear
of all Liens, (b) there have been no claims made against the Company or any
Subsidiary asserting the invalidity, misuse or unenforceability of any of such
Intellectual Property Rights, and, to the best of the Company's knowledge, there
are no valid grounds for the same, (c) neither the Company nor any Subsidiary
has received any notices of, and is not aware of any facts which indicate a
likelihood of, any infringement or misappropriation by, or conflict with, any
third party with respect to such Intellectual Property Rights (including,
without limitation, any demand or request that the Company or any Subsidiary
license any rights from a third party) and (d) to the best of the Company's
knowledge, the conduct of the Company's and each Subsidiary's business has not
infringed, misappropriated or conflicted with and does not infringe,
misappropriate or conflict with any Intellectual Property Rights of other
Persons, nor would any future conduct as presently contemplated infringe,
misappropriate or conflict with any Intellectual Property Rights of other
Persons.
5M. Litigation, etc. Except as set forth on the attached "Litigation
Schedule," there are no actions, suits, proceedings, orders, investigations or
claims pending or, to the best of the Company's knowledge, threatened against or
affecting the Company or any Subsidiary (or to the best of the Company's knowl-
edge, pending or threatened against or affecting any of the officers, directors
or employees of the Company and its Subsidiaries with respect to their
businesses or proposed business activities), at law or in equity, or before or
by any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, any actions, suit, proceedings
or investigations with respect to the transactions contemplated by this
Agreement); neither the Company nor any Subsidiary is subject to any arbitration
proceedings under collective bargaining agreements or otherwise or, to the best
of the Company's knowledge,
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any governmental investigations or inquiries (including, without limitation,
inquiries as to the qualification to hold or receive any license or permit);
and, to the best of the Company's knowledge, there is no basis for any of the
foregoing. Neither the Company nor any Subsidiary is subject to any judgment,
order or decree of any court or other governmental agency.
5N. Brokerage. Except for the fees that will be payable by the
Company to each of Needham & Company, Inc. and Coopers & Lybrand L.L.P. in
connection with the transactions contemplated by this Agreement, there are no
claims for brokerage commissions, finders' fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement binding upon the Company or any Subsidiary. The
Company shall pay, and hold Purchaser harmless against, any liability, loss or
expense (including, without limitation, reasonable attorneys' fees and out-of-
pocket expenses) arising in connection with any such claim.
5O. Governmental Consent, etc. No permit, consent, approval or
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the execution, delivery and performance by the
Company of this Agreement or the other agreements contemplated hereby, or the
consummation by the Company of any other transactions contemplated hereby or
thereby, except as expressly contemplated herein or in the exhibits hereto.
5P. Insurance. The attached "Insurance Schedule" contains a
description of each insurance policy maintained by the Company and its
Subsidiaries with respect to its properties, assets and businesses, and each
such policy is in full force and effect as of the Closing. Neither the Company
nor any Subsidiary is in default with respect to its material obligations under
any insurance policy maintained by it, and neither the Company nor any
Subsidiary has been denied insurance coverage. The insurance coverage of the
Company and its Subsidiaries is customary for corporations of similar size
engaged in similar lines of business. Except as set forth on the Insurance
Schedule, the Company and its Subsidiaries do not have any self-insurance or co-
insurance programs, and the reserves set forth on the Latest Balance Sheet
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are adequate to cover all anticipated liabilities with respect to any such self-
insurance or co-insurance programs.
5Q. Employees. The Company is not aware that any executive or key
employee of the Company or any Subsidiary or any group of employees of the
Company or any Subsidiary has any plans to terminate employment with the Company
or any Subsidiary. The Company and each Subsidiary have complied in all
material respects with all laws relating to the employment of labor (including,
without limitation, provisions thereof relating to wages, hours, equal
opportunity, collective bargaining and the payment of social security and other
taxes), and the Company is not aware that it or any Subsidiary has any material
labor relations problems (including, without limitation, any union organization
activities, threatened or actual strikes or work stoppages or material
grievances). Except as set forth on the attached "Employees Schedule," neither
the Company, its Subsidiaries nor, to the best of the Company's knowledge, any
of their employees is subject to any noncompete, nondisclosure, confidentiality,
employment, consulting or similar agreements relating to, affecting or in
conflict with the present or proposed business activities of the Company and its
Subsidiaries, except for agreements between the Company and its present and
former employees.
5R. ERISA. Except as set forth on the attached "Employee Benefits
Schedule":
(i) Multiemployer Plans. The Company does not have any
obligation to contribute to (or any other liability, including current or
potential withdrawal liability, with respect to) any "multiemployer plan" (as
defined in Section 3(37) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")).
(ii) Retiree Welfare Plans. The Company does not maintain or
have any obligation to contribute to (or any other liability with respect to)
any plan or arrangement whether or not terminated, which provides medical,
health, life insurance or other welfare-type benefits for current or future
retired or terminated employees (except for limited continued medical benefit
coverage required to be provided under Section 4980B of the IRC or as required
under applicable state law).
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(iii) Defined Benefit Plans. The Company does not maintain,
contribute to or have any liability under (or with respect to) any employee plan
which is a tax-qualified "defined benefit plan" (as defined in Section 3(35) of
ERISA), whether or not terminated.
(iv) Defined Contribution Plans. The Company does not maintain,
contribute to or have any liability under (or with respect to) any employee plan
which is a tax-qualified "defined contribution plan" (as defined in Section
3(34) of ERISA), whether or not terminated.
(v) Other Plans. The Company does not maintain, contribute to
or have any liability under (or with respect to) any plan or arrangement
providing benefits to current or former employees, including any bonus plan,
plan for deferred compensation, employee health or other welfare benefit plan or
other arrangement, whether or not terminated.
(vi) The Company. For purposes of this paragraph 5R, the term
"Company" includes all organizations under common control with the Company
pursuant to Section 414(b) or (c) of the IRC.
5S. Compliance with Laws.
(i) Neither the Company nor any Subsidiary has violated any law
or any governmental regulation or requirement which violation has had or would
reasonably be expected to have a material adverse effect upon the financial
condition, operating results, assets, operations or business prospects of the
Company and its Subsidiaries taken as a whole, and neither the Company nor any
Subsidiary has received notice of any such violation.
(ii) Neither the Company or any Subsidiary nor their officers and
employees, nor any persons who provide professional services under agreements
with the Company or its Subsidiaries have engaged in any activities which are
prohibited under any laws related to the operation of the business of the
Company or any Subsidiary, or the regulations promulgated pursuant to such laws,
including, without limitation, the following activities:
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(a) making or causing to be made a false statement or
representation of a material fact in any application for any benefit or
payment;
(b) making or causing to be made any false statement or
representation of a material fact for use in determining rights to any
benefit or payment;
(c) presenting or causing to be presented a claim for
reimbursement for services under Medicare, Medicaid, or other state health
care programs that is for an item or service that is (i) not provided as
claimed, or (ii) false or fraudulent;
(d) failing to disclose knowledge by a claimant of the occurrence
of any event affecting the initial or continued right to any benefit or
payment on its own behalf or on behalf of another, regardless of whether
there was intent to fraudulently secure such benefit or payment;
(e) offering, paying, soliciting or receiving any remuneration
(including any kickback, bribe, or rebate), directly or indirectly, overtly
or covertly, in cash or in kind (i) in return for referring an individual
to a person for the furnishing or arranging for the furnishing of any item
or service for which payment may be made in whole or in part by Medicare or
Medicaid, or other state health care program, or (ii) in return for
purchasing, leasing, or ordering or arranging for or recommending
purchasing, leasing, or ordering any good, facility, service, or item for
which payment may be made in whole or in part by Medicare or Medicaid or
other state health care program;
(f) making a payment, directly or indirectly, to a physician as
an inducement to reduce or limit services to individuals who are under the
direct care of the physician and who are entitled to benefits under
Medicare, Medicaid, or other state health care programs;
(g) providing to any person information that is false or
misleading that could reasonably be expected to
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influence the decision when to discharge a patient from a facility;
(h) making or causing to be made or inducing or seeking to induce
the making of any false statement or representation (or omitting to state a
fact required to be stated therein or necessary to make the statements
contained therein not misleading) of a material fact with respect to (i)
the conditions or operations of a facility in order that the facility may
qualify for Medicare, Medicaid or other state health care program
certification, (ii) information required to be provided under (S) 1124A of
the Social Security Act (42 U.S.C. (S) 1320a-3), or (iii) information
otherwise required by Medicare Regulations, Medicaid Regulations, or Other
Healthcare Regulations; and
(i) charging money or other consideration for any Medicaid
service at a rate in excess of the rates established by the state, or
charging, soliciting, accepting or receiving, in addition to amounts paid
by Medicaid, any gift money, donation or other consideration as a
precondition of admitting a patient or as a requirement for the patient's
continued stay in a facility.
5T. Environmental and Safety Matters.
(i) For purposes of this Agreement, the term "Environmental and
Safety Requirements" shall mean all federal, state and local statutes,
regulations, ordinances and other provisions having the force or effect of law,
all judicial and administrative orders and determinations and all common law, in
each case concerning public health and safety, worker health and safety and
pollution or protection of the environment (including, without limitation, all
those relating to the presence, use, production, generation, handling,
transport, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, Release, threatened Release, control or cleanup of any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation); "Release"
shall have the meaning set forth in CERCLA (as defined below); and
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"Environmental Lien" shall mean any Lien, whether recorded or unrecorded, in
favor of any governmental entity, relating to any liability of the Company or
any Subsidiary arising under any Environmental and Safety Requirements.
(ii) Except as set forth on the attached "Environmental
Schedule":
(a) The Company and its Subsidiaries have complied with and are
currently in compliance with all Environmental and Safety Requirements, and
neither the Company nor its Subsidiaries have received any written notice,
report or information regarding any liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise) or any corrective, investigatory or
remedial obligations arising under Environmental and Safety Requirements
which relate to the Company or its Subsidiaries or any of their properties
or facilities, except for any such noncompliance, liability or obligation
which has not had or would not reasonably be expected to have a material
adverse effect on the financial condition, operating results, assets,
operations or business prospects of the Company and its Subsidiaries taken
as a whole.
(b) Without limiting the generality of the foregoing, the Company
and its Subsidiaries have obtained and complied with, and are currently in
compliance with, all permits, licenses and other authorizations that may be
required pursuant to any Environmental and Safety Requirements for the
occupancy of their properties or facilities or the operation of their
businesses, except for any such failure to obtain or comply which has not
had or would not reasonably be expected to have a material adverse effect
on the financial condition, operating results, assets, operations or
business prospects of the Company and its Subsidiaries taken as a whole. A
list of all such permits, licenses and other authorizations which are
material to the Company and its Subsidiaries is set forth on the attached
Environmental Schedule.
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(c) Neither this Agreement nor the consummation of the
transactions contemplated by this Agreement shall impose any obligations on
the Company and its Subsidiaries or otherwise for site investigation or
cleanup, or notification to or consent of any government agencies or third
parties under any Environmental and Safety Requirements (including, without
limitation, any so called "transaction-triggered" or "responsible property
transfer" laws and regulations).
(d) None of the following exists at any property or facility
owned, occupied or operated by the Company or any of its Subsidiaries:
(1) underground storage tanks or surface impoundments;
(2) asbestos-containing materials in any form or condition; or
(3) materials or equipment containing polychlorinated biphenyls.
(e) Neither the Company nor any of its Subsidiaries has treated,
stored, disposed of, arranged for or permitted the disposal of,
transported, handled or Released any substance (including, without
limitation, any hazardous substance) or owned, occupied or operated any
facility or property, so as to give rise to liabilities of the Company or
its Subsidiaries for response costs, natural resource damages or attorneys
fees pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), as amended, or any other Environmental
and Safety Requirements except for any liabilities which would not
reasonably be expected to have a material adverse effect.
(f) Without limiting the generality of the foregoing, no facts,
events or conditions relating to the past or present properties, facilities
or operations of the Company or its Subsidiaries shall prevent, hinder or
limit continued compliance with Environmental and Safety Requirements, give
rise to any corrective, investigatory or remedial obligations
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pursuant to Environmental and Safety Requirements or give rise to any other
liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise) pursuant to Environmental and Safety Requirements (including,
without limitation, those liabilities relating to onsite or offsite
Releases or threatened Releases of hazardous materials, substances or
wastes, personal injury, property damage or natural resources damage,
except for any such noncompliance, obligation or liability which has not
had or would not reasonably be expected to have a material adverse effect
on the financial condition, operating results, assets, operations or
business prospects of the Company and its Subsidiaries taken as a whole.
(g) Neither the Company nor any of its Subsidiaries has, either
expressly or by operation of law, assumed or undertaken any material
liability or corrective, investigatory or remedial obligation of any other
Person relating to any Environmental and Safety Requirements.
(h) No Environmental Lien has attached to any property owned,
leased or operated by the Company or any of its Subsidiaries.
5U. Affiliated Transactions. Except as set forth on the attached
"Affiliated Transactions Schedule," no officer, director, employee, stockholder
or Affiliate of the Company or any Subsidiary or any individual related by
blood, marriage or adoption to any such individual or any entity in which any
such Person or individual owns any beneficial interest, is a party to any
agreement, contract, commitment or transaction with the Company or any
Subsidiary or has any material interest in any material property used by the
Company or any Subsidiary.
5V. Medicare and Medicaid Matters. Except as set forth on the
"Healthcare Schedule":
(i) neither the Company nor any of its Subsidiaries (nor, as
applicable, each facility owned, managed or leased by the Company and its
Subsidiaries) currently receives or has in the past (while under the control or
management of the Company) received any
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reimbursements under the Medicare program ("Medicare") or is or has in the past
been required to have a Medicare Provider Agreement or is or has in the past
been required to obtain or maintain a Medicare Certification;
(ii) the Company and each of its Subsidiaries (and, as
applicable, each facility of the Company and its Subsidiaries) is certified for
participation in the Medical Assistance ("Medicaid") program for the state in
which it is located, has a current and valid Medicaid Provider Agreement, and
the Company (and, as applicable, each facility of the Company and its
Subsidiaries has obtained and maintains the Medicaid Certification necessary for
capital reimbursement of the Company's assets;
(iii) neither the Company nor any Subsidiary nor the respective
officers and directors of the Company and its Subsidiaries (acting in their
individual and non-representative capacities), nor Persons who provide
professional services under agreements with the Company or its Subsidiaries,
have engaged in any activities which (i) could subject such Person to sanctions
under 42 U.S.C. (S) 1320a-7 or (ii) at the time such activities were engaged in
were prohibited under Federal Medicare and Medicaid statutes, 42 U.S.C. (S)(S)
1320a-7 and 1320a-7b, or the regulations promulgated pursuant to such statutes
or related state or local statutes or regulations or which are prohibited by
rules of professional conduct;
(iv) neither the Company nor any Subsidiary has received notice
from any Authority of any pending or threatened investigations or surveys, and
neither the Company nor any Subsidiary has any reason to believe that any such
investigations or surveys are pending, threatened or imminent; and
(v) the Company and its Subsidiaries have complied with all
applicable Medicare Regulations, Medicaid Regulations, and Other Healthcare
Regulations and have filed all returns, cost reports and other filings in any
manner prescribed. All returns, cost reports and other filings made by the
Company and its Subsidiaries to Medicare, Medicaid or any other Authority are
true and complete. No deficiency in any such returns, cost reports and other
filings, including deficiencies for late filings, has been
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asserted or threatened by any Authority, and to the best of the company's
knowledge, after reasonable investigation, there is no basis for any claims or
requests for reimbursement from any Authority. Neither the Company nor any of
its Subsidiaries has been subject to any audit relating to fraudulent Medicare
or Medicaid procedure or practices.
5W. Reports with the Securities and Exchange Commission. The Company
has furnished the Purchasers with complete and accurate copies of its annual
report on Form 10-K for its most recent fiscal year, all other reports or
documents required to be filed by the Company pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act since the filing of the most recent annual report
on Form 10-K and its most recent annual report to its shareholders. At their
respective times of filing with the Securities and Exchange Commission, such
reports and filings did not contain any material false statements or any
misstatement of any material fact and did not omit to state any fact necessary
to make the statements set forth therein not misleading. The Company has made
all filings with the Securities and Exchange Commission which it is required to
make, and the Company has not received any request from the Securities and
Exchange Commission to file any amendment or supplement to any of the reports
described in this paragraph.
5X. Disclosure. Neither this Agreement nor any of the exhibits,
schedules, attachments, written statements, documents, certificates or other
items prepared or supplied to Purchaser by or on behalf of the Company with
respect to the transactions contemplated hereby (the "Disclosed Information")
contain any untrue statement of a material fact or omit a material fact
necessary to make each statement contained herein or therein not misleading;
provided that with respect to the financial projections furnished to Purchaser
by the Company, the Company represents and warrants only that such projections
were based upon assumptions reasonably believed by the Company to be reasonable
and fair as of the date of the projections. There is no fact which the Company
has not disclosed to Purchaser in writing and of which any of its officers or
directors is aware and which has had or would reasonably be expected to have a
material adverse effect upon the existing or expected financial condition,
operating results, assets, customer or supplier relations, employee relations or
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business prospects of the Company and its Subsidiaries taken as a whole.
5Y. Real Property Holding Corporation. Since its date of incorporation,
the Company has not been, and as of the date of the Closing shall not be, a
"United States real property holding corporation", as defined in Section
897(c)(2) of the IRC and in Section 1.897-2(b) of the Treasury Regulations. The
Company has filed with the IRS all statements, if any, with its United States
income tax returns which are required under Section 1.897-2(h) of the Treasury
Regulations.
5Z. Closing Date. The representations and warranties of the Company
contained in this Section 5 and elsewhere in this Agreement and all information
contained in any exhibit, schedule or attachment hereto or in any certificate or
other writing delivered by, or on behalf of, the Company to Purchaser shall be
true and correct in all material respects on the date of the Closing as though
then made, except as affected by the transactions expressly contemplated by this
Agreement.
5AA. Forward-Looking Information. The Company believes that the Disclosed
Information contains "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended. Certain factors that could cause
results to differ materially from those projected in the forward-looking
statements are set forth in the "Risk Factors" section of the Company's
Prospectus related to its initial public offering and in the reports filed by
the Company pursuant to the Securities Exchange Act of 1934. Many of these
factors are beyond the Company's control, and they include the risk that the
Company will be unable to locate suitable sites for the development of new
assisted living facilities, risks relating to the inability to obtain, or delays
in obtaining, necessary zoning, land use, building, occupancy and other required
governmental permits and authorizations, risks that financing may not be
available to the Company on satisfactory terms, environmental risks, risks that
construction costs may exceed original estimates, risks that construction and
lease-up may not be completed on schedule, risks that occupancy rates at a newly
completed community may not be
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achieved or be sustained at expected levels and risks relating to the
competitive environment for development.
