----------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
---
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 1998
___ TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ____ to ____
Commission file number 0-27108
REGENT ASSISTED LIVING, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-1171049
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Suite 1000
121 SW Morrison St.
Portland, Oregon 97204
(Address of principle executive offices)
503-227-4000
(Registrant's telephone number, including area code)
Indicated by check mark whether Registrant (1) has filed all reports to be filed
by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
--- ---
Shares of Registrant's Common Stock, No par value,
outstanding at May 1, 1998 - 4,633,000
----------------------------------------------------
<PAGE>
REGENT ASSISTED LIVING, INC.
FORM 10-QSB
March 31, 1998
INDEX
-----
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997 . . . . . . . . . . . . . . . . . .. . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis or Plan of Operation . . . . . 9
Page 2
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
REGENT ASSISTED LIVING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,
1998 December 31,
(Unaudited) 1998
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,508,628 $ 1,865,576
Accounts receivable 142,702 128,110
Prepaid expenses 438,787 249,708
Construction advances receivable 294,603 123,670
-------------- --------------
Total current assets 4,384,720 2,367,064
Property and equipment, net 58,474,243 69,820,324
Investment in joint venture 400,374 401,460
Restricted cash 2,347,856 2,361,993
Other assets 1,100,225 752,932
-------------- --------------
Total assets $ 66,707,418 $ 75,703,773
============== ==============
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 237,252 $ 218,881
Short-term borrowings - 4,500,000
Construction accounts payable 489,153 583,043
Accounts payable and other accrued expenses 585,619 685,136
Accrued payroll 563,617 502,568
Accrued interest 111,128 179,963
-------------- --------------
Total current liabilities 1,986,769 6,669,591
Long-term debt 41,911,202 51,450,545
Convertible subordinated notes 4,500,000 -
Deferred development fees, net 4,281,348 898,802
Other liabilities 656,417 517,578
-------------- --------------
Total liabilities 53,335,736 59,536,516
-------------- --------------
Minority Interest - 250,000
-------------- --------------
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares authorized;
1,666,667 shares issued and outstanding 9,349,841 9,349,841
Common stock, no par value, 25,000,000 shares authorized;
4,633,000 shares issued and outstanding 10,808,703 10,808,703
Accumulated deficit (6,786,862) (4,241,287)
-------------- --------------
Total shareholders' equity 13,371,682 15,917,257
-------------- --------------
Total liabilities and shareholders' equity $ 66,707,418 $ 75,703,773
============== ==============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
Page 3
<PAGE>
<TABLE>
<CAPTION>
REGENT ASSISTED LIVING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
-------------- ---------------
<S> <C> <C>
Revenues:
Rental and service $ 4,216,580 $ 3,336,347
Management fee 71,625 43,922
-------------- ---------------
Total revenues 4,288,205 3,380,269
-------------- ---------------
Operating expenses:
Residence operating expenses 4,190,136 2,136,277
General and administrative 967,621 712,204
Lease expense 1,414,718 706,200
Depreciation and amortization 114,083 68,785
-------------- ---------------
Total operating expenses 6,686,558 3,623,466
-------------- ---------------
Operating income (loss) (2,398,353) (243,197)
Interest income 75,989 148,779
Interest expense, net (64,415) (101,228)
Other income, net (8,796) 5,263
-------------- ---------------
Income (loss) before income taxes (2,395,575) (190,383)
Income tax benefit - 24,500
-------------- ---------------
Net income (loss) $ (2,395,575) ($165,883)
============== ===============
Basic earnings (loss) per common share $ (0.55) ($0.07)
============== ===============
Diluted earnings (loss) per common share $ (0.55) ($0.07)
============== ===============
Weighted average common shares outstanding:
Basic 4,633,000 4,633,000
============== ===============
Diluted 4,633,000 4,633,000
============== ===============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
Page 4
<PAGE>
<TABLE>
<CAPTION>
REGENT ASSISTED LIVING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,395,575) $ (165,883)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 114,083 68,785
Amortization of deferred gains and development fees (55,596) -
Changes in other assets and liabilities:
Accounts receivable (14,592) 17,315
Prepaid expenses (137,579) 3,961
Deferred income taxes - 33,100
Other assets (135,253) 51,301
Accounts payable and other accrued expenses (107,303) (152,928)
Other liabilities 138,839 (52,354)
-------------- --------------
Net cash used in operating activities (2,592,976) (196,703)
-------------- --------------
Cash flows from investing activities:
Maturity (purchases) of investments, net - 2,939,448
Purchases of property and equipment (12,626,575) (6,188,076)
Increase (decrease) in construction related accounts payable (93,890) 1,072,803
Investment in joint venture - (20,162)
Deposits to replacement reserve account, net (16,567) (16,200)
-------------- --------------
Net cash used in investing activities (12,737,032) (2,212,187)
-------------- --------------
Cash flows from financing activities:
Repayment of Short-term borrowings (4,500,000) -
Proceeds from issuance of long-term debt 8,836,356 784,018
Payments on long-term debt (18,607,328) (36,127)
Construction advances (170,933) 883,621
Prepayments and deposits for financing arrangements, net (266,880) -
Restricted cash for financing arrangements 30,704 (615,835)
Deferred fee from financing arrangements 190,000 -
Proceeds from financing arrangements 27,111,141 -
Proceeds from issuance of convertible subordinated notes 4,500,000 -
Preferred stock issuance costs - (600,159)
Preferred stock dividends (150,000) (176,230)
-------------- --------------
Net cash provided by financing activities 16,973,060 239,288
-------------- --------------
Net increase (decrease) in cash and cash equivalents 1,643,052 (2,169,602)
Cash and cash equivalents, beginning of period 1,865,576 8,650,817
-------------- --------------
Cash and cash equivalents, end of period $ 3,508,628 $ 6,481,215
============== ==============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,140,150 $ 92,216
============== ==============
Supplemental disclosure of non-cash investing and financing activities:
Long-term debt incurred to acquire minority interest $ 250,000 -
============== ==============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
Page 5
<PAGE>
REGENT ASSISTED LIVING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Operations and Summary of Significant Accounting Policies:
The Company
Regent Assisted Living, Inc. ("the Company") is an owner, operator, and
developer of private-pay assisted living communities. Assisted living is
part of a spectrum of long-term care services that provide a combination of
housing, personal services and health care designed to respond to elderly
individuals who require assistance with activities of daily living in a
manner that promotes maximum independence.
On March 30, 1998, the Company completed a private placement pursuant to
which parties agreed to purchase up to $10.5 million of convertible
subordinated notes due 2008. The notes bear interest at 7.5 percent per
annum and are convertible into the Company's Common Stock at an effective
price of $7.50 per share.
The results of operations for the three months ended March 31, 1998 and
1997 reflect the operations of three assisted living communities and
property management services provided to one community. The results of
operations for the three months ended March 31, 1998, additionally reflect
the operations of nine new assisted living communities and property
management services provided to one additional community. As of May 14,
1998, the Company had also commenced operations at its new assisted living
communities in Tucson, Arizona, and Vacaville and Roseville, California and
had an additional 19 assisted living and Alzheimer's care communities in
various stages of development. The Company is also in the final stages of
completing a long-term lease-acquisition of Park Place which is currently
operated under a property management agreement.
The Company also provides management and administrative services for Bowen
Property Management Co., Bowen Financial Services Corp., Bowen Development
Company and Bowen Condominium Marketing, Inc. (collectively, the Bowen
Companies), all of which are Oregon corporations and are wholly owned by
Mr. Bowen. These services are provided pursuant to the terms of an
Administrative Services Agreement described in Note 3.
Basis of Presentation
The condensed consolidated financial statements include the accounts of the
Company and its majority owned subsidiary. All significant inter-company
accounts and transactions have been eliminated in consolidation.
Page 6
<PAGE>
REGENT ASSISTED LIVING, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, Continued
1. Operations and Summary of Significant Accounting Policies, Continued:
The accompanying unaudited condensed consolidated financial statements as
of March 31, 1998, and for the three month periods ended March 31, 1998 and
1997 have been prepared in conformity with generally accepted accounting
principles. The financial information as of December 31, 1997, is derived
from the Company's Form 10-KSB for the year ended December 31, 1997.
Certain information or disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, the accompanying condensed consolidated financial statements
include all adjustments necessary (which are of a normal and recurring
nature) for the fair presentation of the results of the interim periods
presented. The accompanying condensed consolidated financial statements
should be read in conjunction with the Company's audited consolidated
financial statements for the year ended December 31, 1997, included in the
Company's Form 10-KSB for the year ended December 31, 1997.
Operating results for the three months ended March 31, 1998, are not
necessarily indicative of the results that may be expected for the entire
fiscal year ending December 31, 1998, or any portion thereof.
2. Property and Equipment:
Property and equipment are stated at cost and consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -------------
<S> <C> <C>
Land $ 1,100,000 $ 1,730,810
Buildings and improvements 6,808,088 12,713,346
Furniture and equipment 1,323,624 1,512,868
Construction in progress 49,903,345 54,429,419
----------- -------------
59,135,057 70,386,443
Less accumulated depreciation 660,814 566,119
----------- -------------
Total property and equipment, net $58,474,243 $ 69,820,324
=========== =============
</TABLE>
Land, buildings and certain furniture and equipment serve as collateral
for long-term debt.
Page 7
<PAGE>
REGENT ASSISTED LIVING, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, Continued
3. Administrative Services Agreement:
The Company has entered into an agreement with the Bowen Companies, all of
which are Oregon corporations controlled by Mr. Bowen, 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.
4. Earnings (Loss) Per Common Share:
Basic earnings per share (EPS) and diluted EPS are computed using the
methods prescribed by Statement of Financial Accounting Standard No. 128,
Earnings Per share (SFAS 128). Basic EPS is calculated using income (loss)
attributable to common shares (after deducting preferred dividends) divided
by the weighted average number of common shares outstanding for the period.
Diluted EPS is calculated using income (loss) attributable to common shares
(after deducting preferred dividends and considering the effects of
dilutive common equivalent shares) divided by the weighted average number
of common shares and dilutive common shares outstanding for the period.
Basic and Diluted earnings (loss) per common share includes a deduction of
preferred stock dividends declared, which totaled $150,000 for each three
month period ended March 31, 1998 and 1997.
5. Accounting Pronouncements:
On April 3, 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5, Reporting on the Costs of Start-up Activities
(SOP 98-5). This statement requires that the costs of start-up activities,
including organization costs, be expensed as incurred. SOP 98-5 is
effective for financial statements for fiscal years beginning after
December 15, 1998. The adoption of this statement will have no impact on
the Company's current reporting practices as the Company expenses all
start-up costs.
ITEM 2. Management's Discussion and Analysis or Plan of Operation.
Overview
The Company
The Company reported a net loss of $2,395,575, or $.55 per share, on revenue of
$4,288,205 for the quarter ended March 31, 1998.
Page 8
<PAGE>
Current Communities. The table below sets forth certain information
regarding the Company's communities as at March 31, 1998.
<TABLE>
<CAPTION>
Regent
Operations
Community Location Commenced Units(1) Beds(2) Interest
- --------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Oregon
Park Place Portland 1986 112 112 Manage
Regency Park Portland 1987 122 142 Lease
Sheldon Park Eugene 1998 108 124 Lease
Washington
Sterling Park Redmond 1990 162 192 Lease
California
Laurel Springs Bakersfield 1998 113 130 Own
Orchard Park Clovis 1998 112 128 Lease
Sun Oak Citrus Heights 1997 40 50 Manage
Sunnyside Court Fremont 1998 40 80 Lease (3)
Sunshine Villa Santa Cruz 1990 106 126 Lease
Willow Creek Folsom 1997 104 119 Lease
Idaho
Willow Park Boise 1997 117 134 Lease
West Wind Boise 1997 48 52 Lease
New Mexico
Sandia Springs Rio Rancho 1998 109 126 Lease
Texas
Hamilton House San Antonio 1997 116 136 Lease
----- -----
Totals: 1,409 1,651
===== =====
</TABLE>
Communities completed during the first quarter of 1998:
<TABLE>
<CAPTION>
Community Location Units(1) Beds(2) Interest
- --------- -------- -------- ------- --------
<S> <C> <C> <C> <C>
California
Summerfield House Vacaville 109 126 Own
The Palms Roseville 93 108 Own
Arizona
Canyon Crest Tucson 117 137 Own
--- ---
Totals: 319 371
=== ===
</TABLE>
(1) A "unit" is a single- or double-occupancy studio or one or two bedroom
apartment.
Page 9
<PAGE>
(2) "Beds" reflects the actual number of beds used by the Company for census
purposes, which in no event is a number greater than the maximum number of
licensed beds permitted under the community's license.
(3) The Company began providing property management services to Sunnyside Court
in January 1998 and completed a lease-acquisition of the community in March
1998.
As of May 14, 1998, the Company had also commenced operations of its new 137-bed
community in Tucson, Arizona, its new 126-bed community in Vacaville,
California, and its new 108-bed community in Roseville, California. The Company
is in the final stages of completing a long-term lease-acquisition of the
112-bed Park Place community in Portland, Oregon which previously had been
operated by Regent under a property management contract. The Company has three
pending long-term lease-acquisitions located in Cheyenne, Laramie and Casper,
Wyoming which will add 183 beds to the Company's operations. Also as of May 14,
1998, the Company has commenced construction on the following five new
communities:
<TABLE>
<CAPTION>
Expected
Projected Quarter
Location No. of Beds Opening Interest
-------- ----------- ------- --------
<S> <C> <C> <C>
Henderson, Nevada 133 3rd-98 Owned
Austin, Texas 137 3rd-98 Owned
Kenmore, Washington 98 3rd-98 Owned*
Scottsdale, Arizona 48 4th-98 Leased
Scottsdale, Arizona 115 2nd-99 Owned
* A limited liability company in which the Company owns a 50 percent
interest will own the Company's community in Kenmore. The Company will
manage the community.
</TABLE>
Fourteen additional new communities were under varying stages of development as
of May 14, 1998. If all fourteen communities are developed and the Wyoming
communities are acquired, total operations of the Company will increase by
approximately 1,500 beds to a total of 4,000 beds. The Company continues to
pursue its primary strategy of developing new communities and is therefore
engaged in negotiations to acquire several additional sites and is pursuing
joint venture opportunities with parties who control parcels of land in
strategic markets. All costs associated with the development of these
communities have been capitalized as "Construction in Progress" as disclosed in
Note 2 to the condensed consolidated financial statements.
Operating results for the three month period ended March 31, 1998, are not
necessarily indicative of future financial performance as the Company intends to
continue expanding its operating base of communities.
Page 10
<PAGE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Revenues. For the three month period ended March 31, 1998, revenues were
$4,288,205 compared to $3,380,269 in the three month period ended March 31,
1997. The Company operated twelve and managed two communities in the first
quarter of 1998 and operated three communities and managed a fourth in the first
quarter of 1997. The increase in revenue of $907,936 or 26.9 percent includes
$1,049,160 of revenue from newly opened and acquired communities and a decrease
in revenue of $168,927 at the Company's three stabilized communities. Overall
average occupancy at the three stabilized communities declined to 89.9 percent
for the three month period ended March 31, 1998, whereas occupancy was 96.2
percent for the same period in 1997. However, this represents an increase in
occupancy from 89.4 percent reported for the previous quarter ended December 31,
1997. The Company continues to face increasing competition and this has had the
greatest impact in the market in which the Company operates its largest
community, thereby having a greater impact on the Company's overall occupancy
rate.
Residence Operating Expenses. Residence operating expenses were $4,190,136 for
the three month period ended March 31, 1998, and $2,136,277 for the same period
in 1997, an increase of $2,053,859. The current period includes $1,975,597 of
start-up and pre-opening costs related to thirteen of the Company's newly
developed communities. Residence operating expenses, excluding the effect of the
new communities, totaled 64.9 percent and 63.1 percent of rental and service
revenues for the three month periods ended March 31, 1998 and 1997,
respectively.
General and Administrative Expenses. General and administrative expenses were
$967,621 for the three month period ended March 31, 1998, compared to $712,204
for the three month period ended March 31, 1997. The increase of $255,417 is due
primarily to the increase in development activities by the Company, including
payroll and related costs primarily resulting from staffing increases related to
the implementation of the Company's strategy for rapid growth.
Lease Expense. Lease expense for the Company's leased communities was $1,414,718
for the three month period ended March 31, 1998, and was $706,200 for the same
period for 1997. This is due to the opening of seven and the acquisition of two
new communities since the end of the first quarter of 1997.
Depreciation and Amortization. Depreciation and amortization expense was
$114,083 for the three month period ended March 31, 1998, compared to $68,785
for the three month period ended March 31, 1997. The increase of $45,298 relates
primarily to the purchase of vans for the Company's newly developed communities
and the purchase of furniture and equipment for the Company's headquarters, both
in connection with the implementation of the Company's growth plan.
Interest Income. Interest income decreased in the three month period ended March
31, 1998, to $75,989, from $148,779 for the same period in 1997. The 1997 amount
reflects the interest earned from the investment of net proceeds from the sale
of Preferred Stock in December 1996. All investments of cash and cash
equivalents are in high quality, short term securities placed with institutions
with high credit ratings.
Page 11
<PAGE>
Interest Expense. Interest expense decreased in the three month period ended
March 31, 1998, to $64,415, from $101,228 for the three month period ended March
31, 1997. The Company capitalized $309,683 and $113,421 of interest charges
incurred during the three months ended March 31, 1998 and 1997, respectively.
The capitalized interest offset substantially higher interest costs incurred by
the Company in the current period arising from increased borrowing for
construction purposes.
Net Income (loss). Net operating results decreased to a loss of $2,395,575
during the three month period ended March 31, 1998, from a loss of $165,883 for
the same period in 1997. The decrease in net results is primarily due to an
increase in general and administrative expenses (as discussed above), an
increase in lease expense (as discussed above), and a decrease in residence
operating profits (rental and service revenue less residence operating expenses)
of $1,173,779, offset by a decrease in interest expense of $36,813.
Liquidity and Capital Resources
At March 31, 1998, the Company had approximately $2.4 million of working capital
compared to a working capital deficit of approximately $4.3 million at December
31, 1997, an increase of $6.7 million, of which $4.5 million resulted from the
utilization of proceeds from the issuance by the Company of convertible
subordinated notes, as described below, to repay short-term borrowings. The
balance was due primarily to the excess cash provided by financing activities.
Net cash used in operating activities totaled $2,592,976 for the three month
period ended March 31, 1998, which resulted primarily from a net loss of
$2,395,575.
Net cash used in investing activities totaled $12,737,032 for the three month
period ended March 31, 1998, comprised primarily of $12,720,465 used for land
acquisition, development, and construction costs. At March 31, 1998, the
aggregate purchase price for the Company's options related to ten parcels of
land was approximately $8,483,000. The Company has paid initial deposits
relating to these sites and has also completed the demographic analysis and
other preliminary due diligence for purposes of developing assisted living
communities at these sites.
Net cash provided by financing activities totaled $16,973,060 during the three
month period ended March 31, 1998, consisting of construction and equipment
financing proceeds totaling $8,836,356, net proceeds from three sale/leaseback
financings totaled $27,111,141, proceeds from issuance of convertible
subordinated notes of $4,500,000, offset by repayment of short-term borrowings
of $4,500,000, repayment of long-term debt of $18,607,328, prepayments and
deposits for financing arrangements of $266,880, and payment of preferred stock
dividends of $150,000.
In the first quarter of 1998, the Company completed two additional transactions
with two real estate investment trusts ("REIT") in the amounts of $4.3 million
for construction of the Company's Scottsdale, Arizona Regent Court community and
$3.2 million for the lease-acquisition of the Sunnyside Court community in
Fremont, California.
Page 12
<PAGE>
On March 30, 1998, the Company completed a private placement pursuant to which
parties purchased an aggregate of $4.5 million of convertible subordinated notes
of the Company and agreed to purchase up to an additional aggregate amount of
$6.0 million of convertible subordinated notes. The notes bear interest at 7.5
percent per annum and are convertible into the Company's common stock at an
effective price of $7.50 per share. Interest on the notes is payable quarterly
and all principal and unpaid interest under the notes is due March 31, 2008. The
Company intends to utilize the proceeds to finance the Company's continued rapid
expansion of internally developed communities, to repay short-term borrowings,
and for general working capital purposes.
As of March 31, 1998, the Company had the following construction loans in place:
<TABLE>
<CAPTION>
Amount Community Lender
- ------ --------- ------
<S> <C> <C>
$ 6,480,000 Kenmore, Washington US National Bank of Oregon
$ 7,600,000 Vacaville, California US National Bank of Oregon
$ 7,200,000 Bakersfield, California Guaranty Federal Bank, FSB
$ 7,700,000 Austin, Texas Guaranty Federal Bank, FSB
$ 6,450,000 Roseville, California Key Bank
$ 7,115,000 Tucson, Arizona Bank United of Texas, FSB
$ 7,000,000 Henderson, Nevada Bank United of Texas, FSB
</TABLE>
The Company has also received an expression of intent from a commercial lending
institution to provide $15,000,000 of construction financing with which to build
up to five Regent Court stand-alone Alzheimer's care communities.
As of May 14, 1998, the Company has a commitment from a REIT to provide
approximately $46.2 million in lease financing with which to acquire the three
Wyoming communities and enter into sale/leaseback transactions on four newly
completed communities.
Page 13
<PAGE>
Each of the pending financing transactions is subject to a number of conditions,
including the negotiation and execution of definitive documents and the
satisfactory completion of due diligence on the related properties, and there is
no assurance that any of these financing transactions will be completed on the
terms proposed, or at all.
The Company anticipates capital expenditures for 1998 will include additional
land acquisition costs, architectural fees, and other development costs related
to at least fourteen assisted living communities and construction costs related
to at least five new assisted living communities. The Company's current growth
plan anticipates the completion of construction and opening of three new
internally developed Regent communities and one new Regent Court community by
the end of 1998, the lease-acquisition of three additional communities by the
end of 1998, and the completion of an additional nine Regent and five Regent
Court communities by the end of 1999. The Company has obtained all financing
necessary to complete its development plan for 1998 and has obtained a $12.8
million commitment from a REIT to provide all financing necessary to acquire the
three identified communities during 1998. The total cost to develop and
construct the fourteen communities planned for 1999, including the estimated
initial operating deficits, will likely be between $80-90 million. A substantial
portion of these costs will be incurred during 1998. The Company anticipates
that it will be able to obtain the financing, upon acceptable terms, necessary
to complete the fourteen communities planned for 1999 although it has not
obtained any commitments in that regard at this time. Provided that the Company
can obtain financing upon acceptable terms, the Company estimates that it has
the necessary equity capital to complete construction and to fund the initial
operating deficits of the fourteen communities planned for 1999.
The Company may enter into additional arrangements with one or more unrelated
parties regarding the joint development and ownership of one or more of the
Company's communities currently under construction or development in order to
further leverage the Company's growth. Furthermore, the Company may utilize
various forms of financing that would permit a community to be sold to or
initially be developed by a third party who would incur the initial operating
deficits and permit the Company to manage the community for a customary fee. The
Company, under such financing methods, would likely have the option to either
purchase the community or enter into a long-term lease at such time as the
Company deems appropriate. The Company has not obtained any commitments for this
form of financing.
If the Company were unable to obtain additional required financing, or if such
financing is not available on acceptable terms, the Company expects that its
plan to develop an additional nine Regent Communities and five Regent Court
communities by the end of 1999 would likely be delayed or curtailed.
Furthermore, if the Company expands its growth plan, development activities do
not result in the construction of a community on the site, the Company
experiences a decline in the operations of its current communities or the
Company does not achieve and sustain anticipated occupancy levels at its new
communities, then the Company may require additional financing to complete its
growth plan.
Page 14
<PAGE>
Forward-Looking Statements
The information set forth in this report in the sections entitled "Overview" and
"Liquidity and Capital Resources" regarding the Company's acquisition of sites
for development, the Company's development, construction, financing and opening
of new assisted living communities, and the Company's plans to develop,
construct and operate new Regent Court communities constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
is subject to the safe harbor created by that section. The development of
additional assisted living communities will involve a number of risks including,
without limitation, the risk that the Company will be unable to locate suitable
sites, 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 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, and risks relating to the competitive environment for
development. The foregoing risks could cause the Company to significantly delay
or curtail its planned growth and could cause one or more of the Company's new
communities to not be profitable. Additional factors that could cause results to
differ materially from those projected in the forward-looking statements
include, without limitation, the ability of the Company to raise additional
financing upon terms acceptable to the Company, increases in the costs
associated with new construction, competition, and acceptance of the Company's
prototype community in new geographic markets. The Company's growth strategy is
subject to the risk that occupancy rates at newly-developed communities may not
be achieved or sustained at expected levels, in which case, the Company will
experience greater than anticipated operating losses in connection with the
opening of new communities and the Company's need for additional financing to
meet its growth plans will likely increase. Furthermore, the Company's growth
will place increasing pressure on the Company's management controls and require
the Company to locate, train, assimilate, and retain additional community
managers and support staff. There is no assurance that the Company will be able
to manage this growth successfully.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Exhibits:
4.1 Letter of Commitment, dated March 30, 1998, by and among LTC Properties,
Inc., LTC West, Inc. and the Registrant relating to the agreement to
purchase and lease assisted living residences.
4.2 Convertible Subordinated Note Purchase Agreement, dated as of March 30,
1998, by and between the Registrant and LTC Equity Holding Company, Inc.
4.3 Note No. 1998-1 issued to LTC Equity Holding Company, Inc. in the principal
amount of $4,000,000, due March 31, 2008.
4.4 Convertible Subordinated Note Purchase Agreement, dated as of March 30,
1998, by and between the Registrant and Andre C. Dimitriadis.
4.5 Note No. 1998-2 issued to Andre C. Dimitriadis in the principal amount of
$160,000, due March 31, 2008.
Page 15
<PAGE>
4.6 Convertible Subordinated Note Purchase Agreement, dated as of March 30,
1998, by and between the Registrant and James J. Pieczynski.
4.7 Note No. 1998-3 issued to James J. Pieczynski in the principal amount of
$160,000, due March 31, 2008.
4.8 Convertible Subordinated Note Purchase Agreement, dated as of March 30,
1998, by and between the Registrant and Christopher T. Ishikawa.
4.9 Note No. 1998-4 issued to Christopher T. Ishikawa in the principal amount
of $90,000, due March 31, 2008.
4.10 Convertible Subordinated Note Purchase Agreement, dated as of March 30,
1998, by and between the Registrant and Pamela J. Privett.
4.11 Note No. 1998-5 issued to Pamela J. Privett in the principal amount of
$90,000, due March 31, 2008.
4.12 Registration Rights Agreement, dated as of March 30, 1998, by and between
LTC Equity Holding Company, Inc. and the Registrant.
4.13 Registration Rights Agreement, dated as of March 30, 1998, by and between
Andre C. Dimitriadis and the Registrant.
4.14 Registration Rights Agreement, dated as of March 30, 1998, by and between
James J. Pieczynski and the Registrant.
4.15 Registration Rights Agreement, dated as of March 30, 1998, by and between
Christopher T. Ishikawa and the Registrant.
4.16 Registration Rights Agreement, dated as of March 30, 1998, by and between
Pamela J. Privett and the Registrant.
27 Financial Data Schedule.
Reports on Form 8-K
None
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
REGENT ASSISTED LIVING, INC.
By: STEVEN L. GISH Date: May 14, 1998
--------------------------------
Steven L. Gish
Chief Financial Officer
Page 16
<PAGE>
EXHIBIT INDEX
Exhibits
No. Description Page
- -------- ----------- ----
4.1 Letter of Commitment, dated March 30, 1998, by and among LTC
Properties, Inc., LTC West, Inc. and the Registrant relating
to the agreement to purchase and lease assisted living
residences.
4.2 Convertible Subordinated Note Purchase Agreement, dated as
of March 30, 1998, by and between the Registrant and LTC
Equity Holding Company, Inc.
4.3 Note No. 1998-1 issued to LTC Equity Holding Company, Inc.
in the principal amount of $4,000,000, due March 31, 2008.
4.4 Convertible Subordinated Note Purchase Agreement, dated as
of March 30, 1998, by and between the Registrant and Andre
C. Dimitriadis.
4.5 Note No. 1998-2 issued to Andre C. Dimitriadis in the
principal amount of $160,000, due March 31, 2008. Page 15
4.6 Convertible Subordinated Note Purchase Agreement, dated as
of March 30, 1998, by and between the Registrant and James
J. Pieczynski.
4.7 Note No. 1998-3 issued to James J. Pieczynski in the principal
amount of $160,000, due March 31, 2008.
4.8 Convertible Subordinated Note Purchase Agreement, dated as
of March 30, 1998, by and between the Registrant and
Christopher T. Ishikawa.
4.9 Note No. 1998-4 issued to Christopher T. Ishikawa in the
principal amount of $90,000, due March 31, 2008.
4.10 Convertible Subordinated Note Purchase Agreement, dated as
of March 30, 1998, by and between the Registrant and Pamela
J. Privett.
4.11 Note No. 1998-5 issued to Pamela J. Privett in the principal
amount of $90,000, due March 31, 2008.
4.12 Registration Rights Agreement, dated as of March 30, 1998,
by and between LTC Equity Holding Company, Inc. and the
Registrant.
4.13 Registration Rights Agreement, dated as of March 30, 1998,
by and between Andre C. Dimitriadis and the Registrant.
4.14 Registration Rights Agreement, dated as of March 30, 1998,
by and between James J. Pieczynski and the Registrant.
4.15 Registration Rights Agreement, dated as of March 30, 1998,
by and between Christopher T. Ishikawa and the Registrant.
4.16 Registration Rights Agreement, dated as of March 30, 1998,
by and between Pamela J. Privett and the Registrant.
27 Financial Data Schedule.
LTC Properties, Inc.
300 Esplanade Drive
Suite 1860
Oxnard, California 93030
805.981.8655
FAX: 805.981.8663
March 30, 1998
Regent Assisted Living, Inc.
Bank of America Financial Center
121 S.W. Morrison, Suite 1000
Portland, Oregon 97204
Attention: Mr. Walter C. Bowen, President, CEO and Chairman
Re: Agreement to Purchase and Lease Assisted Living Residences
Dear Mr. Bowen:
LTC Properties, Inc. ("LTC") is pleased to advise you that LTC agrees,
through its wholly-owned subsidiary LTC West, Inc., a Nevada corporation ("LTC
West"), and subject to the parameters outlined in this letter and approval of
LTC's Board of Directors, to enter into a group of sale/leaseback transactions
with Regent Assisted Living, Inc., an Oregon corporation ("Regent"), with
respect to those certain properties described below (each a "Property" and
collectively, the "Properties"), and each of which Properties shall be improved
with an assisted living facility having that number of units indicated below.
The total cumulative purchase price to be paid by LTC West to Regent for the
Properties shall be Fifty-Four Million Six Hundred Ten Thousand Dollars
($54,610,000) (the "Total Purchase Price), and the purchase price with respect
to each Property (the "Specific Property Purchase Price") will be as follows:
Location Units Purchase Price
- -------- ----- --------------
Tucson, AZ 117 $9,000,000
Roseville, CA 93 7,200,000
Rio Rancho, NM 109 8,400,000
Henderson, NV 116 8,700,000
Austin, TX 117 8,500,000
Casper, WY 53 3,710,000
Cheyenne, WY 77 5,390,000
Laramie, WY 53 3,710,000
TOTALS 735 $54,610,000
As we have previously discussed, Regent will sell and assign all of its
right, title and interest in and to all real estate, tangible and intangible
personal property and fixtures comprising the Properties to LTC West, and LTC
West will purchase the Properties from
<PAGE>
Mr. Walter C. Bowen, President, CEO and Chairman
Regent Assisted Living, Inc.
March 30, 1998
Page 2
Regent and will lease the Properties to Regent or a wholly-owned subsidiary of
Regent ("Regent Sub"), all upon the following terms and conditions:
1. Purchase Price. LTC West shall pay Regent the Total Purchase Price in
connection with the purchase of all of the Properties. With respect to the
purchase of each individual Property, LTC West shall pay Regent the Specific
Property Purchase Price in the table set forth above. The Specific Property
Purchase Price shall be paid in all cash at closing with respect to LTC West's
purchase of each Property.
2. Determination of Properties; Property Application Materials. Regent and
LTC West anticipate that the Properties specifically listed in the table above
are the Properties that will be the subject of the transaction contemplated in
this commitment letter. In the event, however, that it becomes impossible or
impracticable for Regent to enter into the transactions contemplated in this
commitment letter with respect to one or more of the Properties listed in the
table above, including but not limited to as a result of the failure of a
contingency to LTC West's obligations hereunder as set forth in Paragraph 3,
hereof, then Regent shall have the right and the obligation to provide an
acceptable substitute property to LTC West in accordance with this Paragraph 2.
The determination of whether a proposed substitute property shall become a
Property subject to this commitment letter shall be made by LTC West in its sole
discretion based upon materials supplied by Regent. LTC West shall commence its
evaluation of each proposed substitute property submitted for approval by Regent
at such time as LTC West has received all of the following (collectively, the
"Property Application Materials") from Regent: (i) a copy of the market and
feasibility study for the applicable proposed substitute property prepared by a
consultant entirely acceptable to LTC West; (ii) Regent's proposed Specific
Property Purchase Price for the applicable proposed substitute property,
including a detailed breakdown of the hard and soft construction costs
comprising the Specific Property Purchase Price; (iii) a copy of the
geotechnical report with respect to the proposed substitute property; (iv) a
copy of a Phase I environmental site inspection report with respect to the
proposed substitute property dated not earlier than three (3) months prior to
the date of submission to LTC West and prepared by an environmental consultant
entirely acceptable to LTC West; (v) a budget for operation of the assisted
living facility on the proposed substitute property for the first twenty-four
(24) full months of operation; (vi) a copy of Regent's final, unconditional
certificate of occupancy (or other similar license or permit) with respect to
the assisted living facility located on the proposed substitute property; and
(vii) a copy of Regent's unconditional license to operate the assisted living
facility located on the proposed substitute property. Once all Property
Application Materials have been received by LTC West, LTC West shall determine
within five (5) business days whether LTC West will accept the applicable
proposed substitute property as one of the Properties subject to this commitment
letter.
<PAGE>
Mr. Walter C. Bowen, President, CEO and Chairman
Regent Assisted Living, Inc.
March 30, 1998
Page 3
3. Contingencies.
(a) LTC West's obligation to purchase the Properties and to consummate
the transactions contemplated in this commitment letter shall be expressly
contingent upon each of the following:
(i) the state of title to each of the Properties must be
acceptable to LTC West in LTC West's reasonable discretion, and
LTC West (at such time as LTC West acquires title to the
Property) shall have received an ALTA Owner's Policy of Title
Insurance-Extended Coverage - for each Property issued by Chicago
Title Insurance Company showing the fee interest in each Property
vested in LTC West subject only to those exceptions specifically
agreed to in writing by LTC West, and containing those
endorsements reasonably required by LTC West. In each case, the
title commitment shall be ordered through Ms. Sherry Strazz at
Chicago Title Insurance Company's office in Portland, Oregon,
with copies of all correspondence and title documents in
connection with such order to be routed through Ms. Laine Cheng
at Chicago Title Insurance Company's National Office in Los
Angeles, California;
(ii) LTC West shall have received an ALTA/ACSM Land Title Survey
of each Property and the improvements located thereon prepared by
a professional land surveyor entirely satisfactory to LTC West
and dated after substantial completion of the construction of the
assisted living facility on each Property, which survey shall be
certified to LTC, LTC West, Chicago Title Insurance Company and
to any other party which LTC West may reasonably require with the
following language:
"This is to certify that this map or plat and the survey on which
it is based were made (i) in accordance with "Minimum Standard
Detail Requirements for ALTA/ACSM Land Title Surveys," jointly
established and adopted by ALTA and ACSM in 1992, and includes
items 1, 2, 3, 6 (as to set back restrictions only), 8, 9, 10,
and 11 in Table A thereof; and (ii) pursuant to the Accuracy
Standards (as adopted by ALTA and ACSM and in effect on the date
of this certification) of an Urban Survey."
In addition, the record legal description of each Property must
appear on the survey of that Property, and any record easements
or
<PAGE>
Mr. Walter C. Bowen, President, CEO and Chairman
Regent Assisted Living, Inc.
March 30, 1998
Page 4
servitudes and covenants affecting each Property must be plotted
thereon;
(iii) LTC West shall have received a Phase I environmental site
assessment of each of the Properties addressed to LTC and LTC
West in form and content, and performed by an environmental
consultant, entirely acceptable to LTC West, and LTC West shall
have approved such Phase I environmental site assessment or
otherwise be satisfied that any recommendations set forth therein
will be satisfied by Regent prior to closing;
(iv) LTC West shall have received a UCC lien, judgment lien and
tax lien search dated after the date of substantial completion of
the assisted living facility on each Property evidencing that no
liens exist as to the personal property located on each Property
other than those liens previously approved in writing by LTC
West;
(v) LTC West shall be satisfied with the physical condition of
the assisted living facilities located on the Properties based on
a physical inspection of each Property by LTC West;
(vi) LTC West shall have received evidence acceptable to LTC West
that each of the Properties is properly zoned for use as an
assisted living facility without variance or conditional use
permit;
(vii) LTC West shall have received a corporate resolution of
Regent's Board of Directors authorizing Regent to enter into,
deliver and perform all of the documents and instruments
necessary to effect each of the sale/leaseback transactions
contemplated in this commitment letter, which corporate
resolution may cover multiple Properties; and to the extent
Regent Sub is the lessee under the applicable Lease, LTC West
shall have received a corporate resolution of Regent Sub's Board
of Directors authorizing Regent Sub to enter into, deliver and
perform all of the documents and instruments necessary to effect
each of the sale/leaseback transactions contemplated in this
commitment letter, which corporate resolution may cover multiple
Properties;
(viii) LTC West shall have received a Certificate of Good
Standing from the State of Oregon for Regent and from the state
of incorporation for Regent Sub and Certificates of Qualification
to
<PAGE>
Mr. Walter C. Bowen, President, CEO and Chairman
Regent Assisted Living, Inc.
March 30, 1998
Page 5
Do Business from the state in which each Property is located from
Regent and/or Regent Sub (as applicable);
(ix) LTC West shall have received a copy of the final and
unconditional certificate of occupancy with respect to each
Property and a copy of Regent's final and unconditional license
to operate the assisted living facility located on each Property
as a fully-licensed assisted living facility in the state in
which the applicable Property is located, and having not less
than the number of units specified for each Property in the table
above (or in the Property Application Materials (defined above)
submitted to LTC West in connection with a proposed substitute
property which becomes a Property);
(x) LTC West shall have received a copy of the market and
feasibility study with respect to the Property, and LTC West
shall have approved the market and feasibility study; and
(xi) LTC West, at its option, shall have conducted with respect
to each Property, and be satisfied with the results of, such
other standard due diligence as is customarily performed by LTC
West in connection with the acquisition of a fee interest in a
property improved with an assisted living facility.
4. Lease Term. LTC West will acquire each of the Properties and lease them
to Regent (or Regent Sub, as the case may be), at such time as the construction
of the assisted living facility on each Property is completed, the final and
unconditional certificate of occupancy and final and unconditional operator's
license with respect thereto issued and all other pre-conditions to closing have
been met with respect to said Property, but in no event shall any of said
purchase and sale transactions close later than June 30, 1998; provided,
however, that the outside closing date for the Property located in Austin, Texas
only shall be July 31, 1998. As a result, the parties anticipate that the
Properties will not all be acquired by LTC West at one time, and Regent's
obligation to pay Minimum Rent and other charges under each Lease will commence
concurrently with LTC West's acquisition of the Property to which the Lease
relates. For purposes of (i) cross-defaulting, (ii) the exercise of options to
extend the term of each Lease or (iii) other leasehold purposes, each of the
Leases shall be "packaged" with other Leases (each a "Package") as set forth
below between Regent (or Regent Sub) and LTC West, and the Leases in each such
Package shall, for certain purposes, be related to and dependent upon the other
Leases in said Package. On or before June 30, 1998, LTC West and Regent will
have entered into sale/leaseback transactions with respect to assisted living
facilities in: Fremont, California; Eugene, Oregon; and Portland, Oregon (the
"Other Properties"),
<PAGE>
Mr. Walter C. Bowen, President, CEO and Chairman
Regent Assisted Living, Inc.
March 30, 1998
Page 6
which Other Properties are not covered by this commitment letter. The Leases for
the Properties located in Fremont, California, Portland, Oregon, Casper,
Wyoming, Cheyenne, Wyoming and Laramie, Wyoming shall constitute a Package (the
"First Lease Package"), and the Leases for the Properties located in Eugene,
Oregon, Tucson, Arizona, Roseville, California, Rio Rancho, New Mexico,
Henderson, Nevada and Austin, Texas shall constitute a Package (the "Second
Lease Package"). Notwithstanding the foregoing, in the event that LTC West and
Regent consummate at least two (2) more sale/leaseback transactions with respect
to assisted living facilities in at least two (2) additional locations (the
"Additional Properties") (i.e., in addition to the sale/leaseback transactions
for the Properties and the Other Properties), then two (2) of the Properties in
the Second Lease Package (which two (2) Properties shall be determined by LTC
West in its sole and absolute discretion) shall be released from the Second
Lease Package and packaged together with the Additional Properties to constitute
a Package (the "Third Lease Package").
Notwithstanding the fact that Regent's rental obligations under the Leases
of the Properties and the Other Properties may commence on different dates, it
is LTC's specific intention that the initial term of all of the Leases in the
First Lease Package will terminate on February 28, 2013, and it is LTC's
specific intention that the initial term of all of the Leases in the Second
Lease Package will terminate on that date which is fifteen (15) years following
the commencement date of the third (3rd) Lease to commence in the Second Lease
Package. Regent shall have two (2) consecutive ten-year options to extend the
term of all of the Leases in each Lease Package; that is, Regent shall only have
the option to extend the term of any one of the Leases in the First Lease
Package so long as Regent exercises its option to extend the term of all of the
Leases in the First Lease Package. Similarly, Regent shall only have the option
to extend the term of any one of the Leases in the Second Lease Package so long
as Regent exercises its option to extend the term of all of the Leases in the
Second Lease Package. In the event that LTC West and Regent consummate
sale/leaseback transactions for the Additional Properties, the Leases for the
two (2) Properties released from the Second Lease Package shall be amended to
provide that said Leases are co-terminus with the Leases for the Additional
Properties and that the options to extend the term of said Leases may only be
exercised together with the options to extend the term of the Leases of the
Additional Properties.
5. Minimum Rent. The initial annual Minimum Rent for the first year of each
Lease for the Properties located in Casper, Wyoming, Cheyenne, Wyoming and
Laramie, Wyoming shall be an amount equal to the Specific Property Purchase
Price paid by LTC West for each such Property multiplied by the sum of three
hundred twenty-five (325) basis points plus the average interest rate on the
ten-year Treasury Security for the five (5) business days prior to the third
(3rd) business day prior to closing. The initial annual Minimum Rent for the
first year of each Lease for the Properties in the locations set forth in the
table below shall be as follows:
<PAGE>
Mr. Walter C. Bowen, President, CEO and Chairman
Regent Assisted Living, Inc.
March 30, 1998
Page 7
Location Lease Rate Initial Annual Minimum Rent
- -------- ---------- ---------------------------
Tucson, AZ 8.87% $798,300
Roseville, CA 8.87% $638,640
Rio Rancho, NM 8.87% $745,080
Henderson, NV 8.91% $775,170
Austin, TX 8.91% $757,350
Regent shall pay an amount equal to one-twelfth (1/12) of the annual Minimum
Rent owing under each Lease on the first day of each and every month during the
term of the Lease without demand, abatement, set-off or notice. Commencing on
the first anniversary of the commencement date of each Lease (each an
"Anniversary Date"), and continuing thereafter on each subsequent Anniversary
Date for each of the Leases during the initial term and each option term of said
Leases, the Minimum Rent applicable to each of the Leases shall be increased in
an amount equal to the annual Minimum Rent payable under the applicable Lease
for the immediately preceding twelve (12) month period increased by one hundred
fifty percent (150%) of the cumulative increase in the CONSUMER PRICE INDEX,
U.S. CITIES AVERAGE, ALL ITEMS (1982 - 84 = 100) published by the United States
Department of Labor, Bureau of Labor Statistics (the "CPI") from the date of the
immediately preceding adjustment of Minimum Rent (or, in the case of the first
adjustment to Minimum Rent from the commencement date of the applicable Lease),
to the date on which the Minimum Rent adjustment will take effect, but in no
event shall any adjustment result in a new Minimum Rent which is more than two
(2%) percent greater than the Minimum Rent for the immediately preceding twelve
(12) month period.
6. Rent During Option Periods. The initial Minimum Rent for the first
option term of each Lease shall be the higher of: (i) Minimum Rent in the last
twelve (12) months of the initial term of the Lease increased by two percent
(2%); or (ii) an amount equal to the initial Minimum Rent payable in the first
twelve (12) months of the initial term of the Lease adjusted by the cumulative
increase in the CONSUMER PRICE INDEX, U.S. CITIES AVERAGE, ALL ITEMS
(1982-84=100) published by the United States Department of Labor, Bureau of
Labor Statistics (the "CPI") from the commencement date of the applicable Lease
to the first day of the first option term of said Lease. The initial Minimum
Rent for the second of the option terms for each Lease shall be the higher of:
(i) Minimum Rent in the last twelve (12) months of the first option term of the
Lease increased by two percent (2%); (ii) an amount equal to the Minimum Rent
payable in the first twelve (12) months of the first option term of the Lease
adjusted by the cumulative increase in the CPI from the first day of the first
option term of the Lease to the first day of the second option term thereof; or
(iii) the fair market value rent for the Property which is the subject of the
Lease as determined by an independent appraisal process.
<PAGE>
Mr. Walter C. Bowen, President, CEO and Chairman
Regent Assisted Living, Inc.
March 30, 1998
Page 8
7. Triple Net Lease. Regent shall be responsible for all costs associated
with the operation of the assisted living facilities located on the Properties,
including, but not limited to, all property and other taxes, utilities,
insurance premiums and costs to maintain the assisted living residences in good
condition and repair, reasonable wear and tear excepted (collectively
"Additional Charges"). Taxes shall include any and all taxes of any kind
associated with the real or personal property constituting the assisted living
facilities, including, but not limited to, taxes attributable to any period
prior to acquisition of the Properties by LTC West.
8. Repair and Maintenance. Regent shall be responsible for completing any
and all work, of every kind and nature whatsoever, necessary to maintain each
assisted living facility located on the Properties as an assisted living
residence in good condition and repair, reasonable wear and tear excepted. In
addition, at Regent's sole cost and expense, Regent shall complete all
applications, give all notices and obtain and maintain all licenses, permits and
approvals necessary or desirable to allow Regent to operate the assisted living
facilities located on the Properties in accordance with all legal and regulatory
requirements.
9. Cross-Default. Each Lease with respect to each Property in the First
Lease Package shall be cross-defaulted with each of the other Leases in the
First Lease Package such that any default under any one Lease in the First Lease
Package shall constitute a default under each other Lease in the First Lease
Package. Similarly, each Lease with respect to each Property in the Second Lease
Package shall be cross-defaulted with each of the other Leases in the Second
Lease Package such that any default under any one Lease in the Second Lease
Package shall constitute a default under each other Lease in the Second Lease
Package.
10. Indemnity. Each Lease shall provide that Regent shall fully indemnify,
defend, protect and hold LTC West harmless from and against any and all costs,
losses, expenses, judgments, claims, fees (including reasonable attorneys' fees
and costs) or damages of any kind or nature whatsoever arising from or relating
to the assisted living facilities located on the Properties and the operation
thereof, including, without limitation, all matters relating to (i) the presence
of hazardous substances located on the Properties, (ii) compliance with or
failure to comply with the provisions of the federal Americans with Disabilities
Act, (iii) compliance with or failure to comply with the provisions of the Fair
Housing Amendments Act of 1988; (iv) compliance with or failure to comply with
the provisions of Section 8 of the United States Housing Act of 1937, as
amended, and any and all other matters whatsoever relating to the Properties,
the assisted living facilities located thereon and the operation thereof.
Regent's indemnification obligations described in this paragraph shall survive
the expiration or termination for any reason of the Leases.
<PAGE>
Mr. Walter C. Bowen, President, CEO and Chairman
Regent Assisted Living, Inc.
March 30, 1998
Page 9
11. Assignment and Subletting. Regent shall not be entitled to sublet or
assign any one or more of the Leases without the prior written consent of LTC
West which consent may be given or withheld in LTC West's sole discretion;
provided, however, that to the extent that Regent Sub is the lessee under a
Lease, Regent Sub shall be entitled, at any time without first obtaining the
consent of LTC West, to sell and convey either the Property which is the subject
of the Lease or all of the issued and outstanding stock of Regent Sub to Regent
so long as LTC is notified of such conveyance in writing within five (5)
business days thereafter.
12. Lease Guaranty. To the extent LTC West leases a Property to Regent Sub,
Regent shall execute and deliver to LTC West an absolute and unconditional
guaranty of the payment and performance of all of Regent Sub's obligations under
the Lease for the Property, including, but not limited to, any indemnification
obligations of Regent Sub to LTC West. Said lease guaranty shall be on LTC
West's standard form.
13. Closing Costs. Concurrently with the closing of LTC West's acquisition
of each of the Properties, Regent shall be responsible to pay any and all
closing costs in connection with the closing of the acquisitions and the leases
to Regent, including but not limited to all of LTC West's attorneys' fees (which
shall be $7,500.00 for each complete transaction with respect to each Property
contemplated in this commitment letter), recording fees, escrow fees, title
fees, state and local transfer, mortgage or excise taxes in connection with the
transfer of title, LTC West's out-of-pocket costs in connection with the
transaction and any and all other fees and costs in any way associated with the
overall transaction with respect to each Property.
14. Commitment Fee. Concurrently with the closing of the sale/leaseback
transaction with respect to each of the Properties, Regent shall pay a
commitment fee to LTC West in the sum of one percent (1%) of the applicable
Specific Property Purchase Price (the "Commitment Fee"), said Commitment Fee
amount to be offset against the Specific Property Purchase Price to be paid by
LTC West with respect to each such transaction.
15. Physical Inspection. As a precondition to the obligations of LTC West
under this commitment letter, LTC West shall have the right to conduct a
physical inspection of each assisted living facility on each Property, and LTC
West must be satisfied with the physical condition of each of the Properties
after completion of the construction of the assisted living facilities thereon,
in the reasonable exercise of LTC West's discretion.
16. Governing Law. This commitment letter shall be governed by and
interpreted under the internal laws of the State of California without resort to
choice of law principles.
<PAGE>
Mr. Walter C. Bowen, President, CEO and Chairman
Regent Assisted Living, Inc.
March 30, 1998
Page 10
17. Regent's Acceptance. Regent must indicate its acceptance of the terms
and conditions of this commitment by affixing its signature below. Unless LTC
West receives this accepted commitment in its Oxnard, California office on or
prior to the fifth (5th) business day following the date of this letter, the
terms hereof shall be null and void, and LTC West shall not have any obligations
or liabilities to Regent of any kind or nature whatsoever. This commitment shall
become effective only upon acceptance by LTC and LTC West evidenced by the
affixation of their signatures hereto.
18. Facsimile Execution Binding. The parties hereto specifically agree that
this commitment letter may be executed by facsimile, and that facsimile
signatures hereon shall be binding on the parties hereto as though they were
original signatures.
19. Survival. This commitment letter shall survive, and the covenants,
conditions and terms set forth herein shall continue, until the earlier of (i)
June 30, 1998, at which time this commitment letter shall expire, except with
respect to the Property located in Austin, Texas, for which Property this
commitment shall expire on July 31, 1998, or (ii) the date on which the sale of
all of the Properties to LTC West and the Leases of all of the Properties from
LTC West to Regent have been consummated.
Please understand that, subject to the contingencies set forth above, this
letter constitutes the commitment of Regent and LTC West to enter into the
transactions described herein with respect to which LTC West shall invest a
total of Fifty-Four Million Six Hundred Ten Thousand Dollars ($54,610,000) and
otherwise on the terms set forth above.
Upon receipt of your original signature on this letter, LTC West will
immediately instruct counsel to prepare draft documents to evidence the
transactions contemplated in this commitment letter.
Very truly yours,
LTC PROPERTIES, INC.,
a Maryland corporation
CHRISTOPHER T. ISHIKAWA
CHRISTOPHER T. ISHIKAWA,
Sr. Vice President & Chief Investment Officer
<PAGE>
Mr. Walter C. Bowen, President, CEO and Chairman
Regent Assisted Living, Inc.
March 30, 1998
Page 11
LTC WEST, INC.,
a Nevada corporation
PAMELA J. PRIVETT
PAMELA J. PRIVETT,
Sr. Vice President & General Counsel
READ AND AGREED:
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By: STEVEN L. GISH
----------------------------------
Its: Chief Financial Officer
- --------------------------------------------------------------------------------
REGENT ASSISTED LIVING, INC.
and
LTC EQUITY HOLDING COMPANY, INC.
$10,000,000 Principal Amount
of
7.5% Convertible Subordinated Notes Due March 31, 2008
CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
Dated as of March 30, 1998
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. PURCHASE AND SALE OF NOTES..........................................1
1.1. Issue of Notes...................................................1
1.2. Purchase and Sale of Notes.......................................1
1.3. Maintenance of Note Register.....................................3
1.4. Issue Taxes......................................................3
1.5. Direct Payment...................................................4
1.6. Lost, Etc. Notes.................................................4
SECTION 2. CLOSING CONDITIONS..................................................4
2.1. Delivery of Documents............................................5
2.2. Delivery of Other Agreements.....................................6
2.3. Representations and Warranties, Agreements and Covenants.........6
2.4. No Event of Default..............................................6
2.5. Proceedings Satisfactory.........................................6
2.6. Consents and Permits.............................................7
2.7. No Material Adverse Change.......................................7
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................7
3.1. Organization; Power and Authority................................7
3.2. Authorization....................................................7
3.3. Capital Stock....................................................8
3.4. No Other Registration Rights.....................................8
3.5. No Violation or Conflict; No Default.............................9
3.6. Margin Regulations...............................................9
3.7. Private Offering.................................................9
3.8. Due Authorization of Material Contracts.........................10
3.9. Financial Statements............................................10
3.10. Litigation; Judgments..........................................11
3.11. Taxes..........................................................11
i
<PAGE>
3.12. Investment Company Act.........................................11
3.13. Environmental Matters..........................................11
3.14. Labor Relations................................................12
3.15. Real Property; Leases..........................................12
3.16. Intellectual Property; Licenses................................12
3.17. Defaults.......................................................13
3.18. Brokers........................................................13
3.19. Existing Indebtedness..........................................13
3.20. Compliance with Law; Permits...................................13
3.21. Insurance......................................................14
3.22. Material Events................................................14
3.23. SEC Documents; Undisclosed Liabilities.........................15
3.24. Material Misstatements or Omissions............................16
3.25. Survival of Representations and Warranties.....................16
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER...................16
4.1. Purchase for Own Account........................................16
4.2. Accredited Investor.............................................16
4.3. Authorization...................................................17
4.4. Brokers.........................................................17
SECTION 5. COVENANTS..........................................................17
5.1. Payment of Notes; Satisfaction of Obligations...................17
5.2. Notice of Default...............................................17
5.3. Limitation on Additional Indebtedness...........................18
5.4. Change of Control...............................................18
5.5. Stay, Extension and Usury Laws..................................20
5.6. Indemnification.................................................20
5.7. Corporate Existence; Merger; Successor Corporation..............22
5.8. Taxes...........................................................23
5.9. Investment Company Act..........................................23
5.10. Insurance......................................................23
ii
<PAGE>
5.11. Inconsistent Agreements........................................23
5.12. Compliance with Laws...........................................24
5.13. Inspection of Properties and Records...........................24
SECTION 6. CONVERSION OF NOTES................................................24
6.1. Conversion......................................................24
6.2. Conversion Rate.................................................25
6.3. Fractional Shares...............................................25
6.4. Adjustments for Stock Splits, Combinations and Dividends........26
6.5. Reorganization, Mergers, Consolidations or Sales of Assets......26
6.6. Sale of Shares Below Market or Conversion Price.................27
6.7. Adjustment for Failure to Quote on Nasdaq National Market.......28
6.8. Accountants' Certificate of Adjustment..........................28
6.9. Reservation of Shares Issuable Upon Conversion..................29
6.10. No Impairment..................................................29
SECTION 7. DEFAULTS AND REMEDIES..............................................29
7.1. Events of Default...............................................29
7.2. Acceleration of Notes...........................................31
7.3. Other Remedies..................................................31
SECTION 8. SUBORDINATION......................................................31
8.1. Notes Subordinated to Senior Indebtedness.......................31
8.2. Company Not to Make Payments with Respect to Notes in Certain
Circumstances...................................................32
8.3. Subrogation of Notes............................................33
8.4. No Impairment of Subordination..................................34
8.5. Section 8 Not to Prevent Events of Default......................34
8.6. Securities Senior to Subordinated Indebtedness..................34
8.7. Assignment of Junior Claims.....................................34
SECTION 9. AMENDMENTS AND WAIVERS.............................................35
9.1. With Consent of Holders.........................................35
9.2. Revocation and Effect of Consents...............................36
iii
<PAGE>
9.3. Notation on or Exchange of Notes................................37
SECTION 10. DEFINITIONS.......................................................37
10.1. Definitions....................................................37
10.2. Rules of Construction..........................................46
SECTION 11. MISCELLANEOUS.....................................................47
11.1. Notices........................................................47
11.2. Undertaking for Costs..........................................47
11.3. Successors and Assigns.........................................47
11.4. Counterparts...................................................47
11.5. Headings.......................................................48
11.6. Governing Law..................................................48
11.7. Entire Agreement...............................................48
11.8. Severability...................................................48
11.9. Transfer.......................................................48
iv
<PAGE>
CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT
This CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT, is dated as of
March 30, 1998 (this "Agreement"), and entered into by and between REGENT
ASSISTED LIVING, INC., an Oregon corporation (the "Company") and LTC EQUITY
HOLDING COMPANY, INC., a Nevada corporation (the "Purchaser").
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in Section 10.1 hereof.
In consideration of the premises, mutual covenants and agreements
hereinafter contained and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Company agrees as follows:
SECTION 1. PURCHASE AND SALE OF NOTES
1.1. Issue of Notes
On or before the Closing,
(a) The Company will have authorized the issue and sale of $10,000,000
aggregate principal amount of its 7.5% Convertible Subordinated Notes due March
31, 2008 (the "Notes") to the Purchaser, to be substantially in the form
attached hereto as Annex A.
(b) The Notes shall be substantially in the form attached hereto
as Annex A, including such other notations, legends or endorsements set forth
therefor or required by law. The Notes shall be dated the date of their
issuance. The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Agreement and, to the extent
applicable, the Company and the Purchaser, by their execution and delivery of
this Agreement, expressly agree to such terms and provisions and to be bound
thereby.
1.2. Purchase and Sale of Notes
(a) Purchase and Sale. The Company agrees to sell and, subject to
the terms and conditions set forth herein and in the Registration Rights
Agreement and in reliance on the representations and warranties of the Company
contained or incorporated herein, the Purchaser agrees to purchase the Notes for
an aggregate purchase price of $10,000,000 as follows:
(1) $4,000,000 principal amount of Notes will be issued and sold
to the Purchaser on the Closing Date, and
(2) the remaining $6,000,000 principal amount of Notes
shall be issued in increments of at least $1,000,000 (except that if more than
$9,000,000 but less than $10,000,000 principal amount of Notes have been issued
to the Purchaser, the last increment of Notes shall be issued in a principal
amount so that an aggregate of $10,000,000 principal amount of Notes shall have
been issued to the Purchaser) on or prior to March 31, 2000 upon the receipt of
the following:
<PAGE>
(a) five (5) Business Days written notice by the Company to
the Purchaser;
(b) a Certificate executed by any two executive officers of
the Company, dated the date such additional principal amount of Notes is
delivered to the Purchaser (i) certifying and attaching a Disclosure Schedule
scheduling all Indebtedness of the Company and its Subsidiaries as of such date,
showing as to each item of such Indebtedness the creditor, the aggregate
principal amount outstanding, the agreement or instrument governing such
Indebtedness and a brief description of any security therefor; (ii) certifying
that the Company is not in default in the performance or observance in any
material respect of any of the terms, covenants or conditions contained in any
instrument evidencing Indebtedness listed on the Disclosure Schedule pursuant to
which such Indebtedness was issued or secured or has requested any waiver in
respect of any default and no event has occurred and is continuing which, with
notice or the lapse of time or both, would constitute such a default; and (iii)
certifying that all of the representations and warranties of the Company
contained or incorporated by reference herein that (A) are qualified as to
materiality are true and correct on and as of such date as though made on and as
of such date and that (B) are not qualified as to materiality are true and
correct in all material respects on and as of such date as though made on and as
of such date, and no event has occurred and is continuing, or would result from
the issuance of the Notes or the extension of borrowings under the Commitment
Letter, which constitutes or would constitute a Default or an Event of Default;
and
(c) If the date such additional principal amount of Notes is
delivered to the Purchaser is on or after March 31, 1999, an opinion, dated as
of such date, from David R. Gibson, counsel for the Company, as to the matters
set forth on Annex B; provided, however, any further issuance of Notes after
such date shall not require an opinion of counsel pursuant to this clause (c).
(b) Closing. The purchase and sale of the Notes referred to in
Section 1.2(a)(1) shall take place at a closing (the "Closing") at the offices
of Latham & Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, California
at 2:00 p.m. on March 30, 1998 (the "Closing Date"). At the Closing, the Company
will deliver to the Purchaser the Notes to be purchased by the Purchaser (in
such permitted denomination or denominations and registered in the Purchaser's
name or the name of such nominee or nominees as the Purchaser may request) on
the Closing Date, dated the Closing Date, against payment of the purchase price
therefor by intra-bank or federal funds bank wire transfer of same day funds to
such bank account as the Company shall designate at least two Business Days
prior to the Closing.
(c) Fees and Expenses. Whether or not the Notes are sold, the
Company agrees to pay or reimburse all expenses relating to this Agreement,
including but not limited to:
(1) the reasonable fees and other expenses of the Purchaser's
counsel, Latham & Watkins, in connection herewith (not to exceed $50,000 in the
aggregate, relating to this Agreement and similar agreements dated on or about
the date of this Agreement);
2
<PAGE>
(2) any reasonable out-of-pocket fees and expenses (including the
reasonable fees and expenses of counsel) in connection with any registration or
qualification of the Notes required in connection with the offer and sale of the
Notes at the Closing pursuant to this Agreement under the securities or "blue
sky" laws of any jurisdiction requiring such registration or qualification or in
connection with obtaining any exemptions from such requirements; and
(3) the Purchaser's reasonable out-of-pocket expenses (including
the reasonable fees and expenses of counsel) relating to any amendment, or
modification of, or any waiver, or consent or preservation of rights under this
Agreement, the Notes, the Registration Rights Agreement and any other documents
contemplated hereby or thereby.
Purchaser may deduct such expenses from the purchase price of the
Notes; provided that the Purchaser agrees to provide the Company with a
statement describing any amounts to be so paid at least one Business Day prior
to the Closing.
1.3. Maintenance of Note Register
The Company shall cause to be kept at its principal office a register
for the registration and transfer of the Notes (the "Note Register"). The names
and addresses of the Holders of Notes, the transfer of Notes, and the names and
addresses of the transferees of the Notes shall be registered in the Note
Register.
The Person in whose name any registered Note shall be registered shall
be deemed and treated as the owner and holder thereof for all purposes of this
Agreement and the Company shall not be affected by any notice to the contrary,
until due presentment of such Note for registration of transfer so provided in
this Section 1.3. Payment of or on account of the principal and interest on any
registered Notes shall be made to or upon the written order of such registered
holder.
1.4. Issue Taxes
The Company agrees to pay all taxes owed by or on behalf of the
Company in connection with the issuance, sale, delivery or transfer by the
Company to the Purchaser of the Notes and the execution and delivery of the
agreements and instruments contemplated hereby and any modification of any of
such Notes, agreements and instruments and will save the Purchaser harmless
without limitation as to time against any and all liabilities with respect to
all such taxes. The Purchaser agrees to pay all taxes owed by or on behalf of
the Purchaser in connection with the issuance, sale, delivery or transfer by the
Company to the Purchaser of the Notes and the execution and delivery of the
agreements and instruments contemplated hereby and any modification of any of
such Notes, agreements and instruments and will save the Company harmless
without limitation as to time against any and all liabilities with respect to
all such taxes. The obligations of the Company and the Purchaser under this
Section 1.4 shall survive the payment or prepayment of the Notes and the
termination of this Agreement.
3
<PAGE>
1.5. Direct Payment
(a) The Company will pay or cause to be paid all amounts payable with
respect to any Note (without any presentment of such Note and without any
notation of such payment being made thereon) by crediting (before 11:00 a.m.,
Pacific time), by federal funds bank wire transfer to each Holder's account in
any bank in the United States as may be designated and specified in writing by
such Holder at least two Business Days prior thereto.
(b) Notwithstanding anything to the contrary contained in the
Notes, if any principal amount payable with respect to a Note is payable on a
Legal Holiday, then the Company shall pay such amount on the next succeeding
Business Day, and interest shall accrue on such amount until the date on which
such amount is paid and payment of such accrued interest shall be made
concurrently with the payment of such amount, provided that the Company may
elect to pay in full (but not in part) any such amount on the last Business Day
prior to the date such payment otherwise would be due, and no such additional
interest shall accrue on such amount. Notwithstanding anything to the contrary
contained in the Notes, if any interest payable with respect to a Note is
payable on a Legal Holiday, then the Company shall pay such interest on the next
succeeding Business Day, and such extension of time shall be included in the
computation of the interest payment, provided that the Company may elect to pay
in full (but not in part) any such interest on the last Business Day prior to
the date such payment otherwise would be due, and such diminution in time may,
at the Company's option, be included in the computation of the interest payment.
1.6. Lost, Etc. Notes
Notwithstanding any provision to the contrary, if any Note of which
the Purchaser or any other Holder (or nominee thereof) which is a transferee is
the owner is mutilated, destroyed, lost or stolen, then the affidavit of the
Purchaser or such Holder, if an individual, or of the Purchaser's or such
Holder's treasurer or assistant treasurer (or other authorized officer), if a
Person other than an individual, briefly setting forth the circumstances with
respect to such mutilation, destruction, loss or theft, shall be accepted as
satisfactory evidence thereof, and no indemnity, note or payment of charges or
expenses shall be required as a condition to the execution and delivery by the
Company or the transfer agent with respect to such Note, of new Notes for a like
aggregate principal amount or number of shares, as applicable, in substitution
therefor, other than such Purchaser's or such Holder's unsecured written
agreement reasonably satisfactory to indemnify the Company or the transfer
agent, as the case may be, which written agreement may be required by the
Company.
SECTION 2. CLOSING CONDITIONS
The obligations of the Purchaser to purchase and pay for the Notes to
be delivered to such Purchaser at the Closing shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
4
<PAGE>
2.1. Delivery of Documents
The Company shall have delivered to the Purchaser, in form and
substance reasonably satisfactory to the Purchaser, the following:
(a) The Notes being purchased by the Purchaser pursuant to
Section 1.2(a)(1), duly executed by the Company, in the aggregate principal
amount of $4,000,000.
(b) An opinion, dated the Closing Date and addressed to the
Purchaser, from David R. Gibson, counsel for the Company, as to the matters set
forth on Annex B.
In rendering such opinion, such counsel may rely as to factual matters
upon certificates or other documents furnished by officers and directors of the
Company (copies of which shall be delivered to the Purchaser) and by government
officials, and upon such other documents as such counsel reasonably deems
appropriate as a basis for its opinion. Such counsel shall opine as to the
federal laws of the United States, the laws of the State of Oregon.
(c) Resolutions of the Board of Directors of the Company,
certified by the Secretary or Assistant Secretary, to be duly adopted and in
full force and effect on the Closing Date, authorizing (i) the execution,
delivery and performance of this Agreement, the Registration Rights Agreement
and the Commitment Letter and the consummation of transactions contemplated
hereby and thereby, (ii) the issuance of the Notes to be purchased by the
Purchaser and (iii) specific officers to execute and deliver this Agreement, the
Notes, the Registration Rights Agreement and the Commitment Letter.
(d) Certificates executed by any two executive officers of the
Company, dated the Closing Date, certifying (i) that all of the conditions set
forth in Section 2 of this Agreement are satisfied on and as of such date, (ii)
that all of the representations and warranties of the Company contained or
incorporated by reference herein that (A) are qualified as to materiality are
true and correct on and as of such date as though made on and as of such date
and that (B) are not qualified as to materiality are true and correct in all
material respects on and as of such date as though made on and as of such date,
and no event has occurred and is continuing, or would result from the issuance
of the Notes or the extension of borrowings under the Commitment Letter, which
constitutes or would constitute a Default or an Event of Default and (iii) as to
such other matters as the Purchaser may request in the exercise of its
reasonable discretion.
(e) Governmental certificates, dated the most recent practicable
date but in no event more than thirty (30) calendar days prior to the Closing
Date showing that the Company was incorporated under the Oregon Business
Corporation Act, is active on the records of the Corporation Division and is
qualified as a foreign corporation and in good standing in all other
jurisdictions in which it is qualified to transact business, except where the
failure to be so qualified would not have a Material Adverse Effect.
(f) Copies of each consent, license and approval required in
connection with the execution, delivery and performance by the Company of this
Agreement, the Notes, the
5
<PAGE>
Registration Rights Agreement and the Commitment Letter and the consummation of
the transactions contemplated hereby and thereby.
(g) Copies of the Charter Documents of the Company, certified as
of a recent date but in no event more than thirty (30) calendar days prior to
the Closing Date by the Secretary of State of the State of Oregon and certified
by the Secretary or Assistant Secretary of the Company (or person possessing
comparable authority of the Company), as true and correct on and as of the
Closing Date.
(h) Certificates of the Secretary or an Assistant Secretary of
the Company as to the incumbency and signatures of the officers or
representatives of such entity executing this Agreement, the Notes, the
Registration Rights Agreement, the Commitment Letter and any other certificate
or other document to be delivered pursuant hereto or thereto on the Closing
Date, together with evidence of the incumbency of such Secretary or Assistant
Secretary;
(i) Copies of all agreements associated with or entered into in
connection with the investment of Prudential Private Equity Investors III, L.P.
in the Company's Preferred Stock and if requested by the Purchaser prior to the
Closing Date, copies of all lease agreements to which the Company is a party.
2.2. Delivery of Other Agreements
The Company shall have executed and delivered the Registration Rights
Agreement and the Commitment Letter.
2.3. Representations and Warranties, Agreements and Covenants
All of the representations and warranties of the Company contained
herein that (A) are qualified as to materiality shall be true and correct on and
as of the Closing Date, except to the extent any representation or warranty
expressly relates to an earlier date and that (B) are not qualified as to
materiality are true and correct in all material respects on and as of the
Closing Date, except to the extent any representation or warranty expressly
relates to an earlier date. The Company shall have performed or complied with
all agreements, covenants and conditions contained herein and in the
Registration Rights Agreement and the Commitment Letter which are required to be
performed or complied with by the Company on or before the Closing Date.
2.4. No Event of Default
No event shall have occurred and be continuing, or would result from
the purchase of the Notes or the extension of borrowings pursuant to the
Commitment Letter, which constitutes or would constitute a Default or an Event
of Default.
2.5. Proceedings Satisfactory
All proceedings taken in connection with the sale of the Notes, the
transactions contemplated hereby, and all documents and papers relating thereto,
shall be reasonably
6
<PAGE>
satisfactory to the Purchaser. The Purchaser and its counsel shall have received
copies of such documents and papers as they may reasonably request in connection
therewith, all in form and substance satisfactory to the Purchaser. Any document
annexed to this Agreement or any other document contemplated by this Agreement
not approved by the Purchaser in writing as to form and substance on the date
this Agreement is executed shall be satisfactory in form and substance to the
Purchaser.
2.6. Consents and Permits
The Company shall have received all consents, approvals, and
authorizations and sent or made all notices, filings, registrations and
qualifications required for the issuance of the Notes, all of which are
disclosed on the Disclosure Schedule.
2.7. No Material Adverse Change
Since the date of this Agreement, neither the Company nor any of its
Subsidiaries shall have suffered any material adverse change in its properties,
business, prospects, operations, earnings, assets, liabilities or condition
(financial or otherwise) which would reasonably likely to result in a Material
Adverse Effect.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule attached to this
Agreement (each scheduled item contained therein referencing the Section of this
Agreement that it qualifies), the Company represents and warrants as follows:
3.1. Organization; Power and Authority
The Company and each of its Subsidiaries are corporations duly
organized and validly existing in good standing under the laws of their
respective jurisdictions of incorporation. The Company and each of its
Subsidiaries have all requisite power and authority to own or hold under lease
the properties it purports so to own or hold except where the failure so to own
or hold could not have a Material Adverse Effect and to transact their
respective businesses as now transacted. The Company and each of its
Subsidiaries are duly qualified as foreign corporations and are in good standing
in each jurisdiction in which the character of the properties owned or held
under lease by them or the nature of the business transacted by them requires
such qualification, except where the failure so to be qualified or be in good
standing could not have a Material Adverse Effect.
3.2. Authorization
The Company has taken all actions necessary to authorize it (i) to
execute, deliver and perform all of its obligations under this Agreement, the
Registration Rights Agreement and the Commitment Letter, (ii) to issue and
perform all of its obligations under the Notes and (iii) to consummate the
transactions contemplated hereby and thereby. Each of this Agreement, the Notes,
the Registration Rights Agreement, and the Commitment Letter is a legally valid
and
7
<PAGE>
binding obligation of the Company, enforceable against it in accordance with its
terms, except for (a) the effect thereon of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting the
rights of creditors generally and (b) limitations imposed by federal or state
law or equitable principles upon the specific enforceability of any of the
remedies, covenants or other provisions thereof and upon the availability of
injunctive relief or other equitable remedies.
3.3. Capital Stock
The total number of shares of Capital Stock which the Company has
authority to issue is 30,000,000 shares, consisting of 25,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock. The Company has the power
and authority and has taken all actions (corporate or other) necessary to
authorize it to enter into and perform its obligations and undertakings under
this Agreement. As of March 30, 1998, there were 4,633,000 shares of Common
Stock issued and outstanding, and 1,666,667 shares of Preferred Stock issued and
outstanding. Such shares of Common Stock and Preferred Stock have been duly
authorized and were validly issued, are fully paid and nonassessable, were
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities of the Company. Neither the Company nor any of its
Subsidiaries has outstanding any securities convertible into or exchangeable for
any shares of Capital Stock nor does it have outstanding any rights to subscribe
for or to purchase, or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to, any Capital Stock or
securities convertible into or exchangeable for any Capital Stock other than (i)
the Notes to be issued pursuant to this Agreement or pursuant to other similar
agreements dated on or about the date of this Agreement, (ii) 1,666,667 shares
of Preferred Stock convertible into Common Stock, and (iii) options and warrants
to purchase shares of Common Stock as set forth and for the numbers of shares
set forth on the Disclosure Schedule. The Company has duly authorized and
reserved for issuance the Conversion Shares, and the Conversion Shares will,
when issued, be duly and validly issued, fully paid and nonassessable and free
from all Liens.
3.4. No Other Registration Rights
Except for the Notes to be issued in connection with the transactions
contemplated by this Agreement or pursuant to other similar agreements dated on
or about the date of this Agreement, there are no contracts, agreements or
understandings between the Company and any other Person granting such Person the
right to require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company owned or to be
owned by such person or to require the Company to include such securities in the
securities registered pursuant to any other registration statement filed by the
Company under the Securities Act.
8
<PAGE>
3.5. No Violation or Conflict; No Default
Neither the execution or delivery of this Agreement, the Registration
Rights Agreement or the Commitment Letter by the Company nor the issuance, sale
or delivery of the Notes nor the performance of its respective obligations
hereunder or thereunder will:
(a) violate any provision of the Charter Documents of the
Company;
(b) violate any statute, law, rule or regulation or any judgment,
decree, order, regulation or rule of any court or governmental authority to
which the Company, any of its Subsidiaries, or any of their respective
properties may be subject;
(c) permit or cause the acceleration of the maturity of any debt
or obligation of the Company or any of its Subsidiaries;
(d) violate, or be in conflict with, or constitute a default
under, or permit the termination of, or require the consent of any Person under,
or result in the creation of any Lien upon any property of the Company or any of
its Subsidiaries under, any mortgage, indenture, loan agreement, note, debenture
or other agreement for borrowed money or any other material agreement to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries (or their respective properties) may be bound, other than
such violations, conflicts, defaults, terminations and Liens, or such failures
to obtain consents, which could not reasonably be expected to result in a
Material Adverse Effect.
3.6. Margin Regulations
No part of the proceeds from the sale of the Notes hereunder will be
used, directly or indirectly, for the purpose of buying or carrying any "margin
stock" within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System (12 C.F.R. ss. 207), or for the purpose of buying or
carrying or trading in any securities under such circumstances as to involve the
Company in a violation of Regulation X of said Board (12 C.F.R. ss. 224) or to
involve any broker or dealer in a violation of Regulation T of said Board (12
C.F.R. ss. 220). The assets of the Company and its Subsidiaries do not include
any margin stock, and the Company does not have any present intention of
acquiring margin stock.
3.7. Private Offering
The sale of the Notes hereunder is exempt from the registration and
prospectus delivery requirements of the Securities Act. In the case of each
offer or sale of the Notes, no form of general solicitation or general
advertising was used by the Company or its respective representatives.
The Company agrees that neither it, nor anyone acting on its behalf,
will offer or sell the Notes, or any portion of them, if such offer or sale
might bring the issuance and sale of the Notes to the Purchaser within the
provisions of Section 5 of the Securities Act nor offer any similar Notes for
issuance or sale to, or solicit any offer to acquire any of the same from, or
9
<PAGE>
otherwise approach or negotiate with respect thereto with, anyone if the sale of
the Notes and any such Notes could be integrated as a single offering for the
purposes of the Securities Act, including without limitation Regulation D.
3.8. Due Authorization of Material Contracts
The descriptions in the Incorporated Documents of statutes, legal and
governmental proceedings or contracts or other documents are accurate in all
material respects and fairly present the information required to be shown at the
time shown; and there are no statutes or legal or governmental proceedings
required to be described in the Incorporated Documents that are not described as
required and there is no document or contract of a character required to be
described in the Incorporated Documents or to be filed as an exhibit to the
Incorporated Documents which is not described or filed as required. All
contracts described in the Incorporated Documents or filed as an exhibit to the
Incorporated Documents to which the Company or any of its Subsidiaries is a
party have been duly authorized, executed and delivered by the Company or such
Subsidiary, constitute valid and binding agreements of the Company or such
Subsidiary and are enforceable against and by the Company or such Subsidiary in
accordance with the terms thereof, except as the enforcement thereof may be
limited by bankruptcy and laws relating to the rights and remedies of the
creditors generally or by the availability of general equitable remedies.
3.9. Financial Statements
The financial statements and schedules of the Company and its
consolidated subsidiaries included in the Incorporated Documents comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, present fairly
the financial condition of the Company and its consolidated subsidiaries, as of
the respective dates thereof and the results of operations and cash flows of the
Company and its consolidated subsidiaries, for the respective periods covered
thereby, all in conformity with GAAP (except in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position of the Company
and its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments). No
other financial statements or schedules of the Company and its consolidated
subsidiaries or any other company or entity are required by the Securities Act,
the Exchange Act or the rules and regulations of the SEC to be included in the
Incorporated Documents. The Independent Auditors, who have reported on certain
of such financial statements and schedules, are, and were during the periods
covered by their reports included in the Incorporated Documents, independent
accountants with respect to the Company and its consolidated subsidiaries, as
required by the Securities Act, the Exchange Act and the rules and regulations
of the SEC. The summary financial and statistical data included in the
Incorporated Documents present fairly the information shown therein and have
been compiled on a basis consistent with the financial statements presented
therein. The unaudited consolidated financial statements included in the
Incorporated Documents comply as to form in all material
10
<PAGE>
respects with the applicable accounting requirements of the Securities Act, the
Exchange Act and the rules and regulations of the SEC, and such statements
fairly present the consolidated financial position and results of operations and
the other information purported to be shown therein at the respective dates or
for the respective periods therein specified.
3.10. Litigation; Judgments
Except as described in the Incorporated Documents, there are no
actions, suits or proceedings (formal or informal) pending or, to the Knowledge
of the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties, assets, or directors or
officers, in their capacity as such, before or by any Federal or state court,
commission, regulatory body, administrative agency or other governmental body,
domestic or foreign, wherein an unfavorable ruling, decision or finding might
reasonably be expected to, individually or in the aggregate, and after giving
effect to the sale and issuance of the Notes, result in a Material Adverse
Effect.
3.11. Taxes
Each of the Company and its Subsidiaries has filed all federal, state,
local and foreign income tax returns which have been required to be filed and
has paid all taxes and assessments received by it to the extent that such taxes
have become due. None of the Company nor its Subsidiaries has any tax deficiency
which has been or might be asserted or threatened against it which could
reasonably be expected to result in a Material Adverse Effect.
3.12. Investment Company Act
Neither the Company nor any of its Subsidiaries is an "investment
company" or a Person directly or indirectly "controlled" by or acting on behalf
of an "investment company" within the meaning of the United States Investment
Company Act of 1940, as amended.
3.13. Environmental Matters
The operations of the Company and its Subsidiaries with respect to any
real property currently leased, owned, controlled or managed by the Company or
any of its Subsidiaries are, and with respect to any real property previously
leased, owned, managed or controlled were, when such real property was leased,
owned, managed or controlled by the Company or any of its Subsidiaries, in
compliance in all material respects with all applicable federal, state, and
local laws, ordinances, rules, and regulations relating to occupational health
and safety and the environment (collectively, "Environmental Laws"), and the
Company and its Subsidiaries have all material licenses, permits and
authorizations required under all Environmental Laws; neither the Company nor
any of its Subsidiaries has authorized or conducted or has knowledge of the
generation, transportation, storage, use, treatment, disposal or release of any
hazardous substance, hazardous waste, hazardous material, hazardous constituent,
toxic substance, pollutant, contaminant, petroleum product, natural gas,
liquefied gas or synthetic gas defined or regulated under any Environmental Law
on, in or under any real property currently leased, owned, controlled or managed
by the Company or any of its Subsidiaries or previously leased, owned,
controlled or managed by the Company or any of its Subsidiaries when such real
property was owned, leased, controlled or managed by the Company or any of its
Subsidiaries, except in compliance with applicable Environmental Laws; and there
is not pending or, to the Knowledge of the Company, any threatened claim,
litigation or any administrative agency proceeding, nor has the Company or any
of its Subsidiaries received any written or oral notice from any governmental
entity or third party, that: (i) alleges a violation of any Environmental Laws
by the Company or any of its Subsidiaries; (ii) alleges the Company or any of
its Subsidiaries is a liable party under CERCLA or any state superfund law;
(iii) alleges possible contamination of the environment by the Company or any of
its Subsidiaries; or (iv) alleges possible contamination of real property
currently leased, owned, controlled or managed by the Company or any of its
Subsidiaries or
11
<PAGE>
previously leased, owned, controlled or managed by the Company or any of its
Subsidiaries when such real property was owned, leased, controlled or managed by
the Company or any of its Subsidiaries.
3.14. Labor Relations
No labor dispute with the employees of the Company or any of its
Subsidiaries exists or is threatened that could reasonably be expected to result
in a Material Adverse Effect; and the Company is not aware of any existing or
threatened labor disturbance by the employees of any other entity that could
reasonably be expected to result in a Material Adverse Effect.
3.15. Real Property; Leases
Each of the Company and its Subsidiaries has good and indefeasible
title to all properties and assets described in the Incorporated Documents as
owned by it, free and clear of all Liens except such as are described in the
Incorporated Documents or are not material, singly or in the aggregate, to the
Company. Each of the Company and its Subsidiaries has valid, subsisting and
enforceable leases for the properties described in the Incorporated Documents as
leased by it, except such as are described in the Incorporated Documents.
3.16. Intellectual Property; Licenses
Each of the Company and its Subsidiaries owns or has the right to use
all patents, patent applications, trademarks, trademark applications,
tradenames, copyrights, franchises, trade secrets, proprietary or other
confidential information and intangible properties and assets (collectively,
"Intangibles") reasonably necessary to conduct its business as now conducted;
and none of the Company or its Subsidiaries has any knowledge of any
infringement by it of Intangibles of others, and there is no claim being made
against the Company or any of its Subsidiaries, or to the Knowledge of the
Company, any employee of the Company or its Subsidiaries, regarding infringement
of any Intangibles of others which could reasonably be expected to have a
Material Adverse Effect and, to the Knowledge of the Company, there is no
infringement by others of Intangibles of the Company or any of its Subsidiaries.
12
<PAGE>
3.17. Defaults
The continuation, validity and effectiveness of each contract,
agreement, arrangement or other instrument related to borrowed money (of any
amount) or involving payments in excess of $100,000 or that is material to the
Company or its Subsidiaries (each a "Material Contract") will not be adversely
affected by the execution, delivery and performance of this Agreement, the
Registration Rights Agreement, or the Commitment Letter, the issuance or sale of
the Notes, or the consummation of the transactions contemplated hereby or
thereby. The Company and its Subsidiaries are not in default in any respect, and
will not, with the giving of notice or the lapse of time, or both, be in default
in any respect, under any Material Contract upon or as a result of the
consummation of the transactions contemplated by this Agreement, the
Registration Rights Agreement or the Commitment Letter. To the Knowledge of the
Company, there is no default or claimed or purported or alleged default or state
of facts that with the giving of notice or the lapse of time, or both, would
constitute a default on the part of any party other than the Company or any of
its Subsidiaries under any Material Contract.
3.18. Brokers
The Company has not dealt with any broker, finder, commission agent or
other Person in connection with the sale of the Notes and the transactions
contemplated by this Agreement, and the Company is not under any obligation to
pay any broker's or finder's fee or commission or similar payment in connection
with such transactions.
3.19. Existing Indebtedness
The Disclosure Schedule sets forth a complete and correct list of all
Indebtedness of the Company and its Subsidiaries as of the date hereof, showing
as to each item of such Indebtedness the creditor, the aggregate principal
amount outstanding, the agreement or instrument governing such Indebtedness and
a brief description of any security therefor. With respect to each item of
Indebtedness listed on the Disclosure Schedule, the Company will deliver to the
Purchaser or its representatives, upon request, a true and complete copy of each
instrument evidencing such Indebtedness or pursuant to which such Indebtedness
was issued or secured (including each amendment, consent, waiver or similar
instrument in respect thereof), as the same is in effect on the date hereof. The
Company and its Subsidiaries are not in default in the performance or observance
in any material respect of any of the terms, covenants or conditions contained
in any instrument evidencing Indebtedness listed on the Disclosure Schedule or
pursuant to which such Indebtedness was issued or secured or has requested any
waiver in respect of any default and no event has occurred and is continuing
which, with notice or the lapse of time or both, would constitute such a
default.
3.20. Compliance with Law; Permits
(a) The Company and its Subsidiaries own or possess all
authorizations, approvals, orders, licenses, registrations, other certificates
and permits of and from all governmental regulatory officials and bodies,
necessary to conduct their respective businesses except where the failure to own
or possess all such authorizations, approvals, orders, licenses,
13
<PAGE>
registrations, other certificates and permits would not have a Material Adverse
Effect. There is no proceeding pending or, to the Knowledge of the Company,
threatened (or any basis therefor known to the Company) which may cause any such
authorization, approval, order, license, registration, certificate or permit to
be revoked, withdrawn, canceled, suspended or not renewed; and the Company and
its Subsidiaries are conducting their respective business in compliance with all
laws, rules and regulations applicable thereto except where such noncompliance
could not reasonably be expected to result in a Material Adverse Effect.
(b) Neither the nature of the Company nor of any of its
businesses or properties, nor any relationship between the Company and any other
Person, nor any circumstance in connection with the offer, issuance, sale or
delivery of the Notes at the Closing, nor the performance by the Company of its
other obligations hereunder or under the Notes, the Registration Rights
Agreement or the Commitment Letter, as the case may be, is such as to require a
consent, approval or authorization of, or notice to, or filing, registration or
qualification with, any governmental authority or other Person on the part of
the Company as a condition to the execution and delivery of this Agreement, the
Registration Rights Agreement, the Commitment Letter or the offer, issuance,
sale or delivery of the Notes at the Closing, other than the filings,
registrations, qualifications or consents which shall have been made or obtained
on the Closing Date (and copies of which shall have been delivered to the
Purchaser). All required consents, approvals or authorizations of, or notices to
or filings, registrations or qualifications with, any governmental authority or
other Person required in connection with the transactions contemplated by this
Agreement, the Notes, the Registration Rights Agreement or the Commitment Letter
have been obtained or made.
3.21. Insurance
The Company maintains, and will maintain after giving effect to the
issuance and the sale of the Notes, insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
insurance covering director and officer liability, workers compensation
liability, malpractice liability respecting the provision of assisted living
services, real and personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is and will be in full force and effect.
3.22. Material Events
Since December 31, 1997, there has not been with respect to the
Company or any of its Subsidiaries:
(a) any material adverse change in their properties, business,
prospects, operations, earnings, assets, liabilities or condition (financial or
otherwise) which could reasonably be expected to result in a Material Adverse
Effect; or
(b) any damage, destruction or loss to the properties or assets
of the Company or any of its Subsidiaries, whether or not covered by insurance,
that has or could reasonably be expected to have a Material Adverse Effect or
that in the aggregate exceed $100,000; or
14
<PAGE>
(c) any loss or waiver by the Company or any of its Subsidiaries
of any right, not in the ordinary course of business, or any material debt owed
to it; or
(d) other than the sales of assets in the ordinary course of
business (including pursuant to sale leaseback transactions), any sale, transfer
or other disposition of, or agreement to sell, transfer or otherwise dispose of,
any assets by the Company or any of its Subsidiaries in excess of $100,000 in
the aggregate, or any cancellation or agreement to cancel any debts or claims of
the Company or any of its Subsidiaries; or
(e) other than dividends payable on the currently outstanding
Preferred Stock, any declaration or setting aside or payment of any dividend
(whether in cash, property or stock) or any distribution (whether in cash,
property or stock) or other payment with respect to any of the Capital Stock of
the Company or any of its Subsidiaries, or any repurchase, purchase or other
acquisition of, or agreement to repurchase, purchase or otherwise acquire, any
of the Company's or any of its Subsidiaries' capital stock; or
(f) any amendment or termination of any contract, agreement or
license to which the Company or any of its Subsidiaries is a party or by which
it is bound, except where such amendment or termination could not be reasonably
expected to have a Material Adverse Effect; or
(g) any resignation or termination of employment of any Key
Employee, and there is no impending or threatened resignation or resignations or
termination or terminations of employment of any Key Employee; or
(h) any labor dispute (including, without limitation, any negotiation,
or request for negotiation, for any labor representation or any labor contract)
affecting the Company or any of its Subsidiaries; or
(i) any application of any existing (or the enactment of any new)
Environmental Law or personnel, product safety law or other governmental
regulation that has or which could reasonably be expected to have a Material
Adverse Effect.
3.23. SEC Documents; Undisclosed Liabilities
The Company has been subject to the reporting requirements of Section
13 of the Exchange Act since at least January 1, 1996 and, except as set forth
in any Company SEC Document, has timely filed all required reports, schedules,
forms, statements and other documents required to be filed by the Company under
the Securities Act and the Exchange Act with the SEC since January 1, 1996 (the
"Company SEC Documents"). As of their respective dates, the Company SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Company SEC
Documents, and none of the Company SEC Documents at the time filed with the SEC
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
15
<PAGE>
misleading. Except to the extent that information contained in any Company SEC
Document has been revised or superseded by a later filed Company SEC Document,
none of the Company SEC Documents contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
3.24. Material Misstatements or Omissions
No representation or warranty by the Company contained in this
Agreement (including the schedules and exhibits attached hereto), the
Registration Rights Agreement, the Commitment Letter or in any document,
exhibit, statement, certificate or schedule dated the Closing Date, signed by
the Company and furnished to the Purchaser pursuant hereto, or in connection
with the transactions contemplated hereunder, contains or will contain any
untrue statement of a material fact, or omits or will omit to state any material
fact necessary to make the statements or facts contained herein and therein not
misleading.
3.25. Survival of Representations and Warranties
All of the Company's representations and warranties hereunder and
under the Registration Rights Agreement and the Commitment Letter shall survive
the execution and delivery of the same, any investigation by the Purchaser and
the issuance of the Notes.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER
The Purchaser represents and warrants to the Company that:
4.1. Purchase for Own Account
The Purchaser is purchasing the Notes to be purchased by it solely for
its own account and not as nominee or agent for any other person and not with a
view to, or for offer or sale in connection with, any distribution thereof
(within the meaning of the Securities Act) that would be in violation of the
securities laws of the United States of America or any state thereof, without
prejudice, however, to its right at all times to sell or otherwise dispose of
all or any part of said Notes pursuant to a registration statement under the
Securities Act or pursuant to an exemption from the registration requirements of
the Securities Act.
4.2. Accredited Investor
The Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; it acknowledges that the Notes have not been
registered under the Securities Act and understands that the Notes must be held
indefinitely unless they are subsequently registered under the Securities Act or
such sale is permitted pursuant to an available exemption from such registration
requirement; it is able to bear the economic risk of its investment in the
Notes; it is an "accredited investor" as defined in Regulation D promulgated
under the Securities Act; and it has been afforded access to information about
the Company and the Company's financial condition, results of operations,
business, property, management and prospects
16
<PAGE>
sufficient to enable it to evaluate its investment in the Notes. The Purchaser
acknowledges that it has conducted its own analysis of the Company's financial
condition and other foregoing factors.
4.3. Authorization
The Purchaser has taken all actions necessary to authorize it (i) to
execute, deliver and perform all of its obligations under this Agreement (ii) to
issue and perform all of its obligations under the Notes, as the case may be,
and (iii) to consummate the transactions contemplated hereby and thereby. This
Agreement is a legally valid and binding obligation of the Purchaser enforceable
against it in accordance with its terms, except for (a) the effect thereon of
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting the rights of creditors generally and (b) limitations
imposed by federal or state law or equitable principles upon the specific
enforceability of any of the remedies, covenants or other provisions thereof and
upon the availability of injunctive relief or other equitable remedies.
4.4. Brokers
The Purchaser has not dealt with any broker, finder, commission agent
or other Person in connection with the sale of the Notes and the transactions
contemplated by this Agreement, and the Purchaser is not under any obligation to
pay any broker's or finder's fee or commission or similar payment in connection
with such transactions.
SECTION 5. COVENANTS
So long as any of the Notes remain unpaid and outstanding, the Company
covenants to the Holders of outstanding Notes as follows:
5.1. Payment of Notes; Satisfaction of Obligations
The Company shall pay the principal of and interest on the Notes on
the dates and in the manner provided in the Notes. To the extent lawful, the
Company shall pay interest (including interest accruing after the commencement
of any proceeding under any Bankruptcy Law) on all unpaid amounts outstanding
under the Notes (including overdue installments of principal or interest) at a
rate equal to 7.5% per annum, payable quarterly on each January 1, April 1, July
1 and October 1, beginning July 1, 1998. Such interest rate is subject to
adjustment as set forth in Section 3(b) to the Registration Rights Agreement.
5.2. Notice of Default
The Company will deliver to the Holders, forthwith upon (i) becoming
aware of any Default or Event of Default, (ii) becoming aware of any payment
default under any other loan agreement, mortgage, indenture or instrument
referred to in Sections 7.1(d) or (iii) the receipt by the Company of any notice
of any non-monetary default under any such loan agreement, mortgage, indenture
or instrument, an Officers' Certificate specifying in reasonable detail such
Default, Event of Default or default and the nature of any remedial or
corrective action the Company proposes to take with respect thereto.
17
<PAGE>
5.3. Limitation on Additional Indebtedness
None of the Company, nor any of its Subsidiaries (including without
limitation, upon the creation or acquisition of such Subsidiary) shall, directly
or indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to (collectively, "incur") any
Indebtedness after the date of this Agreement, if a Default or an Event of
Default shall have occurred and be continuing at the time or would occur as a
consequence of the incurrence of such Indebtedness.
5.4. Change of Control
(a) Change of Control. Prior to the consummation of a Change of
Control (the date of such consummation being referred to herein as the "Change
of Control Date"), the Company shall give each Holder notice describing in
reasonable detail the nature of the Change of Control and offering to each
Approved Holder and Approved Purchaser the following rights, as applicable (such
written notice, the "Change of Control Notice"):
(1) to require the Company, with respect to any entity whose
executive officer is Andre Dimitriadis or Jim Pieczynski (an "Approved
Holder"), to repurchase all or any part of each Approved Holder's
Notes pursuant to the offer (the "Change of Control Repurchase Offer")
at a purchase price equal to 100% of the aggregate principal amount
thereof, together with unpaid interest to the date of repurchase (the
"Change of Control Price"). The obligation of the Company to
repurchase Notes pursuant to the Change of Control Repurchase Offer is
subject to the subordination provisions of Section 8 hereof; or
(2) to require the Company, in the event that (x) less than
$10,000,000 aggregate principal amount of Notes have been issued and
sold to the Purchaser pursuant to Section 1.2(a) and (y) either Andre
Dimitriadis or Jim Pieczynski serve as an executive officer of the
party that has the obligation to purchase Notes hereunder (the
"Approved Purchaser"), to issue and sell additional Notes to the
Approved Purchaser at a purchase price of 100% of the principal amount
thereof in such amount designated in writing by the Approved Purchaser
(but in no event shall more than $10,000,000 aggregate principal
amount of Notes be issued to the Approved Purchaser pursuant to
Section 1.2(a) and pursuant to this Section 5.4). The foregoing is
referred to herein as the "Change of Control Issuance of Additional
Notes."
(b) Timing of Notice. The Change of Control Notice shall be
mailed by the Company to all Holders at their last registered address no later
than fifteen (15) Business Days prior to the Change of Control Date.
(c) Procedure. The Change of Control Notice shall state a date
not later than five (5) Business Days following the Change of Control Date for
repurchase of the Notes pursuant to the Change of Control Repurchase Offer (such
date, the "Change of Control Repurchase Date") and shall state a date not later
than five (5) Business Days prior to the Change
18
<PAGE>
of Control Date for issuance of additional Notes pursuant to the Change of
Control Issuance of Additional Notes (such date, the "Change of Control Issuance
Date"). The Change of Control Notice, which shall govern the terms of the Change
of Control Repurchase Offer and the Change of Control Issuance of Additional
Notes, shall state:
(1) that the Change of Control Repurchase Offer and the Change of
Control Issuance of Additional Notes is being made pursuant to this
Section 5.4;
(2) the Change of Control Price, the Change of Control Repurchase
Date and the Change of Control Issuance Date;
(3) that, unless the Company defaults in the payment of the
Change of Control Price, all Notes accepted for payment shall cease to
accrue interest on and after the Change of Control Repurchase Date;
(4) that Approved Holders electing to require the Company to
repurchase any Notes will be required to surrender the Note to the
address specified in the Change of Control Notice prior to the close
of business on the Business Day preceding the Change of Control
Repurchase Date;
(5) that the Approved Purchaser electing to require the Company
to issue additional Notes will be required to make payment for such
Notes by wire transfer of immediately available funds to an account
designated by the Company in such Change of Control Notice on or prior
to the close of business on the Change of Control Issuance Date;
(6) that the Approved Holders will be entitled to withdraw their
election to require the Company to repurchase any Notes on the terms
and conditions set forth in such Change of Control Notice by written
notice to the Company prior to the Change of Control Repurchase Date
and the Approved Purchaser will be entitled to withdraw its election
to require the Company to issue additional Notes on the terms and
conditions set forth in such Change of Control Notice by written
notice to the Company prior to the Change of Control Issuance Date;
and
(7) that the Approved Holders electing to require the Company to
repurchase any Notes in part will be issued a new Note in a principal
amount equal to the unpurchased portion of the Notes surrendered.
Any such Change of Control Repurchase Offer shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations to the extent applicable in connection with any Change of
Control Repurchase Offer.
(d) Acceptance of Notes/Issuance of Additional Notes.:
19
<PAGE>
(1) On the Change of Control Repurchase Date, the Company shall
accept for payment all Notes or portions thereof validly tendered
pursuant to the Change of Control Repurchase Offer and promptly
thereafter mail or deliver to the Holders of Notes accepted for
repurchase payment in the amount equal to the aggregate Change of
Control Price for such Notes, and the Company shall execute and mail
or deliver to such Holders a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered; and
(2) On the Change of Control Issuance Date, the Company shall
issue additional Notes in the amount set forth in writing by the
Approved Purchaser, pursuant to this Section 5.4; deliver a
Certificate of the Chief Executive Officer and the Chief Financial
Officer of the Company, dated the date such additional principal
amount of Notes is delivered to the Approved Purchaser, certifying (x)
that all of the representations and warranties of the Company
contained or incorporated by reference in this Agreement are true and
correct on and as of such date as though made on and as of such date,
and no event has occurred and is continuing, or would result from the
issuance of the Notes or the extension of borrowings under the
Commitment Letter, which constitutes or would constitute a Default or
an Event of Default and (y) as to such other matters as the Approved
Purchaser may request in the exercise of its reasonable discretion and
(z) an opinion, dated the date such additional principal amount of
Notes is delivered to the Approved Purchaser and addressed to the
Approved Purchaser, from David R. Gibson, counsel for the Company, as
to the matters set forth on Annex B.
The Company will notify the Holders of the results of the Change of
Control Repurchase Offer and the Change of Control Issuance of Additional Notes
on the Change of Control Repurchase Date and Change of Control Issuance Date,
respectively.
5.5. Stay, Extension and Usury Laws
The Company covenants and agrees (to the extent that it may lawfully
do so) that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, and will use its best
efforts to resist any attempts to claim or take the benefit of any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of its obligations under this
Agreement or the Notes; and the Company (to the extent it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not, by resort to any such law, hinder, delay or impede the
execution of any power herein granted to the Holders, but will suffer and permit
the execution of every such power as though no such law has been enacted.
5.6. Indemnification
The Company agrees to indemnify the Purchaser and each director,
officer, employee, counsel, Agent and Affiliate of such Purchaser (collectively,
the "Indemnified Parties") against, and hold it and them harmless from, all
losses, claims, damages, liabilities, taxes, deficiencies, expenses and costs
(including diminution in value and costs of preparation
20
<PAGE>
and reasonable attorneys' fees and expenses) (collectively, "Losses") incurred
by it or them (A) arising from any breach of any representation or warranty or
the inaccuracy of any representation made by the Company in or pursuant to the
Agreement, the Registration Rights Agreement or the Commitment Letter (including
without limitation any breach or inaccuracy of any representation or warranty
relating to CERCLA, any equivalent state statute or any other Environmental
Law); and (B) arising from any breach of any covenant or agreement made by the
Company in or pursuant to the Agreement, the Registration Rights Agreement or
the Commitment Letter; provided, however, that the Company shall not be required
to indemnify any Indemnified Party for any Loss that results from (x) the action
of any Indemnified Party which is finally judicially determined to have resulted
from such Indemnified Party's negligence, intentionally wrongful acts or
intentionally wrongful omissions or (y) the Purchaser's failure to purchase
additional Notes from the Company pursuant to Section 1.2(a)(2) hereof;
provided, further, that no Indemnified Party shall be entitled to assert a claim
on account of the indemnity provided in this Section 5.6, unless and until the
aggregate amount of Losses with respect to all claims asserted under this
Section and under Section 5.6 of the purchase agreements for the Notes executed
on the date hereof by other purchasers exceeds $100,000 (in which case the
Company shall be liable for Losses in excess of such $100,000 that have
accrued).
The Company agrees to reimburse any Indemnified Party promptly for all
such Losses as they are incurred by such Indemnified Party. The Company's
liability to any such Indemnified Party hereunder shall not be extinguished
solely because any other Indemnified Party is not entitled to indemnity
hereunder. The obligations of the Company under this Section 5.6 shall survive
the payment or prepayment of the Notes, at maturity, upon acceleration,
repurchase or otherwise, any transfer of the Notes by any Purchaser to any
subsequent Holder and the termination of this Agreement, the Notes, the
Registration Rights Agreement and the Commitment Letter. The indemnity provided
in this Section 5.6 will be in addition to any liability which the Company may
otherwise have, including, without limitation, under this Agreement, the Notes,
the Registration Rights Agreement and the Commitment Letter.
In case any action shall be brought against any Indemnified Party with
respect to which indemnity may be sought against the Company, such Indemnified
Party shall promptly notify the Company in writing and the Company shall, if it
so desires, assume the defense thereof, including the employment of counsel
reasonably satisfactory to such Indemnified Party and payment of all reasonable
fees and expenses. The failure to so notify the Company shall not affect any
obligation it may have to any Indemnified Party under this Section 5.6 or
otherwise unless the Company is materially adversely affected by such failure.
Each Indemnified Party shall have the right to employ separate counsel
in such action and participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless: (i)
the Company has agreed in writing to pay such expenses; (ii) the Company has
failed to assume the defense and employ counsel; or (iii) the named parties to
any such action (including any impleaded parties) include any Indemnified Party
and the Company, and such Indemnified Party shall have been advised by outside
counsel that there may be one or more legal defenses available to it which are
inconsistent with those available to the Company; provided that, if such
Indemnified Party notifies the Company in
21
<PAGE>
writing that it elects to employ separate counsel in the circumstances described
in clauses (i), (ii) or (iii) above, the Company shall not have the right to
assume the defense of such action or proceeding; provided, however, that the
Company shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
responsible hereunder for the fees and expenses of more than one such firm of
separate counsel (in addition to any necessary local counsel), which counsel
shall be designated by such Indemnified Party. The Company shall not be liable
for any settlement of any such action effected without its written consent
(which shall not be unreasonably withheld). The Company agrees that it will not,
without the Indemnified Party's prior consent, which shall not be unreasonably
withheld, settle or compromise any pending or threatened claim, action or suit
in respect of which indemnification may be sought hereunder unless the foregoing
contains an unconditional release of the Indemnified Parties from all liability
and obligation arising therefrom.
5.7. Corporate Existence; Merger; Successor Corporation
(a) The Company will do or cause to be done all things necessary
to preserve and keep in full force and effect its corporate existence in
accordance with its organizational documents and the corporate rights (charter
and statutory), licenses and franchises of the Company; provided, however, that
the Company shall not be required to preserve any such right, license or
franchise, or corporate existence if the Board of Directors of the Company shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and that the loss thereof is not adverse in any
material respect to any Holder.
(b) The Company shall not in a single transaction or through a
series of related transactions, (i) consolidate with or merge with or into any
other person, or transfer (by lease, assignment, sale or otherwise) all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to another person or group of affiliated persons or (ii) adopt a
Plan of Liquidation, unless, in either case:
(1) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or to which all or substantially all of the properties and assets of
the Company as an entirety or substantially as an entirety are transferred (or,
in the case of a Plan of Liquidation, any Person to which assets are
transferred) (the Company or such other Person being hereinafter referred to as
the "Surviving Person") shall be a corporation organized and validly existing
under the laws of the United States, any State thereof or the District of
Columbia, and shall expressly assume, by an amendment to this Agreement, all the
obligations of the Company under the Notes and this Agreement;
(2) immediately after and giving effect to such transaction and
the assumption contemplated by clause (1) above and the incurrence or
anticipated incurrence of any Indebtedness to be incurred in connection
therewith, (ii) the Surviving Person shall have a Consolidated Net Worth equal
to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction;
22
<PAGE>
(3) immediately before and immediately after and giving effect to
such transaction and the assumption of the obligations as set forth in clause
(1) above and the incurrence or anticipated incurrence of any Indebtedness to be
incurred in connection therewith, no Default or Event of Default shall have
occurred and be continuing; and
(4) The Company shall have delivered to the Purchaser an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, transfer or adoption and such amendment to this Agreement
comply with this Section 5.7, that the Surviving Person agrees to be bound
hereby, and that all conditions precedent herein provided relating to such
transaction have been satisfied.
(c) Upon any consolidation or merger, or any transfer of assets
(including pursuant to a Plan of Liquidation) in accordance with this Section
5.7, the successor person formed by such consolidation or into which the Company
is merged or to which such transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Agreement
with the same effect as if such successor person had been named as the Company
herein; provided, however, that the Company shall not be released from the
obligations and covenants under this Agreement or under the Notes.
5.8. Taxes
The Company shall, and shall cause its Subsidiaries to, pay prior to
delinquency all material taxes, assessments and governmental levies except as
contested in good faith and by appropriate proceedings.
5.9. Investment Company Act
Neither the Company nor any of its Subsidiaries shall become an
investment company subject to registration under the Investment Company Act of
1940, as amended.
5.10. Insurance
The Company and its Subsidiaries shall maintain liability, casualty
and other insurance with a reputable insurer or insurers in such amounts and
against such risks as is carried by responsible companies engaged in similar
businesses and owning similar assets.
5.11. Inconsistent Agreements
The Company shall not, and shall not permit any of its Subsidiaries
to, (i) enter into any agreement or arrangement which is inconsistent with, or
would impair the ability of the Company to fulfill, its obligations under this
Agreement, the Notes, the Registration Rights Agreement or the Commitment Letter
or (ii) supplement, amend or otherwise modify the terms of their respective
Charter Documents, if the effect thereof would be materially adverse to the
Holders, including without limitation to increase the liquidation preference of,
or the rate of dividends payable on, any series of preferred stock.
23
<PAGE>
5.12. Compliance with Laws
The Company shall, and shall cause its Subsidiaries to, comply with
all statutes, ordinances, governmental rules and regulations, judgments, orders
and decrees (including all Environmental Laws) to which any of them is subject,
and obtain and keep in effect all licenses, permits, franchises and other
governmental authorizations necessary to the ownership or operation of their
respective properties or the conduct of their respective businesses, except to
the extent that the failure to so comply or obtain and keep in effect would not
have a Material Adverse Effect.
5.13. Inspection of Properties and Records
The Company agrees to allow, and to cause each of their respective
Subsidiaries to allow, the Purchaser and each subsequent Holder (or such Persons
as the Purchaser or subsequent Holder may designate) (individually and
collectively, "Inspectors") upon reasonable prior notice to visit and inspect
any of the properties of the Company or its Subsidiaries, to examine all their
books of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers, and independent public accountants with
representatives of the Company or its Subsidiaries present (and by this
provision the Company authorizes said accountants to discuss with such
Inspectors the finances and affairs of the Company and its Subsidiaries) all at
such reasonable times and as often as may be reasonably requested but not more
than twice in any twelve-month period for all Holders in the aggregate unless a
Default or an Event of Default shall have occurred; provided, however, that the
Purchaser shall not be so limited in the number of such inspections prior to
March 31, 2000 where such inspections are made in connection with the issuance
and sale by the Company of any additional Notes. If a Default or an Event of
Default shall have occurred and be continuing, the Company shall pay or
reimburse all Inspectors for expenses which such Inspectors may reasonably incur
in connection with any such visitations or inspections.
SECTION 6. CONVERSION OF NOTES
6.1. Conversion
(a) Each Note shall be convertible, in whole or in part, at the
option of the Holder thereof, at any time prior to the Maturity Date, at the
office of the Company or any transfer agent for the Notes, into that number of
fully paid and nonassessable shares of Common Stock determined in accordance
with the provisions of Section 6.2. In order to convert Notes into Conversion
Shares, the Holder thereof shall surrender the Notes therefor, duly endorsed, at
the office of the Company or to the transfer agent for the Notes, together with
written notice to the Company stating that it elects to convert the same and
setting forth the name or names in which it wishes the certificate or
certificates for Conversion Shares to be issued, and the principal amount of the
Notes being converted. The Company shall, as soon as practicable after the
surrender of the Notes for conversion at the office of the Company or the
transfer agent for the Notes, issue to each holder of such Notes, or its nominee
or nominees, a certificate or certificates evidencing the number of Conversion
Shares (and any other securities and property) to which it
24
<PAGE>
shall be entitled, cash representing payment in full for all accrued but unpaid
interest on the Note (or portion thereof) surrendered for conversion, and, in
the event that only a part of the Notes presented are converted, a Note
evidencing the principal amount not so converted. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the Notes to be converted, and the person or persons
entitled to receive the Conversion Shares issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock at such date and shall, with respect to such shares, thereafter
have only those rights of a holder of Common Stock of the Company.
(b) In the event that the average trading price of the Common Stock
over thirty (30) consecutive trading days is equal to or exceeds $12 per share,
the Company shall have the right, but not the obligation, to force a conversion
of all then outstanding Notes, in whole but not in part, within the fifteen (15)
day period immediately following such thirty (30) consecutive trading days. Any
such forced conversion shall in all other respects be in accordance with this
Section 6, and, if the Company shall elect to force conversion of Notes, it
shall promptly provide notice of such forced conversion to all Holders of Notes.
The Company shall, as soon as practicable following the notice of such forced
conversion (and in no event later than sixty (60) calendar days after the date
of such notice) issue to each holder of such Notes, or its nominee or nominees,
a certificate or certificates evidencing the number of Conversion Shares (and
any other securities and property) to which it shall be entitled and cash
representing payment in full for all accrued but unpaid interest on the Note
surrendered for conversion. Such conversion shall be deemed to have been made at
the close of business on the date specified in such notice, and the person or
persons entitled to receive the Conversion Shares issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock at such date and shall, with respect to such shares, thereafter
have only those rights of a holder of Common Stock of the Company.
(c) The Company shall use its best efforts to quote and maintain
quotation of the Conversion Shares on the Nasdaq National Market or such other
principal national securities exchange on which the Common Stock is then listed
or quoted.
6.2. Conversion Rate
The number of shares of Common Stock issuable upon conversion of the
Notes shall be one (1) share for every $7.50 of principal amount of Notes being
converted (the "Conversion Rate"), and shall be subject to adjustment from time
to time as provided herein and as provided in Section 3(b) of the Registration
Rights Agreement.
6.3. Fractional Shares
No fractional shares of Common Stock shall be issued upon conversion
of Notes. Instead, the Company shall deliver cash in the form of its check for
the Fair Market Value of the fractional share.
25
<PAGE>
6.4. Adjustments for Stock Splits, Combinations and Dividends
If the outstanding shares of the Common Stock shall be subdivided into
a greater number of shares or combined into a lesser number of shares, the
Conversion Rate in effect immediately prior to such subdivision shall,
simultaneously with the effectiveness of such subdivision, be proportionately
increased or decreased, as the case may be. If the Company pays a dividend or
otherwise makes a distribution with respect to its Common Stock (whether in
cash, additional shares of Common Stock or other property) on or prior to March
31, 2003, then the Conversion Rate shall be increased by a fraction, the
numerator of which is the aggregate amount of the fair market value of such
dividend or distribution and the denominator of which is the number of shares of
Common Stock entitled to such dividend or other distribution. If the Company
pays a dividend or otherwise makes a distribution with respect to its Common
Stock (whether in cash, additional shares of Common Stock or other property)
after March 31, 2003 (the effective date of such dividend or other distribution,
the "Determination Date") and if the fair market value of such dividend or other
distribution, together with the fair market value of all other dividends and
distributions with respect to its Common Stock during the 12-month period
immediately preceding the Determination Date exceeds 2% of the Average Closing
Sales Price during such 12-month period, then the Conversion Rate shall be
increased by a fraction, the numerator of which is the aggregate amount of the
fair market value of the dividend or other distribution to be effected on the
Determination Date plus the aggregate amount of the fair market value of all
dividends and distributions effected during such 12-month period for which no
adjustment in the Conversion Rate was effected pursuant to this Section 6.4, and
the denominator of which is the number of shares of Common Stock entitled to
such dividend or other distribution on the Determination Date. Any adjustment to
the Conversion Rate under this Section 6.4 shall become effective at the close
of business on the date the subdivision, combination, dividend or other
distribution referred to herein becomes effective. For purposes of the
calculations made in this Section 6.4, the fair market value of any dividend or
other distribution that is in the form of property other than Common Stock or
cash shall be determined in good faith by the Board.
6.5. Reorganization, Mergers, Consolidations or Sales of Assets
In the event of any capital reorganization, any reclassification of
the Common Stock (other than a change in par value or as a result of a stock
dividend, subdivision, split-up or combination of shares), the consolidation or
merger of the Company with or into another person, or the sale or other
disposition of all or substantially all of the properties of the Company as an
entirety to another person (collectively referred to hereinafter as
"Reorganizations"), the Holders of the Notes shall thereafter be entitled to
receive, and provision shall be made therefor in any agreement relating to a
Reorganization, upon conversion of the Notes the kind and number of shares of
Common Stock or other securities or property (including cash) of the Company, or
the other corporation resulting from such consolidation or surviving such
merger, which would have been distributed to a holder of the number of shares of
Common Stock which the Notes entitled the holders thereof to convert to
immediately prior to such Reorganization; and in any such case appropriate
adjustment shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the Holders of the Notes,
to the end that the
26
<PAGE>
provisions set forth herein (including the specified changes and other
adjustments to the Conversion Rate) shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares, other securities or property
thereafter receivable upon conversion of the Notes.
6.6. Sale of Shares Below Market or Conversion Price
(a) If at any time or from time to time the Company shall issue
or sell Additional Shares of Common Stock other than in a transaction which
falls within Section 6.1, Section 6.4 or Section 6.5, for an Effective Price
less than the greater of (x) the Fair Market Value of the Common Stock or (y)
the then effective conversion price calculated by dividing $7.50 by the then
existing Conversion Rate (the "Adjusted Conversion Price"), then, and in each
such case, the then existing Conversion Rate shall be adjusted to a rate per
$7.50 principal amount of Notes determined by multiplying that Conversion Rate
by a fraction (i) the numerator of which shall be the number of shares of Common
Stock outstanding at the close of business on the date of such issue after
giving effect to such issue of Additional Shares of Common Stock, and (ii) the
denominator of which shall be (A) the number of shares of Common Stock
outstanding at the close of business on the day next preceding the date of such
issue or sale, plus (B) the number of shares of Common Stock which the aggregate
consideration received (or by the express provisions hereof deemed to have been
received) by the Company for the total number of Additional Shares of Common
Stock so issued would purchase at such Adjusted Conversion Price.
(b) For the purpose of making any adjustment required in this
Section 6.6, the consideration received by the Company for any issue or sale of
securities shall:
(i) to the extent it consists of cash, the consideration received
by the Company therefor shall be deemed to be the net amount of cash
actually received by the Company, after deducting therefrom any
compensation, discounts, fees or expenses paid to (but not on behalf
of) any purchaser of such securities and any compensation, discounts,
fees or expenses that are not reasonable or are not customary (it
being understood that underwriters' discounts and compensation in
public offerings and brokers' commissions in private placements of
such securities shall be deemed reasonable and customary);
(ii) to the extent it consists of property other than cash, the
consideration other than cash shall be computed at the fair market
value thereof as determined in good faith by the Board of Directors of
the Company; and
(iii) if Additional Shares of Common Stock, Convertible
Securities or rights or options to purchase either Additional Shares
of Common Stock or Convertible Securities are issued or sold together
with other stock or securities or other assets of the Company for
consideration which covers both, the consideration received for the
Common Stock, Convertible Securities or rights or options shall be
computed as that portion of the consideration so received which is
reasonably determined in good faith by the Board of Directors of the
Company to
27
<PAGE>
be allocable to such Additional Shares of Common Stock, Convertible
Securities or rights or options.
(c) For the purpose of making any adjustment in the Conversion
Rate provided in this Section 6.6, if at any time, or from time to time, the
Company issues any stock convertible into Additional Shares of Common Stock
(such convertible stock being hereinafter referred to as "Convertible
Securities") or issues any rights or options, other than options pursuant to the
Stock Option Plan, to purchase Additional Shares of Common Stock for Convertible
Securities (such rights or options being hereinafter referred to as "Rights"),
then, and in each such case, the Company shall be deemed to have issued at the
time of the issuance of such Rights or Convertible Securities the maximum number
of shares of Additional Shares of Common Stock issuable upon exercise (other
than options pursuant to the Stock Option Plan) or conversion thereof and to
have received in consideration for the issuance of such shares an amount equal
to the total amount of the consideration, if any, received by the Company for
the issuance of such Rights or Convertible Securities, plus in the case of such
Rights, the amount of consideration, if any, payable to the Company upon
exercise of such Rights, plus, in the case of Convertible Securities, the amount
of consideration, if any, payable to the Company upon the conversion thereof. No
further adjustment of the Conversion Rate, adjusted upon the issuance of such
Rights or Convertible Securities, shall be made as a result of the actual
issuance of Additional Shares of Common Stock on the exercise of any such Rights
or the conversion of any such convertible Securities. If any such Rights or the
conversion privilege represented by any such Convertible Securities shall expire
without having been exercised, the Conversion Rate adjusted upon the issuance of
such rights, options or convertible securities shall be readjusted to the
conversion rate which would have been in effect had an adjustment been made on
the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such Rights of conversion of such Convertible Securities, and such
Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for granting of all such
Rights, whether or not exercised, plus consideration received for issuing or
selling the Convertible Securities actually converted, plus the consideration,
if any, actually received by the Company on the conversion of such Convertible
Securities.
6.7. Adjustment for Failure to Quote on Nasdaq National Market
In event that, from the time of effectiveness of the registration
statement to be filed pursuant to Section 3(a) of the Registration Rights
Agreement and until all Notes have been converted into Conversion Shares,
immediately prior to the conversion of any Notes into Conversion Shares pursuant
to this Section 6, such Conversion Shares have not been approved for quotation
on Nasdaq National Market (or any other national securities exchange where the
Common Stock is then listed or quoted), then the Conversion Rate with respect to
such Conversion Shares shall be increased by 10% immediately prior to the
conversion of any Notes into such Conversion Shares.
6.8. Accountants' Certificate of Adjustment
28
<PAGE>
In each case of an adjustment or readjustment of the Conversion Rate
or the number of shares of Common Stock or other securities issuable upon
conversion of the Notes, the Company shall as soon as reasonably practicable
(and in no event less than thirty (30) days following the event causing such
adjustment or readjustment) compute such adjustment or readjustment in
accordance with this Agreement and prepare a certificate showing such adjustment
or readjustment, and shall mail such certificate, by first-class mail, postage
prepaid, to each Holder of the Notes at the Holder's address as shown on the
Company's note register. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (i) the Conversion Rate at the
time in effect for the Notes, and (ii) the number of shares of Common Stock and
the type and amount, if any, of other property which at the time would be
received upon conversion of the Notes. At the written request of the Requisite
Noteholders, the Company shall cause its Independent Auditors to verify the
computations contained in the certificate prepared by the Company.
6.9. Reservation of Shares Issuable Upon Conversion
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Notes, such number and class of its shares of
Common Stock as shall from time to time be sufficient to effect a conversion of
all outstanding Notes, and if at any time the number and class of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding Notes, the Company shall promptly seek such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number and class of
shares as shall be sufficient for such purpose. In the event of the
consolidation or merger of the Company with another corporation where the
Company is not the surviving corporation, effective provision shall be made in
the certificate or articles of incorporation, documents of merger or
consolidation, or otherwise, of the surviving corporation so that such
corporation will at all times reserve and keep available a sufficient number of
shares of Common Stock or other securities or property to provide for the
conversion of the Notes in accordance with the provisions of this Section 6.
6.10. No Impairment
The Company shall not amend its Charter Documents or participate in
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, for the principal
purpose of avoiding or attempting to avoid the observance or performance of any
of the terms to be observed or performed by the Company pursuant to this Section
6.
SECTION 7. DEFAULTS AND REMEDIES
7.1. Events of Default
An "Event of Default" occurs if:
29
<PAGE>
(a) the Company defaults in the payment of the principal of any
Note when the same becomes due and payable at maturity, upon repurchase or
otherwise;
(b) the Company defaults in the payment of interest on any Note
when the same becomes due and payable and the Default continues for the period
and after the notice specified below;
(c) the Company fails to comply with any of the agreements,
covenants, or provisions of this Agreement or the Notes and the Default
continues for the period and after the notice specified below;
(d) a default occurs under any mortgage, indenture or instrument
(other than a mortgage, indenture or instrument to which the Purchaser or its
Subsidiaries is a party) under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any of its Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Subsidiaries), whether such Indebtedness or guaranteed Indebtedness
now exists or shall be created hereafter, which default (i) is caused by a
failure to pay principal of or premium, if any, on such Indebtedness prior to
the expiration of the grace period provided in such Indebtedness, or (ii)
results in the acceleration of such Indebtedness prior to its express maturity
and, in each case, the principal amount of such Indebtedness, together with the
principal amount of any other Indebtedness as to which there has been a payment
default or the maturity of which has been so accelerated, aggregates $1,000,000
or more;
(e) a final judgment for the payment of money is entered by a
court or courts of competent jurisdiction against the Company or any Subsidiary
of the Company and such remains undischarged for a period (during which
execution shall not be effectively stayed) of (1) ninety (90) days, if the
aggregate of all such judgments exceeds $1,000,000 but is less than $5,000,000
or (2) thirty (30) days if the aggregate of all such judgments exceeds
$5,000,000;
(f) the Company or any of its Subsidiaries pursuant to or within
the meaning of any Bankruptcy Law: (1) commences a voluntary case, (2) consents
to the entry of an order for relief against it in an involuntary case, (3)
consents to the appointment of a Custodian of it or for all or substantially all
of its property, (4) makes a general assignment for the benefit of its
creditors, (5) generally is unable to pay its debts as the same become due; or
(6) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (i) is for relief against the Company or any of its
Subsidiaries in an involuntary case, (ii) appoints a Custodian of the Company or
any of its Subsidiaries or for all or substantially all of its property, or
(iii) orders the liquidation of the Company or any of its Subsidiaries, and the
order or decree remains unstayed and in effect for 60 days.
A Default under clause (b) is not an Event of Default until a Holder
notifies the Company of such Default and the Company does not cure such Default
within two (2) Business Days after receipt of such notice. A Default under
clause (c) (other than a Default under Sections 5.3, 5.4, 5.6 or 5.7 of this
Agreement, which Default shall be an Event of Default without the notice or
passage of time specified in this paragraph) or (d) (other than a Default
resulting from the acceleration of any Indebtedness described therein, which
Default shall be an Event of
30
<PAGE>
Default without the notice or passage of time specified in this paragraph) or
(e) is not an Event of Default until the Requisite Noteholders notify the
Company of the Default and the Company does not cure the Default within ten (10)
days after receipt of the notice. Any such notices must specify the Default,
demand that it be remedied and state that the notice is a "Notice of Default."
7.2. Acceleration of Notes
If an Event of Default (other than an Event of Default specified in
clauses (e) and (f) of Section 7.1) occurs and is continuing, the Requisite
Noteholders, by notice to the Company, may declare the unpaid principal of and
any accrued interest on all the Notes to be due and payable. Immediately upon
such declaration, the principal and interest shall be due and payable. If an
Event of Default specified in clause (e) or (f) of Section 7.1 occurs, such an
amount shall become and be immediately due and payable without any declaration
or other act on the part of any Holder. The Requisite Noteholders by notice to
the Company may rescind an acceleration of and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of the acceleration.
7.3. Other Remedies
If an Event of Default occurs and is continuing, Holders of the Notes
may pursue any available remedy to collect the payment of principal or interest
on the Notes or to enforce the performance of any provision of the Notes or this
Agreement.
A delay or omission by any Holder of any Notes in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 8. SUBORDINATION
8.1. Notes Subordinated to Senior Indebtedness
(a) The Notes are subordinated and junior in right of payment of
the principal of and interest and all other obligations (all of the foregoing, a
"Payment or Distribution") on such Notes to the prior payment in full of any
Senior Indebtedness whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed, the Notes shall comply with the provisions of
this Section 8, and each Holder by his acceptance thereof likewise agrees.
A Payment or Distribution shall include any asset of any kind or
character, and may consist of cash, securities or other property, by set-off or
otherwise, except that Holders may receive (i) securities that are subordinated
to at least the same extent as the Notes to (A) Senior Indebtedness and (B) any
securities issued in exchange for Senior Indebtedness.
(b) The Senior Indebtedness of the Company shall continue to be
Senior Indebtedness and entitled to the benefit of these subordination
provisions irrespective of any
31
<PAGE>
amendment, modification or waiver of any term of any instrument relating to
refinancing of the Senior Indebtedness, whether with or without notice to
Holders.
(c) No right of any holder of any Senior Indebtedness to enforce
subordination as herein provided shall at any time or in any way be affected or
impaired by any act or failure to act on the part of the Company, the Holders or
the holders of the Senior Indebtedness, including without limitation any
non-compliance by the holders of the Senior Indebtedness with any of the terms,
provisions and covenants of the documents evidencing or securing the Senior
Indebtedness, or by any noncompliance by the Company or the Holders with any of
the terms, provisions and covenants of the Notes, regardless of any knowledge
thereof that any such holder of Senior Indebtedness may have or otherwise be
charged with.
8.2. Company Not to Make Payments with Respect to Notes in Certain
Circumstances
No Payment or Distribution shall be made by the Company on account of
principal of or interest on the Notes, whether upon the Maturity Date, upon
repurchase or acceleration, or otherwise, if there shall have occurred and be
continuing a default with respect to any Senior Indebtedness and notice of such
default in writing or by telegram has been given to the Company by any holder or
holders of Senior Indebtedness, unless and until the Company shall have received
written notice from such holder or holders that such default or event of default
shall have been cured or waived or shall have ceased to exist or, unless in the
event of a default that does not result in the acceleration of any Senior
Indebtedness or that does not involve a payment default with respect to any
Senior Indebtedness, upon the expiration of the 60-day period following the date
of such notice of default. Following such 60-day period, the Company shall be
obligated to make any and all outstanding Payments or Distributions with respect
to the Notes.
Upon acceleration of the principal of the Notes or any payment by the
Company or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to creditors upon any dissolution or
winding up or liquidation or reorganization of the Company, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or such other
proceedings, all amounts due or to become due upon all Senior Indebtedness shall
first be paid in full in cash, or payment thereof provided for to the
satisfaction of the holders thereof, before any Payment or Distribution is made
on account of the repurchase price or principal of or interest on the Notes; and
(subject to the power of a court of competent jurisdiction to make other
equitable provision, which shall have been determined by such court to give
effect to the rights conferred in this Section 8 upon the Senior Indebtedness
and the holders thereof with respect to the Notes or the Holders, by a lawful
plan of reorganization or readjustment under applicable law) upon any such
dissolution or winding up or liquidation or reorganization, any Payment or
Distribution by the Company or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, to which the Holders
would be entitled except for the provisions of this Section 8, shall be paid by
the Company or by any receiver, trustee in bankruptcy, liquidating trustee,
agent or other Person making such Payment or Distribution directly to the
holders of Senior Indebtedness of the Company or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any
32
<PAGE>
instruments evidencing any Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all Senior
Indebtedness in full in cash, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness, before any Payment or
Distribution is made to the Holders.
In the event that, notwithstanding the foregoing, any Payment or
Distribution by the Company of any kind or character, whether such payment shall
be in cash, property or securities is prohibited by the foregoing, and the
Company shall have made payment to the Holders before all Senior Indebtedness is
paid in full in cash, or provision is made for such payment to the satisfaction
of the holders thereof, such Holder, then and in such event such Payment or
Distribution shall be paid over by such Holder or delivered to the holders of
Senior Indebtedness or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in cash, after giving effect to any concurrent Payment or Distribution to or for
the holders of such Senior Indebtedness, and, until so delivered, the same shall
be held in trust by any Holder as the property of the holders of Senior
Indebtedness.
The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the conveyance or transfer of its property as an entirety, or substantially as
an entirety, to another corporation upon the terms and conditions provided in
Section 5.7 shall not be deemed a dissolution, winding up, liquidation or
reorganization for the purpose of this Section if such other Person shall, as a
part of such consolidation, merger, conveyance or transfer, comply with the
conditions stated in Section 5.7.
The holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Holders without incurring
responsibility to the Holders and without impairing or releasing the obligations
of the Holders to the holders of the Senior Indebtedness: (i) change the manner,
place or terms of payment or change or extend the time of payment of, or renew
or alter, Senior Indebtedness, or otherwise amend in any manner Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and/or (iv) exercise or refrain from exercising any
rights against the Company and any other Person.
8.3. Subrogation of Notes
After all Senior Indebtedness is paid in full and until the Notes are
paid in full, the Holders shall be subrogated (equally and ratably with all
other Indebtedness pari passu with the Notes) to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of Senior Indebtedness.
33
<PAGE>
If any Payment or Distribution to which the Holders would otherwise
have been entitled but for the provisions of this Section 8 shall have been
applied pursuant to the provisions of this Section 8 to the payment of all
amounts payable in respect of the Senior Indebtedness, then and in such case,
the Holders, as with respect to the Company, shall be entitled to receive from
the holders of such Senior Indebtedness at the time outstanding any Payments or
Distributions received by such holders of Senior Indebtedness in excess of the
amount sufficient to pay all amounts payable in respect of the Senior
Indebtedness in full in cash or, at the option of the holders of Senior
Indebtedness, cash equivalents.
8.4. No Impairment of Subordination
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company,
any Holder, or by any act, or failure to act, in good faith, by any such holder
of Senior Indebtedness, or by any noncompliance by the Company or any Holder
with the terms, provisions and covenants of this Agreement regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
8.5. Section 8 Not to Prevent Events of Default
The failure to make a payment on account of principal of or interest
on the Notes by reason of any provision in this Section 8 shall not be construed
as preventing the occurrence of an Event of Default with respect to such series
under Section 7.1.
8.6. Securities Senior to Subordinated Indebtedness
The indebtedness represented by the Notes will be senior and prior in
right of payment to all Subordinated Indebtedness, to the extent and in the
manner provided in such Subordinated Indebtedness.
8.7. Assignment of Junior Claims
(a) So long as the Purchaser holds a sufficient amount of Notes
such that the Purchaser constitutes a Requisite Noteholder, paragraphs (b) and
(c) of this Section 8.7 shall have no force and effect. In the event the
Purchaser shall cease to hold a sufficient amount of Notes such that the
Purchaser is no longer a Requisite Noteholder, paragraphs (b) and (c) of this
Section 8.7 shall be in effect.
(b) In the event of an insolvency proceeding with respect to the
Company, each Holder will assign to a representative of the holders of Senior
Indebtedness (as identified in writing to each Holder by the holders of Senior
Indebtedness) (the "Senior Representative") each Holder's right, title and
interest in and to any claims such Holder has against the Company with respect
to the Notes (the "Junior Claims") and any security held therefor, and will
deliver to the Senior Representative from time to time any and all instruments
and documents evidencing such Junior Claims, or will have entered on such
instruments and documents such subordination legend as the Senior Representative
may reasonably request, and each Holder will execute such
34
<PAGE>
other instruments and documents as the Senior Representative may from time to
time reasonably require in connection therewith. In the event that any Junior
Claim is not evidenced by a negotiable instrument, each Holder hereby agrees
that he will use all commercially reasonably efforts to obtain an instrument or
document from the Company evidencing such Junior Claim. In the event that such
debt is not evidenced by a document, it shall nevertheless be deemed
subordinated and assigned by virtue of this Section 8.7.
(c) In the event of an insolvency proceeding with respect to the
Company, each Holder will grant to the Senior Representative irrevocable
authority in the place and stead of such Holder and in the name of such Holder
or in the Senior Representative's name but for the Senior Representative's use
and benefit, at any time or times, after any default under the terms of any
Senior Indebtedness, in the Senior Representative's discretion to demand,
collect file proofs of claim with respect to, receive (by way of dividends or
otherwise) and take any and all legal proceedings for the recovery of any and
all moneys due or to become due on account of the Junior Claims or any thereof,
and to vote, give consents and take any other steps with regard thereto. Any and
all moneys so collected or received by the Senior Representative shall be
retained indefeasibly by the Senior Representative for application to the
payment in full of any amounts owing with respect to the Senior Indebtedness
then outstanding (the "Senior Claims"). If the Senior Representative receives
notice of any claim adverse to the rights or interests of each Holder in and to
either the Junior Claims or the Senior Claims, or any moneys held by the Senior
Representative in respect thereof, the Senior Representative shall be entitled
to retain any and all such moneys, documents and instruments evidencing such
Junior Claims and Senior Claims.
SECTION 9. AMENDMENTS AND WAIVERS
9.1. With Consent of Holders
The Company, when authorized by a resolution of the Board of Directors
of the Company and with the written consent of the Requisite Noteholders, may
amend this Agreement or the Notes, without notice to any other Holders. The
Requisite Noteholders may waive compliance by the Company with any provision of
this Agreement or the Notes without notice to any other Holder. Without the
consent of each Holder affected, however, no amendment or waiver may (with
respect to any Notes held by a non-consenting Holder of Notes):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment or waiver of any provision of this Agreement or the
Notes;
(b) reduce the principal of or change the fixed maturity of any
Note;
(c) reduce the rate of or change the time for payment of interest
on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or interest on the Notes (except a rescission of acceleration of
the Notes by the Requisite Noteholders and a waiver of the payment default that
resulted from such acceleration);
35
<PAGE>
(e) make the principal of or the interest on, any Note payable in
any manner other than that stated in this Agreement and the Notes;
(f) make any change in the provisions of this Agreement relating
to waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of or interest on the Notes;
(g) make any change to the subordination provisions of this
Agreement that adversely affect any Holder; or
(h) make any change in the foregoing amendment and waiver
provisions.
It shall not be necessary for the consent of the Holders under this
Section 9 to approve the particular form of any proposed amendment or waiver,
but it shall be sufficient if such consent approves the substance thereof.
After an amendment or waiver under this Section 9 becomes effective,
the Company shall mail to the Holders affected thereby a notice briefly
describing the amendment or waiver. Any failure of the Company to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such amendment or waiver.
In connection with any amendment to this Section 9, the Company may
offer, but shall not be obligated to offer, to any Holder who consents to such
amendment or waiver, consideration for such Holder's consent.
9.2. Revocation and Effect of Consents
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of a
Note or portion of a Note that evidences the same debt as the consenting
Holder's Note, even if notation of the consent is not made on any Note. However,
any such Holder or subsequent Holder may revoke the consent as to his Note or
portion of his Note by notice to the Company received before the date on which
the Requisite Noteholders have consented (and not theretofore revoked such
consent) to the amendment or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment or
waiver, which record date shall be at least ten (10) Business Days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated proxies),
and only those persons, shall be entitled to revoke any consent previously
given, whether or not such persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
After an amendment or waiver becomes effective, it shall bind every
Holder, unless it makes a change described in any of clauses (a) through (g) of
Section 9.1, in which case,
36
<PAGE>
the amendment or waiver shall bind only each Holder of a Note who has consented
to it and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note; provided that any such waiver
shall not impair or affect the right of any Holder to receive payment of
principal of and interest on a Note, on or after the respective due dates
expressed in such Note, or to bring suit for the enforcement of any such payment
on or after such respective dates without the consent of such Holder.
9.3. Notation on or Exchange of Notes
If an amendment or waiver changes the terms of a Note, the Company may
require the Holder of the Note to deliver it to the Company. The Company may
place an appropriate notation on the Note about the changed terms and return it
to the Holder.
SECTION 10. DEFINITIONS
10.1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing Date, whether or not subsequently
reacquired or retired by the Company, other than the Conversion Shares; provided
that such term shall exclude shares of Common Stock issued under the Stock
Option Plan and shares of Common Stock issued or issuable upon the conversion of
Notes issued pursuant to agreements dated on or about the date of this Agreement
and the warrants scheduled on the Disclosure Schedule.
"Adjusted Conversion Price" shall have the meaning assigned to such
term in Section 6.6(a).
"Affiliate" means, with respect to any referenced Person, a Person (i)
which directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such referenced Person, (ii)
which directly or indirectly through one or more intermediaries beneficially
owns or holds 10% or more of the combined voting power of the total Voting
Securities of such referenced Person or (iii) of which 10% or more of the
combined voting power of the total Voting Securities directly or indirectly
through one or more intermediaries is beneficially owned or held by such
referenced Person, or a Subsidiary of such referenced Person. When used herein
without reference to any Person, Affiliate means an Affiliate of the Company.
For purposes of this definition, "control" when used with respect to any person
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of Voting Securities, by contract
or otherwise; and the terms "affiliated," controlling" and "controlled" have
meanings correlative to the foregoing.
"Agent" means any Person authorized to act and who acts on behalf of
the Purchasers with respect to the transactions contemplated by this Agreement,
the Registration Rights Agreement or the Commitment Letter.
37
<PAGE>
"Agreement" means this Convertible Subordinated Note Purchase
Agreement dated as of March 30, 1998 by and between the Company and the
Purchaser.
"Approved Holder" shall have the meaning assigned to such term in
Section 5.4(a)(1).
"Approved Purchaser" shall have the meaning assigned to such term in
Section 5.4(a)(2).
"Average Closing Sales Price" as of a particular 12-month period means
the average closing sales price of the Common Stock for each Business Day during
such 12-month period. Such average shall be calculated as follows: (i) the
average of the closing sales prices of the Common Stock quoted on the Nasdaq
National Market for each Business Day during such 12-month period, or (ii) if no
such quotations are available, the average of the closing sales prices for each
Business Day during such 12-month period on the principal national securities
exchange on which the Common Stock is listed, or (iii) if not listed on any
national securities exchange, the average closing sales price for each Business
Day during such 12-month period in the over-the-counter market as reported by
the National Quotation Bureau, Incorporated or similar organization, or (iv) if
no of such sales prices are available for each Business Day in such 12-month
period, the average of the high bid and low asked quotations in the
over-the-counter market as so reported for such Business Days, or (v) if no such
quotations are available, the fair market value per share on such unreported
Business Days as determined by an independent investment banker or appraiser,
nationally recognized to be expert in making such valuations, selected by a
majority of the directors of the Company. In the event "Average Closing Sales
Price" is determined by an independent investment banker or appraiser pursuant
to clause (v) of the foregoing sentence, such determination shall be provided to
each Holder in writing together with a fair and accurate description of the
basis for making such determination. The Requisite Holders shall be permitted to
dispute such determination by written notice to the Company within ten (10)
Business Days of receipt of such determination. In the event of such dispute,
the Requisite Holders and the Company shall work together in good faith to
mutually agree upon a second independent investment banker or appraiser to make
a determination of "Average Closing Sales Price" whose fees and expenses shall
be paid by the Company. "Average Closing Sales Price" shall be the average of
the per share fair market values determined by both independent investment
bankers or appraisers.
"Bankruptcy Law" means title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Business Day" means any day which is not a Legal Holiday.
"Capital Lease" means any lease of any property which would in
accordance with GAAP be required to be classified and accounted for on the
balance sheet of the lessee as a capital lease.
"Capitalized Lease Obligation" means, with respect to any Person for
any period, any obligation of such Person to pay rent or other amounts under a
Capital Lease; the amount of
38
<PAGE>
such obligation shall be the capitalized amount thereof determined in accordance
with such principles.
"Capital Stock" means any and all shares, interests, participation or
other equivalents (however designated) of corporate stock, including without
limitation all common stock and preferred stock.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act (42 U.S.C. ss. 9601 et. seq.).
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any Person or group (as such term is used in Section 13(d)(3) of the
Exchange Act); (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that any Person or group (as defined above), other than Walter C. Bowen or a
Related Party, becomes the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition), directly or indirectly, of
more than 50% of the Fully Diluted Voting Securities of the Company (measured by
voting power rather than number of shares) and (iv) the date on which a majority
of the Board of Directors of the Company shall cease to be Continuing Directors.
"Change of Control Date" shall have the meaning set forth in Section
5.4.
"Change of Control Issuance Date" shall have the meaning set forth in
Section 5.4.
"Change of Control Issuance of Additional Shares" shall have the
meaning set forth in Section 5.4.
"Change of Control Notice" shall have the meaning set forth in Section
5.4.
"Change of Control Price" shall have the meaning set forth in Section
5.4.
"Change of Control Repurchase Date" shall have the meaning set forth
in Section 5.4.
"Change of Control Repurchase Offer" shall have the meaning set forth
in Section 5.4.
"Charter Documents" means the Articles of Organization, Articles of
Incorporation or Certificate of Incorporation and Bylaws, as amended or restated
(or both) to date, of the Company or a Subsidiary, as applicable.
39
<PAGE>
"Closing" shall have the meaning set forth in Section 1.2(b).
"Closing Date" shall have the meaning set forth in Section 1.2(b).
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor statute or law thereto.
"Commitment Letter" means that certain Commitment Letter dated as of
the Closing Date by and between the Company, LTC Properties and LTC West,
executed concurrently herewith.
"Common Stock" means the Common Stock, no par value, of the Company.
"Company" means Regent Assisted Living, Inc., an Oregon corporation.
"Company SEC Documents" shall have the meaning set forth in Section
3.23.
"Conversion Rate" shall have the meaning set forth in Section 6.2.
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Notes.
"Convertible Securities" shall have the meaning set forth in Section
6.6(c).
"Consolidated " or "consolidated," when used with reference to any
accounting term, means the amount described by such accounting term, determined
on a consolidated basis in accordance with GAAP, after elimination of
intercompany items.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock that by its terms is not entitled to
the payment of dividends unless such dividends may be declared and paid only out
of net earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
preferred stock, less (x) all write-ups (other than write-ups resulting from
foreign currency translations and write-ups of tangible assets of a going
concern business made within 12 months after the acquisition of such business)
subsequent to the Closing Date in the book value of any asset owned by such
Person or a consolidated Subsidiary of such Person, (y) all investments as of
such date in unconsolidated Subsidiaries and in Persons that are not
Subsidiaries, and (z) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in accordance
with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on March 30, 1998 or (ii) was nominated for election or
elected to such Board with the approval of a
40
<PAGE>
majority of the Continuing Directors who were members of such Board at the time
of such nomination or election.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Determination Date" shall have the meaning set forth in Section 6.4.
"Effective Price" of Additional Shares of Common Stock shall mean the
quotient determined by dividing the total number of Additional Shares of Common
Stock issued or sold, or deemed to have been issued or sold by the Company under
Section 6.6, into the aggregate consideration received, or deemed to have been
received by the Company for such issue under Section 6.6, for such Additional
Shares of Common Stock.
"Environmental Laws" shall have the meaning set forth in Section 3.13.
"Equity Interest" means Capital Stock or warrants, options or other
rights to acquire Capital Stock (but excluding any debt note which is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" shall have the meaning set forth in Section 7.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
from time to time, and any successor statute or law thereto.
"Fair Market Value" of Common Stock as of a particular date means the
Weighted Average trading price of the Common Stock for the ten (10) consecutive
Business Day period immediately preceding such date. Such Weighted Average shall
be calculated as follows: (i) the Weighted Average of the sales price of the
Common Stock quoted on the Nasdaq National Market for each of such ten (10)
Business Days, or (ii) if no such quotations are available, the Weighted Average
sales price for such ten (10) Business Days on the principal national securities
exchange on which the Common Stock is listed, or (iii) if not listed on any
national securities exchange, the Weighted Average sales price for such ten (10)
Business Days in the over-the-counter market as reported by the National
Quotation Bureau, Incorporated or similar organization, or (iv) if no of such
sales prices are available for each Business Day in such ten (10) Business Day
period, the Weighted Average of the high bid and low asked quotations in the
over-the-counter market as so reported for such ten (10) Business Days, or (v)
if no such quotations are available, the fair market value per share on such
date as determined by an independent investment banker or appraiser, nationally
recognized to be expert in making such valuations, selected by a majority of the
directors of the Company; provided, however, that in the event of an
underwritten public offering of Common Stock, "Fair Market Value" shall mean the
price to the public of such Common Stock in such underwritten public offering.
In the event "Fair Market Value" is determined by an independent investment
banker or appraiser pursuant to
41
<PAGE>
clause (v) of the foregoing sentence, such determination shall be provided to
each Holder in writing together with a fair and accurate description of the
basis for making such determination. The Requisite Holders shall be permitted to
dispute such determination by written notice to the Company within ten (10)
Business Days of receipt of such determination. In the event of such dispute,
the Requisite Holders and the Company shall work together in good faith to
mutually agree upon a second independent investment banker or appraiser to make
a determination of "Fair Market Value" whose fees and expenses shall be paid by
the Company. "Fair Market Value" shall be the average of the per share fair
market values determined by both independent investment bankers or appraisers.
"Fully Diluted Voting Securities" means each class of Voting
Securities of a Person and each class of securities of a Person that, at the
time of determination, can immediately subscribe for and/or convert to Voting
Securities.
"GAAP" means generally accepted accounting principles as used in the
United States of America and applied in a manner consistent with past practices.
"Holder" or "Holders" means the Purchaser (so long as it holds any
Notes) and any other holder of any of the Notes.
"Incorporated Documents" means the following of the Company's
documents, each as filed with the SEC: (1) Form 10-K for the year ended December
31, 1997, (2) 1997 Proxy Statement dated April 10, 1997; and (3) Form 8-K dated
December 29, 1997.
"Indebtedness" means, with respect to any Person, the aggregate amount
of, without duplication, the following:
(a) all obligations for borrowed money;
(b) all obligations evidenced by bonds, debentures, notes or
other similar instruments;
(c) all obligations to pay the deferred purchase price of
property or services, except Trade Payables and obligations that do not exceed
$300,000 in the aggregate, accrued commissions and other similar accrued current
liabilities in respect of such obligations, in any case, not overdue and arising
in the ordinary course of business;
(d) all Capitalized Lease Obligations;
(e) all obligations or liabilities of others secured by a lien on
any asset owned by such Person or Persons whether or not such obligation or
liability is assumed;
(f) all obligations of such Person or Persons, contingent or
otherwise, in respect of any letters of credit or bankers' acceptances; and
(g) all guaranties.
42
<PAGE>
"Indemnified Parties" shall have the meaning set forth in Section 5.6.
"Independent Auditors" shall mean the independent certified public
accountants of the Company. Until December 29, 1997, the Independent Auditors
were Coopers & Lybrand, L.L.P. After such date and as of the date of the
Agreement, the Independent Auditors are KPMG Peat Marwick LLP.
"Inspectors" shall have the meaning set forth in Section 5.13.
"Intangibles" shall have the meaning set forth in Section 3.16.
"Junior Claims" shall have the meaning set forth in Section 8.7.
"Key Employee" means Walter C. Bowen.
"Knowledge of the Company" means to the actual knowledge of each of
the Chairman, Chief Executive Officer, Chief Financial Officer, General Counsel,
President, Treasurer and any Senior or Executive Vice President of the Company,
after due inquiry and investigation.
"Legal Holiday" means a Saturday, Sunday or day on which banks and
trust companies in the principal place of business of the Company or in
California are not required to be open. If a payment date is a Legal Holiday,
payment may be made on the next succeeding day that is not a Legal Holiday, and
interest shall accrue for the intervening period.
"Lien" means any mortgage, pledge, lien, taxes, encumbrance, charge or
adverse claim affecting title or resulting in a charge against real or personal
property, or note interest of any kind (including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell and any filing of or agreement to
give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Losses" shall have the meaning set forth in Section 5.6.
"LTC Properties" means LTC Properties, Inc., a Maryland corporation.
"LTC West" means LTC West, Inc., a Nevada corporation.
"Material Adverse Effect" means (i) any adverse effect upon the
issuance, validity or enforceability of a Note, this Agreement, the Registration
Rights Agreement or the Commitment Letter, (ii) any material adverse effect on
the results of operations, financial condition, properties, assets, business or
prospects of the Company and its Subsidiaries, taken as a whole, or (iii) any
adverse effect on the ability of the Company to fulfill its obligations under
the Notes, this Agreement, the Registration Rights Agreement or the Commitment
Letter or any document contemplated hereby or thereby.
"Material Contract" shall have the meaning set forth in Section 3.17.
43
<PAGE>
"Maturity Date" means March 31, 2008.
"Note Register" shall have the meaning set forth in Section 1.3.
"Note" or "Notes" shall have the meaning set forth in Section 1.1.
"Officers' Certificate" means a certificate signed by any two
officers, one of whom must be the Chairman of the Board, the President, the
Treasurer or a Vice President of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Purchaser.
"Payment" or "Distribution" shall have the meaning set forth in
Section 8.1.
"Person" means an individual, partnership, corporation, limited
liability company, trust or unincorporated organization or a government or
agency or political subdivision thereof.
"Plan of Liquidation" means, with respect to any Person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such Person to holders of
Capital Stock of such Person.
"Preferred Stock" means the Series A Preferred Stock, no par value,
and the Series B Preferred Stock, no par value, of the Company.
"Property" or "property" means any assets or property of any kind or
nature whatsoever, real, personal or mixed (including fixtures), whether
tangible or intangible, provided that the terms "Property" or "property", when
used with respect to any Person, shall not include Notes issued by such.
"Purchaser" means the purchaser on the signature pages hereto.
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of the Closing Date by and among the Company and the
Purchaser, executed concurrently herewith.
"Related Party" with respect to Walter C. Bowen means (A) any spouse
or immediate family member of such Person or (B) or trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding an 80% or more controlling interest of which
consist of Walter C. Bowen and/or such other Persons referred to in the
immediately preceding clause (A).
"Reorganizations" shall have the meaning set forth in Section 6.5.
44
<PAGE>
"Requisite Noteholders" shall mean the holders of Notes whenever
issued to the Purchaser pursuant to this Agreement and the Notes issued to all
other purchasers pursuant to similar agreements dated on or about the date of
this Agreement with an aggregate principal amount equal to or greater than 50%
of the aggregate principal amount of all then outstanding Notes whenever issued
to the Purchaser pursuant to this Agreement and the Notes issued to all other
purchasers pursuant to similar agreements dated on or about the date of this
Agreement.
"Rights" shall have the meaning assigned to such term in Section
6.6(c).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and any successor statute or law thereto.
"Senior Claims" shall have the meaning set forth in Section 8.7.
"Senior Indebtedness" means the principal of, premium, if any, and
accrued interest on any other Indebtedness of the Company and all fees,
expenses, reimbursements, indemnities and other amounts payable with respect to
such Indebtedness, whether such Indebtedness is outstanding on the date of this
Agreement or thereafter created, incurred, assumed, or guaranteed by the Company
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or the assumption or guarantee thereof expressly provides
that such Indebtedness shall not be senior, or is pari passu or subordinate, in
right or payment to the Notes; provided that Senior Indebtedness shall not
include (i) in the case of each Note the other Notes (ii) Indebtedness of the
Company to a Subsidiary of the Company, (iii) Indebtedness of or amounts owed by
the Company for compensation to directors or members of senior management that
has not been approved by the Compensation Committee of the Board; (iv)
Indebtedness guaranteed by the Company on behalf of any equityholder, director,
officer or employee of the Company or of any equityholder, director, officer or
employee of any of the Company's Subsidiaries, (v) any Trade Payables (including
without limitation Indebtedness incurred for the purchase of goods or materials
or for services obtained in the ordinary course of business), (vi) Indebtedness
of the Company that is subordinated by its terms in right of payment to any
other Indebtedness of the Company, and (vii) Indebtedness incurred in violation
of this Agreement.
"Senior Representative" shall have the meaning set forth in Section
8.7.
"Subordinated Indebtedness" means the principal, premium, if any, and
interest on any Indebtedness of the Company which by its terms is expressly
subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person (the "parent"), any
corporation, association or other business entity of which Notes or other
ownership interests representing more than 50% of the ordinary voting power are,
at the time as of which any determination is being made, owned or controlled by
the parent or one or more subsidiaries of the parent or by the parent and one or
more subsidiaries of the parent.
45
<PAGE>
"Stock Option Plan" shall mean the Company's 1995 Stock Incentive Plan
as in effect on the Closing Date.
"Surviving Person" shall have the meaning set forth in Section
5.7(b)(1).
"Total Price" means, with respect to the Common Stock on any Business
Day, the product of: (x) the closing sales price of the Common Stock quoted on
the Nasdaq National Market on such Business Day, or if no such quotations are
available, on the principal national securities exchange on which the Common
Stock is listed on such Business Day, or if not listed on any national
securities exchange, in the over-the-counter market as reported by the National
Quotation Bureau, Incorporated or similar organization on such Business Day, or
if no such sales prices are available, the high bid and low asked quotations in
the over-the-counter market on such Business Day multiplied by (y) the number of
shares of Common Stock traded on such market or exchange, as applicable, on such
Business Day.
"Trade Payables" means, with respect to any Person, accounts payable
and other similar accrued current liabilities in respect of obligations or
indebtedness to trade creditors created, assumed or guaranteed by such Person or
any of its Subsidiaries in the ordinary course of business in connection with
the obtaining of property or services.
"Voting Securities" means any class of Equity Interests of a Person
pursuant to which the holders thereof have, at the time of determination, the
general voting power under ordinary circumstances to vote for the election of
directors, managers, trustees or general partners of any Person (irrespective of
whether or not at the time any other class or classes will have or might have
voting power by reason of the happening of any contingency).
"Weighted Average" means, with respect to the Common Stock during any
ten (10) consecutive Business Day period, the sum of the Total Price of such
Common Stock for each Business Day during such ten (10) consecutive Business Day
period divided by ten (10).
10.2. Rules of Construction
Unless the context otherwise requires
(a) a term has the meaning assigned to it;
(b) "or" is not exclusive;
(c) words in the singular include the plural, and words in the
plural include the singular;
(d) provisions apply to successive events and transactions;
(e) "herein," "hereof" and other words of similar import refer to
this Agreement as a whole and not to any particular Section or other
subdivision; and
46
<PAGE>
(f) the masculine shall include the feminine and neuter genders
as appropriate.
SECTION 11. MISCELLANEOUS
11.1. Notices
All notices and other communications provided for or permitted
hereunder shall be made by hand-delivery, first-class mail, telex, telecopier,
or overnight air courier guaranteeing next day delivery:
(a) if to any Purchaser at address set forth on the signature
pages hereto, with a copy to Latham & Watkins, 633 W. Fifth Street, Suite 4000,
Los Angeles, California 90071, Attention: Eva Herbst Davis, Esq.; and
(b) if to the Company, to Regent Assisted Living, Inc., 121 SW
Morrison, Suite 1000, Attention: General Counsel with a copy to Stoel Rives LLP,
900 SW Fifth Avenue, Suite 2300, Portland, Oregon 97204, Attention: Todd Bauman,
Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five (5) Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
The parties may change the addresses to which notices are to be given by giving
five days' prior notice of such change in accordance herewith.
11.2. Undertaking for Costs
In any suit for the enforcement of any right or remedy under this
Agreement, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
11.3. Successors and Assigns
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties.
11.4. Counterparts
This Agreement may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
47
<PAGE>
11.5. Headings
The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
11.6. Governing Law
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of California.
11.7. Entire Agreement
This Agreement, together with the Notes, the Registration Rights
Agreement and the Commitment Letter is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, together with the Notes, the Registration
Rights Agreement and the Commitment Letter supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
11.8. Severability
In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired or affected, it being
intended that the Purchaser's rights and privileges shall be enforceable to the
fullest extent permitted by law.
11.9. Transfer
The Notes may not be transferred, sold, assigned, pledged,
hypothecated or otherwise disposed of unless (a) such transfer is pursuant to an
effective registration statement under the Securities Act and any applicable
state securities laws, or (b) the Company has been furnished with a satisfactory
opinion of counsel for the Holder, at such Holder's expense, that such transfer
is exempt from the provisions of Section 5 of the Securities Act, the rules and
regulations in effect thereunder and any applicable state securities laws.
48
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties set forth below as of the date first written above.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By: WALTER C. BOWEN
-------------------------------------------------
Name: Walter C. Bowen
Title: President
LTC EQUITY HOLDING COMPANY, INC.,
a Nevada corporation
By: JAMES J. PIECZYNSKI
--------------------------------------------------
Name: James J. Pieczynski
Title: President and Chief Financial Officer
Address:
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
49
<PAGE>
ANNEX A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS (A) SUCH TRANSFER IS PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE
COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER
THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT, THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE SECURITIES
LAWS.
REGENT ASSISTED LIVING, INC.
CONVERTIBLE SUBORDINATED NOTE DUE MARCH 31, 2008
Note No. ________ $_______________________
FOR VALUE RECEIVED, the undersigned, REGENT ASSISTED LIVING, INC., a
corporation organized and existing under the laws of Oregon (herein called the
"Company"), hereby promises to pay to the order of ____________________________
or registered assigns ("Holder"), the principal sum of
___________________________ DOLLARS (or so much thereof as shall remain
outstanding) on March 31, 2008. Payments are to be made as provided in the
Agreement (as defined herein).
This Note is one of the Notes issued pursuant to the Convertible
Subordinated Note Purchase Agreement dated as of March 30, 1998 (the
"Agreement"), by and between the Company and LTC Equity Holding Company, Inc., a
Nevada corporation, and is also entitled to the benefits thereof to the extent
provided in the Agreement. This Note is subject to (i) conversion, in whole or
in part, at the option of the Holder, pursuant to Section 6.1(a) of the
Agreement, (ii) conversion, in whole but not in part, at the option of the
Company upon the satisfaction of certain conditions pursuant to Section 6.1(b)
of the Agreement and (iii) repurchase, in whole or in part, upon a Change of
Control pursuant to Section 5.4 of the Agreement.
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and, at the
option of the holder, registered in the name of, the transferee. The Company may
deem and treat the person in whose name this Note is registered as the holder
and
<PAGE>
owner hereof for the purpose of receiving payments and for all other purposes
whatsoever, and the Company shall not be affected by any notice to the contrary.
If an Event of Default shall occur and be continuing, this Note may,
under certain circumstances, become or be declared due and payable in the manner
and with the effect provided in the Agreement.
Certain terms and provisions of this Note may be amended or compliance
herewith waived on the terms and provisions provided for in the Agreement.
The Note is subordinated in both right of payment and time of payment
to certain Senior Indebtedness, as defined and described in Section 8 of the
Agreement.
Capitalized terms used herein without definition shall have the
meaning set forth for such terms in the Agreement.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By:__________________________________
Name:
Title:
2
<PAGE>
ANNEX B
FORM OF OPINION OF COMPANY COUNSEL
1. The Company and each of its Subsidiaries are corporations duly
organized and validly existing in good standing under the laws of their
respective jurisdictions of incorporation.
2. The Company and each of its Subsidiaries have all requisite power
and authority to own or hold under lease the properties it purports so to own or
hold except where the failure so to own or hold could not have a Material
Adverse Effect and to transact their respective businesses as now transacted and
proposed to be transacted.
3. The Company and each of its Subsidiaries are duly qualified as
foreign corporations and are in good standing in each jurisdiction in which the
character of the properties owned or held under lease by them or the nature of
the business transacted by them requires such qualification, except where the
failure so to be qualified or be in good standing could not have a Material
Adverse Effect.
4. The Company has taken all actions necessary to authorize it (i) to
execute, deliver and perform all of its obligations under the Agreement, the
Registration Rights Agreement and the Commitment Letter, (ii) to issue and
perform all of its obligations under the Notes and (iii) to consummate the
transactions contemplated hereby and thereby.
5. The total number of shares of Capital Stock which the Company has
authority to issue is 30,000,000 shares, consisting of 25,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock.
6. As of March 30, 1998, there were 4,633,000 shares of Common Stock
issued and outstanding, and 1,666,667 shares of Preferred Stock issued and
outstanding. Such shares of Common Stock and Preferred Stock have been duly
authorized and were validly issued, are fully paid and nonassessable, were
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities of the Company.
7. Neither the Company nor any of its Subsidiaries has outstanding any
securities convertible into or exchangeable for any shares of Capital Stock nor
does it have outstanding any rights to subscribe for or to purchase, or any
options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, any Capital Stock or securities convertible into or
exchangeable for any Capital Stock other than (i) the Notes to be issued
pursuant to the Agreement or pursuant to other similar agreements dated on or
about the date of this Agreement, (ii) 1,666,667 shares of Preferred Stock
convertible into Common Stock, and (iii) options and
<PAGE>
warrants to purchase shares of Common Stock as set forth and for the numbers of
shares set forth in the Disclosure Schedule to the Agreement.
8. The Company has duly authorized and reserved for issuance the
Conversion Shares, and the Conversion Shares will, when issued, be duly and
validly issued, fully paid and nonassessable and free from all Liens.
9. Neither the execution or delivery of the Agreement, the
Registration Rights Agreement or the Commitment Letter by the Company nor the
issuance, sale or delivery of the Notes nor the performance of its respective
obligations hereunder or thereunder will:
(a) violate any provision of the Charter Documents of the
Company;
(b) violate any statute, law, rule or regulation or any judgment,
decree, order, regulation or rule of any court or governmental authority to
which the Company, any of its Subsidiaries, or any of their respective
properties may be subject;
(c) permit or cause the acceleration of the maturity of any debt
or obligation of the Company or any of its Subsidiaries;
(d) violate, or be in conflict with, or constitute a default
under, or permit the termination of, or require the consent of any Person under,
or result in the creation of any Lien upon any property of the Company or any of
its Subsidiaries under, any mortgage, indenture, loan agreement, note, debenture
or other agreement for borrowed money or any other material agreement to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries (or their respective properties) may be bound, other than
such violations, conflicts, defaults, terminations and Liens, or such failures
to obtain consents, which could not reasonably be expected to result in a
Material Adverse Effect.
10. The sale of the Notes hereunder is exempt from the registration
and prospectus delivery requirements of the Securities Act.
11. Neither the Company nor any of its Subsidiaries is an "investment
company" or a Person directly or indirectly "controlled" by or acting on behalf
of an "investment company" within the meaning of the United States Investment
Company Act of 1940, as amended.
2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS (A) SUCH TRANSFER IS PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE
COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER
THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT, THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE SECURITIES
LAWS.
REGENT ASSISTED LIVING, INC.
CONVERTIBLE SUBORDINATED NOTE DUE MARCH 31, 2008
Issue Date: March 31, 1998
Note No. 1998-1 $4,000,000
FOR VALUE RECEIVED, the undersigned, REGENT ASSISTED LIVING, INC., a
corporation organized and existing under the laws of Oregon (herein called the
"Company"), hereby promises to pay to the order of LTC EQUITY HOLDING COMPANY,
INC. or registered assigns ("Holder"), the principal sum of FOUR MILLION DOLLARS
(or so much thereof as shall remain outstanding) on March 31, 2008. Payments are
to be made as provided in the Agreement (as defined herein).
This Note is one of the Notes issued pursuant to the Convertible
Subordinated Note Purchase Agreement dated as of March 30, 1998 (the
"Agreement"), by and between the Company and LTC Equity Holding Company, Inc., a
Nevada corporation, and is also entitled to the benefits thereof to the extent
provided in the Agreement. This Note is subject to (i) conversion, in whole or
in part, at the option of the Holder, pursuant to Section 6.1(a) of the
Agreement, (ii) conversion, in whole but not in part, at the option of the
Company upon the satisfaction of certain conditions pursuant to Section 6.1(b)
of the Agreement and (iii) repurchase, in whole or in part, upon a Change of
Control pursuant to Section 5.4 of the Agreement.
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and, at the
option of the holder, registered in the name of, the transferee. The Company may
deem and treat the person in whose name this Note is registered as the holder
and owner hereof for the purpose of receiving payments and for all other
purposes whatsoever, and the Company shall not be affected by any notice to the
contrary.
If an Event of Default shall occur and be continuing, this Note may,
under certain circumstances, become or be declared due and payable in the manner
and with the effect provided in the Agreement.
Certain terms and provisions of this Note may be amended or compliance
herewith waived on the terms and provisions provided for in the Agreement.
The Note is subordinated in both right of payment and time of payment
to certain Senior Indebtedness, as defined and described in Section 8 of the
Agreement.
Capitalized terms used herein without definition shall have the
meaning set forth for such terms in the Agreement.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By: WALTER C. BOWEN
-------------------------------------
Walter C. Bowen
President
-------------------------------------------------------------------
REGENT ASSISTED LIVING, INC.
and
ANDRE C. DIMITRIADIS
$160,000 Principal Amount
of
7.5% Convertible Subordinated Notes Due March 31, 2008
CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT
------------------------------------------------------------------
Dated as of March 30, 1998
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. PURCHASE AND SALE OF NOTES..... ....................................1
1.1. Issue of Notes...................................................1
1.2. Purchase and Sale of Notes.......................................1
1.3. Maintenance of Note Register.....................................2
1.4. Issue Taxes......................................................2
1.5. Direct Payment...................................................3
1.6. Lost, Etc. Notes.................................................3
SECTION 2. CLOSING CONDITIONS..................................................4
2.1. Delivery of Documents............................................4
2.2. Delivery of Other Agreements.....................................5
2.3. Representations and Warranties, Agreements and Covenants.........5
2.4. No Event of Default..............................................6
2.5. Proceedings Satisfactory.........................................6
2.6. Consents and Permits.............................................6
2.7. No Material Adverse Change.......................................6
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................6
3.1. Organization; Power and Authority................................6
3.2. Authorization....................................................7
3.3. Capital Stock....................................................7
3.4. No Other Registration Rights.....................................7
3.5. No Violation or Conflict; No Default.............................8
3.6. Margin Regulations...............................................8
3.7. Private Offering.................................................8
3.8. Due Authorization of Material Contracts..........................9
3.9. Financial Statements.............................................9
3.10. Litigation; Judgments..........................................10
3.11. Taxes..........................................................10
i
<PAGE>
3.12. Investment Company Act.........................................10
3.13. Environmental Matters..........................................10
3.14. Labor Relations................................................11
3.15. Real Property; Leases..........................................11
3.16. Intellectual Property; Licenses................................11
3.17. Defaults.......................................................12
3.18. Brokers........................................................12
3.19. Existing Indebtedness..........................................12
3.20. Compliance with Law; Permits...................................13
3.21. Insurance......................................................13
3.22. Material Events................................................13
3.23. SEC Documents; Undisclosed Liabilities.........................14
3.24. Material Misstatements or Omissions............................15
3.25. Survival of Representations and Warranties.....................15
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER...................15
4.1. Purchase for Own Account........................................15
4.2. Accredited Investor.............................................16
4.3. Authorization...................................................16
4.4. Brokers.........................................................16
SECTION 5. COVENANTS..........................................................16
5.1. Payment of Notes; Satisfaction of Obligations...................16
5.2. Notice of Default...............................................17
5.3. Limitation on Additional Indebtedness...........................17
5.4. Change of Control...............................................17
5.5. Stay, Extension and Usury Laws..................................18
5.6. Indemnification.................................................19
5.7. Corporate Existence; Merger; Successor Corporation..............20
5.8. Taxes...........................................................21
5.9. Investment Company Act..........................................21
5.10. Insurance......................................................22
ii
<PAGE>
5.11. Inconsistent Agreements........................................22
5.12. Compliance with Laws...........................................22
5.13. Inspection of Properties and Records...........................22
SECTION 6. CONVERSION OF NOTES................................................23
6.1. Conversion......................................................23
6.2. Conversion Rate.................................................24
6.3. Fractional Shares...............................................24
6.4. Adjustments for Stock Splits, Combinations and Dividends........24
6.5. Reorganization, Mergers, Consolidations or Sales of Assets......25
6.6. Sale of Shares Below Market or Conversion Price.................25
6.7. Adjustment for Failure to Quote on Nasdaq National Market.......27
6.8. Accountants' Certificate of Adjustment..........................27
6.9. Reservation of Shares Issuable Upon Conversion..................27
6.10. No Impairment..................................................28
SECTION 7. DEFAULTS AND REMEDIES..............................................28
7.1. Events of Default...............................................28
7.2. Acceleration of Notes...........................................29
7.3. Other Remedies..................................................29
SECTION 8. SUBORDINATION......................................................30
8.1. Notes Subordinated to Senior Indebtedness.......................30
8.2. Company Not to Make Payments with Respect to Notes in
Certain Circumstances...........................................30
8.3. Subrogation of Notes............................................32
8.4. No Impairment of Subordination..................................32
8.5. Section 8 Not to Prevent Events of Default......................32
8.6. Securities Senior to Subordinated Indebtedness..................32
8.7. Assignment of Junior Claims.....................................33
SECTION 9. AMENDMENTS AND WAIVERS.............................................33
9.1. With Consent of Holders.........................................33
9.2. Revocation and Effect of Consents...............................34
iii
<PAGE>
9.3. Notation on or Exchange of Notes................................35
SECTION 10. DEFINITIONS.......................................................35
10.1. Definitions....................................................35
10.2. Rules of Construction..........................................44
SECTION 11. MISCELLANEOUS.....................................................45
11.1. Notices........................................................45
11.2. Undertaking for Costs..........................................45
11.3. Successors and Assigns.........................................46
11.4. Counterparts...................................................46
11.5. Headings.......................................................46
11.6. Governing Law..................................................46
11.7. Entire Agreement...............................................46
11.8. Severability...................................................46
11.9. Transfer.......................................................46
iv
<PAGE>
CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT
This CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT, is dated as of
March 30, 1998 (this "Agreement"), and entered into by and between REGENT
ASSISTED LIVING, INC., an Oregon corporation (the "Company") and ANDRE C.
DIMITRIADIS, an individual (the "Purchaser").
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in Section 10.1 hereof.
In consideration of the premises, mutual covenants and agreements
hereinafter contained and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Company agrees as follows:
SECTION 1. PURCHASE AND SALE OF NOTES
1.1. Issue of Notes
On or before the Closing,
(a) The Company will have authorized the issue and sale of $160,000
aggregate principal amount of its 7.5% Convertible Subordinated Notes due March
31, 2008 (the "Notes") to the Purchaser, to be substantially in the form
attached hereto as Annex A.
(b) The Notes shall be substantially in the form attached hereto as
Annex A, including such other notations, legends or endorsements set forth
therefor or required by law. The Notes shall be dated the date of their
issuance. The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Agreement and, to the extent
applicable, the Company and the Purchaser, by their execution and delivery of
this Agreement, expressly agree to such terms and provisions and to be bound
thereby.
1.2. Purchase and Sale of Notes
(a) Purchase and Sale. The Company agrees to sell and, subject to the
terms and conditions set forth herein and in the Registration Rights Agreement
and in reliance on the representations and warranties of the Company contained
or incorporated herein, the Purchaser agrees to purchase the Notes for an
aggregate purchase price of $160,000.