Section 6. Definitions.
------------
6A. Definitions. For the purposes of this Agreement, the following
terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Authority" means any Governmental Agency, JCAHO, Medicare, Medicaid,
any member of the Blue Cross and Blue Shield Association, private insurance
company, health maintenance organization, preferred provider organization,
exclusive provider organization, alternative delivery system, managed care
system, the Civilian Health and Medical Program of the Uniformed Services, other
third-party payor, other industry group or any other agency, group,
instrumentality or authority having contractual or mandatory authority in
respect of the business of the Company or any Subsidiary.
"Competitor" means any Person that directly or indirectly derives a
substantial portion of its revenue or income from the provision of
accommodations or health care to the elderly.
"Event of Noncompliance" has the meaning set forth in the Articles of
Amendment.
"Governmental Agency" means any federal, state, local, foreign or
other governmental agency, instrumentality, commission, authority, board or
body.
"HCFA" means the Healthcare Financing Administration of HHS and any
Person succeeding to the functions thereof.
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"HHS" means the Department of Health and Human Services and any Person
succeeding to the functions thereof.
"Indebtedness" means at a particular time, without duplication, (i)
any indebtedness for borrowed money or issued in substitution for or exchange of
indebtedness for borrowed money, (ii) any indebtedness evidenced by any note,
bond, debenture or other debt security, (iii) any indebtedness for the deferred
purchase price of property or services with respect to which a Person is liable,
contingently or otherwise, as obligor or otherwise (other than trade payables
and other current liabilities incurred in the ordinary course of business which
are not more than six months past due), (iv) any commitment by which a Person
assures a creditor against loss (including, without limitation, contingent
reimbursement obligations with respect to letters of credit), (v) any
indebtedness guaranteed in any manner by a Person (including, without
limitation, guarantees in the form of an agreement to repurchase or reimburse),
(vi) any obligations under capitalized leases with respect to which a Person is
liable, contingently or otherwise, as obligor, guarantor or otherwise, or with
respect to which obligations a Person assures a creditor against loss, (vii) any
indebtedness secured by a Lien on a Person's assets and (viii) any unsatisfied
obligation for "withdrawal liability" to a "multiemployer plan" as such terms
are defined under ERISA.
"Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks, service
marks, trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documentation thereof, (vi) trade
secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings, speci-
fications, designs, plans, proposals, technical data, copyrightable
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works, financial and marketing plans and customer and supplier lists and
information), (vii) other intellectual property rights and (viii) copies and
tangible embodiments thereof (in whatever form or medium).
"Investment" as applied to any Person means (i) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
"JCAHO" means the Joint Commission for Accreditation of Healthcare
Organizations or any Governmental Authority succeeding to the functions thereof.
"Liens" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company, any Subsidiary or any Affiliate,
any filing or agreement to file a financing statement as debtor under the
Uniform Commercial Code or any similar statute other than to reflect ownership
by a third party of property leased to the Company or any Subsidiaries under a
lease which is not in the nature of a conditional sale or title retention
agreement, or any subordination arrangement in favor of another Person (other
than any subordination arising in the ordinary course of business).
"Medicaid Certification" means certifications by HCFA or a state
agency or entity under contract with HCFA that the facility fully complies with
all the conditions of participation set forth in Medicaid Regulations.
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"Medicaid Regulations" means, collectively, (i) all federal statutes
(whether set forth in Title XIX of the Social Security Act or elsewhere)
affecting the medical assistance program established by Title XIX of the Social
Security Act (42 U.S.C. (S)(S) 1396, et seq.) and any statutes succeeding
thereto; (ii) all orders and administrative, reimbursement and other guidelines
of all Governmental Authorities (whether or not having the force of law)
promulgated pursuant to or in connection with the statutes described in clause
(i) above; (iii) all state statutes and plans for medical assistance enacted in
connection with the statutes and provisions described in clauses (i) and (ii)
above; and (i) all applicable provisions of all rules, regulations, manuals,
orders and administrative, reimbursement and other guidelines of all
Governmental Authorities (whether or not having the force of law) promulgated
pursuant to or in connection with any of the foregoing, in each case as may be
amended, supplemented or otherwise modified from time to time.
"Medicare Certification" means certifications by HCFA or a state
agency or entity under contract with HCFA that the facility fully complies with
all the conditions of participation set forth in Medicare Regulations.
"Medicare Regulations" means, collectively, all federal statutes
(whether set forth in Title XVIII of the Social Security Act or elsewhere)
affecting the health insurance program for the aged and disabled established by
Title XVIII of the Social Security Act (42 U.S.C. (S)(S) 1395, et seq.) and any
statutes succeeding thereto, together with all applicable provisions of all
rules, regulations, manuals, orders and administrative, reimbursement and other
guidelines of all Governmental Authorities (whether or not having the force of
law) promulgated pursuant to or in connection with any of the foregoing, in each
case as may be amended, supplemented or otherwise modified from time to time.
"Officer's Certificate" means a certificate signed by the Company's
president or its chief financial officer on behalf of the Company, stating that
(i) the officer signing such certificate has made or has caused to be made such
investigations as are necessary in order to permit him to verify the accuracy of
the information set forth in such certificate and (ii) to the best of such
49
<PAGE>
officer's knowledge, such certificate does not misstate any material fact and
does not omit to state any fact necessary to make the certificate not
misleading.
"Other Healthcare Regulations" means, collectively, all statutes,
rules (including, without limitation, rules of professional conduct),
regulations, manuals, orders and guidelines of all Authorities, other than
Medicare Regulations and Medicaid Regulations, relating to the operation of
hospitals, healthcare or insurance.
"Permitted Debt Securities" means any convertible debt securities, the
proceeds from the sale of which are used for the purchase, lease, development or
construction of additional assisted living facilities and assets used in
connection therewith.
"Permitted Encumbrances" shall mean: (a) statutory liens for current
taxes or other governmental charges with respect to the Real Property not yet
due and payable or the amount or validity of which is being contested in good
faith by appropriate proceedings by the Company and for which appropriate
reserves have been established in accordance with GAAP; (b) mechanics, carriers
workers, repairers and similar statutory liens arising or incurred in the
ordinary course of business for amounts which are not delinquent and which are
not, individually or in the aggregate, material to the Company's business; (c)
zoning, entitlement, building and other land use regulations imposed by
governmental agencies having jurisdiction over the Real Property which are not
violated by the current use and operation of the Real Property; (d) covenants,
conditions, restrictions, easements and other similar matters of record
affecting title to the Real Property which do not materially impair the
occupancy or use of the Real Property for the purposes for which it is currently
used in connection with the Company's business; and (e) the Lease with respect
to any Leased Real Property.
"Permitted Indebtedness" means any indebtedness for borrowed money
incurred or assumed in connection with (i) the purchase, lease, development or
construction of additional assisted living facilities, (ii) the refinancing of
any indebtedness set forth on the attached "Contracts Schedule" or described in
clause
50
<PAGE>
(i) above, or (iii) a line of credit with a financial institution for up to
$5,000,000 for working capital purposes.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Restricted Securities" means (i) the Preferred Stock issued
hereunder, (ii) the Warrant issued hereunder, (iii) the Common Stock issued upon
conversion of Preferred Stock or upon exercise of the Warrant and (iv) any
securities issued with respect to the securities referred to in clauses (i),
(ii) or (iii) above by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Restricted Securities, such securities
shall cease to be Restricted Securities when they have (a) been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, (b) been distributed to the public through
a broker, dealer or market maker pursuant to Rule 144 (or any similar provision
then in force) under the Securities Act or become eligible for sale pursuant to
Rule 144(k) (or any similar provision then in force) under the Securities Act or
(c) been otherwise transferred and new certificates for them not bearing the
Securities Act legend set forth in paragraph 7C have been delivered by the
Company in accordance with paragraph 4B. Whenever any particular securities
cease to be Restricted Securities, the holder thereof shall be entitled to
receive from the Company, without expense, new securities of like tenor not
bearing a Securities Act legend of the character set forth in paragraph 7C.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended, or any similar federal law then in force.
51
<PAGE>
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
"Treasury Regulations" means the United States Treasury Regulations
promulgated under the IRC, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
"Underlying Common Stock" means (i) the Common Stock issued or
issuable upon conversion of the Preferred Stock or upon exercise of the Warrant
and (ii) any Common Stock issued or issuable with respect to the securities
referred to in clause (i) above by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. For purposes of this Agreement, any Person who holds
Preferred Stock or Warrants shall be deemed to be the holder of the Underlying
Common Stock obtainable upon conversion of the Preferred Stock or exercise of
the Warrants in connection with the transfer thereof or otherwise regardless of
any restriction or limitation on the conversion of the Preferred Stock or
exercise of the Warrants, such Underlying Common Stock shall be deemed to be in
52
<PAGE>
existence, and such Person shall be entitled to exercise the rights of a holder
of Underlying Common Stock hereunder. As to any particular shares of Underlying
Common Stock, such shares shall cease to be Underlying Common Stock when they
have been (a) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (b) distributed to the
public through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act (or any similar provision then in force) or (c) repurchased by
the Company or any Subsidiary.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
Subsidiary of which all of the outstanding capital stock or other ownership
interests are owned by such Person or another Wholly-Owned Subsidiary of such
Person.
Section 7. Miscellaneous.
--------------
7A. Expenses. The Company shall pay, and hold Purchaser and all
holders of Preferred Stock, Warrants and Underlying Common Stock harmless
against liability for the payment of, (i) the reasonable fees and expenses of
its special counsel arising in connection with the negotiation and execution of
this Agreement and the consummation of the transactions contemplated by this
Agreement and the reasonable expenses incurred by Purchaser in connection with
its due diligence review of the Company, in each case which shall be payable at
the Closing, (ii) the reasonable fees and expenses incurred with respect to any
amendments or waivers (whether or not the same become effective) under or in
respect of this Agreement, the agreements contemplated hereby, the Restated
Articles of Incorporation, as amended or the Articles of Amendment, (including,
without limitation, in connection with any proposed merger, sale or
recapitalization of the Company), (iii) stamp and other taxes which may be
payable in respect of the execution and delivery of this Agreement or the
issuance, delivery or acquisition of any shares of Preferred Stock or any shares
of Common Stock issuable upon conversion of Series A Preferred or exercise of
the Warrant, (iv) the reasonable fees and expenses incurred with respect to the
enforcement of the rights granted under this Agreement, the agreements
contemplated hereby, the Restated Articles of Incorporation, as amended, the
Warrants and the
53
<PAGE>
Articles of Amendment, and (v) the reasonable fees and expenses incurred by each
such Person in any filing with any governmental agency with respect to its
investment in the Company or in any other filing with any governmental agency
with respect to the Company which mentions such Person.
7B. Remedies. Each holder of Preferred Stock and Underlying Common
Stock shall have all rights and remedies set forth in this Agreement, the
Restated Articles of Incorporation, as amended and the Articles of Amendment and
all rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the rights which such holders have
under any law. Any Person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
7C. Purchaser's Representations.
---------------------------
(i) Authorization. Purchaser has full power and authority to
enter into this Agreement and to consummate the transactions contemplated by
this Agreement, and this Agreement constitutes its valid and legally binding
obligation, enforceable in accordance with its terms.
(ii) Purchase Entirely for Own Account. This Agreement is
made with Purchaser in reliance upon its representation to the Company that the
Restricted Securities to be received by Purchaser will be acquired for
investment for Purchaser's own account, not as a nominee or agent, and not with
a view to the resale or distribution of any part thereof, and that Purchaser has
no present intention of selling, granting any participation in, or otherwise
distributing the same. Purchaser further represents that it does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Restricted Securities.
(iii) Disclosure of Information. Purchaser believes it has
received all the information it considers necessary or
54
<PAGE>
appropriate for deciding whether to purchase the Restricted Securities.
Purchaser further represents that it has had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of the
offering of the Restricted Securities and the business, properties, prospects
and financial condition of the Company. The foregoing, however, does not limit
or modify the representations and warranties of the Company in Section 5 of this
Agreement or the right of Purchaser to rely thereon.
(iv) Investment Experience. Purchaser is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Restricted
Securities. Purchaser also represents it has not been organized for the purpose
of acquiring the Restricted Securities.
(v) Accredited Investor. Purchaser is an "accredited investor"
within the meaning of Securities and Exchange Commission Rule 501 of Regulation
D, as presently in effect.
(vi) Brokerage. Assuming the Company's representations in
paragraph 5N are accurate, there are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement binding
upon Purchaser.
(vii) Restricted Securities. Purchaser understands that the
Restricted Securities it is purchasing are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be resold
without registration under the Securities Act of 1933 only in certain limited
circumstances. In this connection, Purchaser represents that it is familiar with
Securities and Exchange Commission Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Act.
55
<PAGE>
(viii) Legend. Each certificate or instrument representing
Restricted Securities shall be imprinted with a legend in substantially the
following form:
"The securities represented by this certificate were originally issued on
December 16, 1996, and have not been registered under the Securities Act of
1933, as amended. The transfer of the securities represented by this
certificate is subject to the conditions specified in the Preferred Stock
and Warrant Purchase Agreement, dated as of December 16, 1996, and as
amended and modified from time to time, between the issuer (the "Company")
and certain investors, and the Company reserves the right to refuse the
transfer of such securities until such conditions have been fulfilled with
respect to such transfer. A copy of such conditions shall be furnished by
the Company to the holder hereof upon written request and without charge."
7D. Treatment of the Preferred Stock. The Company covenants and agrees
that (i) so long as federal income tax laws prohibit a deduction for
distributions made by the Company with respect to preferred stock, it shall
treat all distributions paid by it on the Preferred Stock as non-deductible
dividends on all of its tax returns and (ii) it shall treat the Preferred Stock
as preferred stock in all of its financial statements and other reports and
shall treat all distributions paid by it on the Preferred Stock as dividends on
preferred stock in such statements and reports. The Company acknowledges and
agrees that the increased dividend rate on the Preferred Stock provided for in
the Articles of Amendment upon the occurrence of certain Events of Noncompliance
has been negotiated by (and is intended by) the Company and the Purchasers as a
reasonable increase in yield necessitated by the increased risk to the holders
of the Preferred Stock which would arise upon any such occurrence.
7E. Consent to Amendments. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of
56
<PAGE>
at least 66 2/3% of the outstanding Preferred Stock; provided that if there is
no Preferred Stock outstanding, the provisions of this Agreement may be amended
and the Company may take any action herein prohibited, only if the Company has
obtained the written consent of the holders of at least 66 2/3% of the
Underlying Common Stock. No other course of dealing between the Company and the
holder of any Preferred Stock, Warrant or Underlying Common Stock or any delay
in exercising any rights hereunder or under the Restated Articles of
Incorporation, as amended or Articles of Amendment shall operate as a waiver of
any rights of any such holders. For purposes of this Agreement, shares of
Preferred Stock or Underlying Common Stock held by the Company or any
Subsidiaries shall not be deemed to be outstanding. If the Company pays any
consideration to any holder of Preferred Stock or Underlying Common Stock for
such holder's consent to any amendment, modification or waiver hereunder, the
Company shall also pay each other holder granting its consent hereunder
equivalent consideration computed on a pro rata basis.
7F. Survival of Representations and Warranties. All representations
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by any Purchaser or on its behalf.
7G. Successors and Assigns. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Purchaser's benefit as a
purchaser or holder of Preferred Stock, the Warrant or Underlying Common Stock
are also for the benefit of, and enforceable by, any subsequent holder of such
Preferred Stock, such Warrant or such Underlying Common Stock.
7H. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable
57
<PAGE>
law, such provision shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating the remainder of this Agreement.
7I. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
7J. Descriptive Headings; Interpretation. The descriptive headings
of this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
7K. Governing Law. The corporate law of the State of Oregon shall
govern all issues and questions concerning the relative rights and obligations
of the Company and its stock holders. All other issues and questions concerning
the construction, validity, enforcement and interpretation of this Agreement
and the exhibits and schedules hereto shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to any
choice of law or conflict of law rules or provisions (whether of the State of
New York or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of New York.
7L. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable overnight courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to Purchaser and to the Company at the addresses
indicated below:
58
<PAGE>
To Purchaser:
Prudential Equity Investors, Inc.
Attn: Dana J. O'Brien
717 Fifth Avenue, 11th Floor
New York, NY 10022
To the Company:
Before December 27, 1996:
Regent Assisted Living, Inc.
Attn: Chief Financial Officer
2260 U.S. Bancorp Tower
111 S.W. Fifth Avenue
Portland, OR 97204
After December 27, 1996:
Regent Assisted Living, Inc.
Attn: Chief Financial Officer
121 S.W. Morrison, Suite 1000
Portland, OR 97204
At any time with a copy to:
Stoel Rives LLP
Attn: Mr. Todd A. Bauman
900 S.W. Fifth Avenue, Suite 2300
Portland, OR 97204-1268
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
7M. Consideration for Warrants. Purchaser and the Company acknowledge
and agree that the fair market value of the Preferred Stock issued hereunder is
$9,950,000 and the fair market value of the Warrant issued hereunder is $50,000
and that, for all purposes (including tax and accounting), the consideration for
the issuance of the Warrant shall be allocated as set forth in
59
<PAGE>
paragraph 1B. Purchaser and the Company shall file their respective federal,
state and local tax returns in a manner which is consistent with such valuation
and allocation and shall not take any contrary position with any taxing
authority.
7N. No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
7O. Indemnification.
(i) General. In consideration of the Purchaser's execution and
delivery of this Agreement and acquiring the Preferred Stock and Warrant
hereunder and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless
Purchaser and each other holder of Preferred Stock or Warrant and all of their
officers, directors, employees and agents (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and reasonable expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
here under is sought), and including reasonable attorneys' fees and
disbursements (except for fees of counsel in connection with the preparation for
or attendance at a deposition) (the "Indemnified Liabilities"), incurred by the
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Warrant, the Registration Agreement or the
Stockholders Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, the Warrant, the
Registration Agreement or the Stockholders Agreement or any other certificate,
instrument or document contemplated hereby or thereby, or (c) any
60
<PAGE>
cause of action, suit or claim brought or made against such Indemnitee and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the Indemnitees, other than a cause of
action, suit or claim brought or made by a Person affiliated with the Indemnitee
or by or on behalf of the Company, except for any such Indemnified Liabilities
arising on account of the particular Indemnitee's gross negligence or willful
misconduct. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
(ii) Environmental Liabilities. Without limiting the generality of the
indemnity set out in paragraph 7O(i) above, the Company shall defend, protect,
indemnify and hold harmless Purchaser and all other Indemnitees from and against
any and all actions, causes of action, suits, liabilities, penalties, fees,
expenses and claims of any and every kind whatsoever paid, incurred or suffered
by, or asserted against, each Purchaser or any other Indemnitee for, with
respect to, or as a direct or indirect result of, the past, present or future
environmental condition of any property owned, operated or used by the Company,
any Subsidiary, their predecessors or successors or of any offsite treatment,
storage or disposal location associated therewith, including, without
limitation, the presence on or under, or the escape, seepage, leakage, spillage,
discharge, emission, release, or threatened release into, onto or from, any such
property or location of any toxic, chemical or hazardous substance, material or
waste (including, without limitation, any liabilities, penalties, fees, expenses
or claims asserted or arising under the Comprehensive Environmental Response,
Compensation and Liability Act, any so-called "Superfund" or "Superlien" law, or
any other federal, state, local or foreign statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to or imposing liability or
standards on conduct concerning, any toxic, chemical or hazardous substance,
material or waste), regardless of whether caused by, or within the control of,
the Company or any Subsidiary.