(b) Closing. The purchase and sale of the Notes referred to in Section
1.2(a)(1) shall take place at a closing (the "Closing") at the offices of Latham
& Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, California at 2:00
p.m. on March 30, 1998 (the "Closing Date"). At the Closing, the Company will
deliver to the Purchaser the Notes to be purchased by the Purchaser (in such
permitted denomination or denominations and registered in the Purchaser's name
or the name of such nominee or nominees as the Purchaser may request) on the
Closing Date, dated the Closing Date, against payment of the purchase price
therefor by
<PAGE>
intra-bank or federal funds bank wire transfer of same day funds to such bank
account as the Company shall designate at least two Business Days prior to the
Closing.
(c) Fees and Expenses. Whether or not the Notes are sold, the Company
agrees to pay or reimburse all expenses relating to this Agreement, including
but not limited to:
(1) the reasonable fees and other expenses of the Purchaser's
counsel, Latham & Watkins, in connection herewith (not to exceed $50,000 in the
aggregate, relating to this Agreement and similar agreements dated on or about
the date of this Agreement);
(2) any reasonable out-of-pocket fees and expenses (including the
reasonable fees and expenses of counsel) in connection with any registration or
qualification of the Notes required in connection with the offer and sale of the
Notes at the Closing pursuant to this Agreement under the securities or "blue
sky" laws of any jurisdiction requiring such registration or qualification or in
connection with obtaining any exemptions from such requirements; and
(3) the Purchaser's reasonable out-of-pocket expenses (including
the reasonable fees and expenses of counsel) relating to any amendment, or
modification of, or any waiver, or consent or preservation of rights under this
Agreement, the Notes, the Registration Rights Agreement and any other documents
contemplated hereby or thereby.
Purchaser may deduct such expenses from the purchase price of the
Notes; provided that the Purchaser agrees to provide the Company with a
statement describing any amounts to be so paid at least one Business Day prior
to the Closing.
1.3. Maintenance of Note Register
The Company shall cause to be kept at its principal office a register
for the registration and transfer of the Notes (the "Note Register"). The names
and addresses of the Holders of Notes, the transfer of Notes, and the names and
addresses of the transferees of the Notes shall be registered in the Note
Register.
The Person in whose name any registered Note shall be registered shall
be deemed and treated as the owner and holder thereof for all purposes of this
Agreement and the Company shall not be affected by any notice to the contrary,
until due presentment of such Note for registration of transfer so provided in
this Section 1.3. Payment of or on account of the principal and interest on any
registered Notes shall be made to or upon the written order of such registered
holder.
1.4. Issue Taxes
The Company agrees to pay all taxes owed by or on behalf of the
Company in connection with the issuance, sale, delivery or transfer by the
Company to the Purchaser of the Notes and the execution and delivery of the
agreements and instruments contemplated hereby and any modification of any of
such Notes, agreements and instruments and will save the
2
<PAGE>
Purchaser harmless without limitation as to time against any and all liabilities
with respect to all such taxes. The Purchaser agrees to pay all taxes owed by or
on behalf of the Purchaser in connection with the issuance, sale, delivery or
transfer by the Company to the Purchaser of the Notes and the execution and
delivery of the agreements and instruments contemplated hereby and any
modification of any of such Notes, agreements and instruments and will save the
Company harmless without limitation as to time against any and all liabilities
with respect to all such taxes. The obligations of the Company and the Purchaser
under this Section 1.4 shall survive the payment or prepayment of the Notes and
the termination of this Agreement.
1.5. Direct Payment
(a) The Company will pay or cause to be paid all amounts payable with
respect to any Note (without any presentment of such Note and without any
notation of such payment being made thereon) by crediting (before 11:00 a.m.,
Pacific time), by federal funds bank wire transfer to each Holder's account in
any bank in the United States as may be designated and specified in writing by
such Holder at least two Business Days prior thereto.
(b) Notwithstanding anything to the contrary contained in the Notes,
if any principal amount payable with respect to a Note is payable on a Legal
Holiday, then the Company shall pay such amount on the next succeeding Business
Day, and interest shall accrue on such amount until the date on which such
amount is paid and payment of such accrued interest shall be made concurrently
with the payment of such amount, provided that the Company may elect to pay in
full (but not in part) any such amount on the last Business Day prior to the
date such payment otherwise would be due, and no such additional interest shall
accrue on such amount. Notwithstanding anything to the contrary contained in the
Notes, if any interest payable with respect to a Note is payable on a Legal
Holiday, then the Company shall pay such interest on the next succeeding
Business Day, and such extension of time shall be included in the computation of
the interest payment, provided that the Company may elect to pay in full (but
not in part) any such interest on the last Business Day prior to the date such
payment otherwise would be due, and such diminution in time may, at the
Company's option, be included in the computation of the interest payment.
1.6. Lost, Etc. Notes
Notwithstanding any provision to the contrary, if any Note of which
the Purchaser or any other Holder (or nominee thereof) which is a transferee is
the owner is mutilated, destroyed, lost or stolen, then the affidavit of the
Purchaser or such Holder, if an individual, or of the Purchaser's or such
Holder's treasurer or assistant treasurer (or other authorized officer), if a
Person other than an individual, briefly setting forth the circumstances with
respect to such mutilation, destruction, loss or theft, shall be accepted as
satisfactory evidence thereof, and no indemnity, note or payment of charges or
expenses shall be required as a condition to the execution and delivery by the
Company or the transfer agent with respect to such Note, of new Notes for a like
aggregate principal amount or number of shares, as applicable, in substitution
therefor, other than such Purchaser's or such Holder's unsecured written
agreement reasonably
3
<PAGE>
satisfactory to indemnify the Company or the transfer agent, as the case may be,
which written agreement may be required by the Company.
SECTION 2. CLOSING CONDITIONS
The obligations of the Purchaser to purchase and pay for the Notes to
be delivered to such Purchaser at the Closing shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
2.1. Delivery of Documents
The Company shall have delivered to the Purchaser, in form and
substance reasonably satisfactory to the Purchaser, the following:
(a) The Notes being purchased by the Purchaser pursuant to Section
1.2(a)(1), duly executed by the Company, in the aggregate principal amount of
$160,000.
(b) An opinion, dated the Closing Date and addressed to the Purchaser,
from David R. Gibson, counsel for the Company, as to the matters set forth on
Annex B.
In rendering such opinion, such counsel may rely as to factual matters
upon certificates or other documents furnished by officers and directors of the
Company (copies of which shall be delivered to the Purchaser) and by government
officials, and upon such other documents as such counsel reasonably deems
appropriate as a basis for its opinion. Such counsel shall opine as to the
federal laws of the United States, the laws of the State of Oregon.
(c) Resolutions of the Board of Directors of the Company, certified by
the Secretary or Assistant Secretary, to be duly adopted and in full force and
effect on the Closing Date, authorizing (i) the execution, delivery and
performance of this Agreement, the Registration Rights Agreement and the
Commitment Letter and the consummation of transactions contemplated hereby and
thereby, (ii) the issuance of the Notes to be purchased by the Purchaser and
(iii) specific officers to execute and deliver this Agreement, the Notes, the
Registration Rights Agreement and the Commitment Letter.
(d) Certificates executed by any two executive officers of the
Company, dated the Closing Date, certifying (i) that all of the conditions set
forth in Section 2 of this Agreement are satisfied on and as of such date, (ii)
that all of the representations and warranties of the Company contained or
incorporated by reference herein that (A) are qualified as to materiality are
true and correct on and as of such date as though made on and as of such date
and that (B) are not qualified as to materiality are true and correct in all
material respects on and as of such date as though made on and as of such date,
and no event has occurred and is continuing, or would result from the issuance
of the Notes or the extension of borrowings under the Commitment Letter, which
constitutes or would constitute a Default or an Event of Default and (iii) as to
such other matters as the Purchaser may request in the exercise of its
reasonable discretion.
4
<PAGE>
(e) Governmental certificates, dated the most recent practicable date
but in no event more than thirty (30) calendar days prior to the Closing Date
showing that the Company was incorporated under the Oregon Business Corporation
Act, is active on the records of the Corporation Division and is qualified as a
foreign corporation and in good standing in all other jurisdictions in which it
is qualified to transact business, except where the failure to be so qualified
would not have a Material Adverse Effect.
(f) Copies of each consent, license and approval required in
connection with the execution, delivery and performance by the Company of this
Agreement, the Notes, the Registration Rights Agreement and the Commitment
Letter and the consummation of the transactions contemplated hereby and thereby.
(g) Copies of the Charter Documents of the Company, certified as of a
recent date but in no event more than thirty (30) calendar days prior to the
Closing Date by the Secretary of State of the State of Oregon and certified by
the Secretary or Assistant Secretary of the Company (or person possessing
comparable authority of the Company), as true and correct on and as of the
Closing Date.
(h) Certificates of the Secretary or an Assistant Secretary of the
Company as to the incumbency and signatures of the officers or representatives
of such entity executing this Agreement, the Notes, the Registration Rights
Agreement, the Commitment Letter and any other certificate or other document to
be delivered pursuant hereto or thereto on the Closing Date, together with
evidence of the incumbency of such Secretary or Assistant Secretary;
(i) Copies of all agreements associated with or entered into in
connection with the investment of Prudential Private Equity Investors III, L.P.
in the Company's Preferred Stock and if requested by the Purchaser prior to the
Closing Date, copies of all lease agreements to which the Company is a party.
2.2. Delivery of Other Agreements
The Company shall have executed and delivered the Registration Rights
Agreement and the Commitment Letter.
2.3. Representations and Warranties, Agreements and Covenants
All of the representations and warranties of the Company contained
herein that (A) are qualified as to materiality shall be true and correct on and
as of the Closing Date, except to the extent any representation or warranty
expressly relates to an earlier date and that (B) are not qualified as to
materiality are true and correct in all material respects on and as of the
Closing Date, except to the extent any representation or warranty expressly
relates to an earlier date. The Company shall have performed or complied with
all agreements, covenants and conditions contained herein and in the
Registration Rights Agreement and the Commitment Letter which are required to be
performed or complied with by the Company on or before the Closing Date.
5
<PAGE>
2.4. No Event of Default
No event shall have occurred and be continuing, or would result from
the purchase of the Notes or the extension of borrowings pursuant to the
Commitment Letter, which constitutes or would constitute a Default or an Event
of Default.
2.5. Proceedings Satisfactory
All proceedings taken in connection with the sale of the Notes, the
transactions contemplated hereby, and all documents and papers relating thereto,
shall be reasonably satisfactory to the Purchaser. The Purchaser and its counsel
shall have received copies of such documents and papers as they may reasonably
request in connection therewith, all in form and substance satisfactory to the
Purchaser. Any document annexed to this Agreement or any other document
contemplated by this Agreement not approved by the Purchaser in writing as to
form and substance on the date this Agreement is executed shall be satisfactory
in form and substance to the Purchaser.
2.6. Consents and Permits
The Company shall have received all consents, approvals, and
authorizations and sent or made all notices, filings, registrations and
qualifications required for the issuance of the Notes, all of which are
disclosed on the Disclosure Schedule.
2.7. No Material Adverse Change
Since the date of this Agreement, neither the Company nor any of its
Subsidiaries shall have suffered any material adverse change in its properties,
business, prospects, operations, earnings, assets, liabilities or condition
(financial or otherwise) which would reasonably likely to result in a Material
Adverse Effect.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule attached to this
Agreement (each scheduled item contained therein referencing the Section of this
Agreement that it qualifies), the Company represents and warrants as follows:
3.1. Organization; Power and Authority
The Company and each of its Subsidiaries are corporations duly
organized and validly existing in good standing under the laws of their
respective jurisdictions of incorporation. The Company and each of its
Subsidiaries have all requisite power and authority to own or hold under lease
the properties it purports so to own or hold except where the failure so to own
or hold could not have a Material Adverse Effect and to transact their
respective businesses as now transacted. The Company and each of its
Subsidiaries are duly qualified as foreign corporations and are in good standing
in each jurisdiction in which the character of the properties owned or held
under lease by them or the nature of the business transacted by them requires
such
6
<PAGE>
qualification, except where the failure so to be qualified or be in good
standing could not have a Material Adverse Effect.
3.2. Authorization
The Company has taken all actions necessary to authorize it (i) to
execute, deliver and perform all of its obligations under this Agreement, the
Registration Rights Agreement and the Commitment Letter, (ii) to issue and
perform all of its obligations under the Notes and (iii) to consummate the
transactions contemplated hereby and thereby. Each of this Agreement, the Notes,
the Registration Rights Agreement, and the Commitment Letter is a legally valid
and binding obligation of the Company, enforceable against it in accordance with
its terms, except for (a) the effect thereon of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting the
rights of creditors generally and (b) limitations imposed by federal or state
law or equitable principles upon the specific enforceability of any of the
remedies, covenants or other provisions thereof and upon the availability of
injunctive relief or other equitable remedies.
3.3. Capital Stock
The total number of shares of Capital Stock which the Company has
authority to issue is 30,000,000 shares, consisting of 25,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock. The Company has the power
and authority and has taken all actions (corporate or other) necessary to
authorize it to enter into and perform its obligations and undertakings under
this Agreement. As of March 30, 1998, there were 4,633,000 shares of Common
Stock issued and outstanding, and 1,666,667 shares of Preferred Stock issued and
outstanding. Such shares of Common Stock and Preferred Stock have been duly
authorized and were validly issued, are fully paid and nonassessable, were
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities of the Company. Neither the Company nor any of its
Subsidiaries has outstanding any securities convertible into or exchangeable for
any shares of Capital Stock nor does it have outstanding any rights to subscribe
for or to purchase, or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to, any Capital Stock or
securities convertible into or exchangeable for any Capital Stock other than (i)
the Notes to be issued pursuant to this Agreement or pursuant to other similar
agreements dated on or about the date of this Agreement, (ii) 1,666,667 shares
of Preferred Stock convertible into Common Stock, and (iii) options and warrants
to purchase shares of Common Stock as set forth and for the numbers of shares
set forth on the Disclosure Schedule. The Company has duly authorized and
reserved for issuance the Conversion Shares, and the Conversion Shares will,
when issued, be duly and validly issued, fully paid and nonassessable and free
from all Liens.
3.4. No Other Registration Rights
Except for the Notes to be issued in connection with the transactions
contemplated by this Agreement or pursuant to other similar agreements dated on
or about the date of this Agreement, there are no contracts, agreements or
understandings between the
7
<PAGE>
Company and any other Person granting such Person the right to require the
Company to file a registration statement under the Securities Act with respect
to any securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities registered
pursuant to any other registration statement filed by the Company under the
Securities Act.
3.5. No Violation or Conflict; No Default
Neither the execution or delivery of this Agreement, the Registration
Rights Agreement or the Commitment Letter by the Company nor the issuance, sale
or delivery of the Notes nor the performance of its respective obligations
hereunder or thereunder will:
(a) violate any provision of the Charter Documents of the
Company;
(b) violate any statute, law, rule or regulation or any judgment,
decree, order, regulation or rule of any court or governmental authority to
which the Company, any of its Subsidiaries, or any of their respective
properties may be subject;
(c) permit or cause the acceleration of the maturity of any debt
or obligation of the Company or any of its Subsidiaries;
(d) violate, or be in conflict with, or constitute a default
under, or permit the termination of, or require the consent of any Person under,
or result in the creation of any Lien upon any property of the Company or any of
its Subsidiaries under, any mortgage, indenture, loan agreement, note, debenture
or other agreement for borrowed money or any other material agreement to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries (or their respective properties) may be bound, other than
such violations, conflicts, defaults, terminations and Liens, or such failures
to obtain consents, which could not reasonably be expected to result in a
Material Adverse Effect.
3.6. Margin Regulations
No part of the proceeds from the sale of the Notes hereunder will be
used, directly or indirectly, for the purpose of buying or carrying any "margin
stock" within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System (12 C.F.R. ss. 207), or for the purpose of buying or
carrying or trading in any securities under such circumstances as to involve the
Company in a violation of Regulation X of said Board (12 C.F.R. ss. 224) or to
involve any broker or dealer in a violation of Regulation T of said Board (12
C.F.R. ss. 220). The assets of the Company and its Subsidiaries do not include
any margin stock, and the Company does not have any present intention of
acquiring margin stock.
3.7. Private Offering
The sale of the Notes hereunder is exempt from the registration and
prospectus delivery requirements of the Securities Act. In the case of each
offer or sale of the Notes, no
8
<PAGE>
form of general solicitation or general advertising was used by the Company or
its respective representatives.
The Company agrees that neither it, nor anyone acting on its behalf,
will offer or sell the Notes, or any portion of them, if such offer or sale
might bring the issuance and sale of the Notes to the Purchaser within the
provisions of Section 5 of the Securities Act nor offer any similar Notes for
issuance or sale to, or solicit any offer to acquire any of the same from, or
otherwise approach or negotiate with respect thereto with, anyone if the sale of
the Notes and any such Notes could be integrated as a single offering for the
purposes of the Securities Act, including without limitation Regulation D.
3.8. Due Authorization of Material Contracts
The descriptions in the Incorporated Documents of statutes, legal and
governmental proceedings or contracts or other documents are accurate in all
material respects and fairly present the information required to be shown at the
time shown; and there are no statutes or legal or governmental proceedings
required to be described in the Incorporated Documents that are not described as
required and there is no document or contract of a character required to be
described in the Incorporated Documents or to be filed as an exhibit to the
Incorporated Documents which is not described or filed as required. All
contracts described in the Incorporated Documents or filed as an exhibit to the
Incorporated Documents to which the Company or any of its Subsidiaries is a
party have been duly authorized, executed and delivered by the Company or such
Subsidiary, constitute valid and binding agreements of the Company or such
Subsidiary and are enforceable against and by the Company or such Subsidiary in
accordance with the terms thereof, except as the enforcement thereof may be
limited by bankruptcy and laws relating to the rights and remedies of the
creditors generally or by the availability of general equitable remedies.
3.9. Financial Statements
The financial statements and schedules of the Company and its
consolidated subsidiaries included in the Incorporated Documents comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, present fairly
the financial condition of the Company and its consolidated subsidiaries, as of
the respective dates thereof and the results of operations and cash flows of the
Company and its consolidated subsidiaries, for the respective periods covered
thereby, all in conformity with GAAP (except in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position of the Company
and its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments). No
other financial statements or schedules of the Company and its consolidated
subsidiaries or any other company or entity are required by the Securities Act,
the Exchange Act or the rules and regulations of the SEC to be included in the
Incorporated Documents. The Independent Auditors, who have reported on certain
of such
9
<PAGE>
financial statements and schedules, are, and were during the periods covered by
their reports included in the Incorporated Documents, independent accountants
with respect to the Company and its consolidated subsidiaries, as required by
the Securities Act, the Exchange Act and the rules and regulations of the SEC.
The summary financial and statistical data included in the Incorporated
Documents present fairly the information shown therein and have been compiled on
a basis consistent with the financial statements presented therein. The
unaudited consolidated financial statements included in the Incorporated
Documents comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, the Exchange Act and the rules
and regulations of the SEC, and such statements fairly present the consolidated
financial position and results of operations and the other information purported
to be shown therein at the respective dates or for the respective periods
therein specified.
3.10. Litigation; Judgments
Except as described in the Incorporated Documents, there are no
actions, suits or proceedings (formal or informal) pending or, to the Knowledge
of the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties, assets, or directors or
officers, in their capacity as such, before or by any Federal or state court,
commission, regulatory body, administrative agency or other governmental body,
domestic or foreign, wherein an unfavorable ruling, decision or finding might
reasonably be expected to, individually or in the aggregate, and after giving
effect to the sale and issuance of the Notes, result in a Material Adverse
Effect.
3.11. Taxes
Each of the Company and its Subsidiaries has filed all federal, state,
local and foreign income tax returns which have been required to be filed and
has paid all taxes and assessments received by it to the extent that such taxes
have become due. None of the Company nor its Subsidiaries has any tax deficiency
which has been or might be asserted or threatened against it which could
reasonably be expected to result in a Material Adverse Effect.
3.12. Investment Company Act
Neither the Company nor any of its Subsidiaries is an "investment
company" or a Person directly or indirectly "controlled" by or acting on behalf
of an "investment company" within the meaning of the United States Investment
Company Act of 1940, as amended.
3.13. Environmental Matters
The operations of the Company and its Subsidiaries with respect to any
real property currently leased, owned, controlled or managed by the Company or
any of its Subsidiaries are, and with respect to any real property previously
leased, owned, managed or controlled were, when such real property was leased,
owned, managed or controlled by the Company or any of its Subsidiaries, in
compliance in all material respects with all applicable federal, state, and
local laws, ordinances, rules, and regulations relating to occupational health
and safety and the environment (collectively, "Environmental Laws"), and the
Company and its
10
<PAGE>
Subsidiaries have all material licenses, permits and authorizations required
under all Environmental Laws; neither the Company nor any of its Subsidiaries
has authorized or conducted or has knowledge of the generation, transportation,
storage, use, treatment, disposal or release of any hazardous substance,
hazardous waste, hazardous material, hazardous constituent, toxic substance,
pollutant, contaminant, petroleum product, natural gas, liquefied gas or
synthetic gas defined or regulated under any Environmental Law on, in or under
any real property currently leased, owned, controlled or managed by the Company
or any of its Subsidiaries or previously leased, owned, controlled or managed by
the Company or any of its Subsidiaries when such real property was owned,
leased, controlled or managed by the Company or any of its Subsidiaries, except
in compliance with applicable Environmental Laws; and there is not pending or,
to the Knowledge of the Company, any threatened claim, litigation or any
administrative agency proceeding, nor has the Company or any of its Subsidiaries
received any written or oral notice from any governmental entity or third party,
that: (i) alleges a violation of any Environmental Laws by the Company or any of
its Subsidiaries; (ii) alleges the Company or any of its Subsidiaries is a
liable party under CERCLA or any state superfund law; (iii) alleges possible
contamination of the environment by the Company or any of its Subsidiaries; or
(iv) alleges possible contamination of real property currently leased, owned,
controlled or managed by the Company or any of its Subsidiaries or previously
leased, owned, controlled or managed by the Company or any of its Subsidiaries
when such real property was owned, leased, controlled or managed by the Company
or any of its Subsidiaries.
3.14. Labor Relations
No labor dispute with the employees of the Company or any of its
Subsidiaries exists or is threatened that could reasonably be expected to result
in a Material Adverse Effect; and the Company is not aware of any existing or
threatened labor disturbance by the employees of any other entity that could
reasonably be expected to result in a Material Adverse Effect.
3.15. Real Property; Leases
Each of the Company and its Subsidiaries has good and indefeasible
title to all properties and assets described in the Incorporated Documents as
owned by it, free and clear of all Liens except such as are described in the
Incorporated Documents or are not material, singly or in the aggregate, to the
Company. Each of the Company and its Subsidiaries has valid, subsisting and
enforceable leases for the properties described in the Incorporated Documents as
leased by it, except such as are described in the Incorporated Documents.
3.16. Intellectual Property; Licenses
Each of the Company and its Subsidiaries owns or has the right to use
all patents, patent applications, trademarks, trademark applications,
tradenames, copyrights, franchises, trade secrets, proprietary or other
confidential information and intangible properties and assets (collectively,
"Intangibles") reasonably necessary to conduct its business as now conducted;
and none of the Company or its Subsidiaries has any knowledge of any
infringement by it of Intangibles of others, and there is no claim being made
against the Company or any of its Subsidiaries, or to the Knowledge of the
Company, any employee of the Company or its
11
<PAGE>
Subsidiaries, regarding infringement of any Intangibles of others which could
reasonably be expected to have a Material Adverse Effect and, to the Knowledge
of the Company, there is no infringement by others of Intangibles of the Company
or any of its Subsidiaries.
3.17. Defaults
The continuation, validity and effectiveness of each contract,
agreement, arrangement or other instrument related to borrowed money (of any
amount) or involving payments in excess of $100,000 or that is material to the
Company or its Subsidiaries (each a "Material Contract") will not be adversely
affected by the execution, delivery and performance of this Agreement, the
Registration Rights Agreement, or the Commitment Letter, the issuance or sale of
the Notes, or the consummation of the transactions contemplated hereby or
thereby. The Company and its Subsidiaries are not in default in any respect, and
will not, with the giving of notice or the lapse of time, or both, be in default
in any respect, under any Material Contract upon or as a result of the
consummation of the transactions contemplated by this Agreement, the
Registration Rights Agreement or the Commitment Letter. To the Knowledge of the
Company, there is no default or claimed or purported or alleged default or state
of facts that with the giving of notice or the lapse of time, or both, would
constitute a default on the part of any party other than the Company or any of
its Subsidiaries under any Material Contract.
3.18. Brokers
The Company has not dealt with any broker, finder, commission agent or
other Person in connection with the sale of the Notes and the transactions
contemplated by this Agreement, and the Company is not under any obligation to
pay any broker's or finder's fee or commission or similar payment in connection
with such transactions.
3.19. Existing Indebtedness
The Disclosure Schedule sets forth a complete and correct list of all
Indebtedness of the Company and its Subsidiaries as of the date hereof, showing
as to each item of such Indebtedness the creditor, the aggregate principal
amount outstanding, the agreement or instrument governing such Indebtedness and
a brief description of any security therefor. With respect to each item of
Indebtedness listed on the Disclosure Schedule, the Company will deliver to the
Purchaser or its representatives, upon request, a true and complete copy of each
instrument evidencing such Indebtedness or pursuant to which such Indebtedness
was issued or secured (including each amendment, consent, waiver or similar
instrument in respect thereof), as the same is in effect on the date hereof. The
Company and its Subsidiaries are not in default in the performance or observance
in any material respect of any of the terms, covenants or conditions contained
in any instrument evidencing Indebtedness listed on the Disclosure Schedule or
pursuant to which such Indebtedness was issued or secured or has requested any
waiver in respect of any default and no event has occurred and is continuing
which, with notice or the lapse of time or both, would constitute such a
default.
12
<PAGE>
3.20. Compliance with Law; Permits
(a) The Company and its Subsidiaries own or possess all
authorizations, approvals, orders, licenses, registrations, other certificates
and permits of and from all governmental regulatory officials and bodies,
necessary to conduct their respective businesses except where the failure to own
or possess all such authorizations, approvals, orders, licenses, registrations,
other certificates and permits would not have a Material Adverse Effect. There
is no proceeding pending or, to the Knowledge of the Company, threatened (or any
basis therefor known to the Company) which may cause any such authorization,
approval, order, license, registration, certificate or permit to be revoked,
withdrawn, canceled, suspended or not renewed; and the Company and its
Subsidiaries are conducting their respective business in compliance with all
laws, rules and regulations applicable thereto except where such noncompliance
could not reasonably be expected to result in a Material Adverse Effect.
(b) Neither the nature of the Company nor of any of its businesses or
properties, nor any relationship between the Company and any other Person, nor
any circumstance in connection with the offer, issuance, sale or delivery of the
Notes at the Closing, nor the performance by the Company of its other
obligations hereunder or under the Notes, the Registration Rights Agreement or
the Commitment Letter, as the case may be, is such as to require a consent,
approval or authorization of, or notice to, or filing, registration or
qualification with, any governmental authority or other Person on the part of
the Company as a condition to the execution and delivery of this Agreement, the
Registration Rights Agreement, the Commitment Letter or the offer, issuance,
sale or delivery of the Notes at the Closing, other than the filings,
registrations, qualifications or consents which shall have been made or obtained
on the Closing Date (and copies of which shall have been delivered to the
Purchaser). All required consents, approvals or authorizations of, or notices to
or filings, registrations or qualifications with, any governmental authority or
other Person required in connection with the transactions contemplated by this
Agreement, the Notes, the Registration Rights Agreement or the Commitment Letter
have been obtained or made.
3.21. Insurance
The Company maintains, and will maintain after giving effect to the
issuance and the sale of the Notes, insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
insurance covering director and officer liability, workers compensation
liability, malpractice liability respecting the provision of assisted living
services, real and personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is and will be in full force and effect.
3.22. Material Events
Since December 31, 1997, there has not been with respect to the
Company or any of its Subsidiaries:
13
<PAGE>
(a) any material adverse change in their properties, business,
prospects, operations, earnings, assets, liabilities or condition (financial or
otherwise) which could reasonably be expected to result in a Material Adverse
Effect; or
(b) any damage, destruction or loss to the properties or assets of the
Company or any of its Subsidiaries, whether or not covered by insurance, that
has or could reasonably be expected to have a Material Adverse Effect or that in
the aggregate exceed $100,000; or
(c) any loss or waiver by the Company or any of its Subsidiaries of
any right, not in the ordinary course of business, or any material debt owed to
it; or
(d) other than the sales of assets in the ordinary course of business
(including pursuant to sale leaseback transactions), any sale, transfer or other
disposition of, or agreement to sell, transfer or otherwise dispose of, any
assets by the Company or any of its Subsidiaries in excess of $100,000 in the
aggregate, or any cancellation or agreement to cancel any debts or claims of the
Company or any of its Subsidiaries; or
(e) other than dividends payable on the currently outstanding
Preferred Stock, any declaration or setting aside or payment of any dividend
(whether in cash, property or stock) or any distribution (whether in cash,
property or stock) or other payment with respect to any of the Capital Stock of
the Company or any of its Subsidiaries, or any repurchase, purchase or other
acquisition of, or agreement to repurchase, purchase or otherwise acquire, any
of the Company's or any of its Subsidiaries' capital stock; or
(f) any amendment or termination of any contract, agreement or license
to which the Company or any of its Subsidiaries is a party or by which it is
bound, except where such amendment or termination could not be reasonably
expected to have a Material Adverse Effect; or
(g) any resignation or termination of employment of any Key Employee,
and there is no impending or threatened resignation or resignations or
termination or terminations of employment of any Key Employee; or
(h) any labor dispute (including, without limitation, any negotiation,
or request for negotiation, for any labor representation or any labor contract)
affecting the Company or any of its Subsidiaries; or
(i) any application of any existing (or the enactment of any new)
Environmental Law or personnel, product safety law or other governmental
regulation that has or which could reasonably be expected to have a Material
Adverse Effect.
3.23. SEC Documents; Undisclosed Liabilities
The Company has been subject to the reporting requirements of Section
13 of the Exchange Act since at least January 1, 1996 and, except as set forth
in any Company SEC Document, has timely filed all required reports, schedules,
forms, statements and other
14
<PAGE>
documents required to be filed by the Company under the Securities Act and the
Exchange Act with the SEC since January 1, 1996 (the "Company SEC Documents").
As of their respective dates, the Company SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Company SEC Documents, and none of the Company SEC Documents
at the time filed with the SEC contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. Except to the extent that information
contained in any Company SEC Document has been revised or superseded by a later
filed Company SEC Document, none of the Company SEC Documents contains any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
3.24. Material Misstatements or Omissions
No representation or warranty by the Company contained in this
Agreement (including the schedules and exhibits attached hereto), the
Registration Rights Agreement, the Commitment Letter or in any document,
exhibit, statement, certificate or schedule dated the Closing Date, signed by
the Company and furnished to the Purchaser pursuant hereto, or in connection
with the transactions contemplated hereunder, contains or will contain any
untrue statement of a material fact, or omits or will omit to state any material
fact necessary to make the statements or facts contained herein and therein not
misleading.
3.25. Survival of Representations and Warranties
All of the Company's representations and warranties hereunder and
under the Registration Rights Agreement and the Commitment Letter shall survive
the execution and delivery of the same, any investigation by the Purchaser and
the issuance of the Notes.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER
The Purchaser represents and warrants to the Company that:
4.1. Purchase for Own Account
The Purchaser is purchasing the Notes to be purchased by it solely for
its own account and not as nominee or agent for any other person and not with a
view to, or for offer or sale in connection with, any distribution thereof
(within the meaning of the Securities Act) that would be in violation of the
securities laws of the United States of America or any state thereof, without
prejudice, however, to its right at all times to sell or otherwise dispose of
all or any part of said Notes pursuant to a registration statement under the
Securities Act or pursuant to an exemption from the registration requirements of
the Securities Act.
15
<PAGE>
4.2. Accredited Investor
The Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; it acknowledges that the Notes have not been
registered under the Securities Act and understands that the Notes must be held
indefinitely unless they are subsequently registered under the Securities Act or
such sale is permitted pursuant to an available exemption from such registration
requirement; it is able to bear the economic risk of its investment in the
Notes; it is an "accredited investor" as defined in Regulation D promulgated
under the Securities Act; and it has been afforded access to information about
the Company and the Company's financial condition, results of operations,
business, property, management and prospects sufficient to enable it to evaluate
its investment in the Notes. The Purchaser acknowledges that it has conducted
its own analysis of the Company's financial condition and other foregoing
factors.
4.3. Authorization
This Agreement is a legally valid and binding obligation of the
Purchaser enforceable against it in accordance with its terms, except for (a)
the effect thereon of bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting the rights of creditors generally
and (b) limitations imposed by federal or state law or equitable principles upon
the specific enforceability of any of the remedies, covenants or other
provisions thereof and upon the availability of injunctive relief or other
equitable remedies.
4.4. Brokers
The Purchaser has not dealt with any broker, finder, commission agent
or other Person in connection with the sale of the Notes and the transactions
contemplated by this Agreement, and the Purchaser is not under any obligation to
pay any broker's or finder's fee or commission or similar payment in connection
with such transactions.
SECTION 5. COVENANTS
So long as any of the Notes remain unpaid and outstanding, the Company
covenants to the Holders of outstanding Notes as follows:
5.1. Payment of Notes; Satisfaction of Obligations
The Company shall pay the principal of and interest on the Notes on
the dates and in the manner provided in the Notes. To the extent lawful, the
Company shall pay interest (including interest accruing after the commencement
of any proceeding under any Bankruptcy Law) on all unpaid amounts outstanding
under the Notes (including overdue installments of principal or interest) at a
rate equal to 7.5% per annum, payable quarterly on each January 1, April 1, July
1 and October 1, beginning July 1, 1998. Such interest rate is subject to
adjustment as set forth in Section 3(b) to the Registration Rights Agreement.
16
<PAGE>
5.2. Notice of Default
The Company will deliver to the Holders, forthwith upon (i) becoming
aware of any Default or Event of Default, (ii) becoming aware of any payment
default under any other loan agreement, mortgage, indenture or instrument
referred to in Sections 7.1(d) or (iii) the receipt by the Company of any notice
of any non-monetary default under any such loan agreement, mortgage, indenture
or instrument, an Officers' Certificate specifying in reasonable detail such
Default, Event of Default or default and the nature of any remedial or
corrective action the Company proposes to take with respect thereto.
5.3. Limitation on Additional Indebtedness
None of the Company, nor any of its Subsidiaries (including without
limitation, upon the creation or acquisition of such Subsidiary) shall, directly
or indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to (collectively, "incur") any
Indebtedness after the date of this Agreement, if a Default or an Event of
Default shall have occurred and be continuing at the time or would occur as a
consequence of the incurrence of such Indebtedness.
5.4. Change of Control
(a) Change of Control. Prior to the consummation of a Change of
Control (the date of such consummation being referred to herein as the "Change
of Control Date"), the Company shall give each Holder notice describing in
reasonable detail the nature of the Change of Control (such written notice, the
"Change of Control Notice") and offering to the Purchaser the right to require
the Company to repurchase all or any part of the Notes held by the Purchaser
pursuant to the offer (the "Change of Control Repurchase Offer") at a purchase
price equal to 100% of the aggregate principal amount thereof, together with
unpaid interest to the date of repurchase (the "Change of Control Price"). The
obligation of the Company to repurchase Notes pursuant to the Change of Control
Repurchase Offer is subject to the subordination provisions of Section 8 hereof.
(b) Timing of Notice. The Change of Control Notice shall be mailed by
the Company to all Holders at their last registered address no later than
fifteen (15) Business Days prior to the Change of Control Date.
(c) Procedure. The Change of Control Notice shall state a date not
later than five (5) Business Days following the Change of Control Date for
repurchase of the Notes pursuant to the Change of Control Repurchase Offer (such
date, the "Change of Control Repurchase Date"). The Change of Control Notice,
which shall govern the terms of the Change of Control Repurchase Offer, shall
state:
(1) that the Change of Control Repurchase Offer is being
made pursuant to this Section 5.4;
17
<PAGE>
(2) the Change of Control Price and the Change of Control
Repurchase Date;
(3) that, unless the Company defaults in the payment of the
Change of Control Price, all Notes accepted for payment shall
cease to accrue interest on and after the Change of Control
Repurchase Date;
(4) that the Purchaser electing to require the Company to
repurchase any Notes will be required to surrender the Note to
the address specified in the Change of Control Notice prior to
the close of business on the Business Day preceding the Change of
Control Repurchase Date;
(5) that the Purchaser will be entitled to withdraw his or
her election to require the Company to repurchase any Notes on
the terms and conditions set forth in such Change of Control
Notice by written notice to the Company prior to the Change of
Control Repurchase Date; and
(6) that the Purchaser electing to require the Company to
repurchase any Notes in part will be issued a new Note in a
principal amount equal to the unpurchased portion of the Notes
surrendered.
Any such Change of Control Repurchase Offer shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations to the extent applicable in connection with any Change of
Control Repurchase Offer.
(d) Acceptance of Notes.
(1) On the Change of Control Repurchase Date, the Company
shall accept for payment all Notes or portions thereof validly
tendered pursuant to the Change of Control Repurchase Offer and
promptly thereafter mail or deliver to Holder of Notes accepted
for repurchase payment in the amount equal to the aggregate
Change of Control Price for such Notes, and the Company shall
execute and mail or deliver to such Holders a new Note equal in
principal amount to any unpurchased portion of the Notes
surrendered.
The Company will notify the Holders of the results of the Change of
Control Repurchase Offer on the Change of Control Repurchase Date.
5.5. Stay, Extension and Usury Laws
The Company covenants and agrees (to the extent that it may lawfully
do so) that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, and will use its best
efforts to resist any attempts to claim or take the benefit of any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of its obligations under this
Agreement or the Notes; and the Company (to the extent it may lawfully do so)
hereby expressly waives all benefit or
18
<PAGE>
advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impede the execution of any power herein granted to the
Holders, but will suffer and permit the execution of every such power as though
no such law has been enacted.
5.6. Indemnification
The Company agrees to indemnify the Purchaser and each director,
officer, employee, counsel, Agent and Affiliate of such Purchaser (collectively,
the "Indemnified Parties") against, and hold it and them harmless from, all
losses, claims, damages, liabilities, taxes, deficiencies, expenses and costs
(including diminution in value and costs of preparation and reasonable
attorneys' fees and expenses) (collectively, "Losses") incurred by it or them
(A) arising from any breach of any representation or warranty or the inaccuracy
of any representation made by the Company in or pursuant to the Agreement, the
Registration Rights Agreement or the Commitment Letter (including without
limitation any breach or inaccuracy of any representation or warranty relating
to CERCLA, any equivalent state statute or any other Environmental Law); and (B)
arising from any breach of any covenant or agreement made by the Company in or
pursuant to the Agreement, the Registration Rights Agreement or the Commitment
Letter; provided, however, that the Company shall not be required to indemnify
any Indemnified Party for any Loss that results from (x) the action of any
Indemnified Party which is finally judicially determined to have resulted from
such Indemnified Party's negligence, intentionally wrongful acts or
intentionally wrongful omissions or (y) the failure of LTC Equity Holding
Company to purchase additional Notes from the Company pursuant to Section
1.2(a)(2) hereof; provided, further, that no Indemnified Party shall be entitled
to assert a claim on account of the indemnity provided in this Section 5.6,
unless and until the aggregate amount of Losses with respect to all claims
asserted under this Section and under Section 5.6 of the purchase agreements for
the Notes executed on the date hereof by other purchasers exceeds $100,000 (in
which case the Company shall be liable for Losses in excess of such $100,000
that have accrued).
The Company agrees to reimburse any Indemnified Party promptly for all
such Losses as they are incurred by such Indemnified Party. The Company's
liability to any such Indemnified Party hereunder shall not be extinguished
solely because any other Indemnified Party is not entitled to indemnity
hereunder. The obligations of the Company under this Section 5.6 shall survive
the payment or prepayment of the Notes, at maturity, upon acceleration,
repurchase or otherwise, any transfer of the Notes by any Purchaser to any
subsequent Holder and the termination of this Agreement, the Notes, the
Registration Rights Agreement and the Commitment Letter. The indemnity provided
in this Section 5.6 will be in addition to any liability which the Company may
otherwise have, including, without limitation, under this Agreement, the Notes,
the Registration Rights Agreement and the Commitment Letter.
In case any action shall be brought against any Indemnified Party with
respect to which indemnity may be sought against the Company, such Indemnified
Party shall promptly notify the Company in writing and the Company shall, if it
so desires, assume the defense thereof, including the employment of counsel
reasonably satisfactory to such Indemnified Party and payment of all reasonable
fees and expenses. The failure to so notify the Company shall not
19
<PAGE>
affect any obligation it may have to any Indemnified Party under this Section
5.6 or otherwise unless the Company is materially adversely affected by such
failure.
Each Indemnified Party shall have the right to employ separate counsel
in such action and participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless: (i)
the Company has agreed in writing to pay such expenses; (ii) the Company has
failed to assume the defense and employ counsel; or (iii) the named parties to
any such action (including any impleaded parties) include any Indemnified Party
and the Company, and such Indemnified Party shall have been advised by outside
counsel that there may be one or more legal defenses available to it which are
inconsistent with those available to the Company; provided that, if such
Indemnified Party notifies the Company in writing that it elects to employ
separate counsel in the circumstances described in clauses (i), (ii) or (iii)
above, the Company shall not have the right to assume the defense of such action
or proceeding; provided, however, that the Company shall not, in connection with
any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be responsible hereunder for the fees and
expenses of more than one such firm of separate counsel (in addition to any
necessary local counsel), which counsel shall be designated by such Indemnified
Party. The Company shall not be liable for any settlement of any such action
effected without its written consent (which shall not be unreasonably withheld).
The Company agrees that it will not, without the Indemnified Party's prior
consent, which shall not be unreasonably withheld, settle or compromise any
pending or threatened claim, action or suit in respect of which indemnification
may be sought hereunder unless the foregoing contains an unconditional release
of the Indemnified Parties from all liability and obligation arising therefrom.
5.7. Corporate Existence; Merger; Successor Corporation
(a) The Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence in accordance
with its organizational documents and the corporate rights (charter and
statutory), licenses and franchises of the Company; provided, however, that the
Company shall not be required to preserve any such right, license or franchise,
or corporate existence if the Board of Directors of the Company shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and that the loss thereof is not adverse in any material
respect to any Holder.
(b) The Company shall not in a single transaction or through a series
of related transactions, (i) consolidate with or merge with or into any other
person, or transfer (by lease, assignment, sale or otherwise) all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to another person or group of affiliated persons or (ii) adopt a
Plan of Liquidation, unless, in either case:
(1) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or to which all or substantially all of the properties and assets of
the Company as an entirety or substantially as an entirety are transferred (or,
in the case of a Plan of Liquidation, any Person to
20
<PAGE>
which assets are transferred) (the Company or such other Person being
hereinafter referred to as the "Surviving Person") shall be a corporation
organized and validly existing under the laws of the United States, any State
thereof or the District of Columbia, and shall expressly assume, by an amendment
to this Agreement, all the obligations of the Company under the Notes and this
Agreement;
(2) immediately after and giving effect to such transaction and
the assumption contemplated by clause (1) above and the incurrence or
anticipated incurrence of any Indebtedness to be incurred in connection
therewith, (ii) the Surviving Person shall have a Consolidated Net Worth equal
to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction;
(3) immediately before and immediately after and giving effect to
such transaction and the assumption of the obligations as set forth in clause
(1) above and the incurrence or anticipated incurrence of any Indebtedness to be
incurred in connection therewith, no Default or Event of Default shall have
occurred and be continuing; and
(4) The Company shall have delivered to the Purchaser an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, transfer or adoption and such amendment to this Agreement
comply with this Section 5.7, that the Surviving Person agrees to be bound
hereby, and that all conditions precedent herein provided relating to such
transaction have been satisfied.
(c) Upon any consolidation or merger, or any transfer of assets
(including pursuant to a Plan of Liquidation) in accordance with this Section
5.7, the successor person formed by such consolidation or into which the Company
is merged or to which such transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Agreement
with the same effect as if such successor person had been named as the Company
herein; provided, however, that the Company shall not be released from the
obligations and covenants under this Agreement or under the Notes.
5.8. Taxes
The Company shall, and shall cause its Subsidiaries to, pay prior to
delinquency all material taxes, assessments and governmental levies except as
contested in good faith and by appropriate proceedings.
5.9. Investment Company Act
Neither the Company nor any of its Subsidiaries shall become an
investment company subject to registration under the Investment Company Act of
1940, as amended.
21
<PAGE>
5.10. Insurance
The Company and its Subsidiaries shall maintain liability, casualty
and other insurance with a reputable insurer or insurers in such amounts and
against such risks as is carried by responsible companies engaged in similar
businesses and owning similar assets.
5.11. Inconsistent Agreements
The Company shall not, and shall not permit any of its Subsidiaries
to, (i) enter into any agreement or arrangement which is inconsistent with, or
would impair the ability of the Company to fulfill, its obligations under this
Agreement, the Notes, the Registration Rights Agreement or the Commitment Letter
or (ii) supplement, amend or otherwise modify the terms of their respective
Charter Documents, if the effect thereof would be materially adverse to the
Holders, including without limitation to increase the liquidation preference of,
or the rate of dividends payable on, any series of preferred stock.
5.12. Compliance with Laws
The Company shall, and shall cause its Subsidiaries to, comply with
all statutes, ordinances, governmental rules and regulations, judgments, orders
and decrees (including all Environmental Laws) to which any of them is subject,
and obtain and keep in effect all licenses, permits, franchises and other
governmental authorizations necessary to the ownership or operation of their
respective properties or the conduct of their respective businesses, except to
the extent that the failure to so comply or obtain and keep in effect would not
have a Material Adverse Effect.
5.13. Inspection of Properties and Records
The Company agrees to allow, and to cause each of their respective
Subsidiaries to allow, the Purchaser and each subsequent Holder (or such Persons
as the Purchaser or subsequent Holder may designate) (individually and
collectively, "Inspectors") upon reasonable prior notice to visit and inspect
any of the properties of the Company or its Subsidiaries, to examine all their
books of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers, and independent public accountants with
representatives of the Company or its Subsidiaries present (and by this
provision the Company authorizes said accountants to discuss with such
Inspectors the finances and affairs of the Company and its Subsidiaries) all at
such reasonable times and as often as may be reasonably requested but not more
than twice in any twelve-month period for all Holders in the aggregate unless a
Default or an Event of Default shall have occurred. If a Default or an Event of
Default shall have occurred and be continuing, the Company shall pay or
reimburse all Inspectors for expenses which such Inspectors may reasonably incur
in connection with any such visitations or inspections.
22
<PAGE>
SECTION 6. CONVERSION OF NOTES
6.1. Conversion
(a) Each Note shall be convertible, in whole or in part, at the option
of the Holder thereof, at any time prior to the Maturity Date, at the office of
the Company or any transfer agent for the Notes, into that number of fully paid
and nonassessable shares of Common Stock determined in accordance with the
provisions of Section 6.2. In order to convert Notes into Conversion Shares, the
Holder thereof shall surrender the Notes therefor, duly endorsed, at the office
of the Company or to the transfer agent for the Notes, together with written
notice to the Company stating that it elects to convert the same and setting
forth the name or names in which it wishes the certificate or certificates for
Conversion Shares to be issued, and the principal amount of the Notes being
converted. The Company shall, as soon as practicable after the surrender of the
Notes for conversion at the office of the Company or the transfer agent for the
Notes, issue to each holder of such Notes, or its nominee or nominees, a
certificate or certificates evidencing the number of Conversion Shares (and any
other securities and property) to which it shall be entitled, cash representing
payment in full for all accrued but unpaid interest on the Note (or portion
thereof) surrendered for conversion, and, in the event that only a part of the
Notes presented are converted, a Note evidencing the principal amount not so
converted. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the Notes to be
converted, and the person or persons entitled to receive the Conversion Shares
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock at such date and shall, with
respect to such shares, thereafter have only those rights of a holder of Common
Stock of the Company.
(b) In the event that the average trading price of the Common Stock
over thirty (30) consecutive trading days is equal to or exceeds $12 per share,
the Company shall have the right, but not the obligation, to force a conversion
of all then outstanding Notes, in whole but not in part, within the fifteen (15)
day period immediately following such thirty (30) consecutive trading days. Any
such forced conversion shall in all other respects be in accordance with this
Section 6, and, if the Company shall elect to force conversion of Notes, it
shall promptly provide notice of such forced conversion to all Holders of Notes.
The Company shall, as soon as practicable following the notice of such forced
conversion (and in no event later than sixty (60) calendar days after the date
of such notice) issue to each holder of such Notes, or its nominee or nominees,
a certificate or certificates evidencing the number of Conversion Shares (and
any other securities and property) to which it shall be entitled and cash
representing payment in full for all accrued but unpaid interest on the Note
surrendered for conversion. Such conversion shall be deemed to have been made at
the close of business on the date specified in such notice, and the person or
persons entitled to receive the Conversion Shares issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock at such date and shall, with respect to such shares, thereafter
have only those rights of a holder of Common Stock of the Company.
23
<PAGE>
(c) The Company shall use its best efforts to quote and maintain
quotation of the Conversion Shares on the Nasdaq National Market or such other
principal national securities exchange on which the Common Stock is then listed
or quoted.
6.2. Conversion Rate
The number of shares of Common Stock issuable upon conversion of the
Notes shall be one (1) share for every $7.50 of principal amount of Notes being
converted (the "Conversion Rate"), and shall be subject to adjustment from time
to time as provided herein and as provided in Section 3(b) of the Registration
Rights Agreement.
6.3. Fractional Shares
No fractional shares of Common Stock shall be issued upon conversion
of Notes. Instead, the Company shall deliver cash in the form of its check for
the Fair Market Value of the fractional share.
6.4. Adjustments for Stock Splits, Combinations and Dividends
If the outstanding shares of the Common Stock shall be subdivided into
a greater number of shares or combined into a lesser number of shares, the
Conversion Rate in effect immediately prior to such subdivision shall,
simultaneously with the effectiveness of such subdivision, be proportionately
increased or decreased, as the case may be. If the Company pays a dividend or
otherwise makes a distribution with respect to its Common Stock (whether in
cash, additional shares of Common Stock or other property) on or prior to March
31, 2003, then the Conversion Rate shall be increased by a fraction, the
numerator of which is the aggregate amount of the fair market value of such
dividend or distribution and the denominator of which is the number of shares of
Common Stock entitled to such dividend or other distribution. If the Company
pays a dividend or otherwise makes a distribution with respect to its Common
Stock (whether in cash, additional shares of Common Stock or other property)
after March 31, 2003 (the effective date of such dividend or other distribution,
the "Determination Date") and if the fair market value of such dividend or other
distribution, together with the fair market value of all other dividends and
distributions with respect to its Common Stock during the 12-month period
immediately preceding the Determination Date exceeds 2% of the Average Closing
Sales Price during such 12-month period, then the Conversion Rate shall be
increased by a fraction, the numerator of which is the aggregate amount of the
fair market value of the dividend or other distribution to be effected on the
Determination Date plus the aggregate amount of the fair market value of all
dividends and distributions effected during such 12-month period for which no
adjustment in the Conversion Rate was effected pursuant to this Section 6.4, and
the denominator of which is the number of shares of Common Stock entitled to
such dividend or other distribution on the Determination Date. Any adjustment to
the Conversion Rate under this Section 6.4 shall become effective at the close
of business on the date the subdivision, combination, dividend or other
distribution referred to herein becomes effective. For purposes of the
calculations made in this Section 6.4, the fair market value of any dividend or
other distribution that is in the form of property other than Common Stock or
cash shall be determined in good faith by the Board.
24
<PAGE>
6.5. Reorganization, Mergers, Consolidations or Sales of Assets
In the event of any capital reorganization, any reclassification of
the Common Stock (other than a change in par value or as a result of a stock
dividend, subdivision, split-up or combination of shares), the consolidation or
merger of the Company with or into another person, or the sale or other
disposition of all or substantially all of the properties of the Company as an
entirety to another person (collectively referred to hereinafter as
"Reorganizations"), the Holders of the Notes shall thereafter be entitled to
receive, and provision shall be made therefor in any agreement relating to a
Reorganization, upon conversion of the Notes the kind and number of shares of
Common Stock or other securities or property (including cash) of the Company, or
the other corporation resulting from such consolidation or surviving such
merger, which would have been distributed to a holder of the number of shares of
Common Stock which the Notes entitled the holders thereof to convert to
immediately prior to such Reorganization; and in any such case appropriate
adjustment shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the Holders of the Notes,
to the end that the provisions set forth herein (including the specified changes
and other adjustments to the Conversion Rate) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares, other securities or
property thereafter receivable upon conversion of the Notes.
6.6. Sale of Shares Below Market or Conversion Price
(a) If at any time or from time to time the Company shall issue or
sell Additional Shares of Common Stock other than in a transaction which falls
within Section 6.1, Section 6.4 or Section 6.5, for an Effective Price less than
the greater of (x) the Fair Market Value of the Common Stock or (y) the then
effective conversion price calculated by dividing $7.50 by the then existing
Conversion Rate (the "Adjusted Conversion Price"), then, and in each such case,
the then existing Conversion Rate shall be adjusted to a rate per $7.50
principal amount of Notes determined by multiplying that Conversion Rate by a
fraction (i) the numerator of which shall be the number of shares of Common
Stock outstanding at the close of business on the date of such issue after
giving effect to such issue of Additional Shares of Common Stock, and (ii) the
denominator of which shall be (A) the number of shares of Common Stock
outstanding at the close of business on the day next preceding the date of such
issue or sale, plus (B) the number of shares of Common Stock which the aggregate
consideration received (or by the express provisions hereof deemed to have been
received) by the Company for the total number of Additional Shares of Common
Stock so issued would purchase at such Adjusted Conversion Price.
(b) For the purpose of making any adjustment required in this Section
6.6, the consideration received by the Company for any issue or sale of
securities shall:
(i) to the extent it consists of cash, the consideration
received by the Company therefor shall be deemed to be the net
amount of cash actually received by the Company, after deducting
therefrom any compensation, discounts, fees or expenses paid to
(but not on behalf of) any purchaser of such securities and any
compensation, discounts, fees or expenses that are not reasonable
or are not
25
<PAGE>
customary (it being understood that underwriters' discounts and
compensation in public offerings and brokers' commissions in
private placements of such securities shall be deemed reasonable
and customary);
(ii) to the extent it consists of property other than cash,
the consideration other than cash shall be computed at the fair
market value thereof as determined in good faith by the Board of
Directors of the Company; and
(iii) if Additional Shares of Common Stock, Convertible
Securities or rights or options to purchase either Additional
Shares of Common Stock or Convertible Securities are issued or
sold together with other stock or securities or other assets of
the Company for consideration which covers both, the
consideration received for the Common Stock, Convertible
Securities or rights or options shall be computed as that portion
of the consideration so received which is reasonably determined
in good faith by the Board of Directors of the Company to be
allocable to such Additional Shares of Common Stock, Convertible
Securities or rights or options.
(c) For the purpose of making any adjustment in the Conversion Rate
provided in this Section 6.6, if at any time, or from time to time, the Company
issues any stock convertible into Additional Shares of Common Stock (such
convertible stock being hereinafter referred to as "Convertible Securities") or
issues any rights or options, other than options pursuant to the Stock Option
Plan, to purchase Additional Shares of Common Stock for Convertible Securities
(such rights or options being hereinafter referred to as "Rights"), then, and in
each such case, the Company shall be deemed to have issued at the time of the
issuance of such Rights or Convertible Securities the maximum number of shares
of Additional Shares of Common Stock issuable upon exercise (other than options
pursuant to the Stock Option Plan) or conversion thereof and to have received in
consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Company for the issuance of
such Rights or Convertible Securities, plus in the case of such Rights, the
amount of consideration, if any, payable to the Company upon exercise of such
Rights, plus, in the case of Convertible Securities, the amount of
consideration, if any, payable to the Company upon the conversion thereof. No
further adjustment of the Conversion Rate, adjusted upon the issuance of such
Rights or Convertible Securities, shall be made as a result of the actual
issuance of Additional Shares of Common Stock on the exercise of any such Rights
or the conversion of any such convertible Securities. If any such Rights or the
conversion privilege represented by any such Convertible Securities shall expire
without having been exercised, the Conversion Rate adjusted upon the issuance of
such rights, options or convertible securities shall be readjusted to the
conversion rate which would have been in effect had an adjustment been made on
the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such Rights of conversion of such Convertible Securities, and such
Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for granting of all such
Rights, whether or not exercised, plus consideration received for issuing or
selling the Convertible Securities
26
<PAGE>
actually converted, plus the consideration, if any, actually received by the
Company on the conversion of such Convertible Securities.
6.7. Adjustment for Failure to Quote on Nasdaq National Market
In event that, from the time of effectiveness of the registration
statement to be filed pursuant to Section 3(a) of the Registration Rights
Agreement and until all Notes have been converted into Conversion Shares,
immediately prior to the conversion of any Notes into Conversion Shares pursuant
to this Section 6, such Conversion Shares have not been approved for quotation
on Nasdaq National Market (or any other national securities exchange where the
Common Stock is then listed or quoted), then the Conversion Rate with respect to
such Conversion Shares shall be increased by 10% immediately prior to the
conversion of any Notes into such Conversion Shares.
6.8. Accountants' Certificate of Adjustment
In each case of an adjustment or readjustment of the Conversion Rate
or the number of shares of Common Stock or other securities issuable upon
conversion of the Notes, the Company shall as soon as reasonably practicable
(and in no event less than thirty (30) days following the event causing such
adjustment or readjustment) compute such adjustment or readjustment in
accordance with this Agreement and prepare a certificate showing such adjustment
or readjustment, and shall mail such certificate, by first-class mail, postage
prepaid, to each Holder of the Notes at the Holder's address as shown on the
Company's note register. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (i) the Conversion Rate at the
time in effect for the Notes, and (ii) the number of shares of Common Stock and
the type and amount, if any, of other property which at the time would be
received upon conversion of the Notes. At the written request of the Requisite
Noteholders, the Company shall cause its Independent Auditors to verify the
computations contained in the certificate prepared by the Company.
6.9. Reservation of Shares Issuable Upon Conversion
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Notes, such number and class of its shares of
Common Stock as shall from time to time be sufficient to effect a conversion of
all outstanding Notes, and if at any time the number and class of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding Notes, the Company shall promptly seek such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number and class of
shares as shall be sufficient for such purpose. In the event of the
consolidation or merger of the Company with another corporation where the
Company is not the surviving corporation, effective provision shall be made in
the certificate or articles of incorporation, documents of merger or
consolidation, or otherwise, of the surviving corporation so that such
corporation will at all times reserve and keep available a sufficient
27
<PAGE>
number of shares of Common Stock or other securities or property to provide for
the conversion of the Notes in accordance with the provisions of this Section 6.
6.10. No Impairment
The Company shall not amend its Charter Documents or participate in
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, for the principal
purpose of avoiding or attempting to avoid the observance or performance of any
of the terms to be observed or performed by the Company pursuant to this Section
6.
SECTION 7. DEFAULTS AND REMEDIES
7.1. Events of Default
An "Event of Default" occurs if:
(a) the Company defaults in the payment of the principal of any Note
when the same becomes due and payable at maturity, upon repurchase or otherwise;
(b) the Company defaults in the payment of interest on any Note when
the same becomes due and payable and the Default continues for the period and
after the notice specified below;
(c) the Company fails to comply with any of the agreements, covenants,
or provisions of this Agreement or the Notes and the Default continues for the
period and after the notice specified below;
(d) a default occurs under any mortgage, indenture or instrument
(other than a mortgage, indenture or instrument to which the Purchaser or its
Subsidiaries is a party) under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any of its Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Subsidiaries), whether such Indebtedness or guaranteed Indebtedness
now exists or shall be created hereafter, which default (i) is caused by a
failure to pay principal of or premium, if any, on such Indebtedness prior to
the expiration of the grace period provided in such Indebtedness, or (ii)
results in the acceleration of such Indebtedness prior to its express maturity
and, in each case, the principal amount of such Indebtedness, together with the
principal amount of any other Indebtedness as to which there has been a payment
default or the maturity of which has been so accelerated, aggregates $1,000,000
or more;
(e) a final judgment for the payment of money is entered by a court or
courts of competent jurisdiction against the Company or any Subsidiary of the
Company and such remains undischarged for a period (during which execution shall
not be effectively stayed) of (1) ninety (90) days, if the aggregate of all such
judgments exceeds $1,000,000 but is less than $5,000,000 or (2) thirty (30) days
if the aggregate of all such judgments exceeds $5,000,000;
28
<PAGE>
(f) the Company or any of its Subsidiaries pursuant to or within the
meaning of any Bankruptcy Law: (1) commences a voluntary case, (2) consents to
the entry of an order for relief against it in an involuntary case, (3) consents
to the appointment of a Custodian of it or for all or substantially all of its
property, (4) makes a general assignment for the benefit of its creditors, (5)
generally is unable to pay its debts as the same become due; or (6) a court of
competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(i) is for relief against the Company or any of its Subsidiaries in an
involuntary case, (ii) appoints a Custodian of the Company or any of its
Subsidiaries or for all or substantially all of its property, or (iii) orders
the liquidation of the Company or any of its Subsidiaries, and the order or
decree remains unstayed and in effect for 60 days.
A Default under clause (b) is not an Event of Default until a Holder
notifies the Company of such Default and the Company does not cure such Default
within two (2) Business Days after receipt of such notice. A Default under
clause (c) (other than a Default under Sections 5.3, 5.4, 5.6 or 5.7 of this
Agreement, which Default shall be an Event of Default without the notice or
passage of time specified in this paragraph) or (d) (other than a Default
resulting from the acceleration of any Indebtedness described therein, which
Default shall be an Event of Default without the notice or passage of time
specified in this paragraph) or (e) is not an Event of Default until the
Requisite Noteholders notify the Company of the Default and the Company does not
cure the Default within ten (10) days after receipt of the notice. Any such
notices must specify the Default, demand that it be remedied and state that the
notice is a "Notice of Default."
7.2. Acceleration of Notes
If an Event of Default (other than an Event of Default specified in
clauses (e) and (f) of Section 7.1) occurs and is continuing, the Requisite
Noteholders, by notice to the Company, may declare the unpaid principal of and
any accrued interest on all the Notes to be due and payable. Immediately upon
such declaration, the principal and interest shall be due and payable. If an
Event of Default specified in clause (e) or (f) of Section 7.1 occurs, such an
amount shall become and be immediately due and payable without any declaration
or other act on the part of any Holder. The Requisite Noteholders by notice to
the Company may rescind an acceleration of and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of the acceleration.
7.3. Other Remedies
If an Event of Default occurs and is continuing, Holders of the Notes
may pursue any available remedy to collect the payment of principal or interest
on the Notes or to enforce the performance of any provision of the Notes or this
Agreement.
A delay or omission by any Holder of any Notes in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
29
<PAGE>
SECTION 8. SUBORDINATION
8.1. Notes Subordinated to Senior Indebtedness
(a) The Notes are subordinated and junior in right of payment of the
principal of and interest and all other obligations (all of the foregoing, a
"Payment or Distribution") on such Notes to the prior payment in full of any
Senior Indebtedness whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed, the Notes shall comply with the provisions of
this Section 8, and each Holder by his acceptance thereof likewise agrees.
A Payment or Distribution shall include any asset of any kind or
character, and may consist of cash, securities or other property, by set-off or
otherwise, except that Holders may receive (i) securities that are subordinated
to at least the same extent as the Notes to (A) Senior Indebtedness and (B) any
securities issued in exchange for Senior Indebtedness.
(b) The Senior Indebtedness of the Company shall continue to be Senior
Indebtedness and entitled to the benefit of these subordination provisions
irrespective of any amendment, modification or waiver of any term of any
instrument relating to refinancing of the Senior Indebtedness, whether with or
without notice to Holders.
(c) No right of any holder of any Senior Indebtedness to enforce
subordination as herein provided shall at any time or in any way be affected or
impaired by any act or failure to act on the part of the Company, the Holders or
the holders of the Senior Indebtedness, including without limitation any
non-compliance by the holders of the Senior Indebtedness with any of the terms,
provisions and covenants of the documents evidencing or securing the Senior
Indebtedness, or by any noncompliance by the Company or the Holders with any of
the terms, provisions and covenants of the Notes, regardless of any knowledge
thereof that any such holder of Senior Indebtedness may have or otherwise be
charged with.
8.2. Company Not to Make Payments with Respect to Notes in Certain
Circumstances
No Payment or Distribution shall be made by the Company on account of
principal of or interest on the Notes, whether upon the Maturity Date, upon
repurchase or acceleration, or otherwise, if there shall have occurred and be
continuing a default with respect to any Senior Indebtedness and notice of such
default in writing or by telegram has been given to the Company by any holder or
holders of Senior Indebtedness, unless and until the Company shall have received
written notice from such holder or holders that such default or event of default
shall have been cured or waived or shall have ceased to exist or, unless in the
event of a default that does not result in the acceleration of any Senior
Indebtedness or that does not involve a payment default with respect to any
Senior Indebtedness, upon the expiration of the 60-day period following the date
of such notice of default. Following such 60-day period, the Company shall be
obligated to make any and all outstanding Payments or Distributions with respect
to the Notes.
Upon acceleration of the principal of the Notes or any payment by the
Company or distribution of assets of the Company of any kind or character,
whether in cash, property or
30
<PAGE>
securities, to creditors upon any dissolution or winding up or liquidation or
reorganization of the Company, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or such other proceedings, all amounts due
or to become due upon all Senior Indebtedness shall first be paid in full in
cash, or payment thereof provided for to the satisfaction of the holders
thereof, before any Payment or Distribution is made on account of the repurchase
price or principal of or interest on the Notes; and (subject to the power of a
court of competent jurisdiction to make other equitable provision, which shall
have been determined by such court to give effect to the rights conferred in
this Section 8 upon the Senior Indebtedness and the holders thereof with respect
to the Notes or the Holders, by a lawful plan of reorganization or readjustment
under applicable law) upon any such dissolution or winding up or liquidation or
reorganization, any Payment or Distribution by the Company or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to which the Holders would be entitled except for the provisions of
this Section 8, shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other Person making such Payment or
Distribution directly to the holders of Senior Indebtedness of the Company or
their representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior Indebtedness
may have been issued, as their respective interests may appear, to the extent
necessary to pay all Senior Indebtedness in full in cash, after giving effect to
any concurrent payment or distribution to or for the holders of Senior
Indebtedness, before any Payment or Distribution is made to the Holders.
In the event that, notwithstanding the foregoing, any Payment or
Distribution by the Company of any kind or character, whether such payment shall
be in cash, property or securities is prohibited by the foregoing, and the
Company shall have made payment to the Holders before all Senior Indebtedness is
paid in full in cash, or provision is made for such payment to the satisfaction
of the holders thereof, such Holder, then and in such event such Payment or
Distribution shall be paid over by such Holder or delivered to the holders of
Senior Indebtedness or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in cash, after giving effect to any concurrent Payment or Distribution to or for
the holders of such Senior Indebtedness, and, until so delivered, the same shall
be held in trust by any Holder as the property of the holders of Senior
Indebtedness.
The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the conveyance or transfer of its property as an entirety, or substantially as
an entirety, to another corporation upon the terms and conditions provided in
Section 5.7 shall not be deemed a dissolution, winding up, liquidation or
reorganization for the purpose of this Section if such other Person shall, as a
part of such consolidation, merger, conveyance or transfer, comply with the
conditions stated in Section 5.7.
The holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Holders without incurring
responsibility to the Holders
31
<PAGE>
and without impairing or releasing the obligations of the Holders to the holders
of the Senior Indebtedness: (i) change the manner, place or terms of payment or
change or extend the time of payment of, or renew or alter, Senior Indebtedness,
or otherwise amend in any manner Senior Indebtedness or any instrument
evidencing the same or any agreement under which Senior Indebtedness is
outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any
Person liable in any manner for the collection of Senior Indebtedness; and/or
(iv) exercise or refrain from exercising any rights against the Company and any
other Person.
8.3. Subrogation of Notes
After all Senior Indebtedness is paid in full and until the Notes are
paid in full, the Holders shall be subrogated (equally and ratably with all
other Indebtedness pari passu with the Notes) to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of Senior Indebtedness.
If any Payment or Distribution to which the Holders would otherwise
have been entitled but for the provisions of this Section 8 shall have been
applied pursuant to the provisions of this Section 8 to the payment of all
amounts payable in respect of the Senior Indebtedness, then and in such case,
the Holders, as with respect to the Company, shall be entitled to receive from
the holders of such Senior Indebtedness at the time outstanding any Payments or
Distributions received by such holders of Senior Indebtedness in excess of the
amount sufficient to pay all amounts payable in respect of the Senior
Indebtedness in full in cash or, at the option of the holders of Senior
Indebtedness, cash equivalents.
8.4. No Impairment of Subordination
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company,
any Holder, or by any act, or failure to act, in good faith, by any such holder
of Senior Indebtedness, or by any noncompliance by the Company or any Holder
with the terms, provisions and covenants of this Agreement regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
8.5. Section 8 Not to Prevent Events of Default
The failure to make a payment on account of principal of or interest
on the Notes by reason of any provision in this Section 8 shall not be construed
as preventing the occurrence of an Event of Default with respect to such series
under Section 7.1.
8.6. Securities Senior to Subordinated Indebtedness
The indebtedness represented by the Notes will be senior and prior in
right of payment to all Subordinated Indebtedness, to the extent and in the
manner provided in such Subordinated Indebtedness.
32
<PAGE>
8.7. Assignment of Junior Claims
(a) So long as LTC Equity Holding Company holds a sufficient amount of
Notes such that LTC Equity Holding Company constitutes a Requisite Noteholder,
paragraphs (b) and (c) of this Section 8.7 shall have no force and effect. In
the event LTC Equity Holding Company shall cease to hold a sufficient amount of
Notes such that LTC Equity Holding Company is no longer a Requisite Noteholder,
paragraphs (b) and (c) of this Section 8.7 shall be in effect.
(b) In the event of an insolvency proceeding with respect to the
Company, each Holder will assign to a representative of the holders of Senior
Indebtedness (as identified in writing to each Holder by the holders of Senior
Indebtedness) (the "Senior Representative") each Holder's right, title and
interest in and to any claims such Holder has against the Company with respect
to the Notes (the "Junior Claims") and any security held therefor, and will
deliver to the Senior Representative from time to time any and all instruments
and documents evidencing such Junior Claims, or will have entered on such
instruments and documents such subordination legend as the Senior Representative
may reasonably request, and each Holder will execute such other instruments and
documents as the Senior Representative may from time to time reasonably require
in connection therewith. In the event that any Junior Claim is not evidenced by
a negotiable instrument, each Holder hereby agrees that he will use all
commercially reasonably efforts to obtain an instrument or document from the
Company evidencing such Junior Claim. In the event that such debt is not
evidenced by a document, it shall nevertheless be deemed subordinated and
assigned by virtue of this Section 8.7.
(c) In the event of an insolvency proceeding with respect to the
Company, each Holder will grant to the Senior Representative irrevocable
authority in the place and stead of such Holder and in the name of such Holder
or in the Senior Representative's name but for the Senior Representative's use
and benefit, at any time or times, after any default under the terms of any
Senior Indebtedness, in the Senior Representative's discretion to demand,
collect file proofs of claim with respect to, receive (by way of dividends or
otherwise) and take any and all legal proceedings for the recovery of any and
all moneys due or to become due on account of the Junior Claims or any thereof,
and to vote, give consents and take any other steps with regard thereto. Any and
all moneys so collected or received by the Senior Representative shall be
retained indefeasibly by the Senior Representative for application to the
payment in full of any amounts owing with respect to the Senior Indebtedness
then outstanding (the "Senior Claims"). If the Senior Representative receives
notice of any claim adverse to the rights or interests of each Holder in and to
either the Junior Claims or the Senior Claims, or any moneys held by the Senior
Representative in respect thereof, the Senior Representative shall be entitled
to retain any and all such moneys, documents and instruments evidencing such
Junior Claims and Senior Claims.
SECTION 9. AMENDMENTS AND WAIVERS
9.1. With Consent of Holders
The Company, when authorized by a resolution of the Board of Directors
of the Company and with the written consent of the Requisite Noteholders, may
amend this Agreement
33
<PAGE>
or the Notes, without notice to any other Holders. The Requisite Noteholders may
waive compliance by the Company with any provision of this Agreement or the
Notes without notice to any other Holder. Without the consent of each Holder
affected, however, no amendment or waiver may (with respect to any Notes held by
a non-consenting Holder of Notes):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment or waiver of any provision of this Agreement or the Notes;
(b) reduce the principal of or change the fixed maturity of any Note;
(c) reduce the rate of or change the time for payment of interest on
any Note;
(d) waive a Default or Event of Default in the payment of principal of
or interest on the Notes (except a rescission of acceleration of the Notes by
the Requisite Noteholders and a waiver of the payment default that resulted from
such acceleration);
(e) make the principal of or the interest on, any Note payable in any
manner other than that stated in this Agreement and the Notes;
(f) make any change in the provisions of this Agreement relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or interest on the Notes;
(g) make any change to the subordination provisions of this Agreement
that adversely affect any Holder; or
(h) make any change in the foregoing amendment and waiver provisions.
It shall not be necessary for the consent of the Holders under this
Section 9 to approve the particular form of any proposed amendment or waiver,
but it shall be sufficient if such consent approves the substance thereof.
After an amendment or waiver under this Section 9 becomes effective,
the Company shall mail to the Holders affected thereby a notice briefly
describing the amendment or waiver. Any failure of the Company to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such amendment or waiver.
In connection with any amendment to this Section 9, the Company may
offer, but shall not be obligated to offer, to any Holder who consents to such
amendment or waiver, consideration for such Holder's consent.
9.2. Revocation and Effect of Consents
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of a
Note or portion of a Note that evidences the same debt as the consenting
Holder's Note, even if notation of the consent is not made on any Note. However,
any such Holder or subsequent Holder may revoke the consent
34
<PAGE>
as to his Note or portion of his Note by notice to the Company received before
the date on which the Requisite Noteholders have consented (and not theretofore
revoked such consent) to the amendment or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment or
waiver, which record date shall be at least ten (10) Business Days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated proxies),
and only those persons, shall be entitled to revoke any consent previously
given, whether or not such persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
After an amendment or waiver becomes effective, it shall bind every
Holder, unless it makes a change described in any of clauses (a) through (g) of
Section 9.1, in which case, the amendment or waiver shall bind only each Holder
of a Note who has consented to it and every subsequent Holder of a Note or
portion of a Note that evidences the same debt as the consenting Holder's Note;
provided that any such waiver shall not impair or affect the right of any Holder
to receive payment of principal of and interest on a Note, on or after the
respective due dates expressed in such Note, or to bring suit for the
enforcement of any such payment on or after such respective dates without the
consent of such Holder.
9.3. Notation on or Exchange of Notes
If an amendment or waiver changes the terms of a Note, the Company may
require the Holder of the Note to deliver it to the Company. The Company may
place an appropriate notation on the Note about the changed terms and return it
to the Holder.
SECTION 10. DEFINITIONS
10.1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing Date, whether or not subsequently
reacquired or retired by the Company, other than the Conversion Shares; provided
that such term shall exclude shares of Common Stock issued under the Stock
Option Plan and shares of Common Stock issued or issuable upon the conversion of
Notes issued pursuant to agreements dated on or about the date of this Agreement
and the warrants scheduled on the Disclosure Schedule.
"Adjusted Conversion Price" shall have the meaning assigned to such
term in Section 6.6(a).
35
<PAGE>
"Affiliate" means, with respect to any referenced Person, a Person (i)
which directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such referenced Person, (ii)
which directly or indirectly through one or more intermediaries beneficially
owns or holds 10% or more of the combined voting power of the total Voting
Securities of such referenced Person or (iii) of which 10% or more of the
combined voting power of the total Voting Securities directly or indirectly
through one or more intermediaries is beneficially owned or held by such
referenced Person, or a Subsidiary of such referenced Person. When used herein
without reference to any Person, Affiliate means an Affiliate of the Company.
For purposes of this definition, "control" when used with respect to any person
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of Voting Securities, by contract
or otherwise; and the terms "affiliated," controlling" and "controlled" have
meanings correlative to the foregoing.
"Agent" means any Person authorized to act and who acts on behalf of
the Purchasers with respect to the transactions contemplated by this Agreement,
the Registration Rights Agreement or the Commitment Letter.
"Agreement" means this Convertible Subordinated Note Purchase
Agreement dated as of March 30, 1998 by and between the Company and the
Purchaser.
"Average Closing Sales Price" as of a particular 12-month period means
the average closing sales price of the Common Stock for each Business Day during
such 12-month period. Such average shall be calculated as follows: (i) the
average of the closing sales prices of the Common Stock quoted on the Nasdaq
National Market for each Business Day during such 12-month period, or (ii) if no
such quotations are available, the average of the closing sales prices for each
Business Day during such 12-month period on the principal national securities
exchange on which the Common Stock is listed, or (iii) if not listed on any
national securities exchange, the average closing sales price for each Business
Day during such 12-month period in the over-the-counter market as reported by
the National Quotation Bureau, Incorporated or similar organization, or (iv) if
no of such sales prices are available for each Business Day in such 12-month
period, the average of the high bid and low asked quotations in the
over-the-counter market as so reported for such Business Days, or (v) if no such
quotations are available, the fair market value per share on such unreported
Business Days as determined by an independent investment banker or appraiser,
nationally recognized to be expert in making such valuations, selected by a
majority of the directors of the Company. In the event "Average Closing Sales
Price" is determined by an independent investment banker or appraiser pursuant
to clause (v) of the foregoing sentence, such determination shall be provided to
each Holder in writing together with a fair and accurate description of the
basis for making such determination. The Requisite Holders shall be permitted to
dispute such determination by written notice to the Company within ten (10)
Business Days of receipt of such determination. In the event of such dispute,
the Requisite Holders and the Company shall work together in good faith to
mutually agree upon a second independent investment banker or appraiser to make
a determination of "Average Closing Sales Price" whose fees and expenses shall
be paid by the Company. "Average Closing Sales Price" shall be the average of
the per share fair market values determined by both independent investment
bankers or appraisers.
36
<PAGE>
"Bankruptcy Law" means title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Business Day" means any day which is not a Legal Holiday.
"Capital Lease" means any lease of any property which would in
accordance with GAAP be required to be classified and accounted for on the
balance sheet of the lessee as a capital lease.
"Capitalized Lease Obligation" means, with respect to any Person for
any period, any obligation of such Person to pay rent or other amounts under a
Capital Lease; the amount of such obligation shall be the capitalized amount
thereof determined in accordance with such principles.
"Capital Stock" means any and all shares, interests, participation or
other equivalents (however designated) of corporate stock, including without
limitation all common stock and preferred stock.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act (42 U.S.C. ss. 9601 et. seq.).
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any Person or group (as such term is used in Section 13(d)(3) of the
Exchange Act); (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that any Person or group (as defined above), other than Walter C. Bowen or a
Related Party, becomes the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition), directly or indirectly, of
more than 50% of the Fully Diluted Voting Securities of the Company (measured by
voting power rather than number of shares) and (iv) the date on which a majority
of the Board of Directors of the Company shall cease to be Continuing Directors.
"Change of Control Date" shall have the meaning set forth in Section
5.4.
"Change of Control Notice" shall have the meaning set forth in Section
5.4.
"Change of Control Price" shall have the meaning set forth in Section
5.4.
"Change of Control Repurchase Date" shall have the meaning set forth
in Section 5.4.
37
<PAGE>
"Change of Control Repurchase Offer" shall have the meaning set forth
in Section 5.4.
"Charter Documents" means the Articles of Organization, Articles of
Incorporation or Certificate of Incorporation and Bylaws, as amended or restated
(or both) to date, of the Company or a Subsidiary, as applicable.
"Closing" shall have the meaning set forth in Section 1.2(b).
"Closing Date" shall have the meaning set forth in Section 1.2(b).
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor statute or law thereto.
"Commitment Letter" means that certain Commitment Letter dated as of
the Closing Date by and between the Company, LTC Properties and LTC West,
executed concurrently herewith.
"Common Stock" means the Common Stock, no par value, of the Company.
"Company" means Regent Assisted Living, Inc., an Oregon corporation.
"Company SEC Documents" shall have the meaning set forth in Section
3.23.
"Conversion Rate" shall have the meaning set forth in Section 6.2.
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Notes.
"Convertible Securities" shall have the meaning set forth in Section
6.6(c).
"Consolidated " or "consolidated," when used with reference to any
accounting term, means the amount described by such accounting term, determined
on a consolidated basis in accordance with GAAP, after elimination of
intercompany items.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock that by its terms is not entitled to
the payment of dividends unless such dividends may be declared and paid only out
of net earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
preferred stock, less (x) all write-ups (other than write-ups resulting from
foreign currency translations and write-ups of tangible assets of a going
concern business made within 12 months after the acquisition of such business)
subsequent to the Closing Date in the book value of any asset owned by such
Person or a consolidated Subsidiary of such Person, (y) all investments as of
such date in unconsolidated Subsidiaries and in Persons that are not
Subsidiaries, and (z) all unamortized debt discount and
38
<PAGE>
expense and unamortized deferred charges as of such date, all of the foregoing
determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on March 30, 1998 or (ii) was nominated for election or
elected to such Board with the approval of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Determination Date" shall have the meaning set forth in Section 6.4.
"Effective Price" of Additional Shares of Common Stock shall mean the
quotient determined by dividing the total number of Additional Shares of Common
Stock issued or sold, or deemed to have been issued or sold by the Company under
Section 6.6, into the aggregate consideration received, or deemed to have been
received by the Company for such issue under Section 6.6, for such Additional
Shares of Common Stock.
"Environmental Laws" shall have the meaning set forth in Section 3.13.
"Equity Interest" means Capital Stock or warrants, options or other
rights to acquire Capital Stock (but excluding any debt note which is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" shall have the meaning set forth in Section 7.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
from time to time, and any successor statute or law thereto.
"Fair Market Value" of Common Stock as of a particular date means the
Weighted Average trading price of the Common Stock for the ten (10) consecutive
Business Day period immediately preceding such date. Such Weighted Average shall
be calculated as follows: (i) the Weighted Average of the sales price of the
Common Stock quoted on the Nasdaq National Market for each of such ten (10)
Business Days, or (ii) if no such quotations are available, the Weighted Average
sales price for such ten (10) Business Days on the principal national securities
exchange on which the Common Stock is listed, or (iii) if not listed on any
national securities exchange, the Weighted Average sales price for such ten (10)
Business Days in the over-the-counter market as reported by the National
Quotation Bureau, Incorporated or similar organization, or (iv) if no of such
sales prices are available for each Business Day in such ten (10) Business Day
period, the Weighted Average of the high bid and low asked quotations in the
over-the-counter market as so reported for such ten (10) Business Days, or (v)
if no such
39
<PAGE>
quotations are available, the fair market value per share on such date as
determined by an independent investment banker or appraiser, nationally
recognized to be expert in making such valuations, selected by a majority of the
directors of the Company; provided, however, that in the event of an
underwritten public offering of Common Stock, "Fair Market Value" shall mean the
price to the public of such Common Stock in such underwritten public offering.
In the event "Fair Market Value" is determined by an independent investment
banker or appraiser pursuant to clause (v) of the foregoing sentence, such
determination shall be provided to each Holder in writing together with a fair
and accurate description of the basis for making such determination. The
Requisite Holders shall be permitted to dispute such determination by written
notice to the Company within ten (10) Business Days of receipt of such
determination. In the event of such dispute, the Requisite Holders and the
Company shall work together in good faith to mutually agree upon a second
independent investment banker or appraiser to make a determination of "Fair
Market Value" whose fees and expenses shall be paid by the Company. "Fair Market
Value" shall be the average of the per share fair market values determined by
both independent investment bankers or appraisers.
"Fully Diluted Voting Securities" means each class of Voting
Securities of a Person and each class of securities of a Person that, at the
time of determination, can immediately subscribe for and/or convert to Voting
Securities.
"GAAP" means generally accepted accounting principles as used in the
United States of America and applied in a manner consistent with past practices.
"Holder" or "Holders" means the Purchaser (so long as it holds any
Notes) and any other holder of any of the Notes.
"Incorporated Documents" means the following of the Company's
documents, each as filed with the SEC: (1) Form 10-K for the year ended December
31, 1997, (2) 1997 Proxy Statement dated April 10, 1997; and (3) Form 8-K dated
December 29, 1997.
"Indebtedness" means, with respect to any Person, the aggregate amount
of, without duplication, the following:
(a) all obligations for borrowed money;
(b) all obligations evidenced by bonds, debentures, notes or other
similar instruments;
(c) all obligations to pay the deferred purchase price of property or
services, except Trade Payables and obligations that do not exceed $300,000 in
the aggregate, accrued commissions and other similar accrued current liabilities
in respect of such obligations, in any case, not overdue and arising in the
ordinary course of business;
(d) all Capitalized Lease Obligations;
40
<PAGE>
(e) all obligations or liabilities of others secured by a lien on any
asset owned by such Person or Persons whether or not such obligation or
liability is assumed;
(f) all obligations of such Person or Persons, contingent or
otherwise, in respect of any letters of credit or bankers' acceptances; and
(g) all guaranties.
"Indemnified Parties" shall have the meaning set forth in Section 5.6.
"Independent Auditors" shall mean the independent certified public
accountants of the Company. Until December 29, 1997, the Independent Auditors
were Coopers & Lybrand, L.L.P. After such date and as of the date of the
Agreement, the Independent Auditors are KPMG Peat Marwick LLP.
"Inspectors" shall have the meaning set forth in Section 5.13.
"Intangibles" shall have the meaning set forth in Section 3.16.
"Junior Claims" shall have the meaning set forth in Section 8.7.
"Key Employee" means Walter C. Bowen.
"Knowledge of the Company" means to the actual knowledge of each of
the Chairman, Chief Executive Officer, Chief Financial Officer, General Counsel,
President, Treasurer and any Senior or Executive Vice President of the Company,
after due inquiry and investigation.
"Legal Holiday" means a Saturday, Sunday or day on which banks and
trust companies in the principal place of business of the Company or in
California are not required to be open. If a payment date is a Legal Holiday,
payment may be made on the next succeeding day that is not a Legal Holiday, and
interest shall accrue for the intervening period.
"Lien" means any mortgage, pledge, lien, taxes, encumbrance, charge or
adverse claim affecting title or resulting in a charge against real or personal
property, or note interest of any kind (including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell and any filing of or agreement to
give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Losses" shall have the meaning set forth in Section 5.6.
"LTC Equity Holding Company" means LTC Equity Holding Company, Inc., a
Nevada corporation.
"LTC Properties" means LTC Properties, Inc., a Maryland corporation.
41
<PAGE>
"LTC West" means LTC West, Inc., a Nevada corporation.
"Material Adverse Effect" means (i) any adverse effect upon the
issuance, validity or enforceability of a Note, this Agreement, the Registration
Rights Agreement or the Commitment Letter, (ii) any material adverse effect on
the results of operations, financial condition, properties, assets, business or
prospects of the Company and its Subsidiaries, taken as a whole, or (iii) any
adverse effect on the ability of the Company to fulfill its obligations under
the Notes, this Agreement, the Registration Rights Agreement or the Commitment
Letter or any document contemplated hereby or thereby.
"Material Contract" shall have the meaning set forth in Section 3.17.
"Maturity Date" means March 31, 2008.
"Note Register" shall have the meaning set forth in Section 1.3.
"Note" or "Notes" shall have the meaning set forth in Section 1.1.
"Officers' Certificate" means a certificate signed by any two
officers, one of whom must be the Chairman of the Board, the President, the
Treasurer or a Vice President of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Purchaser.
"Payment" or "Distribution" shall have the meaning set forth in
Section 8.1.
"Person" means an individual, partnership, corporation, limited
liability company, trust or unincorporated organization or a government or
agency or political subdivision thereof.
"Plan of Liquidation" means, with respect to any Person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such Person to holders of
Capital Stock of such Person.
"Preferred Stock" means the Series A Preferred Stock, no par value,
and the Series B Preferred Stock, no par value, of the Company.
"Property" or "property" means any assets or property of any kind or
nature whatsoever, real, personal or mixed (including fixtures), whether
tangible or intangible, provided that the terms "Property" or "property", when
used with respect to any Person, shall not include Notes issued by such.
"Purchaser" means the purchaser on the signature pages hereto.
42
<PAGE>
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of the Closing Date by and among the Company and the
Purchaser, executed concurrently herewith.
"Related Party" with respect to Walter C. Bowen means (A) any spouse
or immediate family member of such Person or (B) or trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding an 80% or more controlling interest of which
consist of Walter C. Bowen and/or such other Persons referred to in the
immediately preceding clause (A).
"Reorganizations" shall have the meaning set forth in Section 6.5.
"Requisite Noteholders" shall mean the holders of Notes issued to the
Purchaser pursuant to this Agreement and the Notes whenever issued to all other
purchasers pursuant to similar agreements dated on or about the date of this
Agreement with an aggregate principal amount equal to or greater than 50% of the
aggregate principal amount of all then outstanding Notes issued to the Purchaser
pursuant to this Agreement and the Notes whenever issued to all other purchasers
pursuant to similar agreements dated on or about the date of this Agreement.
"Rights" shall have the meaning assigned to such term in Section
6.6(c).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and any successor statute or law thereto.
"Senior Claims" shall have the meaning set forth in Section 8.7.
"Senior Indebtedness" means the principal of, premium, if any, and
accrued interest on any other Indebtedness of the Company and all fees,
expenses, reimbursements, indemnities and other amounts payable with respect to
such Indebtedness, whether such Indebtedness is outstanding on the date of this
Agreement or thereafter created, incurred, assumed, or guaranteed by the Company
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or the assumption or guarantee thereof expressly provides
that such Indebtedness shall not be senior, or is pari passu or subordinate, in
right or payment to the Notes; provided that Senior Indebtedness shall not
include (i) in the case of each Note the other Notes (ii) Indebtedness of the
Company to a Subsidiary of the Company, (iii) Indebtedness of or amounts owed by
the Company for compensation to directors or members of senior management that
has not been approved by the Compensation Committee of the Board; (iv)
Indebtedness guaranteed by the Company on behalf of any equityholder, director,
officer or employee of the Company or of any equityholder, director, officer or
employee of any of the Company's Subsidiaries, (v) any Trade Payables (including
without limitation Indebtedness incurred for the purchase of goods or materials
or for services obtained in the ordinary course of business), (vi) Indebtedness
of the Company that is subordinated by its terms in right of payment to any
other Indebtedness of the Company, and (vii) Indebtedness incurred in violation
of this Agreement.
43
<PAGE>
"Senior Representative" shall have the meaning set forth in Section
8.7.
"Subordinated Indebtedness" means the principal, premium, if any, and
interest on any Indebtedness of the Company which by its terms is expressly
subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person (the "parent"), any
corporation, association or other business entity of which Notes or other
ownership interests representing more than 50% of the ordinary voting power are,
at the time as of which any determination is being made, owned or controlled by
the parent or one or more subsidiaries of the parent or by the parent and one or
more subsidiaries of the parent.
"Stock Option Plan" shall mean the Company's 1995 Stock Incentive Plan
as in effect on the Closing Date.
"Surviving Person" shall have the meaning set forth in Section
5.7(b)(1).
"Total Price" means, with respect to the Common Stock on any Business
Day, the product of: (x) the closing sales price of the Common Stock quoted on
the Nasdaq National Market on such Business Day, or if no such quotations are
available, on the principal national securities exchange on which the Common
Stock is listed on such Business Day, or if not listed on any national
securities exchange, in the over-the-counter market as reported by the National
Quotation Bureau, Incorporated or similar organization on such Business Day, or
if no such sales prices are available, the high bid and low asked quotations in
the over-the-counter market on such Business Day multiplied by (y) the number of
shares of Common Stock traded on such market or exchange, as applicable, on such
Business Day.
"Trade Payables" means, with respect to any Person, accounts payable
and other similar accrued current liabilities in respect of obligations or
indebtedness to trade creditors created, assumed or guaranteed by such Person or
any of its Subsidiaries in the ordinary course of business in connection with
the obtaining of property or services.
"Voting Securities" means any class of Equity Interests of a Person
pursuant to which the holders thereof have, at the time of determination, the
general voting power under ordinary circumstances to vote for the election of
directors, managers, trustees or general partners of any Person (irrespective of
whether or not at the time any other class or classes will have or might have
voting power by reason of the happening of any contingency).
"Weighted Average" means, with respect to the Common Stock during any
ten (10) consecutive Business Day period, the sum of the Total Price of such
Common Stock for each Business Day during such ten (10) consecutive Business Day
period divided by ten (10).
10.2. Rules of Construction
Unless the context otherwise requires
44
<PAGE>
(a) a term has the meaning assigned to it;
(b) "or" is not exclusive;
(c) words in the singular include the plural, and words in the plural
include the singular;
(d) provisions apply to successive events and transactions;
(e) "herein," "hereof" and other words of similar import refer to this
Agreement as a whole and not to any particular Section or other subdivision; and
(f) the masculine shall include the feminine and neuter genders as
appropriate.
SECTION 11. MISCELLANEOUS
11.1. Notices
All notices and other communications provided for or permitted
hereunder shall be made by hand-delivery, first-class mail, telex, telecopier,
or overnight air courier guaranteeing next day delivery:
(a) if to any Purchaser at address set forth on the signature pages
hereto, with a copy to Latham & Watkins, 633 W. Fifth Street, Suite 4000, Los
Angeles, California 90071, Attention: Eva Herbst Davis, Esq.; and
(b) if to the Company, to Regent Assisted Living, Inc., 121 SW
Morrison, Suite 1000, Attention: General Counsel with a copy to Stoel Rives LLP,
900 SW Fifth Avenue, Suite 2300, Portland, Oregon 97204, Attention: Todd Bauman,
Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five (5) Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
The parties may change the addresses to which notices are to be given by giving
five days' prior notice of such change in accordance herewith.
11.2. Undertaking for Costs
In any suit for the enforcement of any right or remedy under this
Agreement, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
45
<PAGE>
11.3. Successors and Assigns
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties.
11.4. Counterparts
This Agreement may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
11.5. Headings
The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
11.6. Governing Law
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of California.
11.7. Entire Agreement
This Agreement, together with the Notes, the Registration Rights
Agreement and the Commitment Letter is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, together with the Notes, the Registration
Rights Agreement and the Commitment Letter supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
11.8. Severability
In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired or affected, it being
intended that the Purchaser's rights and privileges shall be enforceable to the
fullest extent permitted by law.
11.9. Transfer
The Notes may not be transferred, sold, assigned, pledged,
hypothecated or otherwise disposed of unless (a) such transfer is pursuant to an
effective registration statement under the Securities Act and any applicable
state securities laws, or (b) the Company has been furnished with a satisfactory
opinion of counsel for the Holder, at such Holder's expense, that
46
<PAGE>
such transfer is exempt from the provisions of Section 5 of the Securities Act,
the rules and regulations in effect thereunder and any applicable state
securities laws.
47
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties set forth below as of the date first written above.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
BY: WALTER C. BOWEN
----------------------------------
Name: Walter C. Bowen
Title: President
ANDRE C. DIMITRIADIS,
an individual
ANDRE C. DIMITRIADIS
- ---------------------------------------
Andre C. Dimitriadis
Address:
4470 Vista Del Preseas
Malibu, California 90265
48
<PAGE>
ANNEX A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS (A) SUCH TRANSFER IS PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE
COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER
THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT, THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE SECURITIES
LAWS.
REGENT ASSISTED LIVING, INC.
CONVERTIBLE SUBORDINATED NOTE DUE MARCH 31, 2008
Note No. ________ $_______________________
FOR VALUE RECEIVED, the undersigned, REGENT ASSISTED LIVING, INC., a
corporation organized and existing under the laws of Oregon (herein called the
"Company"), hereby promises to pay to the order of ____________________________
or registered assigns ("Holder"), the principal sum of
___________________________ DOLLARS (or so much thereof as shall remain
outstanding) on March 31, 2008. Payments are to be made as provided in the
Agreement (as defined herein).
This Note is one of the Notes issued pursuant to the Convertible
Subordinated Note Purchase Agreement dated as of March 30, 1998 (the
"Agreement"), by and between the Company and Andre C. Dimitriadis, an
individual, and is also entitled to the benefits thereof to the extent provided
in the Agreement. This Note is subject to (i) conversion, in whole or in part,
at the option of the Holder, pursuant to Section 6.1(a) of the Agreement, (ii)
conversion, in whole but not in part, at the option of the Company upon the
satisfaction of certain conditions pursuant to Section 6.1(b) of the Agreement
and (iii) repurchase, in whole or in part, upon a Change of Control pursuant to
Section 5.4 of the Agreement.
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and, at the
option of the holder, registered in the name of, the transferee. The Company may
deem and treat the person in whose name this Note is registered as the holder
and owner hereof for the purpose of receiving payments and for all other
purposes whatsoever, and the Company shall not be affected by any notice to the
contrary.
<PAGE>
If an Event of Default shall occur and be continuing, this Note may,
under certain circumstances, become or be declared due and payable in the manner
and with the effect provided in the Agreement.
Certain terms and provisions of this Note may be amended or compliance
herewith waived on the terms and provisions provided for in the Agreement.
The Note is subordinated in both right of payment and time of payment
to certain Senior Indebtedness, as defined and described in Section 8 of the
Agreement.
Capitalized terms used herein without definition shall have the
meaning set forth for such terms in the Agreement.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By:--------------------------------------
Name:
Title:
2
<PAGE>
ANNEX B
FORM OF OPINION OF COMPANY COUNSEL
1. The Company and each of its Subsidiaries are corporations duly
organized and validly existing in good standing under the laws of their
respective jurisdictions of incorporation.
2. The Company and each of its Subsidiaries have all requisite power
and authority to own or hold under lease the properties it purports so to own or
hold except where the failure so to own or hold could not have a Material
Adverse Effect and to transact their respective businesses as now transacted and
proposed to be transacted.
3. The Company and each of its Subsidiaries are duly qualified as
foreign corporations and are in good standing in each jurisdiction in which the
character of the properties owned or held under lease by them or the nature of
the business transacted by them requires such qualification, except where the
failure so to be qualified or be in good standing could not have a Material
Adverse Effect.
4. The Company has taken all actions necessary to authorize it (i) to
execute, deliver and perform all of its obligations under the Agreement, the
Registration Rights Agreement and the Commitment Letter, (ii) to issue and
perform all of its obligations under the Notes and (iii) to consummate the
transactions contemplated hereby and thereby.
5. The total number of shares of Capital Stock which the Company has
authority to issue is 30,000,000 shares, consisting of 25,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock.
6. As of March 30, 1998, there were 4,633,000 shares of Common Stock
issued and outstanding, and 1,666,667 shares of Preferred Stock issued and
outstanding. Such shares of Common Stock and Preferred Stock have been duly
authorized and were validly issued, are fully paid and nonassessable, were
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities of the Company.
7. Neither the Company nor any of its Subsidiaries has outstanding any
securities convertible into or exchangeable for any shares of Capital Stock nor
does it have outstanding any rights to subscribe for or to purchase, or any
options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, any Capital Stock or securities convertible into or
exchangeable for any Capital Stock other than (i) the Notes to be issued
pursuant to the Agreement or pursuant to other similar agreements dated on or
about the date of this Agreement, (ii) 1,666,667 shares of Preferred Stock
convertible into Common Stock, and (iii) options and
<PAGE>
warrants to purchase shares of Common Stock as set forth and for the numbers of
shares set forth in the Disclosure Schedule to the Agreement.
8. The Company has duly authorized and reserved for issuance the
Conversion Shares, and the Conversion Shares will, when issued, be duly and
validly issued, fully paid and nonassessable and free from all Liens.
9. Neither the execution or delivery of the Agreement, the
Registration Rights Agreement or the Commitment Letter by the Company nor the
issuance, sale or delivery of the Notes nor the performance of its respective
obligations hereunder or thereunder will:
(a) violate any provision of the Charter Documents of the
Company;
(b) violate any statute, law, rule or regulation or any judgment,
decree, order, regulation or rule of any court or governmental authority to
which the Company, any of its Subsidiaries, or any of their respective
properties may be subject;
(c) permit or cause the acceleration of the maturity of any debt
or obligation of the Company or any of its Subsidiaries;
(d) violate, or be in conflict with, or constitute a default
under, or permit the termination of, or require the consent of any Person under,
or result in the creation of any Lien upon any property of the Company or any of
its Subsidiaries under, any mortgage, indenture, loan agreement, note, debenture
or other agreement for borrowed money or any other material agreement to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries (or their respective properties) may be bound, other than
such violations, conflicts, defaults, terminations and Liens, or such failures
to obtain consents, which could not reasonably be expected to result in a
Material Adverse Effect.
10. The sale of the Notes hereunder is exempt from the registration
and prospectus delivery requirements of the Securities Act.
11. Neither the Company nor any of its Subsidiaries is an "investment
company" or a Person directly or indirectly "controlled" by or acting on behalf
of an "investment company" within the meaning of the United States Investment
Company Act of 1940, as amended.
2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS (A) SUCH TRANSFER IS PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE
COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER
THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT, THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE SECURITIES
LAWS.
REGENT ASSISTED LIVING, INC.
CONVERTIBLE SUBORDINATED NOTE DUE MARCH 31, 2008
Issue Date: March 31, 1998
Note No. 1998-2 $160,000
FOR VALUE RECEIVED, the undersigned, REGENT ASSISTED LIVING, INC., a
corporation organized and existing under the laws of Oregon (herein called the
"Company"), hereby promises to pay to the order of ANDRE C. DIMITRIADIS or
registered assigns ("Holder"), the principal sum of ONE HUNDRED SIXTY THOUSAND
DOLLARS (or so much thereof as shall remain outstanding) on March 31, 2008.
Payments are to be made as provided in the Agreement (as defined herein).
This Note is one of the Notes issued pursuant to the Convertible
Subordinated Note Purchase Agreement dated as of March 30, 1998 (the
"Agreement"), by and between the Company and Andre C. Dimitriadis, an
individual, and is also entitled to the benefits thereof to the extent provided
in the Agreement. This Note is subject to (i) conversion, in whole or in part,
at the option of the Holder, pursuant to Section 6.1(a) of the Agreement, (ii)
conversion, in whole but not in part, at the option of the Company upon the
satisfaction of certain conditions pursuant to Section 6.1(b) of the Agreement
and (iii) repurchase, in whole or in part, upon a Change of Control pursuant to
Section 5.4 of the Agreement.
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and, at the
option of the holder, registered in the name of, the transferee. The Company may
deem and treat the person in whose name this Note is registered as the holder
and owner hereof for the purpose of receiving payments and for all other
purposes whatsoever, and the Company shall not be affected by any notice to the
contrary.
If an Event of Default shall occur and be continuing, this Note may,
under certain circumstances, become or be declared due and payable in the manner
and with the effect provided in the Agreement.
Certain terms and provisions of this Note may be amended or compliance
herewith waived on the terms and provisions provided for in the Agreement.
The Note is subordinated in both right of payment and time of payment
to certain Senior Indebtedness, as defined and described in Section 8 of the
Agreement.
Capitalized terms used herein without definition shall have the
meaning set forth for such terms in the Agreement.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By: WALTER C. BOWEN
------------------------------------
Walter C. Bowen
President
-------------------------------------------------------------------
REGENT ASSISTED LIVING, INC.
and
JAMES J. PIECZYNSKI
$160,000 Principal Amount
of
7.5% Convertible Subordinated Notes Due March 31, 2008
CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT
------------------------------------------------------------------
Dated as of March 30, 1998
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. PURCHASE AND SALE OF NOTES..........................................1
1.1. Issue of Notes...................................................1
1.2. Purchase and Sale of Notes.......................................1
1.3. Maintenance of Note Register.....................................2
1.4. Issue Taxes......................................................2
1.5. Direct Payment...................................................3
1.6. Lost, Etc. Notes.................................................3
SECTION 2. CLOSING CONDITIONS..................................................4
2.1. Delivery of Documents............................................4
2.2. Delivery of Other Agreements.....................................5
2.3. Representations and Warranties, Agreements and Covenants.........5
2.4. No Event of Default..............................................6
2.5. Proceedings Satisfactory.........................................6
2.6. Consents and Permits.............................................6
2.7. No Material Adverse Change.......................................6
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................6
3.1. Organization; Power and Authority................................6
3.2. Authorization....................................................7
3.3. Capital Stock....................................................7
3.4. No Other Registration Rights.....................................7
3.5. No Violation or Conflict; No Default.............................8
3.6. Margin Regulations...............................................8
3.7. Private Offering.................................................8
3.8. Due Authorization of Material Contracts..........................9
3.9. Financial Statements.............................................9
3.10. Litigation; Judgments..........................................10
3.11. Taxes..........................................................10
i
<PAGE>
3.12. Investment Company Act.........................................10
3.13. Environmental Matters..........................................10
3.14. Labor Relations................................................11
3.15. Real Property; Leases..........................................11
3.16. Intellectual Property; Licenses................................11
3.17. Defaults.......................................................12
3.18. Brokers........................................................12
3.19. Existing Indebtedness..........................................12
3.20. Compliance with Law; Permits...................................13
3.21. Insurance......................................................13
3.22. Material Events................................................13
3.23. SEC Documents; Undisclosed Liabilities.........................14
3.24. Material Misstatements or Omissions............................15
3.25. Survival of Representations and Warranties.....................15
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER...................15
4.1. Purchase for Own Account........................................15
4.2. Accredited Investor.............................................16
4.3. Authorization...................................................16
4.4. Brokers.........................................................16
SECTION 5. COVENANTS..........................................................16
5.1. Payment of Notes; Satisfaction of Obligations...................16
5.2. Notice of Default...............................................17
5.3. Limitation on Additional Indebtedness...........................17
5.4. Change of Control...............................................17
5.5. Stay, Extension and Usury Laws..................................18
5.6. Indemnification.................................................19
5.7. Corporate Existence; Merger; Successor Corporation..............20
5.8. Taxes...........................................................21
5.9. Investment Company Act..........................................21
5.10. Insurance......................................................22
ii
<PAGE>
5.11. Inconsistent Agreements........................................22
5.12. Compliance with Laws...........................................22
5.13. Inspection of Properties and Records...........................22
SECTION 6. CONVERSION OF NOTES................................................23
6.1. Conversion......................................................23
6.2. Conversion Rate.................................................24
6.3. Fractional Shares...............................................24
6.4. Adjustments for Stock Splits, Combinations and Dividends........24
6.5. Reorganization, Mergers, Consolidations or Sales of Assets......25
6.6. Sale of Shares Below Market or Conversion Price.................25
6.7. Adjustment for Failure to Quote on Nasdaq National Market.......27
6.8. Accountants' Certificate of Adjustment..........................27
6.9. Reservation of Shares Issuable Upon Conversion..................27
6.10. No Impairment..................................................28
SECTION 7. DEFAULTS AND REMEDIES..............................................28
7.1. Events of Default...............................................28
7.2. Acceleration of Notes...........................................29
7.3. Other Remedies..................................................29
SECTION 8. SUBORDINATION......................................................30
8.1. Notes Subordinated to Senior Indebtedness.......................30
8.2. Company Not to Make Payments with Respect to Notes in
Certain Circumstances...........................................30
8.3. Subrogation of Notes............................................32
8.4. No Impairment of Subordination..................................32
8.5. Section 8 Not to Prevent Events of Default......................32
8.6. Securities Senior to Subordinated Indebtedness..................32
8.7. Assignment of Junior Claims.....................................33
SECTION 9. AMENDMENTS AND WAIVERS.............................................33
9.1. With Consent of Holders.........................................33
9.2. Revocation and Effect of Consents...............................34
iii
<PAGE>
9.3. Notation on or Exchange of Notes................................35
SECTION 10. DEFINITIONS.......................................................35
10.1. Definitions....................................................35
10.2. Rules of Construction..........................................44
SECTION 11. MISCELLANEOUS.....................................................45
11.1. Notices........................................................45
11.2. Undertaking for Costs..........................................45
11.3. Successors and Assigns.........................................46
11.4. Counterparts...................................................46
11.5. Headings.......................................................46
11.6. Governing Law..................................................46
11.7. Entire Agreement...............................................46
11.8. Severability...................................................46
11.9. Transfer.......................................................46
iv
<PAGE>
CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT
This CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT, is dated as of
March 30, 1998 (this "Agreement"), and entered into by and between REGENT
ASSISTED LIVING, INC., an Oregon corporation (the "Company") and JAMES J.
PIECZYNSKI, an individual (the "Purchaser").
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in Section 10.1 hereof.
In consideration of the premises, mutual covenants and agreements
hereinafter contained and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Company agrees as follows:
SECTION 1. PURCHASE AND SALE OF NOTES
1.1. Issue of Notes
On or before the Closing,
(a) The Company will have authorized the issue and sale of $160,000
aggregate principal amount of its 7.5% Convertible Subordinated Notes due March
31, 2008 (the "Notes") to the Purchaser, to be substantially in the form
attached hereto as Annex A.
(b) The Notes shall be substantially in the form attached hereto as
Annex A, including such other notations, legends or endorsements set forth
therefor or required by law. The Notes shall be dated the date of their
issuance. The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Agreement and, to the extent
applicable, the Company and the Purchaser, by their execution and delivery of
this Agreement, expressly agree to such terms and provisions and to be bound
thereby.
1.2. Purchase and Sale of Notes
(a) Purchase and Sale. The Company agrees to sell and, subject to the
terms and conditions set forth herein and in the Registration Rights Agreement
and in reliance on the representations and warranties of the Company contained
or incorporated herein, the Purchaser agrees to purchase the Notes for an
aggregate purchase price of $160,000.
(b) Closing. The purchase and sale of the Notes referred to in Section
1.2(a)(1) shall take place at a closing (the "Closing") at the offices of Latham
& Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, California at 2:00
p.m. on March 30, 1998 (the "Closing Date"). At the Closing, the Company will
deliver to the Purchaser the Notes to be purchased by the Purchaser (in such
permitted denomination or denominations and registered in the Purchaser's name
or the name of such nominee or nominees as the Purchaser may request) on the
Closing Date, dated the Closing Date, against payment of the purchase price
therefor by
<PAGE>
intra-bank or federal funds bank wire transfer of same day funds to
such bank account as the Company shall designate at least two Business Days
prior to the Closing.
(c) Fees and Expenses. Whether or not the Notes are sold, the Company
agrees to pay or reimburse all expenses relating to this Agreement, including
but not limited to:
(1) the reasonable fees and other expenses of the Purchaser's
counsel, Latham & Watkins, in connection herewith (not to exceed $50,000 in the
aggregate, relating to this Agreement and similar agreements dated on or about
the date of this Agreement);
(2) any reasonable out-of-pocket fees and expenses (including the
reasonable fees and expenses of counsel) in connection with any registration or
qualification of the Notes required in connection with the offer and sale of the
Notes at the Closing pursuant to this Agreement under the securities or "blue
sky" laws of any jurisdiction requiring such registration or qualification or in
connection with obtaining any exemptions from such requirements; and
(3) the Purchaser's reasonable out-of-pocket expenses (including
the reasonable fees and expenses of counsel) relating to any amendment, or
modification of, or any waiver, or consent or preservation of rights under this
Agreement, the Notes, the Registration Rights Agreement and any other documents
contemplated hereby or thereby.
Purchaser may deduct such expenses from the purchase price of the
Notes; provided that the Purchaser agrees to provide the Company with a
statement describing any amounts to be so paid at least one Business Day prior
to the Closing.
1.3. Maintenance of Note Register
The Company shall cause to be kept at its principal office a register
for the registration and transfer of the Notes (the "Note Register"). The names
and addresses of the Holders of Notes, the transfer of Notes, and the names and
addresses of the transferees of the Notes shall be registered in the Note
Register.
The Person in whose name any registered Note shall be registered shall
be deemed and treated as the owner and holder thereof for all purposes of this
Agreement and the Company shall not be affected by any notice to the contrary,
until due presentment of such Note for registration of transfer so provided in
this Section 1.3. Payment of or on account of the principal and interest on any
registered Notes shall be made to or upon the written order of such registered
holder.
1.4. Issue Taxes
The Company agrees to pay all taxes owed by or on behalf of the
Company in connection with the issuance, sale, delivery or transfer by the
Company to the Purchaser of the Notes and the execution and delivery of the
agreements and instruments contemplated hereby and any modification of any of
such Notes, agreements and instruments and will save the
2
<PAGE>
Purchaser harmless without limitation as to time against any and all liabilities
with respect to all such taxes. The Purchaser agrees to pay all taxes owed by or
on behalf of the Purchaser in connection with the issuance, sale, delivery or
transfer by the Company to the Purchaser of the Notes and the execution and
delivery of the agreements and instruments contemplated hereby and any
modification of any of such Notes, agreements and instruments and will save the
Company harmless without limitation as to time against any and all liabilities
with respect to all such taxes. The obligations of the Company and the Purchaser
under this Section 1.4 shall survive the payment or prepayment of the Notes and
the termination of this Agreement.
1.5. Direct Payment
(a) The Company will pay or cause to be paid all amounts payable with
respect to any Note (without any presentment of such Note and without any
notation of such payment being made thereon) by crediting (before 11:00 a.m.,
Pacific time), by federal funds bank wire transfer to each Holder's account in
any bank in the United States as may be designated and specified in writing by
such Holder at least two Business Days prior thereto.
(b) Notwithstanding anything to the contrary contained in the Notes,
if any principal amount payable with respect to a Note is payable on a Legal
Holiday, then the Company shall pay such amount on the next succeeding Business
Day, and interest shall accrue on such amount until the date on which such
amount is paid and payment of such accrued interest shall be made concurrently
with the payment of such amount, provided that the Company may elect to pay in
full (but not in part) any such amount on the last Business Day prior to the
date such payment otherwise would be due, and no such additional interest shall
accrue on such amount. Notwithstanding anything to the contrary contained in the
Notes, if any interest payable with respect to a Note is payable on a Legal
Holiday, then the Company shall pay such interest on the next succeeding
Business Day, and such extension of time shall be included in the computation of
the interest payment, provided that the Company may elect to pay in full (but
not in part) any such interest on the last Business Day prior to the date such
payment otherwise would be due, and such diminution in time may, at the
Company's option, be included in the computation of the interest payment.
1.6. Lost, Etc. Notes
Notwithstanding any provision to the contrary, if any Note of which
the Purchaser or any other Holder (or nominee thereof) which is a transferee is
the owner is mutilated, destroyed, lost or stolen, then the affidavit of the
Purchaser or such Holder, if an individual, or of the Purchaser's or such
Holder's treasurer or assistant treasurer (or other authorized officer), if a
Person other than an individual, briefly setting forth the circumstances with
respect to such mutilation, destruction, loss or theft, shall be accepted as
satisfactory evidence thereof, and no indemnity, note or payment of charges or
expenses shall be required as a condition to the execution and delivery by the
Company or the transfer agent with respect to such Note, of new Notes for a like
aggregate principal amount or number of shares, as applicable, in substitution
therefor, other than such Purchaser's or such Holder's unsecured written
agreement reasonably
3
<PAGE>
satisfactory to indemnify the Company or the transfer agent, as the case may be,
which written agreement may be required by the Company.
SECTION 2. CLOSING CONDITIONS
The obligations of the Purchaser to purchase and pay for the Notes to
be delivered to such Purchaser at the Closing shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
2.1. Delivery of Documents
The Company shall have delivered to the Purchaser, in form and
substance reasonably satisfactory to the Purchaser, the following:
(a) The Notes being purchased by the Purchaser pursuant to Section
1.2(a)(1), duly executed by the Company, in the aggregate principal amount of
$160,000.
(b) An opinion, dated the Closing Date and addressed to the Purchaser,
from David R. Gibson, counsel for the Company, as to the matters set forth on
Annex B.
In rendering such opinion, such counsel may rely as to factual matters
upon certificates or other documents furnished by officers and directors of the
Company (copies of which shall be delivered to the Purchaser) and by government
officials, and upon such other documents as such counsel reasonably deems
appropriate as a basis for its opinion. Such counsel shall opine as to the
federal laws of the United States, the laws of the State of Oregon.
(c) Resolutions of the Board of Directors of the Company, certified by
the Secretary or Assistant Secretary, to be duly adopted and in full force and
effect on the Closing Date, authorizing (i) the execution, delivery and
performance of this Agreement, the Registration Rights Agreement and the
Commitment Letter and the consummation of transactions contemplated hereby and
thereby, (ii) the issuance of the Notes to be purchased by the Purchaser and
(iii) specific officers to execute and deliver this Agreement, the Notes, the
Registration Rights Agreement and the Commitment Letter.
(d) Certificates executed by any two executive officers of the
Company, dated the Closing Date, certifying (i) that all of the conditions set
forth in Section 2 of this Agreement are satisfied on and as of such date, (ii)
that all of the representations and warranties of the Company contained or
incorporated by reference herein that (A) are qualified as to materiality are
true and correct on and as of such date as though made on and as of such date
and that (B) are not qualified as to materiality are true and correct in all
material respects on and as of such date as though made on and as of such date,
and no event has occurred and is continuing, or would result from the issuance
of the Notes or the extension of borrowings under the Commitment Letter, which
constitutes or would constitute a Default or an Event of Default and (iii) as to
such other matters as the Purchaser may request in the exercise of its
reasonable discretion.
4
<PAGE>
(e) Governmental certificates, dated the most recent practicable date
but in no event more than thirty (30) calendar days prior to the Closing Date
showing that the Company was incorporated under the Oregon Business Corporation
Act, is active on the records of the Corporation Division and is qualified as a
foreign corporation and in good standing in all other jurisdictions in which it
is qualified to transact business, except where the failure to be so qualified
would not have a Material Adverse Effect.
(f) Copies of each consent, license and approval required in
connection with the execution, delivery and performance by the Company of this
Agreement, the Notes, the Registration Rights Agreement and the Commitment
Letter and the consummation of the transactions contemplated hereby and thereby.
(g) Copies of the Charter Documents of the Company, certified as of a
recent date but in no event more than thirty (30) calendar days prior to the
Closing Date by the Secretary of State of the State of Oregon and certified by
the Secretary or Assistant Secretary of the Company (or person possessing
comparable authority of the Company), as true and correct on and as of the
Closing Date.
(h) Certificates of the Secretary or an Assistant Secretary of the
Company as to the incumbency and signatures of the officers or representatives
of such entity executing this Agreement, the Notes, the Registration Rights
Agreement, the Commitment Letter and any other certificate or other document to
be delivered pursuant hereto or thereto on the Closing Date, together with
evidence of the incumbency of such Secretary or Assistant Secretary;
(i) Copies of all agreements associated with or entered into in
connection with the investment of Prudential Private Equity Investors III, L.P.
in the Company's Preferred Stock and if requested by the Purchaser prior to the
Closing Date, copies of all lease agreements to which the Company is a party.
2.2. Delivery of Other Agreements
The Company shall have executed and delivered the Registration Rights
Agreement and the Commitment Letter.
2.3. Representations and Warranties, Agreements and Covenants
All of the representations and warranties of the Company contained
herein that (A) are qualified as to materiality shall be true and correct on and
as of the Closing Date, except to the extent any representation or warranty
expressly relates to an earlier date and that (B) are not qualified as to
materiality are true and correct in all material respects on and as of the
Closing Date, except to the extent any representation or warranty expressly
relates to an earlier date. The Company shall have performed or complied with
all agreements, covenants and conditions contained herein and in the
Registration Rights Agreement and the Commitment Letter which are required to be
performed or complied with by the Company on or before the Closing Date.
5
<PAGE>
2.4. No Event of Default
No event shall have occurred and be continuing, or would result from
the purchase of the Notes or the extension of borrowings pursuant to the
Commitment Letter, which constitutes or would constitute a Default or an Event
of Default.
2.5. Proceedings Satisfactory
All proceedings taken in connection with the sale of the Notes, the
transactions contemplated hereby, and all documents and papers relating thereto,
shall be reasonably satisfactory to the Purchaser. The Purchaser and its counsel
shall have received copies of such documents and papers as they may reasonably
request in connection therewith, all in form and substance satisfactory to the
Purchaser. Any document annexed to this Agreement or any other document
contemplated by this Agreement not approved by the Purchaser in writing as to
form and substance on the date this Agreement is executed shall be satisfactory
in form and substance to the Purchaser.
2.6. Consents and Permits
The Company shall have received all consents, approvals, and
authorizations and sent or made all notices, filings, registrations and
qualifications required for the issuance of the Notes, all of which are
disclosed on the Disclosure Schedule.
2.7. No Material Adverse Change
Since the date of this Agreement, neither the Company nor any of its
Subsidiaries shall have suffered any material adverse change in its properties,
business, prospects, operations, earnings, assets, liabilities or condition
(financial or otherwise) which would reasonably likely to result in a Material
Adverse Effect.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule attached to this
Agreement (each scheduled item contained therein referencing the Section of this
Agreement that it qualifies), the Company represents and warrants as follows:
3.1. Organization; Power and Authority
The Company and each of its Subsidiaries are corporations duly
organized and validly existing in good standing under the laws of their
respective jurisdictions of incorporation. The Company and each of its
Subsidiaries have all requisite power and authority to own or hold under lease
the properties it purports so to own or hold except where the failure so to own
or hold could not have a Material Adverse Effect and to transact their
respective businesses as now transacted. The Company and each of its
Subsidiaries are duly qualified as foreign corporations and are in good standing
in each jurisdiction in which the character of the properties owned or held
under lease by them or the nature of the business transacted by them requires
such
6
<PAGE>
qualification, except where the failure so to be qualified or be in good
standing could not have a Material Adverse Effect.
3.2. Authorization
The Company has taken all actions necessary to authorize it (i) to
execute, deliver and perform all of its obligations under this Agreement, the
Registration Rights Agreement and the Commitment Letter, (ii) to issue and
perform all of its obligations under the Notes and (iii) to consummate the
transactions contemplated hereby and thereby. Each of this Agreement, the Notes,
the Registration Rights Agreement, and the Commitment Letter is a legally valid
and binding obligation of the Company, enforceable against it in accordance with
its terms, except for (a) the effect thereon of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting the
rights of creditors generally and (b) limitations imposed by federal or state
law or equitable principles upon the specific enforceability of any of the
remedies, covenants or other provisions thereof and upon the availability of
injunctive relief or other equitable remedies.
3.3. Capital Stock
The total number of shares of Capital Stock which the Company has
authority to issue is 30,000,000 shares, consisting of 25,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock. The Company has the power
and authority and has taken all actions (corporate or other) necessary to
authorize it to enter into and perform its obligations and undertakings under
this Agreement. As of March 30, 1998, there were 4,633,000 shares of Common
Stock issued and outstanding, and 1,666,667 shares of Preferred Stock issued and
outstanding. Such shares of Common Stock and Preferred Stock have been duly
authorized and were validly issued, are fully paid and nonassessable, were
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities of the Company. Neither the Company nor any of its
Subsidiaries has outstanding any securities convertible into or exchangeable for
any shares of Capital Stock nor does it have outstanding any rights to subscribe
for or to purchase, or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to, any Capital Stock or
securities convertible into or exchangeable for any Capital Stock other than (i)
the Notes to be issued pursuant to this Agreement or pursuant to other similar
agreements dated on or about the date of this Agreement, (ii) 1,666,667 shares
of Preferred Stock convertible into Common Stock, and (iii) options and warrants
to purchase shares of Common Stock as set forth and for the numbers of shares
set forth on the Disclosure Schedule. The Company has duly authorized and
reserved for issuance the Conversion Shares, and the Conversion Shares will,
when issued, be duly and validly issued, fully paid and nonassessable and free
from all Liens.
3.4. No Other Registration Rights
Except for the Notes to be issued in connection with the transactions
contemplated by this Agreement or pursuant to other similar agreements dated on
or about the date of this Agreement, there are no contracts, agreements or
understandings between the
7
<PAGE>
Company and any other Person granting such Person the right to require the
Company to file a registration statement under the Securities Act with respect
to any securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities registered
pursuant to any other registration statement filed by the Company under the
Securities Act.
3.5. No Violation or Conflict; No Default
Neither the execution or delivery of this Agreement, the Registration
Rights Agreement or the Commitment Letter by the Company nor the issuance, sale
or delivery of the Notes nor the performance of its respective obligations
hereunder or thereunder will:
(a) violate any provision of the Charter Documents of the
Company;
(b) violate any statute, law, rule or regulation or any judgment,
decree, order, regulation or rule of any court or governmental authority to
which the Company, any of its Subsidiaries, or any of their respective
properties may be subject;
(c) permit or cause the acceleration of the maturity of any debt
or obligation of the Company or any of its Subsidiaries;
(d) violate, or be in conflict with, or constitute a default
under, or permit the termination of, or require the consent of any Person under,
or result in the creation of any Lien upon any property of the Company or any of
its Subsidiaries under, any mortgage, indenture, loan agreement, note, debenture
or other agreement for borrowed money or any other material agreement to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries (or their respective properties) may be bound, other than
such violations, conflicts, defaults, terminations and Liens, or such failures
to obtain consents, which could not reasonably be expected to result in a
Material Adverse Effect.
3.6. Margin Regulations
No part of the proceeds from the sale of the Notes hereunder will be
used, directly or indirectly, for the purpose of buying or carrying any "margin
stock" within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System (12 C.F.R. ss. 207), or for the purpose of buying or
carrying or trading in any securities under such circumstances as to involve the
Company in a violation of Regulation X of said Board (12 C.F.R. ss. 224) or to
involve any broker or dealer in a violation of Regulation T of said Board (12
C.F.R. ss. 220). The assets of the Company and its Subsidiaries do not include
any margin stock, and the Company does not have any present intention of
acquiring margin stock.
3.7. Private Offering
The sale of the Notes hereunder is exempt from the registration and
prospectus delivery requirements of the Securities Act. In the case of each
offer or sale of the Notes, no
8
<PAGE>
form of general solicitation or general advertising was used by the Company or
its respective representatives.
The Company agrees that neither it, nor anyone acting on its behalf,
will offer or sell the Notes, or any portion of them, if such offer or sale
might bring the issuance and sale of the Notes to the Purchaser within the
provisions of Section 5 of the Securities Act nor offer any similar Notes for
issuance or sale to, or solicit any offer to acquire any of the same from, or
otherwise approach or negotiate with respect thereto with, anyone if the sale of
the Notes and any such Notes could be integrated as a single offering for the
purposes of the Securities Act, including without limitation Regulation D.
3.8. Due Authorization of Material Contracts
The descriptions in the Incorporated Documents of statutes, legal and
governmental proceedings or contracts or other documents are accurate in all
material respects and fairly present the information required to be shown at the
time shown; and there are no statutes or legal or governmental proceedings
required to be described in the Incorporated Documents that are not described as
required and there is no document or contract of a character required to be
described in the Incorporated Documents or to be filed as an exhibit to the
Incorporated Documents which is not described or filed as required. All
contracts described in the Incorporated Documents or filed as an exhibit to the
Incorporated Documents to which the Company or any of its Subsidiaries is a
party have been duly authorized, executed and delivered by the Company or such
Subsidiary, constitute valid and binding agreements of the Company or such
Subsidiary and are enforceable against and by the Company or such Subsidiary in
accordance with the terms thereof, except as the enforcement thereof may be
limited by bankruptcy and laws relating to the rights and remedies of the
creditors generally or by the availability of general equitable remedies.
3.9. Financial Statements
The financial statements and schedules of the Company and its
consolidated subsidiaries included in the Incorporated Documents comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, present fairly
the financial condition of the Company and its consolidated subsidiaries, as of
the respective dates thereof and the results of operations and cash flows of the
Company and its consolidated subsidiaries, for the respective periods covered
thereby, all in conformity with GAAP (except in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position of the Company
and its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments). No
other financial statements or schedules of the Company and its consolidated
subsidiaries or any other company or entity are required by the Securities Act,
the Exchange Act or the rules and regulations of the SEC to be included in the
Incorporated Documents. The Independent Auditors, who have reported on certain
of such
9
<PAGE>
financial statements and schedules, are, and were during the periods covered by
their reports included in the Incorporated Documents, independent accountants
with respect to the Company and its consolidated subsidiaries, as required by
the Securities Act, the Exchange Act and the rules and regulations of the SEC.
The summary financial and statistical data included in the Incorporated
Documents present fairly the information shown therein and have been compiled on
a basis consistent with the financial statements presented therein. The
unaudited consolidated financial statements included in the Incorporated
Documents comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, the Exchange Act and the rules
and regulations of the SEC, and such statements fairly present the consolidated
financial position and results of operations and the other information purported
to be shown therein at the respective dates or for the respective periods
therein specified.
3.10. Litigation; Judgments
Except as described in the Incorporated Documents, there are no
actions, suits or proceedings (formal or informal) pending or, to the Knowledge
of the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties, assets, or directors or
officers, in their capacity as such, before or by any Federal or state court,
commission, regulatory body, administrative agency or other governmental body,
domestic or foreign, wherein an unfavorable ruling, decision or finding might
reasonably be expected to, individually or in the aggregate, and after giving
effect to the sale and issuance of the Notes, result in a Material Adverse
Effect.
3.11. Taxes
Each of the Company and its Subsidiaries has filed all federal, state,
local and foreign income tax returns which have been required to be filed and
has paid all taxes and assessments received by it to the extent that such taxes
have become due. None of the Company nor its Subsidiaries has any tax deficiency
which has been or might be asserted or threatened against it which could
reasonably be expected to result in a Material Adverse Effect.
3.12. Investment Company Act
Neither the Company nor any of its Subsidiaries is an "investment
company" or a Person directly or indirectly "controlled" by or acting on behalf
of an "investment company" within the meaning of the United States Investment
Company Act of 1940, as amended.
3.13. Environmental Matters
The operations of the Company and its Subsidiaries with respect to any
real property currently leased, owned, controlled or managed by the Company or
any of its Subsidiaries are, and with respect to any real property previously
leased, owned, managed or controlled were, when such real property was leased,
owned, managed or controlled by the Company or any of its Subsidiaries, in
compliance in all material respects with all applicable federal, state, and
local laws, ordinances, rules, and regulations relating to occupational health
and safety and the environment (collectively, "Environmental Laws"), and the
Company and its
10
<PAGE>
Subsidiaries have all material licenses, permits and authorizations required
under all Environmental Laws; neither the Company nor any of its Subsidiaries
has authorized or conducted or has knowledge of the generation, transportation,
storage, use, treatment, disposal or release of any hazardous substance,
hazardous waste, hazardous material, hazardous constituent, toxic substance,
pollutant, contaminant, petroleum product, natural gas, liquefied gas or
synthetic gas defined or regulated under any Environmental Law on, in or under
any real property currently leased, owned, controlled or managed by the Company
or any of its Subsidiaries or previously leased, owned, controlled or managed by
the Company or any of its Subsidiaries when such real property was owned,
leased, controlled or managed by the Company or any of its Subsidiaries, except
in compliance with applicable Environmental Laws; and there is not pending or,
to the Knowledge of the Company, any threatened claim, litigation or any
administrative agency proceeding, nor has the Company or any of its Subsidiaries
received any written or oral notice from any governmental entity or third party,
that: (i) alleges a violation of any Environmental Laws by the Company or any of
its Subsidiaries; (ii) alleges the Company or any of its Subsidiaries is a
liable party under CERCLA or any state superfund law; (iii) alleges possible
contamination of the environment by the Company or any of its Subsidiaries; or
(iv) alleges possible contamination of real property currently leased, owned,
controlled or managed by the Company or any of its Subsidiaries or previously
leased, owned, controlled or managed by the Company or any of its Subsidiaries
when such real property was owned, leased, controlled or managed by the Company
or any of its Subsidiaries.
3.14. Labor Relations
No labor dispute with the employees of the Company or any of its
Subsidiaries exists or is threatened that could reasonably be expected to result
in a Material Adverse Effect; and the Company is not aware of any existing or
threatened labor disturbance by the employees of any other entity that could
reasonably be expected to result in a Material Adverse Effect.
3.15. Real Property; Leases
Each of the Company and its Subsidiaries has good and indefeasible
title to all properties and assets described in the Incorporated Documents as
owned by it, free and clear of all Liens except such as are described in the
Incorporated Documents or are not material, singly or in the aggregate, to the
Company. Each of the Company and its Subsidiaries has valid, subsisting and
enforceable leases for the properties described in the Incorporated Documents as
leased by it, except such as are described in the Incorporated Documents.
3.16. Intellectual Property; Licenses
Each of the Company and its Subsidiaries owns or has the right to use
all patents, patent applications, trademarks, trademark applications,
tradenames, copyrights, franchises, trade secrets, proprietary or other
confidential information and intangible properties and assets (collectively,
"Intangibles") reasonably necessary to conduct its business as now conducted;
and none of the Company or its Subsidiaries has any knowledge of any
infringement by it of Intangibles of others, and there is no claim being made
against the Company or any of its Subsidiaries, or to the Knowledge of the
Company, any employee of the Company or its
11
<PAGE>
Subsidiaries, regarding infringement of any Intangibles of others which could
reasonably be expected to have a Material Adverse Effect and, to the Knowledge
of the Company, there is no infringement by others of Intangibles of the Company
or any of its Subsidiaries.
3.17. Defaults
The continuation, validity and effectiveness of each contract,
agreement, arrangement or other instrument related to borrowed money (of any
amount) or involving payments in excess of $100,000 or that is material to the
Company or its Subsidiaries (each a "Material Contract") will not be adversely
affected by the execution, delivery and performance of this Agreement, the
Registration Rights Agreement, or the Commitment Letter, the issuance or sale of
the Notes, or the consummation of the transactions contemplated hereby or
thereby. The Company and its Subsidiaries are not in default in any respect, and
will not, with the giving of notice or the lapse of time, or both, be in default
in any respect, under any Material Contract upon or as a result of the
consummation of the transactions contemplated by this Agreement, the
Registration Rights Agreement or the Commitment Letter. To the Knowledge of the
Company, there is no default or claimed or purported or alleged default or state
of facts that with the giving of notice or the lapse of time, or both, would
constitute a default on the part of any party other than the Company or any of
its Subsidiaries under any Material Contract.
3.18. Brokers
The Company has not dealt with any broker, finder, commission agent or
other Person in connection with the sale of the Notes and the transactions
contemplated by this Agreement, and the Company is not under any obligation to
pay any broker's or finder's fee or commission or similar payment in connection
with such transactions.
3.19. Existing Indebtedness
The Disclosure Schedule sets forth a complete and correct list of all
Indebtedness of the Company and its Subsidiaries as of the date hereof, showing
as to each item of such Indebtedness the creditor, the aggregate principal
amount outstanding, the agreement or instrument governing such Indebtedness and
a brief description of any security therefor. With respect to each item of
Indebtedness listed on the Disclosure Schedule, the Company will deliver to the
Purchaser or its representatives, upon request, a true and complete copy of each
instrument evidencing such Indebtedness or pursuant to which such Indebtedness
was issued or secured (including each amendment, consent, waiver or similar
instrument in respect thereof), as the same is in effect on the date hereof. The
Company and its Subsidiaries are not in default in the performance or observance
in any material respect of any of the terms, covenants or conditions contained
in any instrument evidencing Indebtedness listed on the Disclosure Schedule or
pursuant to which such Indebtedness was issued or secured or has requested any
waiver in respect of any default and no event has occurred and is continuing
which, with notice or the lapse of time or both, would constitute such a
default.
12
<PAGE>
3.20. Compliance with Law; Permits
(a) The Company and its Subsidiaries own or possess all
authorizations, approvals, orders, licenses, registrations, other certificates
and permits of and from all governmental regulatory officials and bodies,
necessary to conduct their respective businesses except where the failure to own
or possess all such authorizations, approvals, orders, licenses, registrations,
other certificates and permits would not have a Material Adverse Effect. There
is no proceeding pending or, to the Knowledge of the Company, threatened (or any
basis therefor known to the Company) which may cause any such authorization,
approval, order, license, registration, certificate or permit to be revoked,
withdrawn, canceled, suspended or not renewed; and the Company and its
Subsidiaries are conducting their respective business in compliance with all
laws, rules and regulations applicable thereto except where such noncompliance
could not reasonably be expected to result in a Material Adverse Effect.
(b) Neither the nature of the Company nor of any of its businesses or
properties, nor any relationship between the Company and any other Person, nor
any circumstance in connection with the offer, issuance, sale or delivery of the
Notes at the Closing, nor the performance by the Company of its other
obligations hereunder or under the Notes, the Registration Rights Agreement or
the Commitment Letter, as the case may be, is such as to require a consent,
approval or authorization of, or notice to, or filing, registration or
qualification with, any governmental authority or other Person on the part of
the Company as a condition to the execution and delivery of this Agreement, the
Registration Rights Agreement, the Commitment Letter or the offer, issuance,
sale or delivery of the Notes at the Closing, other than the filings,
registrations, qualifications or consents which shall have been made or obtained
on the Closing Date (and copies of which shall have been delivered to the
Purchaser). All required consents, approvals or authorizations of, or notices to
or filings, registrations or qualifications with, any governmental authority or
other Person required in connection with the transactions contemplated by this
Agreement, the Notes, the Registration Rights Agreement or the Commitment Letter
have been obtained or made.
3.21. Insurance
The Company maintains, and will maintain after giving effect to the
issuance and the sale of the Notes, insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
insurance covering director and officer liability, workers compensation
liability, malpractice liability respecting the provision of assisted living
services, real and personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is and will be in full force and effect.
3.22. Material Events
Since December 31, 1997, there has not been with respect to the
Company or any of its Subsidiaries:
13
<PAGE>
(a) any material adverse change in their properties, business,
prospects, operations, earnings, assets, liabilities or condition (financial or
otherwise) which could reasonably be expected to result in a Material Adverse
Effect; or
(b) any damage, destruction or loss to the properties or assets of the
Company or any of its Subsidiaries, whether or not covered by insurance, that
has or could reasonably be expected to have a Material Adverse Effect or that in
the aggregate exceed $100,000; or
(c) any loss or waiver by the Company or any of its Subsidiaries of
any right, not in the ordinary course of business, or any material debt owed to
it; or
(d) other than the sales of assets in the ordinary course of business
(including pursuant to sale leaseback transactions), any sale, transfer or other
disposition of, or agreement to sell, transfer or otherwise dispose of, any
assets by the Company or any of its Subsidiaries in excess of $100,000 in the
aggregate, or any cancellation or agreement to cancel any debts or claims of the
Company or any of its Subsidiaries; or
(e) other than dividends payable on the currently outstanding
Preferred Stock, any declaration or setting aside or payment of any dividend
(whether in cash, property or stock) or any distribution (whether in cash,
property or stock) or other payment with respect to any of the Capital Stock of
the Company or any of its Subsidiaries, or any repurchase, purchase or other
acquisition of, or agreement to repurchase, purchase or otherwise acquire, any
of the Company's or any of its Subsidiaries' capital stock; or
(f) any amendment or termination of any contract, agreement or license
to which the Company or any of its Subsidiaries is a party or by which it is
bound, except where such amendment or termination could not be reasonably
expected to have a Material Adverse Effect; or
(g) any resignation or termination of employment of any Key Employee,
and there is no impending or threatened resignation or resignations or
termination or terminations of employment of any Key Employee; or
(h) any labor dispute (including, without limitation, any negotiation,
or request for negotiation, for any labor representation or any labor contract)
affecting the Company or any of its Subsidiaries; or
(i) any application of any existing (or the enactment of any new)
Environmental Law or personnel, product safety law or other governmental
regulation that has or which could reasonably be expected to have a Material
Adverse Effect.
3.23. SEC Documents; Undisclosed Liabilities
The Company has been subject to the reporting requirements of Section
13 of the Exchange Act since at least January 1, 1996 and, except as set forth
in any Company SEC Document, has timely filed all required reports, schedules,
forms, statements and other
14
<PAGE>
documents required to be filed by the Company under the Securities Act and the
Exchange Act with the SEC since January 1, 1996 (the "Company SEC Documents").
As of their respective dates, the Company SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Company SEC Documents, and none of the Company SEC Documents
at the time filed with the SEC contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. Except to the extent that information
contained in any Company SEC Document has been revised or superseded by a later
filed Company SEC Document, none of the Company SEC Documents contains any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
3.24. Material Misstatements or Omissions
No representation or warranty by the Company contained in this
Agreement (including the schedules and exhibits attached hereto), the
Registration Rights Agreement, the Commitment Letter or in any document,
exhibit, statement, certificate or schedule dated the Closing Date, signed by
the Company and furnished to the Purchaser pursuant hereto, or in connection
with the transactions contemplated hereunder, contains or will contain any
untrue statement of a material fact, or omits or will omit to state any material
fact necessary to make the statements or facts contained herein and therein not
misleading.
3.25. Survival of Representations and Warranties
All of the Company's representations and warranties hereunder and
under the Registration Rights Agreement and the Commitment Letter shall survive
the execution and delivery of the same, any investigation by the Purchaser and
the issuance of the Notes.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER
The Purchaser represents and warrants to the Company that:
4.1. Purchase for Own Account
The Purchaser is purchasing the Notes to be purchased by it solely for
its own account and not as nominee or agent for any other person and not with a
view to, or for offer or sale in connection with, any distribution thereof
(within the meaning of the Securities Act) that would be in violation of the
securities laws of the United States of America or any state thereof, without
prejudice, however, to its right at all times to sell or otherwise dispose of
all or any part of said Notes pursuant to a registration statement under the
Securities Act or pursuant to an exemption from the registration requirements of
the Securities Act.
15
<PAGE>
4.2. Accredited Investor
The Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; it acknowledges that the Notes have not been
registered under the Securities Act and understands that the Notes must be held
indefinitely unless they are subsequently registered under the Securities Act or
such sale is permitted pursuant to an available exemption from such registration
requirement; it is able to bear the economic risk of its investment in the
Notes; it is an "accredited investor" as defined in Regulation D promulgated
under the Securities Act; and it has been afforded access to information about
the Company and the Company's financial condition, results of operations,
business, property, management and prospects sufficient to enable it to evaluate
its investment in the Notes. The Purchaser acknowledges that it has conducted
its own analysis of the Company's financial condition and other foregoing
factors.
4.3. Authorization
This Agreement is a legally valid and binding obligation of the
Purchaser enforceable against it in accordance with its terms, except for (a)
the effect thereon of bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting the rights of creditors generally
and (b) limitations imposed by federal or state law or equitable principles upon
the specific enforceability of any of the remedies, covenants or other
provisions thereof and upon the availability of injunctive relief or other
equitable remedies.
4.4. Brokers
The Purchaser has not dealt with any broker, finder, commission agent
or other Person in connection with the sale of the Notes and the transactions
contemplated by this Agreement, and the Purchaser is not under any obligation to
pay any broker's or finder's fee or commission or similar payment in connection
with such transactions.
SECTION 5. COVENANTS
So long as any of the Notes remain unpaid and outstanding, the Company
covenants to the Holders of outstanding Notes as follows:
5.1. Payment of Notes; Satisfaction of Obligations
The Company shall pay the principal of and interest on the Notes on
the dates and in the manner provided in the Notes. To the extent lawful, the
Company shall pay interest (including interest accruing after the commencement
of any proceeding under any Bankruptcy Law) on all unpaid amounts outstanding
under the Notes (including overdue installments of principal or interest) at a
rate equal to 7.5% per annum, payable quarterly on each January 1, April 1, July
1 and October 1, beginning July 1, 1998. Such interest rate is subject to
adjustment as set forth in Section 3(b) to the Registration Rights Agreement.
16
<PAGE>
5.2. Notice of Default
The Company will deliver to the Holders, forthwith upon (i) becoming
aware of any Default or Event of Default, (ii) becoming aware of any payment
default under any other loan agreement, mortgage, indenture or instrument
referred to in Sections 7.1(d) or (iii) the receipt by the Company of any notice
of any non-monetary default under any such loan agreement, mortgage, indenture
or instrument, an Officers' Certificate specifying in reasonable detail such
Default, Event of Default or default and the nature of any remedial or
corrective action the Company proposes to take with respect thereto.
5.3. Limitation on Additional Indebtedness
None of the Company, nor any of its Subsidiaries (including without
limitation, upon the creation or acquisition of such Subsidiary) shall, directly
or indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to (collectively, "incur") any
Indebtedness after the date of this Agreement, if a Default or an Event of
Default shall have occurred and be continuing at the time or would occur as a
consequence of the incurrence of such Indebtedness.
5.4. Change of Control
(a) Change of Control. Prior to the consummation of a Change of
Control (the date of such consummation being referred to herein as the "Change
of Control Date"), the Company shall give each Holder notice describing in
reasonable detail the nature of the Change of Control (such written notice, the
"Change of Control Notice") and offering to the Purchaser the right to require
the Company to repurchase all or any part of the Notes held by the Purchaser
pursuant to the offer (the "Change of Control Repurchase Offer") at a purchase
price equal to 100% of the aggregate principal amount thereof, together with
unpaid interest to the date of repurchase (the "Change of Control Price"). The
obligation of the Company to repurchase Notes pursuant to the Change of Control
Repurchase Offer is subject to the subordination provisions of Section 8 hereof.
(b) Timing of Notice. The Change of Control Notice shall be mailed by
the Company to all Holders at their last registered address no later than
fifteen (15) Business Days prior to the Change of Control Date.
(c) Procedure. The Change of Control Notice shall state a date not
later than five (5) Business Days following the Change of Control Date for
repurchase of the Notes pursuant to the Change of Control Repurchase Offer (such
date, the "Change of Control Repurchase Date"). The Change of Control Notice,
which shall govern the terms of the Change of Control Repurchase Offer, shall
state:
(1) that the Change of Control Repurchase Offer is being
made pursuant to this Section 5.4;
17
<PAGE>
(2) the Change of Control Price and the Change of Control
Repurchase Date;
(3) that, unless the Company defaults in the payment of the
Change of Control Price, all Notes accepted for payment shall
cease to accrue interest on and after the Change of Control
Repurchase Date;
(4) that the Purchaser electing to require the Company to
repurchase any Notes will be required to surrender the Note to
the address specified in the Change of Control Notice prior to
the close of business on the Business Day preceding the Change of
Control Repurchase Date;
(5) that the Purchaser will be entitled to withdraw his or
her election to require the Company to repurchase any Notes on
the terms and conditions set forth in such Change of Control
Notice by written notice to the Company prior to the Change of
Control Repurchase Date; and
(6) that the Purchaser electing to require the Company to
repurchase any Notes in part will be issued a new Note in a
principal amount equal to the unpurchased portion of the Notes
surrendered.
Any such Change of Control Repurchase Offer shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations to the extent applicable in connection with any Change of
Control Repurchase Offer.
(d) Acceptance of Notes.
(1) On the Change of Control Repurchase Date, the Company
shall accept for payment all Notes or portions thereof validly
tendered pursuant to the Change of Control Repurchase Offer and
promptly thereafter mail or deliver to Holder of Notes accepted
for repurchase payment in the amount equal to the aggregate
Change of Control Price for such Notes, and the Company shall
execute and mail or deliver to such Holders a new Note equal in
principal amount to any unpurchased portion of the Notes
surrendered.
The Company will notify the Holders of the results of the Change of
Control Repurchase Offer on the Change of Control Repurchase Date.
5.5. Stay, Extension and Usury Laws
The Company covenants and agrees (to the extent that it may lawfully
do so) that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, and will use its best
efforts to resist any attempts to claim or take the benefit of any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of its obligations under this
Agreement or the Notes; and the Company (to the extent it may lawfully do so)
hereby expressly waives all benefit or
18
<PAGE>
advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impede the execution of any power herein granted to the
Holders, but will suffer and permit the execution of every such power as though
no such law has been enacted.
5.6. Indemnification
The Company agrees to indemnify the Purchaser and each director,
officer, employee, counsel, Agent and Affiliate of such Purchaser (collectively,
the "Indemnified Parties") against, and hold it and them harmless from, all
losses, claims, damages, liabilities, taxes, deficiencies, expenses and costs
(including diminution in value and costs of preparation and reasonable
attorneys' fees and expenses) (collectively, "Losses") incurred by it or them
(A) arising from any breach of any representation or warranty or the inaccuracy
of any representation made by the Company in or pursuant to the Agreement, the
Registration Rights Agreement or the Commitment Letter (including without
limitation any breach or inaccuracy of any representation or warranty relating
to CERCLA, any equivalent state statute or any other Environmental Law); and (B)
arising from any breach of any covenant or agreement made by the Company in or
pursuant to the Agreement, the Registration Rights Agreement or the Commitment
Letter; provided, however, that the Company shall not be required to indemnify
any Indemnified Party for any Loss that results from (x) the action of any
Indemnified Party which is finally judicially determined to have resulted from
such Indemnified Party's negligence, intentionally wrongful acts or
intentionally wrongful omissions or (y) the failure of LTC Equity Holding
Company to purchase additional Notes from the Company pursuant to Section
1.2(a)(2) hereof; provided, further, that no Indemnified Party shall be entitled
to assert a claim on account of the indemnity provided in this Section 5.6,
unless and until the aggregate amount of Losses with respect to all claims
asserted under this Section and under Section 5.6 of the purchase agreements for
the Notes executed on the date hereof by other purchasers exceeds $100,000 (in
which case the Company shall be liable for Losses in excess of such $100,000
that have accrued).
The Company agrees to reimburse any Indemnified Party promptly for all
such Losses as they are incurred by such Indemnified Party. The Company's
liability to any such Indemnified Party hereunder shall not be extinguished
solely because any other Indemnified Party is not entitled to indemnity
hereunder. The obligations of the Company under this Section 5.6 shall survive
the payment or prepayment of the Notes, at maturity, upon acceleration,
repurchase or otherwise, any transfer of the Notes by any Purchaser to any
subsequent Holder and the termination of this Agreement, the Notes, the
Registration Rights Agreement and the Commitment Letter. The indemnity provided
in this Section 5.6 will be in addition to any liability which the Company may
otherwise have, including, without limitation, under this Agreement, the Notes,
the Registration Rights Agreement and the Commitment Letter.
In case any action shall be brought against any Indemnified Party with
respect to which indemnity may be sought against the Company, such Indemnified
Party shall promptly notify the Company in writing and the Company shall, if it
so desires, assume the defense thereof, including the employment of counsel
reasonably satisfactory to such Indemnified Party and payment of all reasonable
fees and expenses. The failure to so notify the Company shall not
19
<PAGE>
affect any obligation it may have to any Indemnified Party under this Section
5.6 or otherwise unless the Company is materially adversely affected by such
failure.
Each Indemnified Party shall have the right to employ separate counsel
in such action and participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless: (i)
the Company has agreed in writing to pay such expenses; (ii) the Company has
failed to assume the defense and employ counsel; or (iii) the named parties to
any such action (including any impleaded parties) include any Indemnified Party
and the Company, and such Indemnified Party shall have been advised by outside
counsel that there may be one or more legal defenses available to it which are
inconsistent with those available to the Company; provided that, if such
Indemnified Party notifies the Company in writing that it elects to employ
separate counsel in the circumstances described in clauses (i), (ii) or (iii)
above, the Company shall not have the right to assume the defense of such action
or proceeding; provided, however, that the Company shall not, in connection with
any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be responsible hereunder for the fees and
expenses of more than one such firm of separate counsel (in addition to any
necessary local counsel), which counsel shall be designated by such Indemnified
Party. The Company shall not be liable for any settlement of any such action
effected without its written consent (which shall not be unreasonably withheld).
The Company agrees that it will not, without the Indemnified Party's prior
consent, which shall not be unreasonably withheld, settle or compromise any
pending or threatened claim, action or suit in respect of which indemnification
may be sought hereunder unless the foregoing contains an unconditional release
of the Indemnified Parties from all liability and obligation arising therefrom.
5.7. Corporate Existence; Merger; Successor Corporation
(a) The Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence in accordance
with its organizational documents and the corporate rights (charter and
statutory), licenses and franchises of the Company; provided, however, that the
Company shall not be required to preserve any such right, license or franchise,
or corporate existence if the Board of Directors of the Company shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and that the loss thereof is not adverse in any material
respect to any Holder.
(b) The Company shall not in a single transaction or through a series
of related transactions, (i) consolidate with or merge with or into any other
person, or transfer (by lease, assignment, sale or otherwise) all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to another person or group of affiliated persons or (ii) adopt a
Plan of Liquidation, unless, in either case:
(1) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or to which all or substantially all of the properties and assets of
the Company as an entirety or substantially as an entirety are transferred (or,
in the case of a Plan of Liquidation, any Person to
20
<PAGE>
which assets are transferred) (the Company or such other Person being
hereinafter referred to as the "Surviving Person") shall be a corporation
organized and validly existing under the laws of the United States, any State
thereof or the District of Columbia, and shall expressly assume, by an amendment
to this Agreement, all the obligations of the Company under the Notes and this
Agreement;
(2) immediately after and giving effect to such transaction and
the assumption contemplated by clause (1) above and the incurrence or
anticipated incurrence of any Indebtedness to be incurred in connection
therewith, (ii) the Surviving Person shall have a Consolidated Net Worth equal
to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction;
(3) immediately before and immediately after and giving effect to
such transaction and the assumption of the obligations as set forth in clause
(1) above and the incurrence or anticipated incurrence of any Indebtedness to be
incurred in connection therewith, no Default or Event of Default shall have
occurred and be continuing; and
(4) The Company shall have delivered to the Purchaser an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, transfer or adoption and such amendment to this Agreement
comply with this Section 5.7, that the Surviving Person agrees to be bound
hereby, and that all conditions precedent herein provided relating to such
transaction have been satisfied.
(c) Upon any consolidation or merger, or any transfer of assets
(including pursuant to a Plan of Liquidation) in accordance with this Section
5.7, the successor person formed by such consolidation or into which the Company
is merged or to which such transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Agreement
with the same effect as if such successor person had been named as the Company
herein; provided, however, that the Company shall not be released from the
obligations and covenants under this Agreement or under the Notes.
5.8. Taxes
The Company shall, and shall cause its Subsidiaries to, pay prior to
delinquency all material taxes, assessments and governmental levies except as
contested in good faith and by appropriate proceedings.
5.9. Investment Company Act
Neither the Company nor any of its Subsidiaries shall become an
investment company subject to registration under the Investment Company Act of
1940, as amended.
21
<PAGE>
5.10. Insurance
The Company and its Subsidiaries shall maintain liability, casualty
and other insurance with a reputable insurer or insurers in such amounts and
against such risks as is carried by responsible companies engaged in similar
businesses and owning similar assets.
5.11. Inconsistent Agreements
The Company shall not, and shall not permit any of its Subsidiaries
to, (i) enter into any agreement or arrangement which is inconsistent with, or
would impair the ability of the Company to fulfill, its obligations under this
Agreement, the Notes, the Registration Rights Agreement or the Commitment Letter
or (ii) supplement, amend or otherwise modify the terms of their respective
Charter Documents, if the effect thereof would be materially adverse to the
Holders, including without limitation to increase the liquidation preference of,
or the rate of dividends payable on, any series of preferred stock.
5.12. Compliance with Laws
The Company shall, and shall cause its Subsidiaries to, comply with
all statutes, ordinances, governmental rules and regulations, judgments, orders
and decrees (including all Environmental Laws) to which any of them is subject,
and obtain and keep in effect all licenses, permits, franchises and other
governmental authorizations necessary to the ownership or operation of their
respective properties or the conduct of their respective businesses, except to
the extent that the failure to so comply or obtain and keep in effect would not
have a Material Adverse Effect.
5.13. Inspection of Properties and Records
The Company agrees to allow, and to cause each of their respective
Subsidiaries to allow, the Purchaser and each subsequent Holder (or such Persons
as the Purchaser or subsequent Holder may designate) (individually and
collectively, "Inspectors") upon reasonable prior notice to visit and inspect
any of the properties of the Company or its Subsidiaries, to examine all their
books of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers, and independent public accountants with
representatives of the Company or its Subsidiaries present (and by this
provision the Company authorizes said accountants to discuss with such
Inspectors the finances and affairs of the Company and its Subsidiaries) all at
such reasonable times and as often as may be reasonably requested but not more
than twice in any twelve-month period for all Holders in the aggregate unless a
Default or an Event of Default shall have occurred. If a Default or an Event of
Default shall have occurred and be continuing, the Company shall pay or
reimburse all Inspectors for expenses which such Inspectors may reasonably incur
in connection with any such visitations or inspections.
22
<PAGE>
SECTION 6. CONVERSION OF NOTES
6.1. Conversion
(a) Each Note shall be convertible, in whole or in part, at the option
of the Holder thereof, at any time prior to the Maturity Date, at the office of
the Company or any transfer agent for the Notes, into that number of fully paid
and nonassessable shares of Common Stock determined in accordance with the
provisions of Section 6.2. In order to convert Notes into Conversion Shares, the
Holder thereof shall surrender the Notes therefor, duly endorsed, at the office
of the Company or to the transfer agent for the Notes, together with written
notice to the Company stating that it elects to convert the same and setting
forth the name or names in which it wishes the certificate or certificates for
Conversion Shares to be issued, and the principal amount of the Notes being
converted. The Company shall, as soon as practicable after the surrender of the
Notes for conversion at the office of the Company or the transfer agent for the
Notes, issue to each holder of such Notes, or its nominee or nominees, a
certificate or certificates evidencing the number of Conversion Shares (and any
other securities and property) to which it shall be entitled, cash representing
payment in full for all accrued but unpaid interest on the Note (or portion
thereof) surrendered for conversion, and, in the event that only a part of the
Notes presented are converted, a Note evidencing the principal amount not so
converted. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the Notes to be
converted, and the person or persons entitled to receive the Conversion Shares
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock at such date and shall, with
respect to such shares, thereafter have only those rights of a holder of Common
Stock of the Company.
(b) In the event that the average trading price of the Common Stock
over thirty (30) consecutive trading days is equal to or exceeds $12 per share,
the Company shall have the right, but not the obligation, to force a conversion
of all then outstanding Notes, in whole but not in part, within the fifteen (15)
day period immediately following such thirty (30) consecutive trading days. Any
such forced conversion shall in all other respects be in accordance with this
Section 6, and, if the Company shall elect to force conversion of Notes, it
shall promptly provide notice of such forced conversion to all Holders of Notes.
The Company shall, as soon as practicable following the notice of such forced
conversion (and in no event later than sixty (60) calendar days after the date
of such notice) issue to each holder of such Notes, or its nominee or nominees,
a certificate or certificates evidencing the number of Conversion Shares (and
any other securities and property) to which it shall be entitled and cash
representing payment in full for all accrued but unpaid interest on the Note
surrendered for conversion. Such conversion shall be deemed to have been made at
the close of business on the date specified in such notice, and the person or
persons entitled to receive the Conversion Shares issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock at such date and shall, with respect to such shares, thereafter
have only those rights of a holder of Common Stock of the Company.
23
<PAGE>
(c) The Company shall use its best efforts to quote and maintain
quotation of the Conversion Shares on the Nasdaq National Market or such other
principal national securities exchange on which the Common Stock is then listed
or quoted.
6.2. Conversion Rate
The number of shares of Common Stock issuable upon conversion of the
Notes shall be one (1) share for every $7.50 of principal amount of Notes being
converted (the "Conversion Rate"), and shall be subject to adjustment from time
to time as provided herein and as provided in Section 3(b) of the Registration
Rights Agreement.
6.3. Fractional Shares
No fractional shares of Common Stock shall be issued upon conversion
of Notes. Instead, the Company shall deliver cash in the form of its check for
the Fair Market Value of the fractional share.
6.4. Adjustments for Stock Splits, Combinations and Dividends
If the outstanding shares of the Common Stock shall be subdivided into
a greater number of shares or combined into a lesser number of shares, the
Conversion Rate in effect immediately prior to such subdivision shall,
simultaneously with the effectiveness of such subdivision, be proportionately
increased or decreased, as the case may be. If the Company pays a dividend or
otherwise makes a distribution with respect to its Common Stock (whether in
cash, additional shares of Common Stock or other property) on or prior to March
31, 2003, then the Conversion Rate shall be increased by a fraction, the
numerator of which is the aggregate amount of the fair market value of such
dividend or distribution and the denominator of which is the number of shares of
Common Stock entitled to such dividend or other distribution. If the Company
pays a dividend or otherwise makes a distribution with respect to its Common
Stock (whether in cash, additional shares of Common Stock or other property)
after March 31, 2003 (the effective date of such dividend or other distribution,
the "Determination Date") and if the fair market value of such dividend or other
distribution, together with the fair market value of all other dividends and
distributions with respect to its Common Stock during the 12-month period
immediately preceding the Determination Date exceeds 2% of the Average Closing
Sales Price during such 12-month period, then the Conversion Rate shall be
increased by a fraction, the numerator of which is the aggregate amount of the
fair market value of the dividend or other distribution to be effected on the
Determination Date plus the aggregate amount of the fair market value of all
dividends and distributions effected during such 12-month period for which no
adjustment in the Conversion Rate was effected pursuant to this Section 6.4, and
the denominator of which is the number of shares of Common Stock entitled to
such dividend or other distribution on the Determination Date. Any adjustment to
the Conversion Rate under this Section 6.4 shall become effective at the close
of business on the date the subdivision, combination, dividend or other
distribution referred to herein becomes effective. For purposes of the
calculations made in this Section 6.4, the fair market value of any dividend or
other distribution that is in the form of property other than Common Stock or
cash shall be determined in good faith by the Board.
24
<PAGE>
6.5. Reorganization, Mergers, Consolidations or Sales of Assets
In the event of any capital reorganization, any reclassification of
the Common Stock (other than a change in par value or as a result of a stock
dividend, subdivision, split-up or combination of shares), the consolidation or
merger of the Company with or into another person, or the sale or other
disposition of all or substantially all of the properties of the Company as an
entirety to another person (collectively referred to hereinafter as
"Reorganizations"), the Holders of the Notes shall thereafter be entitled to
receive, and provision shall be made therefor in any agreement relating to a
Reorganization, upon conversion of the Notes the kind and number of shares of
Common Stock or other securities or property (including cash) of the Company, or
the other corporation resulting from such consolidation or surviving such
merger, which would have been distributed to a holder of the number of shares of
Common Stock which the Notes entitled the holders thereof to convert to
immediately prior to such Reorganization; and in any such case appropriate
adjustment shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the Holders of the Notes,
to the end that the provisions set forth herein (including the specified changes
and other adjustments to the Conversion Rate) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares, other securities or
property thereafter receivable upon conversion of the Notes.
6.6. Sale of Shares Below Market or Conversion Price
(a) If at any time or from time to time the Company shall issue or
sell Additional Shares of Common Stock other than in a transaction which falls
within Section 6.1, Section 6.4 or Section 6.5, for an Effective Price less than
the greater of (x) the Fair Market Value of the Common Stock or (y) the then
effective conversion price calculated by dividing $7.50 by the then existing
Conversion Rate (the "Adjusted Conversion Price"), then, and in each such case,
the then existing Conversion Rate shall be adjusted to a rate per $7.50
principal amount of Notes determined by multiplying that Conversion Rate by a
fraction (i) the numerator of which shall be the number of shares of Common
Stock outstanding at the close of business on the date of such issue after
giving effect to such issue of Additional Shares of Common Stock, and (ii) the
denominator of which shall be (A) the number of shares of Common Stock
outstanding at the close of business on the day next preceding the date of such
issue or sale, plus (B) the number of shares of Common Stock which the aggregate
consideration received (or by the express provisions hereof deemed to have been
received) by the Company for the total number of Additional Shares of Common
Stock so issued would purchase at such Adjusted Conversion Price.
(b) For the purpose of making any adjustment required in this Section
6.6, the consideration received by the Company for any issue or sale of
securities shall:
(i) to the extent it consists of cash, the consideration
received by the Company therefor shall be deemed to be the net
amount of cash actually received by the Company, after deducting
therefrom any compensation, discounts, fees or expenses paid to
(but not on behalf of) any purchaser of such securities and any
compensation, discounts, fees or expenses that are not reasonable
or are not
25
<PAGE>
customary (it being understood that underwriters' discounts and
compensation in public offerings and brokers' commissions in
private placements of such securities shall be deemed reasonable
and customary);
(ii) to the extent it consists of property other than cash,
the consideration other than cash shall be computed at the fair
market value thereof as determined in good faith by the Board of
Directors of the Company; and
(iii) if Additional Shares of Common Stock, Convertible
Securities or rights or options to purchase either Additional
Shares of Common Stock or Convertible Securities are issued or
sold together with other stock or securities or other assets of
the Company for consideration which covers both, the
consideration received for the Common Stock, Convertible
Securities or rights or options shall be computed as that portion
of the consideration so received which is reasonably determined
in good faith by the Board of Directors of the Company to be
allocable to such Additional Shares of Common Stock, Convertible
Securities or rights or options.
(c) For the purpose of making any adjustment in the Conversion
Rate provided in this Section 6.6, if at any time, or from time to time, the
Company issues any stock convertible into Additional Shares of Common Stock
(such convertible stock being hereinafter referred to as "Convertible
Securities") or issues any rights or options, other than options pursuant to the
Stock Option Plan, to purchase Additional Shares of Common Stock for Convertible
Securities (such rights or options being hereinafter referred to as "Rights"),
then, and in each such case, the Company shall be deemed to have issued at the
time of the issuance of such Rights or Convertible Securities the maximum number
of shares of Additional Shares of Common Stock issuable upon exercise (other
than options pursuant to the Stock Option Plan) or conversion thereof and to
have received in consideration for the issuance of such shares an amount equal
to the total amount of the consideration, if any, received by the Company for
the issuance of such Rights or Convertible Securities, plus in the case of such
Rights, the amount of consideration, if any, payable to the Company upon
exercise of such Rights, plus, in the case of Convertible Securities, the amount
of consideration, if any, payable to the Company upon the conversion thereof. No
further adjustment of the Conversion Rate, adjusted upon the issuance of such
Rights or Convertible Securities, shall be made as a result of the actual
issuance of Additional Shares of Common Stock on the exercise of any such Rights
or the conversion of any such convertible Securities. If any such Rights or the
conversion privilege represented by any such Convertible Securities shall expire
without having been exercised, the Conversion Rate adjusted upon the issuance of
such rights, options or convertible securities shall be readjusted to the
conversion rate which would have been in effect had an adjustment been made on
the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such Rights of conversion of such Convertible Securities, and such
Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for granting of all such
Rights, whether or not exercised, plus consideration received for issuing or
selling the Convertible Securities
26
<PAGE>
actually converted, plus the consideration, if any, actually received by the
Company on the conversion of such Convertible Securities.
6.7. Adjustment for Failure to Quote on Nasdaq National Market
In event that, from the time of effectiveness of the registration
statement to be filed pursuant to Section 3(a) of the Registration Rights
Agreement and until all Notes have been converted into Conversion Shares,
immediately prior to the conversion of any Notes into Conversion Shares pursuant
to this Section 6, such Conversion Shares have not been approved for quotation
on Nasdaq National Market (or any other national securities exchange where the
Common Stock is then listed or quoted), then the Conversion Rate with respect to
such Conversion Shares shall be increased by 10% immediately prior to the
conversion of any Notes into such Conversion Shares.
6.8. Accountants' Certificate of Adjustment
In each case of an adjustment or readjustment of the Conversion Rate
or the number of shares of Common Stock or other securities issuable upon
conversion of the Notes, the Company shall as soon as reasonably practicable
(and in no event less than thirty (30) days following the event causing such
adjustment or readjustment) compute such adjustment or readjustment in
accordance with this Agreement and prepare a certificate showing such adjustment
or readjustment, and shall mail such certificate, by first-class mail, postage
prepaid, to each Holder of the Notes at the Holder's address as shown on the
Company's note register. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (i) the Conversion Rate at the
time in effect for the Notes, and (ii) the number of shares of Common Stock and
the type and amount, if any, of other property which at the time would be
received upon conversion of the Notes. At the written request of the Requisite
Noteholders, the Company shall cause its Independent Auditors to verify the
computations contained in the certificate prepared by the Company.
6.9. Reservation of Shares Issuable Upon Conversion
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Notes, such number and class of its shares of
Common Stock as shall from time to time be sufficient to effect a conversion of
all outstanding Notes, and if at any time the number and class of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding Notes, the Company shall promptly seek such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number and class of
shares as shall be sufficient for such purpose. In the event of the
consolidation or merger of the Company with another corporation where the
Company is not the surviving corporation, effective provision shall be made in
the certificate or articles of incorporation, documents of merger or
consolidation, or otherwise, of the surviving corporation so that such
corporation will at all times reserve and keep available a sufficient
27
<PAGE>
number of shares of Common Stock or other securities or property to provide for
the conversion of the Notes in accordance with the provisions of this Section 6.
6.10. No Impairment
The Company shall not amend its Charter Documents or participate in
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, for the principal
purpose of avoiding or attempting to avoid the observance or performance of any
of the terms to be observed or performed by the Company pursuant to this Section
6.
SECTION 7. DEFAULTS AND REMEDIES
7.1. Events of Default
An "Event of Default" occurs if:
(a) the Company defaults in the payment of the principal of any Note
when the same becomes due and payable at maturity, upon repurchase or otherwise;
(b) the Company defaults in the payment of interest on any Note when
the same becomes due and payable and the Default continues for the period and
after the notice specified below;
(c) the Company fails to comply with any of the agreements, covenants,
or provisions of this Agreement or the Notes and the Default continues for the
period and after the notice specified below;
(d) a default occurs under any mortgage, indenture or instrument
(other than a mortgage, indenture or instrument to which the Purchaser or its
Subsidiaries is a party) under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any of its Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Subsidiaries), whether such Indebtedness or guaranteed Indebtedness
now exists or shall be created hereafter, which default (i) is caused by a
failure to pay principal of or premium, if any, on such Indebtedness prior to
the expiration of the grace period provided in such Indebtedness, or (ii)
results in the acceleration of such Indebtedness prior to its express maturity
and, in each case, the principal amount of such Indebtedness, together with the
principal amount of any other Indebtedness as to which there has been a payment
default or the maturity of which has been so accelerated, aggregates $1,000,000
or more;
(e) a final judgment for the payment of money is entered by a court or
courts of competent jurisdiction against the Company or any Subsidiary of the
Company and such remains undischarged for a period (during which execution shall
not be effectively stayed) of (1) ninety (90) days, if the aggregate of all such
judgments exceeds $1,000,000 but is less than $5,000,000 or (2) thirty (30) days
if the aggregate of all such judgments exceeds $5,000,000;
28
<PAGE>
(f) the Company or any of its Subsidiaries pursuant to or within the
meaning of any Bankruptcy Law: (1) commences a voluntary case, (2) consents to
the entry of an order for relief against it in an involuntary case, (3) consents
to the appointment of a Custodian of it or for all or substantially all of its
property, (4) makes a general assignment for the benefit of its creditors, (5)
generally is unable to pay its debts as the same become due; or (6) a court of
competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(i) is for relief against the Company or any of its Subsidiaries in an
involuntary case, (ii) appoints a Custodian of the Company or any of its
Subsidiaries or for all or substantially all of its property, or (iii) orders
the liquidation of the Company or any of its Subsidiaries, and the order or
decree remains unstayed and in effect for 60 days.
A Default under clause (b) is not an Event of Default until a Holder
notifies the Company of such Default and the Company does not cure such Default
within two (2) Business Days after receipt of such notice. A Default under
clause (c) (other than a Default under Sections 5.3, 5.4, 5.6 or 5.7 of this
Agreement, which Default shall be an Event of Default without the notice or
passage of time specified in this paragraph) or (d) (other than a Default
resulting from the acceleration of any Indebtedness described therein, which
Default shall be an Event of Default without the notice or passage of time
specified in this paragraph) or (e) is not an Event of Default until the
Requisite Noteholders notify the Company of the Default and the Company does not
cure the Default within ten (10) days after receipt of the notice. Any such
notices must specify the Default, demand that it be remedied and state that the
notice is a "Notice of Default."
7.2. Acceleration of Notes
If an Event of Default (other than an Event of Default specified in
clauses (e) and (f) of Section 7.1) occurs and is continuing, the Requisite
Noteholders, by notice to the Company, may declare the unpaid principal of and
any accrued interest on all the Notes to be due and payable. Immediately upon
such declaration, the principal and interest shall be due and payable. If an
Event of Default specified in clause (e) or (f) of Section 7.1 occurs, such an
amount shall become and be immediately due and payable without any declaration
or other act on the part of any Holder. The Requisite Noteholders by notice to
the Company may rescind an acceleration of and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of the acceleration.
7.3. Other Remedies
If an Event of Default occurs and is continuing, Holders of the Notes
may pursue any available remedy to collect the payment of principal or interest
on the Notes or to enforce the performance of any provision of the Notes or this
Agreement.
A delay or omission by any Holder of any Notes in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
29
<PAGE>
SECTION 8. SUBORDINATION
8.1. Notes Subordinated to Senior Indebtedness
(a) The Notes are subordinated and junior in right of payment of
the principal of and interest and all other obligations (all of the foregoing, a
"Payment or Distribution") on such Notes to the prior payment in full of any
Senior Indebtedness whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed, the Notes shall comply with the provisions of
this Section 8, and each Holder by his acceptance thereof likewise agrees.
A Payment or Distribution shall include any asset of any kind or
character, and may consist of cash, securities or other property, by set-off or
otherwise, except that Holders may receive (i) securities that are subordinated
to at least the same extent as the Notes to (A) Senior Indebtedness and (B) any
securities issued in exchange for Senior Indebtedness.
(b) The Senior Indebtedness of the Company shall continue to be Senior
Indebtedness and entitled to the benefit of these subordination provisions
irrespective of any amendment, modification or waiver of any term of any
instrument relating to refinancing of the Senior Indebtedness, whether with or
without notice to Holders.