* * * * *
61
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
REGENT ASSISTED LIVING, INC.
By ---------------------------
President
Its --------------------------
PRUDENTIAL PRIVATE EQUITY
INVESTORS III, L.P.
By Prudential Equity Investors, Inc.
Its General Partner
By Cornerstone Equity
Investors, L.L.C.
Its Investment Adviser
By ---------------------------
Its --------------------------
62
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
REGENT ASSISTED LIVING, INC.
By ---------------------------
Its --------------------------
PRUDENTIAL PRIVATE EQUITY
INVESTORS III, L.P.
By Prudential Equity Investors, Inc.
Its General Partner
By Cornerstone Equity
Investors, L.L.C.
Its Investment Adviser
By ---------------------------
Senior Managing Director
Its --------------------------
63
<PAGE>
LIST OF DISCLOSURE SCHEDULES
Capitalization Schedule
Subsidiary Schedule
Financial Statements Schedule
Liabilities Schedule
Developments Schedule
Assets Schedule
Taxes Schedule
Contracts Schedule
Intellectual Property Schedule
Litigation Schedule
Insurance Schedule
Employees Schedule
Employee Benefits Schedule
Environmental Schedule
Affiliated Transactions Schedule
Healthcare Schedule
64
<PAGE>
CAPITALIZATION SCHEDULE
Section 5B
OPTIONS GRANTED ON BOWEN SHARES:
<TABLE>
<CAPTION>
Grantee Grant Date Expiration Date Number of Shares Price
<S> <C> <C> <C> <C>
Jim Ekberg 12-26-95 12-26-05 50,000 $6.00
Eric Jacobsen 12-26-95 12-26-05 85,000 $6.00
Steve Gish 12-26-95 12-26-05 25,000 $6.00
Dennis Parfitt 12-26-95 12-26-05 5,000 $8.00
Greg Roderick 12-26-95 12-26-05 5,000 $8.00
</TABLE>
OPTIONS GRANTED UNDER 1995 STOCK INCENTIVE PLAN:
<TABLE>
<CAPTION>
Grantee Grant Date Expiration Date Number of Shares Price
<S> <C> <C> <C> <C>
Jim Ekberg 12-26-95 12-26-05 75,000 $7.50
2-20-96 2-20-06 25,000 $5.75
11-18-96 11-18-06 25,000 $4.00
Eric Jacobsen 12-26-95 12-26-05 75,000 $7.50
11-18-96 11-18-06 25,000 $4.00
Steve Gish 12-26-95 12-26-05 25,000 $7.50
2-20-96 2-20-06 10,000 $5.75
11-18-96 11-18-06 25,000 $4.00
Greg Roderick 12-26-95 12-26-05 5,000 $7.50
2-20-96 2-20-06 2,500 $5.75
11-18-96 11-18-06 5,000 $4.00
David Gibson 3-20-96 3-20-06 10,000 $6.00
11-18-96 11-18-06 10,000 $4.00
Nancy Hubbard 2-20-96 2-20-06 5,000 $5.75
Georgia Bialon 10-21-96 10-21-06 5,000 $5.25
Dr. Marvin Hausman 3-11-96 3-11-06 50,000 $5.50
3-28-96 3-28-06 2,000 $5.25
Peter Brix 12-26-96 12-26-06 2,000 $7.50
Gary Maffei 12-26-96 12-26-06 2,000 $7.50
Corey Smith 2-20-96 2-20-06 2,000 $5.75
</TABLE>
<PAGE>
WARRANTS GRANTED IN CONNECTION WITH INITIAL PUBLIC OFFERING:
<TABLE>
<CAPTION>
Grantee Grant Date Expiration Date Number of Shares Price
<S> <C> <C> <C> <C>
John Lillicrop 12-26-96 12-26-01 7,000 $9.00
Laura Black 12-26-96 12-26-01 10,500 $9.00
Lawrence Black 12-26-96 12-26-01 24,500 $9.00
Black & Company 12-26-96 12-26-01 28,000 $9.00
</TABLE>
<PAGE>
SUBSIDIARY SCHEDULE
Section 5C
1. The Regent Northshore House, L.L.C. is an Oregon limited liability company,
qualified to transact business in Washington, and is owned 50 percent by
Regent and 50 percent by The Northshore House, L.L.C. Each member has a
right of first refusal to purchase the other member's interest upon a
desired transfer. Furthermore, if a member is required to make an
additional capital contribution, does not do so and the other member makes
the contribution for them, the defaulting member's interest is pledged as
security for the loan and the interest is subject to foreclosure.
2. Regent/Rio Rancho, LLC is an Oregon limited liability company and its
application to become qualified to transact business in New Mexico is
pending. Regent owns a 90 percent membership interest and the remaining 10
percent interest is owned by Arrellaga Development Group. Each member has a
right of first refusal to purchase the other member's interest upon a
desired transfer. Also, Regent has the right to purchase Arrellaga's
interest at will.
<PAGE>
FINANCIAL STATEMENTS SCHEDULE
Section 5E
Attached hereto are the following:
1. Audited December 31, 1995, balance sheet;
2. Statement of operations for twelve months ended December 31, 1995;
3. Statement of cash flows for twelve months ended December 31, 1995;
4. Unaudited September 30, 1996, balance sheet;
5. Statement of operations for nine months ended September 30, 1996;
and
6. Statement of cash flows for nine months ended September 30, 1996.
<PAGE>
Regent Assisted Living, Inc. (The Company)
Regent Assisted Living Group (Predecessor)
Balance Sheets
<TABLE>
<CAPTION>
Predecessor \\ The Company
------------------------------- \\ --------------
December 31, December 31, \\ December 31,
1994 1995 \\ 1995
-------------- -------------- \\ --------------
<S> <C> <C> \\ <C>
ASSETS \\
\\
Current assets: \\
Cash and cash equivalents $ 566,028 $ 8,419,491 \\ $ 7,585,952
Investments 1,952,542 \\ 1,952,542
Accounts receivable 71,623 285,336 \\ 115,736
Prepaid expenses 7,922 77,928 \\ 77,928
------------- -------------- \\ ------------
\\
Total current assets 645,573 10,735,297 \\ 9,732,158
\\
Property and equipment, net 10,736,279 8,520,270 \\ 7,927,331
Restricted cash 76,364 \\ 76,364
Other assets 374,068 704,307 \\ 450,757
------------- -------------- \\ ------------
\\
Total assets $ 11,755,920 $ 30,036,238 \\ $ 18,186,610
============= ============== \\ ============
\\
LIABILITIES \\
\\
Current liabilities: \\
Accounts payable and other accrued expenses $ 314,000 $ 1,237,547 \\ $ 892,599
Accrued payroll 164,412 290,139 \\ 82,865
Accrued interest 250,977 173,483 \\ 33,939
Current portion of note payable to an owner 541,342 123,774 \\
Current portion of long-term debt 226,887 369,491 \\ 76,284
------------- -------------- \\ ------------
\\
Total current liabilites 1,497,618 2,194,434 \\ 1,085,687
\\
Long-term note payable to an owner 1,674,461 135,441 \\
Long-term debt 15,048,448 24,022,919 \\ 6,023,716
Other liabilities 318,452 424,512 \\ 417,005
------------- -------------- \\ ------------
\\
Total liabilities 18,538,979 26,777,306 \\ 7,526,408
------------- -------------- \\ ------------
\\
Commitments (Note 6) \\
\\
PARTNERS'/SHAREHOLDERS' EQUITY (DEFICIT) \\
\\
Preferred stock, no par value, 5,000,000 shares authorized; \\
no shares issued and outstanding \\
Common stock, no par value, 25,000,000 shares authorized; \\
4,633,000 shares issued and outstanding \\ 10,758,703
Accumulated deficit \\ (98,501)
Partners'/shareholders' equity (accumulated deficit) (6,783,059) 3,258,932 \\
------------- -------------- \\ ------------
\\
Total partners'/shareholders' equity (deficit) (6,783,059) 3,258,932 \\ 10,660,202
------------- -------------- \\ ------------
\\
Total liabilities and partners'/shareholders' equity $ 11,755,920 $ 30,036,238 \\ $ 18,186,610
============== ============== \\ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-4
<PAGE>
Regent Assisted Living, Inc. (The Company)
Regent Assisted Living Group (Predecessor)
Statement of Operations
<TABLE>
<CAPTION>
The Company
Predecessor ------------
------------------------------------------- Year ended
Years ended December 31, December 31,
1993 1994 1995 1995
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Rental and service $ 8,649,828 $ 8,790,788 $ 9,819,535 $ 237,501
Management fee 157,521 257,160 319,274 789,118
----------- ----------- ----------- ----------
Total revenues 8,807,349 9,047,948 10,138,809 1,026,619
----------- ----------- ----------- ----------
Operating expenses:
Residence operating expenses 5,674,406 5,751,141 5,871,676 202,513
General and administrative 563,574 651,958 813,139 818,740
Depreciation and amortization 607,943 582,795 642,025 15,893
----------- ----------- ----------- ----------
Total operating expenses 6,845,923 6,985,894 7,326,840 1,037,146
----------- ----------- ----------- ----------
Operating income (loss) 1,961,426 2,062,054 2,811,969 (10,527)
Interest income 8,966 12,526 48,304 9,642
Interest expense (1,709,313) (1,686,388) (1,780,909) (67,616)
Other income, net 22,288 1,760 162,517
----------- ----------- ----------- ----------
Net income (loss) $ 283,367 $ 389,952 $ 1,241,881 $ (68,501)
=========== =========== =========== ==========
Unaudited pro forma data:
Net income (loss) $ 283,367 $ 389,952 $ 1,241,881 $ (68,501)
Pro forma (provision) benefit for
income taxes (Note 7) (108,000) (148,000) (472,000) 26,000
----------- ----------- ----------- ----------
Pro forma net income (loss) $ 175,367 241,952 769,881 $ (42,501)
=========== =========== ========== ==========
Pro forma per share net income (loss) $ 0.06 $ 0.08 $ 0.25 $ (0.01)
=========== =========== ========== ==========
Weighted average common
shares outstanding 3,000,000 3,000,000 3,026,844 3,026,544
=========== ========== ========== ==========
</TABLE>
The accompanying notes are an integal part of these financial statements.
F-5
<PAGE>
Regent Assisted Living, Inc. (The Company)
Regent Assisted Living Group (Predecessor)
Statements of Cash flows
<TABLE>
<CAPTION>
The Company
Predecessor ------------
-------------------------------------- Year ended
Years ended December 31, December 31,
1993 1994 1995 1996
----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 283,367 $ 389,952 $ 1,241,881 $ (68,501)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 607,943 582,795 642,025 15,893
Changes in other noncash items:
Accounts receivable 17,128 8,350 (213,713) (115,736)
Prepaid expenses 1,779 479 (70,006) (77,928)
Restricted cash (76,364) (76,364)
Other assets (2,435) 18,469 43,076 19,828
Accounts payable and other accrued expenses 118,317 (92,329) 923,547 892,599
Accrued payroll 19,425 (60) 125,727 82,865
Accrued interest 49,743 28,684 (77,494) 33,939
Other liabilities 54,612 41,817 106,060 77,505
----------- --------- ------------ -----------
Net cash provided by operating activities 1,149,879 978,157 2,644,739 784,100
----------- --------- ------------ -----------
Cash flows from investing activities:
Purchases of property and equipment (159,881) (271,321) (7,926,016) (7,443,224)
Purchase of investments (1,952,542) (1,952,542)
----------- --------- ------------ -----------
Net cash used in investment activities (159,881) (271,321) (9,878,558) (1,952,542)
----------- --------- ------------ -----------
Cash flows from financing activities:
Proceeds from sale of stock 10,758,703 10,758,703
Loan and lease fees (99,112) (373,315) (131,085)
Proceeds from issuance of long-term debt 8,851,140 24,050,000 5,600,000
Payments on long-term debt (9,039,976) (280,645) (15,432,925)
Repayment of notes payable to an owner (435,732) (148,465) (1,956,588)
Partner distributions/S corporation dividends (70,791) (104,168) (1,958,593) (30,000)
----------- --------- ------------ -----------
Net cash provided by (used in) financing activities (794,471) (533,278) 15,087,282 16,197,618
----------- --------- ------------ -----------
Net increase in cash and cash equivalents 195,527 173,558 7,853,463 7,585,952
Cash and cash equivalents, beginning of period 196,943 392,470 566,028 -
----------- --------- ------------ -----------
Cash and cash equivalents, end of period $ 392,470 $ 568,028 $ 8,419,491 $ 7,585,952
=========== ========= ============ ===========
Supplemental disclosure of non-cash investing and financing activities:
Long-term debt incurred to acquire properly $ - $ - $ 500,000 $ 500,000
=========== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
REGENT ASSISTED LIVING, INC. (The Company)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
December 31, 1996
1995 (Unaudited)
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,585,952 $ 4,530,627
Investments 1,952,542
Accounts receivable 115,736 116,684
Prepaid expenses 77,928 76,616
------------ -------------
Total current assets 9,732,158 4,723,927
Property and equipment, net 7,927,331 12,618,160
Restricted cash 76,364 611,700
Other assets 450,757 785,919
------------ -------------
Total assets $18,186,610 $18,739,706
============ =============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 975,464 $ 1,442,186
Accrued interest 33,939 39,298
Current portion of long-term debt 76,284 72,413
------------ -------------
Total current liabilities 1,085,687 1,553,897
Long-term debt 6,023,716 5,974,387
Other liabilities 417,005 461,064
------------ -------------
Total liabilities 7,526,408 7,989,348
------------ -------------
SHAREHOLDERS' EQUITY
Preferred stock, no par value 5,000,000 shares
authorized; no shares issued and outstanding --- ---
Common stock, no par value, 25,000,000 shares
authorized; 4,633,000 shares issued and outstanding 10,758,703 10,758,703
Accumulated deficit (98,501) (8,345)
------------ -------------
Total shareholders' equity 10,660,202 10,750,358
------------ -------------
Total liabilities and shareholders' equity $18,186,610 $18,739,706
============ =============
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
Page 3
<PAGE>
<TABLE>
<CAPTION>
REGENT ASSISTED LIVING, INC. (The Company)
AND REGENT ASSISTED LIVING GROUP (Predecessor)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
Predecessor The Company Predecessor The Company
------------------ ------------------- ----------------- -----------------
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 1995 September 30, 1996 September 30, 1995 September 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental and Service $2,472,877 $3,323,145 $ 7,072,903 $9,715,818
Management fee 69,754 43,179 222,228 129,593
---------- ---------- ----------- ----------
Total revenues 2,542,631 3,366,324 7,295,131 9,845,411
---------- ---------- ----------- ----------
Operating expenses:
Residence operating expenses 1,414,188 2,089,765 4,267,178 6,010,159
General and administrative 259,757 423,729 577,545 1,348,073
Lease 689,312 2,067,937
Depreciation and amortization 167,898 61,848 491,490 180,979
---------- ---------- ----------- ----------
Total operating expenses 1,841,843 3,264,654 5,336,213 9,607,148
---------- ---------- ----------- ----------
Operating income 700,788 101,670 1,958,918 238,263
Interest income 8,712 73,365 18,477 277,346
Interest expense (380,722) (129,456) (1,315,924) (388,037)
Other income, net (279) 3,172 1,014 13,284
---------- ---------- ----------- ----------
Income before income taxes 328,499 48,751 662,485 140,856
Provision for income taxes 15,700 50,700
---------- ---------- ----------- ----------
Net income $ 328,499 $ 33,051 $ 662,485 $ 90,156
========== ========== =========== ==========
Per share net income $ 0.01 $ 0.02
========== ==========
Pro forma data:
Income before income taxes $ 328,499 $ 662,485
Pro forma provision for
income taxes 124,800 251,700
---------- -----------
Pro forma net income $ 203,699 $ 410,785
========== ===========
Pro forma per share net income $ 0.07 $ 0.14
========== ===========
Weighted average common
shares outstanding 3,000,000 4,633,000 3,000,000 4,633,000
========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
Page 4
<PAGE>
REGENT ASSISTED LIVING, INC. (The Company)
AND REGENT ASSISTED LIVING GROUP (Predecessor)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Predecessor The Company
------------------ ------------------
Nine Months Ended Nine Months Ended
September 30, 1995 September 30, 1996
------------------ ------------------
<S> <C> <C>
Cash Flows from operating activities:
Net income $ 662,455 $ 90,156
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 491,490 180,979
Changes in other non-cash items:
Accounts receivable (98,363) (948)
Prepaid expenses (21,338) 1,312
Restricted cash 49,364
Other assets 40,641 (140,756)
Accounts payable and accrued
expenses 107,049 466,722
Accrued interest (110,226) 5,359
Other liabilities 31,347 44,059
------------ -----------
Net cash provided by operating activities 1,103,055 696,247
------------ -----------
Cash flows from investing activities:
Maturity of investments 1,952,542
Purchases of property and equipment (4,840,373)
Other assets (741,426) (163,591)
------------ -----------
Net cash used in investing activities (741,426) (3,051,422)
------------ -----------
Cash flows from financing activities:
Restricted cash (584,700)
Other assets (62,250)
Deferred stock offering costs (329,078)
Accrued stock offering costs 265,000
Loan fees (227,230)
Proceeds from issuance of long-term
debt 18,450,000
Payments on long-term debt (15,363,715) (53,200)
Repayment of notes payable to an
owner, net (1,527,341)
Capital distributions (1,389,981)
------------ -----------
Net cash used in financing activities (122,345) (700,150)
------------ -----------
Net increase (decrease) in cash
and cash equivalents 239,284 (3,055,325)
Cash and cash equivalents,
beginning of period 566,028 7,585,952
------------ -----------
Cash and cash equivalents,
end of period $ 805,312 $ 4,530,627
============ ===========
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
Page 5
<PAGE>
LIABILITIES SCHEDULE
--------------------
Section 5F
1. Office Lease, dated September 1, 1996, by and between the Company and
Terrace Tower U.S.A., - Portland, Inc.