(c) No right of any holder of any Senior Indebtedness to enforce
subordination as herein provided shall at any time or in any way be affected or
impaired by any act or failure to act on the part of the Company, the Holders or
the holders of the Senior Indebtedness, including without limitation any
non-compliance by the holders of the Senior Indebtedness with any of the terms,
provisions and covenants of the documents evidencing or securing the Senior
Indebtedness, or by any noncompliance by the Company or the Holders with any of
the terms, provisions and covenants of the Notes, regardless of any knowledge
thereof that any such holder of Senior Indebtedness may have or otherwise be
charged with.
8.2. Company Not to Make Payments with Respect to Notes in Certain
Circumstances
No Payment or Distribution shall be made by the Company on account of
principal of or interest on the Notes, whether upon the Maturity Date, upon
repurchase or acceleration, or otherwise, if there shall have occurred and be
continuing a default with respect to any Senior Indebtedness and notice of such
default in writing or by telegram has been given to the Company by any holder or
holders of Senior Indebtedness, unless and until the Company shall have received
written notice from such holder or holders that such default or event of default
shall have been cured or waived or shall have ceased to exist or, unless in the
event of a default that does not result in the acceleration of any Senior
Indebtedness or that does not involve a payment default with respect to any
Senior Indebtedness, upon the expiration of the 60-day period following the date
of such notice of default. Following such 60-day period, the Company shall be
obligated to make any and all outstanding Payments or Distributions with respect
to the Notes.
Upon acceleration of the principal of the Notes or any payment by the
Company or distribution of assets of the Company of any kind or character,
whether in cash, property or
30
<PAGE>
securities, to creditors upon any dissolution or winding up or liquidation or
reorganization of the Company, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or such other proceedings, all amounts due
or to become due upon all Senior Indebtedness shall first be paid in full in
cash, or payment thereof provided for to the satisfaction of the holders
thereof, before any Payment or Distribution is made on account of the repurchase
price or principal of or interest on the Notes; and (subject to the power of a
court of competent jurisdiction to make other equitable provision, which shall
have been determined by such court to give effect to the rights conferred in
this Section 8 upon the Senior Indebtedness and the holders thereof with respect
to the Notes or the Holders, by a lawful plan of reorganization or readjustment
under applicable law) upon any such dissolution or winding up or liquidation or
reorganization, any Payment or Distribution by the Company or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to which the Holders would be entitled except for the provisions of
this Section 8, shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other Person making such Payment or
Distribution directly to the holders of Senior Indebtedness of the Company or
their representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior Indebtedness
may have been issued, as their respective interests may appear, to the extent
necessary to pay all Senior Indebtedness in full in cash, after giving effect to
any concurrent payment or distribution to or for the holders of Senior
Indebtedness, before any Payment or Distribution is made to the Holders.
In the event that, notwithstanding the foregoing, any Payment or
Distribution by the Company of any kind or character, whether such payment shall
be in cash, property or securities is prohibited by the foregoing, and the
Company shall have made payment to the Holders before all Senior Indebtedness is
paid in full in cash, or provision is made for such payment to the satisfaction
of the holders thereof, such Holder, then and in such event such Payment or
Distribution shall be paid over by such Holder or delivered to the holders of
Senior Indebtedness or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in cash, after giving effect to any concurrent Payment or Distribution to or for
the holders of such Senior Indebtedness, and, until so delivered, the same shall
be held in trust by any Holder as the property of the holders of Senior
Indebtedness.
The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the conveyance or transfer of its property as an entirety, or substantially as
an entirety, to another corporation upon the terms and conditions provided in
Section 5.7 shall not be deemed a dissolution, winding up, liquidation or
reorganization for the purpose of this Section if such other Person shall, as a
part of such consolidation, merger, conveyance or transfer, comply with the
conditions stated in Section 5.7.
The holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Holders without incurring
responsibility to the Holders
31
<PAGE>
and without impairing or releasing the obligations of the Holders to the holders
of the Senior Indebtedness: (i) change the manner, place or terms of payment or
change or extend the time of payment of, or renew or alter, Senior Indebtedness,
or otherwise amend in any manner Senior Indebtedness or any instrument
evidencing the same or any agreement under which Senior Indebtedness is
outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any
Person liable in any manner for the collection of Senior Indebtedness; and/or
(iv) exercise or refrain from exercising any rights against the Company and any
other Person.
8.3. Subrogation of Notes
After all Senior Indebtedness is paid in full and until the Notes are
paid in full, the Holders shall be subrogated (equally and ratably with all
other Indebtedness pari passu with the Notes) to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of Senior Indebtedness.
If any Payment or Distribution to which the Holders would otherwise
have been entitled but for the provisions of this Section 8 shall have been
applied pursuant to the provisions of this Section 8 to the payment of all
amounts payable in respect of the Senior Indebtedness, then and in such case,
the Holders, as with respect to the Company, shall be entitled to receive from
the holders of such Senior Indebtedness at the time outstanding any Payments or
Distributions received by such holders of Senior Indebtedness in excess of the
amount sufficient to pay all amounts payable in respect of the Senior
Indebtedness in full in cash or, at the option of the holders of Senior
Indebtedness, cash equivalents.
8.4. No Impairment of Subordination
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company,
any Holder, or by any act, or failure to act, in good faith, by any such holder
of Senior Indebtedness, or by any noncompliance by the Company or any Holder
with the terms, provisions and covenants of this Agreement regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
8.5. Section 8 Not to Prevent Events of Default
The failure to make a payment on account of principal of or interest
on the Notes by reason of any provision in this Section 8 shall not be construed
as preventing the occurrence of an Event of Default with respect to such series
under Section 7.1.
8.6. Securities Senior to Subordinated Indebtedness
The indebtedness represented by the Notes will be senior and prior in
right of payment to all Subordinated Indebtedness, to the extent and in the
manner provided in such Subordinated Indebtedness.
32
<PAGE>
8.7. Assignment of Junior Claims
(a) So long as LTC Equity Holding Company holds a sufficient amount of
Notes such that LTC Equity Holding Company constitutes a Requisite Noteholder,
paragraphs (b) and (c) of this Section 8.7 shall have no force and effect. In
the event LTC Equity Holding Company shall cease to hold a sufficient amount of
Notes such that LTC Equity Holding Company is no longer a Requisite Noteholder,
paragraphs (b) and (c) of this Section 8.7 shall be in effect.
(b) In the event of an insolvency proceeding with respect to the
Company, each Holder will assign to a representative of the holders of Senior
Indebtedness (as identified in writing to each Holder by the holders of Senior
Indebtedness) (the "Senior Representative") each Holder's right, title and
interest in and to any claims such Holder has against the Company with respect
to the Notes (the "Junior Claims") and any security held therefor, and will
deliver to the Senior Representative from time to time any and all instruments
and documents evidencing such Junior Claims, or will have entered on such
instruments and documents such subordination legend as the Senior Representative
may reasonably request, and each Holder will execute such other instruments and
documents as the Senior Representative may from time to time reasonably require
in connection therewith. In the event that any Junior Claim is not evidenced by
a negotiable instrument, each Holder hereby agrees that he will use all
commercially reasonably efforts to obtain an instrument or document from the
Company evidencing such Junior Claim. In the event that such debt is not
evidenced by a document, it shall nevertheless be deemed subordinated and
assigned by virtue of this Section 8.7.
(c) In the event of an insolvency proceeding with respect to the
Company, each Holder will grant to the Senior Representative irrevocable
authority in the place and stead of such Holder and in the name of such Holder
or in the Senior Representative's name but for the Senior Representative's use
and benefit, at any time or times, after any default under the terms of any
Senior Indebtedness, in the Senior Representative's discretion to demand,
collect file proofs of claim with respect to, receive (by way of dividends or
otherwise) and take any and all legal proceedings for the recovery of any and
all moneys due or to become due on account of the Junior Claims or any thereof,
and to vote, give consents and take any other steps with regard thereto. Any and
all moneys so collected or received by the Senior Representative shall be
retained indefeasibly by the Senior Representative for application to the
payment in full of any amounts owing with respect to the Senior Indebtedness
then outstanding (the "Senior Claims"). If the Senior Representative receives
notice of any claim adverse to the rights or interests of each Holder in and to
either the Junior Claims or the Senior Claims, or any moneys held by the Senior
Representative in respect thereof, the Senior Representative shall be entitled
to retain any and all such moneys, documents and instruments evidencing such
Junior Claims and Senior Claims.
SECTION 9. AMENDMENTS AND WAIVERS
9.1. With Consent of Holders
The Company, when authorized by a resolution of the Board of Directors
of the Company and with the written consent of the Requisite Noteholders, may
amend this Agreement
33
<PAGE>
or the Notes, without notice to any other Holders. The Requisite Noteholders may
waive compliance by the Company with any provision of this Agreement or the
Notes without notice to any other Holder. Without the consent of each Holder
affected, however, no amendment or waiver may (with respect to any Notes held by
a non-consenting Holder of Notes):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment or waiver of any provision of this Agreement or the Notes;
(b) reduce the principal of or change the fixed maturity of any Note;
(c) reduce the rate of or change the time for payment of interest on
any Note;
(d) waive a Default or Event of Default in the payment of principal of
or interest on the Notes (except a rescission of acceleration of the Notes by
the Requisite Noteholders and a waiver of the payment default that resulted from
such acceleration);
(e) make the principal of or the interest on, any Note payable in any
manner other than that stated in this Agreement and the Notes;
(f) make any change in the provisions of this Agreement relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or interest on the Notes;
(g) make any change to the subordination provisions of this Agreement
that adversely affect any Holder; or
(h) make any change in the foregoing amendment and waiver provisions.
It shall not be necessary for the consent of the Holders under this
Section 9 to approve the particular form of any proposed amendment or waiver,
but it shall be sufficient if such consent approves the substance thereof.
After an amendment or waiver under this Section 9 becomes effective,
the Company shall mail to the Holders affected thereby a notice briefly
describing the amendment or waiver. Any failure of the Company to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such amendment or waiver.
In connection with any amendment to this Section 9, the Company may
offer, but shall not be obligated to offer, to any Holder who consents to such
amendment or waiver, consideration for such Holder's consent.
9.2. Revocation and Effect of Consents
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of a
Note or portion of a Note that evidences the same debt as the consenting
Holder's Note, even if notation of the consent is not made on any Note. However,
any such Holder or subsequent Holder may revoke the consent
34
<PAGE>
as to his Note or portion of his Note by notice to the Company received before
the date on which the Requisite Noteholders have consented (and not theretofore
revoked such consent) to the amendment or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment or
waiver, which record date shall be at least ten (10) Business Days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated proxies),
and only those persons, shall be entitled to revoke any consent previously
given, whether or not such persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
After an amendment or waiver becomes effective, it shall bind every
Holder, unless it makes a change described in any of clauses (a) through (g) of
Section 9.1, in which case, the amendment or waiver shall bind only each Holder
of a Note who has consented to it and every subsequent Holder of a Note or
portion of a Note that evidences the same debt as the consenting Holder's Note;
provided that any such waiver shall not impair or affect the right of any Holder
to receive payment of principal of and interest on a Note, on or after the
respective due dates expressed in such Note, or to bring suit for the
enforcement of any such payment on or after such respective dates without the
consent of such Holder.
9.3. Notation on or Exchange of Notes
If an amendment or waiver changes the terms of a Note, the Company may
require the Holder of the Note to deliver it to the Company. The Company may
place an appropriate notation on the Note about the changed terms and return it
to the Holder.
SECTION 10. DEFINITIONS
10.1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing Date, whether or not subsequently
reacquired or retired by the Company, other than the Conversion Shares; provided
that such term shall exclude shares of Common Stock issued under the Stock
Option Plan and shares of Common Stock issued or issuable upon the conversion of
Notes issued pursuant to agreements dated on or about the date of this Agreement
and the warrants scheduled on the Disclosure Schedule.
"Adjusted Conversion Price" shall have the meaning assigned to such
term in Section 6.6(a).
35
<PAGE>
"Affiliate" means, with respect to any referenced Person, a Person (i)
which directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such referenced Person, (ii)
which directly or indirectly through one or more intermediaries beneficially
owns or holds 10% or more of the combined voting power of the total Voting
Securities of such referenced Person or (iii) of which 10% or more of the
combined voting power of the total Voting Securities directly or indirectly
through one or more intermediaries is beneficially owned or held by such
referenced Person, or a Subsidiary of such referenced Person. When used herein
without reference to any Person, Affiliate means an Affiliate of the Company.
For purposes of this definition, "control" when used with respect to any person
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of Voting Securities, by contract
or otherwise; and the terms "affiliated," controlling" and "controlled" have
meanings correlative to the foregoing.
"Agent" means any Person authorized to act and who acts on behalf of
the Purchasers with respect to the transactions contemplated by this Agreement,
the Registration Rights Agreement or the Commitment Letter.
"Agreement" means this Convertible Subordinated Note Purchase
Agreement dated as of March 30, 1998 by and between the Company and the
Purchaser.
"Average Closing Sales Price" as of a particular 12-month period means
the average closing sales price of the Common Stock for each Business Day during
such 12-month period. Such average shall be calculated as follows: (i) the
average of the closing sales prices of the Common Stock quoted on the Nasdaq
National Market for each Business Day during such 12-month period, or (ii) if no
such quotations are available, the average of the closing sales prices for each
Business Day during such 12-month period on the principal national securities
exchange on which the Common Stock is listed, or (iii) if not listed on any
national securities exchange, the average closing sales price for each Business
Day during such 12-month period in the over-the-counter market as reported by
the National Quotation Bureau, Incorporated or similar organization, or (iv) if
no of such sales prices are available for each Business Day in such 12-month
period, the average of the high bid and low asked quotations in the
over-the-counter market as so reported for such Business Days, or (v) if no such
quotations are available, the fair market value per share on such unreported
Business Days as determined by an independent investment banker or appraiser,
nationally recognized to be expert in making such valuations, selected by a
majority of the directors of the Company. In the event "Average Closing Sales
Price" is determined by an independent investment banker or appraiser pursuant
to clause (v) of the foregoing sentence, such determination shall be provided to
each Holder in writing together with a fair and accurate description of the
basis for making such determination. The Requisite Holders shall be permitted to
dispute such determination by written notice to the Company within ten (10)
Business Days of receipt of such determination. In the event of such dispute,
the Requisite Holders and the Company shall work together in good faith to
mutually agree upon a second independent investment banker or appraiser to make
a determination of "Average Closing Sales Price" whose fees and expenses shall
be paid by the Company. "Average Closing Sales Price" shall be the average of
the per share fair market values determined by both independent investment
bankers or appraisers.
36
<PAGE>
"Bankruptcy Law" means title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Business Day" means any day which is not a Legal Holiday.
"Capital Lease" means any lease of any property which would in
accordance with GAAP be required to be classified and accounted for on the
balance sheet of the lessee as a capital lease.
"Capitalized Lease Obligation" means, with respect to any Person for
any period, any obligation of such Person to pay rent or other amounts under a
Capital Lease; the amount of such obligation shall be the capitalized amount
thereof determined in accordance with such principles.
"Capital Stock" means any and all shares, interests, participation or
other equivalents (however designated) of corporate stock, including without
limitation all common stock and preferred stock.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act (42 U.S.C. ss. 9601 et. seq.).
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any Person or group (as such term is used in Section 13(d)(3) of the
Exchange Act); (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that any Person or group (as defined above), other than Walter C. Bowen or a
Related Party, becomes the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition), directly or indirectly, of
more than 50% of the Fully Diluted Voting Securities of the Company (measured by
voting power rather than number of shares) and (iv) the date on which a majority
of the Board of Directors of the Company shall cease to be Continuing Directors.
"Change of Control Date" shall have the meaning set forth in Section
5.4.
"Change of Control Notice" shall have the meaning set forth in Section
5.4.
"Change of Control Price" shall have the meaning set forth in Section
5.4.
"Change of Control Repurchase Date" shall have the meaning set forth
in Section 5.4.
37
<PAGE>
"Change of Control Repurchase Offer" shall have the meaning set forth
in Section 5.4.
"Charter Documents" means the Articles of Organization, Articles of
Incorporation or Certificate of Incorporation and Bylaws, as amended or restated
(or both) to date, of the Company or a Subsidiary, as applicable.
"Closing" shall have the meaning set forth in Section 1.2(b).
"Closing Date" shall have the meaning set forth in Section 1.2(b).
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor statute or law thereto.
"Commitment Letter" means that certain Commitment Letter dated as of
the Closing Date by and between the Company, LTC Properties and LTC West,
executed concurrently herewith.
"Common Stock" means the Common Stock, no par value, of the Company.
"Company" means Regent Assisted Living, Inc., an Oregon corporation.
"Company SEC Documents" shall have the meaning set forth in Section
3.23.
"Conversion Rate" shall have the meaning set forth in Section 6.2.
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Notes.
"Convertible Securities" shall have the meaning set forth in Section
6.6(c).
"Consolidated " or "consolidated," when used with reference to any
accounting term, means the amount described by such accounting term, determined
on a consolidated basis in accordance with GAAP, after elimination of
intercompany items.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock that by its terms is not entitled to
the payment of dividends unless such dividends may be declared and paid only out
of net earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
preferred stock, less (x) all write-ups (other than write-ups resulting from
foreign currency translations and write-ups of tangible assets of a going
concern business made within 12 months after the acquisition of such business)
subsequent to the Closing Date in the book value of any asset owned by such
Person or a consolidated Subsidiary of such Person, (y) all investments as of
such date in unconsolidated Subsidiaries and in Persons that are not
Subsidiaries, and (z) all unamortized debt discount and
38
<PAGE>
expense and unamortized deferred charges as of such date, all of the foregoing
determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on March 30, 1998 or (ii) was nominated for election or
elected to such Board with the approval of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Determination Date" shall have the meaning set forth in Section 6.4.
"Effective Price" of Additional Shares of Common Stock shall mean the
quotient determined by dividing the total number of Additional Shares of Common
Stock issued or sold, or deemed to have been issued or sold by the Company under
Section 6.6, into the aggregate consideration received, or deemed to have been
received by the Company for such issue under Section 6.6, for such Additional
Shares of Common Stock.
"Environmental Laws" shall have the meaning set forth in Section 3.13.
"Equity Interest" means Capital Stock or warrants, options or other
rights to acquire Capital Stock (but excluding any debt note which is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" shall have the meaning set forth in Section 7.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
from time to time, and any successor statute or law thereto.
"Fair Market Value" of Common Stock as of a particular date means the
Weighted Average trading price of the Common Stock for the ten (10) consecutive
Business Day period immediately preceding such date. Such Weighted Average shall
be calculated as follows: (i) the Weighted Average of the sales price of the
Common Stock quoted on the Nasdaq National Market for each of such ten (10)
Business Days, or (ii) if no such quotations are available, the Weighted Average
sales price for such ten (10) Business Days on the principal national securities
exchange on which the Common Stock is listed, or (iii) if not listed on any
national securities exchange, the Weighted Average sales price for such ten (10)
Business Days in the over-the-counter market as reported by the National
Quotation Bureau, Incorporated or similar organization, or (iv) if no of such
sales prices are available for each Business Day in such ten (10) Business Day
period, the Weighted Average of the high bid and low asked quotations in the
over-the-counter market as so reported for such ten (10) Business Days, or (v)
if no such
39
<PAGE>
quotations are available, the fair market value per share on such date as
determined by an independent investment banker or appraiser, nationally
recognized to be expert in making such valuations, selected by a majority of the
directors of the Company; provided, however, that in the event of an
underwritten public offering of Common Stock, "Fair Market Value" shall mean the
price to the public of such Common Stock in such underwritten public offering.
In the event "Fair Market Value" is determined by an independent investment
banker or appraiser pursuant to clause (v) of the foregoing sentence, such
determination shall be provided to each Holder in writing together with a fair
and accurate description of the basis for making such determination. The
Requisite Holders shall be permitted to dispute such determination by written
notice to the Company within ten (10) Business Days of receipt of such
determination. In the event of such dispute, the Requisite Holders and the
Company shall work together in good faith to mutually agree upon a second
independent investment banker or appraiser to make a determination of "Fair
Market Value" whose fees and expenses shall be paid by the Company. "Fair Market
Value" shall be the average of the per share fair market values determined by
both independent investment bankers or appraisers.
"Fully Diluted Voting Securities" means each class of Voting
Securities of a Person and each class of securities of a Person that, at the
time of determination, can immediately subscribe for and/or convert to Voting
Securities.
"GAAP" means generally accepted accounting principles as used in the
United States of America and applied in a manner consistent with past practices.
"Holder" or "Holders" means the Purchaser (so long as it holds any
Notes) and any other holder of any of the Notes.
"Incorporated Documents" means the following of the Company's
documents, each as filed with the SEC: (1) Form 10-K for the year ended December
31, 1997, (2) 1997 Proxy Statement dated April 10, 1997; and (3) Form 8-K dated
December 29, 1997.
"Indebtedness" means, with respect to any Person, the aggregate amount
of, without duplication, the following:
(a) all obligations for borrowed money;
(b) all obligations evidenced by bonds, debentures, notes or other
similar instruments;
(c) all obligations to pay the deferred purchase price of property or
services, except Trade Payables and obligations that do not exceed $300,000 in
the aggregate, accrued commissions and other similar accrued current liabilities
in respect of such obligations, in any case, not overdue and arising in the
ordinary course of business;
(d) all Capitalized Lease Obligations;
40
<PAGE>
(e) all obligations or liabilities of others secured by a lien on any
asset owned by such Person or Persons whether or not such obligation or
liability is assumed;
(f) all obligations of such Person or Persons, contingent or
otherwise, in respect of any letters of credit or bankers' acceptances; and
(g) all guaranties.
"Indemnified Parties" shall have the meaning set forth in Section 5.6.
"Independent Auditors" shall mean the independent certified public
accountants of the Company. Until December 29, 1997, the Independent Auditors
were Coopers & Lybrand, L.L.P. After such date and as of the date of the
Agreement, the Independent Auditors are KPMG Peat Marwick LLP.
"Inspectors" shall have the meaning set forth in Section 5.13.
"Intangibles" shall have the meaning set forth in Section 3.16.
"Junior Claims" shall have the meaning set forth in Section 8.7.
"Key Employee" means Walter C. Bowen.
"Knowledge of the Company" means to the actual knowledge of each of
the Chairman, Chief Executive Officer, Chief Financial Officer, General Counsel,
President, Treasurer and any Senior or Executive Vice President of the Company,
after due inquiry and investigation.
"Legal Holiday" means a Saturday, Sunday or day on which banks and
trust companies in the principal place of business of the Company or in
California are not required to be open. If a payment date is a Legal Holiday,
payment may be made on the next succeeding day that is not a Legal Holiday, and
interest shall accrue for the intervening period.
"Lien" means any mortgage, pledge, lien, taxes, encumbrance, charge or
adverse claim affecting title or resulting in a charge against real or personal
property, or note interest of any kind (including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell and any filing of or agreement to
give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Losses" shall have the meaning set forth in Section 5.6.
"LTC Equity Holding Company" means LTC Equity Holding Company, Inc., a
Nevada corporation.
"LTC Properties" means LTC Properties, Inc., a Maryland corporation.
41
<PAGE>
"LTC West" means LTC West, Inc., a Nevada corporation.
"Material Adverse Effect" means (i) any adverse effect upon the
issuance, validity or enforceability of a Note, this Agreement, the Registration
Rights Agreement or the Commitment Letter, (ii) any material adverse effect on
the results of operations, financial condition, properties, assets, business or
prospects of the Company and its Subsidiaries, taken as a whole, or (iii) any
adverse effect on the ability of the Company to fulfill its obligations under
the Notes, this Agreement, the Registration Rights Agreement or the Commitment
Letter or any document contemplated hereby or thereby.
"Material Contract" shall have the meaning set forth in Section 3.17.
"Maturity Date" means March 31, 2008.
"Note Register" shall have the meaning set forth in Section 1.3.
"Note" or "Notes" shall have the meaning set forth in Section 1.1.
"Officers' Certificate" means a certificate signed by any two
officers, one of whom must be the Chairman of the Board, the President, the
Treasurer or a Vice President of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Purchaser.
"Payment" or "Distribution" shall have the meaning set forth in
Section 8.1.
"Person" means an individual, partnership, corporation, limited
liability company, trust or unincorporated organization or a government or
agency or political subdivision thereof.
"Plan of Liquidation" means, with respect to any Person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such Person to holders of
Capital Stock of such Person.
"Preferred Stock" means the Series A Preferred Stock, no par value,
and the Series B Preferred Stock, no par value, of the Company.
"Property" or "property" means any assets or property of any kind or
nature whatsoever, real, personal or mixed (including fixtures), whether
tangible or intangible, provided that the terms "Property" or "property", when
used with respect to any Person, shall not include Notes issued by such.
"Purchaser" means the purchaser on the signature pages hereto.
42
<PAGE>
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of the Closing Date by and among the Company and the
Purchaser, executed concurrently herewith.
"Related Party" with respect to Walter C. Bowen means (A) any spouse
or immediate family member of such Person or (B) or trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding an 80% or more controlling interest of which
consist of Walter C. Bowen and/or such other Persons referred to in the
immediately preceding clause (A).
"Reorganizations" shall have the meaning set forth in Section 6.5.
"Requisite Noteholders" shall mean the holders of Notes issued to the
Purchaser pursuant to this Agreement and the Notes whenever issued to all other
purchasers pursuant to similar agreements dated on or about the date of this
Agreement with an aggregate principal amount equal to or greater than 50% of the
aggregate principal amount of all then outstanding Notes issued to the Purchaser
pursuant to this Agreement and the Notes whenever issued to all other purchasers
pursuant to similar agreements dated on or about the date of this Agreement.
"Rights" shall have the meaning assigned to such term in Section
6.6(c).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and any successor statute or law thereto.
"Senior Claims" shall have the meaning set forth in Section 8.7.
"Senior Indebtedness" means the principal of, premium, if any, and
accrued interest on any other Indebtedness of the Company and all fees,
expenses, reimbursements, indemnities and other amounts payable with respect to
such Indebtedness, whether such Indebtedness is outstanding on the date of this
Agreement or thereafter created, incurred, assumed, or guaranteed by the Company
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or the assumption or guarantee thereof expressly provides
that such Indebtedness shall not be senior, or is pari passu or subordinate, in
right or payment to the Notes; provided that Senior Indebtedness shall not
include (i) in the case of each Note the other Notes (ii) Indebtedness of the
Company to a Subsidiary of the Company, (iii) Indebtedness of or amounts owed by
the Company for compensation to directors or members of senior management that
has not been approved by the Compensation Committee of the Board; (iv)
Indebtedness guaranteed by the Company on behalf of any equityholder, director,
officer or employee of the Company or of any equityholder, director, officer or
employee of any of the Company's Subsidiaries, (v) any Trade Payables (including
without limitation Indebtedness incurred for the purchase of goods or materials
or for services obtained in the ordinary course of business), (vi) Indebtedness
of the Company that is subordinated by its terms in right of payment to any
other Indebtedness of the Company, and (vii) Indebtedness incurred in violation
of this Agreement.
43
<PAGE>
"Senior Representative" shall have the meaning set forth in Section
8.7.
"Subordinated Indebtedness" means the principal, premium, if any, and
interest on any Indebtedness of the Company which by its terms is expressly
subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person (the "parent"), any
corporation, association or other business entity of which Notes or other
ownership interests representing more than 50% of the ordinary voting power are,
at the time as of which any determination is being made, owned or controlled by
the parent or one or more subsidiaries of the parent or by the parent and one or
more subsidiaries of the parent.
"Stock Option Plan" shall mean the Company's 1995 Stock Incentive Plan
as in effect on the Closing Date.
"Surviving Person" shall have the meaning set forth in Section
5.7(b)(1).
"Total Price" means, with respect to the Common Stock on any Business
Day, the product of: (x) the closing sales price of the Common Stock quoted on
the Nasdaq National Market on such Business Day, or if no such quotations are
available, on the principal national securities exchange on which the Common
Stock is listed on such Business Day, or if not listed on any national
securities exchange, in the over-the-counter market as reported by the National
Quotation Bureau, Incorporated or similar organization on such Business Day, or
if no such sales prices are available, the high bid and low asked quotations in
the over-the-counter market on such Business Day multiplied by (y) the number of
shares of Common Stock traded on such market or exchange, as applicable, on such
Business Day.
"Trade Payables" means, with respect to any Person, accounts payable
and other similar accrued current liabilities in respect of obligations or
indebtedness to trade creditors created, assumed or guaranteed by such Person or
any of its Subsidiaries in the ordinary course of business in connection with
the obtaining of property or services.
"Voting Securities" means any class of Equity Interests of a Person
pursuant to which the holders thereof have, at the time of determination, the
general voting power under ordinary circumstances to vote for the election of
directors, managers, trustees or general partners of any Person (irrespective of
whether or not at the time any other class or classes will have or might have
voting power by reason of the happening of any contingency).
"Weighted Average" means, with respect to the Common Stock during any
ten (10) consecutive Business Day period, the sum of the Total Price of such
Common Stock for each Business Day during such ten (10) consecutive Business Day
period divided by ten (10).
10.2. Rules of Construction
Unless the context otherwise requires
44
<PAGE>
(a) a term has the meaning assigned to it;
(b) "or" is not exclusive;
(c) words in the singular include the plural, and words in the plural
include the singular;
(d) provisions apply to successive events and transactions;
(e) "herein," "hereof" and other words of similar import refer to this
Agreement as a whole and not to any particular Section or other subdivision; and
(f) the masculine shall include the feminine and neuter genders as
appropriate.
SECTION 11. MISCELLANEOUS
11.1. Notices
All notices and other communications provided for or permitted
hereunder shall be made by hand-delivery, first-class mail, telex, telecopier,
or overnight air courier guaranteeing next day delivery:
(a) if to any Purchaser at address set forth on the signature pages
hereto, with a copy to Latham & Watkins, 633 W. Fifth Street, Suite 4000, Los
Angeles, California 90071, Attention: Eva Herbst Davis, Esq.; and
(b) if to the Company, to Regent Assisted Living, Inc., 121 SW
Morrison, Suite 1000, Attention: General Counsel with a copy to Stoel Rives LLP,
900 SW Fifth Avenue, Suite 2300, Portland, Oregon 97204, Attention: Todd Bauman,
Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five (5) Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
The parties may change the addresses to which notices are to be given by giving
five days' prior notice of such change in accordance herewith.
11.2. Undertaking for Costs
In any suit for the enforcement of any right or remedy under this
Agreement, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
45
<PAGE>
11.3. Successors and Assigns
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties.
11.4. Counterparts
This Agreement may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
11.5. Headings
The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
11.6. Governing Law
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of California.
11.7. Entire Agreement
This Agreement, together with the Notes, the Registration Rights
Agreement and the Commitment Letter is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, together with the Notes, the Registration
Rights Agreement and the Commitment Letter supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
11.8. Severability
In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired or affected, it being
intended that the Purchaser's rights and privileges shall be enforceable to the
fullest extent permitted by law.
11.9. Transfer
The Notes may not be transferred, sold, assigned, pledged,
hypothecated or otherwise disposed of unless (a) such transfer is pursuant to an
effective registration statement under the Securities Act and any applicable
state securities laws, or (b) the Company has been furnished with a satisfactory
opinion of counsel for the Holder, at such Holder's expense, that
46
<PAGE>
such transfer is exempt from the provisions of Section 5 of the Securities Act,
the rules and regulations in effect thereunder and any applicable state
securities laws.
47
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties set forth below as of the date first written above.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By: WALTER C. BOWEN
----------------------------------
Walter C. Bowen
President
JAMES J. PIECZYNSKI,
an individual
JAMES J. PIECZYNSKI
- ---------------------------------------
James J. Pieczynski
Address:
1544 Falling Star Avenue
Thousand Oaks, California 91362
48
<PAGE>
ANNEX A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS (A) SUCH TRANSFER IS PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE
COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER
THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT, THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE SECURITIES
LAWS.
REGENT ASSISTED LIVING, INC.
CONVERTIBLE SUBORDINATED NOTE DUE MARCH 31, 2008
Note No. ---------- $--------------------
FOR VALUE RECEIVED, the undersigned, REGENT ASSISTED LIVING, INC., a
corporation organized and existing under the laws of Oregon (herein called the
"Company"), hereby promises to pay to the order of -----------------------------
or registered assigns ("Holder"), the principal sum of -------------------------
DOLLARS (or so much thereof as shall remain outstanding) on March 31, 2008.
Payments are to be made as provided in the Agreement (as defined herein).
This Note is one of the Notes issued pursuant to the Convertible
Subordinated Note Purchase Agreement dated as of March 30, 1998 (the
"Agreement"), by and between the Company and James J. Pieczynski, an individual,
and is also entitled to the benefits thereof to the extent provided in the
Agreement. This Note is subject to (i) conversion, in whole or in part, at the
option of the Holder, pursuant to Section 6.1(a) of the Agreement, (ii)
conversion, in whole but not in part, at the option of the Company upon the
satisfaction of certain conditions pursuant to Section 6.1(b) of the Agreement
and (iii) repurchase, in whole or in part, upon a Change of Control pursuant to
Section 5.4 of the Agreement.
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and, at the
option of the holder, registered in the name of, the transferee. The Company may
deem and treat the person in whose name this Note is registered as the holder
and owner hereof for the purpose of receiving payments and for all other
purposes whatsoever, and the Company shall not be affected by any notice to the
contrary.
<PAGE>
If an Event of Default shall occur and be continuing, this Note may,
under certain circumstances, become or be declared due and payable in the manner
and with the effect provided in the Agreement.
Certain terms and provisions of this Note may be amended or compliance
herewith waived on the terms and provisions provided for in the Agreement.
The Note is subordinated in both right of payment and time of payment
to certain Senior Indebtedness, as defined and described in Section 8 of the
Agreement.
Capitalized terms used herein without definition shall have the
meaning set forth for such terms in the Agreement.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By:--------------------------------------
Name:
Title:
2
<PAGE>
ANNEX B
FORM OF OPINION OF COMPANY COUNSEL
1. The Company and each of its Subsidiaries are corporations duly
organized and validly existing in good standing under the laws of their
respective jurisdictions of incorporation.
2. The Company and each of its Subsidiaries have all requisite power
and authority to own or hold under lease the properties it purports so to own or
hold except where the failure so to own or hold could not have a Material
Adverse Effect and to transact their respective businesses as now transacted and
proposed to be transacted.
3. The Company and each of its Subsidiaries are duly qualified as
foreign corporations and are in good standing in each jurisdiction in which the
character of the properties owned or held under lease by them or the nature of
the business transacted by them requires such qualification, except where the
failure so to be qualified or be in good standing could not have a Material
Adverse Effect.
4. The Company has taken all actions necessary to authorize it (i) to
execute, deliver and perform all of its obligations under the Agreement, the
Registration Rights Agreement and the Commitment Letter, (ii) to issue and
perform all of its obligations under the Notes and (iii) to consummate the
transactions contemplated hereby and thereby.
5. The total number of shares of Capital Stock which the Company has
authority to issue is 30,000,000 shares, consisting of 25,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock.
6. As of March 30, 1998, there were 4,633,000 shares of Common Stock
issued and outstanding, and 1,666,667 shares of Preferred Stock issued and
outstanding. Such shares of Common Stock and Preferred Stock have been duly
authorized and were validly issued, are fully paid and nonassessable, were
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities of the Company.
7. Neither the Company nor any of its Subsidiaries has outstanding any
securities convertible into or exchangeable for any shares of Capital Stock nor
does it have outstanding any rights to subscribe for or to purchase, or any
options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, any Capital Stock or securities convertible into or
exchangeable for any Capital Stock other than (i) the Notes to be issued
pursuant to the Agreement or pursuant to other similar agreements dated on or
about the date of this Agreement, (ii) 1,666,667 shares of Preferred Stock
convertible into Common Stock, and (iii) options and
<PAGE>
warrants to purchase shares of Common Stock as set forth and for the numbers of
shares set forth in the Disclosure Schedule to the Agreement.
8. The Company has duly authorized and reserved for issuance the
Conversion Shares, and the Conversion Shares will, when issued, be duly and
validly issued, fully paid and nonassessable and free from all Liens.
9. Neither the execution or delivery of the Agreement, the
Registration Rights Agreement or the Commitment Letter by the Company nor the
issuance, sale or delivery of the Notes nor the performance of its respective
obligations hereunder or thereunder will:
(a) violate any provision of the Charter Documents of the
Company;
(b) violate any statute, law, rule or regulation or any judgment,
decree, order, regulation or rule of any court or governmental authority to
which the Company, any of its Subsidiaries, or any of their respective
properties may be subject;
(c) permit or cause the acceleration of the maturity of any debt
or obligation of the Company or any of its Subsidiaries;
(d) violate, or be in conflict with, or constitute a default
under, or permit the termination of, or require the consent of any Person under,
or result in the creation of any Lien upon any property of the Company or any of
its Subsidiaries under, any mortgage, indenture, loan agreement, note, debenture
or other agreement for borrowed money or any other material agreement to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries (or their respective properties) may be bound, other than
such violations, conflicts, defaults, terminations and Liens, or such failures
to obtain consents, which could not reasonably be expected to result in a
Material Adverse Effect.
10. The sale of the Notes hereunder is exempt from the registration
and prospectus delivery requirements of the Securities Act.
11. Neither the Company nor any of its Subsidiaries is an "investment
company" or a Person directly or indirectly "controlled" by or acting on behalf
of an "investment company" within the meaning of the United States Investment
Company Act of 1940, as amended.
2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS (A) SUCH TRANSFER IS PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE
COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER
THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT, THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE SECURITIES
LAWS.
REGENT ASSISTED LIVING, INC.
CONVERTIBLE SUBORDINATED NOTE DUE MARCH 31, 2008
Issue Date: March 31, 1998
Note No. 1998-3 $160,000
FOR VALUE RECEIVED, the undersigned, REGENT ASSISTED LIVING, INC., a
corporation organized and existing under the laws of Oregon (herein called the
"Company"), hereby promises to pay to the order of JAMES J. PIECZYNSKI or
registered assigns ("Holder"), the principal sum of ONE HUNDRED SIXTY THOUSAND
DOLLARS (or so much thereof as shall remain outstanding) on March 31, 2008.
Payments are to be made as provided in the Agreement (as defined herein).
This Note is one of the Notes issued pursuant to the Convertible
Subordinated Note Purchase Agreement dated as of March 30, 1998 (the
"Agreement"), by and between the Company and James J. Pieczynski, an individual,
and is also entitled to the benefits thereof to the extent provided in the
Agreement. This Note is subject to (i) conversion, in whole or in part, at the
option of the Holder, pursuant to Section 6.1(a) of the Agreement, (ii)
conversion, in whole but not in part, at the option of the Company upon the
satisfaction of certain conditions pursuant to Section 6.1(b) of the Agreement
and (iii) repurchase, in whole or in part, upon a Change of Control pursuant to
Section 5.4 of the Agreement.
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and, at the
option of the holder, registered in the name of, the transferee. The Company may
deem and treat the person in whose name this Note is registered as the holder
and owner hereof for the purpose of receiving payments and for all other
purposes whatsoever, and the Company shall not be affected by any notice to the
contrary.
If an Event of Default shall occur and be continuing, this Note may,
under certain circumstances, become or be declared due and payable in the manner
and with the effect provided in the Agreement.
Certain terms and provisions of this Note may be amended or compliance
herewith waived on the terms and provisions provided for in the Agreement.
The Note is subordinated in both right of payment and time of payment
to certain Senior Indebtedness, as defined and described in Section 8 of the
Agreement.
Capitalized terms used herein without definition shall have the
meaning set forth for such terms in the Agreement.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By: WALTER C. BOWEN
------------------------------------
Walter C. Bowen
President
-------------------------------------------------------------------
REGENT ASSISTED LIVING, INC.
and
CHRISTOPHER T. ISHIKAWA
$90,000 Principal Amount
of
7.5% Convertible Subordinated Notes Due March 31, 2008
CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT
------------------------------------------------------------------
Dated as of March 30, 1998
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. PURCHASE AND SALE OF NOTES..........................................1
1.1. Issue of Notes...................................................1
1.2. Purchase and Sale of Notes.......................................1
1.3. Maintenance of Note Register.....................................2
1.4. Issue Taxes......................................................2
1.5. Direct Payment...................................................3
1.6. Lost, Etc. Notes.................................................3
SECTION 2. CLOSING CONDITIONS..................................................4
2.1. Delivery of Documents............................................4
2.2. Delivery of Other Agreements.....................................5
2.3. Representations and Warranties, Agreements and Covenants.........5
2.4. No Event of Default..............................................6
2.5. Proceedings Satisfactory.........................................6
2.6. Consents and Permits.............................................6
2.7. No Material Adverse Change.......................................6
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................6
3.1. Organization; Power and Authority................................6
3.2. Authorization....................................................7
3.3. Capital Stock....................................................7
3.4. No Other Registration Rights.....................................7
3.5. No Violation or Conflict; No Default.............................8
3.6. Margin Regulations...............................................8
3.7. Private Offering.................................................8
3.8. Due Authorization of Material Contracts..........................9
3.9. Financial Statements.............................................9
3.10. Litigation; Judgments..........................................10
i
<PAGE>
3.11. Taxes..........................................................10
3.12. Investment Company Act.........................................10
3.13. Environmental Matters..........................................10
3.14. Labor Relations................................................11
3.15. Real Property; Leases..........................................11
3.16. Intellectual Property; Licenses................................11
3.17. Defaults.......................................................12
3.18. Brokers........................................................12
3.19. Existing Indebtedness..........................................12
3.20. Compliance with Law; Permits...................................13
3.21. Insurance......................................................13
3.22. Material Events................................................13
3.23. SEC Documents; Undisclosed Liabilities.........................14
3.24. Material Misstatements or Omissions............................15
3.25. Survival of Representations and Warranties.....................15
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER...................15
4.1. Purchase for Own Account........................................15
4.2. Accredited Investor.............................................16
4.3. Authorization...................................................16
4.4. Brokers.........................................................16
SECTION 5. COVENANTS..........................................................16
5.1. Payment of Notes; Satisfaction of Obligations...................16
5.2. Notice of Default...............................................17
5.3. Limitation on Additional Indebtedness...........................17
5.4. Change of Control...............................................17
5.5. Stay, Extension and Usury Laws..................................18
5.6. Indemnification.................................................19
5.7. Corporate Existence; Merger; Successor Corporation..............20
5.8. Taxes...........................................................21
5.9. Investment Company Act..........................................21
ii
<PAGE>
5.10. Insurance......................................................22
5.11. Inconsistent Agreements........................................22
5.12. Compliance with Laws...........................................22
5.13. Inspection of Properties and Records...........................22
SECTION 6. CONVERSION OF NOTES................................................23
6.1. Conversion......................................................23
6.2. Conversion Rate.................................................24
6.3. Fractional Shares...............................................24
6.4. Adjustments for Stock Splits, Combinations and Dividends........24
6.5. Reorganization, Mergers, Consolidations or Sales of Assets......25
6.6. Sale of Shares Below Market or Conversion Price.................25
6.7. Adjustment for Failure to Quote on Nasdaq National Market.......27
6.8. Accountants' Certificate of Adjustment..........................27
6.9. Reservation of Shares Issuable Upon Conversion..................27
6.10. No Impairment..................................................28
SECTION 7. DEFAULTS AND REMEDIES..............................................28
7.1. Events of Default...............................................28
7.2. Acceleration of Notes...........................................29
7.3. Other Remedies..................................................29
SECTION 8. SUBORDINATION......................................................30
8.1. Notes Subordinated to Senior Indebtedness.......................30
8.2. Company Not to Make Payments with Respect to Notes
in Certain Circumstances........................................30
8.3. Subrogation of Notes............................................32
8.4. No Impairment of Subordination..................................32
8.5. Section 8 Not to Prevent Events of Default......................33
8.6. Securities Senior to Subordinated Indebtedness..................33
8.7. Assignment of Junior Claims.....................................33
SECTION 9. AMENDMENTS AND WAIVERS.............................................34
9.1. With Consent of Holders.........................................34
iii
<PAGE>
9.2. Revocation and Effect of Consents...............................35
9.3. Notation on or Exchange of Notes................................35
SECTION 10. DEFINITIONS.......................................................36
10.1. Definitions....................................................36
10.2. Rules of Construction..........................................45
SECTION 11. MISCELLANEOUS.....................................................46
11.1. Notices........................................................46
11.2. Undertaking for Costs..........................................46
11.3. Successors and Assigns.........................................46
11.4. Counterparts...................................................46
11.5. Headings.......................................................46
11.6. Governing Law..................................................47
11.7. Entire Agreement...............................................47
11.8. Severability...................................................47
11.9. Transfer.......................................................47
iv
<PAGE>
CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT
This CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT, is dated as of
March 30, 1998 (this "Agreement"), and entered into by and between REGENT
ASSISTED LIVING, INC., an Oregon corporation (the "Company") and CHRISTOPHER T.
ISHIKAWA, an individual (the "Purchaser").
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in Section 10.1 hereof.
In consideration of the premises, mutual covenants and agreements
hereinafter contained and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Company agrees as follows:
SECTION 1. PURCHASE AND SALE OF NOTES
1.1. Issue of Notes
On or before the Closing,
(a) The Company will have authorized the issue and sale of
$90,000 aggregate principal amount of its 7.5% Convertible Subordinated Notes
due March 31, 2008 (the "Notes") to the Purchaser, to be substantially in the
form attached hereto as Annex A.
(b) The Notes shall be substantially in the form attached hereto as
Annex A, including such other notations, legends or endorsements set forth
therefor or required by law. The Notes shall be dated the date of their
issuance. The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Agreement and, to the extent
applicable, the Company and the Purchaser, by their execution and delivery of
this Agreement, expressly agree to such terms and provisions and to be bound
thereby.
1.2. Purchase and Sale of Notes
(a) Purchase and Sale. The Company agrees to sell and, subject to the
terms and conditions set forth herein and in the Registration Rights Agreement
and in reliance on the representations and warranties of the Company contained
or incorporated herein, the Purchaser agrees to purchase the Notes for an
aggregate purchase price of $90,000.
(b) Closing. The purchase and sale of the Notes referred to in Section
1.2(a)(1) shall take place at a closing (the "Closing") at the offices of Latham
& Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, California at 2:00
p.m. on March 30, 1998 (the "Closing Date"). At the Closing, the Company will
deliver to the Purchaser the Notes to be purchased by the Purchaser (in such
permitted denomination or denominations and registered in the Purchaser's name
or the name of such nominee or nominees as the Purchaser may request) on the
Closing Date, dated the Closing Date, against payment of the purchase price
therefor by
<PAGE>
intra-bank or federal funds bank wire transfer of same day funds to such bank
account as the Company shall designate at least two Business Days prior to the
Closing.
(c) Fees and Expenses. Whether or not the Notes are sold, the Company
agrees to pay or reimburse all expenses relating to this Agreement, including
but not limited to:
(1) the reasonable fees and other expenses of the Purchaser's
counsel, Latham & Watkins, in connection herewith (not to exceed $50,000 in the
aggregate, relating to this Agreement and similar agreements dated on or about
the date of this Agreement);
(2) any reasonable out-of-pocket fees and expenses (including the
reasonable fees and expenses of counsel) in connection with any registration or
qualification of the Notes required in connection with the offer and sale of the
Notes at the Closing pursuant to this Agreement under the securities or "blue
sky" laws of any jurisdiction requiring such registration or qualification or in
connection with obtaining any exemptions from such requirements; and
(3) the Purchaser's reasonable out-of-pocket expenses (including
the reasonable fees and expenses of counsel) relating to any amendment, or
modification of, or any waiver, or consent or preservation of rights under this
Agreement, the Notes, the Registration Rights Agreement and any other documents
contemplated hereby or thereby.
Purchaser may deduct such expenses from the purchase price of the
Notes; provided that the Purchaser agrees to provide the Company with a
statement describing any amounts to be so paid at least one Business Day prior
to the Closing.
1.3. Maintenance of Note Register
The Company shall cause to be kept at its principal office a register
for the registration and transfer of the Notes (the "Note Register"). The names
and addresses of the Holders of Notes, the transfer of Notes, and the names and
addresses of the transferees of the Notes shall be registered in the Note
Register.
The Person in whose name any registered Note shall be registered shall
be deemed and treated as the owner and holder thereof for all purposes of this
Agreement and the Company shall not be affected by any notice to the contrary,
until due presentment of such Note for registration of transfer so provided in
this Section 1.3. Payment of or on account of the principal and interest on any
registered Notes shall be made to or upon the written order of such registered
holder.
1.4. Issue Taxes
The Company agrees to pay all taxes owed by or on behalf of the
Company in connection with the issuance, sale, delivery or transfer by the
Company to the Purchaser of the Notes and the execution and delivery of the
agreements and instruments contemplated hereby and any modification of any of
such Notes, agreements and instruments and will save the
2
<PAGE>
Purchaser harmless without limitation as to time against any and all liabilities
with respect to all such taxes. The Purchaser agrees to pay all taxes owed by or
on behalf of the Purchaser in connection with the issuance, sale, delivery or
transfer by the Company to the Purchaser of the Notes and the execution and
delivery of the agreements and instruments contemplated hereby and any
modification of any of such Notes, agreements and instruments and will save the
Company harmless without limitation as to time against any and all liabilities
with respect to all such taxes. The obligations of the Company and the Purchaser
under this Section 1.4 shall survive the payment or prepayment of the Notes and
the termination of this Agreement.
1.5. Direct Payment
(a) The Company will pay or cause to be paid all amounts payable with
respect to any Note (without any presentment of such Note and without any
notation of such payment being made thereon) by crediting (before 11:00 a.m.,
Pacific time), by federal funds bank wire transfer to each Holder's account in
any bank in the United States as may be designated and specified in writing by
such Holder at least two Business Days prior thereto.
(b) Notwithstanding anything to the contrary contained in the Notes,
if any principal amount payable with respect to a Note is payable on a Legal
Holiday, then the Company shall pay such amount on the next succeeding Business
Day, and interest shall accrue on such amount until the date on which such
amount is paid and payment of such accrued interest shall be made concurrently
with the payment of such amount, provided that the Company may elect to pay in
full (but not in part) any such amount on the last Business Day prior to the
date such payment otherwise would be due, and no such additional interest shall
accrue on such amount. Notwithstanding anything to the contrary contained in the
Notes, if any interest payable with respect to a Note is payable on a Legal
Holiday, then the Company shall pay such interest on the next succeeding
Business Day, and such extension of time shall be included in the computation of
the interest payment, provided that the Company may elect to pay in full (but
not in part) any such interest on the last Business Day prior to the date such
payment otherwise would be due, and such diminution in time may, at the
Company's option, be included in the computation of the interest payment.
1.6. Lost, Etc. Notes
Notwithstanding any provision to the contrary, if any Note of which
the Purchaser or any other Holder (or nominee thereof) which is a transferee is
the owner is mutilated, destroyed, lost or stolen, then the affidavit of the
Purchaser or such Holder, if an individual, or of the Purchaser's or such
Holder's treasurer or assistant treasurer (or other authorized officer), if a
Person other than an individual, briefly setting forth the circumstances with
respect to such mutilation, destruction, loss or theft, shall be accepted as
satisfactory evidence thereof, and no indemnity, note or payment of charges or
expenses shall be required as a condition to the execution and delivery by the
Company or the transfer agent with respect to such Note, of new Notes for a like
aggregate principal amount or number of shares, as applicable, in substitution
therefor, other than such Purchaser's or such Holder's unsecured written
agreement reasonably
3
<PAGE>
satisfactory to indemnify the Company or the transfer agent, as the case may be,
which written agreement may be required by the Company.
SECTION 2. CLOSING CONDITIONS
The obligations of the Purchaser to purchase and pay for the Notes to
be delivered to such Purchaser at the Closing shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
2.1. Delivery of Documents
The Company shall have delivered to the Purchaser, in form and
substance reasonably satisfactory to the Purchaser, the following:
(a) The Notes being purchased by the Purchaser pursuant to Section
1.2(a)(1), duly executed by the Company, in the aggregate principal amount of
$90,000.
(b) An opinion, dated the Closing Date and addressed to the Purchaser,
from David R. Gibson, counsel for the Company, as to the matters set forth on
Annex B.
In rendering such opinion, such counsel may rely as to factual matters
upon certificates or other documents furnished by officers and directors of the
Company (copies of which shall be delivered to the Purchaser) and by government
officials, and upon such other documents as such counsel reasonably deems
appropriate as a basis for its opinion. Such counsel shall opine as to the
federal laws of the United States, the laws of the State of Oregon.
(c) Resolutions of the Board of Directors of the Company, certified by
the Secretary or Assistant Secretary, to be duly adopted and in full force and
effect on the Closing Date, authorizing (i) the execution, delivery and
performance of this Agreement, the Registration Rights Agreement and the
Commitment Letter and the consummation of transactions contemplated hereby and
thereby, (ii) the issuance of the Notes to be purchased by the Purchaser and
(iii) specific officers to execute and deliver this Agreement, the Notes, the
Registration Rights Agreement and the Commitment Letter.
(d) Certificates executed by any two executive officers of the
Company, dated the Closing Date, certifying (i) that all of the conditions set
forth in Section 2 of this Agreement are satisfied on and as of such date, (ii)
that all of the representations and warranties of the Company contained or
incorporated by reference herein that (A) are qualified as to materiality are
true and correct on and as of such date as though made on and as of such date
and that (B) are not qualified as to materiality are true and correct in all
material respects on and as of such date as though made on and as of such date,
and no event has occurred and is continuing, or would result from the issuance
of the Notes or the extension of borrowings under the Commitment Letter, which
constitutes or would constitute a Default or an Event of Default and (iii) as to
such other matters as the Purchaser may request in the exercise of its
reasonable discretion.
4
<PAGE>
(e) Governmental certificates, dated the most recent practicable date
but in no event more than thirty (30) calendar days prior to the Closing Date
showing that the Company was incorporated under the Oregon Business Corporation
Act, is active on the records of the Corporation Division and is qualified as a
foreign corporation and in good standing in all other jurisdictions in which it
is qualified to transact business, except where the failure to be so qualified
would not have a Material Adverse Effect.
(f) Copies of each consent, license and approval required in
connection with the execution, delivery and performance by the Company of this
Agreement, the Notes, the Registration Rights Agreement and the Commitment
Letter and the consummation of the transactions contemplated hereby and thereby.
(g) Copies of the Charter Documents of the Company, certified as of a
recent date but in no event more than thirty (30) calendar days prior to the
Closing Date by the Secretary of State of the State of Oregon and certified by
the Secretary or Assistant Secretary of the Company (or person possessing
comparable authority of the Company), as true and correct on and as of the
Closing Date.
(h) Certificates of the Secretary or an Assistant Secretary of the
Company as to the incumbency and signatures of the officers or representatives
of such entity executing this Agreement, the Notes, the Registration Rights
Agreement, the Commitment Letter and any other certificate or other document to
be delivered pursuant hereto or thereto on the Closing Date, together with
evidence of the incumbency of such Secretary or Assistant Secretary;
(i) Copies of all agreements associated with or entered into in
connection with the investment of Prudential Private Equity Investors III, L.P.
in the Company's Preferred Stock and if requested by the Purchaser prior to the
Closing Date, copies of all lease agreements to which the Company is a party.
2.2. Delivery of Other Agreements
The Company shall have executed and delivered the Registration Rights
Agreement and the Commitment Letter.
2.3. Representations and Warranties, Agreements and Covenants
All of the representations and warranties of the Company contained
herein that (A) are qualified as to materiality shall be true and correct on and
as of the Closing Date, except to the extent any representation or warranty
expressly relates to an earlier date and that (B) are not qualified as to
materiality are true and correct in all material respects on and as of the
Closing Date, except to the extent any representation or warranty expressly
relates to an earlier date. The Company shall have performed or complied with
all agreements, covenants and conditions contained herein and in the
Registration Rights Agreement and the Commitment Letter which are required to be
performed or complied with by the Company on or before the Closing Date.
5
<PAGE>
2.4. No Event of Default
No event shall have occurred and be continuing, or would result from
the purchase of the Notes or the extension of borrowings pursuant to the
Commitment Letter, which constitutes or would constitute a Default or an Event
of Default.
2.5. Proceedings Satisfactory
All proceedings taken in connection with the sale of the Notes, the
transactions contemplated hereby, and all documents and papers relating thereto,
shall be reasonably satisfactory to the Purchaser. The Purchaser and its counsel
shall have received copies of such documents and papers as they may reasonably
request in connection therewith, all in form and substance satisfactory to the
Purchaser. Any document annexed to this Agreement or any other document
contemplated by this Agreement not approved by the Purchaser in writing as to
form and substance on the date this Agreement is executed shall be satisfactory
in form and substance to the Purchaser.
2.6. Consents and Permits
The Company shall have received all consents, approvals, and
authorizations and sent or made all notices, filings, registrations and
qualifications required for the issuance of the Notes, all of which are
disclosed on the Disclosure Schedule.
2.7. No Material Adverse Change
Since the date of this Agreement, neither the Company nor any of its
Subsidiaries shall have suffered any material adverse change in its properties,
business, prospects, operations, earnings, assets, liabilities or condition
(financial or otherwise) which would reasonably likely to result in a Material
Adverse Effect.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule attached to this
Agreement (each scheduled item contained therein referencing the Section of this
Agreement that it qualifies), the Company represents and warrants as follows:
3.1. Organization; Power and Authority
The Company and each of its Subsidiaries are corporations duly
organized and validly existing in good standing under the laws of their
respective jurisdictions of incorporation. The Company and each of its
Subsidiaries have all requisite power and authority to own or hold under lease
the properties it purports so to own or hold except where the failure so to own
or hold could not have a Material Adverse Effect and to transact their
respective businesses as now transacted. The Company and each of its
Subsidiaries are duly qualified as foreign corporations and are in good standing
in each jurisdiction in which the character of the properties owned or held
under lease by them or the nature of the business transacted by them requires
such
6
<PAGE>
qualification, except where the failure so to be qualified or be in good
standing could not have a Material Adverse Effect.
3.2. Authorization
The Company has taken all actions necessary to authorize it (i) to
execute, deliver and perform all of its obligations under this Agreement, the
Registration Rights Agreement and the Commitment Letter, (ii) to issue and
perform all of its obligations under the Notes and (iii) to consummate the
transactions contemplated hereby and thereby. Each of this Agreement, the Notes,
the Registration Rights Agreement, and the Commitment Letter is a legally valid
and binding obligation of the Company, enforceable against it in accordance with
its terms, except for (a) the effect thereon of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting the
rights of creditors generally and (b) limitations imposed by federal or state
law or equitable principles upon the specific enforceability of any of the
remedies, covenants or other provisions thereof and upon the availability of
injunctive relief or other equitable remedies.
3.3. Capital Stock
The total number of shares of Capital Stock which the Company has
authority to issue is 30,000,000 shares, consisting of 25,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock. The Company has the power
and authority and has taken all actions (corporate or other) necessary to
authorize it to enter into and perform its obligations and undertakings under
this Agreement. As of March 30, 1998, there were 4,633,000 shares of Common
Stock issued and outstanding, and 1,666,667 shares of Preferred Stock issued and
outstanding. Such shares of Common Stock and Preferred Stock have been duly
authorized and were validly issued, are fully paid and nonassessable, were
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities of the Company. Neither the Company nor any of its
Subsidiaries has outstanding any securities convertible into or exchangeable for
any shares of Capital Stock nor does it have outstanding any rights to subscribe
for or to purchase, or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to, any Capital Stock or
securities convertible into or exchangeable for any Capital Stock other than (i)
the Notes to be issued pursuant to this Agreement or pursuant to other similar
agreements dated on or about the date of this Agreement, (ii) 1,666,667 shares
of Preferred Stock convertible into Common Stock, and (iii) options and warrants
to purchase shares of Common Stock as set forth and for the numbers of shares
set forth on the Disclosure Schedule. The Company has duly authorized and
reserved for issuance the Conversion Shares, and the Conversion Shares will,
when issued, be duly and validly issued, fully paid and nonassessable and free
from all Liens.
3.4. No Other Registration Rights
Except for the Notes to be issued in connection with the transactions
contemplated by this Agreement or pursuant to other similar agreements dated on
or about the
7
<PAGE>
date of this Agreement, there are no contracts, agreements or understandings
between the Company and any other Person granting such Person the right to
require the Company to file a registration statement under the Securities Act
with respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the securities
registered pursuant to any other registration statement filed by the Company
under the Securities Act.
3.5. No Violation or Conflict; No Default
Neither the execution or delivery of this Agreement, the Registration
Rights Agreement or the Commitment Letter by the Company nor the issuance, sale
or delivery of the Notes nor the performance of its respective obligations
hereunder or thereunder will:
(a) violate any provision of the Charter Documents of the Company;
(b) violate any statute, law, rule or regulation or any judgment,
decree, order, regulation or rule of any court or governmental authority to
which the Company, any of its Subsidiaries, or any of their respective
properties may be subject;
(c) permit or cause the acceleration of the maturity of any debt or
obligation of the Company or any of its Subsidiaries;
(d) violate, or be in conflict with, or constitute a default under, or
permit the termination of, or require the consent of any Person under, or result
in the creation of any Lien upon any property of the Company or any of its
Subsidiaries under, any mortgage, indenture, loan agreement, note, debenture or
other agreement for borrowed money or any other material agreement to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries (or their respective properties) may be bound, other than such
violations, conflicts, defaults, terminations and Liens, or such failures to
obtain consents, which could not reasonably be expected to result in a Material
Adverse Effect.
3.6. Margin Regulations
No part of the proceeds from the sale of the Notes hereunder will be
used, directly or indirectly, for the purpose of buying or carrying any "margin
stock" within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System (12 C.F.R. ss. 207), or for the purpose of buying or
carrying or trading in any securities under such circumstances as to involve the
Company in a violation of Regulation X of said Board (12 C.F.R. ss. 224) or to
involve any broker or dealer in a violation of Regulation T of said Board (12
C.F.R. ss. 220). The assets of the Company and its Subsidiaries do not include
any margin stock, and the Company does not have any present intention of
acquiring margin stock.
3.7. Private Offering
The sale of the Notes hereunder is exempt from the registration and
prospectus delivery requirements of the Securities Act. In the case of each
offer or sale of the Notes, no
8
<PAGE>
form of general solicitation or general advertising was used by the Company or
its respective representatives.
The Company agrees that neither it, nor anyone acting on its behalf,
will offer or sell the Notes, or any portion of them, if such offer or sale
might bring the issuance and sale of the Notes to the Purchaser within the
provisions of Section 5 of the Securities Act nor offer any similar Notes for
issuance or sale to, or solicit any offer to acquire any of the same from, or
otherwise approach or negotiate with respect thereto with, anyone if the sale of
the Notes and any such Notes could be integrated as a single offering for the
purposes of the Securities Act, including without limitation Regulation D.
3.8. Due Authorization of Material Contracts
The descriptions in the Incorporated Documents of statutes, legal and
governmental proceedings or contracts or other documents are accurate in all
material respects and fairly present the information required to be shown at the
time shown; and there are no statutes or legal or governmental proceedings
required to be described in the Incorporated Documents that are not described as
required and there is no document or contract of a character required to be
described in the Incorporated Documents or to be filed as an exhibit to the
Incorporated Documents which is not described or filed as required. All
contracts described in the Incorporated Documents or filed as an exhibit to the
Incorporated Documents to which the Company or any of its Subsidiaries is a
party have been duly authorized, executed and delivered by the Company or such
Subsidiary, constitute valid and binding agreements of the Company or such
Subsidiary and are enforceable against and by the Company or such Subsidiary in
accordance with the terms thereof, except as the enforcement thereof may be
limited by bankruptcy and laws relating to the rights and remedies of the
creditors generally or by the availability of general equitable remedies.
3.9. Financial Statements
The financial statements and schedules of the Company and its
consolidated subsidiaries included in the Incorporated Documents comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, present fairly
the financial condition of the Company and its consolidated subsidiaries, as of
the respective dates thereof and the results of operations and cash flows of the
Company and its consolidated subsidiaries, for the respective periods covered
thereby, all in conformity with GAAP (except in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position of the Company
and its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments). No
other financial statements or schedules of the Company and its consolidated
subsidiaries or any other company or entity are required by the Securities Act,
the Exchange Act or the rules and regulations of the SEC to be included in the
Incorporated Documents. The Independent Auditors, who have reported on certain
of such
9
<PAGE>
financial statements and schedules, are, and were during the periods covered by
their reports included in the Incorporated Documents, independent accountants
with respect to the Company and its consolidated subsidiaries, as required by
the Securities Act, the Exchange Act and the rules and regulations of the SEC.
The summary financial and statistical data included in the Incorporated
Documents present fairly the information shown therein and have been compiled on
a basis consistent with the financial statements presented therein. The
unaudited consolidated financial statements included in the Incorporated
Documents comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, the Exchange Act and the rules
and regulations of the SEC, and such statements fairly present the consolidated
financial position and results of operations and the other information purported
to be shown therein at the respective dates or for the respective periods
therein specified.
3.10. Litigation; Judgments
Except as described in the Incorporated Documents, there are no
actions, suits or proceedings (formal or informal) pending or, to the Knowledge
of the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties, assets, or directors or
officers, in their capacity as such, before or by any Federal or state court,
commission, regulatory body, administrative agency or other governmental body,
domestic or foreign, wherein an unfavorable ruling, decision or finding might
reasonably be expected to, individually or in the aggregate, and after giving
effect to the sale and issuance of the Notes, result in a Material Adverse
Effect.
3.11. Taxes
Each of the Company and its Subsidiaries has filed all federal, state,
local and foreign income tax returns which have been required to be filed and
has paid all taxes and assessments received by it to the extent that such taxes
have become due. None of the Company nor its Subsidiaries has any tax deficiency
which has been or might be asserted or threatened against it which could
reasonably be expected to result in a Material Adverse Effect.
3.12. Investment Company Act
Neither the Company nor any of its Subsidiaries is an "investment
company" or a Person directly or indirectly "controlled" by or acting on behalf
of an "investment company" within the meaning of the United States Investment
Company Act of 1940, as amended.
3.13. Environmental Matters
The operations of the Company and its Subsidiaries with respect to any
real property currently leased, owned, controlled or managed by the Company or
any of its Subsidiaries are, and with respect to any real property previously
leased, owned, managed or controlled were, when such real property was leased,
owned, managed or controlled by the Company or any of its Subsidiaries, in
compliance in all material respects with all applicable federal, state, and
local laws, ordinances, rules, and regulations relating to occupational health
10
<PAGE>
and safety and the environment (collectively, "Environmental Laws"), and the
Company and its Subsidiaries have all material licenses, permits and
authorizations required under all Environmental Laws; neither the Company nor
any of its Subsidiaries has authorized or conducted or has knowledge of the
generation, transportation, storage, use, treatment, disposal or release of any
hazardous substance, hazardous waste, hazardous material, hazardous constituent,
toxic substance, pollutant, contaminant, petroleum product, natural gas,
liquefied gas or synthetic gas defined or regulated under any Environmental Law
on, in or under any real property currently leased, owned, controlled or managed
by the Company or any of its Subsidiaries or previously leased, owned,
controlled or managed by the Company or any of its Subsidiaries when such real
property was owned, leased, controlled or managed by the Company or any of its
Subsidiaries, except in compliance with applicable Environmental Laws; and there
is not pending or, to the Knowledge of the Company, any threatened claim,
litigation or any administrative agency proceeding, nor has the Company or any
of its Subsidiaries received any written or oral notice from any governmental
entity or third party, that: (i) alleges a violation of any Environmental Laws
by the Company or any of its Subsidiaries; (ii) alleges the Company or any of
its Subsidiaries is a liable party under CERCLA or any state superfund law;
(iii) alleges possible contamination of the environment by the Company or any of
its Subsidiaries; or (iv) alleges possible contamination of real property
currently leased, owned, controlled or managed by the Company or any of its
Subsidiaries or previously leased, owned, controlled or managed by the Company
or any of its Subsidiaries when such real property was owned, leased, controlled
or managed by the Company or any of its Subsidiaries.
3.14. Labor Relations
No labor dispute with the employees of the Company or any of its
Subsidiaries exists or is threatened that could reasonably be expected to result
in a Material Adverse Effect; and the Company is not aware of any existing or
threatened labor disturbance by the employees of any other entity that could
reasonably be expected to result in a Material Adverse Effect.
3.15. Real Property; Leases
Each of the Company and its Subsidiaries has good and indefeasible
title to all properties and assets described in the Incorporated Documents as
owned by it, free and clear of all Liens except such as are described in the
Incorporated Documents or are not material, singly or in the aggregate, to the
Company. Each of the Company and its Subsidiaries has valid, subsisting and
enforceable leases for the properties described in the Incorporated Documents as
leased by it, except such as are described in the Incorporated Documents.
3.16. Intellectual Property; Licenses
Each of the Company and its Subsidiaries owns or has the right to use
all patents, patent applications, trademarks, trademark applications,
tradenames, copyrights, franchises, trade secrets, proprietary or other
confidential information and intangible properties and assets (collectively,
"Intangibles") reasonably necessary to conduct its business as now conducted;
and none of the Company or its Subsidiaries has any knowledge of any
infringement by it of
11
<PAGE>
Intangibles of others, and there is no claim being made against the Company or
any of its Subsidiaries, or to the Knowledge of the Company, any employee of the
Company or its Subsidiaries, regarding infringement of any Intangibles of others
which could reasonably be expected to have a Material Adverse Effect and, to the
Knowledge of the Company, there is no infringement by others of Intangibles of
the Company or any of its Subsidiaries.
3.17. Defaults
The continuation, validity and effectiveness of each contract,
agreement, arrangement or other instrument related to borrowed money (of any
amount) or involving payments in excess of $100,000 or that is material to the
Company or its Subsidiaries (each a "Material Contract") will not be adversely
affected by the execution, delivery and performance of this Agreement, the
Registration Rights Agreement, or the Commitment Letter, the issuance or sale of
the Notes, or the consummation of the transactions contemplated hereby or
thereby. The Company and its Subsidiaries are not in default in any respect, and
will not, with the giving of notice or the lapse of time, or both, be in default
in any respect, under any Material Contract upon or as a result of the
consummation of the transactions contemplated by this Agreement, the
Registration Rights Agreement or the Commitment Letter. To the Knowledge of the
Company, there is no default or claimed or purported or alleged default or state
of facts that with the giving of notice or the lapse of time, or both, would
constitute a default on the part of any party other than the Company or any of
its Subsidiaries under any Material Contract.
3.18. Brokers
The Company has not dealt with any broker, finder, commission agent or
other Person in connection with the sale of the Notes and the transactions
contemplated by this Agreement, and the Company is not under any obligation to
pay any broker's or finder's fee or commission or similar payment in connection
with such transactions.
3.19. Existing Indebtedness
The Disclosure Schedule sets forth a complete and correct list of all
Indebtedness of the Company and its Subsidiaries as of the date hereof, showing
as to each item of such Indebtedness the creditor, the aggregate principal
amount outstanding, the agreement or instrument governing such Indebtedness and
a brief description of any security therefor. With respect to each item of
Indebtedness listed on the Disclosure Schedule, the Company will deliver to the
Purchaser or its representatives, upon request, a true and complete copy of each
instrument evidencing such Indebtedness or pursuant to which such Indebtedness
was issued or secured (including each amendment, consent, waiver or similar
instrument in respect thereof), as the same is in effect on the date hereof. The
Company and its Subsidiaries are not in default in the performance or observance
in any material respect of any of the terms, covenants or conditions contained
in any instrument evidencing Indebtedness listed on the Disclosure Schedule or
pursuant to which such Indebtedness was issued or secured or has requested any
waiver in respect of any default and no event has occurred and is continuing
which, with notice or the lapse of time or both, would constitute such a
default.
12
<PAGE>
3.20. Compliance with Law; Permits
(a) The Company and its Subsidiaries own or possess all
authorizations, approvals, orders, licenses, registrations, other certificates
and permits of and from all governmental regulatory officials and bodies,
necessary to conduct their respective businesses except where the failure to own
or possess all such authorizations, approvals, orders, licenses, registrations,
other certificates and permits would not have a Material Adverse Effect. There
is no proceeding pending or, to the Knowledge of the Company, threatened (or any
basis therefor known to the Company) which may cause any such authorization,
approval, order, license, registration, certificate or permit to be revoked,
withdrawn, canceled, suspended or not renewed; and the Company and its
Subsidiaries are conducting their respective business in compliance with all
laws, rules and regulations applicable thereto except where such noncompliance
could not reasonably be expected to result in a Material Adverse Effect.
(b) Neither the nature of the Company nor of any of its businesses or
properties, nor any relationship between the Company and any other Person, nor
any circumstance in connection with the offer, issuance, sale or delivery of the
Notes at the Closing, nor the performance by the Company of its other
obligations hereunder or under the Notes, the Registration Rights Agreement or
the Commitment Letter, as the case may be, is such as to require a consent,
approval or authorization of, or notice to, or filing, registration or
qualification with, any governmental authority or other Person on the part of
the Company as a condition to the execution and delivery of this Agreement, the
Registration Rights Agreement, the Commitment Letter or the offer, issuance,
sale or delivery of the Notes at the Closing, other than the filings,
registrations, qualifications or consents which shall have been made or obtained
on the Closing Date (and copies of which shall have been delivered to the
Purchaser). All required consents, approvals or authorizations of, or notices to
or filings, registrations or qualifications with, any governmental authority or
other Person required in connection with the transactions contemplated by this
Agreement, the Notes, the Registration Rights Agreement or the Commitment Letter
have been obtained or made.
3.21. Insurance
The Company maintains, and will maintain after giving effect to the
issuance and the sale of the Notes, insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
insurance covering director and officer liability, workers compensation
liability, malpractice liability respecting the provision of assisted living
services, real and personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is and will be in full force and effect.
3.22. Material Events
Since December 31, 1997, there has not been with respect to the
Company or any of its Subsidiaries:
13
<PAGE>
(a) any material adverse change in their properties, business,
prospects, operations, earnings, assets, liabilities or condition (financial or
otherwise) which could reasonably be expected to result in a Material Adverse
Effect; or
(b) any damage, destruction or loss to the properties or assets of the
Company or any of its Subsidiaries, whether or not covered by insurance, that
has or could reasonably be expected to have a Material Adverse Effect or that in
the aggregate exceed $100,000; or
(c) any loss or waiver by the Company or any of its Subsidiaries of
any right, not in the ordinary course of business, or any material debt owed to
it; or
(d) other than the sales of assets in the ordinary course of business
(including pursuant to sale leaseback transactions), any sale, transfer or other
disposition of, or agreement to sell, transfer or otherwise dispose of, any
assets by the Company or any of its Subsidiaries in excess of $100,000 in the
aggregate, or any cancellation or agreement to cancel any debts or claims of the
Company or any of its Subsidiaries; or
(e) other than dividends payable on the currently outstanding
Preferred Stock, any declaration or setting aside or payment of any dividend
(whether in cash, property or stock) or any distribution (whether in cash,
property or stock) or other payment with respect to any of the Capital Stock of
the Company or any of its Subsidiaries, or any repurchase, purchase or other
acquisition of, or agreement to repurchase, purchase or otherwise acquire, any
of the Company's or any of its Subsidiaries' capital stock; or
(f) any amendment or termination of any contract, agreement or license
to which the Company or any of its Subsidiaries is a party or by which it is
bound, except where such amendment or termination could not be reasonably
expected to have a Material Adverse Effect; or
(g) any resignation or termination of employment of any Key Employee,
and there is no impending or threatened resignation or resignations or
termination or terminations of employment of any Key Employee; or
(h) any labor dispute (including, without limitation, any negotiation,
or request for negotiation, for any labor representation or any labor contract)
affecting the Company or any of its Subsidiaries; or
(i) any application of any existing (or the enactment of any new)
Environmental Law or personnel, product safety law or other governmental
regulation that has or which could reasonably be expected to have a Material
Adverse Effect.
3.23. SEC Documents; Undisclosed Liabilities
The Company has been subject to the reporting requirements of Section
13 of the Exchange Act since at least January 1, 1996 and, except as set forth
in any Company SEC Document, has timely filed all required reports, schedules,
forms, statements and other
14
<PAGE>
documents required to be filed by the Company under the Securities Act and the
Exchange Act with the SEC since January 1, 1996 (the "Company SEC Documents").
As of their respective dates, the Company SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Company SEC Documents, and none of the Company SEC Documents
at the time filed with the SEC contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. Except to the extent that information
contained in any Company SEC Document has been revised or superseded by a later
filed Company SEC Document, none of the Company SEC Documents contains any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
3.24. Material Misstatements or Omissions
No representation or warranty by the Company contained in this
Agreement (including the schedules and exhibits attached hereto), the
Registration Rights Agreement, the Commitment Letter or in any document,
exhibit, statement, certificate or schedule dated the Closing Date, signed by
the Company and furnished to the Purchaser pursuant hereto, or in connection
with the transactions contemplated hereunder, contains or will contain any
untrue statement of a material fact, or omits or will omit to state any material
fact necessary to make the statements or facts contained herein and therein not
misleading.
3.25. Survival of Representations and Warranties
All of the Company's representations and warranties hereunder and
under the Registration Rights Agreement and the Commitment Letter shall survive
the execution and delivery of the same, any investigation by the Purchaser and
the issuance of the Notes.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER
The Purchaser represents and warrants to the Company that:
4.1. Purchase for Own Account
The Purchaser is purchasing the Notes to be purchased by it solely for
its own account and not as nominee or agent for any other person and not with a
view to, or for offer or sale in connection with, any distribution thereof
(within the meaning of the Securities Act) that would be in violation of the
securities laws of the United States of America or any state thereof, without
prejudice, however, to its right at all times to sell or otherwise dispose of
all or any part of said Notes pursuant to a registration statement under the
Securities Act or pursuant to an exemption from the registration requirements of
the Securities Act.
15
<PAGE>
4.2. Accredited Investor
The Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; it acknowledges that the Notes have not been
registered under the Securities Act and understands that the Notes must be held
indefinitely unless they are subsequently registered under the Securities Act or
such sale is permitted pursuant to an available exemption from such registration
requirement; it is able to bear the economic risk of its investment in the
Notes; it is an "accredited investor" as defined in Regulation D promulgated
under the Securities Act; and it has been afforded access to information about
the Company and the Company's financial condition, results of operations,
business, property, management and prospects sufficient to enable it to evaluate
its investment in the Notes. The Purchaser acknowledges that it has conducted
its own analysis of the Company's financial condition and other foregoing
factors.
4.3. Authorization
This Agreement is a legally valid and binding obligation of the
Purchaser enforceable against it in accordance with its terms, except for (a)
the effect thereon of bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting the rights of creditors generally
and (b) limitations imposed by federal or state law or equitable principles upon
the specific enforceability of any of the remedies, covenants or other
provisions thereof and upon the availability of injunctive relief or other
equitable remedies.
4.4. Brokers
The Purchaser has not dealt with any broker, finder, commission agent
or other Person in connection with the sale of the Notes and the transactions
contemplated by this Agreement, and the Purchaser is not under any obligation to
pay any broker's or finder's fee or commission or similar payment in connection
with such transactions.
SECTION 5. COVENANTS
So long as any of the Notes remain unpaid and outstanding, the Company
covenants to the Holders of outstanding Notes as follows:
5.1. Payment of Notes; Satisfaction of Obligations
The Company shall pay the principal of and interest on the Notes on
the dates and in the manner provided in the Notes. To the extent lawful, the
Company shall pay interest (including interest accruing after the commencement
of any proceeding under any Bankruptcy Law) on all unpaid amounts outstanding
under the Notes (including overdue installments of principal or interest) at a
rate equal to 7.5% per annum, payable quarterly on each January 1, April 1, July
1 and October 1, beginning July 1, 1998. Such interest rate is subject to
adjustment as set forth in Section 3(b) to the Registration Rights Agreement.
16
<PAGE>
5.2. Notice of Default
The Company will deliver to the Holders, forthwith upon (i) becoming
aware of any Default or Event of Default, (ii) becoming aware of any payment
default under any other loan agreement, mortgage, indenture or instrument
referred to in Sections 7.1(d) or (iii) the receipt by the Company of any notice
of any non-monetary default under any such loan agreement, mortgage, indenture
or instrument, an Officers' Certificate specifying in reasonable detail such
Default, Event of Default or default and the nature of any remedial or
corrective action the Company proposes to take with respect thereto.
5.3. Limitation on Additional Indebtedness
None of the Company, nor any of its Subsidiaries (including without
limitation, upon the creation or acquisition of such Subsidiary) shall, directly
or indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to (collectively, "incur") any
Indebtedness after the date of this Agreement, if a Default or an Event of
Default shall have occurred and be continuing at the time or would occur as a
consequence of the incurrence of such Indebtedness.
5.4. Change of Control
(a) Change of Control. Prior to the consummation of a Change of
Control (the date of such consummation being referred to herein as the "Change
of Control Date"), the Company shall give each Holder notice describing in
reasonable detail the nature of the Change of Control (such written notice, the
"Change of Control Notice") and offering to the Purchaser the right to require
the Company to repurchase all or any part of the Notes held by the Purchaser
pursuant to the offer (the "Change of Control Repurchase Offer") at a purchase
price equal to 100% of the aggregate principal amount thereof, together with
unpaid interest to the date of repurchase (the "Change of Control Price"). The
obligation of the Company to repurchase Notes pursuant to the Change of Control
Repurchase Offer is subject to the subordination provisions of Section 8 hereof.
(b) Timing of Notice. The Change of Control Notice shall be mailed by
the Company to all Holders at their last registered address no later than
fifteen (15) Business Days prior to the Change of Control Date.
(c) Procedure. The Change of Control Notice shall state a date not
later than five (5) Business Days following the Change of Control Date for
repurchase of the Notes pursuant to the Change of Control Repurchase Offer (such
date, the "Change of Control Repurchase Date"). The Change of Control Notice,
which shall govern the terms of the Change of Control Repurchase Offer, shall
state:
(1) that the Change of Control Repurchase Offer is being made
pursuant to this Section 5.4;
17
<PAGE>
(2) the Change of Control Price and the Change of Control
Repurchase Date;
(3) that, unless the Company defaults in the payment of the
Change of Control Price, all Notes accepted for payment shall cease to
accrue interest on and after the Change of Control Repurchase Date;
(4) that the Purchaser electing to require the Company to
repurchase any Notes will be required to surrender the Note to the
address specified in the Change of Control Notice prior to the close
of business on the Business Day preceding the Change of Control
Repurchase Date;
(5) that the Purchaser will be entitled to withdraw his or her
election to require the Company to repurchase any Notes on the terms
and conditions set forth in such Change of Control Notice by written
notice to the Company prior to the Change of Control Repurchase Date;
and
(6) that the Purchaser electing to require the Company to
repurchase any Notes in part will be issued a new Note in a principal
amount equal to the unpurchased portion of the Notes surrendered.
Any such Change of Control Repurchase Offer shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations to the extent applicable in connection with any Change of
Control Repurchase Offer.
(d) Acceptance of Notes.
(1) On the Change of Control Repurchase Date, the Company shall
accept for payment all Notes or portions thereof validly tendered
pursuant to the Change of Control Repurchase Offer and promptly
thereafter mail or deliver to Holder of Notes accepted for repurchase
payment in the amount equal to the aggregate Change of Control Price
for such Notes, and the Company shall execute and mail or deliver to
such Holders a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered.
The Company will notify the Holders of the results of the Change of
Control Repurchase Offer on the Change of Control Repurchase Date.
5.5. Stay, Extension and Usury Laws
The Company covenants and agrees (to the extent that it may lawfully
do so) that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, and will use its best
efforts to resist any attempts to claim or take the benefit of any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of its obligations under this
Agreement or the Notes; and the Company (to the extent it may lawfully do so)
hereby expressly waives all benefit or
18
<PAGE>
advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impede the execution of any power herein granted to the
Holders, but will suffer and permit the execution of every such power as though
no such law has been enacted.
5.6. Indemnification
The Company agrees to indemnify the Purchaser and each director,
officer, employee, counsel, Agent and Affiliate of such Purchaser (collectively,
the "Indemnified Parties") against, and hold it and them harmless from, all
losses, claims, damages, liabilities, taxes, deficiencies, expenses and costs
(including diminution in value and costs of preparation and reasonable
attorneys' fees and expenses) (collectively, "Losses") incurred by it or them
(A) arising from any breach of any representation or warranty or the inaccuracy
of any representation made by the Company in or pursuant to the Agreement, the
Registration Rights Agreement or the Commitment Letter (including without
limitation any breach or inaccuracy of any representation or warranty relating
to CERCLA, any equivalent state statute or any other Environmental Law); and (B)
arising from any breach of any covenant or agreement made by the Company in or
pursuant to the Agreement, the Registration Rights Agreement or the Commitment
Letter; provided, however, that the Company shall not be required to indemnify
any Indemnified Party for any Loss that results from (x) the action of any
Indemnified Party which is finally judicially determined to have resulted from
such Indemnified Party's negligence, intentionally wrongful acts or
intentionally wrongful omissions or (y) the failure of LTC Equity Holding
Company to purchase additional Notes from the Company pursuant to Section
1.2(a)(2) hereof; provided, further, that no Indemnified Party shall be entitled
to assert a claim on account of the indemnity provided in this Section 5.6,
unless and until the aggregate amount of Losses with respect to all claims
asserted under this Section and under Section 5.6 of the purchase agreements for
the Notes executed on the date hereof by other purchasers exceeds $100,000 (in
which case the Company shall be liable for Losses in excess of such $100,000
that have accrued).
The Company agrees to reimburse any Indemnified Party promptly for all
such Losses as they are incurred by such Indemnified Party. The Company's
liability to any such Indemnified Party hereunder shall not be extinguished
solely because any other Indemnified Party is not entitled to indemnity
hereunder. The obligations of the Company under this Section 5.6 shall survive
the payment or prepayment of the Notes, at maturity, upon acceleration,
repurchase or otherwise, any transfer of the Notes by any Purchaser to any
subsequent Holder and the termination of this Agreement, the Notes, the
Registration Rights Agreement and the Commitment Letter. The indemnity provided
in this Section 5.6 will be in addition to any liability which the Company may
otherwise have, including, without limitation, under this Agreement, the Notes,
the Registration Rights Agreement and the Commitment Letter.
In case any action shall be brought against any Indemnified Party with
respect to which indemnity may be sought against the Company, such Indemnified
Party shall promptly notify the Company in writing and the Company shall, if it
so desires, assume the defense thereof, including the employment of counsel
reasonably satisfactory to such Indemnified Party and payment of all reasonable
fees and expenses. The failure to so notify the Company shall not
19
<PAGE>
affect any obligation it may have to any Indemnified Party under this Section
5.6 or otherwise unless the Company is materially adversely affected by such
failure.
Each Indemnified Party shall have the right to employ separate counsel
in such action and participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless: (i)
the Company has agreed in writing to pay such expenses; (ii) the Company has
failed to assume the defense and employ counsel; or (iii) the named parties to
any such action (including any impleaded parties) include any Indemnified Party
and the Company, and such Indemnified Party shall have been advised by outside
counsel that there may be one or more legal defenses available to it which are
inconsistent with those available to the Company; provided that, if such
Indemnified Party notifies the Company in writing that it elects to employ
separate counsel in the circumstances described in clauses (i), (ii) or (iii)
above, the Company shall not have the right to assume the defense of such action
or proceeding; provided, however, that the Company shall not, in connection with
any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be responsible hereunder for the fees and
expenses of more than one such firm of separate counsel (in addition to any
necessary local counsel), which counsel shall be designated by such Indemnified
Party. The Company shall not be liable for any settlement of any such action
effected without its written consent (which shall not be unreasonably withheld).