2. Tax liability resulting from the gain to be recognized from the October 24,
1996, sale of Sunshine Villa to Health Care Property Investors, Inc.
<PAGE>
DEVELOPMENTS SCHEDULE
---------------------
Section 5H
a - b Not applicable.
c. In connection with the sale/lease back of the Sunshine Villa community,
the Company satisfied a loan to U.S. Bank in the approximate amount of
$5,600,000.
d. Not applicable.
e. The Folsom property is pledged to secure repayment of the $6,850,000
construction loan obtained from U.S. Bank of Oregon.
f. The Sunshine Villa community was sold to Health Care Property
Investors, Inc. effective October 24, 1996, pursuant to the terms of a
Contract of Acquisition and Bill of Sale. Coincident therewith, the
Company entered into a Lease pursuant to which the Company leases the
community on a long term basis.
g - h Not applicable.
i. The Company (i) entered into a construction contract with Bowen
Development Company to construct the Company's San Antonio facility,
(ii) expended funds relative to the construction of the San Antonio and
Folsom facilities in the approximate amount of $510,000 through
November 30, 1996, (iii) expended approximately $270,000 through
November 30, 1996, with respect to the development of facilities in the
cities of Clovis, Tucson, Bakersfield, Henderson, Eugene, Kenmore,
Vacaville, Austin, Law Vegas, Scottsdale, Tacoma, Corvallis, and
Keizer, (iv) purchased building permits for the Roseville facility in
the amount of $285,000, (v) purchased or agreed to purchase new
furnishings, computer and telephone equipment, and ancillary items
relative to the furnishing and equipping of the Company's new corporate
office in the aggregate approximate amount of $150,000 and to pay for
tenant improvements in the approximate amount of $200,000, (vi)
purchased the Henderson (Pecos/Wigwam) property for $871,567, the
Tucson property for $861,621, and the Company's interest in the Rio
Rancho property for $650,000 (projected to close December 12, 1996),
(viii) entered into agreements for the purchase of sites in Tacoma,
Scottsdale-Desert Cove, and Corvallis (copies of which have been
provided to Purchaser), (ix) signed a purchase order pursuant to which
the Company will acquire 32 carousel whirlpool bathing units (total
price $239,040). Furthermore, since November 30, 1996, the Company has
continued to expend funds in the normal course of business, but in an
amount not disproportionate to that set forth in items (ii) and (iii)
above, relative to the construction and development of the Company's
new facilities.
j - l Not applicable.
<PAGE>
m. The Company formed Regent/Rio Rancho, LLC as further described in the
Subsidiary Schedule, and has continued to expend funds for the
development of the Kenmore facility that will be owned by The Regent
Northshore House, L.L.C., which amounts, through November 30, 1996, are
approximately $70,000.
n. See above.
<PAGE>
ASSETS SCHEDULE
---------------
Section 5I
(i) The Company currently owns its Eugene, Clovis, Roseville, Folsom,
Tucson, San Antonio, and Henderson (Pecos/Wigwam) properties. The
Company acquired the Rio Rancho property on December 12, 1996, and will
contribute its interest in that property to the capital of Regent/Rio
Rancho, LLC. The Company has signed, but the documents are not
effective, a Contract of Acquisition to sell its San Antonio property
to Health Care Property Investors, Inc. Upon the transaction documents
taking effect, the Company will have agreed to develop the San Antonio
property and to lease it from Health Care Property Investors, Inc. The
Regent Northshore House, L.L.C. has acquired the several parcels
required for the development of the Kenmore, Washington facility.
(i)(a) The Folsom property is subject to a lien for the construction loan.
Several mechanics and materialman liens are likely in effect with
respect to the San Antonio property although the Company has made
provision for payment of all construction related obligations in the
ordinary course.
(i)(b) Not applicable.
(i)(c) As set forth in the Subsidiary Schedule, certain rights exist between
the members to acquire or foreclose upon the membership interest of the
other in the Subsidiary.
(ii) The Company currently operates Regency Park, Sterling Park, and
Sunshine Villa pursuant to operating leases. The Company is a sublessee
of its current office space and has entered into a lease for its new
corporate office space, which lease is dated September 1 but the
Company's occupancy will be effective December 14, 1996. The Company
has entered into a lease to operate the Boise facility upon its
completion and, as set forth above, has entered into a similar lease
with respect to the San Antonio property.
(iii) - (viii) Not applicable.
<PAGE>
TAXES SCHEDULE
--------------
Section 5J
Not aplicable.
<PAGE>
CONTRACTS SCHEDULE
Section 5K
(a) The Company has a 1995 Stock Incentive Plan. A schedule of all options
issued pursuant to the plan is included in the Capitalization Schedule.
(b) The following persons are employed by the Company pursuant to
employment agreements.
Walter Bowen
James Ekberg
Eric Jacobsen
Steven Gish
David Gibson
Gregory Roderick
(c) Not applicable.
(d) The Folsom construction loan is secured by the Folsom property. The
Kenmore property secures repayment of a loan obtained to finance the
accumulation of all parcels necessary to develop the facility. The
Company is obligor on a $500,000 note payable to Morrison Homes, Inc.
Each of the three letters of credit provided to Health Care Property
Investors, Inc. on the Company's Sunshine Villa, Boise, and San Antonio
facilities is supported by a separate line of credit in the identical
amount and is collateralized by a certificate of deposit with principal
in the identical amount
(e) Not applicable.
(f) See description of Leased Assets in the Assets Schedule. Furthermore,
the Company manages the Park Place community which is owned by
Northwest Retirement Housing Income Fund III, L.P., the general
partners of which are Mr. Bowen and Bowen financial Services Corp. an
Oregon corporation owned by Mr. Bowen.
(g) The Company leases the beauty salon at the Regency Park, Sterling Park,
and Sunshine Villa communities to third party operators.
(h) The Company is party to the following agreements:
1. Development Agreement with Health Care Property Investors,
Inc. pursuant to which the Company agrees to develop the
Boise facility;
2. Development Agreement with Health Care Property Investors,
Inc. pursuant to which the Company agrees to develop the San
Antonio facility (likely to become effective December 17,
1996);
3. Construction Contracts with Bowen Development Company
relative to construction of the Boise, Folsom, and San
Antonio facilities;
<PAGE>
4. Architecture services agreements with Sodorstrom Architects
and LRS Architects to prepare the plans of the Company's new
facilities (copies not provided to Purchaser);
5. Design contract with Warner Design to design the interiors of
the Company's new facilities (copy not provided to
Purchaser);
6. Office Lease, dated September 1, 1996, by and between the
Company and Terrace Tower U.S.A.,-Portland, Inc.;
7. Purchase and Sale Agreements relative to the acquisition of
the following properties: Vacaville, Gowen-Buffalo (Las
Vegas), Tacoma, Scottsdale-Desert Cove, Scottsdale-
Thunderbird, Corvallis, Rio Rancho, Bakersfield, and Austin;
8. Purchase Order with Arjo, Inc. pursuant to which the Company
will acquire 32 carousel whirlpool bathing units for a total
price of $239,040 (copy not provided to purchaser);
9. Assisted Living Facilities Contract with Oregon Department
of Human Resources;
10. Confidential Financial Services arrangements with Needham &
Company, Inc. (copy not provided to Purchaser);
11. Confidential engagement letter with Coopers & Lybrand, LLP
relative to financial advisory services (copy not provided to
Purchaser); and
12. Engagement letters with various providers of legal and
accounting services that, in the aggregate (whether with the
same firm or among all firms), copies of which have not been
provided to Purchaser.
(i) - (j) Not applicable.
(k) See Warrants as described on Capitalization Schedule.
(l) Not applicable.
(m) Development Agreements with Health Care Property Investors, Inc.;
Construction Contracts with Bowen Development Company; The Company's
Office Lease; Leases of Regency Park and Sterling Park.
(n) Each of the Company's operating leases with Health Care Property
Investors, Inc. (Boise, Santa Cruz (Sunshine Villa), and San Antonio)
prohibits the Company from operating another facility within a 5 mile
radius of the facility which is the subject of the lease.
(o) See discussion of purchase and sale agreements in (i) of Developments
Schedule.
<PAGE>
INTELLECTUAL PROPERTY SCHEDULE
------------------------------
Section 5L
The Company has pending applications to register "Regent" and Kingswood" as
trademarks.
<PAGE>
LITIGATION SCHEDULE
-------------------
Section 5M
1. Sterling Park and certain of the Bowen companies are named as
defendants in Patrick A. Mason et al. v. Sterling Park Living Center,
et al., (No. 95-2-169546), originally filed June 30, 1995, in the
Superior Court for King County, Washington. The case was dismissed in
March of 1996 for plaintiff's failure to prosecute the case, and
plaintiff refiled on May 24, 1996. The plaintiffs, the estate of and
relatives of a deceased former Sterling Park resident, allege that the
defendants were negligent in their treatment of the resident in failing
to observe, monitor and change a catheter and to provide other care,
and that this resulted in the resident's wrongful death. The resident
recovered from complications arising from the infection associated with
the catheter. Later, after being transferred to a nursing home, the
former resident died. The plaintiffs also claim that the defendants
breached their contractual obligations to the resident. Defense of
these claims, with the exception of the contract claim, has been
accepted by our insurance carrier. Our legal counsel believes many
defenses are available to us.
2. Nayereh Madani has threatened to bring an action against Regent
Assisted Living for breach of a settlement agreement, including claims
for "discrimination, wage and hour violations, harassment, hostile work
environment, negligent supervision, negligent hiring, [and] for
retaliation [for making complaints]...". We dispute Ms. Madani's
charges and have refused Ms. Madani's offer to settle the dispute for
$200,000. This matter is proceeding to non-binding mediation and our
independent legal counsel believes we have a good change at resolving
the dispute for an immaterial sum.
3. A claim has been threatened against the Company by the heirs of Dr.
Egidio, a resident for a brief period at Sterling Park. Actual damages,
if any, are estimated to be de minimus, although plaintiff's counsel
has alleged that the consequential damages may be substantial. The
Company has not received a copy of a complaint that would permit it to
assess the merits of any claims that may be made.
4. The Company has filed an action against Clark County pursuant to which
the Company is asking the court to overturn a County ruling imposing a
single story building restriction on the company's Gowen-Buffalo site.
<PAGE>
INSURANCE SCHEDULE
------------------
The following is a description of each insurance policy maintained by the
Company and its subsidiaries:
Directors' & Officers' Liability
Carrier: National Union Fire Insurance Co. of Pittsburgh, PA. ("AIG")
Limits: $2,000,000
Coverages: D&O, Entity and Prospectus Liability
Period: December 18, 1995 to December 18, 1996, except for Prospectus
Liability which expires on December 18, 1998.
See attached "Coverage Summary"
Officer's Life Insurance
Carrier: First Colony Life Insurance Company
Issue Date: October 15, 1995
Insurance: $2,000,000
Insured: Walter C. Bowen
Beneficiary: Regent Assisted Living, Inc.
General Property & Liability
Blanket Form Coverages - see attached Summary.
Earthquake - Sunshine Villa Property
Carrier: RLI Insurance Co.
Limits: $9,150,000
Coverage: DIC Earthquake & Flood
90% Coinsurance
Builders Risk
Carrier: Aetna Casualty and Surety Co.
Limit: $10,000,000 per location
Blanket Form - Premium charged on monthly basis.
Current coverage in place for Boise and Folsom projects.
<PAGE>
[LOGO]
Willis Corroon
- --------------------------------------------------------------------------------
Regent Assisted Living
Directors' & Officers' Liability
Coverage Summary
- --------------------------------------------------------------------------------
Note: This summary has been prepared strictly as a guide and should only be
used in conjunction with the actual policy form and endorsement
wordings.
- --------------------------------------------------------------------------------
Categories/Carriers National Union
D&O Coverage + Entity Coverage + Prospectus
Liability Coverage
- --------------------------------------------------------------------------------
Policy Form 62334 (5/95)
- --------------------------------------------------------------------------------
LIMIT: $2,000,000 $2,000,000
- --------------------------------------------------------------------------------
RETENTIONS
Basic $0/0/100,000 EXCEPT
Securities Related $250,000 for SEC related claims -
SEC retention only applies to Defense Costs
for claims which result in loss settlement or
rendering of judgment
- --------------------------------------------------------------------------------
RETROACTIVE DATE None
- --------------------------------------------------------------------------------
DISCOVERY
Term/Additional Premium 12 Months at 75% additional premium
Discovery available in the event the
Insured cancels/nonrenews coverage
- --------------------------------------------------------------------------------
TYPE OF CONTRACT A Pay on Behalf
B(i) Pay on Behalf
B(ii) Indemnification
- --------------------------------------------------------------------------------
CANCELLATION Refer Oregon Amendatory Endorsement
- --------------------------------------------------------------------------------
ADVANCEMENT OF "DEFENSE A Yes
COSTS" B(i) Yes
B(ii) Yes, but with respect to NON-SECURITIES
claims only if allocation agreement reached
between Insured and Carrier - if allocation
NOT agreed, Carrier will advance defense based
on their determination of fair allocation
until matter can be agreed pursuant to policy
provisions and law.
- --------------------------------------------------------------------------------
CREATION OF SUBSIDIARIES If assets of new subsidiary are less than 10%
AFTER INCEPTION of consolidated assets of parent, automatic
coverage subject reporting to carrier within
policy period. If assets 10% or more, requires
reporting to and acceptance by carrier.
- --------------------------------------------------------------------------------
ACQUISITION OF SUBSIDIARIES Same as Creations
AFTER INCEPTION
- --------------------------------------------------------------------------------
EXCLUSIONS
Bodily Injury Yes
- --------------------------------------------------------------------------------
Property Damage Yes
- --------------------------------------------------------------------------------
Personal Injury Yes
- --------------------------------------------------------------------------------
Notification under Prior Policy Yes
- --------------------------------------------------------------------------------
Accounting of Profits Yes
[Sec. 16(b)]
- --------------------------------------------------------------------------------
Other Insurance See Other Insurance Clause
- --------------------------------------------------------------------------------
Seepage/Pollution Yes
- --------------------------------------------------------------------------------
ERISA Yes
- --------------------------------------------------------------------------------
Claims Brought By "Company" Yes
- --------------------------------------------------------------------------------
1
<PAGE>
[LOGO OF WILLIS CORROON]
REGENT ASSISTED LIVING
DIRECTORS' AND OFFICERS' LIABILITY
COVERAGE SUMMARY
<TABLE>
<CAPTION>
Note: This summary has been prepared strictly as a guide and should only be used in conjunction with the actual
policy form and endorsement wordings.
<S> <C>
CATEGORIES/CARRIERS NATIONAL UNION
D&O COVERAGE + ENTITY COVERAGE + PROSPECTUS LIABILITY COVERAGE
POLICY FORM 62334 (5/95)
Insured vs. Insured Yes -- not applicable to wrongful termination claims by Officers ONLY
Criminal/Dishonesty Yes
Personal Profit/Advantage Yes
Illegal Remuneration Yes
Failure To Maintain Insurance None
Outside Directorship Outside Service as defined is covered on "double excess" basis
Payments/Commissions None -- Questionnaire completed
Prior & Pending Litigation Refer "Continuity Dates" -- Inception
Hostile Takeover None
Prior Acts For Subsidiaries See Definition of Subsidiary
Created/Acquired After Inception
MISCELLANEOUS COMMENTS
Medical Malpractice Exclusion Yes
Spousal Extension Yes
Captive Insurance Company None -- Warranty Statement completed
Exclusion
5% Majority Shareholder None
Exclusion
Employment Practices Extension None
Additional Offering Endorsement None
Patent Trademark Exclusion None
Pre-Determined Allocation Coverage automatically provides 100% Entity coverage but ONLY for SECURITIES
Options CLAIMS as defined
Excluding claims under Coverage Yes -- See Definition of LOSS
B alleging Company paid
inadequate/unfair price for
purchase of own securities
Listed Event Exclusion Yes -- specific activities excluded under Insuring Agreement (B)i (entity
coverage) if occur within 90 days of "continuity date"
Arbitration Clause Policy mandates that disputes with Carrier must be arbitrated
Panel Counsel Endorsement Yes -- Mandates that listed law firms be utilized on all Securities Related Claims
</TABLE>
2
<PAGE>
[Willis Corroon Logo]
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COMMERCIAL PACKAGE
COMPANY: Agricultural Fire Insurance Company
(Great American Insurance Companies)
POLICY NUMBER: PAC 0947541-05
POLICY PERIOD: March 1, 1996 to March 1, 1997
COVERAGES:
PROPERTY
$35,000,000 Real and Personal Property Loss Limit
Coverage Extensions Included in Loss Limit
. Newly Acquired Locations $250,000
. Unnamed Locations $100,000
. Extra Expense $100,000
. Personal Property of Employees $100,000
. Contingent Liability Form
. Total Property Values $44,700,000
. Building Laws Loss Limit
. Demolition Cost Loss Limit
. Increased Cost of Construction Loss Limit
*Based On: $19,320,000 Business Interruption (Includes Loss of Income
and Extra Expense)
"Direct Physical Loss or Damage" excluding
Earthquake and Flood subject to standard policy
terms, conditions and exclusions
Agreed Amount Endorsement
$1,000 Deductible (not applicable to Business
Interruption)
Replacement Cost
$250 Deductible--Personal Property of Others
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<PAGE>
[Willis Corroon Logo]
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GENERAL LIABILITY:
$3,000,000 General Aggregate
1,000,000 Products/Completed Operations Aggregate
1,000,000 Each Occurrence Bodily Injury and Property
Damage Liability
INCLUDES: Employees, Students and Volunteers as Additional
Insureds
Products/Completed Operations
Premises Operations
Fire Damage Limit-$50,000
Medical Expenses--$5,000
Personal and Advertising Injury--$1,000,000 Limit
Host Liquor Liability
Incidental Medical Malpractice
Contractual
Waiver of Charitable Immunity
Patient Rights
General Aggregate limits apply per location
Hospital Professional Liability
$1,000,000 Per Person
$3,000,000 Aggregate
Employee Benefits Liability
$1,000,000 Each Claim
$3,000,000 Aggregate
$ 1,000 Deductible
Washington Stop Gap
$1,000,000 Each Accident
$1,000,000 Each Employee
$1,000,000 Policy Limit
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<PAGE>
(LOGO OF WILLIS CORROON)
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CRIME:
$50,000 Blanket Employee Dishonesty
$500 Deductible
10,000 Forgery or Alteration
$500 Deductible
Theft, Disappearance and Destruction
5,000 On Premises - $500 Deductible
5,000 Messenger - $500 Deductible
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<PAGE>
[LOGO OF WILLIS CORROON]
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COMMERCIAL AUTOMOBILE POLICY
COMPANY: Agricultural Insurance Company
(Great American Insurance Companies)
POLICY NUMBER: CAP 0947542-05
POLICY PERIOD: March 1, 1996 to March 1, 1997
COVERAGES:
$1,000,000 Per Occurrence - Combined Single Limit Bodily
Injury and Property Damage Liability - Owned, Non-
Owned and Hired
10,000 Personal Injury Protection
5,000 Medical Payments
1,000,000 Uninsured Motorist/Underinsured Motorist
Hired Auto Physical Damage - $25,000
$100 Deductible Comprehensive
$250 Deductible Collision
*See Schedule of Vehicles
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<PAGE>
Willis Corroon Letterhead
BOILER/ELECTRICAL APPARATUS AND EQUIPMENT
COMPANY: Hartford Steam Boiler
POLICY NUMBER: ASG-NW-964204606
POLICY PERIOD: March 1, 1996 to March 1, 1997
COVERAGES:
"All Systems Go" Hartford Steam Boiler Electrical Apparatus/Boiler
Machinery Coverage, Includes:
Property Damage Limit Unlimited
Business Interruption Limit 12 Months
Extra Expense Limit 12 Months
Spoilage Limit Unlimited
$1,000 Deductible
Repair made on Replacement Cost Basis
Location Covered: Sunshine Villa
<PAGE>
Willis Corroon Letterhead
COMMERCIAL UMBRELLA POLICY
COMPANY: Agricultural Insurance Company
(Great American Insurance Companies)
POLICY NUMBER: UMB 0947543-05
POLICY PERIOD: March 1, 1996 to March 1, 1997
COVERAGES:
$5,000,000 Per Occurrence
5,000,000 Aggregate
-0- Retained Limit
This policy is subject, but not limited to, the
following exclusions and forms:
Punitive or Exemplary Damages (following form only)
Asbestos Exclusion
Personal Injury Limitation
Automobile Liability (following form)
Hospital Professional Liability (following form)
*THE GREAT AMERICAN UMBRELLA SITS OVER AETNA PROGRAM AS WELL.