The Company agrees that it will not, without the Indemnified Party's prior
consent, which shall not be unreasonably withheld, settle or compromise any
pending or threatened claim, action or suit in respect of which indemnification
may be sought hereunder unless the foregoing contains an unconditional release
of the Indemnified Parties from all liability and obligation arising therefrom.
5.7. Corporate Existence; Merger; Successor Corporation
(a) The Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence in accordance
with its organizational documents and the corporate rights (charter and
statutory), licenses and franchises of the Company; provided, however, that the
Company shall not be required to preserve any such right, license or franchise,
or corporate existence if the Board of Directors of the Company shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and that the loss thereof is not adverse in any material
respect to any Holder.
(b) The Company shall not in a single transaction or through a series
of related transactions, (i) consolidate with or merge with or into any other
person, or transfer (by lease, assignment, sale or otherwise) all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to another person or group of affiliated persons or (ii) adopt a
Plan of Liquidation, unless, in either case:
(1) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or to which all or substantially all of the properties and assets of
the Company as an entirety or substantially as an entirety are transferred (or,
in the case of a Plan of Liquidation, any Person to
20
<PAGE>
which assets are transferred) (the Company or such other Person being
hereinafter referred to as the "Surviving Person") shall be a corporation
organized and validly existing under the laws of the United States, any State
thereof or the District of Columbia, and shall expressly assume, by an amendment
to this Agreement, all the obligations of the Company under the Notes and this
Agreement;
(2) immediately after and giving effect to such transaction and
the assumption contemplated by clause (1) above and the incurrence or
anticipated incurrence of any Indebtedness to be incurred in connection
therewith, (ii) the Surviving Person shall have a Consolidated Net Worth equal
to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction;
(3) immediately before and immediately after and giving effect to
such transaction and the assumption of the obligations as set forth in clause
(1) above and the incurrence or anticipated incurrence of any Indebtedness to be
incurred in connection therewith, no Default or Event of Default shall have
occurred and be continuing; and
(4) The Company shall have delivered to the Purchaser an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, transfer or adoption and such amendment to this Agreement
comply with this Section 5.7, that the Surviving Person agrees to be bound
hereby, and that all conditions precedent herein provided relating to such
transaction have been satisfied.
(c) Upon any consolidation or merger, or any transfer of assets
(including pursuant to a Plan of Liquidation) in accordance with this Section
5.7, the successor person formed by such consolidation or into which the Company
is merged or to which such transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Agreement
with the same effect as if such successor person had been named as the Company
herein; provided, however, that the Company shall not be released from the
obligations and covenants under this Agreement or under the Notes.
5.8. Taxes
The Company shall, and shall cause its Subsidiaries to, pay prior to
delinquency all material taxes, assessments and governmental levies except as
contested in good faith and by appropriate proceedings.
5.9. Investment Company Act
Neither the Company nor any of its Subsidiaries shall become an
investment company subject to registration under the Investment Company Act of
1940, as amended.
21
<PAGE>
5.10. Insurance
The Company and its Subsidiaries shall maintain liability, casualty
and other insurance with a reputable insurer or insurers in such amounts and
against such risks as is carried by responsible companies engaged in similar
businesses and owning similar assets.
5.11. Inconsistent Agreements
The Company shall not, and shall not permit any of its Subsidiaries
to, (i) enter into any agreement or arrangement which is inconsistent with, or
would impair the ability of the Company to fulfill, its obligations under this
Agreement, the Notes, the Registration Rights Agreement or the Commitment Letter
or (ii) supplement, amend or otherwise modify the terms of their respective
Charter Documents, if the effect thereof would be materially adverse to the
Holders, including without limitation to increase the liquidation preference of,
or the rate of dividends payable on, any series of preferred stock.
5.12. Compliance with Laws
The Company shall, and shall cause its Subsidiaries to, comply with
all statutes, ordinances, governmental rules and regulations, judgments, orders
and decrees (including all Environmental Laws) to which any of them is subject,
and obtain and keep in effect all licenses, permits, franchises and other
governmental authorizations necessary to the ownership or operation of their
respective properties or the conduct of their respective businesses, except to
the extent that the failure to so comply or obtain and keep in effect would not
have a Material Adverse Effect.
5.13. Inspection of Properties and Records
The Company agrees to allow, and to cause each of their respective
Subsidiaries to allow, the Purchaser and each subsequent Holder (or such Persons
as the Purchaser or subsequent Holder may designate) (individually and
collectively, "Inspectors") upon reasonable prior notice to visit and inspect
any of the properties of the Company or its Subsidiaries, to examine all their
books of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers, and independent public accountants with
representatives of the Company or its Subsidiaries present (and by this
provision the Company authorizes said accountants to discuss with such
Inspectors the finances and affairs of the Company and its Subsidiaries) all at
such reasonable times and as often as may be reasonably requested but not more
than twice in any twelve-month period for all Holders in the aggregate unless a
Default or an Event of Default shall have occurred. If a Default or an Event of
Default shall have occurred and be continuing, the Company shall pay or
reimburse all Inspectors for expenses which such Inspectors may reasonably incur
in connection with any such visitations or inspections.
22
<PAGE>
SECTION 6. CONVERSION OF NOTES
6.1. Conversion
(a) Each Note shall be convertible, in whole or in part, at the option
of the Holder thereof, at any time prior to the Maturity Date, at the office of
the Company or any transfer agent for the Notes, into that number of fully paid
and nonassessable shares of Common Stock determined in accordance with the
provisions of Section 6.2. In order to convert Notes into Conversion Shares, the
Holder thereof shall surrender the Notes therefor, duly endorsed, at the office
of the Company or to the transfer agent for the Notes, together with written
notice to the Company stating that it elects to convert the same and setting
forth the name or names in which it wishes the certificate or certificates for
Conversion Shares to be issued, and the principal amount of the Notes being
converted. The Company shall, as soon as practicable after the surrender of the
Notes for conversion at the office of the Company or the transfer agent for the
Notes, issue to each holder of such Notes, or its nominee or nominees, a
certificate or certificates evidencing the number of Conversion Shares (and any
other securities and property) to which it shall be entitled, cash representing
payment in full for all accrued but unpaid interest on the Note (or portion
thereof) surrendered for conversion, and, in the event that only a part of the
Notes presented are converted, a Note evidencing the principal amount not so
converted. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the Notes to be
converted, and the person or persons entitled to receive the Conversion Shares
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock at such date and shall, with
respect to such shares, thereafter have only those rights of a holder of Common
Stock of the Company.
(b) In the event that the average trading price of the Common Stock
over thirty (30) consecutive trading days is equal to or exceeds $12 per share,
the Company shall have the right, but not the obligation, to force a conversion
of all then outstanding Notes, in whole but not in part, within the fifteen (15)
day period immediately following such thirty (30) consecutive trading days. Any
such forced conversion shall in all other respects be in accordance with this
Section 6, and, if the Company shall elect to force conversion of Notes, it
shall promptly provide notice of such forced conversion to all Holders of Notes.
The Company shall, as soon as practicable following the notice of such forced
conversion (and in no event later than sixty (60) calendar days after the date
of such notice) issue to each holder of such Notes, or its nominee or nominees,
a certificate or certificates evidencing the number of Conversion Shares (and
any other securities and property) to which it shall be entitled and cash
representing payment in full for all accrued but unpaid interest on the Note
surrendered for conversion. Such conversion shall be deemed to have been made at
the close of business on the date specified in such notice, and the person or
persons entitled to receive the Conversion Shares issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock at such date and shall, with respect to such shares, thereafter
have only those rights of a holder of Common Stock of the Company.
23
<PAGE>
(c) The Company shall use its best efforts to quote and maintain
quotation of the Conversion Shares on the Nasdaq National Market or such other
principal national securities exchange on which the Common Stock is then listed
or quoted.
6.2. Conversion Rate
The number of shares of Common Stock issuable upon conversion of the
Notes shall be one (1) share for every $7.50 of principal amount of Notes being
converted (the "Conversion Rate"), and shall be subject to adjustment from time
to time as provided herein and as provided in Section 3(b) of the Registration
Rights Agreement.
6.3. Fractional Shares
No fractional shares of Common Stock shall be issued upon conversion
of Notes. Instead, the Company shall deliver cash in the form of its check for
the Fair Market Value of the fractional share.
6.4. Adjustments for Stock Splits, Combinations and Dividends
If the outstanding shares of the Common Stock shall be subdivided into
a greater number of shares or combined into a lesser number of shares, the
Conversion Rate in effect immediately prior to such subdivision shall,
simultaneously with the effectiveness of such subdivision, be proportionately
increased or decreased, as the case may be. If the Company pays a dividend or
otherwise makes a distribution with respect to its Common Stock (whether in
cash, additional shares of Common Stock or other property) on or prior to March
31, 2003, then the Conversion Rate shall be increased by a fraction, the
numerator of which is the aggregate amount of the fair market value of such
dividend or distribution and the denominator of which is the number of shares of
Common Stock entitled to such dividend or other distribution. If the Company
pays a dividend or otherwise makes a distribution with respect to its Common
Stock (whether in cash, additional shares of Common Stock or other property)
after March 31, 2003 (the effective date of such dividend or other distribution,
the "Determination Date") and if the fair market value of such dividend or other
distribution, together with the fair market value of all other dividends and
distributions with respect to its Common Stock during the 12-month period
immediately preceding the Determination Date exceeds 2% of the Average Closing
Sales Price during such 12-month period, then the Conversion Rate shall be
increased by a fraction, the numerator of which is the aggregate amount of the
fair market value of the dividend or other distribution to be effected on the
Determination Date plus the aggregate amount of the fair market value of all
dividends and distributions effected during such 12-month period for which no
adjustment in the Conversion Rate was effected pursuant to this Section 6.4, and
the denominator of which is the number of shares of Common Stock entitled to
such dividend or other distribution on the Determination Date. Any adjustment to
the Conversion Rate under this Section 6.4 shall become effective at the close
of business on the date the subdivision, combination, dividend or other
distribution referred to herein becomes effective. For purposes of the
calculations made in this Section 6.4, the fair market value of any dividend or
other
24
<PAGE>
distribution that is in the form of property other than Common Stock or cash
shall be determined in good faith by the Board.
6.5. Reorganization, Mergers, Consolidations or Sales of Assets
In the event of any capital reorganization, any reclassification of
the Common Stock (other than a change in par value or as a result of a stock
dividend, subdivision, split-up or combination of shares), the consolidation or
merger of the Company with or into another person, or the sale or other
disposition of all or substantially all of the properties of the Company as an
entirety to another person (collectively referred to hereinafter as
"Reorganizations"), the Holders of the Notes shall thereafter be entitled to
receive, and provision shall be made therefor in any agreement relating to a
Reorganization, upon conversion of the Notes the kind and number of shares of
Common Stock or other securities or property (including cash) of the Company, or
the other corporation resulting from such consolidation or surviving such
merger, which would have been distributed to a holder of the number of shares of
Common Stock which the Notes entitled the holders thereof to convert to
immediately prior to such Reorganization; and in any such case appropriate
adjustment shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the Holders of the Notes,
to the end that the provisions set forth herein (including the specified changes
and other adjustments to the Conversion Rate) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares, other securities or
property thereafter receivable upon conversion of the Notes.
6.6. Sale of Shares Below Market or Conversion Price
(a) If at any time or from time to time the Company shall issue or
sell Additional Shares of Common Stock other than in a transaction which falls
within Section 6.1, Section 6.4 or Section 6.5, for an Effective Price less than
the greater of (x) the Fair Market Value of the Common Stock or (y) the then
effective conversion price calculated by dividing $7.50 by the then existing
Conversion Rate (the "Adjusted Conversion Price"), then, and in each such case,
the then existing Conversion Rate shall be adjusted to a rate per $7.50
principal amount of Notes determined by multiplying that Conversion Rate by a
fraction (i) the numerator of which shall be the number of shares of Common
Stock outstanding at the close of business on the date of such issue after
giving effect to such issue of Additional Shares of Common Stock, and (ii) the
denominator of which shall be (A) the number of shares of Common Stock
outstanding at the close of business on the day next preceding the date of such
issue or sale, plus (B) the number of shares of Common Stock which the aggregate
consideration received (or by the express provisions hereof deemed to have been
received) by the Company for the total number of Additional Shares of Common
Stock so issued would purchase at such Adjusted Conversion Price.
(b) For the purpose of making any adjustment required in this Section
6.6, the consideration received by the Company for any issue or sale of
securities shall:
(i) to the extent it consists of cash, the consideration received
by the Company therefor shall be deemed to be the net amount of cash
actually received
25
<PAGE>
by the Company, after deducting therefrom any compensation, discounts,
fees or expenses paid to (but not on behalf of) any purchaser of such
securities and any compensation, discounts, fees or expenses that are
not reasonable or are not customary (it being understood that
underwriters' discounts and compensation in public offerings and
brokers' commissions in private placements of such securities shall be
deemed reasonable and customary);
(ii) to the extent it consists of property other than cash, the
consideration other than cash shall be computed at the fair market
value thereof as determined in good faith by the Board of Directors of
the Company; and
(iii) if Additional Shares of Common Stock, Convertible
Securities or rights or options to purchase either Additional Shares
of Common Stock or Convertible Securities are issued or sold together
with other stock or securities or other assets of the Company for
consideration which covers both, the consideration received for the
Common Stock, Convertible Securities or rights or options shall be
computed as that portion of the consideration so received which is
reasonably determined in good faith by the Board of Directors of the
Company to be allocable to such Additional Shares of Common Stock,
Convertible Securities or rights or options.
(c) For the purpose of making any adjustment in the Conversion Rate
provided in this Section 6.6, if at any time, or from time to time, the Company
issues any stock convertible into Additional Shares of Common Stock (such
convertible stock being hereinafter referred to as "Convertible Securities") or
issues any rights or options, other than options pursuant to the Stock Option
Plan, to purchase Additional Shares of Common Stock for Convertible Securities
(such rights or options being hereinafter referred to as "Rights"), then, and in
each such case, the Company shall be deemed to have issued at the time of the
issuance of such Rights or Convertible Securities the maximum number of shares
of Additional Shares of Common Stock issuable upon exercise (other than options
pursuant to the Stock Option Plan) or conversion thereof and to have received in
consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Company for the issuance of
such Rights or Convertible Securities, plus in the case of such Rights, the
amount of consideration, if any, payable to the Company upon exercise of such
Rights, plus, in the case of Convertible Securities, the amount of
consideration, if any, payable to the Company upon the conversion thereof. No
further adjustment of the Conversion Rate, adjusted upon the issuance of such
Rights or Convertible Securities, shall be made as a result of the actual
issuance of Additional Shares of Common Stock on the exercise of any such Rights
or the conversion of any such convertible Securities. If any such Rights or the
conversion privilege represented by any such Convertible Securities shall expire
without having been exercised, the Conversion Rate adjusted upon the issuance of
such rights, options or convertible securities shall be readjusted to the
conversion rate which would have been in effect had an adjustment been made on
the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such Rights of conversion of
26
<PAGE>
such Convertible Securities, and such Additional Shares of Common Stock, if any,
were issued or sold for the consideration actually received by the Company upon
such exercise, plus the consideration, if any, actually received by the Company
for granting of all such Rights, whether or not exercised, plus consideration
received for issuing or selling the Convertible Securities actually converted,
plus the consideration, if any, actually received by the Company on the
conversion of such Convertible Securities.
6.7. Adjustment for Failure to Quote on Nasdaq National Market
In event that, from the time of effectiveness of the registration
statement to be filed pursuant to Section 3(a) of the Registration Rights
Agreement and until all Notes have been converted into Conversion Shares,
immediately prior to the conversion of any Notes into Conversion Shares pursuant
to this Section 6, such Conversion Shares have not been approved for quotation
on Nasdaq National Market (or any other national securities exchange where the
Common Stock is then listed or quoted), then the Conversion Rate with respect to
such Conversion Shares shall be increased by 10% immediately prior to the
conversion of any Notes into such Conversion Shares.
6.8. Accountants' Certificate of Adjustment
In each case of an adjustment or readjustment of the Conversion Rate
or the number of shares of Common Stock or other securities issuable upon
conversion of the Notes, the Company shall as soon as reasonably practicable
(and in no event less than thirty (30) days following the event causing such
adjustment or readjustment) compute such adjustment or readjustment in
accordance with this Agreement and prepare a certificate showing such adjustment
or readjustment, and shall mail such certificate, by first-class mail, postage
prepaid, to each Holder of the Notes at the Holder's address as shown on the
Company's note register. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (i) the Conversion Rate at the
time in effect for the Notes, and (ii) the number of shares of Common Stock and
the type and amount, if any, of other property which at the time would be
received upon conversion of the Notes. At the written request of the Requisite
Noteholders, the Company shall cause its Independent Auditors to verify the
computations contained in the certificate prepared by the Company.
6.9. Reservation of Shares Issuable Upon Conversion
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Notes, such number and class of its shares of
Common Stock as shall from time to time be sufficient to effect a conversion of
all outstanding Notes, and if at any time the number and class of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding Notes, the Company shall promptly seek such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number and class of
shares as shall be sufficient for such purpose. In
27
<PAGE>
the event of the consolidation or merger of the Company with another corporation
where the Company is not the surviving corporation, effective provision shall be
made in the certificate or articles of incorporation, documents of merger or
consolidation, or otherwise, of the surviving corporation so that such
corporation will at all times reserve and keep available a sufficient number of
shares of Common Stock or other securities or property to provide for the
conversion of the Notes in accordance with the provisions of this Section 6.
6.10. No Impairment
The Company shall not amend its Charter Documents or participate in
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, for the principal
purpose of avoiding or attempting to avoid the observance or performance of any
of the terms to be observed or performed by the Company pursuant to this Section
6.
SECTION 7. DEFAULTS AND REMEDIES
7.1. Events of Default
An "Event of Default" occurs if:
(a) the Company defaults in the payment of the principal of any Note
when the same becomes due and payable at maturity, upon repurchase or otherwise;
(b) the Company defaults in the payment of interest on any Note when
the same becomes due and payable and the Default continues for the period and
after the notice specified below;
(c) the Company fails to comply with any of the agreements, covenants,
or provisions of this Agreement or the Notes and the Default continues for the
period and after the notice specified below;
(d) a default occurs under any mortgage, indenture or instrument
(other than a mortgage, indenture or instrument to which the Purchaser or its
Subsidiaries is a party) under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any of its Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Subsidiaries), whether such Indebtedness or guaranteed Indebtedness
now exists or shall be created hereafter, which default (i) is caused by a
failure to pay principal of or premium, if any, on such Indebtedness prior to
the expiration of the grace period provided in such Indebtedness, or (ii)
results in the acceleration of such Indebtedness prior to its express maturity
and, in each case, the principal amount of such Indebtedness, together with the
principal amount of any other Indebtedness as to which there has been a payment
default or the maturity of which has been so accelerated, aggregates $1,000,000
or more;
(e) a final judgment for the payment of money is entered by a court or
courts of competent jurisdiction against the Company or any Subsidiary of the
Company and such
28
<PAGE>
remains undischarged for a period (during which execution shall not be
effectively stayed) of (1) ninety (90) days, if the aggregate of all such
judgments exceeds $1,000,000 but is less than $5,000,000 or (2) thirty (30) days
if the aggregate of all such judgments exceeds $5,000,000;
(f) the Company or any of its Subsidiaries pursuant to or within the
meaning of any Bankruptcy Law: (1) commences a voluntary case, (2) consents to
the entry of an order for relief against it in an involuntary case, (3) consents
to the appointment of a Custodian of it or for all or substantially all of its
property, (4) makes a general assignment for the benefit of its creditors, (5)
generally is unable to pay its debts as the same become due; or (6) a court of
competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(i) is for relief against the Company or any of its Subsidiaries in an
involuntary case, (ii) appoints a Custodian of the Company or any of its
Subsidiaries or for all or substantially all of its property, or (iii) orders
the liquidation of the Company or any of its Subsidiaries, and the order or
decree remains unstayed and in effect for 60 days.
A Default under clause (b) is not an Event of Default until a Holder
notifies the Company of such Default and the Company does not cure such Default
within two (2) Business Days after receipt of such notice. A Default under
clause (c) (other than a Default under Sections 5.3, 5.4, 5.6 or 5.7 of this
Agreement, which Default shall be an Event of Default without the notice or
passage of time specified in this paragraph) or (d) (other than a Default
resulting from the acceleration of any Indebtedness described therein, which
Default shall be an Event of Default without the notice or passage of time
specified in this paragraph) or (e) is not an Event of Default until the
Requisite Noteholders notify the Company of the Default and the Company does not
cure the Default within ten (10) days after receipt of the notice. Any such
notices must specify the Default, demand that it be remedied and state that the
notice is a "Notice of Default."
7.2. Acceleration of Notes
If an Event of Default (other than an Event of Default specified in
clauses (e) and (f) of Section 7.1) occurs and is continuing, the Requisite
Noteholders, by notice to the Company, may declare the unpaid principal of and
any accrued interest on all the Notes to be due and payable. Immediately upon
such declaration, the principal and interest shall be due and payable. If an
Event of Default specified in clause (e) or (f) of Section 7.1 occurs, such an
amount shall become and be immediately due and payable without any declaration
or other act on the part of any Holder. The Requisite Noteholders by notice to
the Company may rescind an acceleration of and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of the acceleration.
7.3. Other Remedies
If an Event of Default occurs and is continuing, Holders of the Notes
may pursue any available remedy to collect the payment of principal or interest
on the Notes or to enforce the performance of any provision of the Notes or this
Agreement.
29
<PAGE>
A delay or omission by any Holder of any Notes in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 8. SUBORDINATION
8.1. Notes Subordinated to Senior Indebtedness
(a) The Notes are subordinated and junior in right of payment of the
principal of and interest and all other obligations (all of the foregoing, a
"Payment or Distribution") on such Notes to the prior payment in full of any
Senior Indebtedness whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed, the Notes shall comply with the provisions of
this Section 8, and each Holder by his acceptance thereof likewise agrees.
A Payment or Distribution shall include any asset of any kind or
character, and may consist of cash, securities or other property, by set-off or
otherwise, except that Holders may receive (i) securities that are subordinated
to at least the same extent as the Notes to (A) Senior Indebtedness and (B) any
securities issued in exchange for Senior Indebtedness.
(b) The Senior Indebtedness of the Company shall continue to be Senior
Indebtedness and entitled to the benefit of these subordination provisions
irrespective of any amendment, modification or waiver of any term of any
instrument relating to refinancing of the Senior Indebtedness, whether with or
without notice to Holders.
(c) No right of any holder of any Senior Indebtedness to enforce
subordination as herein provided shall at any time or in any way be affected or
impaired by any act or failure to act on the part of the Company, the Holders or
the holders of the Senior Indebtedness, including without limitation any
non-compliance by the holders of the Senior Indebtedness with any of the terms,
provisions and covenants of the documents evidencing or securing the Senior
Indebtedness, or by any noncompliance by the Company or the Holders with any of
the terms, provisions and covenants of the Notes, regardless of any knowledge
thereof that any such holder of Senior Indebtedness may have or otherwise be
charged with.
8.2. Company Not to Make Payments with Respect to Notes in Certain
Circumstances
No Payment or Distribution shall be made by the Company on account of
principal of or interest on the Notes, whether upon the Maturity Date, upon
repurchase or acceleration, or otherwise, if there shall have occurred and be
continuing a default with respect to any Senior Indebtedness and notice of such
default in writing or by telegram has been given to the Company by any holder or
holders of Senior Indebtedness, unless and until the Company shall have received
written notice from such holder or holders that such default or event of default
shall have been cured or waived or shall have ceased to exist or, unless in the
event of a default that does not result in the acceleration of any Senior
Indebtedness or that does not involve a payment default with respect to any
Senior Indebtedness, upon the expiration of the 60-day
30
<PAGE>
period following the date of such notice of default. Following such 60-day
period, the Company shall be obligated to make any and all outstanding Payments
or Distributions with respect to the Notes.
Upon acceleration of the principal of the Notes or any payment by the
Company or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to creditors upon any dissolution or
winding up or liquidation or reorganization of the Company, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or such other
proceedings, all amounts due or to become due upon all Senior Indebtedness shall
first be paid in full in cash, or payment thereof provided for to the
satisfaction of the holders thereof, before any Payment or Distribution is made
on account of the repurchase price or principal of or interest on the Notes; and
(subject to the power of a court of competent jurisdiction to make other
equitable provision, which shall have been determined by such court to give
effect to the rights conferred in this Section 8 upon the Senior Indebtedness
and the holders thereof with respect to the Notes or the Holders, by a lawful
plan of reorganization or readjustment under applicable law) upon any such
dissolution or winding up or liquidation or reorganization, any Payment or
Distribution by the Company or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, to which the Holders
would be entitled except for the provisions of this Section 8, shall be paid by
the Company or by any receiver, trustee in bankruptcy, liquidating trustee,
agent or other Person making such Payment or Distribution directly to the
holders of Senior Indebtedness of the Company or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any Senior Indebtedness may have been issued,
as their respective interests may appear, to the extent necessary to pay all
Senior Indebtedness in full in cash, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Indebtedness, before any
Payment or Distribution is made to the Holders.
In the event that, notwithstanding the foregoing, any Payment or
Distribution by the Company of any kind or character, whether such payment shall
be in cash, property or securities is prohibited by the foregoing, and the
Company shall have made payment to the Holders before all Senior Indebtedness is
paid in full in cash, or provision is made for such payment to the satisfaction
of the holders thereof, such Holder, then and in such event such Payment or
Distribution shall be paid over by such Holder or delivered to the holders of
Senior Indebtedness or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in cash, after giving effect to any concurrent Payment or Distribution to or for
the holders of such Senior Indebtedness, and, until so delivered, the same shall
be held in trust by any Holder as the property of the holders of Senior
Indebtedness.
The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the conveyance or transfer of its property as an entirety, or substantially as
an entirety, to another corporation upon
31
<PAGE>
the terms and conditions provided in Section 5.7 shall not be deemed a
dissolution, winding up, liquidation or reorganization for the purpose of this
Section if such other Person shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Section 5.7.
The holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Holders without incurring
responsibility to the Holders and without impairing or releasing the obligations
of the Holders to the holders of the Senior Indebtedness: (i) change the manner,
place or terms of payment or change or extend the time of payment of, or renew
or alter, Senior Indebtedness, or otherwise amend in any manner Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and/or (iv) exercise or refrain from exercising any
rights against the Company and any other Person.
8.3. Subrogation of Notes
After all Senior Indebtedness is paid in full and until the Notes are
paid in full, the Holders shall be subrogated (equally and ratably with all
other Indebtedness pari passu with the Notes) to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of Senior Indebtedness.
If any Payment or Distribution to which the Holders would otherwise
have been entitled but for the provisions of this Section 8 shall have been
applied pursuant to the provisions of this Section 8 to the payment of all
amounts payable in respect of the Senior Indebtedness, then and in such case,
the Holders, as with respect to the Company, shall be entitled to receive from
the holders of such Senior Indebtedness at the time outstanding any Payments or
Distributions received by such holders of Senior Indebtedness in excess of the
amount sufficient to pay all amounts payable in respect of the Senior
Indebtedness in full in cash or, at the option of the holders of Senior
Indebtedness, cash equivalents.
8.4. No Impairment of Subordination
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company,
any Holder, or by any act, or failure to act, in good faith, by any such holder
of Senior Indebtedness, or by any noncompliance by the Company or any Holder
with the terms, provisions and covenants of this Agreement regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
32
<PAGE>
8.5. Section 8 Not to Prevent Events of Default
The failure to make a payment on account of principal of or interest
on the Notes by reason of any provision in this Section 8 shall not be construed
as preventing the occurrence of an Event of Default with respect to such series
under Section 7.1.
8.6. Securities Senior to Subordinated Indebtedness
The indebtedness represented by the Notes will be senior and prior in
right of payment to all Subordinated Indebtedness, to the extent and in the
manner provided in such Subordinated Indebtedness.
8.7. Assignment of Junior Claims
(a) So long as LTC Equity Holding Company holds a sufficient amount of
Notes such that LTC Equity Holding Company constitutes a Requisite Noteholder,
paragraphs (b) and (c) of this Section 8.7 shall have no force and effect. In
the event LTC Equity Holding Company shall cease to hold a sufficient amount of
Notes such that LTC Equity Holding Company is no longer a Requisite Noteholder,
paragraphs (b) and (c) of this Section 8.7 shall be in effect.
(b) In the event of an insolvency proceeding with respect to the
Company, each Holder will assign to a representative of the holders of Senior
Indebtedness (as identified in writing to each Holder by the holders of Senior
Indebtedness) (the "Senior Representative") each Holder's right, title and
interest in and to any claims such Holder has against the Company with respect
to the Notes (the "Junior Claims") and any security held therefor, and will
deliver to the Senior Representative from time to time any and all instruments
and documents evidencing such Junior Claims, or will have entered on such
instruments and documents such subordination legend as the Senior Representative
may reasonably request, and each Holder will execute such other instruments and
documents as the Senior Representative may from time to time reasonably require
in connection therewith. In the event that any Junior Claim is not evidenced by
a negotiable instrument, each Holder hereby agrees that he will use all
commercially reasonably efforts to obtain an instrument or document from the
Company evidencing such Junior Claim. In the event that such debt is not
evidenced by a document, it shall nevertheless be deemed subordinated and
assigned by virtue of this Section 8.7.
(c) In the event of an insolvency proceeding with respect to the
Company, each Holder will grant to the Senior Representative irrevocable
authority in the place and stead of such Holder and in the name of such Holder
or in the Senior Representative's name but for the Senior Representative's use
and benefit, at any time or times, after any default under the terms of any
Senior Indebtedness, in the Senior Representative's discretion to demand,
collect file proofs of claim with respect to, receive (by way of dividends or
otherwise) and take any and all legal proceedings for the recovery of any and
all moneys due or to become due on account of the Junior Claims or any thereof,
and to vote, give consents and take any other steps with regard thereto. Any and
all moneys so collected or received by the Senior Representative shall be
33
<PAGE>
retained indefeasibly by the Senior Representative for application to the
payment in full of any amounts owing with respect to the Senior Indebtedness
then outstanding (the "Senior Claims"). If the Senior Representative receives
notice of any claim adverse to the rights or interests of each Holder in and to
either the Junior Claims or the Senior Claims, or any moneys held by the Senior
Representative in respect thereof, the Senior Representative shall be entitled
to retain any and all such moneys, documents and instruments evidencing such
Junior Claims and Senior Claims.
SECTION 9. AMENDMENTS AND WAIVERS
9.1. With Consent of Holders
The Company, when authorized by a resolution of the Board of Directors
of the Company and with the written consent of the Requisite Noteholders, may
amend this Agreement or the Notes, without notice to any other Holders. The
Requisite Noteholders may waive compliance by the Company with any provision of
this Agreement or the Notes without notice to any other Holder. Without the
consent of each Holder affected, however, no amendment or waiver may (with
respect to any Notes held by a non-consenting Holder of Notes):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment or waiver of any provision of this Agreement or the Notes;
(b) reduce the principal of or change the fixed maturity of any Note;
(c) reduce the rate of or change the time for payment of interest on
any Note;
(d) waive a Default or Event of Default in the payment of principal of
or interest on the Notes (except a rescission of acceleration of the Notes by
the Requisite Noteholders and a waiver of the payment default that resulted from
such acceleration);
(e) make the principal of or the interest on, any Note payable in any
manner other than that stated in this Agreement and the Notes;
(f) make any change in the provisions of this Agreement relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or interest on the Notes;
(g) make any change to the subordination provisions of this Agreement
that adversely affect any Holder; or
(h) make any change in the foregoing amendment and waiver provisions.
It shall not be necessary for the consent of the Holders under this
Section 9 to approve the particular form of any proposed amendment or waiver,
but it shall be sufficient if such consent approves the substance thereof.
34
<PAGE>
After an amendment or waiver under this Section 9 becomes effective,
the Company shall mail to the Holders affected thereby a notice briefly
describing the amendment or waiver. Any failure of the Company to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such amendment or waiver.
In connection with any amendment to this Section 9, the Company may
offer, but shall not be obligated to offer, to any Holder who consents to such
amendment or waiver, consideration for such Holder's consent.
9.2. Revocation and Effect of Consents
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of a
Note or portion of a Note that evidences the same debt as the consenting
Holder's Note, even if notation of the consent is not made on any Note. However,
any such Holder or subsequent Holder may revoke the consent as to his Note or
portion of his Note by notice to the Company received before the date on which
the Requisite Noteholders have consented (and not theretofore revoked such
consent) to the amendment or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment or
waiver, which record date shall be at least ten (10) Business Days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated proxies),
and only those persons, shall be entitled to revoke any consent previously
given, whether or not such persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
After an amendment or waiver becomes effective, it shall bind every
Holder, unless it makes a change described in any of clauses (a) through (g) of
Section 9.1, in which case, the amendment or waiver shall bind only each Holder
of a Note who has consented to it and every subsequent Holder of a Note or
portion of a Note that evidences the same debt as the consenting Holder's Note;
provided that any such waiver shall not impair or affect the right of any Holder
to receive payment of principal of and interest on a Note, on or after the
respective due dates expressed in such Note, or to bring suit for the
enforcement of any such payment on or after such respective dates without the
consent of such Holder.
9.3. Notation on or Exchange of Notes
If an amendment or waiver changes the terms of a Note, the Company may
require the Holder of the Note to deliver it to the Company. The Company may
place an appropriate notation on the Note about the changed terms and return it
to the Holder.
35
<PAGE>
SECTION 10. DEFINITIONS
10.1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing Date, whether or not subsequently
reacquired or retired by the Company, other than the Conversion Shares; provided
that such term shall exclude shares of Common Stock issued under the Stock
Option Plan and shares of Common Stock issued or issuable upon the conversion of
Notes issued pursuant to agreements dated on or about the date of this Agreement
and the warrants scheduled on the Disclosure Schedule.
"Adjusted Conversion Price" shall have the meaning assigned to such
term in Section 6.6(a).
"Affiliate" means, with respect to any referenced Person, a Person (i)
which directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such referenced Person, (ii)
which directly or indirectly through one or more intermediaries beneficially
owns or holds 10% or more of the combined voting power of the total Voting
Securities of such referenced Person or (iii) of which 10% or more of the
combined voting power of the total Voting Securities directly or indirectly
through one or more intermediaries is beneficially owned or held by such
referenced Person, or a Subsidiary of such referenced Person. When used herein
without reference to any Person, Affiliate means an Affiliate of the Company.
For purposes of this definition, "control" when used with respect to any person
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of Voting Securities, by contract
or otherwise; and the terms "affiliated," controlling" and "controlled" have
meanings correlative to the foregoing.
"Agent" means any Person authorized to act and who acts on behalf of
the Purchasers with respect to the transactions contemplated by this Agreement,
the Registration Rights Agreement or the Commitment Letter.
"Agreement" means this Convertible Subordinated Note Purchase
Agreement dated as of March 30, 1998 by and between the Company and the
Purchaser.
"Average Closing Sales Price" as of a particular 12-month period means
the average closing sales price of the Common Stock for each Business Day during
such 12-month period. Such average shall be calculated as follows: (i) the
average of the closing sales prices of the Common Stock quoted on the Nasdaq
National Market for each Business Day during such 12-month period, or (ii) if no
such quotations are available, the average of the closing sales prices for each
Business Day during such 12-month period on the principal national securities
exchange on which the Common Stock is listed, or (iii) if not listed on any
national securities exchange, the average closing sales price for each Business
Day during such 12-month period in the over-
36
<PAGE>
the-counter market as reported by the National Quotation Bureau, Incorporated or
similar organization, or (iv) if no of such sales prices are available for each
Business Day in such 12-month period, the average of the high bid and low asked
quotations in the over-the-counter market as so reported for such Business Days,
or (v) if no such quotations are available, the fair market value per share on
such unreported Business Days as determined by an independent investment banker
or appraiser, nationally recognized to be expert in making such valuations,
selected by a majority of the directors of the Company. In the event "Average
Closing Sales Price" is determined by an independent investment banker or
appraiser pursuant to clause (v) of the foregoing sentence, such determination
shall be provided to each Holder in writing together with a fair and accurate
description of the basis for making such determination. The Requisite Holders
shall be permitted to dispute such determination by written notice to the
Company within ten (10) Business Days of receipt of such determination. In the
event of such dispute, the Requisite Holders and the Company shall work together
in good faith to mutually agree upon a second independent investment banker or
appraiser to make a determination of "Average Closing Sales Price" whose fees
and expenses shall be paid by the Company. "Average Closing Sales Price" shall
be the average of the per share fair market values determined by both
independent investment bankers or appraisers.
"Bankruptcy Law" means title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Business Day" means any day which is not a Legal Holiday.
"Capital Lease" means any lease of any property which would in
accordance with GAAP be required to be classified and accounted for on the
balance sheet of the lessee as a capital lease.
"Capitalized Lease Obligation" means, with respect to any Person for
any period, any obligation of such Person to pay rent or other amounts under a
Capital Lease; the amount of such obligation shall be the capitalized amount
thereof determined in accordance with such principles.
"Capital Stock" means any and all shares, interests, participation or
other equivalents (however designated) of corporate stock, including without
limitation all common stock and preferred stock.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act (42 U.S.C. ss. 9601 et. seq.).
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any Person or group (as such term is used in Section 13(d)(3) of the
Exchange Act); (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger
37
<PAGE>
or consolidation) the result of which is that any Person or group (as defined
above), other than Walter C. Bowen or a Related Party, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 50% of the Fully Diluted Voting
Securities of the Company (measured by voting power rather than number of
shares) and (iv) the date on which a majority of the Board of Directors of the
Company shall cease to be Continuing Directors.
"Change of Control Date" shall have the meaning set forth in Section
5.4.
"Change of Control Notice" shall have the meaning set forth in Section
5.4.
"Change of Control Price" shall have the meaning set forth in Section
5.4.
"Change of Control Repurchase Date" shall have the meaning set forth
in Section 5.4.
"Change of Control Repurchase Offer" shall have the meaning set forth
in Section 5.4.
"Charter Documents" means the Articles of Organization, Articles of
Incorporation or Certificate of Incorporation and Bylaws, as amended or restated
(or both) to date, of the Company or a Subsidiary, as applicable.
"Closing" shall have the meaning set forth in Section 1.2(b).
"Closing Date" shall have the meaning set forth in Section 1.2(b).
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor statute or law thereto.
"Commitment Letter" means that certain Commitment Letter dated as of
the Closing Date by and between the Company, LTC Properties and LTC West,
executed concurrently herewith.
"Common Stock" means the Common Stock, no par value, of the Company.
"Company" means Regent Assisted Living, Inc., an Oregon corporation.
"Company SEC Documents" shall have the meaning set forth in Section
3.23.
"Conversion Rate" shall have the meaning set forth in Section 6.2.
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Notes.
38
<PAGE>
"Convertible Securities" shall have the meaning set forth in Section
6.6(c).
"Consolidated " or "consolidated," when used with reference to any
accounting term, means the amount described by such accounting term, determined
on a consolidated basis in accordance with GAAP, after elimination of
intercompany items.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock that by its terms is not entitled to
the payment of dividends unless such dividends may be declared and paid only out
of net earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
preferred stock, less (x) all write-ups (other than write-ups resulting from
foreign currency translations and write-ups of tangible assets of a going
concern business made within 12 months after the acquisition of such business)
subsequent to the Closing Date in the book value of any asset owned by such
Person or a consolidated Subsidiary of such Person, (y) all investments as of
such date in unconsolidated Subsidiaries and in Persons that are not
Subsidiaries, and (z) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in accordance
with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on March 30, 1998 or (ii) was nominated for election or
elected to such Board with the approval of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Determination Date" shall have the meaning set forth in Section 6.4.
"Effective Price" of Additional Shares of Common Stock shall mean the
quotient determined by dividing the total number of Additional Shares of Common
Stock issued or sold, or deemed to have been issued or sold by the Company under
Section 6.6, into the aggregate consideration received, or deemed to have been
received by the Company for such issue under Section 6.6, for such Additional
Shares of Common Stock.
"Environmental Laws" shall have the meaning set forth in Section 3.13.
39
<PAGE>
"Equity Interest" means Capital Stock or warrants, options or other
rights to acquire Capital Stock (but excluding any debt note which is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" shall have the meaning set forth in Section 7.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
from time to time, and any successor statute or law thereto.
"Fair Market Value" of Common Stock as of a particular date means the
Weighted Average trading price of the Common Stock for the ten (10) consecutive
Business Day period immediately preceding such date. Such Weighted Average shall
be calculated as follows: (i) the Weighted Average of the sales price of the
Common Stock quoted on the Nasdaq National Market for each of such ten (10)
Business Days, or (ii) if no such quotations are available, the Weighted Average
sales price for such ten (10) Business Days on the principal national securities
exchange on which the Common Stock is listed, or (iii) if not listed on any
national securities exchange, the Weighted Average sales price for such ten (10)
Business Days in the over-the-counter market as reported by the National
Quotation Bureau, Incorporated or similar organization, or (iv) if no of such
sales prices are available for each Business Day in such ten (10) Business Day
period, the Weighted Average of the high bid and low asked quotations in the
over-the-counter market as so reported for such ten (10) Business Days, or (v)
if no such quotations are available, the fair market value per share on such
date as determined by an independent investment banker or appraiser, nationally
recognized to be expert in making such valuations, selected by a majority of the
directors of the Company; provided, however, that in the event of an
underwritten public offering of Common Stock, "Fair Market Value" shall mean the
price to the public of such Common Stock in such underwritten public offering.
In the event "Fair Market Value" is determined by an independent investment
banker or appraiser pursuant to clause (v) of the foregoing sentence, such
determination shall be provided to each Holder in writing together with a fair
and accurate description of the basis for making such determination. The
Requisite Holders shall be permitted to dispute such determination by written
notice to the Company within ten (10) Business Days of receipt of such
determination. In the event of such dispute, the Requisite Holders and the
Company shall work together in good faith to mutually agree upon a second
independent investment banker or appraiser to make a determination of "Fair
Market Value" whose fees and expenses shall be paid by the Company. "Fair Market
Value" shall be the average of the per share fair market values determined by
both independent investment bankers or appraisers.
"Fully Diluted Voting Securities" means each class of Voting
Securities of a Person and each class of securities of a Person that, at the
time of determination, can immediately subscribe for and/or convert to Voting
Securities.
"GAAP" means generally accepted accounting principles as used in the
United States of America and applied in a manner consistent with past practices.
40
<PAGE>
"Holder" or "Holders" means the Purchaser (so long as it holds any
Notes) and any other holder of any of the Notes.
"Incorporated Documents" means the following of the Company's
documents, each as filed with the SEC: (1) Form 10-K for the year ended December
31, 1997, (2) 1997 Proxy Statement dated April 10, 1997; and (3) Form 8-K dated
December 29, 1997.
"Indebtedness" means, with respect to any Person, the aggregate amount
of, without duplication, the following:
(a) all obligations for borrowed money;
(b) all obligations evidenced by bonds, debentures, notes or other
similar instruments;
(c) all obligations to pay the deferred purchase price of property or
services, except Trade Payables and obligations that do not exceed $300,000 in
the aggregate, accrued commissions and other similar accrued current liabilities
in respect of such obligations, in any case, not overdue and arising in the
ordinary course of business;
(d) all Capitalized Lease Obligations;
(e) all obligations or liabilities of others secured by a lien on any
asset owned by such Person or Persons whether or not such obligation or
liability is assumed;
(f) all obligations of such Person or Persons, contingent or
otherwise, in respect of any letters of credit or bankers' acceptances; and
(g) all guaranties.
"Indemnified Parties" shall have the meaning set forth in Section 5.6.
"Independent Auditors" shall mean the independent certified public
accountants of the Company. Until December 29, 1997, the Independent Auditors
were Coopers & Lybrand, L.L.P. After such date and as of the date of the
Agreement, the Independent Auditors are KPMG Peat Marwick LLP.
"Inspectors" shall have the meaning set forth in Section 5.13.
"Intangibles" shall have the meaning set forth in Section 3.16.
"Junior Claims" shall have the meaning set forth in Section 8.7.
"Key Employee" means Walter C. Bowen.
"Knowledge of the Company" means to the actual knowledge of each of
the Chairman, Chief Executive Officer, Chief Financial Officer, General Counsel,
President,
41
<PAGE>
Treasurer and any Senior or Executive Vice President of the Company, after due
inquiry and investigation.
"Legal Holiday" means a Saturday, Sunday or day on which banks and
trust companies in the principal place of business of the Company or in
California are not required to be open. If a payment date is a Legal Holiday,
payment may be made on the next succeeding day that is not a Legal Holiday, and
interest shall accrue for the intervening period.
"Lien" means any mortgage, pledge, lien, taxes, encumbrance, charge or
adverse claim affecting title or resulting in a charge against real or personal
property, or note interest of any kind (including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell and any filing of or agreement to
give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Losses" shall have the meaning set forth in Section 5.6.
"LTC Equity Holding Company" means LTC Equity Holding Company, Inc., a
Nevada corporation.
"LTC Properties" means LTC Properties, Inc., a Maryland corporation.
"LTC West" means LTC West, Inc., a Nevada corporation.
"Material Adverse Effect" means (i) any adverse effect upon the
issuance, validity or enforceability of a Note, this Agreement, the Registration
Rights Agreement or the Commitment Letter, (ii) any material adverse effect on
the results of operations, financial condition, properties, assets, business or
prospects of the Company and its Subsidiaries, taken as a whole, or (iii) any
adverse effect on the ability of the Company to fulfill its obligations under
the Notes, this Agreement, the Registration Rights Agreement or the Commitment
Letter or any document contemplated hereby or thereby.
"Material Contract" shall have the meaning set forth in Section 3.17.
"Maturity Date" means March 31, 2008.
"Note Register" shall have the meaning set forth in Section 1.3.
"Note" or "Notes" shall have the meaning set forth in Section 1.1.
"Officers' Certificate" means a certificate signed by any two
officers, one of whom must be the Chairman of the Board, the President, the
Treasurer or a Vice President of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Purchaser.
42
<PAGE>
"Payment" or "Distribution" shall have the meaning set forth in
Section 8.1.
"Person" means an individual, partnership, corporation, limited
liability company, trust or unincorporated organization or a government or
agency or political subdivision thereof.
"Plan of Liquidation" means, with respect to any Person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such Person to holders of
Capital Stock of such Person.
"Preferred Stock" means the Series A Preferred Stock, no par value,
and the Series B Preferred Stock, no par value, of the Company.
"Property" or "property" means any assets or property of any kind or
nature whatsoever, real, personal or mixed (including fixtures), whether
tangible or intangible, provided that the terms "Property" or "property", when
used with respect to any Person, shall not include Notes issued by such.
"Purchaser" means the purchaser on the signature pages hereto.
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of the Closing Date by and among the Company and the
Purchaser, executed concurrently herewith.
"Related Party" with respect to Walter C. Bowen means (A) any spouse
or immediate family member of such Person or (B) or trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding an 80% or more controlling interest of which
consist of Walter C. Bowen and/or such other Persons referred to in the
immediately preceding clause (A).
"Reorganizations" shall have the meaning set forth in Section 6.5.
"Requisite Noteholders" shall mean the holders of Notes issued to the
Purchaser pursuant to this Agreement and the Notes whenever issued to all other
purchasers pursuant to similar agreements dated on or about the date of this
Agreement with an aggregate principal amount equal to or greater than 50% of the
aggregate principal amount of all then outstanding Notes issued to the Purchaser
pursuant to this Agreement and the Notes whenever issued to all other purchasers
pursuant to similar agreements dated on or about the date of this Agreement.
"Rights" shall have the meaning assigned to such term in Section
6.6(c).
"SEC" means the Securities and Exchange Commission.
43
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and any successor statute or law thereto.
"Senior Claims" shall have the meaning set forth in Section 8.7.
"Senior Indebtedness" means the principal of, premium, if any, and
accrued interest on any other Indebtedness of the Company and all fees,
expenses, reimbursements, indemnities and other amounts payable with respect to
such Indebtedness, whether such Indebtedness is outstanding on the date of this
Agreement or thereafter created, incurred, assumed, or guaranteed by the Company
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or the assumption or guarantee thereof expressly provides
that such Indebtedness shall not be senior, or is pari passu or subordinate, in
right or payment to the Notes; provided that Senior Indebtedness shall not
include (i) in the case of each Note the other Notes (ii) Indebtedness of the
Company to a Subsidiary of the Company, (iii) Indebtedness of or amounts owed by
the Company for compensation to directors or members of senior management that
has not been approved by the Compensation Committee of the Board; (iv)
Indebtedness guaranteed by the Company on behalf of any equityholder, director,
officer or employee of the Company or of any equityholder, director, officer or
employee of any of the Company's Subsidiaries, (v) any Trade Payables (including
without limitation Indebtedness incurred for the purchase of goods or materials
or for services obtained in the ordinary course of business), (vi) Indebtedness
of the Company that is subordinated by its terms in right of payment to any
other Indebtedness of the Company, and (vii) Indebtedness incurred in violation
of this Agreement.
"Senior Representative" shall have the meaning set forth in Section
8.7.
"Subordinated Indebtedness" means the principal, premium, if any, and
interest on any Indebtedness of the Company which by its terms is expressly
subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person (the "parent"), any
corporation, association or other business entity of which Notes or other
ownership interests representing more than 50% of the ordinary voting power are,
at the time as of which any determination is being made, owned or controlled by
the parent or one or more subsidiaries of the parent or by the parent and one or
more subsidiaries of the parent.
"Stock Option Plan" shall mean the Company's 1995 Stock Incentive Plan
as in effect on the Closing Date.
"Surviving Person" shall have the meaning set forth in Section
5.7(b)(1).
"Total Price" means, with respect to the Common Stock on any Business
Day, the product of: (x) the closing sales price of the Common Stock quoted on
the Nasdaq National Market on such Business Day, or if no such quotations are
available, on the principal national securities exchange on which the Common
Stock is listed on such Business Day, or if not listed
44
<PAGE>
on any national securities exchange, in the over-the-counter market as reported
by the National Quotation Bureau, Incorporated or similar organization on such
Business Day, or if no such sales prices are available, the high bid and low
asked quotations in the over-the-counter market on such Business Day multiplied
by (y) the number of shares of Common Stock traded on such market or exchange,
as applicable, on such Business Day.
"Trade Payables" means, with respect to any Person, accounts payable
and other similar accrued current liabilities in respect of obligations or
indebtedness to trade creditors created, assumed or guaranteed by such Person or
any of its Subsidiaries in the ordinary course of business in connection with
the obtaining of property or services.
"Voting Securities" means any class of Equity Interests of a Person
pursuant to which the holders thereof have, at the time of determination, the
general voting power under ordinary circumstances to vote for the election of
directors, managers, trustees or general partners of any Person (irrespective of
whether or not at the time any other class or classes will have or might have
voting power by reason of the happening of any contingency).
"Weighted Average" means, with respect to the Common Stock during any
ten (10) consecutive Business Day period, the sum of the Total Price of such
Common Stock for each Business Day during such ten (10) consecutive Business Day
period divided by ten (10).
10.2. Rules of Construction
Unless the context otherwise requires
(a) a term has the meaning assigned to it;
(b) "or" is not exclusive;
(c) words in the singular include the plural, and words in the plural
include the singular;
(d) provisions apply to successive events and transactions;
(e) "herein," "hereof" and other words of similar import refer to this
Agreement as a whole and not to any particular Section or other subdivision; and
(f) the masculine shall include the feminine and neuter genders as
appropriate.
45
<PAGE>
SECTION 11. MISCELLANEOUS
11.1. Notices
All notices and other communications provided for or permitted
hereunder shall be made by hand-delivery, first-class mail, telex, telecopier,
or overnight air courier guaranteeing next day delivery:
(a) if to any Purchaser at address set forth on the signature pages
hereto, with a copy to Latham & Watkins, 633 W. Fifth Street, Suite 4000, Los
Angeles, California 90071, Attention: Eva Herbst Davis, Esq.; and
(b) if to the Company, to Regent Assisted Living, Inc., 121 SW
Morrison, Suite 1000, Attention: General Counsel with a copy to Stoel Rives LLP,
900 SW Fifth Avenue, Suite 2300, Portland, Oregon 97204, Attention: Todd Bauman,
Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five (5) Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
The parties may change the addresses to which notices are to be given by giving
five days' prior notice of such change in accordance herewith.
11.2. Undertaking for Costs
In any suit for the enforcement of any right or remedy under this
Agreement, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
11.3. Successors and Assigns
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties.
11.4. Counterparts
This Agreement may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
11.5. Headings
The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
46
<PAGE>
11.6. Governing Law
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of California.
11.7. Entire Agreement
This Agreement, together with the Notes, the Registration Rights
Agreement and the Commitment Letter is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, together with the Notes, the Registration
Rights Agreement and the Commitment Letter supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
11.8. Severability
In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired or affected, it being
intended that the Purchaser's rights and privileges shall be enforceable to the
fullest extent permitted by law.
11.9. Transfer
The Notes may not be transferred, sold, assigned, pledged,
hypothecated or otherwise disposed of unless (a) such transfer is pursuant to an
effective registration statement under the Securities Act and any applicable
state securities laws, or (b) the Company has been furnished with a satisfactory
opinion of counsel for the Holder, at such Holder's expense, that such transfer
is exempt from the provisions of Section 5 of the Securities Act, the rules and
regulations in effect thereunder and any applicable state securities laws.
47
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties set forth below as of the date first written above.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By: WALTER C. BOWEN
-----------------------------------
Name: Walter C. Bowen
Title: President
CHRISTOPHER T. ISHIKAWA,
an individual
CHRISTOPHER T. ISHIKAWA
- ---------------------------------------
Christopher T. Ishikawa
Address:
1673 East Brentford Avenue
Westlake Village, California 91361
48
<PAGE>
ANNEX A
-------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS (A) SUCH TRANSFER IS PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE
COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER
THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT, THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE SECURITIES
LAWS.
REGENT ASSISTED LIVING, INC.
CONVERTIBLE SUBORDINATED NOTE DUE MARCH 31, 2008
Note No. ________ $_______________________
FOR VALUE RECEIVED, the undersigned, REGENT ASSISTED LIVING, INC., a
corporation organized and existing under the laws of Oregon (herein called the
"Company"), hereby promises to pay to the order of ____________________________
or registered assigns ("Holder"), the principal sum of
___________________________ DOLLARS (or so much thereof as shall remain
outstanding) on March 31, 2008. Payments are to be made as provided in the
Agreement (as defined herein).
This Note is one of the Notes issued pursuant to the Convertible
Subordinated Note Purchase Agreement dated as of March 30, 1998 (the
"Agreement"), by and between the Company and Christopher T. Ishikawa, an
individual, and is also entitled to the benefits thereof to the extent provided
in the Agreement. This Note is subject to (i) conversion, in whole or in part,
at the option of the Holder, pursuant to Section 6.1(a) of the Agreement, (ii)
conversion, in whole but not in part, at the option of the Company upon the
satisfaction of certain conditions pursuant to Section 6.1(b) of the Agreement
and (iii) repurchase, in whole or in part, upon a Change of Control pursuant to
Section 5.4 of the Agreement.
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and, at the
option of the holder, registered in the name of, the transferee. The Company may
deem and treat the person in whose name this Note is registered as the holder
and
<PAGE>
owner hereof for the purpose of receiving payments and for all other purposes
whatsoever, and the Company shall not be affected by any notice to the contrary.
If an Event of Default shall occur and be continuing, this Note may,
under certain circumstances, become or be declared due and payable in the manner
and with the effect provided in the Agreement.
Certain terms and provisions of this Note may be amended or compliance
herewith waived on the terms and provisions provided for in the Agreement.
The Note is subordinated in both right of payment and time of payment
to certain Senior Indebtedness, as defined and described in Section 8 of the
Agreement.
Capitalized terms used herein without definition shall have the
meaning set forth for such terms in the Agreement.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By:__________________________________
Name:
Title:
2
<PAGE>
ANNEX B
-------
FORM OF OPINION OF COMPANY COUNSEL
1. The Company and each of its Subsidiaries are corporations duly
organized and validly existing in good standing under the laws of their
respective jurisdictions of incorporation.
2. The Company and each of its Subsidiaries have all requisite power
and authority to own or hold under lease the properties it purports so to own or
hold except where the failure so to own or hold could not have a Material
Adverse Effect and to transact their respective businesses as now transacted and
proposed to be transacted.
3. The Company and each of its Subsidiaries are duly qualified as
foreign corporations and are in good standing in each jurisdiction in which the
character of the properties owned or held under lease by them or the nature of
the business transacted by them requires such qualification, except where the
failure so to be qualified or be in good standing could not have a Material
Adverse Effect.
4. The Company has taken all actions necessary to authorize it (i) to
execute, deliver and perform all of its obligations under the Agreement, the
Registration Rights Agreement and the Commitment Letter, (ii) to issue and
perform all of its obligations under the Notes and (iii) to consummate the
transactions contemplated hereby and thereby.
5. The total number of shares of Capital Stock which the Company has
authority to issue is 30,000,000 shares, consisting of 25,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock.
6. As of March 30, 1998, there were 4,633,000 shares of Common Stock
issued and outstanding, and 1,666,667 shares of Preferred Stock issued and
outstanding. Such shares of Common Stock and Preferred Stock have been duly
authorized and were validly issued, are fully paid and nonassessable, were
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities of the Company.
7. Neither the Company nor any of its Subsidiaries has outstanding any
securities convertible into or exchangeable for any shares of Capital Stock nor
does it have outstanding any rights to subscribe for or to purchase, or any
options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, any Capital Stock or securities convertible into or
exchangeable for any Capital Stock other than (i) the Notes to be issued
pursuant to the Agreement or pursuant to other similar agreements dated on or
about the date of this Agreement, (ii) 1,666,667 shares of Preferred Stock
convertible into Common Stock, and (iii) options and
<PAGE>
warrants to purchase shares of Common Stock as set forth and for the numbers of
shares set forth in the Disclosure Schedule to the Agreement.
8. The Company has duly authorized and reserved for issuance the
Conversion Shares, and the Conversion Shares will, when issued, be duly and
validly issued, fully paid and nonassessable and free from all Liens.
9. Neither the execution or delivery of the Agreement, the
Registration Rights Agreement or the Commitment Letter by the Company nor the
issuance, sale or delivery of the Notes nor the performance of its respective
obligations hereunder or thereunder will:
(a) violate any provision of the Charter Documents of the
Company;
(b) violate any statute, law, rule or regulation or any judgment,
decree, order, regulation or rule of any court or governmental authority to
which the Company, any of its Subsidiaries, or any of their respective
properties may be subject;
(c) permit or cause the acceleration of the maturity of any debt
or obligation of the Company or any of its Subsidiaries;
(d) violate, or be in conflict with, or constitute a default
under, or permit the termination of, or require the consent of any Person under,
or result in the creation of any Lien upon any property of the Company or any of
its Subsidiaries under, any mortgage, indenture, loan agreement, note, debenture
or other agreement for borrowed money or any other material agreement to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries (or their respective properties) may be bound, other than
such violations, conflicts, defaults, terminations and Liens, or such failures
to obtain consents, which could not reasonably be expected to result in a
Material Adverse Effect.
10. The sale of the Notes hereunder is exempt from the registration
and prospectus delivery requirements of the Securities Act.
11. Neither the Company nor any of its Subsidiaries is an "investment
company" or a Person directly or indirectly "controlled" by or acting on behalf
of an "investment company" within the meaning of the United States Investment
Company Act of 1940, as amended.
2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS (A) SUCH TRANSFER IS PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE
COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER
THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT, THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE SECURITIES
LAWS.
REGENT ASSISTED LIVING, INC.
CONVERTIBLE SUBORDINATED NOTE DUE MARCH 31, 2008
Issue Date: March 31, 1998
Note No. 1998-4 $90,000
FOR VALUE RECEIVED, the undersigned, REGENT ASSISTED LIVING, INC., a
corporation organized and existing under the laws of Oregon (herein called the
"Company"), hereby promises to pay to the order of CHRISTOPHER T. ISHIKAWA or
registered assigns ("Holder"), the principal sum of NINETY THOUSAND DOLLARS (or
so much thereof as shall remain outstanding) on March 31, 2008. Payments are to
be made as provided in the Agreement (as defined herein).
This Note is one of the Notes issued pursuant to the Convertible
Subordinated Note Purchase Agreement dated as of March 30, 1998 (the
"Agreement"), by and between the Company and Christopher T. Ishikawa, an
individual, and is also entitled to the benefits thereof to the extent provided
in the Agreement. This Note is subject to (i) conversion, in whole or in part,
at the option of the Holder, pursuant to Section 6.1(a) of the Agreement, (ii)
conversion, in whole but not in part, at the option of the Company upon the
satisfaction of certain conditions pursuant to Section 6.1(b) of the Agreement
and (iii) repurchase, in whole or in part, upon a Change of Control pursuant to
Section 5.4 of the Agreement.
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and, at the
option of the holder, registered in the name of, the transferee. The Company may
deem and treat the person in whose name this Note is registered as the holder
and owner hereof for the purpose of receiving payments and for all other
purposes whatsoever, and the Company shall not be affected by any notice to the
contrary.
If an Event of Default shall occur and be continuing, this Note may,
under certain circumstances, become or be declared due and payable in the manner
and with the effect provided in the Agreement.
Certain terms and provisions of this Note may be amended or compliance
herewith waived on the terms and provisions provided for in the Agreement.
The Note is subordinated in both right of payment and time of payment
to certain Senior Indebtedness, as defined and described in Section 8 of the
Agreement.
Capitalized terms used herein without definition shall have the
meaning set forth for such terms in the Agreement.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By: WALTER C. BOWEN
-------------------------------------
Walter C. Bowen
President
-------------------------------------------------------------------
REGENT ASSISTED LIVING, INC.
and
PAMELA J. PRIVETT
$90,000 Principal Amount
of
7.5% Convertible Subordinated Notes Due March 31, 2008
CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT
------------------------------------------------------------------
Dated as of March 30, 1998
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. PURCHASE AND SALE OF NOTES........................................ 1
1.1. Issue of Notes................................................. 1
1.2. Purchase and Sale of Notes..................................... 1
1.3. Maintenance of Note Register................................... 2
1.4. Issue Taxes.................................................... 2
1.5. Direct Payment................................................. 3
1.6. Lost, Etc. Notes............................................... 3
SECTION 2. CLOSING CONDITIONS................................................ 4
2.1. Delivery of Documents.......................................... 4
2.2. Delivery of Other Agreements................................... 5
2.3. Representations and Warranties, Agreements and Covenants....... 5
2.4. No Event of Default............................................ 6
2.5. Proceedings Satisfactory....................................... 6
2.6. Consents and Permits........................................... 6
2.7. No Material Adverse Change..................................... 6
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................... 6
3.1. Organization; Power and Authority.............................. 6
3.2. Authorization.................................................. 7
3.3. Capital Stock.................................................. 7
3.4. No Other Registration Rights................................... 7
3.5. No Violation or Conflict; No Default........................... 8
3.6. Margin Regulations............................................. 8
3.7. Private Offering............................................... 8
3.8. Due Authorization of Material Contracts........................ 9
3.9. Financial Statements........................................... 9
3.10. Litigation; Judgments.........................................10
3.11. Taxes.........................................................10
i
<PAGE>
3.12. Investment Company Act........................................10
3.13. Environmental Matters.........................................10
3.14. Labor Relations...............................................11
3.15. Real Property; Leases.........................................11
3.16. Intellectual Property; Licenses...............................11
3.17. Defaults......................................................12
3.18. Brokers.......................................................12
3.19. Existing Indebtedness.........................................12
3.20. Compliance with Law; Permits..................................13
3.21. Insurance.....................................................13
3.22. Material Events...............................................13
3.23. SEC Documents; Undisclosed Liabilities........................14
3.24. Material Misstatements or Omissions...........................15
3.25. Survival of Representations and Warranties....................15
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER..................15
4.1. Purchase for Own Account.......................................15
4.2. Accredited Investor............................................16
4.3. Authorization..................................................16
4.4. Brokers........................................................16
SECTION 5. COVENANTS.........................................................16
5.1. Payment of Notes; Satisfaction of Obligations..................16
5.2. Notice of Default..............................................17
5.3. Limitation on Additional Indebtedness..........................17
5.4. Change of Control..............................................17
5.5. Stay, Extension and Usury Laws.................................18
5.6. Indemnification................................................19
5.7. Corporate Existence; Merger; Successor Corporation.............20
5.8. Taxes..........................................................21
5.9. Investment Company Act.........................................21
5.10. Insurance.....................................................22
ii
<PAGE>
5.11. Inconsistent Agreements.......................................22
5.12. Compliance with Laws..........................................22
5.13. Inspection of Properties and Records..........................22
SECTION 6. CONVERSION OF NOTES...............................................23
6.1. Conversion.....................................................23
6.2. Conversion Rate................................................24
6.3. Fractional Shares..............................................24
6.4. Adjustments for Stock Splits, Combinations and Dividends.......24
6.5. Reorganization, Mergers, Consolidations or Sales of Assets.....25
6.6. Sale of Shares Below Market or Conversion Price................25
6.7. Adjustment for Failure to Quote on Nasdaq National Market......27
6.8. Accountants' Certificate of Adjustment.........................27
6.9. Reservation of Shares Issuable Upon Conversion.................27
6.10. No Impairment.................................................28
SECTION 7. DEFAULTS AND REMEDIES.............................................28
7.1. Events of Default..............................................28
7.2. Acceleration of Notes..........................................29
7.3. Other Remedies.................................................29
SECTION 8. SUBORDINATION.....................................................30
8.1. Notes Subordinated to Senior Indebtedness......................30
8.2. Company Not to Make Payments with Respect to Notes in
Certain Circumstances..........................................30
8.3. Subrogation of Notes...........................................32
8.4. No Impairment of Subordination.................................32
8.5. Section 8 Not to Prevent Events of Default.....................32
8.6. Securities Senior to Subordinated Indebtedness.................32
8.7. Assignment of Junior Claims....................................33
SECTION 9. AMENDMENTS AND WAIVERS............................................33
9.1. With Consent of Holders........................................33
9.2. Revocation and Effect of Consents..............................34
iii
<PAGE>
9.3. Notation on or Exchange of Notes...............................35
SECTION 10. DEFINITIONS......................................................35
10.1. Definitions...................................................35
10.2. Rules of Construction.........................................44
SECTION 11. MISCELLANEOUS....................................................45
11.1. Notices.......................................................45
11.2. Undertaking for Costs.........................................45
11.3. Successors and Assigns........................................46
11.4. Counterparts..................................................46
11.5. Headings......................................................46
11.6. Governing Law.................................................46
11.7. Entire Agreement..............................................46
11.8. Severability..................................................46
11.9. Transfer......................................................46
iv
<PAGE>
CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT
This CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT, is dated as of
March 30, 1998 (this "Agreement"), and entered into by and between REGENT
ASSISTED LIVING, INC., an Oregon corporation (the "Company") and PAMELA J.
PRIVETT, an individual (the "Purchaser").
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in Section 10.1 hereof.
In consideration of the premises, mutual covenants and agreements
hereinafter contained and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Company agrees as follows:
SECTION 1. PURCHASE AND SALE OF NOTES
1.1. Issue of Notes
On or before the Closing,
(a) The Company will have authorized the issue and sale of
$90,000 aggregate principal amount of its 7.5% Convertible Subordinated Notes
due March 31, 2008 (the "Notes") to the Purchaser, to be substantially in the
form attached hereto as Annex A.
(b) The Notes shall be substantially in the form attached hereto as
Annex A, including such other notations, legends or endorsements set forth
therefor or required by law. The Notes shall be dated the date of their
issuance. The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Agreement and, to the extent
applicable, the Company and the Purchaser, by their execution and delivery of
this Agreement, expressly agree to such terms and provisions and to be bound
thereby.
1.2. Purchase and Sale of Notes
(a) Purchase and Sale. The Company agrees to sell and, subject to the
terms and conditions set forth herein and in the Registration Rights Agreement
and in reliance on the representations and warranties of the Company contained
or incorporated herein, the Purchaser agrees to purchase the Notes for an
aggregate purchase price of $90,000.
(b) Closing. The purchase and sale of the Notes referred to in Section
1.2(a)(1) shall take place at a closing (the "Closing") at the offices of Latham
& Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, California at 2:00
p.m. on March 30, 1998 (the "Closing Date"). At the Closing, the Company will
deliver to the Purchaser the Notes to be purchased by the Purchaser (in such
permitted denomination or denominations and registered in the Purchaser's name
or the name of such nominee or nominees as the Purchaser may request) on the
Closing Date, dated the Closing Date, against payment of the purchase price
therefor by
<PAGE>
intra-bank or federal funds bank wire transfer of same day funds to such bank
account as the Company shall designate at least two Business Days prior to the
Closing.
(c) Fees and Expenses. Whether or not the Notes are sold, the Company
agrees to pay or reimburse all expenses relating to this Agreement, including
but not limited to:
(1) the reasonable fees and other expenses of the Purchaser's
counsel, Latham & Watkins, in connection herewith (not to exceed $50,000 in the
aggregate, relating to this Agreement and similar agreements dated on or about
the date of this Agreement);
(2) any reasonable out-of-pocket fees and expenses (including the
reasonable fees and expenses of counsel) in connection with any registration or
qualification of the Notes required in connection with the offer and sale of the
Notes at the Closing pursuant to this Agreement under the securities or "blue
sky" laws of any jurisdiction requiring such registration or qualification or in
connection with obtaining any exemptions from such requirements; and
(3) the Purchaser's reasonable out-of-pocket expenses (including
the reasonable fees and expenses of counsel) relating to any amendment, or
modification of, or any waiver, or consent or preservation of rights under this
Agreement, the Notes, the Registration Rights Agreement and any other documents
contemplated hereby or thereby.
Purchaser may deduct such expenses from the purchase price of the
Notes; provided that the Purchaser agrees to provide the Company with a
statement describing any amounts to be so paid at least one Business Day prior
to the Closing.
1.3. Maintenance of Note Register
The Company shall cause to be kept at its principal office a register
for the registration and transfer of the Notes (the "Note Register"). The names
and addresses of the Holders of Notes, the transfer of Notes, and the names and
addresses of the transferees of the Notes shall be registered in the Note
Register.
The Person in whose name any registered Note shall be registered shall
be deemed and treated as the owner and holder thereof for all purposes of this
Agreement and the Company shall not be affected by any notice to the contrary,
until due presentment of such Note for registration of transfer so provided in
this Section 1.3. Payment of or on account of the principal and interest on any
registered Notes shall be made to or upon the written order of such registered
holder.
1.4. Issue Taxes
The Company agrees to pay all taxes owed by or on behalf of the
Company in connection with the issuance, sale, delivery or transfer by the
Company to the Purchaser of the Notes and the execution and delivery of the
agreements and instruments contemplated hereby and any modification of any of
such Notes, agreements and instruments and will save the
2
<PAGE>
Purchaser harmless without limitation as to time against any and all liabilities
with respect to all such taxes. The Purchaser agrees to pay all taxes owed by or
on behalf of the Purchaser in connection with the issuance, sale, delivery or
transfer by the Company to the Purchaser of the Notes and the execution and
delivery of the agreements and instruments contemplated hereby and any
modification of any of such Notes, agreements and instruments and will save the
Company harmless without limitation as to time against any and all liabilities
with respect to all such taxes. The obligations of the Company and the Purchaser
under this Section 1.4 shall survive the payment or prepayment of the Notes and
the termination of this Agreement.
1.5. Direct Payment
(a) The Company will pay or cause to be paid all amounts payable with
respect to any Note (without any presentment of such Note and without any
notation of such payment being made thereon) by crediting (before 11:00 a.m.,
Pacific time), by federal funds bank wire transfer to each Holder's account in
any bank in the United States as may be designated and specified in writing by
such Holder at least two Business Days prior thereto.
(b) Notwithstanding anything to the contrary contained in the Notes,
if any principal amount payable with respect to a Note is payable on a Legal
Holiday, then the Company shall pay such amount on the next succeeding Business
Day, and interest shall accrue on such amount until the date on which such
amount is paid and payment of such accrued interest shall be made concurrently
with the payment of such amount, provided that the Company may elect to pay in
full (but not in part) any such amount on the last Business Day prior to the
date such payment otherwise would be due, and no such additional interest shall
accrue on such amount. Notwithstanding anything to the contrary contained in the
Notes, if any interest payable with respect to a Note is payable on a Legal
Holiday, then the Company shall pay such interest on the next succeeding
Business Day, and such extension of time shall be included in the computation of
the interest payment, provided that the Company may elect to pay in full (but
not in part) any such interest on the last Business Day prior to the date such
payment otherwise would be due, and such diminution in time may, at the
Company's option, be included in the computation of the interest payment.
1.6. Lost, Etc. Notes
Notwithstanding any provision to the contrary, if any Note of which
the Purchaser or any other Holder (or nominee thereof) which is a transferee is
the owner is mutilated, destroyed, lost or stolen, then the affidavit of the
Purchaser or such Holder, if an individual, or of the Purchaser's or such
Holder's treasurer or assistant treasurer (or other authorized officer), if a
Person other than an individual, briefly setting forth the circumstances with
respect to such mutilation, destruction, loss or theft, shall be accepted as
satisfactory evidence thereof, and no indemnity, note or payment of charges or
expenses shall be required as a condition to the execution and delivery by the
Company or the transfer agent with respect to such Note, of new Notes for a like
aggregate principal amount or number of shares, as applicable, in substitution
therefor, other than such Purchaser's or such Holder's unsecured written
agreement reasonably
3
<PAGE>
satisfactory to indemnify the Company or the transfer agent, as the case may be,
which written agreement may be required by the Company.
SECTION 2. CLOSING CONDITIONS
The obligations of the Purchaser to purchase and pay for the Notes to
be delivered to such Purchaser at the Closing shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
2.1. Delivery of Documents
The Company shall have delivered to the Purchaser, in form and
substance reasonably satisfactory to the Purchaser, the following:
(a) The Notes being purchased by the Purchaser pursuant to Section
1.2(a)(1), duly executed by the Company, in the aggregate principal amount of
$90,000.
(b) An opinion, dated the Closing Date and addressed to the Purchaser,
from David R. Gibson, counsel for the Company, as to the matters set forth on
Annex B.
In rendering such opinion, such counsel may rely as to factual matters
upon certificates or other documents furnished by officers and directors of the
Company (copies of which shall be delivered to the Purchaser) and by government
officials, and upon such other documents as such counsel reasonably deems
appropriate as a basis for its opinion. Such counsel shall opine as to the
federal laws of the United States, the laws of the State of Oregon.
(c) Resolutions of the Board of Directors of the Company, certified by
the Secretary or Assistant Secretary, to be duly adopted and in full force and
effect on the Closing Date, authorizing (i) the execution, delivery and
performance of this Agreement, the Registration Rights Agreement and the
Commitment Letter and the consummation of transactions contemplated hereby and
thereby, (ii) the issuance of the Notes to be purchased by the Purchaser and
(iii) specific officers to execute and deliver this Agreement, the Notes, the
Registration Rights Agreement and the Commitment Letter.
(d) Certificates executed by any two executive officers of the
Company, dated the Closing Date, certifying (i) that all of the conditions set
forth in Section 2 of this Agreement are satisfied on and as of such date, (ii)
that all of the representations and warranties of the Company contained or
incorporated by reference herein that (A) are qualified as to materiality are
true and correct on and as of such date as though made on and as of such date
and that (B) are not qualified as to materiality are true and correct in all
material respects on and as of such date as though made on and as of such date,
and no event has occurred and is continuing, or would result from the issuance
of the Notes or the extension of borrowings under the Commitment Letter, which
constitutes or would constitute a Default or an Event of Default and (iii) as to
such other matters as the Purchaser may request in the exercise of its
reasonable discretion.
4
<PAGE>
(e) Governmental certificates, dated the most recent practicable date
but in no event more than thirty (30) calendar days prior to the Closing Date
showing that the Company was incorporated under the Oregon Business Corporation
Act, is active on the records of the Corporation Division and is qualified as a
foreign corporation and in good standing in all other jurisdictions in which it
is qualified to transact business, except where the failure to be so qualified
would not have a Material Adverse Effect.
(f) Copies of each consent, license and approval required in
connection with the execution, delivery and performance by the Company of this
Agreement, the Notes, the Registration Rights Agreement and the Commitment
Letter and the consummation of the transactions contemplated hereby and thereby.
(g) Copies of the Charter Documents of the Company, certified as of a
recent date but in no event more than thirty (30) calendar days prior to the
Closing Date by the Secretary of State of the State of Oregon and certified by
the Secretary or Assistant Secretary of the Company (or person possessing
comparable authority of the Company), as true and correct on and as of the
Closing Date.
(h) Certificates of the Secretary or an Assistant Secretary of the
Company as to the incumbency and signatures of the officers or representatives
of such entity executing this Agreement, the Notes, the Registration Rights
Agreement, the Commitment Letter and any other certificate or other document to
be delivered pursuant hereto or thereto on the Closing Date, together with
evidence of the incumbency of such Secretary or Assistant Secretary;
(i) Copies of all agreements associated with or entered into in
connection with the investment of Prudential Private Equity Investors III, L.P.
in the Company's Preferred Stock and if requested by the Purchaser prior to the
Closing Date, copies of all lease agreements to which the Company is a party.
2.2. Delivery of Other Agreements
The Company shall have executed and delivered the Registration Rights
Agreement and the Commitment Letter.
2.3. Representations and Warranties, Agreements and Covenants
All of the representations and warranties of the Company contained
herein that (A) are qualified as to materiality shall be true and correct on and
as of the Closing Date, except to the extent any representation or warranty
expressly relates to an earlier date and that (B) are not qualified as to
materiality are true and correct in all material respects on and as of the
Closing Date, except to the extent any representation or warranty expressly
relates to an earlier date. The Company shall have performed or complied with
all agreements, covenants and conditions contained herein and in the
Registration Rights Agreement and the Commitment Letter which are required to be
performed or complied with by the Company on or before the Closing Date.
5
<PAGE>
2.4. No Event of Default
No event shall have occurred and be continuing, or would result from
the purchase of the Notes or the extension of borrowings pursuant to the
Commitment Letter, which constitutes or would constitute a Default or an Event
of Default.
2.5. Proceedings Satisfactory
All proceedings taken in connection with the sale of the Notes, the
transactions contemplated hereby, and all documents and papers relating thereto,
shall be reasonably satisfactory to the Purchaser. The Purchaser and its counsel
shall have received copies of such documents and papers as they may reasonably
request in connection therewith, all in form and substance satisfactory to the
Purchaser. Any document annexed to this Agreement or any other document
contemplated by this Agreement not approved by the Purchaser in writing as to
form and substance on the date this Agreement is executed shall be satisfactory
in form and substance to the Purchaser.
2.6. Consents and Permits
The Company shall have received all consents, approvals, and
authorizations and sent or made all notices, filings, registrations and
qualifications required for the issuance of the Notes, all of which are
disclosed on the Disclosure Schedule.
2.7. No Material Adverse Change
Since the date of this Agreement, neither the Company nor any of its
Subsidiaries shall have suffered any material adverse change in its properties,
business, prospects, operations, earnings, assets, liabilities or condition
(financial or otherwise) which would reasonably likely to result in a Material
Adverse Effect.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule attached to this
Agreement (each scheduled item contained therein referencing the Section of this
Agreement that it qualifies), the Company represents and warrants as follows:
3.1. Organization; Power and Authority
The Company and each of its Subsidiaries are corporations duly
organized and validly existing in good standing under the laws of their
respective jurisdictions of incorporation. The Company and each of its
Subsidiaries have all requisite power and authority to own or hold under lease
the properties it purports so to own or hold except where the failure so to own
or hold could not have a Material Adverse Effect and to transact their
respective businesses as now transacted. The Company and each of its
Subsidiaries are duly qualified as foreign corporations and are in good standing
in each jurisdiction in which the character of the properties owned or held
under lease by them or the nature of the business transacted by them requires
such
6
<PAGE>
qualification, except where the failure so to be qualified or be in good
standing could not have a Material Adverse Effect.
3.2. Authorization
The Company has taken all actions necessary to authorize it (i) to
execute, deliver and perform all of its obligations under this Agreement, the
Registration Rights Agreement and the Commitment Letter, (ii) to issue and
perform all of its obligations under the Notes and (iii) to consummate the
transactions contemplated hereby and thereby. Each of this Agreement, the Notes,
the Registration Rights Agreement, and the Commitment Letter is a legally valid
and binding obligation of the Company, enforceable against it in accordance with
its terms, except for (a) the effect thereon of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting the
rights of creditors generally and (b) limitations imposed by federal or state
law or equitable principles upon the specific enforceability of any of the
remedies, covenants or other provisions thereof and upon the availability of
injunctive relief or other equitable remedies.
3.3. Capital Stock
The total number of shares of Capital Stock which the Company has
authority to issue is 30,000,000 shares, consisting of 25,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock. The Company has the power
and authority and has taken all actions (corporate or other) necessary to
authorize it to enter into and perform its obligations and undertakings under
this Agreement. As of March 30, 1998, there were 4,633,000 shares of Common
Stock issued and outstanding, and 1,666,667 shares of Preferred Stock issued and
outstanding. Such shares of Common Stock and Preferred Stock have been duly
authorized and were validly issued, are fully paid and nonassessable, were
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities of the Company. Neither the Company nor any of its
Subsidiaries has outstanding any securities convertible into or exchangeable for
any shares of Capital Stock nor does it have outstanding any rights to subscribe
for or to purchase, or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to, any Capital Stock or
securities convertible into or exchangeable for any Capital Stock other than (i)
the Notes to be issued pursuant to this Agreement or pursuant to other similar
agreements dated on or about the date of this Agreement, (ii) 1,666,667 shares
of Preferred Stock convertible into Common Stock, and (iii) options and warrants
to purchase shares of Common Stock as set forth and for the numbers of shares
set forth on the Disclosure Schedule. The Company has duly authorized and
reserved for issuance the Conversion Shares, and the Conversion Shares will,
when issued, be duly and validly issued, fully paid and nonassessable and free
from all Liens.
3.4. No Other Registration Rights
Except for the Notes to be issued in connection with the transactions
contemplated by this Agreement or pursuant to other similar agreements dated on
or about the date of this Agreement, there are no contracts, agreements or
understandings between the
7
<PAGE>
Company and any other Person granting such Person the right to require the
Company to file a registration statement under the Securities Act with respect
to any securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities registered
pursuant to any other registration statement filed by the Company under the
Securities Act.
3.5. No Violation or Conflict; No Default
Neither the execution or delivery of this Agreement, the Registration
Rights Agreement or the Commitment Letter by the Company nor the issuance, sale
or delivery of the Notes nor the performance of its respective obligations
hereunder or thereunder will:
(a) violate any provision of the Charter Documents of the
Company;
(b) violate any statute, law, rule or regulation or any judgment,
decree, order, regulation or rule of any court or governmental authority to
which the Company, any of its Subsidiaries, or any of their respective
properties may be subject;
(c) permit or cause the acceleration of the maturity of any debt
or obligation of the Company or any of its Subsidiaries;
(d) violate, or be in conflict with, or constitute a default
under, or permit the termination of, or require the consent of any Person under,
or result in the creation of any Lien upon any property of the Company or any of
its Subsidiaries under, any mortgage, indenture, loan agreement, note, debenture
or other agreement for borrowed money or any other material agreement to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries (or their respective properties) may be bound, other than
such violations, conflicts, defaults, terminations and Liens, or such failures
to obtain consents, which could not reasonably be expected to result in a
Material Adverse Effect.
3.6. Margin Regulations
No part of the proceeds from the sale of the Notes hereunder will be
used, directly or indirectly, for the purpose of buying or carrying any "margin
stock" within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System (12 C.F.R. ss. 207), or for the purpose of buying or
carrying or trading in any securities under such circumstances as to involve the
Company in a violation of Regulation X of said Board (12 C.F.R. ss. 224) or to
involve any broker or dealer in a violation of Regulation T of said Board (12
C.F.R. ss. 220). The assets of the Company and its Subsidiaries do not include
any margin stock, and the Company does not have any present intention of
acquiring margin stock.
3.7. Private Offering
The sale of the Notes hereunder is exempt from the registration and
prospectus delivery requirements of the Securities Act. In the case of each
offer or sale of the Notes, no
8
<PAGE>
form of general solicitation or general advertising was used by the Company or
its respective representatives.
The Company agrees that neither it, nor anyone acting on its behalf,
will offer or sell the Notes, or any portion of them, if such offer or sale
might bring the issuance and sale of the Notes to the Purchaser within the
provisions of Section 5 of the Securities Act nor offer any similar Notes for
issuance or sale to, or solicit any offer to acquire any of the same from, or
otherwise approach or negotiate with respect thereto with, anyone if the sale of
the Notes and any such Notes could be integrated as a single offering for the
purposes of the Securities Act, including without limitation Regulation D.
3.8. Due Authorization of Material Contracts
The descriptions in the Incorporated Documents of statutes, legal and
governmental proceedings or contracts or other documents are accurate in all
material respects and fairly present the information required to be shown at the
time shown; and there are no statutes or legal or governmental proceedings
required to be described in the Incorporated Documents that are not described as
required and there is no document or contract of a character required to be
described in the Incorporated Documents or to be filed as an exhibit to the
Incorporated Documents which is not described or filed as required. All
contracts described in the Incorporated Documents or filed as an exhibit to the
Incorporated Documents to which the Company or any of its Subsidiaries is a
party have been duly authorized, executed and delivered by the Company or such
Subsidiary, constitute valid and binding agreements of the Company or such
Subsidiary and are enforceable against and by the Company or such Subsidiary in
accordance with the terms thereof, except as the enforcement thereof may be
limited by bankruptcy and laws relating to the rights and remedies of the
creditors generally or by the availability of general equitable remedies.
3.9. Financial Statements
The financial statements and schedules of the Company and its
consolidated subsidiaries included in the Incorporated Documents comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, present fairly
the financial condition of the Company and its consolidated subsidiaries, as of
the respective dates thereof and the results of operations and cash flows of the
Company and its consolidated subsidiaries, for the respective periods covered
thereby, all in conformity with GAAP (except in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position of the Company
and its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments). No
other financial statements or schedules of the Company and its consolidated
subsidiaries or any other company or entity are required by the Securities Act,
the Exchange Act or the rules and regulations of the SEC to be included in the
Incorporated Documents. The Independent Auditors, who have reported on certain
of such
9
<PAGE>
financial statements and schedules, are, and were during the periods covered by
their reports included in the Incorporated Documents, independent accountants
with respect to the Company and its consolidated subsidiaries, as required by
the Securities Act, the Exchange Act and the rules and regulations of the SEC.