<PAGE>
Willis Corroon LOGO
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D.I.C./EARTHQUAKE
COMPANY: Fireman's Fund Insurance Company
POLICY NUMBER: Pending
POLICY PERIOD: March 1, 1996 to March 1, 1997
LOCATION OF PROPERTY: Regency Park
9300 SW Barnes Road
Portland, Oregon 97225
Sunset Summit
7400 SW Barnes Road
Portland, Oregon 97225
St. Clair Apartments
735 SW St. Clair
Portland, Oregon
COVERAGE:
D.I.C. Including Earthquake and Flood
Based on T.I.V. of $36,440,000 Including Buildings,
Business Personal Property and Time Element
$14,000,000 Per Occurrence and Annual Aggregate Excess of
$5,000,000 Primary
COINSURANCE: Nil
VALUATION: Replacement Cost
DEDUCTIBLES: Per Primary Policy (10%)
EXCLUSIONS: Including But Not Limited To:
Ordinance Or Law
EDP
Pollution and Contamination
All Perils Covered By "All Risk" Policy
Property Located In Flood Zone A or V
CONDITIONS: Warrant "All Risk" Underlying Policy
Excludes All Coverage Provided By "All Risk" Policy
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<PAGE>
EMPLOYEES SCHEDULE
------------------
Section 5Q
Not applicable.
<PAGE>
EMPLOYEE BENEFITS SCHEDULE
--------------------------
Section 5R
(i) Not applicable.
(ii) Not applicable.
(iii) Not applicable.
(iv) 401(k) plan.
(v) The Company is a participant in the following plans: (i) 401(k), (ii)
customary medical, dental, and long term disability plans, and (iii) a
plan providing $30,000 of life insurance coverage to each employee.
The Company contributes a minimum of $.50 to the 401(k) plan for each
$1 contributed by an employee. Additionally, the Company makes
discretionary contributions based upon the profitability of the
Company. The Company will make a maximum contribution to each
employee's account in the 401(k) plan of three percent of the
employee's annual pay.
<PAGE>
ENVIRONMENTAL SCHEDULE
Section 5T
The following items are further described in the July 5, 1996, Phase 1
Environmental Site Assessment for the Kenmore, Washington site, prepared by
Geotech Consultants, Inc., a copy of which has been provided to Purchaser:
1. There are at least three underground storage tanks. We have no current
knowledge regarding whether any tank has leaked heating oil into the
ground;
2. The potential exists for asbestos to be in several of the building's
materials;
3. The potential exists for PCBs to be located in some of the light
ballasts; and
4. The potential exists for lead based paint to be present on, or in, the
buildings.
<PAGE>
AFFILIATED TRANSACTIONS SCHEDULE
--------------------------------
Section 5U
The Company has entered into construction contracts with Bowen Development
Company relative to the construction of the Boise, Folsom, and San Antonio
facilities. The board of directors also has approved entering into construction
contracts with Bowen Development Company relative to the Roseville, Clovis, Rio
Rancho, Tucson, Bakersfield, Henderson, Vacaville, Eugene, and Austin
facilities.
The board of directors has approved issuing an option to Walter C. Bowen to
purchase the excess parcel of land the Company acquired in Eugene in connection
with the resolution of litigation arising from the acquisition of the parcel
originally desired by the Company. The purchase price will be equal to $370,000
(the allocable portion of the original purchase price as set forth in a third
party appraisal dated February 15, 1996), plus the proportionate amount of real
property taxes and other assessments made against the entire parcel, plus ten
percent per annum from the date on which the Company made any payments for the
acquisition of such land or payment of allocable costs and expenses until the
date upon which the option is exercised.
The Company has entered into an agreement with several companies owned by Mr.
Bowen (the "Bowen Companies") whereby the Company will provide each of the Bowen
Companies executive assistance, accounting and financial management services,
legal and administrative assistance, insurance, management information services,
and other management services as required by the Bowen Companies. Under the
terms of the agreement, the Company will be reimbursed at its cost on a monthly
basis for all services provided.
A Letter of Understanding, dated to be effective March 8, 1996, by and among Dr.
Marvin S. Hausman (a director), Northwest Medical Research Partners (a
corporation wholly owned by Dr. Hausman), and the Company pursuant to which Dr.
Hausman and his company are to perform consulting services for the Company.
<PAGE>
HEALTHCARE SCHEDULE
-------------------
Section 5V
(i) Not applicable.
(ii) The Company receives Medicaid reimbursements pursuant to agreement
with the State of Oregon relative to operation of the Regency Park
and Park Place communities.
(iii) Not applicable.
(iv) Investigation of alleged physical abuse of a former resident at
Regency Park by the Oregon SDSD. Preliminary investigation resulted
in substantiated claim of causing a bruise. The facility denies the
claim. It is not certain whether follow-up will occur due to the
minor nature of the alleged abuse, the multiple potential causes of
the bruise, and the inability of the resident to participate in any
investigation.
(v) Not applicable.
<PAGE>
The security represented by this certificate was originally issued on
December 16, 1996, and has not been registered under the Securities
Act of 1933, as amended. The transfer of such security is subject to
the conditions specified in the Preferred Stock and Warrant Purchase
Agreement, dated as of December 16, 1996 (as amended and modified from
time to time), between the issuer hereof (the "Company") and the
initial holder hereof, and the Company reserves the right to refuse
the transfer of such security until such conditions have been
fulfilled with respect to such transfer. Upon written request, a copy
of such conditions shall be furnished by the Company to the holder
hereof without charge.
REGENT ASSISTED LIVING, INC.
STOCK PURCHASE WARRANT
Date of Issuance: December 16, 1996 Certificate No. W-1
For value received, the Company hereby grants to Prudential Private
Equity Investors III, L.P. or its registered assigns (the "Registered Holder")
the right to purchase from the Company upon the occurrence of an Exercise Event
200,000 shares of Warrant Stock at a price per share equal to $5.50 (such price
as adjusted and readjusted from time to time in accordance with Section 2
hereof, the "Exercise Price").
This Warrant is being issued simultaneously with the issuance of
1,283,785 shares of the Company's Series A Preferred Stock (the "Series A
Preferred") and 382,882 shares of the Company's Series B Preferred Stock (the
"Series B Preferred") to Prudential Private Equity Investors III, L.P. ("PPEI")
pursuant to the Preferred Stock and Warrant Purchase Agreement dated as of
December 12, 1996 (the "Purchase Agreement"), between Regent Assisted Living,
Inc., an Oregon corporation (the "Company"), and PPEI.
<PAGE>
Certain capitalized terms used herein are defined in Section 5 hereof.
The amount and kind of securities obtainable pursuant to the rights granted
hereunder and the purchase price for such securities are subject to adjustment
pursuant to the provisions contained in this Warrant.
For income tax purposes, the value of this Warrant as of the date
hereof is $50,000.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
1A. Exercise Period. Subject to the provisions of paragraph 1E
hereof, the Registered Holder may exercise, in whole or in part, the purchase
rights represented by this Warrant at any time and from time to time on and
after the occurrence of a Trigger Event, until the fifth anniversary of the date
of such Trigger Event (the "Exercise Period"). The Company shall give the
Registered Holder written notice of the expiration of the Exercise Period at
least 30 days but not more than 90 days prior to the end of the Exercise Period.
A "Trigger Event" shall occur if the Company's independent outside auditors have
not certified in writing to the Registered Holder of this Warrant within 30 days
after December 31, 1997, that the Company has, during the calendar year ending
December 31, 1997, opened and secured all necessary permits and approvals for
the operation of at least (i) at least ten new assisted living facilities (not
operated or managed by the Company as of the date hereof) and (ii) at least
1,000 units within all such new assisted living facilities. For purposes of
calculating the number of new facilities and units opened by the Company,
facilities and units in facilities in which the Company has an ownership
interest of at least 50% or a lease of at least 15 years (including any
available options or extensions of such lease) shall be counted in their
entirety, whereas facilities and units in facilities for which the Company
obtains a management contract but in which the Company does not have an
ownership interest of at least 50% or a lease of at least 15 years (including
any available options or extensions of such lease) ("Managed Facilities" and
"Managed Units," respectively) shall be counted as one-third of a facility and
one-third of a unit, respectively; provided that no more than three Managed
Facilities and 300 Managed Units (counting as one new assisted living facility
and 100 new units,
-2-
<PAGE>
respectively) shall be counted for purposes of determining a Trigger Event.
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in paragraph 1C
below, executed by the Person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the Purchaser,
an Assignment or Assignments in the form set forth in Exhibit II hereto
evidencing the assignment of this Warrant to the Purchaser, in which case
the Registered Holder shall have complied with the provisions set forth in
Section 7 hereof; and
(d) either (1) a certified or bank cashier's check payable to the
Company or a wire transfer to an account designated in writing by the
Company in an amount equal to the product of the Exercise Price multiplied
by the number of shares of Warrant Stock being purchased upon such exercise
(the "Aggregate Exercise Price"), (2) the surrender to the Company of debt
or equity securities of the Company having a Market Price equal to the
Aggregate Exercise Price of the Warrant Stock being purchased upon such
exercise (provided that for purposes of this subparagraph, the Market Price
of any note or other debt security or any preferred stock shall be deemed
to be equal to the aggregate outstanding principal amount or liquidation
value thereof plus all accrued and unpaid interest thereon or accrued or
declared and unpaid dividends thereon) or (3) a written notice to the
Company that the Purchaser is exercising the Warrant (or a portion thereof)
by authorizing the Company to withhold from issuance a number of shares of
Warrant Stock issuable upon such exercise of the Warrant which when
multiplied by the Market Price of the Common Stock is equal to the
Aggregate Exercise Price (and
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<PAGE>
such withheld shares shall no longer be issuable under this Warrant).
(ii) Certificates for shares of Warrant Stock purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within five
business days after the date of the Exercise Time. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such five-day period, deliver such
new Warrant to the Person designated for delivery in the Exercise Agreement.
(iii) The Warrant Stock issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Warrant Stock at the Exercise Time.
(iv) The issuance of certificates for shares of Warrant Stock upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
shares of Warrant Stock. Each share of Warrant Stock issuable upon exercise of
this Warrant shall, upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
(v) The Company shall not close its books against the transfer of this
Warrant or of any share of Warrant Stock issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Warrant Stock
acquirable upon exercise of this Warrant is at all times equal to or less than
the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any Registered Holder
or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company);
-4-
<PAGE>
provided, however, that all such filings made or approvals obtained by or on
behalf of any Registered Holder or Purchaser shall be at its sole cost (except
as otherwise provided by paragraph 1B(iv)).
(vii) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a registered public
offering or the sale of the Company, the exercise of any portion of this Warrant
may, at the election of the holder hereof, be conditioned upon the consummation
of the public offering or sale of the Company in which case such exercise shall
not be deemed to be effective until the consummation of such transaction.
(viii) The Company shall at all times reserve and keep available out
of its authorized but unissued shares of Warrant Stock solely for the purpose of
issuance upon the exercise of the Warrant, such number of shares of Warrant
Stock issuable upon the exercise of the Warrant. The Company shall take all such
actions as may be necessary to assure that all such shares of Warrant Stock may
be so issued without violation of any applicable law or governmental regulation
or any requirements of any domestic securities exchange upon which shares of
Common Stock may be listed (except for official notice of issuance which shall
be immediately delivered by the Company upon each such issuance). The Company
shall from time to time take all such action as may be necessary to assure that
the par value of the unissued Warrant Stock acquirable upon exercise of this
Warrant is at all times equal to or less than the Exercise Price. The Company
shall not take any action which would cause the number of authorized but
unissued shares of Warrant Stock to be less than the number of such shares
required to be reserved hereunder for issuance upon exercise of the Warrant.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Exercise Agreement shall be substantially in the form set forth in Exhibit I
hereto, except that if the shares of Warrant Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates for
the shares of Warrant Stock are to be issued, and if the number of shares of
Warrant Stock to be issued does not include all the shares of Warrant Stock
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be delivered.
Such Exercise Agreement shall be dated the actual date of execution thereof.
-5-
<PAGE>
1D. Fractional Shares. If a fractional share of Warrant Stock would,
but for the provisions of paragraph 1A, be issuable upon exercise of the rights
represented by this Warrant, the Company shall, within five business days after
the date of the Exercise Time, deliver to the Purchaser a check payable to the
Purchaser in lieu of such fractional share in an amount equal to the difference
between the Market Price of such fractional share as of the date of the Exercise
Time and the Exercise Price of such fractional share.
1E. Exercise Events. Subject to the terms and conditions of this
Section 1, each holder of the Warrant shall have the right, at its option, to
exercise the Warrant upon the occurrence of an Exercise Event. Each of the
following shall constitute an "Exercise Event" with respect to the Warrant:
(i) the sale or other transfer of the Warrant by PPEI or an affiliate
of PPEI, or by The Prudential Insurance Company of America ("Prudential") or an
affiliate of Prudential, to a party not affiliated with PPEI or Prudential;
(ii) the distribution of the Warrant to any limited partner of PPEI,
other than Prudential Equity Investors, Inc. or Prudential or any other
affiliate of PPEI or Prudential;
(iii) a sale of all or substantially all the assets of the Company or
of the Company and its Subsidiaries on a consolidated basis (in any transaction
or series of related transactions other than in the ordinary course of business)
or any other acquisition of the Company by means of a merger, a negotiated stock
purchase or a purchase pursuant to a tender offer for substantially all of the
outstanding shares of Common Stock of the Company;
(iv) if for any period of two consecutive fiscal quarters of the
Company, the quarterly financial statements of the Company reflect an aggregate
decline of 20% or more in the Company's consolidated net income from the fiscal
quarter immediately preceding such consecutive fiscal quarters, determined in
accordance with generally accepted accounting principles;
(v) if the quarterly financial statements of the Company for any
fiscal quarter reflect a decline of 50% or more in the Company's consolidated
net income from the immediately
-6-
<PAGE>
preceding fiscal quarter, determined in accordance with generally accepted
accounting principles;
(vi) if for any period of two consecutive fiscal quarters of the
Company, the quarterly financial statements of the Company reflect an earnings
before interest, taxes, depreciation and amortization ("EBITDA") that is more
than 20% less than the EBITDA contained in the then current annual budget
showing projected EBITDA for such quarter as approved by the Corporation's board
of directors from time to time;
(vii) any default or event of default under any agreement pursuant to
which the Company or any of its Subsidiaries has incurred indebtedness for
borrowed money in excess of $500,000, unless and until such default or event of
default is cured or waived (provided that the holder of the shares proposed to
be converted is not a lender, or in the case of PPEI, Prudential or their
affiliates, neither PPEI, Prudential or any of their affiliates is a lender,
under such agreement);
(viii) if the total number of shares of Common Stock held by, or
obtainable upon the exercise of rights held by, PPEI and its affiliates as a
percentage of the total number of shares of Common Stock outstanding on a fully-
diluted basis is less than 50% of such percentage on the date of original
issuance of the Preferred Stock;
(ix) if, during any twelve-month period, more than 30% of the
Company's directors have resigned or have been replaced; or
(x) upon the sale or transfer of more than 50% of the Common Stock
owned by the executive employees of the Company and its Subsidiaries as a group
immediately following the original issuance of the Warrant, or the sale or
transfer of more than 50% of the Common Stock owned by Walter C. Bowen
immediately following the original issuance of the Warrant.
Section 2. Adjustment of Exercise Price and Number of Shares. In order
to prevent dilution of the rights granted under this Warrant, the Exercise Price
shall be subject to adjustment from time to time as provided in this Section 2,
and the number of shares of Warrant Stock obtainable upon exercise of this
Warrant shall be subject to adjustment from time to time as provided in this
Section 2.
-7-
<PAGE>
2A. Adjustment of Exercise Price and Number of Shares upon Issuance of
------------------------------------------------------------------
Common Stock.
- ------------
(i) If and whenever on or after the Date of Issuance of this Warrant the
Company issues or sells, or in accordance with paragraph 2B is deemed to have
issued or sold, any shares of Common Stock for a consideration per share less
than the Exercise Price in effect immediately prior to the time of such issue or
sale, then immediately upon such issue or sale the Exercise Price shall be
reduced to the Exercise Price determined by dividing:
(A) the sum of (x) the product derived by multiplying the Exercise Price in
effect immediately prior to such issue or sale times the number of shares
of Common Stock Deemed Outstanding immediately prior to such issue or
sale, plus (y) the consideration, if any, received by the Company upon
such issue or sale, by
(B) the number of shares of Common Stock Deemed Outstanding immediately after
such issue or sale.
Upon each such adjustment of the Exercise Price hereunder, the number of shares
of Warrant Stock acquirable upon exercise of this Warrant shall be adjusted to
the number of shares determined by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Warrant Stock
acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Exercise Price resulting from such
adjustment.
(ii) Notwithstanding the foregoing, there shall be no adjustment to the
Exercise Price or the number of shares of Warrant Stock obtainable upon exercise
of this Warrant under this paragraph 2B as a result of issuances or deemed
issuances of Common Stock (A) with respect to the granting of stock options to
officers, directors, employees and consultants of the Company and its
Subsidiaries or the exercise thereof for an aggregate of 600,000 shares of
Common Stock (as such number of shares is equitably adjusted for subsequent
stock splits, stock combinations, stock dividends and recapitalizations and such
number shall include all stock options outstanding as of the date of the
Purchase Agreement) or (B) upon the conversion of the Preferred Stock.
-8-
<PAGE>
2B. Effect on Exercise Price of Certain Events. For purposes of determining
the adjusted Exercise Price under paragraph 2A, the following shall be
applicable:
(i) Issuance of Rights or Options. If the Company in any manner grants or
sells any Options and the price per share for which Common Stock is issuable
upon the exercise of such Options, or upon conversion or exchange of any
Convertible Securities issuable upon exercise of such Options, is less than the
Exercise Price in effect immediately prior to the time of the granting or sale
of such Options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options, or upon conversion or exchange of
the total maximum amount of such Convertible Securities issuable upon the
exercise of such Options, shall be deemed to be outstanding and to have been
issued and sold by the Company at such time for such price per share. For
purposes of this paragraph, the "price per share for which Common Stock is
issuable upon exercise of such Options or upon conversion or exchange of such
Convertible Securities" is determined by dividing (A) the total amount, if any,
received or receivable by the Company as consideration for the granting or sale
of such Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus in the case
of such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
issuance or sale of such Convertible Securities and the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Exercise Price shall be made upon the actual issuance of such
Common Stock or of such Convertible Securities upon the exercise of such Options
or upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the price per share for which
Common Stock is issuable upon conversion or exchange thereof is less than the
Exercise Price in effect immediately prior to the time of such issue or sale,
then the maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be outstanding and to
have been issued and sold by the Company at such
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<PAGE>
time for such price per share. For the purposes of this paragraph, the "price
per share for which Common Stock is issuable upon conversion or exchange
thereof" is determined by dividing (A) the total amount received or receivable
by the Company as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof, by (B) the
total maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No further adjustment of the
Exercise Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustments of the Exercise Price had been or are to be made pursuant to
other provisions of this paragraph 2B, no further adjustment of the Exercise
Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the issue, conversion or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exchangeable for Common
Stock changes at any time, the Exercise Price in effect at the time of such
change shall be adjusted immediately to the Exercise Price which would have been
in effect at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold and the number of shares of Warrant Stock issuable hereunder
shall be correspondingly adjusted.
(iv) Treatment of Expired Options and Unexercised Convertible Securities.
Upon the expiration of any Option or the termination of any right to convert or
exchange any Convertible Securities without the exercise of such Option or
right, the Exercise Price then in effect and the number of shares of Warrant
Stock acquirable hereunder shall be adjusted immediately to the Exercise Price
and the number of shares which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
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(v) Calculation of Consideration Received. If any Common Stock, Options
or Convertible Securities are issued or sold or deemed to have been issued or
sold for cash, the consideration received therefor shall be deemed to be the
gross purchase price therefor. In case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Company shall be the fair
value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the Company
shall be the Market Price thereof as of the date of receipt. In case any Common
Stock, Options or Convertible Securities are issued to the owners of the non-
surviving entity in connection with any merger in which the Company is the
surviving entity the amount of consideration therefor shall be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash or securities shall be determined jointly by the Company and the Registered
Holders of Warrants representing a majority of the shares of Warrant Stock
obtainable upon exercise of such Warrants. If such parties are unable to reach
agreement within a reasonable period of time, such fair value shall be
determined by an appraiser jointly selected by the Company and the Registered
Holders of Warrants representing a majority of the shares of Warrant Stock
obtainable upon exercise of such Warrants. The determination of such appraiser
shall be final and binding on the Company and the Registered Holders of the
Warrants, and the fees and expenses of such appraiser shall be borne equally by
the Company on the one hand and the Registered Holders of the Warrants on the
other hand, pro rata on the basis of the number of shares of Warrant Stock held
by each such holder.
(vi) Integrated Transactions. In case any Option is issued in connection
with the issue or sale of other securities of the Company, together comprising
one integrated transaction in which no specific consideration is allocated to
such Options by the parties thereto, the Options shall be deemed to have been
issued without consideration.
(vii) Treasury Shares. The number of shares of Common Stock outstanding
at any given time does not include shares owned or held by or for the account of
the Company or any Subsidiary, and
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the disposition of any shares so owned or held shall be considered an issue or
sale of Common Stock.
(viii) Record Date. If the Company takes a record of the holders of
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
2C. Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Warrant
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Warrant Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
2D. Reorganization, Reclassification, Consolidation, Merger or Sale. Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Company's assets or other transaction, which
in each case is effected in such a way that the holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic Change." Prior to the consummation of any Organic Change,
the Company shall make appropriate provision (in form and substance satisfactory
to the Registered Holders of the Warrants representing a majority of the Warrant
Stock obtainable upon exercise of all Warrants then outstanding) to insure that
each of the Registered Holders of the Warrants shall thereafter have the right
to acquire and receive, in lieu of or addition to (as the case may be) the
shares of Warrant
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Stock immediately theretofore acquirable and receivable upon the exercise of
such holder's Warrant, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for the number of shares of
Warrant Stock immediately theretofore acquirable and receivable upon exercise of
such holder's Warrant had such Organic Change not taken place. In any such case,
the Company shall make appropriate provision (in form and substance satisfactory
to the Registered Holders of the Warrants representing a majority of the Warrant
Stock obtainable upon exercise of all Warrants then outstanding) with respect to
such holders' rights and interests to insure that the provisions of this Section
2 and Sections 3 and 4 hereof shall thereafter be applicable to the Warrants
(including, in the case of any such consolidation, merger or sale in which the
successor entity or purchasing entity is other than the Company, an immediate
adjustment of the Exercise Price to the value for the Common Stock reflected by
the terms of such consolidation, merger or sale, and a corresponding immediate
adjustment in the number of shares of Warrant Stock acquirable and receivable
upon exercise of the Warrants, if the value so reflected is less than the
Exercise Price in effect immediately prior to such consolidation, merger or
sale). The Company shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof, the successor entity (if other than
the Company) resulting from consolidation or merger or the entity purchasing
such assets assumes by written instrument (in form and substance satisfactory to
the Registered Holders of Warrants representing a majority of the Warrant Stock
obtainable upon exercise of all of the Warrants then outstanding), the
obligation to deliver to each such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to acquire.
2E. Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
board of directors shall make an appropriate adjustment in the Exercise Price
and the number of shares of Warrant Stock obtainable upon exercise of this
Warrant so as to protect the rights of the holders of the Warrants; provided
that no such adjustment shall increase the Exercise Price or decrease the number
of shares of Warrant Stock obtainable as otherwise determined pursuant to this
Section 2.
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2F. Notices.
-------
(i) Immediately upon any adjustment of the Exercise Price, the Company
shall give written notice thereof to the Registered Holder, setting forth in
reasonable detail and certify ing the calculation of such adjustment.
(ii) The Company shall give written notice to the Registered Holder at
least 20 days prior to the date on which the Company closes its books or takes a
record (A) with respect to any dividend or distribution upon the Common Stock,
(B) with respect to any pro rata subscription offer to holders of Common Stock
or (C) for determining rights to vote with respect to any Organic Change,
dissolution or liquidation.
(iii) The Company shall also give written notice to the Registered Holders
at least 20 days prior to the date on which any Organic Change, dissolution or
liquidation shall take place.
Section 3. Liquidating Dividends. If at any time on or after the date
this Warrant becomes exercisable the Company declares or pays a dividend upon
the Common Stock payable otherwise than in cash out of earnings or earned
surplus (determined in accordance with generally accepted accounting principles,
consis tently applied) except for a stock dividend payable in shares of Common
Stock (a "Liquidating Dividend"), then the Company shall pay to the Registered
Holder of this Warrant at the time of payment thereof the Liquidating Dividend
which would have been paid to such Registered Holder on the Warrant Stock had
this Warrant been fully exercised immediately prior to the date on which a
record is taken for such Liquidating Dividend, or, if no record is taken, the
date as of which the record holders of Common Stock entitled to such dividends
are to be determined; provided that if the Liquidating Dividends consist of
voting securities, the Company shall make available to the Registered Holder of
this Warrant, at such holder's request, Liquidating Dividends consisting of non-
voting securities (except as otherwise required by law) which are otherwise
identical to the Liquidating Dividends consisting of voting securities and which
non-voting securities are convertible into such voting securities on the same
terms as Series B Preferred is convertible into Series A Preferred.
Section 4. Purchase Rights. If at any time on or after the date this
Warrant becomes exercisable the Company grants,
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issues or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "Purchase Rights"), then the Registered Holder of
this Warrant shall be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Warrant Stock
acquirable upon complete exercise of this Warrant immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights; provided that if the Purchase Rights involve voting securities, the
Company shall make available to the Registered Holder of this Warrant, at such
holder's request, Purchase Rights involving non-voting securities (except as
otherwise required by law) which are otherwise identical to the Purchase Rights
involving voting securities and which non-voting securities are convertible or
exchangeable into such voting securities on the same term as the Company's
Series B Preferred is convertible into the Company's Series A Preferred.
Section 5. Definitions. The following terms have meanings set forth
below:
"Common Stock" means, collectively, the Company's Common Stock and any
capital stock of any class of the Company hereafter authorized which is not
limited to a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any liquidation, dissolution or winding up of the Company.
"Common Stock Deemed Outstanding" means, at any given time, the number of
shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to paragraphs 2B(i) and
2B(ii) hereof regardless of whether the Options or Convertible Securities are
actually exercisable at such time , but excluding any shares of Common Stock
issuable upon exercise of the Warrants.
"Convertible Securities" means any stock or securities (directly or
indirectly) convertible into or exchangeable for Common Stock.
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"Market Price" means as to any security the average of the closing prices
of such security's sales on all domestic securities exchanges on which such
security may at the time be listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day
such security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day; provided that if such security is
listed on any domestic securities exchange the term "business days" as used in
this sentence means business days on which such exchange is open for trading. If
at any time such security is not listed on any domestic securities exchange or
quoted in the NASDAQ System or the domestic over-the-counter market, the "Market
Price" shall be the fair value thereof determined jointly by the Company and the
Registered Holders of Warrants representing a majority of the Warrant Stock
purchasable upon exercise of all the Warrants then outstanding; provided that if
such parties are unable to reach agreement within a reasonable period of time,
such fair value shall be determined by an appraiser jointly selected by the
Company and the Registered Holders of Warrants representing a majority of the
Warrant Stock purchasable upon exercise of all the Warrants then outstanding.
The determination of such appraiser shall be final and binding on the Company
and the Registered Holders of the Warrants, and the fees and expenses of such
appraiser shall be paid by the Company.
"Options" means any rights or options to subscribe for or purchase Common
Stock or Convertible Securities.
"Person" means an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
"Warrant Stock" means shares of the Company's Common Stock; provided that
if there is a change such that the securities
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issuable upon exercise of the Warrants or conversion of the Subject Shares are
issued by an entity other than the Company or there is a change in the type or
class of securities so issuable, then the term "Warrant Stock" shall mean one
share of the security issuable upon exercise of the Warrants or conversion of
the Subject Shares if such security is issuable in shares, or shall mean the
smallest unit in which such security is issuable if such security is not
issuable in shares.
Other capitalized terms used in this Warrant but not defined herein shall
have the meanings set forth in the Purchase Agreement.
Section 6. No Voting Rights; Limitations of Liability. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Warrant Stock, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such holder for the Exercise Price of Warrant Stock acquirable
by exercise hereof or as a stockholder of the Company.
Section 7. Warrant Transferable. Subject to the transfer conditions
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder,
upon surrender of this Warrant with a properly executed Assignment (in the form
of Exhibit II hereto) at the principal office of the Company.
Section 8. Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
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Section 9. Replacement. Upon receipt of evidence reasonably satisfactory
to the Company (an affidavit of the Registered Holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidenc ing this Warrant, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the holder is a financial institution or other institutional
investor its own agreement shall be satisfactory), or, in the case of any such
mutilation upon surrender of such certificate, the Company shall (at its
expense) execute and deliver in lieu of such certificate a new certificate of
like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
Section 10. Notices. Except as otherwise expressly provided herein, all
notices referred to in this Warrant shall be in writing and shall be delivered
personally, sent by reputable overnight courier service (charges prepaid) or
sent by registered or certified mail, return receipt requested, postage prepaid
and shall be deemed to have been given when so delivered or deposited in the
U.S. Mail (i) to the Company, at its principal executive offices and (ii) to the
Registered Holder of this Warrant, at such holder's address as it appears in the
records of the Company (unless otherwise indicated by any such holder).
Section 11. Amendment and Waiver. Except as otherwise provided herein,
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of Warrants representing a majority of the shares of Warrant
Stock obtainable upon exercise of the Warrants; provided that no such action may
change the Exercise Price of the Warrants or the number of shares or class of
stock obtainable upon exercise of each Warrant without the written consent of
the Registered Holders of Warrants representing at least 66-2/3% of the shares
of Warrant Stock obtainable upon exercise of the Warrants.
Section 12. Descriptive Headings; Governing Law. The descriptive headings
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporation
laws of the State of Oregon shall govern all issues concerning the relative
rights of the
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Company and its stockholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Warrant shall be governed by
the internal law of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.
* * * *
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
REGENT ASSISTED LIVING, INC.
/s/ xxxxxx
By ____________________________
President
Its___________________________
[Corporate Seal]
Attest:
/s/ xxxx x xxxx
____________________________
Secretary
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EXHIBIT I
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-____), hereby agrees to subscribe for the purchase of
______ shares of the Warrant Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature ____________________
Address ______________________
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, _____________________________ hereby sells, assigns and
transfers all of the rights of the undersigned under the attached Warrant
(Certificate No. W-_____) with respect to the number of shares of the Warrant
Stock covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
Dated: Signature _______________________
_______________________
Witness _______________________
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REGENT ASSISTED LIVING, INC.
REGISTRATION AGREEMENT
THIS AGREEMENT is made as of December 16, 1996, between Regent Assisted
Living, Inc., an Oregon corporation (the "Company"), and Prudential Private
Equity Investors III, L.P., a Delaware limited partnership (the "Purchaser").
The parties to this Agreement are parties to a Purchase Agreement of even
date herewith (the "Purchase Agreement"). In order to induce the Purchaser to
enter into the Purchase Agreement, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the Closing under the Purchase Agreement.
Unless otherwise provided in this Agreement, capitalized terms used herein shall
have the meanings set forth in paragraph 8 hereof.
The parties hereto agree as follows:
1. Demand Registrations.
(a) Requests for Registration. At any time the holders of at least 66% of
the Registrable Securities may request registration under the Securities Act of
all or any portion of their Registrable Securities on Form S-1 or any similar
long-form registration ("Long-Form Registrations") or on Form S-2 or S-3 or any
similar short-form registration ("Short-Form Registrations") if available. All
registrations requested pursuant to this paragraph 1(a) are referred to herein
as "Demand Registrations". Each request for a Demand Registration shall specify
the approximate number of Registrable Securities requested to be registered and
the anticipated per share price range for such offering. Within ten days after
receipt of any such request, the Company shall give written notice of such
requested registration to all other holders of Registrable Securities and shall
include in such registration all Registrable Securities with respect to which
the Company has received written requests for inclusion therein within 15 days
after the receipt of the Company's notice. The holders of Registrable Securities
shall be entitled to request two Demand Registrations in which the Company shall
pay all Registration Expenses. A registration shall not count as one of the
permitted
<PAGE>
Demand Registrations until it has become effective, and no Demand Registration
shall count as one of the permitted Demand Registrations unless the holders of
Registrable Securities are able to register and sell at least 90% of the
Registrable Securities requested to be included in such registration; provided
that in any event the Company shall pay all Registration Expenses in connection
with any registration initiated as a Demand Registration whether or not it has
become effective and whether or not such registration has counted as one of the
permitted Demand Registrations. All Long-Form Registrations shall be
underwritten registrations, and at the election of the holders of a majority of
the Registrable Securities included in any Demand Registration, such Demand
Registration shall be a Short-Form Registration if the Company is permitted to
use the applicable short form. The Company shall use its best efforts to make
Short-Form Registrations on Form S-3 available for the sale of Registrable
Securities.
(b) Priority on Demand Registrations. The Company shall not include in
any Demand Registration any securities which are not Registrable Securities
without the prior written consent of the holders of at least 66% of the
Registrable Securities included in such registration. If a Demand Registration
is an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be sold in an orderly manner in such offering within a price range
acceptable to the holders of a majority of the Registrable Securities initially
requesting registration, the Company shall include in such registration prior to
the inclusion of any securities which are not Registrable Securities the number
of Registrable Securities requested to be included which in the opinion of such
underwriters can be sold in an orderly manner within the price range of such
offering, pro rata among the respective holders thereof on the basis of the
amount of Registrable Securities owned by each such holder.
(c) Restrictions on Demand Registrations.
(i) The Company shall not be obligated to effect any Demand
Registration within 90 days after the effective date of a previous Demand
Registration.
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(ii) The Company shall be entitled to postpone for a reasonable
period of time (but not exceeding 120 days) the filing or effectiveness of any
registration statement otherwise required to be prepared and filed by it
pursuant to paragraph 1(a) if the Company determines, in its reasonable
judgment, that (a) the Company is in possession of material information that has
not been disclosed to the public and the Company reasonably deems it to be
advisable not to disclose such information at such time in a registration
statement or (b) such registration and offering would materially and adversely
affect any financing, acquisition, corporate reorganization or other material
transaction involving the Company or any of its Affiliates (as defined in the
rules and regulations adopted under the Exchange Act) and, in any such case, the
Company promptly gives the requesting Holders of Registrable Securities written
notice of such determination, containing a general statement of the reasons for
such postponement and an approximation of the anticipated delay or (c) such
other cause as the Company shall have been advised by its investment banker make
it undesirable or unpracticable to proceed with the offering. If the Company
shall so postpone the filing of a registration statement, the requesting Holders
of Registrable Securities shall have the right to withdraw the request for
registration by giving written notice to the Company within 30 days after
receipt of the notice of postponement and, in the event of such withdrawal, such
request shall not be counted for purposes of the requests for registration to
which Holders are entitled pursuant to paragraph 1(a) and the Company shall pay
all Registration Expenses in connection with such registration. The Company may
delay a Demand Registration hereunder only once in any twelve-month period.