The summary financial and statistical data included in the Incorporated
Documents present fairly the information shown therein and have been compiled on
a basis consistent with the financial statements presented therein. The
unaudited consolidated financial statements included in the Incorporated
Documents comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, the Exchange Act and the rules
and regulations of the SEC, and such statements fairly present the consolidated
financial position and results of operations and the other information purported
to be shown therein at the respective dates or for the respective periods
therein specified.
3.10. Litigation; Judgments
Except as described in the Incorporated Documents, there are no
actions, suits or proceedings (formal or informal) pending or, to the Knowledge
of the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties, assets, or directors or
officers, in their capacity as such, before or by any Federal or state court,
commission, regulatory body, administrative agency or other governmental body,
domestic or foreign, wherein an unfavorable ruling, decision or finding might
reasonably be expected to, individually or in the aggregate, and after giving
effect to the sale and issuance of the Notes, result in a Material Adverse
Effect.
3.11. Taxes
Each of the Company and its Subsidiaries has filed all federal, state,
local and foreign income tax returns which have been required to be filed and
has paid all taxes and assessments received by it to the extent that such taxes
have become due. None of the Company nor its Subsidiaries has any tax deficiency
which has been or might be asserted or threatened against it which could
reasonably be expected to result in a Material Adverse Effect.
3.12. Investment Company Act
Neither the Company nor any of its Subsidiaries is an "investment
company" or a Person directly or indirectly "controlled" by or acting on behalf
of an "investment company" within the meaning of the United States Investment
Company Act of 1940, as amended.
3.13. Environmental Matters
The operations of the Company and its Subsidiaries with respect to any
real property currently leased, owned, controlled or managed by the Company or
any of its Subsidiaries are, and with respect to any real property previously
leased, owned, managed or controlled were, when such real property was leased,
owned, managed or controlled by the Company or any of its Subsidiaries, in
compliance in all material respects with all applicable federal, state, and
local laws, ordinances, rules, and regulations relating to occupational health
and safety and the environment (collectively, "Environmental Laws"), and the
Company and its
10
<PAGE>
Subsidiaries have all material licenses, permits and authorizations required
under all Environmental Laws; neither the Company nor any of its Subsidiaries
has authorized or conducted or has knowledge of the generation, transportation,
storage, use, treatment, disposal or release of any hazardous substance,
hazardous waste, hazardous material, hazardous constituent, toxic substance,
pollutant, contaminant, petroleum product, natural gas, liquefied gas or
synthetic gas defined or regulated under any Environmental Law on, in or under
any real property currently leased, owned, controlled or managed by the Company
or any of its Subsidiaries or previously leased, owned, controlled or managed by
the Company or any of its Subsidiaries when such real property was owned,
leased, controlled or managed by the Company or any of its Subsidiaries, except
in compliance with applicable Environmental Laws; and there is not pending or,
to the Knowledge of the Company, any threatened claim, litigation or any
administrative agency proceeding, nor has the Company or any of its Subsidiaries
received any written or oral notice from any governmental entity or third party,
that: (i) alleges a violation of any Environmental Laws by the Company or any of
its Subsidiaries; (ii) alleges the Company or any of its Subsidiaries is a
liable party under CERCLA or any state superfund law; (iii) alleges possible
contamination of the environment by the Company or any of its Subsidiaries; or
(iv) alleges possible contamination of real property currently leased, owned,
controlled or managed by the Company or any of its Subsidiaries or previously
leased, owned, controlled or managed by the Company or any of its Subsidiaries
when such real property was owned, leased, controlled or managed by the Company
or any of its Subsidiaries.
3.14. Labor Relations
No labor dispute with the employees of the Company or any of its
Subsidiaries exists or is threatened that could reasonably be expected to result
in a Material Adverse Effect; and the Company is not aware of any existing or
threatened labor disturbance by the employees of any other entity that could
reasonably be expected to result in a Material Adverse Effect.
3.15. Real Property; Leases
Each of the Company and its Subsidiaries has good and indefeasible
title to all properties and assets described in the Incorporated Documents as
owned by it, free and clear of all Liens except such as are described in the
Incorporated Documents or are not material, singly or in the aggregate, to the
Company. Each of the Company and its Subsidiaries has valid, subsisting and
enforceable leases for the properties described in the Incorporated Documents as
leased by it, except such as are described in the Incorporated Documents.
3.16. Intellectual Property; Licenses
Each of the Company and its Subsidiaries owns or has the right to use
all patents, patent applications, trademarks, trademark applications,
tradenames, copyrights, franchises, trade secrets, proprietary or other
confidential information and intangible properties and assets (collectively,
"Intangibles") reasonably necessary to conduct its business as now conducted;
and none of the Company or its Subsidiaries has any knowledge of any
infringement by it of Intangibles of others, and there is no claim being made
against the Company or any of its Subsidiaries, or to the Knowledge of the
Company, any employee of the Company or its
11
<PAGE>
Subsidiaries, regarding infringement of any Intangibles of others which could
reasonably be expected to have a Material Adverse Effect and, to the Knowledge
of the Company, there is no infringement by others of Intangibles of the Company
or any of its Subsidiaries.
3.17. Defaults
The continuation, validity and effectiveness of each contract,
agreement, arrangement or other instrument related to borrowed money (of any
amount) or involving payments in excess of $100,000 or that is material to the
Company or its Subsidiaries (each a "Material Contract") will not be adversely
affected by the execution, delivery and performance of this Agreement, the
Registration Rights Agreement, or the Commitment Letter, the issuance or sale of
the Notes, or the consummation of the transactions contemplated hereby or
thereby. The Company and its Subsidiaries are not in default in any respect, and
will not, with the giving of notice or the lapse of time, or both, be in default
in any respect, under any Material Contract upon or as a result of the
consummation of the transactions contemplated by this Agreement, the
Registration Rights Agreement or the Commitment Letter. To the Knowledge of the
Company, there is no default or claimed or purported or alleged default or state
of facts that with the giving of notice or the lapse of time, or both, would
constitute a default on the part of any party other than the Company or any of
its Subsidiaries under any Material Contract.
3.18. Brokers
The Company has not dealt with any broker, finder, commission agent or
other Person in connection with the sale of the Notes and the transactions
contemplated by this Agreement, and the Company is not under any obligation to
pay any broker's or finder's fee or commission or similar payment in connection
with such transactions.
3.19. Existing Indebtedness
The Disclosure Schedule sets forth a complete and correct list of all
Indebtedness of the Company and its Subsidiaries as of the date hereof, showing
as to each item of such Indebtedness the creditor, the aggregate principal
amount outstanding, the agreement or instrument governing such Indebtedness and
a brief description of any security therefor. With respect to each item of
Indebtedness listed on the Disclosure Schedule, the Company will deliver to the
Purchaser or its representatives, upon request, a true and complete copy of each
instrument evidencing such Indebtedness or pursuant to which such Indebtedness
was issued or secured (including each amendment, consent, waiver or similar
instrument in respect thereof), as the same is in effect on the date hereof. The
Company and its Subsidiaries are not in default in the performance or observance
in any material respect of any of the terms, covenants or conditions contained
in any instrument evidencing Indebtedness listed on the Disclosure Schedule or
pursuant to which such Indebtedness was issued or secured or has requested any
waiver in respect of any default and no event has occurred and is continuing
which, with notice or the lapse of time or both, would constitute such a
default.
12
<PAGE>
3.20. Compliance with Law; Permits
(a) The Company and its Subsidiaries own or possess all
authorizations, approvals, orders, licenses, registrations, other certificates
and permits of and from all governmental regulatory officials and bodies,
necessary to conduct their respective businesses except where the failure to own
or possess all such authorizations, approvals, orders, licenses, registrations,
other certificates and permits would not have a Material Adverse Effect. There
is no proceeding pending or, to the Knowledge of the Company, threatened (or any
basis therefor known to the Company) which may cause any such authorization,
approval, order, license, registration, certificate or permit to be revoked,
withdrawn, canceled, suspended or not renewed; and the Company and its
Subsidiaries are conducting their respective business in compliance with all
laws, rules and regulations applicable thereto except where such noncompliance
could not reasonably be expected to result in a Material Adverse Effect.
(b) Neither the nature of the Company nor of any of its businesses or
properties, nor any relationship between the Company and any other Person, nor
any circumstance in connection with the offer, issuance, sale or delivery of the
Notes at the Closing, nor the performance by the Company of its other
obligations hereunder or under the Notes, the Registration Rights Agreement or
the Commitment Letter, as the case may be, is such as to require a consent,
approval or authorization of, or notice to, or filing, registration or
qualification with, any governmental authority or other Person on the part of
the Company as a condition to the execution and delivery of this Agreement, the
Registration Rights Agreement, the Commitment Letter or the offer, issuance,
sale or delivery of the Notes at the Closing, other than the filings,
registrations, qualifications or consents which shall have been made or obtained
on the Closing Date (and copies of which shall have been delivered to the
Purchaser). All required consents, approvals or authorizations of, or notices to
or filings, registrations or qualifications with, any governmental authority or
other Person required in connection with the transactions contemplated by this
Agreement, the Notes, the Registration Rights Agreement or the Commitment Letter
have been obtained or made.
3.21. Insurance
The Company maintains, and will maintain after giving effect to the
issuance and the sale of the Notes, insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
insurance covering director and officer liability, workers compensation
liability, malpractice liability respecting the provision of assisted living
services, real and personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is and will be in full force and effect.
3.22. Material Events
Since December 31, 1997, there has not been with respect to the
Company or any of its Subsidiaries:
13
<PAGE>
(a) any material adverse change in their properties, business,
prospects, operations, earnings, assets, liabilities or condition (financial or
otherwise) which could reasonably be expected to result in a Material Adverse
Effect; or
(b) any damage, destruction or loss to the properties or assets of the
Company or any of its Subsidiaries, whether or not covered by insurance, that
has or could reasonably be expected to have a Material Adverse Effect or that in
the aggregate exceed $100,000; or
(c) any loss or waiver by the Company or any of its Subsidiaries of
any right, not in the ordinary course of business, or any material debt owed to
it; or
(d) other than the sales of assets in the ordinary course of business
(including pursuant to sale leaseback transactions), any sale, transfer or other
disposition of, or agreement to sell, transfer or otherwise dispose of, any
assets by the Company or any of its Subsidiaries in excess of $100,000 in the
aggregate, or any cancellation or agreement to cancel any debts or claims of the
Company or any of its Subsidiaries; or
(e) other than dividends payable on the currently outstanding
Preferred Stock, any declaration or setting aside or payment of any dividend
(whether in cash, property or stock) or any distribution (whether in cash,
property or stock) or other payment with respect to any of the Capital Stock of
the Company or any of its Subsidiaries, or any repurchase, purchase or other
acquisition of, or agreement to repurchase, purchase or otherwise acquire, any
of the Company's or any of its Subsidiaries' capital stock; or
(f) any amendment or termination of any contract, agreement or license
to which the Company or any of its Subsidiaries is a party or by which it is
bound, except where such amendment or termination could not be reasonably
expected to have a Material Adverse Effect; or
(g) any resignation or termination of employment of any Key Employee,
and there is no impending or threatened resignation or resignations or
termination or terminations of employment of any Key Employee; or
(h) any labor dispute (including, without limitation, any negotiation,
or request for negotiation, for any labor representation or any labor contract)
affecting the Company or any of its Subsidiaries; or
(i) any application of any existing (or the enactment of any new)
Environmental Law or personnel, product safety law or other governmental
regulation that has or which could reasonably be expected to have a Material
Adverse Effect.
3.23. SEC Documents; Undisclosed Liabilities
The Company has been subject to the reporting requirements of Section
13 of the Exchange Act since at least January 1, 1996 and, except as set forth
in any Company SEC Document, has timely filed all required reports, schedules,
forms, statements and other
14
<PAGE>
documents required to be filed by the Company under the Securities Act and the
Exchange Act with the SEC since January 1, 1996 (the "Company SEC Documents").
As of their respective dates, the Company SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Company SEC Documents, and none of the Company SEC Documents
at the time filed with the SEC contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. Except to the extent that information
contained in any Company SEC Document has been revised or superseded by a later
filed Company SEC Document, none of the Company SEC Documents contains any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
3.24. Material Misstatements or Omissions
No representation or warranty by the Company contained in this
Agreement (including the schedules and exhibits attached hereto), the
Registration Rights Agreement, the Commitment Letter or in any document,
exhibit, statement, certificate or schedule dated the Closing Date, signed by
the Company and furnished to the Purchaser pursuant hereto, or in connection
with the transactions contemplated hereunder, contains or will contain any
untrue statement of a material fact, or omits or will omit to state any material
fact necessary to make the statements or facts contained herein and therein not
misleading.
3.25. Survival of Representations and Warranties
All of the Company's representations and warranties hereunder and
under the Registration Rights Agreement and the Commitment Letter shall survive
the execution and delivery of the same, any investigation by the Purchaser and
the issuance of the Notes.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER
The Purchaser represents and warrants to the Company that:
4.1. Purchase for Own Account
The Purchaser is purchasing the Notes to be purchased by it solely for
its own account and not as nominee or agent for any other person and not with a
view to, or for offer or sale in connection with, any distribution thereof
(within the meaning of the Securities Act) that would be in violation of the
securities laws of the United States of America or any state thereof, without
prejudice, however, to its right at all times to sell or otherwise dispose of
all or any part of said Notes pursuant to a registration statement under the
Securities Act or pursuant to an exemption from the registration requirements of
the Securities Act.
15
<PAGE>
4.2. Accredited Investor
The Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; it acknowledges that the Notes have not been
registered under the Securities Act and understands that the Notes must be held
indefinitely unless they are subsequently registered under the Securities Act or
such sale is permitted pursuant to an available exemption from such registration
requirement; it is able to bear the economic risk of its investment in the
Notes; it is an "accredited investor" as defined in Regulation D promulgated
under the Securities Act; and it has been afforded access to information about
the Company and the Company's financial condition, results of operations,
business, property, management and prospects sufficient to enable it to evaluate
its investment in the Notes. The Purchaser acknowledges that it has conducted
its own analysis of the Company's financial condition and other foregoing
factors.
4.3. Authorization
This Agreement is a legally valid and binding obligation of the
Purchaser enforceable against it in accordance with its terms, except for (a)
the effect thereon of bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting the rights of creditors generally
and (b) limitations imposed by federal or state law or equitable principles upon
the specific enforceability of any of the remedies, covenants or other
provisions thereof and upon the availability of injunctive relief or other
equitable remedies.
4.4. Brokers
The Purchaser has not dealt with any broker, finder, commission agent
or other Person in connection with the sale of the Notes and the transactions
contemplated by this Agreement, and the Purchaser is not under any obligation to
pay any broker's or finder's fee or commission or similar payment in connection
with such transactions.
SECTION 5. COVENANTS
So long as any of the Notes remain unpaid and outstanding, the Company
covenants to the Holders of outstanding Notes as follows:
5.1. Payment of Notes; Satisfaction of Obligations
The Company shall pay the principal of and interest on the Notes on
the dates and in the manner provided in the Notes. To the extent lawful, the
Company shall pay interest (including interest accruing after the commencement
of any proceeding under any Bankruptcy Law) on all unpaid amounts outstanding
under the Notes (including overdue installments of principal or interest) at a
rate equal to 7.5% per annum, payable quarterly on each January 1, April 1, July
1 and October 1, beginning July 1, 1998. Such interest rate is subject to
adjustment as set forth in Section 3(b) to the Registration Rights Agreement.
16
<PAGE>
5.2. Notice of Default
The Company will deliver to the Holders, forthwith upon (i) becoming
aware of any Default or Event of Default, (ii) becoming aware of any payment
default under any other loan agreement, mortgage, indenture or instrument
referred to in Sections 7.1(d) or (iii) the receipt by the Company of any notice
of any non-monetary default under any such loan agreement, mortgage, indenture
or instrument, an Officers' Certificate specifying in reasonable detail such
Default, Event of Default or default and the nature of any remedial or
corrective action the Company proposes to take with respect thereto.
5.3. Limitation on Additional Indebtedness
None of the Company, nor any of its Subsidiaries (including without
limitation, upon the creation or acquisition of such Subsidiary) shall, directly
or indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to (collectively, "incur") any
Indebtedness after the date of this Agreement, if a Default or an Event of
Default shall have occurred and be continuing at the time or would occur as a
consequence of the incurrence of such Indebtedness.
5.4. Change of Control
(a) Change of Control. Prior to the consummation of a Change of
Control (the date of such consummation being referred to herein as the "Change
of Control Date"), the Company shall give each Holder notice describing in
reasonable detail the nature of the Change of Control (such written notice, the
"Change of Control Notice") and offering to the Purchaser the right to require
the Company to repurchase all or any part of the Notes held by the Purchaser
pursuant to the offer (the "Change of Control Repurchase Offer") at a purchase
price equal to 100% of the aggregate principal amount thereof, together with
unpaid interest to the date of repurchase (the "Change of Control Price"). The
obligation of the Company to repurchase Notes pursuant to the Change of Control
Repurchase Offer is subject to the subordination provisions of Section 8 hereof.
(b) Timing of Notice. The Change of Control Notice shall be mailed by
the Company to all Holders at their last registered address no later than
fifteen (15) Business Days prior to the Change of Control Date.
(c) Procedure. The Change of Control Notice shall state a date not
later than five (5) Business Days following the Change of Control Date for
repurchase of the Notes pursuant to the Change of Control Repurchase Offer (such
date, the "Change of Control Repurchase Date"). The Change of Control Notice,
which shall govern the terms of the Change of Control Repurchase Offer, shall
state:
(1) that the Change of Control Repurchase Offer is being made
pursuant to this Section 5.4;
17
<PAGE>
(2) the Change of Control Price and the Change of Control
Repurchase Date;
(3) that, unless the Company defaults in the payment of the
Change of Control Price, all Notes accepted for payment shall cease to
accrue interest on and after the Change of Control Repurchase Date;
(4) that the Purchaser electing to require the Company to
repurchase any Notes will be required to surrender the Note to the
address specified in the Change of Control Notice prior to the close
of business on the Business Day preceding the Change of Control
Repurchase Date;
(5) that the Purchaser will be entitled to withdraw his or her
election to require the Company to repurchase any Notes on the terms
and conditions set forth in such Change of Control Notice by written
notice to the Company prior to the Change of Control Repurchase Date;
and
(6) that the Purchaser electing to require the Company to
repurchase any Notes in part will be issued a new Note in a principal
amount equal to the unpurchased portion of the Notes surrendered.
Any such Change of Control Repurchase Offer shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations to the extent applicable in connection with any Change of
Control Repurchase Offer.
(a) Acceptance of Notes.
(1) On the Change of Control Repurchase Date, the Company shall
accept for payment all Notes or portions thereof validly tendered
pursuant to the Change of Control Repurchase Offer and promptly
thereafter mail or deliver to Holder of Notes accepted for repurchase
payment in the amount equal to the aggregate Change of Control Price
for such Notes, and the Company shall execute and mail or deliver to
such Holders a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered.
The Company will notify the Holders of the results of the Change of
Control Repurchase Offer on the Change of Control Repurchase Date.
5.5. Stay, Extension and Usury Laws
The Company covenants and agrees (to the extent that it may lawfully
do so) that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, and will use its best
efforts to resist any attempts to claim or take the benefit of any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of its obligations under this
Agreement or the Notes; and the Company (to the extent it may lawfully do so)
hereby expressly waives all benefit or
18
<PAGE>
advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impede the execution of any power herein granted to the
Holders, but will suffer and permit the execution of every such power as though
no such law has been enacted.
5.6. Indemnification
The Company agrees to indemnify the Purchaser and each director,
officer, employee, counsel, Agent and Affiliate of such Purchaser (collectively,
the "Indemnified Parties") against, and hold it and them harmless from, all
losses, claims, damages, liabilities, taxes, deficiencies, expenses and costs
(including diminution in value and costs of preparation and reasonable
attorneys' fees and expenses) (collectively, "Losses") incurred by it or them
(A) arising from any breach of any representation or warranty or the inaccuracy
of any representation made by the Company in or pursuant to the Agreement, the
Registration Rights Agreement or the Commitment Letter (including without
limitation any breach or inaccuracy of any representation or warranty relating
to CERCLA, any equivalent state statute or any other Environmental Law); and (B)
arising from any breach of any covenant or agreement made by the Company in or
pursuant to the Agreement, the Registration Rights Agreement or the Commitment
Letter; provided, however, that the Company shall not be required to indemnify
any Indemnified Party for any Loss that results from (x) the action of any
Indemnified Party which is finally judicially determined to have resulted from
such Indemnified Party's negligence, intentionally wrongful acts or
intentionally wrongful omissions or (y) the failure of LTC Equity Holding
Company to purchase additional Notes from the Company pursuant to Section
1.2(a)(2) hereof; provided, further, that no Indemnified Party shall be entitled
to assert a claim on account of the indemnity provided in this Section 5.6,
unless and until the aggregate amount of Losses with respect to all claims
asserted under this Section and under Section 5.6 of the purchase agreements for
the Notes executed on the date hereof by other purchasers exceeds $100,000 (in
which case the Company shall be liable for Losses in excess of such $100,000
that have accrued).
The Company agrees to reimburse any Indemnified Party promptly for all
such Losses as they are incurred by such Indemnified Party. The Company's
liability to any such Indemnified Party hereunder shall not be extinguished
solely because any other Indemnified Party is not entitled to indemnity
hereunder. The obligations of the Company under this Section 5.6 shall survive
the payment or prepayment of the Notes, at maturity, upon acceleration,
repurchase or otherwise, any transfer of the Notes by any Purchaser to any
subsequent Holder and the termination of this Agreement, the Notes, the
Registration Rights Agreement and the Commitment Letter. The indemnity provided
in this Section 5.6 will be in addition to any liability which the Company may
otherwise have, including, without limitation, under this Agreement, the Notes,
the Registration Rights Agreement and the Commitment Letter.
In case any action shall be brought against any Indemnified Party with
respect to which indemnity may be sought against the Company, such Indemnified
Party shall promptly notify the Company in writing and the Company shall, if it
so desires, assume the defense thereof, including the employment of counsel
reasonably satisfactory to such Indemnified Party and payment of all reasonable
fees and expenses. The failure to so notify the Company shall not
19
<PAGE>
affect any obligation it may have to any Indemnified Party under this Section
5.6 or otherwise unless the Company is materially adversely affected by such
failure.
Each Indemnified Party shall have the right to employ separate counsel
in such action and participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless: (i)
the Company has agreed in writing to pay such expenses; (ii) the Company has
failed to assume the defense and employ counsel; or (iii) the named parties to
any such action (including any impleaded parties) include any Indemnified Party
and the Company, and such Indemnified Party shall have been advised by outside
counsel that there may be one or more legal defenses available to it which are
inconsistent with those available to the Company; provided that, if such
Indemnified Party notifies the Company in writing that it elects to employ
separate counsel in the circumstances described in clauses (i), (ii) or (iii)
above, the Company shall not have the right to assume the defense of such action
or proceeding; provided, however, that the Company shall not, in connection with
any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be responsible hereunder for the fees and
expenses of more than one such firm of separate counsel (in addition to any
necessary local counsel), which counsel shall be designated by such Indemnified
Party. The Company shall not be liable for any settlement of any such action
effected without its written consent (which shall not be unreasonably withheld).
The Company agrees that it will not, without the Indemnified Party's prior
consent, which shall not be unreasonably withheld, settle or compromise any
pending or threatened claim, action or suit in respect of which indemnification
may be sought hereunder unless the foregoing contains an unconditional release
of the Indemnified Parties from all liability and obligation arising therefrom.
5.7. Corporate Existence; Merger; Successor Corporation
(a) The Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence in accordance
with its organizational documents and the corporate rights (charter and
statutory), licenses and franchises of the Company; provided, however, that the
Company shall not be required to preserve any such right, license or franchise,
or corporate existence if the Board of Directors of the Company shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and that the loss thereof is not adverse in any material
respect to any Holder.
(b) The Company shall not in a single transaction or through a series
of related transactions, (i) consolidate with or merge with or into any other
person, or transfer (by lease, assignment, sale or otherwise) all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to another person or group of affiliated persons or (ii) adopt a
Plan of Liquidation, unless, in either case:
(1) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or to which all or substantially all of the properties and assets of
the Company as an entirety or substantially as an entirety are transferred (or,
in the case of a Plan of Liquidation, any Person to
20
<PAGE>
which assets are transferred) (the Company or such other Person being
hereinafter referred to as the "Surviving Person") shall be a corporation
organized and validly existing under the laws of the United States, any State
thereof or the District of Columbia, and shall expressly assume, by an amendment
to this Agreement, all the obligations of the Company under the Notes and this
Agreement;
(2) immediately after and giving effect to such transaction and
the assumption contemplated by clause (1) above and the incurrence or
anticipated incurrence of any Indebtedness to be incurred in connection
therewith, (ii) the Surviving Person shall have a Consolidated Net Worth equal
to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction;
(3) immediately before and immediately after and giving effect to
such transaction and the assumption of the obligations as set forth in clause
(1) above and the incurrence or anticipated incurrence of any Indebtedness to be
incurred in connection therewith, no Default or Event of Default shall have
occurred and be continuing; and
(4) The Company shall have delivered to the Purchaser an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, transfer or adoption and such amendment to this Agreement
comply with this Section 5.7, that the Surviving Person agrees to be bound
hereby, and that all conditions precedent herein provided relating to such
transaction have been satisfied.
(c) Upon any consolidation or merger, or any transfer of assets
(including pursuant to a Plan of Liquidation) in accordance with this Section
5.7, the successor person formed by such consolidation or into which the Company
is merged or to which such transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Agreement
with the same effect as if such successor person had been named as the Company
herein; provided, however, that the Company shall not be released from the
obligations and covenants under this Agreement or under the Notes.
5.8. Taxes
The Company shall, and shall cause its Subsidiaries to, pay prior to
delinquency all material taxes, assessments and governmental levies except as
contested in good faith and by appropriate proceedings.
5.9. Investment Company Act
Neither the Company nor any of its Subsidiaries shall become an
investment company subject to registration under the Investment Company Act of
1940, as amended.
21
<PAGE>
5.10. Insurance
The Company and its Subsidiaries shall maintain liability, casualty
and other insurance with a reputable insurer or insurers in such amounts and
against such risks as is carried by responsible companies engaged in similar
businesses and owning similar assets.
5.11. Inconsistent Agreements
The Company shall not, and shall not permit any of its Subsidiaries
to, (i) enter into any agreement or arrangement which is inconsistent with, or
would impair the ability of the Company to fulfill, its obligations under this
Agreement, the Notes, the Registration Rights Agreement or the Commitment Letter
or (ii) supplement, amend or otherwise modify the terms of their respective
Charter Documents, if the effect thereof would be materially adverse to the
Holders, including without limitation to increase the liquidation preference of,
or the rate of dividends payable on, any series of preferred stock.
5.12. Compliance with Laws
The Company shall, and shall cause its Subsidiaries to, comply with
all statutes, ordinances, governmental rules and regulations, judgments, orders
and decrees (including all Environmental Laws) to which any of them is subject,
and obtain and keep in effect all licenses, permits, franchises and other
governmental authorizations necessary to the ownership or operation of their
respective properties or the conduct of their respective businesses, except to
the extent that the failure to so comply or obtain and keep in effect would not
have a Material Adverse Effect.
5.13. Inspection of Properties and Records
The Company agrees to allow, and to cause each of their respective
Subsidiaries to allow, the Purchaser and each subsequent Holder (or such Persons
as the Purchaser or subsequent Holder may designate) (individually and
collectively, "Inspectors") upon reasonable prior notice to visit and inspect
any of the properties of the Company or its Subsidiaries, to examine all their
books of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers, and independent public accountants with
representatives of the Company or its Subsidiaries present (and by this
provision the Company authorizes said accountants to discuss with such
Inspectors the finances and affairs of the Company and its Subsidiaries) all at
such reasonable times and as often as may be reasonably requested but not more
than twice in any twelve-month period for all Holders in the aggregate unless a
Default or an Event of Default shall have occurred. If a Default or an Event of
Default shall have occurred and be continuing, the Company shall pay or
reimburse all Inspectors for expenses which such Inspectors may reasonably incur
in connection with any such visitations or inspections.
22
<PAGE>
SECTION 6. CONVERSION OF NOTES
6.1. Conversion
(a) Each Note shall be convertible, in whole or in part, at the option
of the Holder thereof, at any time prior to the Maturity Date, at the office of
the Company or any transfer agent for the Notes, into that number of fully paid
and nonassessable shares of Common Stock determined in accordance with the
provisions of Section 6.2. In order to convert Notes into Conversion Shares, the
Holder thereof shall surrender the Notes therefor, duly endorsed, at the office
of the Company or to the transfer agent for the Notes, together with written
notice to the Company stating that it elects to convert the same and setting
forth the name or names in which it wishes the certificate or certificates for
Conversion Shares to be issued, and the principal amount of the Notes being
converted. The Company shall, as soon as practicable after the surrender of the
Notes for conversion at the office of the Company or the transfer agent for the
Notes, issue to each holder of such Notes, or its nominee or nominees, a
certificate or certificates evidencing the number of Conversion Shares (and any
other securities and property) to which it shall be entitled, cash representing
payment in full for all accrued but unpaid interest on the Note (or portion
thereof) surrendered for conversion, and, in the event that only a part of the
Notes presented are converted, a Note evidencing the principal amount not so
converted. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the Notes to be
converted, and the person or persons entitled to receive the Conversion Shares
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock at such date and shall, with
respect to such shares, thereafter have only those rights of a holder of Common
Stock of the Company.
(b) In the event that the average trading price of the Common Stock
over thirty (30) consecutive trading days is equal to or exceeds $12 per share,
the Company shall have the right, but not the obligation, to force a conversion
of all then outstanding Notes, in whole but not in part, within the fifteen (15)
day period immediately following such thirty (30) consecutive trading days. Any
such forced conversion shall in all other respects be in accordance with this
Section 6, and, if the Company shall elect to force conversion of Notes, it
shall promptly provide notice of such forced conversion to all Holders of Notes.
The Company shall, as soon as practicable following the notice of such forced
conversion (and in no event later than sixty (60) calendar days after the date
of such notice) issue to each holder of such Notes, or its nominee or nominees,
a certificate or certificates evidencing the number of Conversion Shares (and
any other securities and property) to which it shall be entitled and cash
representing payment in full for all accrued but unpaid interest on the Note
surrendered for conversion. Such conversion shall be deemed to have been made at
the close of business on the date specified in such notice, and the person or
persons entitled to receive the Conversion Shares issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock at such date and shall, with respect to such shares, thereafter
have only those rights of a holder of Common Stock of the Company.
23
<PAGE>
(c) The Company shall use its best efforts to quote and maintain
quotation of the Conversion Shares on the Nasdaq National Market or such other
principal national securities exchange on which the Common Stock is then listed
or quoted.
6.2. Conversion Rate
The number of shares of Common Stock issuable upon conversion of the
Notes shall be one (1) share for every $7.50 of principal amount of Notes being
converted (the "Conversion Rate"), and shall be subject to adjustment from time
to time as provided herein and as provided in Section 3(b) of the Registration
Rights Agreement.
6.3. Fractional Shares
No fractional shares of Common Stock shall be issued upon conversion
of Notes. Instead, the Company shall deliver cash in the form of its check for
the Fair Market Value of the fractional share.
6.4. Adjustments for Stock Splits, Combinations and Dividends
If the outstanding shares of the Common Stock shall be subdivided into
a greater number of shares or combined into a lesser number of shares, the
Conversion Rate in effect immediately prior to such subdivision shall,
simultaneously with the effectiveness of such subdivision, be proportionately
increased or decreased, as the case may be. If the Company pays a dividend or
otherwise makes a distribution with respect to its Common Stock (whether in
cash, additional shares of Common Stock or other property) on or prior to March
31, 2003, then the Conversion Rate shall be increased by a fraction, the
numerator of which is the aggregate amount of the fair market value of such
dividend or distribution and the denominator of which is the number of shares of
Common Stock entitled to such dividend or other distribution. If the Company
pays a dividend or otherwise makes a distribution with respect to its Common
Stock (whether in cash, additional shares of Common Stock or other property)
after March 31, 2003 (the effective date of such dividend or other distribution,
the "Determination Date") and if the fair market value of such dividend or other
distribution, together with the fair market value of all other dividends and
distributions with respect to its Common Stock during the 12-month period
immediately preceding the Determination Date exceeds 2% of the Average Closing
Sales Price during such 12-month period, then the Conversion Rate shall be
increased by a fraction, the numerator of which is the aggregate amount of the
fair market value of the dividend or other distribution to be effected on the
Determination Date plus the aggregate amount of the fair market value of all
dividends and distributions effected during such 12-month period for which no
adjustment in the Conversion Rate was effected pursuant to this Section 6.4, and
the denominator of which is the number of shares of Common Stock entitled to
such dividend or other distribution on the Determination Date. Any adjustment to
the Conversion Rate under this Section 6.4 shall become effective at the close
of business on the date the subdivision, combination, dividend or other
distribution referred to herein becomes effective. For purposes of the
calculations made in this Section 6.4, the fair market value of any dividend or
other distribution that is in the form of property other than Common Stock or
cash shall be determined in good faith by the Board.
24
<PAGE>
6.5. Reorganization, Mergers, Consolidations or Sales of Assets
In the event of any capital reorganization, any reclassification of
the Common Stock (other than a change in par value or as a result of a stock
dividend, subdivision, split-up or combination of shares), the consolidation or
merger of the Company with or into another person, or the sale or other
disposition of all or substantially all of the properties of the Company as an
entirety to another person (collectively referred to hereinafter as
"Reorganizations"), the Holders of the Notes shall thereafter be entitled to
receive, and provision shall be made therefor in any agreement relating to a
Reorganization, upon conversion of the Notes the kind and number of shares of
Common Stock or other securities or property (including cash) of the Company, or
the other corporation resulting from such consolidation or surviving such
merger, which would have been distributed to a holder of the number of shares of
Common Stock which the Notes entitled the holders thereof to convert to
immediately prior to such Reorganization; and in any such case appropriate
adjustment shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the Holders of the Notes,
to the end that the provisions set forth herein (including the specified changes
and other adjustments to the Conversion Rate) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares, other securities or
property thereafter receivable upon conversion of the Notes.
6.6. Sale of Shares Below Market or Conversion Price
(a) If at any time or from time to time the Company shall issue or
sell Additional Shares of Common Stock other than in a transaction which falls
within Section 6.1, Section 6.4 or Section 6.5, for an Effective Price less than
the greater of (x) the Fair Market Value of the Common Stock or (y) the then
effective conversion price calculated by dividing $7.50 by the then existing
Conversion Rate (the "Adjusted Conversion Price"), then, and in each such case,
the then existing Conversion Rate shall be adjusted to a rate per $7.50
principal amount of Notes determined by multiplying that Conversion Rate by a
fraction (i) the numerator of which shall be the number of shares of Common
Stock outstanding at the close of business on the date of such issue after
giving effect to such issue of Additional Shares of Common Stock, and (ii) the
denominator of which shall be (A) the number of shares of Common Stock
outstanding at the close of business on the day next preceding the date of such
issue or sale, plus (B) the number of shares of Common Stock which the aggregate
consideration received (or by the express provisions hereof deemed to have been
received) by the Company for the total number of Additional Shares of Common
Stock so issued would purchase at such Adjusted Conversion Price.
(b) For the purpose of making any adjustment required in this Section
6.6, the consideration received by the Company for any issue or sale of
securities shall:
(i) to the extent it consists of cash, the consideration received
by the Company therefor shall be deemed to be the net amount of cash
actually received by the Company, after deducting therefrom any
compensation, discounts, fees or expenses paid to (but not on behalf
of) any purchaser of such securities and any compensation, discounts,
fees or expenses that are not reasonable or are not
25
<PAGE>
customary (it being understood that underwriters' discounts and
compensation in public offerings and brokers' commissions in private
placements of such securities shall be deemed reasonable and
customary);
(ii) to the extent it consists of property other than cash, the
consideration other than cash shall be computed at the fair market
value thereof as determined in good faith by the Board of Directors of
the Company; and
(iii) if Additional Shares of Common Stock, Convertible
Securities or rights or options to purchase either Additional Shares
of Common Stock or Convertible Securities are issued or sold together
with other stock or securities or other assets of the Company for
consideration which covers both, the consideration received for the
Common Stock, Convertible Securities or rights or options shall be
computed as that portion of the consideration so received which is
reasonably determined in good faith by the Board of Directors of the
Company to be allocable to such Additional Shares of Common Stock,
Convertible Securities or rights or options.
(c) For the purpose of making any adjustment in the Conversion Rate
provided in this Section 6.6, if at any time, or from time to time, the Company
issues any stock convertible into Additional Shares of Common Stock (such
convertible stock being hereinafter referred to as "Convertible Securities") or
issues any rights or options, other than options pursuant to the Stock Option
Plan, to purchase Additional Shares of Common Stock for Convertible Securities
(such rights or options being hereinafter referred to as "Rights"), then, and in
each such case, the Company shall be deemed to have issued at the time of the
issuance of such Rights or Convertible Securities the maximum number of shares
of Additional Shares of Common Stock issuable upon exercise (other than options
pursuant to the Stock Option Plan) or conversion thereof and to have received in
consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Company for the issuance of
such Rights or Convertible Securities, plus in the case of such Rights, the
amount of consideration, if any, payable to the Company upon exercise of such
Rights, plus, in the case of Convertible Securities, the amount of
consideration, if any, payable to the Company upon the conversion thereof. No
further adjustment of the Conversion Rate, adjusted upon the issuance of such
Rights or Convertible Securities, shall be made as a result of the actual
issuance of Additional Shares of Common Stock on the exercise of any such Rights
or the conversion of any such convertible Securities. If any such Rights or the
conversion privilege represented by any such Convertible Securities shall expire
without having been exercised, the Conversion Rate adjusted upon the issuance of
such rights, options or convertible securities shall be readjusted to the
conversion rate which would have been in effect had an adjustment been made on
the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such Rights of conversion of such Convertible Securities, and such
Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for granting of all such
Rights, whether or not exercised, plus consideration received for issuing or
selling the Convertible Securities
26
<PAGE>
actually converted, plus the consideration, if any, actually received by the
Company on the conversion of such Convertible Securities.
6.7. Adjustment for Failure to Quote on Nasdaq National Market
In event that, from the time of effectiveness of the registration
statement to be filed pursuant to Section 3(a) of the Registration Rights
Agreement and until all Notes have been converted into Conversion Shares,
immediately prior to the conversion of any Notes into Conversion Shares pursuant
to this Section 6, such Conversion Shares have not been approved for quotation
on Nasdaq National Market (or any other national securities exchange where the
Common Stock is then listed or quoted), then the Conversion Rate with respect to
such Conversion Shares shall be increased by 10% immediately prior to the
conversion of any Notes into such Conversion Shares.
6.8. Accountants' Certificate of Adjustment
In each case of an adjustment or readjustment of the Conversion Rate
or the number of shares of Common Stock or other securities issuable upon
conversion of the Notes, the Company shall as soon as reasonably practicable
(and in no event less than thirty (30) days following the event causing such
adjustment or readjustment) compute such adjustment or readjustment in
accordance with this Agreement and prepare a certificate showing such adjustment
or readjustment, and shall mail such certificate, by first-class mail, postage
prepaid, to each Holder of the Notes at the Holder's address as shown on the
Company's note register. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (i) the Conversion Rate at the
time in effect for the Notes, and (ii) the number of shares of Common Stock and
the type and amount, if any, of other property which at the time would be
received upon conversion of the Notes. At the written request of the Requisite
Noteholders, the Company shall cause its Independent Auditors to verify the
computations contained in the certificate prepared by the Company.
6.9. Reservation of Shares Issuable Upon Conversion
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Notes, such number and class of its shares of
Common Stock as shall from time to time be sufficient to effect a conversion of
all outstanding Notes, and if at any time the number and class of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding Notes, the Company shall promptly seek such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number and class of
shares as shall be sufficient for such purpose. In the event of the
consolidation or merger of the Company with another corporation where the
Company is not the surviving corporation, effective provision shall be made in
the certificate or articles of incorporation, documents of merger or
consolidation, or otherwise, of the surviving corporation so that such
corporation will at all times reserve and keep available a sufficient
27
<PAGE>
number of shares of Common Stock or other securities or property to provide for
the conversion of the Notes in accordance with the provisions of this Section 6.
6.10. No Impairment
The Company shall not amend its Charter Documents or participate in
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, for the principal
purpose of avoiding or attempting to avoid the observance or performance of any
of the terms to be observed or performed by the Company pursuant to this Section
6.
SECTION 7. DEFAULTS AND REMEDIES
7.1. Events of Default
An "Event of Default" occurs if:
(a) the Company defaults in the payment of the principal of any Note
when the same becomes due and payable at maturity, upon repurchase or otherwise;
(b) the Company defaults in the payment of interest on any Note when
the same becomes due and payable and the Default continues for the period and
after the notice specified below;
(c) the Company fails to comply with any of the agreements, covenants,
or provisions of this Agreement or the Notes and the Default continues for the
period and after the notice specified below;
(d) a default occurs under any mortgage, indenture or instrument
(other than a mortgage, indenture or instrument to which the Purchaser or its
Subsidiaries is a party) under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any of its Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Subsidiaries), whether such Indebtedness or guaranteed Indebtedness
now exists or shall be created hereafter, which default (i) is caused by a
failure to pay principal of or premium, if any, on such Indebtedness prior to
the expiration of the grace period provided in such Indebtedness, or (ii)
results in the acceleration of such Indebtedness prior to its express maturity
and, in each case, the principal amount of such Indebtedness, together with the
principal amount of any other Indebtedness as to which there has been a payment
default or the maturity of which has been so accelerated, aggregates $1,000,000
or more;
(e) a final judgment for the payment of money is entered by a court or
courts of competent jurisdiction against the Company or any Subsidiary of the
Company and such remains undischarged for a period (during which execution shall
not be effectively stayed) of (1) ninety (90) days, if the aggregate of all such
judgments exceeds $1,000,000 but is less than $5,000,000 or (2) thirty (30) days
if the aggregate of all such judgments exceeds $5,000,000;
28
<PAGE>
(f) the Company or any of its Subsidiaries pursuant to or within the
meaning of any Bankruptcy Law: (1) commences a voluntary case, (2) consents to
the entry of an order for relief against it in an involuntary case, (3) consents
to the appointment of a Custodian of it or for all or substantially all of its
property, (4) makes a general assignment for the benefit of its creditors, (5)
generally is unable to pay its debts as the same become due; or (6) a court of
competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(i) is for relief against the Company or any of its Subsidiaries in an
involuntary case, (ii) appoints a Custodian of the Company or any of its
Subsidiaries or for all or substantially all of its property, or (iii) orders
the liquidation of the Company or any of its Subsidiaries, and the order or
decree remains unstayed and in effect for 60 days.
A Default under clause (b) is not an Event of Default until a Holder
notifies the Company of such Default and the Company does not cure such Default
within two (2) Business Days after receipt of such notice. A Default under
clause (c) (other than a Default under Sections 5.3, 5.4, 5.6 or 5.7 of this
Agreement, which Default shall be an Event of Default without the notice or
passage of time specified in this paragraph) or (d) (other than a Default
resulting from the acceleration of any Indebtedness described therein, which
Default shall be an Event of Default without the notice or passage of time
specified in this paragraph) or (e) is not an Event of Default until the
Requisite Noteholders notify the Company of the Default and the Company does not
cure the Default within ten (10) days after receipt of the notice. Any such
notices must specify the Default, demand that it be remedied and state that the
notice is a "Notice of Default."
7.2. Acceleration of Notes
If an Event of Default (other than an Event of Default specified in
clauses (e) and (f) of Section 7.1) occurs and is continuing, the Requisite
Noteholders, by notice to the Company, may declare the unpaid principal of and
any accrued interest on all the Notes to be due and payable. Immediately upon
such declaration, the principal and interest shall be due and payable. If an
Event of Default specified in clause (e) or (f) of Section 7.1 occurs, such an
amount shall become and be immediately due and payable without any declaration
or other act on the part of any Holder. The Requisite Noteholders by notice to
the Company may rescind an acceleration of and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of the acceleration.
7.3. Other Remedies
If an Event of Default occurs and is continuing, Holders of the Notes
may pursue any available remedy to collect the payment of principal or interest
on the Notes or to enforce the performance of any provision of the Notes or this
Agreement.
A delay or omission by any Holder of any Notes in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
29
<PAGE>
SECTION 8. SUBORDINATION
8.1. Notes Subordinated to Senior Indebtedness
(a) The Notes are subordinated and junior in right of payment of the
principal of and interest and all other obligations (all of the foregoing, a
"Payment or Distribution") on such Notes to the prior payment in full of any
Senior Indebtedness whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed, the Notes shall comply with the provisions of
this Section 8, and each Holder by his acceptance thereof likewise agrees.
A Payment or Distribution shall include any asset of any kind or
character, and may consist of cash, securities or other property, by set-off or
otherwise, except that Holders may receive (i) securities that are subordinated
to at least the same extent as the Notes to (A) Senior Indebtedness and (B) any
securities issued in exchange for Senior Indebtedness.
(b) The Senior Indebtedness of the Company shall continue to be Senior
Indebtedness and entitled to the benefit of these subordination provisions
irrespective of any amendment, modification or waiver of any term of any
instrument relating to refinancing of the Senior Indebtedness, whether with or
without notice to Holders.
(c) No right of any holder of any Senior Indebtedness to enforce
subordination as herein provided shall at any time or in any way be affected or
impaired by any act or failure to act on the part of the Company, the Holders or
the holders of the Senior Indebtedness, including without limitation any
non-compliance by the holders of the Senior Indebtedness with any of the terms,
provisions and covenants of the documents evidencing or securing the Senior
Indebtedness, or by any noncompliance by the Company or the Holders with any of
the terms, provisions and covenants of the Notes, regardless of any knowledge
thereof that any such holder of Senior Indebtedness may have or otherwise be
charged with.
8.2. Company Not to Make Payments with Respect to Notes in Certain
Circumstances
No Payment or Distribution shall be made by the Company on account of
principal of or interest on the Notes, whether upon the Maturity Date, upon
repurchase or acceleration, or otherwise, if there shall have occurred and be
continuing a default with respect to any Senior Indebtedness and notice of such
default in writing or by telegram has been given to the Company by any holder or
holders of Senior Indebtedness, unless and until the Company shall have received
written notice from such holder or holders that such default or event of default
shall have been cured or waived or shall have ceased to exist or, unless in the
event of a default that does not result in the acceleration of any Senior
Indebtedness or that does not involve a payment default with respect to any
Senior Indebtedness, upon the expiration of the 60-day period following the date
of such notice of default. Following such 60-day period, the Company shall be
obligated to make any and all outstanding Payments or Distributions with respect
to the Notes.
Upon acceleration of the principal of the Notes or any payment by the
Company or distribution of assets of the Company of any kind or character,
whether in cash, property or
30
<PAGE>
securities, to creditors upon any dissolution or winding up or liquidation or
reorganization of the Company, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or such other proceedings, all amounts due
or to become due upon all Senior Indebtedness shall first be paid in full in
cash, or payment thereof provided for to the satisfaction of the holders
thereof, before any Payment or Distribution is made on account of the repurchase
price or principal of or interest on the Notes; and (subject to the power of a
court of competent jurisdiction to make other equitable provision, which shall
have been determined by such court to give effect to the rights conferred in
this Section 8 upon the Senior Indebtedness and the holders thereof with respect
to the Notes or the Holders, by a lawful plan of reorganization or readjustment
under applicable law) upon any such dissolution or winding up or liquidation or
reorganization, any Payment or Distribution by the Company or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to which the Holders would be entitled except for the provisions of
this Section 8, shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other Person making such Payment or
Distribution directly to the holders of Senior Indebtedness of the Company or
their representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior Indebtedness
may have been issued, as their respective interests may appear, to the extent
necessary to pay all Senior Indebtedness in full in cash, after giving effect to
any concurrent payment or distribution to or for the holders of Senior
Indebtedness, before any Payment or Distribution is made to the Holders.
In the event that, notwithstanding the foregoing, any Payment or
Distribution by the Company of any kind or character, whether such payment shall
be in cash, property or securities is prohibited by the foregoing, and the
Company shall have made payment to the Holders before all Senior Indebtedness is
paid in full in cash, or provision is made for such payment to the satisfaction
of the holders thereof, such Holder, then and in such event such Payment or
Distribution shall be paid over by such Holder or delivered to the holders of
Senior Indebtedness or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in cash, after giving effect to any concurrent Payment or Distribution to or for
the holders of such Senior Indebtedness, and, until so delivered, the same shall
be held in trust by any Holder as the property of the holders of Senior
Indebtedness.
The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the conveyance or transfer of its property as an entirety, or substantially as
an entirety, to another corporation upon the terms and conditions provided in
Section 5.7 shall not be deemed a dissolution, winding up, liquidation or
reorganization for the purpose of this Section if such other Person shall, as a
part of such consolidation, merger, conveyance or transfer, comply with the
conditions stated in Section 5.7.
The holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Holders without incurring
responsibility to the Holders
31
<PAGE>
and without impairing or releasing the obligations of the Holders to the holders
of the Senior Indebtedness: (i) change the manner, place or terms of payment or
change or extend the time of payment of, or renew or alter, Senior Indebtedness,
or otherwise amend in any manner Senior Indebtedness or any instrument
evidencing the same or any agreement under which Senior Indebtedness is
outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any
Person liable in any manner for the collection of Senior Indebtedness; and/or
(iv) exercise or refrain from exercising any rights against the Company and any
other Person.
8.3. Subrogation of Notes
After all Senior Indebtedness is paid in full and until the Notes are
paid in full, the Holders shall be subrogated (equally and ratably with all
other Indebtedness pari passu with the Notes) to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of Senior Indebtedness.
If any Payment or Distribution to which the Holders would otherwise
have been entitled but for the provisions of this Section 8 shall have been
applied pursuant to the provisions of this Section 8 to the payment of all
amounts payable in respect of the Senior Indebtedness, then and in such case,
the Holders, as with respect to the Company, shall be entitled to receive from
the holders of such Senior Indebtedness at the time outstanding any Payments or
Distributions received by such holders of Senior Indebtedness in excess of the
amount sufficient to pay all amounts payable in respect of the Senior
Indebtedness in full in cash or, at the option of the holders of Senior
Indebtedness, cash equivalents.
8.4. No Impairment of Subordination
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company,
any Holder, or by any act, or failure to act, in good faith, by any such holder
of Senior Indebtedness, or by any noncompliance by the Company or any Holder
with the terms, provisions and covenants of this Agreement regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
8.5. Section 8 Not to Prevent Events of Default
The failure to make a payment on account of principal of or interest
on the Notes by reason of any provision in this Section 8 shall not be construed
as preventing the occurrence of an Event of Default with respect to such series
under Section 7.1.
8.6. Securities Senior to Subordinated Indebtedness
The indebtedness represented by the Notes will be senior and prior in
right of payment to all Subordinated Indebtedness, to the extent and in the
manner provided in such Subordinated Indebtedness.
32
<PAGE>
8.7. Assignment of Junior Claims
(a) So long as LTC Equity Holding Company holds a sufficient amount of
Notes such that LTC Equity Holding Company constitutes a Requisite Noteholder,
paragraphs (b) and (c) of this Section 8.7 shall have no force and effect. In
the event LTC Equity Holding Company shall cease to hold a sufficient amount of
Notes such that LTC Equity Holding Company is no longer a Requisite Noteholder,
paragraphs (b) and (c) of this Section 8.7 shall be in effect.
(b) In the event of an insolvency proceeding with respect to the
Company, each Holder will assign to a representative of the holders of Senior
Indebtedness (as identified in writing to each Holder by the holders of Senior
Indebtedness) (the "Senior Representative") each Holder's right, title and
interest in and to any claims such Holder has against the Company with respect
to the Notes (the "Junior Claims") and any security held therefor, and will
deliver to the Senior Representative from time to time any and all instruments
and documents evidencing such Junior Claims, or will have entered on such
instruments and documents such subordination legend as the Senior Representative
may reasonably request, and each Holder will execute such other instruments and
documents as the Senior Representative may from time to time reasonably require
in connection therewith. In the event that any Junior Claim is not evidenced by
a negotiable instrument, each Holder hereby agrees that he will use all
commercially reasonably efforts to obtain an instrument or document from the
Company evidencing such Junior Claim. In the event that such debt is not
evidenced by a document, it shall nevertheless be deemed subordinated and
assigned by virtue of this Section 8.7.
(c) In the event of an insolvency proceeding with respect to the
Company, each Holder will grant to the Senior Representative irrevocable
authority in the place and stead of such Holder and in the name of such Holder
or in the Senior Representative's name but for the Senior Representative's use
and benefit, at any time or times, after any default under the terms of any
Senior Indebtedness, in the Senior Representative's discretion to demand,
collect file proofs of claim with respect to, receive (by way of dividends or
otherwise) and take any and all legal proceedings for the recovery of any and
all moneys due or to become due on account of the Junior Claims or any thereof,
and to vote, give consents and take any other steps with regard thereto. Any and
all moneys so collected or received by the Senior Representative shall be
retained indefeasibly by the Senior Representative for application to the
payment in full of any amounts owing with respect to the Senior Indebtedness
then outstanding (the "Senior Claims"). If the Senior Representative receives
notice of any claim adverse to the rights or interests of each Holder in and to
either the Junior Claims or the Senior Claims, or any moneys held by the Senior
Representative in respect thereof, the Senior Representative shall be entitled
to retain any and all such moneys, documents and instruments evidencing such
Junior Claims and Senior Claims.
SECTION 9. AMENDMENTS AND WAIVERS
9.1. With Consent of Holders
The Company, when authorized by a resolution of the Board of Directors
of the Company and with the written consent of the Requisite Noteholders, may
amend this Agreement
33
<PAGE>
or the Notes, without notice to any other Holders. The Requisite Noteholders may
waive compliance by the Company with any provision of this Agreement or the
Notes without notice to any other Holder. Without the consent of each Holder
affected, however, no amendment or waiver may (with respect to any Notes held by
a non-consenting Holder of Notes):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment or waiver of any provision of this Agreement or the Notes;
(b) reduce the principal of or change the fixed maturity of any Note;
(c) reduce the rate of or change the time for payment of interest on
any Note;
(d) waive a Default or Event of Default in the payment of principal of
or interest on the Notes (except a rescission of acceleration of the Notes by
the Requisite Noteholders and a waiver of the payment default that resulted from
such acceleration);
(e) make the principal of or the interest on, any Note payable in any
manner other than that stated in this Agreement and the Notes;
(f) make any change in the provisions of this Agreement relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or interest on the Notes;
(g) make any change to the subordination provisions of this Agreement
that adversely affect any Holder; or
(h) make any change in the foregoing amendment and waiver provisions.
It shall not be necessary for the consent of the Holders under this
Section 9 to approve the particular form of any proposed amendment or waiver,
but it shall be sufficient if such consent approves the substance thereof.
After an amendment or waiver under this Section 9 becomes effective,
the Company shall mail to the Holders affected thereby a notice briefly
describing the amendment or waiver. Any failure of the Company to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such amendment or waiver.
In connection with any amendment to this Section 9, the Company may
offer, but shall not be obligated to offer, to any Holder who consents to such
amendment or waiver, consideration for such Holder's consent.
9.2. Revocation and Effect of Consents
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of a
Note or portion of a Note that evidences the same debt as the consenting
Holder's Note, even if notation of the consent is not made on any Note. However,
any such Holder or subsequent Holder may revoke the consent
34
<PAGE>
as to his Note or portion of his Note by notice to the Company received before
the date on which the Requisite Noteholders have consented (and not theretofore
revoked such consent) to the amendment or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment or
waiver, which record date shall be at least ten (10) Business Days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated proxies),
and only those persons, shall be entitled to revoke any consent previously
given, whether or not such persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
After an amendment or waiver becomes effective, it shall bind every
Holder, unless it makes a change described in any of clauses (a) through (g) of
Section 9.1, in which case, the amendment or waiver shall bind only each Holder
of a Note who has consented to it and every subsequent Holder of a Note or
portion of a Note that evidences the same debt as the consenting Holder's Note;
provided that any such waiver shall not impair or affect the right of any Holder
to receive payment of principal of and interest on a Note, on or after the
respective due dates expressed in such Note, or to bring suit for the
enforcement of any such payment on or after such respective dates without the
consent of such Holder.
9.3. Notation on or Exchange of Notes
If an amendment or waiver changes the terms of a Note, the Company may
require the Holder of the Note to deliver it to the Company. The Company may
place an appropriate notation on the Note about the changed terms and return it
to the Holder.
SECTION 10. DEFINITIONS
10.1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing Date, whether or not subsequently
reacquired or retired by the Company, other than the Conversion Shares; provided
that such term shall exclude shares of Common Stock issued under the Stock
Option Plan and shares of Common Stock issued or issuable upon the conversion of
Notes issued pursuant to agreements dated on or about the date of this Agreement
and the warrants scheduled on the Disclosure Schedule.
"Adjusted Conversion Price" shall have the meaning assigned to such
term in Section 6.6(a).
35
<PAGE>
"Affiliate" means, with respect to any referenced Person, a Person (i)
which directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such referenced Person, (ii)
which directly or indirectly through one or more intermediaries beneficially
owns or holds 10% or more of the combined voting power of the total Voting
Securities of such referenced Person or (iii) of which 10% or more of the
combined voting power of the total Voting Securities directly or indirectly
through one or more intermediaries is beneficially owned or held by such
referenced Person, or a Subsidiary of such referenced Person. When used herein
without reference to any Person, Affiliate means an Affiliate of the Company.
For purposes of this definition, "control" when used with respect to any person
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of Voting Securities, by contract
or otherwise; and the terms "affiliated," controlling" and "controlled" have
meanings correlative to the foregoing.
"Agent" means any Person authorized to act and who acts on behalf of
the Purchasers with respect to the transactions contemplated by this Agreement,
the Registration Rights Agreement or the Commitment Letter.
"Agreement" means this Convertible Subordinated Note Purchase
Agreement dated as of March 30, 1998 by and between the Company and the
Purchaser.
"Average Closing Sales Price" as of a particular 12-month period means
the average closing sales price of the Common Stock for each Business Day during
such 12-month period. Such average shall be calculated as follows: (i) the
average of the closing sales prices of the Common Stock quoted on the Nasdaq
National Market for each Business Day during such 12-month period, or (ii) if no
such quotations are available, the average of the closing sales prices for each
Business Day during such 12-month period on the principal national securities
exchange on which the Common Stock is listed, or (iii) if not listed on any
national securities exchange, the average closing sales price for each Business
Day during such 12-month period in the over-the-counter market as reported by
the National Quotation Bureau, Incorporated or similar organization, or (iv) if
no of such sales prices are available for each Business Day in such 12-month
period, the average of the high bid and low asked quotations in the
over-the-counter market as so reported for such Business Days, or (v) if no such
quotations are available, the fair market value per share on such unreported
Business Days as determined by an independent investment banker or appraiser,
nationally recognized to be expert in making such valuations, selected by a
majority of the directors of the Company. In the event "Average Closing Sales
Price" is determined by an independent investment banker or appraiser pursuant
to clause (v) of the foregoing sentence, such determination shall be provided to
each Holder in writing together with a fair and accurate description of the
basis for making such determination. The Requisite Holders shall be permitted to
dispute such determination by written notice to the Company within ten (10)
Business Days of receipt of such determination. In the event of such dispute,
the Requisite Holders and the Company shall work together in good faith to
mutually agree upon a second independent investment banker or appraiser to make
a determination of "Average Closing Sales Price" whose fees and expenses shall
be paid by the Company. "Average Closing Sales Price" shall be the average of
the per share fair market values determined by both independent investment
bankers or appraisers.
36
<PAGE>
"Bankruptcy Law" means title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Business Day" means any day which is not a Legal Holiday.
"Capital Lease" means any lease of any property which would in
accordance with GAAP be required to be classified and accounted for on the
balance sheet of the lessee as a capital lease.
"Capitalized Lease Obligation" means, with respect to any Person for
any period, any obligation of such Person to pay rent or other amounts under a
Capital Lease; the amount of such obligation shall be the capitalized amount
thereof determined in accordance with such principles.
"Capital Stock" means any and all shares, interests, participation or
other equivalents (however designated) of corporate stock, including without
limitation all common stock and preferred stock.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act (42 U.S.C. ss. 9601 et. seq.).
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any Person or group (as such term is used in Section 13(d)(3) of the
Exchange Act); (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that any Person or group (as defined above), other than Walter C. Bowen or a
Related Party, becomes the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition), directly or indirectly, of
more than 50% of the Fully Diluted Voting Securities of the Company (measured by
voting power rather than number of shares) and (iv) the date on which a majority
of the Board of Directors of the Company shall cease to be Continuing Directors.
"Change of Control Date" shall have the meaning set forth in Section
5.4.
"Change of Control Notice" shall have the meaning set forth in Section
5.4.
"Change of Control Price" shall have the meaning set forth in Section
5.4.
"Change of Control Repurchase Date" shall have the meaning set forth
in Section 5.4.
37
<PAGE>
"Change of Control Repurchase Offer" shall have the meaning set forth
in Section 5.4.
"Charter Documents" means the Articles of Organization, Articles of
Incorporation or Certificate of Incorporation and Bylaws, as amended or restated
(or both) to date, of the Company or a Subsidiary, as applicable.
"Closing" shall have the meaning set forth in Section 1.2(b).
"Closing Date" shall have the meaning set forth in Section 1.2(b).
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor statute or law thereto.
"Commitment Letter" means that certain Commitment Letter dated as of
the Closing Date by and between the Company, LTC Properties and LTC West,
executed concurrently herewith.
"Common Stock" means the Common Stock, no par value, of the Company.
"Company" means Regent Assisted Living, Inc., an Oregon corporation.
"Company SEC Documents" shall have the meaning set forth in Section
3.23.
"Conversion Rate" shall have the meaning set forth in Section 6.2.
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Notes.
"Convertible Securities" shall have the meaning set forth in Section
6.6(c).
"Consolidated " or "consolidated," when used with reference to any
accounting term, means the amount described by such accounting term, determined
on a consolidated basis in accordance with GAAP, after elimination of
intercompany items.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock that by its terms is not entitled to
the payment of dividends unless such dividends may be declared and paid only out
of net earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
preferred stock, less (x) all write-ups (other than write-ups resulting from
foreign currency translations and write-ups of tangible assets of a going
concern business made within 12 months after the acquisition of such business)
subsequent to the Closing Date in the book value of any asset owned by such
Person or a consolidated Subsidiary of such Person, (y) all investments as of
such date in unconsolidated Subsidiaries and in Persons that are not
Subsidiaries, and (z) all unamortized debt discount and
38
<PAGE>
expense and unamortized deferred charges as of such date, all of the foregoing
determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on March 30, 1998 or (ii) was nominated for election or
elected to such Board with the approval of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Determination Date" shall have the meaning set forth in Section 6.4.
"Effective Price" of Additional Shares of Common Stock shall mean the
quotient determined by dividing the total number of Additional Shares of Common
Stock issued or sold, or deemed to have been issued or sold by the Company under
Section 6.6, into the aggregate consideration received, or deemed to have been
received by the Company for such issue under Section 6.6, for such Additional
Shares of Common Stock.
"Environmental Laws" shall have the meaning set forth in Section 3.13.
"Equity Interest" means Capital Stock or warrants, options or other
rights to acquire Capital Stock (but excluding any debt note which is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" shall have the meaning set forth in Section 7.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
from time to time, and any successor statute or law thereto.
"Fair Market Value" of Common Stock as of a particular date means the
Weighted Average trading price of the Common Stock for the ten (10) consecutive
Business Day period immediately preceding such date. Such Weighted Average shall
be calculated as follows: (i) the Weighted Average of the sales price of the
Common Stock quoted on the Nasdaq National Market for each of such ten (10)
Business Days, or (ii) if no such quotations are available, the Weighted Average
sales price for such ten (10) Business Days on the principal national securities
exchange on which the Common Stock is listed, or (iii) if not listed on any
national securities exchange, the Weighted Average sales price for such ten (10)
Business Days in the over-the-counter market as reported by the National
Quotation Bureau, Incorporated or similar organization, or (iv) if no of such
sales prices are available for each Business Day in such ten (10) Business Day
period, the Weighted Average of the high bid and low asked quotations in the
over-the-counter market as so reported for such ten (10) Business Days, or (v)
if no such
39
<PAGE>
quotations are available, the fair market value per share on such date as
determined by an independent investment banker or appraiser, nationally
recognized to be expert in making such valuations, selected by a majority of the
directors of the Company; provided, however, that in the event of an
underwritten public offering of Common Stock, "Fair Market Value" shall mean the
price to the public of such Common Stock in such underwritten public offering.
In the event "Fair Market Value" is determined by an independent investment
banker or appraiser pursuant to clause (v) of the foregoing sentence, such
determination shall be provided to each Holder in writing together with a fair
and accurate description of the basis for making such determination. The
Requisite Holders shall be permitted to dispute such determination by written
notice to the Company within ten (10) Business Days of receipt of such
determination. In the event of such dispute, the Requisite Holders and the
Company shall work together in good faith to mutually agree upon a second
independent investment banker or appraiser to make a determination of "Fair
Market Value" whose fees and expenses shall be paid by the Company. "Fair Market
Value" shall be the average of the per share fair market values determined by
both independent investment bankers or appraisers.
"Fully Diluted Voting Securities" means each class of Voting
Securities of a Person and each class of securities of a Person that, at the
time of determination, can immediately subscribe for and/or convert to Voting
Securities.
"GAAP" means generally accepted accounting principles as used in the
United States of America and applied in a manner consistent with past practices.
"Holder" or "Holders" means the Purchaser (so long as it holds any
Notes) and any other holder of any of the Notes.
"Incorporated Documents" means the following of the Company's
documents, each as filed with the SEC: (1) Form 10-K for the year ended December
31, 1997, (2) 1997 Proxy Statement dated April 10, 1997; and (3) Form 8-K dated
December 29, 1997.
"Indebtedness" means, with respect to any Person, the aggregate amount
of, without duplication, the following:
(a) all obligations for borrowed money;
(b) all obligations evidenced by bonds, debentures, notes or other
similar instruments;
(c) all obligations to pay the deferred purchase price of property or
services, except Trade Payables and obligations that do not exceed $300,000 in
the aggregate, accrued commissions and other similar accrued current liabilities
in respect of such obligations, in any case, not overdue and arising in the
ordinary course of business;
(d) all Capitalized Lease Obligations;
40
<PAGE>
(e) all obligations or liabilities of others secured by a lien on any
asset owned by such Person or Persons whether or not such obligation or
liability is assumed;
(f) all obligations of such Person or Persons, contingent or
otherwise, in respect of any letters of credit or bankers' acceptances; and
(g) all guaranties.
"Indemnified Parties" shall have the meaning set forth in Section 5.6.
"Independent Auditors" shall mean the independent certified public
accountants of the Company. Until December 29, 1997, the Independent Auditors
were Coopers & Lybrand, L.L.P. After such date and as of the date of the
Agreement, the Independent Auditors are KPMG Peat Marwick LLP.
"Inspectors" shall have the meaning set forth in Section 5.13.
"Intangibles" shall have the meaning set forth in Section 3.16.
"Junior Claims" shall have the meaning set forth in Section 8.7.
"Key Employee" means Walter C. Bowen.
"Knowledge of the Company" means to the actual knowledge of each of
the Chairman, Chief Executive Officer, Chief Financial Officer, General Counsel,
President, Treasurer and any Senior or Executive Vice President of the Company,
after due inquiry and investigation.
"Legal Holiday" means a Saturday, Sunday or day on which banks and
trust companies in the principal place of business of the Company or in
California are not required to be open. If a payment date is a Legal Holiday,
payment may be made on the next succeeding day that is not a Legal Holiday, and
interest shall accrue for the intervening period.
"Lien" means any mortgage, pledge, lien, taxes, encumbrance, charge or
adverse claim affecting title or resulting in a charge against real or personal
property, or note interest of any kind (including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell and any filing of or agreement to
give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Losses" shall have the meaning set forth in Section 5.6.
"LTC Equity Holding Company" means LTC Equity Holding Company, Inc., a
Nevada corporation.
"LTC Properties" means LTC Properties, Inc., a Maryland corporation.
41
<PAGE>
"LTC West" means LTC West, Inc., a Nevada corporation.
"Material Adverse Effect" means (i) any adverse effect upon the
issuance, validity or enforceability of a Note, this Agreement, the Registration
Rights Agreement or the Commitment Letter, (ii) any material adverse effect on
the results of operations, financial condition, properties, assets, business or
prospects of the Company and its Subsidiaries, taken as a whole, or (iii) any
adverse effect on the ability of the Company to fulfill its obligations under
the Notes, this Agreement, the Registration Rights Agreement or the Commitment
Letter or any document contemplated hereby or thereby.
"Material Contract" shall have the meaning set forth in Section 3.17.
"Maturity Date" means March 31, 2008.
"Note Register" shall have the meaning set forth in Section 1.3.
"Note" or "Notes" shall have the meaning set forth in Section 1.1.
"Officers' Certificate" means a certificate signed by any two
officers, one of whom must be the Chairman of the Board, the President, the
Treasurer or a Vice President of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Purchaser.
"Payment" or "Distribution" shall have the meaning set forth in
Section 8.1.
"Person" means an individual, partnership, corporation, limited
liability company, trust or unincorporated organization or a government or
agency or political subdivision thereof.
"Plan of Liquidation" means, with respect to any Person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such Person to holders of
Capital Stock of such Person.
"Preferred Stock" means the Series A Preferred Stock, no par value,
and the Series B Preferred Stock, no par value, of the Company.
"Property" or "property" means any assets or property of any kind or
nature whatsoever, real, personal or mixed (including fixtures), whether
tangible or intangible, provided that the terms "Property" or "property", when
used with respect to any Person, shall not include Notes issued by such.
"Purchaser" means the purchaser on the signature pages hereto.
42
<PAGE>
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of the Closing Date by and among the Company and the
Purchaser, executed concurrently herewith.
"Related Party" with respect to Walter C. Bowen means (A) any spouse
or immediate family member of such Person or (B) or trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding an 80% or more controlling interest of which
consist of Walter C. Bowen and/or such other Persons referred to in the
immediately preceding clause (A).
"Reorganizations" shall have the meaning set forth in Section 6.5.
"Requisite Noteholders" shall mean the holders of Notes issued to the
Purchaser pursuant to this Agreement and the Notes whenever issued to all other
purchasers pursuant to similar agreements dated on or about the date of this
Agreement with an aggregate principal amount equal to or greater than 50% of the
aggregate principal amount of all then outstanding Notes issued to the Purchaser
pursuant to this Agreement and the Notes whenever issued to all other purchasers
pursuant to similar agreements dated on or about the date of this Agreement.
"Rights" shall have the meaning assigned to such term in Section
6.6(c).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and any successor statute or law thereto.
"Senior Claims" shall have the meaning set forth in Section 8.7.
"Senior Indebtedness" means the principal of, premium, if any, and
accrued interest on any other Indebtedness of the Company and all fees,
expenses, reimbursements, indemnities and other amounts payable with respect to
such Indebtedness, whether such Indebtedness is outstanding on the date of this
Agreement or thereafter created, incurred, assumed, or guaranteed by the Company
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or the assumption or guarantee thereof expressly provides
that such Indebtedness shall not be senior, or is pari passu or subordinate, in
right or payment to the Notes; provided that Senior Indebtedness shall not
include (i) in the case of each Note the other Notes (ii) Indebtedness of the
Company to a Subsidiary of the Company, (iii) Indebtedness of or amounts owed by
the Company for compensation to directors or members of senior management that
has not been approved by the Compensation Committee of the Board; (iv)
Indebtedness guaranteed by the Company on behalf of any equityholder, director,
officer or employee of the Company or of any equityholder, director, officer or
employee of any of the Company's Subsidiaries, (v) any Trade Payables (including
without limitation Indebtedness incurred for the purchase of goods or materials
or for services obtained in the ordinary course of business), (vi) Indebtedness
of the Company that is subordinated by its terms in right of payment to any
other Indebtedness of the Company, and (vii) Indebtedness incurred in violation
of this Agreement.
43
<PAGE>
"Senior Representative" shall have the meaning set forth in Section
8.7.
"Subordinated Indebtedness" means the principal, premium, if any, and
interest on any Indebtedness of the Company which by its terms is expressly
subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person (the "parent"), any
corporation, association or other business entity of which Notes or other
ownership interests representing more than 50% of the ordinary voting power are,
at the time as of which any determination is being made, owned or controlled by
the parent or one or more subsidiaries of the parent or by the parent and one or
more subsidiaries of the parent.
"Stock Option Plan" shall mean the Company's 1995 Stock Incentive Plan
as in effect on the Closing Date.
"Surviving Person" shall have the meaning set forth in Section
5.7(b)(1).
"Total Price" means, with respect to the Common Stock on any Business
Day, the product of: (x) the closing sales price of the Common Stock quoted on
the Nasdaq National Market on such Business Day, or if no such quotations are
available, on the principal national securities exchange on which the Common
Stock is listed on such Business Day, or if not listed on any national
securities exchange, in the over-the-counter market as reported by the National
Quotation Bureau, Incorporated or similar organization on such Business Day, or
if no such sales prices are available, the high bid and low asked quotations in
the over-the-counter market on such Business Day multiplied by (y) the number of
shares of Common Stock traded on such market or exchange, as applicable, on such
Business Day.
"Trade Payables" means, with respect to any Person, accounts payable
and other similar accrued current liabilities in respect of obligations or
indebtedness to trade creditors created, assumed or guaranteed by such Person or
any of its Subsidiaries in the ordinary course of business in connection with
the obtaining of property or services.
"Voting Securities" means any class of Equity Interests of a Person
pursuant to which the holders thereof have, at the time of determination, the
general voting power under ordinary circumstances to vote for the election of
directors, managers, trustees or general partners of any Person (irrespective of
whether or not at the time any other class or classes will have or might have
voting power by reason of the happening of any contingency).
"Weighted Average" means, with respect to the Common Stock during any
ten (10) consecutive Business Day period, the sum of the Total Price of such
Common Stock for each Business Day during such ten (10) consecutive Business Day
period divided by ten (10).
10.2. Rules of Construction
Unless the context otherwise requires
44
<PAGE>
(a) a term has the meaning assigned to it;
(b) "or" is not exclusive;
(c) words in the singular include the plural, and words in the plural
include the singular;
(d) provisions apply to successive events and transactions;
(e) "herein," "hereof" and other words of similar import refer to this
Agreement as a whole and not to any particular Section or other subdivision; and
(f) the masculine shall include the feminine and neuter genders as
appropriate.
SECTION 11. MISCELLANEOUS
11.1. Notices
All notices and other communications provided for or permitted
hereunder shall be made by hand-delivery, first-class mail, telex, telecopier,
or overnight air courier guaranteeing next day delivery:
(a) if to any Purchaser at address set forth on the signature pages
hereto, with a copy to Latham & Watkins, 633 W. Fifth Street, Suite 4000, Los
Angeles, California 90071, Attention: Eva Herbst Davis, Esq.; and
(b) if to the Company, to Regent Assisted Living, Inc., 121 SW
Morrison, Suite 1000, Attention: General Counsel with a copy to Stoel Rives LLP,
900 SW Fifth Avenue, Suite 2300, Portland, Oregon 97204, Attention: Todd Bauman,
Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five (5) Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
The parties may change the addresses to which notices are to be given by giving
five days' prior notice of such change in accordance herewith.
11.2. Undertaking for Costs
In any suit for the enforcement of any right or remedy under this
Agreement, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
45
<PAGE>
11.3. Successors and Assigns
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties.
11.4. Counterparts
This Agreement may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
11.5. Headings
The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
11.6. Governing Law
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of California.
11.7. Entire Agreement
This Agreement, together with the Notes, the Registration Rights
Agreement and the Commitment Letter is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, together with the Notes, the Registration
Rights Agreement and the Commitment Letter supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
11.8. Severability
In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired or affected, it being
intended that the Purchaser's rights and privileges shall be enforceable to the
fullest extent permitted by law.
11.9. Transfer
The Notes may not be transferred, sold, assigned, pledged,
hypothecated or otherwise disposed of unless (a) such transfer is pursuant to an
effective registration statement under the Securities Act and any applicable
state securities laws, or (b) the Company has been furnished with a satisfactory
opinion of counsel for the Holder, at such Holder's expense, that
46
<PAGE>
such transfer is exempt from the provisions of Section 5 of the Securities Act,
the rules and regulations in effect thereunder and any applicable state
securities laws.
47
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties set forth below as of the date first written above.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By: WALTER C. BOWEN
-----------------------------------
Name: Walter C. Bowen
Title: President
PAMELA J. PRIVETT,
an individual
PAMELA J. PRIVETT
- ---------------------------------------
Pamela J. Privett
Address:
10680 Ranch Road
Culver City, California 90230
48
<PAGE>
ANNEX A
-------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS (A) SUCH TRANSFER IS PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE
COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER
THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT, THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE SECURITIES
LAWS.
REGENT ASSISTED LIVING, INC.
CONVERTIBLE SUBORDINATED NOTE DUE MARCH 31, 2008
Note No. ________ $_______________________
FOR VALUE RECEIVED, the undersigned, REGENT ASSISTED LIVING, INC., a
corporation organized and existing under the laws of Oregon (herein called the
"Company"), hereby promises to pay to the order of ____________________________
or registered assigns ("Holder"), the principal sum of
___________________________ DOLLARS (or so much thereof as shall remain
outstanding) on March 31, 2008. Payments are to be made as provided in the
Agreement (as defined herein).
This Note is one of the Notes issued pursuant to the Convertible
Subordinated Note Purchase Agreement dated as of March 30, 1998 (the
"Agreement"), by and between the Company and Pamela J. Privett, an individual,
and is also entitled to the benefits thereof to the extent provided in the
Agreement. This Note is subject to (i) conversion, in whole or in part, at the
option of the Holder, pursuant to Section 6.1(a) of the Agreement, (ii)
conversion, in whole but not in part, at the option of the Company upon the
satisfaction of certain conditions pursuant to Section 6.1(b) of the Agreement
and (iii) repurchase, in whole or in part, upon a Change of Control pursuant to
Section 5.4 of the Agreement.
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and, at the
option of the holder, registered in the name of, the transferee. The Company may
deem and treat the person in whose name this Note is registered as the holder
and owner hereof for the purpose of receiving payments and for all other
purposes whatsoever, and the Company shall not be affected by any notice to the
contrary.
<PAGE>
If an Event of Default shall occur and be continuing, this Note may,
under certain circumstances, become or be declared due and payable in the manner
and with the effect provided in the Agreement.
Certain terms and provisions of this Note may be amended or compliance
herewith waived on the terms and provisions provided for in the Agreement.
The Note is subordinated in both right of payment and time of payment
to certain Senior Indebtedness, as defined and described in Section 8 of the
Agreement.
Capitalized terms used herein without definition shall have the
meaning set forth for such terms in the Agreement.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By:__________________________________
Name:
Title:
2
<PAGE>
ANNEX B
-------
FORM OF OPINION OF COMPANY COUNSEL
1. The Company and each of its Subsidiaries are corporations duly
organized and validly existing in good standing under the laws of their
respective jurisdictions of incorporation.
2. The Company and each of its Subsidiaries have all requisite power
and authority to own or hold under lease the properties it purports so to own or
hold except where the failure so to own or hold could not have a Material
Adverse Effect and to transact their respective businesses as now transacted and
proposed to be transacted.
3. The Company and each of its Subsidiaries are duly qualified as
foreign corporations and are in good standing in each jurisdiction in which the
character of the properties owned or held under lease by them or the nature of
the business transacted by them requires such qualification, except where the
failure so to be qualified or be in good standing could not have a Material
Adverse Effect.
4. The Company has taken all actions necessary to authorize it (i) to
execute, deliver and perform all of its obligations under the Agreement, the
Registration Rights Agreement and the Commitment Letter, (ii) to issue and
perform all of its obligations under the Notes and (iii) to consummate the
transactions contemplated hereby and thereby.
5. The total number of shares of Capital Stock which the Company has
authority to issue is 30,000,000 shares, consisting of 25,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock.
6. As of March 30, 1998, there were 4,633,000 shares of Common Stock
issued and outstanding, and 1,666,667 shares of Preferred Stock issued and
outstanding. Such shares of Common Stock and Preferred Stock have been duly
authorized and were validly issued, are fully paid and nonassessable, were
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities of the Company.
7. Neither the Company nor any of its Subsidiaries has outstanding any
securities convertible into or exchangeable for any shares of Capital Stock nor
does it have outstanding any rights to subscribe for or to purchase, or any
options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, any Capital Stock or securities convertible into or
exchangeable for any Capital Stock other than (i) the Notes to be issued
pursuant to the Agreement or pursuant to other similar agreements dated on or
about the date of this Agreement, (ii) 1,666,667 shares of Preferred Stock
convertible into Common Stock, and (iii) options and warrants to purchase shares
of Common Stock as set forth and for the numbers of shares set forth in the
Disclosure Schedule to the Agreement.
<PAGE>
8. The Company has duly authorized and reserved for issuance the
Conversion Shares, and the Conversion Shares will, when issued, be duly and
validly issued, fully paid and nonassessable and free from all Liens.
9. Neither the execution or delivery of the Agreement, the
Registration Rights Agreement or the Commitment Letter by the Company nor the
issuance, sale or delivery of the Notes nor the performance of its respective
obligations hereunder or thereunder will:
(a) violate any provision of the Charter Documents of the
Company;
(b) violate any statute, law, rule or regulation or any judgment,
decree, order, regulation or rule of any court or governmental authority to
which the Company, any of its Subsidiaries, or any of their respective
properties may be subject;
(c) permit or cause the acceleration of the maturity of any debt
or obligation of the Company or any of its Subsidiaries;
(d) violate, or be in conflict with, or constitute a default
under, or permit the termination of, or require the consent of any Person under,
or result in the creation of any Lien upon any property of the Company or any of
its Subsidiaries under, any mortgage, indenture, loan agreement, note, debenture
or other agreement for borrowed money or any other material agreement to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries (or their respective properties) may be bound, other than
such violations, conflicts, defaults, terminations and Liens, or such failures
to obtain consents, which could not reasonably be expected to result in a
Material Adverse Effect.
10. The sale of the Notes hereunder is exempt from the registration
and prospectus delivery requirements of the Securities Act.
11. Neither the Company nor any of its Subsidiaries is an "investment
company" or a Person directly or indirectly "controlled" by or acting on behalf
of an "investment company" within the meaning of the United States Investment
Company Act of 1940, as amended.
2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS (A) SUCH TRANSFER IS PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE
COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER
THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT, THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE SECURITIES
LAWS.
REGENT ASSISTED LIVING, INC.
CONVERTIBLE SUBORDINATED NOTE DUE MARCH 31, 2008
Issue Date: March 31, 1998
Note No. 1998-5 $90,000
FOR VALUE RECEIVED, the undersigned, REGENT ASSISTED LIVING, INC., a
corporation organized and existing under the laws of Oregon (herein called the
"Company"), hereby promises to pay to the order of PAMELA J. PRIVETT or
registered assigns ("Holder"), the principal sum of NINETY THOUSAND DOLLARS (or
so much thereof as shall remain outstanding) on March 31, 2008. Payments are to
be made as provided in the Agreement (as defined herein).
This Note is one of the Notes issued pursuant to the Convertible
Subordinated Note Purchase Agreement dated as of March 30, 1998 (the
"Agreement"), by and between the Company and Pamela J. Privett, an individual,
and is also entitled to the benefits thereof to the extent provided in the
Agreement. This Note is subject to (i) conversion, in whole or in part, at the
option of the Holder, pursuant to Section 6.1(a) of the Agreement, (ii)
conversion, in whole but not in part, at the option of the Company upon the
satisfaction of certain conditions pursuant to Section 6.1(b) of the Agreement
and (iii) repurchase, in whole or in part, upon a Change of Control pursuant to
Section 5.4 of the Agreement.
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and, at the
option of the holder, registered in the name of, the transferee. The Company may
deem and treat the person in whose name this Note is registered as the holder
and owner hereof for the purpose of receiving payments and for all other
purposes whatsoever, and the Company shall not be affected by any notice to the
contrary.
If an Event of Default shall occur and be continuing, this Note may,
under certain circumstances, become or be declared due and payable in the manner
and with the effect provided in the Agreement.
Certain terms and provisions of this Note may be amended or compliance
herewith waived on the terms and provisions provided for in the Agreement.
The Note is subordinated in both right of payment and time of payment
to certain Senior Indebtedness, as defined and described in Section 8 of the
Agreement.
Capitalized terms used herein without definition shall have the
meaning set forth for such terms in the Agreement.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By: WALTER C. BOWEN
---------------------------------------
Walter C. Bowen
President
REGENT ASSISTED LIVING, INC.
-----------
REGISTRATION RIGHTS AGREEMENT
-----------
Dated as of March 30, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions.................................................................1
2. Securities Subject to this Agreement........................................3
3. Shelf Registration; Demand Registration and Piggyback Registration..........3
4. Grant of Registration Rights to Others......................................6
5. Hold-Back Agreements........................................................6
6. Registration Procedures.....................................................6
7. Registration Expenses......................................................11
8. Indemnification............................................................12
9. Rule 144...................................................................14
10. Participation in Underwritten Registrations...............................14
11. Miscellaneous.............................................................15
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of March 30, 1998, by and between REGENT ASSISTED LIVING, INC.,
an Oregon corporation (the "Company"), and LTC EQUITY HOLDING COMPANY, INC., a
Nevada corporation (the "Purchaser").
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in Section 1 hereof.
This Agreement is made pursuant to the Convertible Subordinated Note
Purchase Agreement, dated as of March 30, 1998, by and between the Company and
the Purchaser (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 of this Agreement
is a condition to the closing under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Common Stock: The Common Stock, no par value, of the Company.
Demand Registration: See Section 3(c) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended from
time to time.
NASD: National Association of Securities Dealers, Inc.
Notes: The Company's 7.5% Convertible Subordinated Notes due March 31,
2008.
Other Registrable Securities: All shares of Common Stock issuable upon
conversion of Notes issued to the other purchasers pursuant to similar
agreements dated on or about the date of this Agreement.
Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
Piggyback Registration: See Section 3(d) hereof.
<PAGE>
Preferred Purchase Agreement: Purchase Agreement dated as of December
16, 1996, between the Company and Prudential Private Equity Investors III, L.P.,
a Delaware limited partnership.
Preferred Registrable Securities: (i) Any Common Stock issued upon the
conversion of the Company's Series A Preferred Stock issued pursuant to the
Preferred Purchase Agreement or issued upon conversion of the Company's Series B
Preferred Stock issued pursuant to the Preferred Purchase Agreement, (ii) any
Common Stock issued upon conversion of any of the Company's Series B Preferred
Stock issued pursuant to the Preferred Purchase Agreement, (iii) any Common
Stock issued upon exercise of the warrant issued pursuant to the Preferred
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 Preferred Registrable Security, such securities shall cease to be
Preferred Registrable Securities when they have been distributed to the public
through a broker, dealer of 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.
Prospectus: The prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material incorporated by
reference in such prospectus.