(iii) Holders of Registrable Securities shall use all reasonable
efforts to effect as wide a distribution of the Registrable Securities as
reasonably practicable, including, if such distribution is pursuant to any
underwritten offering, using reasonable efforts to secure the agreement of the
underwriters to the same effect.
(d) Selection of Underwriters. The holders of a majority of the
Registrable Securities included in any Demand Registration shall have the right
to select the investment banker(s) and manager(s) to administer the offering,
which must be reasonably acceptable to the Company.
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(e) Other Registration Rights. Except as provided in this Agreement,
the Company shall not grant to any Persons the right to request the Company to
register any equity securities of the Company, or any securities convertible or
exchangeable into or exercisable for such securities, without the prior written
consent of the holders of at least 66% of the Registrable Securities; provided
that the Company may grant rights to other Persons to participate in Piggyback
Registrations so long as such rights are subordinate to the rights of the
holders of Registrable Securities with respect to such Piggyback Registrations
as provided in paragraph 2 hereof.
2. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register any
of its securities under the Securities Act (other than pursuant to a Demand
Registration) and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), the
Company shall give prompt written notice to all holders of Registrable
Securities of its intention to effect such a registration and shall include in
such registration (other than registrations only of shares issued (i) for the
purpose of acquiring another company or companies or (ii) pursuant to an
employee benefit plan) all Registrable Securities with respect to which the
Company has received written requests for inclusion therein within 20 days after
the receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the holders of
Registrable Securities shall be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration is
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in an orderly manner in such offering within a price range
acceptable to the Company, the Company shall include in such registration (i)
first, the securities the Company proposes to sell, (ii) second, the Registrable
Securities requested to be included in such registration, pro rata among the
holders of such Registrable Securities on the basis of the number of shares
owned
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by each such holder, and (iii) third, other securities requested to be included
in such registration.
(d) Priority on Secondary Registrations. If a Piggyback Registration
is an underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the holders initially requesting
such registration, the Company shall include in such registration (i) first, the
securities requested to be included therein by the holders requesting such
registration and the Registrable Securities requested to be included in such
registration, pro rata among the holders of such securities on the basis of the
number of securities owned by each such holder, and (ii) second, other
securities requested to be included in such registration.
(e) Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
paragraph 1 or pursuant to this paragraph 2, and if such previous registration
has not been withdrawn or abandoned, the Company shall not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-8 or any successor form), whether on its
own behalf or at the request of any holder or holders of such securities, until
a period of at least 90 days has elapsed from the effective date of such
previous registration.
3. Holdback Agreements.
(a) Each holder of Registrable Securities shall not effect any public
sale or distribution (including sales pursuant to Rule 144) of equity securities
of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the 180-day
period beginning on the effective date of any underwritten Demand
Registration, any underwritten Piggyback Registration in which Registrable
Securities are included (except as part of such underwritten registration) or
any other underwritten public offering of common stock of the Company, unless
the underwriters managing the registered public offering otherwise agree;
provided that the
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holders of Registrable Securities shall not be required to agree to a holdback
period longer than that agreed to by the officers or directors of the Company.
(b) The Company (i) shall not effect any public sale or distribution
of its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and during the
180-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration or pursuant to registrations on Form S-8 or any
successor form), unless the underwriters managing the registered public offering
otherwise agree, and (ii) shall cause each holder of its Common Stock, or any
securities convertible into or exchangeable or exercisable for Common Stock,
purchased from the Company at any time after the date of this Agreement (other
than in a registered public offering, including pursuant to an acquisition or
merger or pursuant to an employee benefit plan) to agree not to effect any
public sale or distribution (including sales pursuant to Rule 144) of any such
securities during such period (except as part of such underwritten registration
if otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
4. Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company shall use reasonable efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof (including the registration of the Series
A Preferred, the Series B Preferred and the Warrants held by a holder of
Registrable Securities requesting registration as to which the Company has
received reasonable assurances that only Registrable Securities shall be
distributed to the public), and pursuant thereto the Company shall as
expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and use
reasonable efforts to cause such registration statement to become effective
(provided that before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company shall furnish to the counsel
selected by the holders of a majority of the Registrable Securities covered by
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<PAGE>
such registration statement copies of all such documents proposed to be filed,
which documents shall be subject to the review and comment of such counsel);
(b) notify each holder of Registrable Securities of the effectiveness
of each registration statement filed hereunder and prepare and file with the
Securities and Exchange Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 90 days and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use reasonable efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company shall not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(e) notify each seller of such Registrable Securities, at any time
when 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 contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company shall
prepare
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<PAGE>
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus shall not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the NASD automated quotation
system and, if listed on the NASD automated quotation system, use its best
efforts to secure designation of all such Registrable Securities covered by such
registration statement as a NASDAQ "national market system security" within the
meaning of Rule 11Aa2-1 of the Securities and Exchange Commission or, failing
that, to secure NASDAQ authorization for such Registrable Securities and,
without limiting the generality of the foregoing, to arrange for at least two
market makers to register as such with respect to such Registrable Securities
with the NASD;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including effecting a stock split or a combination of
shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
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<PAGE>
(j) otherwise use reasonable efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) permit any holder of Registrable Securities which holder, in its
sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable judgment
of such holder and its counsel should be included; and
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company shall use reasonable efforts promptly to obtain the
withdrawal of such order.
Each Holder of Registrable Securities as to which any registration is being
effected shall furnish to the Company in writing such information regarding such
Holder and the distribution of such Registrable Securities as the Company may
from time to time reasonably request in writing in order to comply with the
Securities Act, which writing shall state that such information is being
provided specifically for use in the preparation of the related registration
statement. Each Holder of Registrable Securities as to which any registration
is being effected agrees to notify the Company as promptly as practicable of any
inaccuracy or change in information previously furnished by such Holder to the
Company or of the happening of any event in either case as a result of which any
prospectus relating to such registration contains an untrue statement of a
material face regarding such Holder or the distribution of such Registrable
Securities or omits to state any material fact regarding such Holder or the
distribution of such Registrable Securities required to be stated therein or
necessary to make the
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<PAGE>
statements therein not misleading in light of the circumstances then existing,
and to promptly furnish to the Company any additional information required to
correct and update any previously furnished information or required such that
such prospectus shall not contain, with respect to such Holder or the
distribution of such Registrable Securities, 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 light of the circumstances then
existing.
Each Holder of Registrable Securities agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in
paragraph 4(e), such Holder will forthwith discontinue disposition of such
Registrable Securities covered by such registration statement or prospectus
until such Holder's receipt of the copies of the supplemented or amended
prospectus relating to such registration statement or prospectus, or until it is
advised in writing by the Company that the use of the applicable prospectus may
be resumed, and has received copies of any additional or supplemental filings
which are incorporated by reference in such Prospectus, and, if so directed by
the Company, such Holder will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Holder's possession,
of the prospectus covering the Registrable Securities current at the time of
receipt of such notice.
5. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, fees and disbursements
of custodians, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts and
commissions) and other Persons retained by the Company (all such expenses being
herein called "Registration Expenses"), shall be borne as provided in this
Agreement, except that the Company shall, in any event, pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit or quarterly review, the expense of any liability insurance and
the expenses and fees for listing the securities to be regis-
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<PAGE>
tered on each securities exchange on which similar securities issued by the
Company are then listed or on the NASD automated quotation system.
(b) In connection with each Demand Registration and each Piggyback
Registration, the Company shall reimburse the holders of Registrable Securities
included in such registration for the reasonable fees and disbursements of one
counsel chosen by the holders of a majority of the Registrable Securities
included in such registration. (c) To the extent Registration Expenses are not
required to be paid by the Company, each holder of securities included in any
registration hereunder shall pay those Registration Expenses allocable to the
registration of such holder's securities so included, and any Registration
Expenses not so allocable shall be borne by all sellers of securities included
in such registration in proportion to the aggregate selling price of the
securities to be so registered.
6. Indemnification. (a) The Company agrees to indemnify, to the extent
permitted by law, each holder of Registrable Securities, its officers and
directors and each Person who controls such holder (within the meaning of the
Securities Act) against all losses, claims, damages, liabilities and expenses
caused by any untrue or alleged untrue statement of material fact contained in
any registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are caused by or contained in
any information furnished in writing to the Company by such holder expressly for
use therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company shall indemnify
such underwriters, their officers and directors and each Person who controls
such underwriters (within the meaning of the Securities Act) to the same extent
as provided above with respect to the indemnification of the holders of
Registrable Securities.
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<PAGE>
(b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder shall furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, shall indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such holder; provided that the obligation to indemnify
shall be individual, not joint and several, for each holder and shall be
limited to the net amount of proceeds received by such holder from the sale of
Registrable Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder shall (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give prompt notice
shall not impair any Person's right to indemnification hereunder to the extent
such failure has not prejudiced the indemnifying party) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party shall not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
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<PAGE>
(d) The indemnification provided for under this Agreement shall remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and shall survive the transfer of securities. The Company also
agrees to make such provisions, as are reasonably requested by any indemnified
party, for contribution to such party in the event the Company's indemnification
is unavailable for any reason.
7. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (ii) completes and executes all questionaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements; provided that no
holder of Registrable Securities included in any underwritten registration shall
be required to make any representations or warranties to the Company or the
underwriters (other than representations and warranties regarding such holder,
such holder's ownership of and right to transfer the Registrable Securities, and
such holder's intended method of distribution) or to undertake any
indemnification obligations to the Company or the underwriters with respect
thereto, except as otherwise provided in paragraph 6 hereof.
8. Definitions.
(a) "Registrable Securities" means (i) any Common Stock issued upon
the conversion of any Series A Preferred issued pursuant to the Purchase
Agreement or issued upon conversion of the Series B Preferred issued pursuant to
the Purchase Agreement, (ii) any Common Stock issued upon conversion of any
Series B Preferred issued pursuant to the Purchase Agreement, (iii) any Common
Stock issued upon exercise of the Warrant issued pursuant to the Purchase
Agreement and (iv) any Common Stock issued or issuable with respect to the
securities referred to in clauses (i), (ii) and (iii) above by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Registrable Securities, such securities shall cease to be Registrable
Securities when they have been distributed to the public pursuant to an offering
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<PAGE>
registered under the Securities Act or sold to the public through a broker,
dealer or market maker in compliance with Rule 144 under the Securities Act (or
any similar rule then in force) or repurchased by the Company or any
Subsidiary. For purposes of this Agreement, a Person shall be deemed to be a
holder of Registrable Securities, and the Registrable Securities shall be deemed
to be in existence, whenever such Person has the right to acquire directly or
indirectly such Registrable Securities (upon conversion or exercise in
connection with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise of such right), whether or not
such acquisition has actually been effected, and such Person shall be entitled
to exercise the rights of a holder of Registrable Securities hereunder.
(b) Unless otherwise stated, other capitalized terms contained herein
have the meanings set forth in the Purchase Agreement.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company shall not hereafter enter
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
(b) Adjustments Affecting Registrable Securities. The Company shall
not take any action, or permit any change to occur, with respect to its
securities which would materially and adversely affect the ability of the
holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement or which would materially and
adversely affect the marketability of such Registrable Securities in any such
registration (including, without limitation, effecting a stock split or a
combination of shares).
(c) Remedies. Any Person having rights under any provision of this
Agreement shall be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party shall be entitled to
specific performance and other injunctive relief from any court
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<PAGE>
of law or equity of competent jurisdiction (without posting any bond or other
security) in order to enforce or prevent violation of the provisions of this
Agreement.
(d) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and holders of at least 66% of the Registrable
Securities.
(e) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
(f) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(g) Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Agreement.
(h) Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
(i) Governing Law. The corporate law of the State of Oregon shall
govern all issues and questions concerning the relative rights of the Company
and its stockholders. All other issues and questions concerning the
construction, validity, interpretation and enforcement of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in
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accordance with, the laws of the State of New York, without giving effect to any
choice of law or conflict of law rules or provisions (whether of the State of
New York or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of New York.
(j) Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service (charges
prepaid) or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to each Purchaser at the address indicated on the
Schedule of Purchasers and to the Company at the address indicated below:
Before December 27, 1996:
Regent Assisted Living, Inc.
Attn: Chief Financial Officer
2260 U.S. Bancorp Tower
111 S.W. Fifth Avenue
Portland, OR 97204
After December 27, 1996:
Regent Assisted Living, Inc.
Attn: Chief Financial Officer
121 S.W. Morrison, Suite 1000
Portland, OR 97204
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
* * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
REGENT ASSISTED LIVING, INC.
By /s/
----------------------------
Its President
---------------------------
PRUDENTIAL PRIVATE
EQUITY INVESTORS III, L.P.
By Prudential Equity
Investors, Inc.
Its General Partner
By Cornerstone Equity
Investors, L.L.C.
Its Investment Adviser
By
--------------------
Its
-------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
REGENT ASSISTED LIVING, INC.
By
---------------------------------
Its
--------------------------------
PRUDENTIAL PRIVATE
EQUITY INVESTORS III, L.P.
By Prudential Equity
Investors, Inc.
Its General Partner
By Cornerstone Equity
Investors, L.L.C.
Its Investment Adviser
By /s/
-------------------------
Its Senior Managing Director
------------------------
<PAGE>
REGENT ASSISTED LIVING, INC.
STOCKHOLDERS AGREEMENT
THIS AGREEMENT is made as of December 16, 1996, between Regent
Assisted Living, Inc., an Oregon corporation (the "Company"), Prudential Private
Equity Investors, III, L.P., a Delaware limited partnership (the "Investor"),
and Walter C. Bowen (the "Original Stockholder"). The Investor and the Original
Stockholder are collectively referred to as the "Stockholders" and individually
as a "Stockholder." Capitalized terms used herein are defined in paragraph 8
hereof.
The Investor shall purchase shares of the Company's preferred stock
and a warrant to purchase common stock pursuant to a purchase agreement between
the Investor and the Company dated as of the date hereof (the "Purchase
Agreement").
The Company and the Stockholders desire to enter into this Agreement
for the purposes, among others, of (i) establishing the composition of the
Company's Board of Directors (the "Board"), (ii) assuring continuity in the
management and ownership of the Company and (iii) limiting the manner and terms
by which the Original Stockholder's Stockholder Shares may be transferred. The
execution and delivery of this Agreement is a condition to the Investor's
purchase of the Company's stock and the contingent warrant pursuant to the
Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Board of Directors.
(a) From and after the Closing (as defined in the Purchase Agreement)
and until the provisions of this paragraph 1 cease to be effective, each holder
of Stockholder Shares shall vote all of his Stockholder Shares which are voting
shares and any other voting securities of the Company over which such holder has
voting
<PAGE>
control and shall take all other reasonably necessary or desirable actions
within his control (whether in his capacity as a stockholder, director, member
of a board committee or officer of the Company or otherwise, and including,
without limitation, attendance at meetings in person or by proxy for purposes of
obtaining a quorum and execution of written consents in lieu of meetings), and
the Company shall take all reasonably necessary or desirable actions within its
control (including, without limitation, calling special board and stockholder
meetings), so that:
(i) the authorized number of directors on the Board shall be
established at eight directors;
(ii) the following individuals shall be elected to the Board:
(A) two representatives designated by the Investor (the
"Investor Directors"), provided that the Investor Directors shall
initially be employees of the general partner of the Investor or
employees of the investment advisor of the Investor or its general
partner, and provided further that the Investor may subsequently
designate an industry executive as an Investor Director provided that
such industry executive is reasonably acceptable to a majority of the
other Directors;
(B) two members of the Company's management designated by
the Original Stockholder (the "Management Directors"), provided that
until the second annual meeting of the Company's stockholders, Walter
C. Bowen and Steven L. Gish shall serve as the Management Directors;
and
(C) four representatives designated by the Stockholders
(determined on the basis of a vote of a majority of the Stockholder
Shares held by the Stockholders), provided that such representatives
are not members of the Company's management or employees or officers
of the Company or its subsidiaries (the "Outside Directors");
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<PAGE>
(iii) there shall be an executive committee, a compensation
committee and an audit committee of the Board, each with at least one
Investor Director as a member thereof;
(iv) there shall be a conflicts committee of the Board (the
"Conflicts Committee") to consider and resolve all conflicts of interest
matters presented to the Board, and the Conflicts Committee shall be
composed of two Outside Directors and the two Investor Directors;
(v) any other committees of the Board shall be created only upon
the approval of a majority of the members of the Board and each such
committee (if any) shall have at least one Investor Director as a member;
(vi) the removal from the Board (with or without cause) of any
representative designated hereunder by the Investor or by the Original
Stockholder shall be at the Investor's or the Original Stockholder's
written request, respectively, but only upon such written request and under
no other circumstances, provided that if any director elected pursuant to
subparagraph (ii)(B) above ceases to be an employee of the Company and its
Subsidiaries, he shall be removed as a director promptly after his
employment ceases; and
(vii) in the event that any representative designated hereunder by
the Investor or by the Original Stockholder ceases to serve as a member of
the Board during his term of office, the resulting vacancy on the Board
shall be filled by a representative designated by the Investor or the
Original Stockholder, respectively, as provided hereunder.
(b) The Company shall pay the reasonable out-of-pocket expenses
incurred by each director in connection with attending the meetings of the
Board, and any committee thereof. So long as any Investor Director serves on the
Board and for three years thereafter, the Company shall make a good faith effort
to secure and maintain directors and officers liability insurance coverage: (A)
as of the Closing, in the amount of $2,000,000, (B) as of January 1, 1997, in
the amount of $3,000,000 and (C) thereafter, in such amounts as are customary
for publicly traded corporations of similar size engaged in similar lines of
business as reasonably
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determined by the Board; and the Company's certificate of incorporation and
bylaws shall provide for indemnification and exculpation of directors to the
fullest extent permitted under applicable law. In addition, the Company shall
enter into indemnity agreements with the Investor Directors in form and
substance similar to the indemnity agreements the Company currently has with the
Management Directors.
(c) The rights of the Investor under this paragraph 1 shall terminate
at such time as the Investor and its Affiliates hold in the aggregate less than
25% of the Stockholder Shares held by the Investor on the date hereof; provided
that the Investor may assign its right to designate directors hereunder to any
Person or group of affiliated Persons who acquire more than 50% of the
Stockholder Shares held by the Investor as of the date hereof.
(d) The rights of the Original Stockholder under this paragraph 1
shall terminate at such time as the Original Stockholder and his Permitted
Transferees hold in the aggregate less than 25% of the Stockholder Shares held
by such Persons on the date hereof.
(e) The provisions of this paragraph 1 shall terminate automatically
and be of no further force and effect upon the tenth anniversary of the date
hereof unless extended by the parties hereto.
(f) If any party fails to designate a representative to fill a
directorship pursuant to the terms of this paragraph 1, the election of an
individual to such directorship shall be accomplished in accordance with the
Company's bylaws and applicable law.
2. Contract Proceedings. The Company, the Original Stockholder and
the Investor hereby agree that:
(a) The Company shall have a right of first refusal on all sites to
be purchased, leased or otherwise secured for real estate development by any
Affiliate of the Original Stockholder (including, without limitation, Bowen
Development Company ("BDC")) except for the sites identified on the attached
Exhibit A and the Conflicts Committee shall determine whether or not the Company
shall exercise such right;
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(b) BDC or any other Affiliate of the Original Stockholder may
continue as contractor for the current Company projects in Boise, San Antonio,
Folsom, Roseville and Clovis, provided that the terms of such projects shall be
equal to hard costs, including general conditions (which consist of on-site
costs), plus 5% or less (for overhead and profit) as determined by the Conflicts
Committee;
(c) All of the other projects on which construction shall begin prior
to June 30, 1997, may be awarded to BDC upon BDC providing proof to the
Conflicts Committee that such contract is on terms no less favorable than the
Company would otherwise be able to obtain from a completely independent general
contractor, including a discounted contractors fee for awarding multiple
projects to one contractor, if applicable. In such cases, competitive bidding
shall not be required provided the Conflicts Committee determines that the
Company's construction schedule dictates that the time required to obtain such
bids would unduly delay construction and place the Company behind its current
projected schedule of openings; and
(d) All contracts pursuant to which construction will begin
subsequent to June 30, 1997, or any contract for the construction of a facility
beyond the initial twelve projects as set forth on the attached Exhibit B, shall
require competitive bidding on comparable terms and the approval of the
Conflicts Committee for a contract to be awarded to BDC.
3. Certain Voting Covenants. From and after the Closing (as defined
in the Purchase Agreement), the Original Stockholder and his Permitted
Transferees shall not vote any of his or their Stockholder Shares which are
voting shares and any other voting securities of the Company over which such
holder has voting control, in favor of the Company taking the following actions
unless such Original Stockholder or his Permitted Transferees first obtains the
prior written consent of the holders of at least 66% of the outstanding
Preferred Stock:
(a) merge or consolidate with any Person or permit any Subsidiary to
merge or consolidate with any Person (other than a wholly-owned Subsidiary);
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<PAGE>
(b) liquidate, dissolve or effect a recapitalization or reorganization
in any form of transaction (including, without limitation, any reorganization
into a limited liability company, a partnership or any other non-corporate
entity which is treated as a partnership for federal income tax purposes);
(c) except as expressly contemplated by the Purchase Agreement, make
any amendment to the Articles of Incorporation, the Articles of Amendment or the
Company's bylaws, or file any resolution of the Board with the Oregon Secretary
of State containing any provisions, which would increase the number of
authorized shares of the Preferred Stock or adversely affect or otherwise impair
the rights or the relative preferences and priorities of the holders of the
Preferred Stock or the Underlying Common Stock under the Purchase Agreement, the
Restated Articles of Incorporation, as amended, the Company's bylaws or the
Registration Agreement;
(d) amend or modify any stock option plan or employee stock ownership
plan as in existence as of the Closing, other than to increase to 600,000 the
number of options for shares of the Company's common stock that may be issued
under the Company's 1995 Stock Incentive Plan, adopt any new stock option plan
or employee stock ownership plan or issue any shares of Common Stock to its or
its Subsidiaries' employees other than pursuant to the Company's existing stock
option and employee stock ownership plans; or
(e) any other corporate action of the type described in Section 3D of
the Purchase Agreement which requires the approval of the stockholders of the
Company under the laws of the State of Oregon (including, without limitation,
any provisions requiring a separate class or series vote), the Restated Articles
of Incorporation, as amended, the Company's bylaws or any other statute, rule or
regulation to which the Company is subject.
4. Representations and Warranties. Each Stockholder represents and
warrants that (i) such Stockholder is the record owner of the number of
Stockholder Shares set forth opposite its name on the Stockholder Schedule
attached hereto, (ii) this Agreement has been duly authorized, executed and
delivered by such Stockholder and constitutes the valid and binding obligation
of such Stockholder, enforceable in accordance with its terms, and (iii) such
Stockholder has not granted and is not a party to any
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<PAGE>
proxy, voting trust or other agreement which is inconsistent with, conflicts
with or violates any provision of this Agreement. No holder of Stockholder
Shares shall grant any proxy or become party to any voting trust or other
agreement which is inconsistent with, conflicts with or violates any provision
of this Agreement.
5. Restrictions on Transfer of Stockholder Shares.
(a) Transfer of Stockholder Shares. The Original Stockholder shall not
sell, transfer, assign, pledge or otherwise dispose of (whether with or without
consideration and whether voluntarily or involuntarily or by operation of law)
any interest in his Stockholder Shares (a "Transfer"), except pursuant to the
provisions of this paragraph 4 or pursuant to a Public Sale and except for
Transfers of up to 1,233,000 of his Stockholder Shares (as appropriately
adjusted for any combination or subdivision of shares, stock dividend, stock
split or other recapitalization) (an "Exempt Sale"). The Original Stockholder
shall not consummate any Transfer (other than a Public Sale or an Exempt Sale)
until 30 days after the later of the delivery to the Company and the Investor of
the Original Stockholder's Sale Notice, unless the parties to the Transfer have
been finally determined pursuant to this paragraph 4 prior to the expiration of
such 30-day period (the "Election Period").
(b) Participation Rights. At least 30 days prior to any Transfer of
Stockholder Shares by the Original Stockholder (other than a Public Sale or an
Exempt Sale), the Original Stockholder shall deliver a written notice (the "Sale
Notice") to the Company and the Investor, specifying in reasonable detail the
identity of the prospective transferee(s), the number of shares to be
transferred and the terms and conditions of the Transfer. The Investor may elect
to participate in the contemplated Transfer at the same price per share (whether
voting or non-voting stock) and on the same terms by delivering written notice
to the Original Stockholder within 30 days after delivery of the Sale Notice. If
the Investor has elected to participate in such Transfer, the Original
Stockholder and the Investor shall be entitled to sell in the contemplated
Transfer, at the same price and on the same terms, a number of Stockholder
Shares equal to the product of (i) the quotient determined by dividing the
percentage of Stockholder Shares owned by such Person by the aggregate
percentage of Stockholder Shares owned by the Original Stockholder and the
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<PAGE>
Investor and (ii) the number of Stockholder Shares to be sold in the
contemplated Transfer.
For example, if the Sale Notice contemplated a sale of 100 Stockholder
Shares by the Original Stockholder, and if the Original Stockholder at such
time owns 30% of all Stockholder Shares and if the Investor elects to
participate and owns 20% of all Stockholder Shares, the Original
Stockholder would be entitled to sell 60 shares (30% / 50% x 100 shares)
and the Investor would be entitled to sell 40 shares (20% / 50% x 100
shares).
The Original Stockholder shall use best efforts to obtain the agreement of the
prospective transferee(s) to the participation of the Investor in any
contemplated Transfer and to the inclusion of the Warrant and the Preferred
Stock in the contemplated Transfer, and the Original Stockholder shall not
transfer any of its Stockholder Shares to any prospective transferee if such
prospective transferee(s) declines to allow the participation of the Investor or
the inclusion of the Warrant and/or the Preferred Stock. If any portion of the
Warrant is included in any Transfer of Stockholder Shares under this
subparagraph 4(b), the purchase price for the Warrant shall be equal to the full
purchase price determined hereunder for the Stockholder Shares covered by the
portion of the Warrant to be transferred.
(c) Permitted Transfers. The restrictions set forth in this paragraph
4 shall not apply with respect to any Transfer of Stockholder Shares by the
Original Stockholder pursuant to (i) the stock option agreements dated as of
September 1, 1995 among the Company, the Original Stockholder and each of
Messrs. Ekberg, Gish, Jacobsen, Parfitt and Roderick as originally executed, or
(ii) applicable laws of descent and distribution or among the Original
Stockholder's Family Group (referred to herein as "Permitted Transferees");
provided that, with respect to a Transfer permitted pursuant to clause (ii), the
restrictions contained in this paragraph 4 shall continue to be applicable to
the Stockholder Shares after any such Transfer and provided further that the
transferees of such Stockholder Shares shall have agreed in writing to be bound
by the provisions of this Agreement affecting the Stockholder Shares so
transferred. For purposes of this Agreement, "Family Group" means the Original
Stockholder's spouse and descendants (whether natural or adopted) and any trust
solely for
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<PAGE>
the benefit of the Original Stockholders and/or the Original Stockholder's
spouse and/or descendants.
(d) Termination of Restrictions. The restrictions set forth in this
paragraph 4 shall continue with respect to the applicable Stockholder Share held
by the Original Stockholder until the date on which such Stockholder Share has
been transferred pursuant to this paragraph 4.
6. Holdback Agreement. The Original Stockholder shall not effect any
public sale or distribution of any Stockholder Shares or of any other capital
stock or equity securities of the Company, or any securities convertible into or
exchangeable or exercisable for such stock or securities, during the seven days
prior to and the 90-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration (as
such terms are defined in the Registration Agreement dated as of the date hereof
between the Investor and the Company) unless the underwriters managing the
registration otherwise agree. The restrictions on the transfer of Stockholder
Shares set forth in this paragraph 5 shall continue with respect to each
Stockholder Share until such share is no longer held by the Original Stockholder
or his Permitted Transferees.
7. Legend. Each certificate evidencing Stockholder Shares and each
certificate issued in exchange for or upon the transfer of any Stockholder
Shares (if such shares remain Stockholder Shares after such transfer) shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"The securities represented by this certificate are subject to a
Stockholders Agreement dated as of December 16, 1996, among the issuer
of such securities (the "Company") and certain of the Company's
stockholders, as amended and modified from time to time. A copy of
such Stockholders Agreement shall be furnished without charge by the
Company to the holder hereof upon written request."
The Company shall imprint such legend on certificates evidencing Stockholder
Shares outstanding as of the date hereof. The legend
set forth above shall be removed from the certificates evidencing
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<PAGE>
any shares which cease to be Stockholder Shares in accordance with paragraph 8
hereof.
8. Transfer. Prior to transferring any Stockholder Shares to any
Person other than a Public Sale, the holders of Stockholder Shares shall cause
the prospective transferee to be bound by this Agreement and to execute and
deliver to the Company and the other holders of Stockholder Shares a counterpart
of this Agreement.
9. Definitions.
"Board" has the meaning set forth in the preamble.
"Common Stock" means the Company's Common Stock, no par value.
"Company" has the meaning set forth in the preamble.
"Investors" has the meaning set forth in the preamble.
"Investor Directors" has the meaning set forth in paragraph 1(a).
"Management Directors" has the meaning set forth in paragraph 1(a).
"Original Stockholder" has the meaning set forth in the preamble.
"Outside Directors" has the meaning set forth in paragraph 1(a).
"Permitted Transferee" has the meaning set forth in paragraph 4(c)
hereof.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
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<PAGE>
"Preferred Stock" means the Company's Series A Preferred Stock, no par
value, and Series B Preferred Stock, no par value.
"Public Sale" means any sale of Stockholder Shares to the public
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule 144
adopted under the Securities Act.
"Purchase Agreement" has the meaning set forth in the preamble.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Stockholder Shares" means (i) any Common Stock purchased or otherwise
acquired by any Stockholder, (ii) any Common Stock issued or issuable directly
or indirectly upon conversion of the Preferred Stock or exercise of the Warrant
and (iii) any Common Stock issued or issuable with respect to the securities
referred to in clauses (i) and (ii) above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. For purposes of this Agreement, any
Person who holds Preferred Stock or the Warrant shall be deemed to be the holder
of the Stockholder Shares issuable directly or indirectly upon conversion of the
Preferred Stock or exercise of the Warrant in connection with the transfer
thereof or otherwise and regardless of any restriction or limitation on the
conversion or exercise thereof. As to any particular Stockholder Shares, such
shares shall cease to be Stockholder Shares when they have been (a) effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them or (b) distributed to the public through a
broker, dealer or market maker pursuant to Rule 144 under the Securities Act (or
any similar provision then in force).
"Stockholders" has the meaning set forth in the preamble.
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of
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<PAGE>
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a limited liability company,
partnership, association or other business entity, a majority of the limited
liability company, partnership or other similar ownership interest thereof is at
the time owned or controlled, directly or indirectly, by any Person or one or
more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control the managing director or general partner
of such limited liability company, partnership, association or other business
entity.
"Transfer" has the meaning set forth in paragraph 4(a).
"Warrant" means the stock purchase warrant issued to the Investor
under the Purchase Agreement exercisable into shares of Common Stock.
10. Transfers in Violation of Agreement. Any Transfer or attempted
Transfer of any Stockholder Shares in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Stockholder Shares as the owner
of such shares for any purpose.
11. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Stockholders unless such modification,
amendment or waiver is approved in writing by the Company or the holders of a
majority of the Stockholder Shares, the holders of a majority of the Stockholder
Shares held by the Original Investor and his Permitted Transferees and the
Investor. The failure of any party to enforce any of the provisions of this
Agreement shall in no way be construed as a waiver of such provisions and shall
not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
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<PAGE>
12. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
13. Entire Agreement. Except as otherwise expressly set forth herein,
this Agreement embodies the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
14. Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Stockholder Shares and the respective successors and assigns of each
of them, so long as they hold Stockholder Shares.
15. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
16. Remedies. The Company and the Stockholders shall be entitled to
enforce their rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. The parties hereto agree and acknowledge
that money damages would not be an adequate remedy for any breach of the
provisions of this Agreement and that the Company and any Stockholder shall be
entitled to specific performance and/or injunctive relief from any court of law
or equity of competent jurisdiction (without posting
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<PAGE>
a bond or other security) in order to enforce or prevent any violation of the
provisions of this Agreement.
17. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to the Company at the address set forth below and to any other
recipient at the address indicated on the schedules hereto and to any subsequent
holder of Stockholder Shares subject to this Agreement at such address as
indicated by the Company's records, or at such address or to the attention of
such other person as the recipient party has specified by prior written notice
to the sending party. Notices shall be deemed to have been given hereunder when
delivered personally, three days after deposit in the U.S. mail and one day
after deposit with a reputable overnight courier service. The Company's address
is:
Before December 27, 1996:
Regent Assisted Living, Inc.
2260 U.S. Bancorp Tower
111 S.W. Fifth Avenue
Portland, Oregon 97204
Attn: Chief Financial Officer
After December 27, 1996:
Regent Assisted Living, Inc.
121 S.W. Morrison, Suite 1000
Portland, OR 97204
Attn: Chief Financial Officer
At any time with a copy to:
Stoel Rives LLP
Attn: Mr. Todd A. Bauman
900 S.W. Fifth Avenue, Suite 2300
Portland, OR 97204-1268
18. GOVERNING LAW. THE CORPORATE LAW OF THE STATE OF OREGON SHALL
GOVERN ALL ISSUES AND QUESTIONS CONCERNING THE RELATIVE RIGHTS OF THE COMPANY
AND ITS STOCKHOLDERS. ALL OTHER
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ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, INTERPRETATION AND
ENFORCEABILITY OF THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES HERETO SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR
PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT
WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE
OF NEW YORK.
19. Business Days. If any time period for giving notice or taking
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the state in which the Company's chief executive office is located, the time
period shall automatically be extended to the business day immediately following
such Saturday, Sunday or legal holiday.
20. Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
REGENT ASSISTED LIVING, INC.
By /s/Walter C. Bowen
----------------------------
Its President
----------------------------
PRUDENTIAL PRIVATE EQUITY
INVESTORS III, L.P.
By Prudential Equity Investors, Inc.
Its General Partner
By Cornerstone Equity Investors, L.L.C.
Its Investment Advisor
By ----------------------------
Its
----------------------------
/s/Walter C. Bowen
----------------------------
WALTER C. BOWEN
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
REGENT ASSISTED LIVING, INC.
By
-----------------------------
Its
-----------------------------
PRUDENTIAL PRIVATE EQUITY
INVESTORS III, L.P.
By Prudential Equity Investors, Inc.
Its General Partner
By Cornerstone Equity Investors, L.L.C.
Its Investment Advisor
By /s/
-----------------------------
Its Senior Managing Director
----------------------------
---------------------------------
WALTER C. BOWEN
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
REGENT ASSISTED LIVING, INC.
By
------------------------------
Its
----------------------------
PRUDENTIAL PRIVATE EQUITY
INVESTORS III, L.P.
By Prudential Equity Investors, Inc.
Its General Partner
By Cornerstone Equity Investors, L.L.C.
Its Investment Advisor
By /s/
------------------------------
Its Senior Managing Director
------------------------------
--------------------------------
WALTER C. BOWEN
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF STOCKHOLDERS
------------------------
Name and Address Number of Stockholder Shares
- ---------------- ----------------------------
<S> <C>
Prudential Private Equity 1,866,667/1/
Investors III, L.P.
717 Fifth Avenue
New York, New York 10022
Attn: Dana O'Brien
Walter C. Bowen 3,233,000
c/o Regent Assisted Living, Inc.
121 S.W. Morrison, Suite 1000
Portland, OR 97204
</TABLE>
- ------------------
/1/ Subject to increases as provided for in the Restated Articles of
Incorporation, as amended.
<PAGE>
EXHIBIT A
---------
To Stockholders Agreement
Any property to be purchased pursuant to an agreement, right, option, or other
instrument in effect as of the date hereof, including, without limitation, those
rights described as follows:
1. Rights to purchase excess land owned by the Company adjacent to its
Eugene site, as identified in the Affiliated Transactions Schedule.
2. Earnest Money Agreement for the purchase of a single family home in
Aloha, Oregon which will provide access to a land-locked parcel owned
by Bowen Financial Services Corp. The property is adjacent to a low
income multi-family housing project and in a lower class neighborhood.
3. Right to acquire approximately 20 acres of primarily forested land
adjacent to the land upon which Mr. Bowen is currently constructing his
family's primary residence. The parcel is zoned for development of one
single family residence.
4. Right to acquire all or a portion of the approximately 40 acres owned
by Hoyt Street Partners, an Oregon limited liability company. Mr. Bowen
has a 5 percent ownership interest. Members in the LLC have the right
to purchase the LLC's property but must comply with an elaborate
process by which the proposed development is identified to members and
members have the right to participate in such development. The 40 acres
is in an urban renewal area north of downtown Portland.
<PAGE>
EXHIBIT B
---------
To Stockholders Agreement
The following twelve projects:
1. Boise, Idaho;
2. San Antonio, Texas;
3. Folsom, California;
4. Roseville, California;
5. Clovis, California
6. Bakersfield, California;
7. Vacaville, California;
8. Rio Rancho, New Mexico;
9. Tucson, Arizona;
10. Henderson, Nevada;
11. Eugene, Oregon; and
12. Austin, Texas