Registrable Securities: All shares of Common Stock issuable upon
conversion of Notes originally issued to the Purchaser; provided that a share
ceases to be a Registrable Security when it is no longer a Transfer Restricted
Security.
Registration Expenses: See Section 7 hereof.
Registration Statement: Any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration Statement.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended from time to
time.
Shelf Registration: See Section 3(a) hereof.
Transfer Restricted Securities: The Registrable Securities upon
original issuance thereof, and with respect to any particular such security, so
long as such security was acquired by the holder thereof other than pursuant to
an effective registration under Section 5 of the
2
<PAGE>
Securities Act or pursuant to Rule 144; provided that a security that has ceased
to be a Transfer Restricted Security cannot thereafter become a Transfer
Restricted Security.
underwritten registration or underwritten offering: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
2. Securities Subject to this Agreement
(a) Registrable Securities. The securities entitled to the benefits of
this Agreement are the Registrable Securities.
(b) Holders of Registrable Securities. A Person is deemed to be a
holder of Registrable Securities whenever such Person owns Registrable
Securities or has the right to acquire such Registrable Securities, whether or
not such acquisition has actually been effected and disregarding any legal
restrictions upon the exercise of such right.
3. Shelf Registration; Demand Registration and Piggyback Registration
(a) Shelf Registration. The Company shall file a "shelf" registration
statement on any appropriate form pursuant to Rule 415 (or similar rule that may
be adopted by the SEC) under the Securities Act (a "Shelf Registration"), as
promptly as practicable and in no event later than June 1, 1998, for the
Registrable Securities (the "Shelf Registration"). The Company agrees to use its
best efforts to cause such Shelf Registration to become effective and thereafter
to keep it continuously effective, and to prevent the happening of any event of
the kind described in Section 6(k) hereof that requires the Company to give
notice pursuant to the last paragraph of Section 6 hereof, for a period of two
years from the date on which the SEC declares the Shelf Registration effective
or such shorter period which will terminate when all the Registrable Securities
covered by the Shelf Registration have been sold pursuant to such Shelf
Registration.
(b) Additional Interest and Reduction of Conversion Rate Under Certain
Circumstances. If the Shelf Registration is not filed with the SEC by June 1,
1998, or if the Shelf Registration is not declared effective by the SEC by
September 1, 1998, (i) the interest rates on the Notes affected by such failure
shall increase (effective June 1, 1998, with respect to a failure to file the
Shelf Registration, or September 1, 1998 with respect to the failure of the
Shelf Registration to be declared effective) by 50 basis points (1/2%) over the
annual interest rates then in effect and (ii) the Conversion Rate on the Notes
affected by such failure shall decrease (effective June 1, 1998, with respect to
a failure to file the Shelf Registration, or September 1, 1998 with respect to
the failure of the Shelf Registration to be declared effective) by five percent
(5%). If the Shelf Registration is not filed and declared effective by December
1, 1998, then (i) the annual rate at which the Company shall pay interest on the
Notes shall further increase with respect to the Notes, effective on December 1,
1998, by 50 basis points (1/2%) over the annual interest rate then in effect and
(ii) the Conversion Rate on the Notes shall further decrease with respect to the
Notes, effective on December 1, 1998, by five percent (5%). The annual rate at
which the Company shall pay interest shall continue to increase by 50 basis
points (1/2%) and the Conversion Rate shall continue to decrease by five percent
(5%) at the end of each 180-day
3
<PAGE>
period thereafter, effective on the 181st day, until the Shelf Registration is
filed and declared effective by the SEC. The interest rates and the Conversion
Rate on the Notes shall return to the rates otherwise in effect on the Notes but
for the application of the preceding provisions on the date the Shelf
Registration is filed with or declared effective by the SEC, as applicable. The
Company shall notify holders of the affected Notes immediately after the
occurrence of each and every event which pursuant to this paragraph (b) results
in any increase or decrease in the interest rates payable and the Conversion
Rate on such Notes.
(c) Demand Registration.
(i) At any time on or after the two-year period for which the
Shelf Registration referred to in paragraph (a) of this Section 3 is terminated,
any holder of Registrable Securities holding Registrable Securities which
represent at least 50% of the aggregate of all of the Registrable Securities
(assuming conversion of all of the Notes held by such holders of Registrable
Securities) may give written notice to the Company (x) of their intention to
transfer all or part of the Registrable Securities held by them or obtained by
conversion of Notes held by them and (y) requesting the registration of said
Registrable Securities (a "Demand Registration"), and thereupon, the Company
shall on no more than one occasion, as expeditiously as possible, (A) provide
written notice to all holders of Registrable Securities who have not so
requested registration, and allow such holders the opportunity to participate in
such registration, and (B) use its best efforts to effect the registration of
all such Registrable Securities under the Securities Act, such Registration
Statement to become effective not later than three months from the date of such
request under this paragraph (c)(i). Such Registration Statement shall remain
effective until the first to occur of (A) the sale of all of the Registrable
Securities registered under such Registration Statement or (B) the date one year
following the date such Registration Statement was declared effective by the
SEC.
(ii) If, at any time prior to the effectiveness of the
Registration Statement referred to in Section 3(a)(i), the holders of
Registrable Securities holding in the aggregate a majority of the Registrable
Securities subject to such registration, the Company shall promptly withdraw
such Registration Statement prior to its effectiveness. Any holders of
Registrable Securities holding Registrable Securities which represent at least
50% of the aggregate of all of the Registrable Securities (assuming conversion
of all of the Notes held by such holders of Registrable Securities) shall have
the opportunity to again request registration pursuant to Section 3(a)(i) upon
reimbursement to the Company of all of the Company's out-of-pocket expenses
incurred in connection with the preparation of such withdrawn Registration
Statement, and, upon such reimbursement, the Company shall comply with any such
request in accordance with Section 3(a)(i).
(d) Piggyback Registration.
(i) Right to Piggyback. Whenever the Company proposes to register
any of its securities under the Securities Act (other than pursuant to a Demand
Registration in accordance with Section 3(c) or a Shelf Registration in
accordance with Section 3(a)) and the registration form to be used may be used
for the registration of the Registrable Securities (a
4
<PAGE>
"Piggyback Registration"), the Company shall give prompt written notice to all
holders of Registrable Securities of its intention to effect such registration
and shall include in such registration (other than registrations only of shares
issued (A) for the purpose of acquiring another company or companies or (B)
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.
(ii) 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 the
registration (A) first, the securities the Company proposes to sell, (B) second,
the Preferred Registrable Securities requested to be included in such
registration, pro rata among the holders of such Preferred Registrable
Securities on the basis of the number of shares owned by each such holder, (C)
third, the Registrable Securities and the Other Registrable Securities requested
to be included in such registration, pro rata among the holders of all
Registrable Securities and all Other Registrable Securities on the basis of the
number of shares requested to be included in such registration by each such
holder, and (D) fourth, other securities requested to be included in such
registration.
(iii) 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 the registration (A)
first, the securities requested to be included therein by the holders requesting
such registration and the Preferred Registrable Securities requested to be
included in such registration, pro rata among the holders of such securities on
the basis of the number of shares owned by each such holder, (B) second, the
Registrable Securities and the Other Registrable Securities requested to be
included in such registration, pro rata among the holders of all Registrable
Securities and all Other Registrable Securities on the basis of the number of
shares requested to be included in such registration by each such holder, and
(C) third, other securities requested to be included in such registration.
(e) Other Registrations. If the Company has previously filed a
Registration Statement with respect to the Registrable Securities pursuant to
this Section 3, and if such previous Registration Statement 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 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.
5
<PAGE>
4. Grant of Registration Rights to Others
If registration rights are granted to any holder of shares of any
class of capital stock or debt of the Company, other than a holder of
Registrable Securities or Other Registrable Securities ("Additional Registration
Rights"), then the Company shall promptly notify the holders of Registrable
Securities upon the grant of such registration rights and offer to the holders
of Registrable Securities such additional registration rights granted to such
other holders so that the terms and conditions of all registration rights
granted to the holders of Registrable Securities by this Agreement and any
subsequent agreement are at least as favorable as the registration rights
granted to such other holders in all terms and conditions. Upon receipt of such
notice and offer, the holders of Registrable Securities shall have 30 days to
provide notice to the Company that any such holder of Registrable Securities
accepts such additional registration rights. If any such other holder exercises
any Additional Registration Rights during such 30-day period, the holders of
Registrable Securities shall have the right within such 30-day period to accept
the offer, and to provide notice of the intent of any such holder of Registrable
Securities to join in any such registration, subject to the terms and conditions
of the Additional Registration Rights and this Agreement, as applicable.
5. Hold-Back Agreements
(a) Restrictions on Public Sale by Holder of Registrable Securities.
Each holder of Registrable Securities whose Registrable Securities are covered
by a Registration Statement filed pursuant to Section 3 hereof agrees, if
requested by the managing underwriters in an underwritten offering, not to
effect any public sale or distribution of securities of the Company of the same
class as the securities included in such Registration Statement, including a
sale pursuant to Rule 144 under the Securities Act (except as part of such
underwritten registration), during the 10-day period prior to, and during the
90-day period beginning on, the closing date of each underwritten offering made
pursuant to such Registration Statement, to the extent timely notified in
writing by the Company or the managing underwriters; provided, however, that
each holder of Registrable Securities shall be subject to the hold-back
restrictions of this Section 5(a) only once during each 12-month period of this
Agreement.
(b) Restrictions on Sale of Common Stock by the Company and Others. In
the event a holder of Registrable Securities notifies the Company in writing of
its intent to effect an underwritten offering of any Registrable Securities, the
Company agrees (1) not to effect any public or private offer, sale or
distribution of its Common Stock, including a sale pursuant to Regulation D
under the Securities Act, during the 10-day period prior to, and during the
45-day period beginning with, the effective date of a Registration Statement
filed under Section 3 to the extent timely notified in writing by a holder of
Registrable Securities or the managing underwriters (except as part of such
registration, if permitted, or pursuant to registrations on Forms S-4 or S-8 or
any successor form to such Forms).
6. Registration Procedures
In connection with the Company's registration obligations pursuant to
Section 3 hereof, the Company will use its best efforts to effect such
registration to permit the sale of such
6
<PAGE>
Registrable Securities in accordance with the intended method or methods of
distribution thereof, and pursuant thereto the Company will as expeditiously as
possible:
(a) prepare and file with the SEC, as soon as practicable, a
Registration Statement or Registration Statements on any appropriate form under
the Securities Act, which form shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution thereof and shall include all financial statements required by the
SEC to be filed therewith, cooperate and assist in any filings required to be
made with the NASD, and use best 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 will furnish to
the holders of the Registrable Securities covered by such Registration Statement
and the underwriters, if any, copies of all such documents proposed to be filed,
which documents will be subject to the reasonable review of such holders and
underwriters, and the Company will not file any Registration Statement or
amendment thereto or any Prospectus or any supplement thereto to which the
holders of a majority of the Registrable Securities covered by such Registration
Statement or the underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep the
Registration Statement effective for the applicable period, or such shorter
period which will terminate when all Registrable Securities covered by such
Registration Statement have been sold; cause the Prospectus to be supplemented
by any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Securities Act; and comply with the provisions of
the Securities Act with respect to the disposition of all securities covered by
such Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth in
such Registration Statement or supplement to the Prospectus; the Company shall
not be deemed to have used its best efforts to keep a Registration Statement
effective during the applicable period if it voluntarily takes any action that
would result in selling holders of the Registrable Securities covered thereby
not being able to sell such Registrable Securities during that period unless
such action is required under applicable law, provided that the foregoing shall
not apply to actions taken by the Company in good faith and for valid business
reasons, including without limitation the acquisition or divestiture of assets,
so long as the Company promptly thereafter complies with the requirements of
Section 6(k), if applicable;
(c) notify the selling holders of Registrable Securities and the
managing underwriters, if any, promptly, and (if requested by any such Person)
confirm such advice in writing, (1) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the same has become
effective, (2) of any request by the SEC for amendments or supplements to the
Registration Statement or the Prospectus or for additional information, (3) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the initiation of any proceedings for that
purpose, (4) if at any time the representations and warranties of the Company
contemplated by paragraph (o) below cease to be
7
<PAGE>
true and correct, (5) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose and (6) of the happening of any event which makes any statement
made in the Registration Statement, the Prospectus or any document incorporated
therein by reference untrue or which requires the making of any changes in the
Registration Statement, the Prospectus or any document incorporated therein by
reference in order to make the statements therein not misleading;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(e) if requested by the managing underwriter or underwriters or a
holder of Registrable Securities being sold in connection with an underwritten
offering, promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters and the holders of a
majority of the Registrable Securities being sold agree should be included
therein relating to the plan of distribution with respect to such Registrable
Securities, including, without limitation, information with respect to the
number of Registrable Securities being sold to such underwriters, the purchase
price being paid therefor by such underwriters and with respect to any other
terms of the underwritten (or best efforts underwritten) offering of the
Registrable Securities to be sold in such offering; and make all required
filings of such Prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such Prospectus supplement or
post-effective amendment;
(f) furnish to each selling holder of Registrable Securities and each
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(g) deliver to each selling holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; the Company consents to the use of the
Prospectus or any amendment or supplement thereto by each of the selling holders
of Registrable Securities and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities, register
or qualify or cooperate with the selling holders of Registrable Securities, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification of such Registrable Securities for offer and sale
under the securities or blue sky laws of such jurisdictions as any seller or
underwriter reasonably requests in writing and do any and all other acts or
things necessary or advisable to enable the disposition in such jurisdictions of
the Registrable Securities covered by the Registration Statement; provided that
the Company will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action
8
<PAGE>
which would subject it to general service of process in any such jurisdiction
where it is not then so subject;
(i) cooperate with the selling holders of Registrable Securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and enable such Registrable Securities to be in
such denominations and registered in such names as the managing underwriters may
request at least two business days prior to any sale of Registrable Securities
to the underwriters;
(j) use its best efforts to cause the Registrable Securities covered
by the applicable Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof or the underwriters, if any, to consummate the
disposition of such Registrable Securities;
(k) upon the occurrence of any event contemplated by paragraph (c)(6)
above, prepare a supplement or posteffective amendment to the Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, the Prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
(l) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange on which similar securities
issued by the Company are then listed if requested by the holders of a majority
of such Registrable Securities or the managing underwriters, if any;
(m) not later than the effective date of the Registration Statement,
provide a CUSIP number for all Registrable Securities and provide the applicable
trustee(s) or transfer agent(s) with printed certificates for the Registrable
Securities which are in a form eligible for deposit with Depositary Trust
Company;
(n) enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration (1) make such
representations and warranties to the holders of such Registrable Securities and
the underwriters, if any, in form, substance and scope as are customarily made
by issuers to underwriters in primary underwritten offerings and covering
matters including, but not limited to, those set forth in the Purchase
Agreement; (2) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, and the holders of a majority
of the Registrable Securities being sold) addressed to each selling holder and
the underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be reasonably
requested by such holders and underwriters; (3) obtain "cold comfort" letters
and updates thereof from the Company's independent certified public accountants
addressed to
9
<PAGE>
the selling holders of Registrable Securities and the underwriters, if any, such
letters to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters by underwriters in connection with primary
underwritten offerings; (4) if an underwriting agreement is entered into, the
same shall set forth in full the indemnification provisions and procedures of
Section 8 hereof with respect to all parties to be indemnified pursuant to said
Section; and (5) the Company shall deliver such documents and certificates as
may be requested by the holders of a majority of the Registrable Securities
being sold and the managing underwriters, if any, to evidence compliance with
clause (k) above and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company. The above shall be
done at each closing under such underwriting or similar agreement or as and to
the extent required thereunder;
(o) make available for inspection by a representative of the holders
of a majority of the Registrable Securities, any underwriter participating in
any disposition pursuant to such registration, and any attorney or accountant
retained by the sellers or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such representative, underwriter, attorney or accountant in
connection with such registration; provided that any records, information or
documents that are designated by the Company in writing as confidential shall be
kept confidential by such Persons unless disclosure of such records, information
or documents is required by court or administrative order;
(p) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, and make generally available to its security
holders, earnings statements satisfying the provisions of Section 11(a) of the
Securities Act, no later than 45 days after the end of any 12-month period (or
90 days, if such period is a fiscal year) (1) commencing at the end of any
fiscal quarter in which Registrable Securities are sold to underwriters in a
firm or best efforts underwritten offering, or (2) if not sold to underwriters
in such an offering, beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the Registration
Statement, which statements shall cover said 12-month periods; and (q) promptly
prior to the filing of any document which is to be incorporated by reference
into the Registration Statement or the Prospectus (after initial filing of the
Registration Statement), provide copies of such document to counsel to the
selling holders of Registrable Securities and to the managing underwriters, if
any, make the Company's representatives available for discussion of such
document and make such changes in such document prior to the filing thereof as
counsel for such selling holders or underwriters may reasonably request.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request in writing.
10
<PAGE>
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 6(k) hereof, such holder
will forthwith discontinue disposition of Registrable Securities until such
holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6(k) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings which are incorporated
by reference in the 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 such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the time periods
regarding the maintenance of such Registration Statement shall be extended by
the number of days during the period from and including the date of the giving
of such notice pursuant to Section 6(c)(6) hereof to and including the date when
each seller of Registrable Securities covered by such Registration Statement
shall have received the copies of the supplemented or amended prospectus
contemplated by Section 6(k) hereof or the Advice.
7. 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 associated with filings required to be made
with the NASD (including, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel as may be required by the rules and
regulations of the NASD), fees and expenses of compliance with securities or
blue sky laws (including fees and disbursements of counsel for the underwriters
or selling holders in connection with blue sky qualifications of the Registrable
Securities and determination of their eligibility for investment under the laws
of such jurisdictions as the managing underwriters or holders of a majority of
the Registrable Securities being sold may designate), printing expenses
(including expenses of printing certificates for the Registrable Securities in a
form eligible for deposit with Depositary Trust Company and of printing
prospectuses), messenger, telephone and delivery expenses, and fees and
disbursements of counsel for the Company and for the sellers of the Registrable
Securities (subject to the provisions of Section 7(b) hereof) and of all
independent certified public accountants of the Company (including the expenses
of any special audit and "cold comfort" letters required by or incident to such
performance), underwriters (excluding discounts, commissions or fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registrable Securities or
legal expenses of any Person other than the Company and the selling holders),
"road show" fees and expenses of the Company and its management, securities acts
liability insurance if the Company so desires and fees and expenses of other
Persons retained by the Company (all such expenses being herein called
"Registration Expenses") will be borne by the Company, regardless whether the
Registration Statement becomes effective. The Company will, 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, the fees and expenses incurred in connection with
the listing of the securities to be registered on each securities exchange on
which similar
11
<PAGE>
securities issued by the Company are then listed, rating agency fees and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with the Shelf Registration, a Demand Registration
or a Piggyback Registration hereunder, the Company will reimburse the holders of
Registrable Securities being registered in such registration for the reasonable
fees and disbursements of not more than one counsel (or more than one counsel if
a conflict exists among such selling holders in the exercise of the reasonable
judgment of counsel for the selling holders and counsel for the Company) chosen
by the holders of a majority of such Registrable Securities.
8. Indemnification
(a) Indemnification by Company. The Company agrees to indemnify and
hold harmless, to the full extent permitted by law, each holder of Registrable
Securities, its officers, directors and employees 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 a material fact contained in any Registration Statement, Prospectus
or preliminary Prospectus or any omission or alleged omission to state therein 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; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any such preliminary Prospectus if (i)
such holder failed to deliver a copy of the Prospectus to the person asserting
such loss, claim, damage, liability or expense after the Company had furnished
such holder with a sufficient number of copies of the same and (ii) the
Prospectus completely corrected such untrue statement or omission; and provided,
further, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission in the Prospectus, if such untrue statement or alleged untrue
statement, omission or alleged omission is completely corrected in an amendment
or supplement to the Prospectus and the holder of Registrable Securities
thereafter fails to deliver such Prospectus as so amended or supplemented prior
to or concurrently with the sale of the Registrable Securities to the person
asserting such loss, claim, damage, liability or expense after the Company had
furnished such holder with a sufficient number of copies of the same. The
Company will also indemnify underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the distribution,
their officers and directors and each Person who controls such Persons (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, if
requested.
(b) Indemnification by Holder of Registrable Securities. In connection
with the Shelf Registration, a Demand Registration or a Piggyback Registration,
each holder of Registrable Securities will furnish to the Company in writing
such information and affidavits as the Company reasonably requests for use in
connection with any Registration Statement or
12
<PAGE>
Prospectus and agrees to indemnify and hold harmless, to the full extent
permitted by law, 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
statement of a material fact or any omission of a material fact required to be
stated in the Registration Statement or Prospectus or preliminary Prospectus or
necessary to make the statements therein not misleading, to the extent, 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 to the Company
specifically for inclusion in such Registration Statement or Prospectus. In no
event shall the liability of any selling holder of Registrable Securities
hereunder be greater in amount than the dollar amount of the proceeds received
by such holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation. The Company shall be entitled to receive indemnities
from underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution, to the same extent as
provided above with respect to information so furnished in writing by such
Persons specifically for inclusion in any Prospectus or Registration Statement.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided, however, that any Person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such Person unless (a) the
indemnifying party has agreed to pay such fees or expenses, or (b) the
indemnifying party shall have failed to assure the defense of such claim and
employ counsel reasonably satisfactory to such Person or (c) in the reasonable
judgment of any such Person, based upon advice of its counsel, a conflict of
interest may exist between such Person and the indemnifying party with respect
to such claims (in which case, if the Person notifies the indemnifying party in
writing that such Person elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such claim on behalf of such Person). If such defense is not
assumed by the indemnifying party, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). No indemnifying party will be required to consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will 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, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
(d) Contribution. If for any reason the indemnification provided for
in the preceding clauses (a) and (b) is unavailable to an indemnified party or
insufficient to hold it
13
<PAGE>
harmless as contemplated by the preceding clauses (a) and (b), then the
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such loss, claim, damage or liability in such
proportion as is appropriate to reflect not only the relative benefits received
by the indemnified party and the indemnifying party, but also the relative fault
of the indemnified party and the indemnifying party, as well as any other
relevant equitable considerations, provided that no Purchaser shall be required
to contribute in an amount greater than the dollar amount of the proceeds
received by such Purchaser with respect to the sale of any securities. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
9. Rule 144
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder (or, if the Company is not required to
file such reports, it will, upon the request of any holder of Registrable
Securities made after March 30, 2000, make publicly available other information
so long as necessary to permit sales pursuant to Rule 144 under the Securities
Act), and it will take such further action as any holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (a) Rule
144 under the Securities Act, as such Rule may be amended from time to time, or
(b) any similar rule or regulation hereafter adopted by the SEC. Upon the
request of any holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether it has complied with such
information and requirements.
10. Participation in Underwritten Registrations
If any of the Registrable Securities covered by the Shelf
Registration, a Demand Registration or a Piggyback Registration are to be sold
in an underwritten offering, the investment banker or investment bankers and
manager or managers that will administer the offering will be selected by the
holders of a majority of such Registrable Securities included in such offering;
provided that such investment bankers and managers must be reasonably
satisfactory to the Company. If requested by the holders of a majority of such
Registrable Securities, the Company shall use its best efforts to make available
its senior management to participate in any "road shows" reasonably requested by
such holders.
No Person may participate in any underwritten registration hereunder
unless such Person (a) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
Nothing in this Section 10 shall be construed to create any additional rights
regarding the registration of Registrable Securities in any Person otherwise
than as set forth herein.
14
<PAGE>
11. Miscellaneous
(a) Remedies. Remedies for breach by the Company of its obligations to
register the Registrable Securities shall be as set forth herein.
Each holder of Registrable Securities, in addition to being entitled
to exercise all rights provided herein or granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after the
date of this Agreement enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
Other than as disclosed on Schedule 11(b) hereto, the Company has not previously
entered into any agreement with respect to its securities granting any
registration rights to any Person. The rights granted to the holders of
Registrable Securities hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's securities
under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of at least 50% of the outstanding Registrable Securities.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or air courier guaranteeing overnight
delivery:
(i) if to a holder of Registrable Securities, at the most current
address given by such holder to the Company in accordance with the
provisions of this Section 11(d), which address initially is, with respect
to the Purchaser, the address set forth next to the Purchaser's name on the
signature page of the Purchase Agreement, with a copy to Latham & Watkins,
633 West 5th Street, Suite 4000, Los Angeles, California 90071, Attention:
Eva Herbst Davis, Esq.; and
(ii) if to the Company, initially to Regent Assisted Living, Inc., 121
SW Morrison, Suite 1000, Attention: General Counsel and thereafter at such
other address, notice of which is given in accordance with the provisions
of this Section 11(d), with a copy to Stoel Rives LLP, 900 SW Fifth Avenue,
Suite 2300, Portland, Oregon 97204, Attention: Todd Bauman, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt
15
<PAGE>
acknowledged, if telecopied; and on the next business day if timely delivered to
an air courier guaranteeing overnight delivery.
(e) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent holders of Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of California.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the securities sold pursuant to the Purchase Agreement. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(k) Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, the successful party shall be entitled to
recover reasonable attorneys' fees in addition to its costs and expenses and any
other available remedy.
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
The Company: REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By: WALTER C. BOWEN
-------------------------------------
Walter C. Bowen
-------------------------------------
Title: President
Purchaser: LTC EQUITY HOLDING COMPANY, INC.,
a Nevada corporation
By: JAMES J. PIECZYNSKI
-------------------------------------
Title: President and Chief Financial Officer
-------------------------------------
17
REGENT ASSISTED LIVING, INC.
-----------
REGISTRATION RIGHTS AGREEMENT
-----------
Dated as of March 30, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions........................................................1
2. Securities Subject to this Agreement...............................3
3. Shelf Registration and Piggyback Registration......................3
4. Grant of Registration Rights to Others.............................5
5. Hold-Back Agreements...............................................5
6. Registration Procedures............................................6
7. Registration Expenses.............................................10
8. Indemnification...................................................11
9. Rule 144..........................................................13
10. Participation in Underwritten Registrations......................13
11. Miscellaneous....................................................14
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of March 30, 1998, by and between REGENT ASSISTED LIVING, INC.,
an Oregon corporation (the "Company"), and ANDRE C. DIMITRIADIS, an individual
(the "Purchaser").
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in Section 1 hereof.
This Agreement is made pursuant to the Convertible Subordinated Note
Purchase Agreement, dated as of March 30, 1998, by and between the Company and
the Purchaser (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 of this Agreement
is a condition to the closing under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Common Stock: The Common Stock, no par value, of the Company.
Exchange Act: The Securities Exchange Act of 1934, as amended from
time to time.
NASD: National Association of Securities Dealers, Inc.
Notes: The Company's 7.5% Convertible Subordinated Notes due March 31,
2008.
Other Registrable Securities: All shares of Common Stock issuable upon
conversion of Notes issued to the other purchasers pursuant to similar
agreements dated on or about the date of this Agreement.
Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
Piggyback Registration: See Section 3(c) hereof.
Preferred Purchase Agreement: Purchase Agreement dated as of December
16, 1996, between the Company and Prudential Private Equity Investors III, L.P.,
a Delaware limited partnership.
<PAGE>
Preferred Registrable Securities: (i) Any Common Stock issued upon the
conversion of the Company's Series A Preferred Stock issued pursuant to the
Preferred Purchase Agreement or issued upon conversion of the Company's Series B
Preferred Stock issued pursuant to the Preferred Purchase Agreement, (ii) any
Common Stock issued upon conversion of any of the Company's Series B Preferred
Stock issued pursuant to the Preferred Purchase Agreement, (iii) any Common
Stock issued upon exercise of the warrant issued pursuant to the Preferred
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 Preferred Registrable Security, such securities shall cease to be
Preferred Registrable Securities when they have been distributed to the public
through a broker, dealer of 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.
Prospectus: The prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material incorporated by
reference in such prospectus.
Registrable Securities: All shares of Common Stock issuable upon
conversion of Notes originally issued to the Purchaser; provided that a share
ceases to be a Registrable Security when it is no longer a Transfer Restricted
Security.
Registration Expenses: See Section 7 hereof.
Registration Statement: Any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration Statement.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended from time to
time.
Shelf Registration: See Section 3(a) hereof.
Transfer Restricted Securities: The Registrable Securities upon
original issuance thereof, and with respect to any particular such security, so
long as such security was acquired by the holder thereof other than pursuant to
an effective registration under Section 5 of the Securities Act or pursuant to
Rule 144; provided that a security that has ceased to be a Transfer Restricted
Security cannot thereafter become a Transfer Restricted Security.
underwritten registration or underwritten offering: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
2
<PAGE>
2. Securities Subject to this Agreement
(a) Registrable Securities. The securities entitled to the benefits of
this Agreement are the Registrable Securities.
(b) Holders of Registrable Securities. A Person is deemed to be a
holder of Registrable Securities whenever such Person owns Registrable
Securities or has the right to acquire such Registrable Securities, whether or
not such acquisition has actually been effected and disregarding any legal
restrictions upon the exercise of such right.
3. Shelf Registration and Piggyback Registration
(a) Shelf Registration. The Company shall file a "shelf" registration
statement on any appropriate form pursuant to Rule 415 (or similar rule that may
be adopted by the SEC) under the Securities Act (a "Shelf Registration"), as
promptly as practicable and in no event later than June 1, 1998, for the
Registrable Securities (the "Shelf Registration"). The Company agrees to use its
best efforts to cause such Shelf Registration to become effective and thereafter
to keep it continuously effective, and to prevent the happening of any event of
the kind described in Section 6(k) hereof that requires the Company to give
notice pursuant to the last paragraph of Section 6 hereof, for a period of two
years from the date on which the SEC declares the Shelf Registration effective
or such shorter period which will terminate when all the Registrable Securities
covered by the Shelf Registration have been sold pursuant to such Shelf
Registration.
(b) Additional Interest and Reduction of Conversion Rate Under Certain
Circumstances. If the Shelf Registration is not filed with the SEC by June 1,
1998, or if the Shelf Registration is not declared effective by the SEC by
September 1, 1998, (i) the interest rates on the Notes affected by such failure
shall increase (effective June 1, 1998, with respect to a failure to file the
Shelf Registration, or September 1, 1998 with respect to the failure of the
Shelf Registration to be declared effective) by 50 basis points (1/2%) over the
annual interest rates then in effect and (ii) the Conversion Rate on the Notes
affected by such failure shall decrease (effective June 1, 1998, with respect to
a failure to file the Shelf Registration, or September 1, 1998 with respect to
the failure of the Shelf Registration to be declared effective) by five percent
(5%). If the Shelf Registration is not filed and declared effective by December
1, 1998, then (i) the annual rate at which the Company shall pay interest on the
Notes shall further increase with respect to the Notes, effective on December 1,
1998, by 50 basis points (1/2%) over the annual interest rate then in effect and
(ii) the Conversion Rate on the Notes shall further decrease with respect to the
Notes, effective on December 1, 1998, by five percent (5%). The annual rate at
which the Company shall pay interest shall continue to increase by 50 basis
points (1/2%) and the Conversion Rate shall continue to decrease by five percent
(5%) at the end of each 180-day period thereafter, effective on the 181st day,
until the Shelf Registration is filed and declared effective by the SEC. The
interest rates and the Conversion Rate on the Notes shall return to the rates
otherwise in effect on the Notes but for the application of the preceding
provisions on the date the Shelf Registration is filed with or declared
effective by the SEC, as applicable. The Company shall notify holders of the
affected Notes immediately after the occurrence of each and
3
<PAGE>
every event which pursuant to this paragraph (b) results in any increase or
decrease in the interest rates payable and the Conversion Rate on such Notes.
(c) Piggyback Registration.
(i) Right to Piggyback. Whenever the Company proposes to register
any of its securities under the Securities Act (other than pursuant to a Shelf
Registration in accordance with Section 3(a)) and the registration form to be
used may be used for the registration of the Registrable Securities (a
"Piggyback Registration"), the Company shall give prompt written notice to all
holders of Registrable Securities of its intention to effect such registration
and shall include in such registration (other than registrations only of shares
issued (A) for the purpose of acquiring another company or companies or (B)
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.
(ii) 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 the
registration (A) first, the securities the Company proposes to sell, (B) second,
the Preferred Registrable Securities requested to be included in such
registration, pro rata among the holders of such Preferred Registrable
Securities on the basis of the number of shares owned by each such holder, (C)
third, the Registrable Securities and the Other Registrable Securities requested
to be included in such registration, pro rata among the holders of all
Registrable Securities and all Other Registrable Securities on the basis of the
number of shares requested to be included in such registration by each such
holder, and (D) fourth, other securities requested to be included in such
registration.
(iii) 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 the registration (A)
first, the securities requested to be included therein by the holders requesting
such registration and the Preferred Registrable Securities requested to be
included in such registration, pro rata among the holders of such securities on
the basis of the number of shares owned by each such holder, (B) second, the
Registrable Securities and the Other Registrable Securities requested to be
included in such registration, pro rata among the holders of all Registrable
Securities and all Other Registrable Securities on the basis of the number of
shares requested to be included in such registration by each such holder, and
(C) third, other securities requested to be included in such registration.
(d) Other Registrations. If the Company has previously filed a
Registration Statement with respect to the Registrable Securities pursuant to
this Section 3, and if such
4
<PAGE>
previous Registration Statement 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 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.
4. Grant of Registration Rights to Others
If registration rights are granted to any holder of shares of any
class of capital stock or debt of the Company, other than a holder of
Registrable Securities or Other Registrable Securities ("Additional Registration
Rights"), then the Company shall promptly notify the holders of Registrable
Securities upon the grant of such registration rights and offer to the holders
of Registrable Securities such additional registration rights granted to such
other holders so that the terms and conditions of all registration rights
granted to the holders of Registrable Securities by this Agreement and any
subsequent agreement are at least as favorable as the registration rights
granted to such other holders in all terms and conditions. Upon receipt of such
notice and offer, the holders of Registrable Securities shall have 30 days to
provide notice to the Company that any such holder of Registrable Securities
accepts such additional registration rights. If any such other holder exercises
any Additional Registration Rights during such 30-day period, the holders of
Registrable Securities shall have the right within such 30-day period to accept
the offer, and to provide notice of the intent of any such holder of Registrable
Securities to join in any such registration, subject to the terms and conditions
of the Additional Registration Rights and this Agreement, as applicable.
5. Hold-Back Agreements
(a) Restrictions on Public Sale by Holder of Registrable Securities.
Each holder of Registrable Securities whose Registrable Securities are covered
by a Registration Statement filed pursuant to Section 3 hereof agrees, if
requested by the managing underwriters in an underwritten offering, not to
effect any public sale or distribution of securities of the Company of the same
class as the securities included in such Registration Statement, including a
sale pursuant to Rule 144 under the Securities Act (except as part of such
underwritten registration), during the 10-day period prior to, and during the
90-day period beginning on, the closing date of each underwritten offering made
pursuant to such Registration Statement, to the extent timely notified in
writing by the Company or the managing underwriters; provided, however, that
each holder of Registrable Securities shall be subject to the hold-back
restrictions of this Section 5(a) only once during each 12-month period of this
Agreement.
(b) Restrictions on Sale of Common Stock by the Company and Others. In
the event a holder of Registrable Securities notifies the Company in writing of
its intent to effect an underwritten offering of any Registrable Securities, the
Company agrees (1) not to effect any public or private offer, sale or
distribution of its Common Stock, including a sale pursuant to Regulation D
under the Securities Act, during the 10-day period prior to, and during the
45-day period beginning with, the effective date of a Registration Statement
filed under Section 3 to the extent timely notified in writing by a holder of
Registrable Securities or the managing
5
<PAGE>
underwriters (except as part of such registration, if permitted, or pursuant to
registrations on Forms S-4 or S-8 or any successor form to such Forms).
6. Registration Procedures
In connection with the Company's registration obligations pursuant to
Section 3 hereof, the Company will use its best efforts to effect such
registration to permit the sale of such Registrable Securities in accordance
with the intended method or methods of distribution thereof, and pursuant
thereto the Company will as expeditiously as possible:
(a) prepare and file with the SEC, as soon as practicable, a
Registration Statement or Registration Statements on any appropriate form under
the Securities Act, which form shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution thereof and shall include all financial statements required by the
SEC to be filed therewith, cooperate and assist in any filings required to be
made with the NASD, and use best 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 will furnish to
the holders of the Registrable Securities covered by such Registration Statement
and the underwriters, if any, copies of all such documents proposed to be filed,
which documents will be subject to the reasonable review of such holders and
underwriters, and the Company will not file any Registration Statement or
amendment thereto or any Prospectus or any supplement thereto to which the
holders of a majority of the Registrable Securities covered by such Registration
Statement or the underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep the
Registration Statement effective for the applicable period, or such shorter
period which will terminate when all Registrable Securities covered by such
Registration Statement have been sold; cause the Prospectus to be supplemented
by any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Securities Act; and comply with the provisions of
the Securities Act with respect to the disposition of all securities covered by
such Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth in
such Registration Statement or supplement to the Prospectus; the Company shall
not be deemed to have used its best efforts to keep a Registration Statement
effective during the applicable period if it voluntarily takes any action that
would result in selling holders of the Registrable Securities covered thereby
not being able to sell such Registrable Securities during that period unless
such action is required under applicable law, provided that the foregoing shall
not apply to actions taken by the Company in good faith and for valid business
reasons, including without limitation the acquisition or divestiture of assets,
so long as the Company promptly thereafter complies with the requirements of
Section 6(k), if applicable;
(c) notify the selling holders of Registrable Securities and the
managing underwriters, if any, promptly, and (if requested by any such Person)
confirm such advice in
6
<PAGE>
writing, (1) when the Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to the Registration Statement or any
post-effective amendment, when the same has become effective, (2) of any request
by the SEC for amendments or supplements to the Registration Statement or the
Prospectus or for additional information, (3) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose, (4) if at any time the
representations and warranties of the Company contemplated by paragraph (o)
below cease to be true and correct, (5) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (6) of the happening of any
event which makes any statement made in the Registration Statement, the
Prospectus or any document incorporated therein by reference untrue or which
requires the making of any changes in the Registration Statement, the Prospectus
or any document incorporated therein by reference in order to make the
statements therein not misleading;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(e) if requested by the managing underwriter or underwriters or a
holder of Registrable Securities being sold in connection with an underwritten
offering, promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters and the holders of a
majority of the Registrable Securities being sold agree should be included
therein relating to the plan of distribution with respect to such Registrable
Securities, including, without limitation, information with respect to the
number of Registrable Securities being sold to such underwriters, the purchase
price being paid therefor by such underwriters and with respect to any other
terms of the underwritten (or best efforts underwritten) offering of the
Registrable Securities to be sold in such offering; and make all required
filings of such Prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such Prospectus supplement or
post-effective amendment;
(f) furnish to each selling holder of Registrable Securities and each
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(g) deliver to each selling holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; the Company consents to the use of the
Prospectus or any amendment or supplement thereto by each of the selling holders
of Registrable Securities and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities, register
or qualify or cooperate with the selling holders of Registrable Securities, the
underwriters, if any, and their
7
<PAGE>
respective counsel in connection with the registration or qualification of such
Registrable Securities for offer and sale under the securities or blue sky laws
of such jurisdictions as any seller or underwriter reasonably requests in
writing and do any and all other acts or things necessary or advisable to enable
the disposition in such jurisdictions of the Registrable Securities covered by
the Registration Statement; provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process in any such jurisdiction where it is not then so subject;
(i) cooperate with the selling holders of Registrable Securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and enable such Registrable Securities to be in
such denominations and registered in such names as the managing underwriters may
request at least two business days prior to any sale of Registrable Securities
to the underwriters;
(j) use its best efforts to cause the Registrable Securities covered
by the applicable Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof or the underwriters, if any, to consummate the
disposition of such Registrable Securities;
(k) upon the occurrence of any event contemplated by paragraph (c)(6)
above, prepare a supplement or posteffective amendment to the Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, the Prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
(l) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange on which similar securities
issued by the Company are then listed if requested by the holders of a majority
of such Registrable Securities or the managing underwriters, if any;
(m) not later than the effective date of the Registration Statement,
provide a CUSIP number for all Registrable Securities and provide the applicable
trustee(s) or transfer agent(s) with printed certificates for the Registrable
Securities which are in a form eligible for deposit with Depositary Trust
Company;
(n) enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration (1) make such
representations and warranties to the holders of such Registrable Securities and
the underwriters, if any, in form, substance and scope as are customarily made
by issuers to underwriters in primary underwritten offerings and covering
matters including, but not limited to, those set forth in the Purchase
Agreement; (2) obtain opinions of counsel to the Company and updates thereof
8
<PAGE>
(which counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, and the holders of a majority
of the Registrable Securities being sold) addressed to each selling holder and
the underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be reasonably
requested by such holders and underwriters; (3) obtain "cold comfort" letters
and updates thereof from the Company's independent certified public accountants
addressed to the selling holders of Registrable Securities and the underwriters,
if any, such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters by underwriters in connection with
primary underwritten offerings; (4) if an underwriting agreement is entered
into, the same shall set forth in full the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be indemnified
pursuant to said Section; and (5) the Company shall deliver such documents and
certificates as may be requested by the holders of a majority of the Registrable
Securities being sold and the managing underwriters, if any, to evidence
compliance with clause (k) above and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the Company. The
above shall be done at each closing under such underwriting or similar agreement
or as and to the extent required thereunder;
(o) make available for inspection by a representative of the holders
of a majority of the Registrable Securities, any underwriter participating in
any disposition pursuant to such registration, and any attorney or accountant
retained by the sellers or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such representative, underwriter, attorney or accountant in
connection with such registration; provided that any records, information or
documents that are designated by the Company in writing as confidential shall be
kept confidential by such Persons unless disclosure of such records, information
or documents is required by court or administrative order;
(p) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, and make generally available to its security
holders, earnings statements satisfying the provisions of Section 11(a) of the
Securities Act, no later than 45 days after the end of any 12-month period (or
90 days, if such period is a fiscal year) (1) commencing at the end of any
fiscal quarter in which Registrable Securities are sold to underwriters in a
firm or best efforts underwritten offering, or (2) if not sold to underwriters
in such an offering, beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the Registration
Statement, which statements shall cover said 12-month periods; and
(q) promptly prior to the filing of any document which is to be
incorporated by reference into the Registration Statement or the Prospectus
(after initial filing of the Registration Statement), provide copies of such
document to counsel to the selling holders of Registrable Securities and to the
managing underwriters, if any, make the Company's representatives available for
discussion of such document and make such changes in such document prior to the
filing thereof as counsel for such selling holders or underwriters may
reasonably request.
9
<PAGE>
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 6(k) hereof, such holder
will forthwith discontinue disposition of Registrable Securities until such
holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6(k) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings which are incorporated
by reference in the 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 such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the time periods
regarding the maintenance of such Registration Statement shall be extended by
the number of days during the period from and including the date of the giving
of such notice pursuant to Section 6(c)(6) hereof to and including the date when
each seller of Registrable Securities covered by such Registration Statement
shall have received the copies of the supplemented or amended prospectus
contemplated by Section 6(k) hereof or the Advice.
7. 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 associated with filings required to be made
with the NASD (including, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel as may be required by the rules and
regulations of the NASD), fees and expenses of compliance with securities or
blue sky laws (including fees and disbursements of counsel for the underwriters
or selling holders in connection with blue sky qualifications of the Registrable
Securities and determination of their eligibility for investment under the laws
of such jurisdictions as the managing underwriters or holders of a majority of
the Registrable Securities being sold may designate), printing expenses
(including expenses of printing certificates for the Registrable Securities in a
form eligible for deposit with Depositary Trust Company and of printing
prospectuses), messenger, telephone and delivery expenses, and fees and
disbursements of counsel for the Company and for the sellers of the Registrable
Securities (subject to the provisions of Section 7(b) hereof) and of all
independent certified public accountants of the Company (including the expenses
of any special audit and "cold comfort" letters required by or incident to such
performance), underwriters (excluding discounts, commissions or fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registrable Securities or
legal expenses of any Person other than the Company and the selling holders),
"road show" fees and expenses of the Company and its management, securities acts
liability insurance if the Company so desires and fees and expenses of other
Persons retained by the Company (all such expenses being herein called
"Registration
10
<PAGE>
Expenses") will be borne by the Company, regardless whether the Registration
Statement becomes effective. The Company will, 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, the fees and expenses incurred in connection with the listing
of the securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed, rating agency fees and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with the Shelf Registration or a Piggyback
Registration hereunder, the Company will reimburse the holders of Registrable
Securities being registered in such registration for the reasonable fees and
disbursements of not more than one counsel (or more than one counsel if a
conflict exists among such selling holders in the exercise of the reasonable
judgment of counsel for the selling holders and counsel for the Company) chosen
by the holders of a majority of such Registrable Securities.
8. Indemnification
(a) Indemnification by Company. The Company agrees to indemnify and
hold harmless, to the full extent permitted by law, each holder of Registrable
Securities, its officers, directors and employees 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 a material fact contained in any Registration Statement, Prospectus
or preliminary Prospectus or any omission or alleged omission to state therein 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; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any such preliminary Prospectus if (i)
such holder failed to deliver a copy of the Prospectus to the person asserting
such loss, claim, damage, liability or expense after the Company had furnished
such holder with a sufficient number of copies of the same and (ii) the
Prospectus completely corrected such untrue statement or omission; and provided,
further, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission in the Prospectus, if such untrue statement or alleged untrue
statement, omission or alleged omission is completely corrected in an amendment
or supplement to the Prospectus and the holder of Registrable Securities
thereafter fails to deliver such Prospectus as so amended or supplemented prior
to or concurrently with the sale of the Registrable Securities to the person
asserting such loss, claim, damage, liability or expense after the Company had
furnished such holder with a sufficient number of copies of the same. The
Company will also indemnify underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the distribution,
their officers and directors and each Person who controls such Persons (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, if
requested.
11
<PAGE>
(b) Indemnification by Holder of Registrable Securities. In connection
with the Shelf Registration or a Piggyback Registration, each holder of
Registrable Securities will furnish to the Company in writing such information
and affidavits as the Company reasonably requests for use in connection with any
Registration Statement or Prospectus and agrees to indemnify and hold harmless,
to the full extent permitted by law, 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 statement of a material fact or any omission of a material fact required
to be stated in the Registration Statement or Prospectus or preliminary
Prospectus or necessary to make the statements therein not misleading, to the
extent, 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
to the Company specifically for inclusion in such Registration Statement or
Prospectus. In no event shall the liability of any selling holder of Registrable
Securities hereunder be greater in amount than the dollar amount of the proceeds
received by such holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation. The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, to the same
extent as provided above with respect to information so furnished in writing by
such Persons specifically for inclusion in any Prospectus or Registration
Statement.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided, however, that any Person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such Person unless (a) the
indemnifying party has agreed to pay such fees or expenses, or (b) the
indemnifying party shall have failed to assure the defense of such claim and
employ counsel reasonably satisfactory to such Person or (c) in the reasonable
judgment of any such Person, based upon advice of its counsel, a conflict of
interest may exist between such Person and the indemnifying party with respect
to such claims (in which case, if the Person notifies the indemnifying party in
writing that such Person elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such claim on behalf of such Person). If such defense is not
assumed by the indemnifying party, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). No indemnifying party will be required to consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will 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, in which event the
12
<PAGE>
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
(d) Contribution. If for any reason the indemnification provided for
in the preceding clauses (a) and (b) is unavailable to an indemnified party or
insufficient to hold it harmless as contemplated by the preceding clauses (a)
and (b), then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by the indemnified party and the indemnifying party, but also
the relative fault of the indemnified party and the indemnifying party, as well
as any other relevant equitable considerations, provided that no Purchaser shall
be required to contribute in an amount greater than the dollar amount of the
proceeds received by such Purchaser with respect to the sale of any securities.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
9. Rule 144
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder (or, if the Company is not required to
file such reports, it will, upon the request of any holder of Registrable
Securities made after March 30, 2000, make publicly available other information
so long as necessary to permit sales pursuant to Rule 144 under the Securities
Act), and it will take such further action as any holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (a) Rule
144 under the Securities Act, as such Rule may be amended from time to time, or
(b) any similar rule or regulation hereafter adopted by the SEC. Upon the
request of any holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether it has complied with such
information and requirements.
10. Participation in Underwritten Registrations
If any of the Registrable Securities covered by the Shelf Registration
or a Piggyback Registration are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the holders of a majority of such
Registrable Securities included in such offering; provided that such investment
bankers and managers must be reasonably satisfactory to the Company. If
requested by the holders of a majority of such Registrable Securities, the
Company shall use its best efforts to make available its senior management to
participate in any "road shows" reasonably requested by such holders.
No Person may participate in any underwritten registration hereunder
unless such Person (a) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting
13
<PAGE>
arrangements. Nothing in this Section 10 shall be construed to create any
additional rights regarding the registration of Registrable Securities in any
Person otherwise than as set forth herein.
11. Miscellaneous
(a) Remedies. Remedies for breach by the Company of its obligations to
register the Registrable Securities shall be as set forth herein.
Each holder of Registrable Securities, in addition to being entitled
to exercise all rights provided herein or granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after the
date of this Agreement enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
Other than as disclosed on Schedule 11(b) hereto, the Company has not previously
entered into any agreement with respect to its securities granting any
registration rights to any Person. The rights granted to the holders of
Registrable Securities hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's securities
under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of at least 50% of the outstanding Registrable Securities.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or air courier guaranteeing overnight
delivery:
(i) if to a holder of Registrable Securities, at the most current
address given by such holder to the Company in accordance with the
provisions of this Section 11(d), which address initially is, with respect
to the Purchaser, the address set forth next to the Purchaser's name on the
signature page of the Purchase Agreement, with a copy to Latham & Watkins,
633 West 5th Street, Suite 4000, Los Angeles, California 90071, Attention:
Eva Herbst Davis, Esq.; and
(ii) if to the Company, initially to Regent Assisted Living, Inc., 121
SW Morrison, Suite 1000, Attention: General Counsel and thereafter at such
other address, notice of which is given in accordance with the provisions
of this Section 11(d), with a copy to Stoel Rives LLP, 900 SW Fifth Avenue,
Suite 2300, Portland, Oregon 97204, Attention: Todd Bauman, Esq.
14
<PAGE>
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day if timely delivered to an air courier guaranteeing overnight
delivery.
(e) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent holders of Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of California.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the securities sold pursuant to the Purchase Agreement. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(k) Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, the successful party shall be entitled to
recover reasonable attorneys' fees in addition to its costs and expenses and any
other available remedy.
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
The Company: REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By: WALTER C. BOWEN
---------------------------------
Walter C. Bowen
---------------------------------
Title: President
Purchaser: ANDRE C. DIMITRIADIS,
an individual
ANDRE C. DIMITRIADIS
-----------------------------------------
Andre C. Dimitriadis
16
REGENT ASSISTED LIVING, INC.
-----------
REGISTRATION RIGHTS AGREEMENT
-----------
Dated as of March 30, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions.................................................................1
2. Securities Subject to this Agreement........................................3
3. Shelf Registration and Piggyback Registration...............................3
4. Grant of Registration Rights to Others......................................5
5. Hold-Back Agreements........................................................5
6. Registration Procedures.....................................................6
7. Registration Expenses......................................................10
8. Indemnification............................................................11
9. Rule 144...................................................................13
10. Participation in Underwritten Registrations...............................13
11. Miscellaneous.............................................................14
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of March 30, 1998, by and between REGENT ASSISTED LIVING, INC.,
an Oregon corporation (the "Company"), and JAMES J. PIECZYNSKI, an individual
(the "Purchaser").
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in Section 1 hereof.
This Agreement is made pursuant to the Convertible Subordinated Note
Purchase Agreement, dated as of March 30, 1998, by and between the Company and
the Purchaser (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 of this Agreement
is a condition to the closing under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Common Stock: The Common Stock, no par value, of the Company.
Exchange Act: The Securities Exchange Act of 1934, as amended from
time to time.
NASD: National Association of Securities Dealers, Inc.
Notes: The Company's 7.5% Convertible Subordinated Notes due March 31,
2008.
Other Registrable Securities: All shares of Common Stock issuable upon
conversion of Notes issued to the other purchasers pursuant to similar
agreements dated on or about the date of this Agreement.
Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
Piggyback Registration: See Section 3(c) hereof.
Preferred Purchase Agreement: Purchase Agreement dated as of December
16, 1996, between the Company and Prudential Private Equity Investors III, L.P.,
a Delaware limited partnership.
<PAGE>
Preferred Registrable Securities: (i) Any Common Stock issued upon the
conversion of the Company's Series A Preferred Stock issued pursuant to the
Preferred Purchase Agreement or issued upon conversion of the Company's Series B
Preferred Stock issued pursuant to the Preferred Purchase Agreement, (ii) any
Common Stock issued upon conversion of any of the Company's Series B Preferred
Stock issued pursuant to the Preferred Purchase Agreement, (iii) any Common
Stock issued upon exercise of the warrant issued pursuant to the Preferred
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 Preferred Registrable Security, such securities shall cease to be
Preferred Registrable Securities when they have been distributed to the public
through a broker, dealer of 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.
Prospectus: The prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material incorporated by
reference in such prospectus.
Registrable Securities: All shares of Common Stock issuable upon
conversion of Notes originally issued to the Purchaser; provided that a share
ceases to be a Registrable Security when it is no longer a Transfer Restricted
Security.
Registration Expenses: See Section 7 hereof.
Registration Statement: Any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration Statement.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended from time to
time.
Shelf Registration: See Section 3(a) hereof.
Transfer Restricted Securities: The Registrable Securities upon
original issuance thereof, and with respect to any particular such security, so
long as such security was acquired by the holder thereof other than pursuant to
an effective registration under Section 5 of the Securities Act or pursuant to
Rule 144; provided that a security that has ceased to be a Transfer Restricted
Security cannot thereafter become a Transfer Restricted Security.
2
<PAGE>
underwritten registration or underwritten offering: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
2. Securities Subject to this Agreement
(a) Registrable Securities. The securities entitled to the benefits of
this Agreement are the Registrable Securities.
(b) Holders of Registrable Securities. A Person is deemed to be a
holder of Registrable Securities whenever such Person owns Registrable
Securities or has the right to acquire such Registrable Securities, whether or
not such acquisition has actually been effected and disregarding any legal
restrictions upon the exercise of such right.
3. Shelf Registration and Piggyback Registration
(a) Shelf Registration. The Company shall file a "shelf" registration
statement on any appropriate form pursuant to Rule 415 (or similar rule that may
be adopted by the SEC) under the Securities Act (a "Shelf Registration"), as
promptly as practicable and in no event later than June 1, 1998, for the
Registrable Securities (the "Shelf Registration"). The Company agrees to use its
best efforts to cause such Shelf Registration to become effective and thereafter
to keep it continuously effective, and to prevent the happening of any event of
the kind described in Section 6(k) hereof that requires the Company to give
notice pursuant to the last paragraph of Section 6 hereof, for a period of two
years from the date on which the SEC declares the Shelf Registration effective
or such shorter period which will terminate when all the Registrable Securities
covered by the Shelf Registration have been sold pursuant to such Shelf
Registration.
(b) Additional Interest and Reduction of Conversion Rate Under Certain
Circumstances. If the Shelf Registration is not filed with the SEC by June 1,
1998, or if the Shelf Registration is not declared effective by the SEC by
September 1, 1998, (i) the interest rates on the Notes affected by such failure
shall increase (effective June 1, 1998, with respect to a failure to file the
Shelf Registration, or September 1, 1998 with respect to the failure of the
Shelf Registration to be declared effective) by 50 basis points (1/2%) over the
annual interest rates then in effect and (ii) the Conversion Rate on the Notes
affected by such failure shall decrease (effective June 1, 1998, with respect to
a failure to file the Shelf Registration, or September 1, 1998 with respect to
the failure of the Shelf Registration to be declared effective) by five percent
(5%). If the Shelf Registration is not filed and declared effective by December
1, 1998, then (i) the annual rate at which the Company shall pay interest on the
Notes shall further increase with respect to the Notes, effective on December 1,
1998, by 50 basis points (1/2%) over the annual interest rate then in effect and
(ii) the Conversion Rate on the Notes shall further decrease with respect to the
Notes, effective on December 1, 1998, by five percent (5%). The annual rate at
which the Company shall pay interest shall continue to increase by 50 basis
points (1/2%) and the Conversion Rate shall continue to decrease by five percent
(5%) at the end of each 180-day period thereafter, effective on the 181st day,
until the Shelf Registration is filed and declared effective by the SEC. The
interest rates and the Conversion Rate on the Notes shall return to the
3
<PAGE>
rates otherwise in effect on the Notes but for the application of the preceding
provisions on the date the Shelf Registration is filed with or declared
effective by the SEC, as applicable. The Company shall notify holders of the
affected Notes immediately after the occurrence of each and every event which
pursuant to this paragraph (b) results in any increase or decrease in the
interest rates payable and the Conversion Rate on such Notes.
(c) Piggyback Registration.
(i) Right to Piggyback. Whenever the Company proposes to register
any of its securities under the Securities Act (other than pursuant to a Shelf
Registration in accordance with Section 3(a)) and the registration form to be
used may be used for the registration of the Registrable Securities (a
"Piggyback Registration"), the Company shall give prompt written notice to all
holders of Registrable Securities of its intention to effect such registration
and shall include in such registration (other than registrations only of shares
issued (A) for the purpose of acquiring another company or companies or (B)
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.
(ii) 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 the
registration (A) first, the securities the Company proposes to sell, (B) second,
the Preferred Registrable Securities requested to be included in such
registration, pro rata among the holders of such Preferred Registrable
Securities on the basis of the number of shares owned by each such holder, (C)
third, the Registrable Securities and the Other Registrable Securities requested
to be included in such registration, pro rata among the holders of all
Registrable Securities and all Other Registrable Securities on the basis of the
number of shares requested to be included in such registration by each such
holder, and (D) fourth, other securities requested to be included in such
registration.
(iii) 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 the registration (A)
first, the securities requested to be included therein by the holders requesting
such registration and the Preferred Registrable Securities requested to be
included in such registration, pro rata among the holders of such securities on
the basis of the number of shares owned by each such holder, (B) second, the
Registrable Securities and the Other Registrable Securities requested to be
included in such registration, pro rata among the holders of all Registrable
Securities and all Other Registrable Securities on the basis of the number of
shares requested to be included in such registration by each such holder, and
(C) third, other securities requested to be included in such registration.
4
<PAGE>
(d) Other Registrations. If the Company has previously filed a
Registration Statement with respect to the Registrable Securities pursuant to
this Section 3, and if such previous Registration Statement 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 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.
4. Grant of Registration Rights to Others
If registration rights are granted to any holder of shares of any
class of capital stock or debt of the Company, other than a holder of
Registrable Securities or Other Registrable Securities ("Additional Registration
Rights"), then the Company shall promptly notify the holders of Registrable
Securities upon the grant of such registration rights and offer to the holders
of Registrable Securities such additional registration rights granted to such
other holders so that the terms and conditions of all registration rights
granted to the holders of Registrable Securities by this Agreement and any
subsequent agreement are at least as favorable as the registration rights
granted to such other holders in all terms and conditions. Upon receipt of such
notice and offer, the holders of Registrable Securities shall have 30 days to
provide notice to the Company that any such holder of Registrable Securities
accepts such additional registration rights. If any such other holder exercises
any Additional Registration Rights during such 30-day period, the holders of
Registrable Securities shall have the right within such 30-day period to accept
the offer, and to provide notice of the intent of any such holder of Registrable
Securities to join in any such registration, subject to the terms and conditions
of the Additional Registration Rights and this Agreement, as applicable.
5. Hold-Back Agreements
(a) Restrictions on Public Sale by Holder of Registrable Securities.
Each holder of Registrable Securities whose Registrable Securities are covered
by a Registration Statement filed pursuant to Section 3 hereof agrees, if
requested by the managing underwriters in an underwritten offering, not to
effect any public sale or distribution of securities of the Company of the same
class as the securities included in such Registration Statement, including a
sale pursuant to Rule 144 under the Securities Act (except as part of such
underwritten registration), during the 10-day period prior to, and during the
90-day period beginning on, the closing date of each underwritten offering made
pursuant to such Registration Statement, to the extent timely notified in
writing by the Company or the managing underwriters; provided, however, that
each holder of Registrable Securities shall be subject to the hold-back
restrictions of this Section 5(a) only once during each 12-month period of this
Agreement.
(b) Restrictions on Sale of Common Stock by the Company and Others. In
the event a holder of Registrable Securities notifies the Company in writing of
its intent to effect an underwritten offering of any Registrable Securities, the
Company agrees (1) not to effect any public or private offer, sale or
distribution of its Common Stock, including a sale pursuant to Regulation D
under the Securities Act, during the 10-day period prior to, and during the
45-day
5
<PAGE>
period beginning with, the effective date of a Registration Statement filed
under Section 3 to the extent timely notified in writing by a holder of
Registrable Securities or the managing underwriters (except as part of such
registration, if permitted, or pursuant to registrations on Forms S-4 or S-8 or
any successor form to such Forms).
6. Registration Procedures
In connection with the Company's registration obligations pursuant to
Section 3 hereof, the Company will use its best efforts to effect such
registration to permit the sale of such Registrable Securities in accordance
with the intended method or methods of distribution thereof, and pursuant
thereto the Company will as expeditiously as possible:
(a) prepare and file with the SEC, as soon as practicable, a
Registration Statement or Registration Statements on any appropriate form under
the Securities Act, which form shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution thereof and shall include all financial statements required by the
SEC to be filed therewith, cooperate and assist in any filings required to be
made with the NASD, and use best 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 will furnish to
the holders of the Registrable Securities covered by such Registration Statement
and the underwriters, if any, copies of all such documents proposed to be filed,
which documents will be subject to the reasonable review of such holders and
underwriters, and the Company will not file any Registration Statement or
amendment thereto or any Prospectus or any supplement thereto to which the
holders of a majority of the Registrable Securities covered by such Registration
Statement or the underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep the
Registration Statement effective for the applicable period, or such shorter
period which will terminate when all Registrable Securities covered by such
Registration Statement have been sold; cause the Prospectus to be supplemented
by any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Securities Act; and comply with the provisions of
the Securities Act with respect to the disposition of all securities covered by
such Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth in
such Registration Statement or supplement to the Prospectus; the Company shall
not be deemed to have used its best efforts to keep a Registration Statement
effective during the applicable period if it voluntarily takes any action that
would result in selling holders of the Registrable Securities covered thereby
not being able to sell such Registrable Securities during that period unless
such action is required under applicable law, provided that the foregoing shall
not apply to actions taken by the Company in good faith and for valid business
reasons, including without limitation the acquisition or divestiture of assets,
so long as the Company promptly thereafter complies with the requirements of
Section 6(k), if applicable;
6
<PAGE>
(c) notify the selling holders of Registrable Securities and the
managing underwriters, if any, promptly, and (if requested by any such Person)
confirm such advice in writing, (1) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the same has become
effective, (2) of any request by the SEC for amendments or supplements to the
Registration Statement or the Prospectus or for additional information, (3) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the initiation of any proceedings for that
purpose, (4) if at any time the representations and warranties of the Company
contemplated by paragraph (o) below cease to be true and correct, (5) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose and (6) of the
happening of any event which makes any statement made in the Registration
Statement, the Prospectus or any document incorporated therein by reference
untrue or which requires the making of any changes in the Registration
Statement, the Prospectus or any document incorporated therein by reference in
order to make the statements therein not misleading;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(e) if requested by the managing underwriter or underwriters or a
holder of Registrable Securities being sold in connection with an underwritten
offering, promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters and the holders of a
majority of the Registrable Securities being sold agree should be included
therein relating to the plan of distribution with respect to such Registrable
Securities, including, without limitation, information with respect to the
number of Registrable Securities being sold to such underwriters, the purchase
price being paid therefor by such underwriters and with respect to any other
terms of the underwritten (or best efforts underwritten) offering of the
Registrable Securities to be sold in such offering; and make all required
filings of such Prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such Prospectus supplement or
post-effective amendment;
(f) furnish to each selling holder of Registrable Securities and each
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(g) deliver to each selling holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; the Company consents to the use of the
Prospectus or any amendment or supplement thereto by each of the selling holders
of Registrable Securities and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
7
<PAGE>
(h) prior to any public offering of Registrable Securities, register
or qualify or cooperate with the selling holders of Registrable Securities, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification of such Registrable Securities for offer and sale
under the securities or blue sky laws of such jurisdictions as any seller or
underwriter reasonably requests in writing and do any and all other acts or
things necessary or advisable to enable the disposition in such jurisdictions of
the Registrable Securities covered by the Registration Statement; provided that
the Company will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action which would
subject it to general service of process in any such jurisdiction where it is
not then so subject;
(i) cooperate with the selling holders of Registrable Securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and enable such Registrable Securities to be in
such denominations and registered in such names as the managing underwriters may
request at least two business days prior to any sale of Registrable Securities
to the underwriters;
(j) use its best efforts to cause the Registrable Securities covered
by the applicable Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof or the underwriters, if any, to consummate the
disposition of such Registrable Securities;
(k) upon the occurrence of any event contemplated by paragraph (c)(6)
above, prepare a supplement or posteffective amendment to the Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, the Prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
(l) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange on which similar securities
issued by the Company are then listed if requested by the holders of a majority
of such Registrable Securities or the managing underwriters, if any;
(m) not later than the effective date of the Registration Statement,
provide a CUSIP number for all Registrable Securities and provide the applicable
trustee(s) or transfer agent(s) with printed certificates for the Registrable
Securities which are in a form eligible for deposit with Depositary Trust
Company;
(n) enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration (1) make such
representations and warranties to the holders of such Registrable Securities and
the underwriters,
8
<PAGE>
if any, in form, substance and scope as are customarily made by issuers to
underwriters in primary underwritten offerings and covering matters including,
but not limited to, those set forth in the Purchase Agreement; (2) obtain
opinions of counsel to the Company and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to the
managing underwriters, if any, and the holders of a majority of the Registrable
Securities being sold) addressed to each selling holder and the underwriters, if
any, covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested by
such holders and underwriters; (3) obtain "cold comfort" letters and updates
thereof from the Company's independent certified public accountants addressed to
the selling holders of Registrable Securities and the underwriters, if any, such
letters to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters by underwriters in connection with primary
underwritten offerings; (4) if an underwriting agreement is entered into, the
same shall set forth in full the indemnification provisions and procedures of
Section 8 hereof with respect to all parties to be indemnified pursuant to said
Section; and (5) the Company shall deliver such documents and certificates as
may be requested by the holders of a majority of the Registrable Securities
being sold and the managing underwriters, if any, to evidence compliance with
clause (k) above and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company. The above shall be
done at each closing under such underwriting or similar agreement or as and to
the extent required thereunder;
(o) make available for inspection by a representative of the holders
of a majority of the Registrable Securities, any underwriter participating in
any disposition pursuant to such registration, and any attorney or accountant
retained by the sellers or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such representative, underwriter, attorney or accountant in
connection with such registration; provided that any records, information or
documents that are designated by the Company in writing as confidential shall be
kept confidential by such Persons unless disclosure of such records, information
or documents is required by court or administrative order;
(p) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, and make generally available to its security
holders, earnings statements satisfying the provisions of Section 11(a) of the
Securities Act, no later than 45 days after the end of any 12-month period (or
90 days, if such period is a fiscal year) (1) commencing at the end of any
fiscal quarter in which Registrable Securities are sold to underwriters in a
firm or best efforts underwritten offering, or (2) if not sold to underwriters
in such an offering, beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the Registration
Statement, which statements shall cover said 12-month periods; and
(q) promptly prior to the filing of any document which is to be
incorporated by reference into the Registration Statement or the Prospectus
(after initial filing of the Registration Statement), provide copies of such
document to counsel to the selling holders of Registrable Securities and to the
managing underwriters, if any, make the Company's
9
<PAGE>
representatives available for discussion of such document and make such changes
in such document prior to the filing thereof as counsel for such selling holders
or underwriters may reasonably request.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 6(k) hereof, such holder
will forthwith discontinue disposition of Registrable Securities until such
holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6(k) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings which are incorporated
by reference in the 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 such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the time periods
regarding the maintenance of such Registration Statement shall be extended by
the number of days during the period from and including the date of the giving
of such notice pursuant to Section 6(c)(6) hereof to and including the date when
each seller of Registrable Securities covered by such Registration Statement
shall have received the copies of the supplemented or amended prospectus
contemplated by Section 6(k) hereof or the Advice.
7. 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 associated with filings required to be made
with the NASD (including, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel as may be required by the rules and
regulations of the NASD), fees and expenses of compliance with securities or
blue sky laws (including fees and disbursements of counsel for the underwriters
or selling holders in connection with blue sky qualifications of the Registrable
Securities and determination of their eligibility for investment under the laws
of such jurisdictions as the managing underwriters or holders of a majority of
the Registrable Securities being sold may designate), printing expenses
(including expenses of printing certificates for the Registrable Securities in a
form eligible for deposit with Depositary Trust Company and of printing
prospectuses), messenger, telephone and delivery expenses, and fees and
disbursements of counsel for the Company and for the sellers of the Registrable
Securities (subject to the provisions of Section 7(b) hereof) and of all
independent certified public accountants of the Company (including the expenses
of any special audit and "cold comfort" letters required by or incident to such
performance), underwriters (excluding discounts, commissions or fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the
10
<PAGE>
distribution of the Registrable Securities or legal expenses of any Person other
than the Company and the selling holders), "road show" fees and expenses of the
Company and its management, securities acts liability insurance if the Company
so desires and fees and expenses of other Persons retained by the Company (all
such expenses being herein called "Registration Expenses") will be borne by the
Company, regardless whether the Registration Statement becomes effective. The
Company will, 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, the fees and
expenses incurred in connection with the listing of the securities to be
registered on each securities exchange on which similar securities issued by the
Company are then listed, rating agency fees and the fees and expenses of any
Person, including special experts, retained by the Company.
(b) In connection with the Shelf Registration or a Piggyback
Registration hereunder, the Company will reimburse the holders of Registrable
Securities being registered in such registration for the reasonable fees and
disbursements of not more than one counsel (or more than one counsel if a
conflict exists among such selling holders in the exercise of the reasonable
judgment of counsel for the selling holders and counsel for the Company) chosen
by the holders of a majority of such Registrable Securities.
8. Indemnification
(a) Indemnification by Company. The Company agrees to indemnify and
hold harmless, to the full extent permitted by law, each holder of Registrable
Securities, its officers, directors and employees 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 a material fact contained in any Registration Statement, Prospectus
or preliminary Prospectus or any omission or alleged omission to state therein 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; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any such preliminary Prospectus if (i)
such holder failed to deliver a copy of the Prospectus to the person asserting
such loss, claim, damage, liability or expense after the Company had furnished
such holder with a sufficient number of copies of the same and (ii) the
Prospectus completely corrected such untrue statement or omission; and provided,
further, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission in the Prospectus, if such untrue statement or alleged untrue
statement, omission or alleged omission is completely corrected in an amendment
or supplement to the Prospectus and the holder of Registrable Securities
thereafter fails to deliver such Prospectus as so amended or supplemented prior
to or concurrently with the sale of the Registrable Securities to the person
asserting such loss, claim, damage, liability or expense after the Company had
furnished such holder with a sufficient number of copies of the
11
<PAGE>
same. The Company will also indemnify underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, their officers and directors and each Person who controls such
Persons (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, if requested.
(b) Indemnification by Holder of Registrable Securities. In connection
with the Shelf Registration or a Piggyback Registration, each holder of
Registrable Securities will furnish to the Company in writing such information
and affidavits as the Company reasonably requests for use in connection with any
Registration Statement or Prospectus and agrees to indemnify and hold harmless,
to the full extent permitted by law, 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 statement of a material fact or any omission of a material fact required
to be stated in the Registration Statement or Prospectus or preliminary
Prospectus or necessary to make the statements therein not misleading, to the
extent, 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
to the Company specifically for inclusion in such Registration Statement or
Prospectus. In no event shall the liability of any selling holder of Registrable
Securities hereunder be greater in amount than the dollar amount of the proceeds
received by such holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation. The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, to the same
extent as provided above with respect to information so furnished in writing by
such Persons specifically for inclusion in any Prospectus or Registration
Statement.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided, however, that any Person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such Person unless (a) the
indemnifying party has agreed to pay such fees or expenses, or (b) the
indemnifying party shall have failed to assure the defense of such claim and
employ counsel reasonably satisfactory to such Person or (c) in the reasonable
judgment of any such Person, based upon advice of its counsel, a conflict of
interest may exist between such Person and the indemnifying party with respect
to such claims (in which case, if the Person notifies the indemnifying party in
writing that such Person elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such claim on behalf of such Person). If such defense is not
assumed by the indemnifying party, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). No indemnifying party will be required to consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or
12
<PAGE>
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation. An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will 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, in which event the indemnifying party shall be obligated to pay the fees
and expenses of such additional counsel or counsels.
(d) Contribution. If for any reason the indemnification provided for
in the preceding clauses (a) and (b) is unavailable to an indemnified party or
insufficient to hold it harmless as contemplated by the preceding clauses (a)
and (b), then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by the indemnified party and the indemnifying party, but also
the relative fault of the indemnified party and the indemnifying party, as well
as any other relevant equitable considerations, provided that no Purchaser shall
be required to contribute in an amount greater than the dollar amount of the
proceeds received by such Purchaser with respect to the sale of any securities.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
9. Rule 144
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder (or, if the Company is not required to
file such reports, it will, upon the request of any holder of Registrable
Securities made after March 30, 2000, make publicly available other information
so long as necessary to permit sales pursuant to Rule 144 under the Securities
Act), and it will take such further action as any holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (a) Rule
144 under the Securities Act, as such Rule may be amended from time to time, or
(b) any similar rule or regulation hereafter adopted by the SEC. Upon the
request of any holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether it has complied with such
information and requirements.
10. Participation in Underwritten Registrations
If any of the Registrable Securities covered by the Shelf Registration
or a Piggyback Registration are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the holders of a majority of such
Registrable Securities included in such offering; provided that such investment
bankers and managers must be reasonably satisfactory to the Company. If
requested by the holders of a majority of such Registrable Securities, the
Company shall use its
13
<PAGE>
best efforts to make available its senior management to participate in any "road
shows" reasonably requested by such holders.
No Person may participate in any underwritten registration hereunder
unless such Person (a) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
Nothing in this Section 10 shall be construed to create any additional rights
regarding the registration of Registrable Securities in any Person otherwise
than as set forth herein.
11. Miscellaneous
(a) Remedies. Remedies for breach by the Company of its obligations to
register the Registrable Securities shall be as set forth herein.
Each holder of Registrable Securities, in addition to being entitled
to exercise all rights provided herein or granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after the
date of this Agreement enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
Other than as disclosed on Schedule 11(b) hereto, the Company has not previously
entered into any agreement with respect to its securities granting any
registration rights to any Person. The rights granted to the holders of
Registrable Securities hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's securities
under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of at least 50% of the outstanding Registrable Securities.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or air courier guaranteeing overnight
delivery:
(i) if to a holder of Registrable Securities, at the most current
address given by such holder to the Company in accordance with the
provisions of this Section 11(d), which address initially is, with
respect to the Purchaser, the address set forth next to the
Purchaser's name on the signature page of the Purchase Agreement, with
a copy to
14
<PAGE>
Latham & Watkins, 633 West 5th Street, Suite 4000, Los Angeles,
California 90071, Attention: Eva Herbst Davis, Esq.; and
(ii) if to the Company, initially to Regent Assisted Living,
Inc., 121 SW Morrison, Suite 1000, Attention: General Counsel and
thereafter at such other address, notice of which is given in
accordance with the provisions of this Section 11(d), with a copy to
Stoel Rives LLP, 900 SW Fifth Avenue, Suite 2300, Portland, Oregon
97204, Attention: Todd Bauman, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day if timely delivered to an air courier guaranteeing overnight
delivery.
(e) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent holders of Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of California.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the securities sold pursuant to the Purchase Agreement. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
15
<PAGE>
(k) Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, the successful party shall be entitled
to recover reasonable attorneys' fees in addition to its costs and expenses and
any other available remedy.
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
The Company: REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By: WALTER C. BOWEN
-------------------------------------
Walter C. Bowen
-------------------------------------
Title: President
Purchaser: JAMES J. PIECZYNSKI,
an individual
JAMES J. PIECZYNSKI
---------------------------------------------
James J. Pieczynski
17
REGENT ASSISTED LIVING, INC.
-----------
REGISTRATION RIGHTS AGREEMENT
-----------
Dated as of March 30, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions.................................................................1
2. Securities Subject to this Agreement........................................3
3. Shelf Registration and Piggyback Registration...............................3
4. Grant of Registration Rights to Others......................................5
5. Hold-Back Agreements........................................................5
6. Registration Procedures.....................................................6
7. Registration Expenses......................................................10
8. Indemnification............................................................11
9. Rule 144...................................................................13
10. Participation in Underwritten Registrations...............................13
11. Miscellaneous.............................................................14
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of March 30, 1998, by and between REGENT ASSISTED LIVING, INC.,
an Oregon corporation (the "Company"), and CHRISTOPHER T. ISHIKAWA, an
individual (the "Purchaser").
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in Section 1 hereof.
This Agreement is made pursuant to the Convertible Subordinated Note
Purchase Agreement, dated as of March 30, 1998, by and between the Company and
the Purchaser (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 of this Agreement
is a condition to the closing under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Common Stock: The Common Stock, no par value, of the Company.
Exchange Act: The Securities Exchange Act of 1934, as amended from
time to time.
NASD: National Association of Securities Dealers, Inc.
Notes: The Company's 7.5% Convertible Subordinated Notes due March 31,
2008.
Other Registrable Securities: All shares of Common Stock issuable upon
conversion of Notes issued to the other purchasers pursuant to similar
agreements dated on or about the date of this Agreement.
Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
Piggyback Registration: See Section 3(c) hereof.
Preferred Purchase Agreement: Purchase Agreement dated as of December
16, 1996, between the Company and Prudential Private Equity Investors III, L.P.,
a Delaware limited partnership.
<PAGE>
Preferred Registrable Securities: (i) Any Common Stock issued upon the
conversion of the Company's Series A Preferred Stock issued pursuant to the
Preferred Purchase Agreement or issued upon conversion of the Company's Series B
Preferred Stock issued pursuant to the Preferred Purchase Agreement, (ii) any
Common Stock issued upon conversion of any of the Company's Series B Preferred
Stock issued pursuant to the Preferred Purchase Agreement, (iii) any Common
Stock issued upon exercise of the warrant issued pursuant to the Preferred
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 Preferred Registrable Security, such securities shall cease to be
Preferred Registrable Securities when they have been distributed to the public
through a broker, dealer of 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.
Prospectus: The prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material incorporated by
reference in such prospectus.
Registrable Securities: All shares of Common Stock issuable upon
conversion of Notes originally issued to the Purchaser; provided that a share
ceases to be a Registrable Security when it is no longer a Transfer Restricted
Security.
Registration Expenses: See Section 7 hereof.
Registration Statement: Any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration Statement.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended from time to
time.
Shelf Registration: See Section 3(a) hereof.
Transfer Restricted Securities: The Registrable Securities upon
original issuance thereof, and with respect to any particular such security, so
long as such security was acquired by the holder thereof other than pursuant to
an effective registration under Section 5 of the Securities Act or pursuant to
Rule 144; provided that a security that has ceased to be a Transfer Restricted
Security cannot thereafter become a Transfer Restricted Security.
underwritten registration or underwritten offering: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
2
<PAGE>
2. Securities Subject to this Agreement
(a) Registrable Securities. The securities entitled to the benefits of
this Agreement are the Registrable Securities.
(b) Holders of Registrable Securities. A Person is deemed to be a
holder of Registrable Securities whenever such Person owns Registrable
Securities or has the right to acquire such Registrable Securities, whether or
not such acquisition has actually been effected and disregarding any legal
restrictions upon the exercise of such right.
3. Shelf Registration and Piggyback Registration
(a) Shelf Registration. The Company shall file a "shelf" registration
statement on any appropriate form pursuant to Rule 415 (or similar rule that may
be adopted by the SEC) under the Securities Act (a "Shelf Registration"), as
promptly as practicable and in no event later than June 1, 1998, for the
Registrable Securities (the "Shelf Registration"). The Company agrees to use its
best efforts to cause such Shelf Registration to become effective and thereafter
to keep it continuously effective, and to prevent the happening of any event of
the kind described in Section 6(k) hereof that requires the Company to give
notice pursuant to the last paragraph of Section 6 hereof, for a period of two
years from the date on which the SEC declares the Shelf Registration effective
or such shorter period which will terminate when all the Registrable Securities
covered by the Shelf Registration have been sold pursuant to such Shelf
Registration.
(b) Additional Interest and Reduction of Conversion Rate Under Certain
Circumstances. If the Shelf Registration is not filed with the SEC by June 1,
1998, or if the Shelf Registration is not declared effective by the SEC by
September 1, 1998, (i) the interest rates on the Notes affected by such failure
shall increase (effective June 1, 1998, with respect to a failure to file the
Shelf Registration, or September 1, 1998 with respect to the failure of the
Shelf Registration to be declared effective) by 50 basis points (1/2%) over the
annual interest rates then in effect and (ii) the Conversion Rate on the Notes
affected by such failure shall decrease (effective June 1, 1998, with respect to
a failure to file the Shelf Registration, or September 1, 1998 with respect to
the failure of the Shelf Registration to be declared effective) by five percent
(5%). If the Shelf Registration is not filed and declared effective by December
1, 1998, then (i) the annual rate at which the Company shall pay interest on the
Notes shall further increase with respect to the Notes, effective on December 1,
1998, by 50 basis points (1/2%) over the annual interest rate then in effect and
(ii) the Conversion Rate on the Notes shall further decrease with respect to the
Notes, effective on December 1, 1998, by five percent (5%). The annual rate at
which the Company shall pay interest shall continue to increase by 50 basis
points (1/2%) and the Conversion Rate shall continue to decrease by five percent
(5%) at the end of each 180-day period thereafter, effective on the 181st day,
until the Shelf Registration is filed and declared effective by the SEC. The
interest rates and the Conversion Rate on the Notes shall return to the rates
otherwise in effect on the Notes but for the application of the preceding
provisions on the date the Shelf Registration is filed with or declared
effective by the SEC, as applicable. The Company shall notify holders of the
affected Notes immediately after the occurrence of each and
3
<PAGE>
every event which pursuant to this paragraph (b) results in any increase or
decrease in the interest rates payable and the Conversion Rate on such Notes.
(c) Piggyback Registration.
(i) Right to Piggyback. Whenever the Company proposes to register any
of its securities under the Securities Act (other than pursuant to a Shelf
Registration in accordance with Section 3(a)) and the registration form to be
used may be used for the registration of the Registrable Securities (a
"Piggyback Registration"), the Company shall give prompt written notice to all
holders of Registrable Securities of its intention to effect such registration
and shall include in such registration (other than registrations only of shares
issued (A) for the purpose of acquiring another company or companies or (B)
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.
(ii) 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 the registration (A)
first, the securities the Company proposes to sell, (B) second, the Preferred
Registrable Securities requested to be included in such registration, pro rata
among the holders of such Preferred Registrable Securities on the basis of the
number of shares owned by each such holder, (C) third, the Registrable
Securities and the Other Registrable Securities requested to be included in such
registration, pro rata among the holders of all Registrable Securities and all
Other Registrable Securities on the basis of the number of shares requested to
be included in such registration by each such holder, and (D) fourth, other
securities requested to be included in such registration.
(iii) 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 the registration (A) first, the
securities requested to be included therein by the holders requesting such
registration and the Preferred Registrable Securities requested to be included
in such registration, pro rata among the holders of such securities on the basis
of the number of shares owned by each such holder, (B) second, the Registrable
Securities and the Other Registrable Securities requested to be included in such
registration, pro rata among the holders of all Registrable Securities and all
Other Registrable Securities on the basis of the number of shares requested to
be included in such registration by each such holder, and (C) third, other
securities requested to be included in such registration.
(d) Other Registrations. If the Company has previously filed a
Registration Statement with respect to the Registrable Securities pursuant to
this Section 3, and if such
4
<PAGE>
previous Registration Statement 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 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.
4. Grant of Registration Rights to Others
If registration rights are granted to any holder of shares of any
class of capital stock or debt of the Company, other than a holder of
Registrable Securities or Other Registrable Securities ("Additional Registration
Rights"), then the Company shall promptly notify the holders of Registrable
Securities upon the grant of such registration rights and offer to the holders
of Registrable Securities such additional registration rights granted to such
other holders so that the terms and conditions of all registration rights
granted to the holders of Registrable Securities by this Agreement and any
subsequent agreement are at least as favorable as the registration rights
granted to such other holders in all terms and conditions. Upon receipt of such
notice and offer, the holders of Registrable Securities shall have 30 days to
provide notice to the Company that any such holder of Registrable Securities
accepts such additional registration rights. If any such other holder exercises
any Additional Registration Rights during such 30-day period, the holders of
Registrable Securities shall have the right within such 30-day period to accept
the offer, and to provide notice of the intent of any such holder of Registrable
Securities to join in any such registration, subject to the terms and conditions
of the Additional Registration Rights and this Agreement, as applicable.
5. Hold-Back Agreements
(a) Restrictions on Public Sale by Holder of Registrable Securities.
Each holder of Registrable Securities whose Registrable Securities are covered
by a Registration Statement filed pursuant to Section 3 hereof agrees, if
requested by the managing underwriters in an underwritten offering, not to
effect any public sale or distribution of securities of the Company of the same
class as the securities included in such Registration Statement, including a
sale pursuant to Rule 144 under the Securities Act (except as part of such
underwritten registration), during the 10-day period prior to, and during the
90-day period beginning on, the closing date of each underwritten offering made
pursuant to such Registration Statement, to the extent timely notified in
writing by the Company or the managing underwriters; provided, however, that
each holder of Registrable Securities shall be subject to the hold-back
restrictions of this Section 5(a) only once during each 12-month period of this
Agreement.
(b) Restrictions on Sale of Common Stock by the Company and Others. In
the event a holder of Registrable Securities notifies the Company in writing of
its intent to effect an underwritten offering of any Registrable Securities, the
Company agrees (1) not to effect any public or private offer, sale or
distribution of its Common Stock, including a sale pursuant to Regulation D
under the Securities Act, during the 10-day period prior to, and during the
45-day period beginning with, the effective date of a Registration Statement
filed under Section 3 to the extent timely notified in writing by a holder of
Registrable Securities or the managing
5
<PAGE>
underwriters (except as part of such registration, if permitted, or pursuant to
registrations on Forms S-4 or S-8 or any successor form to such Forms).
6. Registration Procedures
In connection with the Company's registration obligations pursuant to
Section 3 hereof, the Company will use its best efforts to effect such
registration to permit the sale of such Registrable Securities in accordance
with the intended method or methods of distribution thereof, and pursuant
thereto the Company will as expeditiously as possible:
(a) prepare and file with the SEC, as soon as practicable, a
Registration Statement or Registration Statements on any appropriate form under
the Securities Act, which form shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution thereof and shall include all financial statements required by the
SEC to be filed therewith, cooperate and assist in any filings required to be
made with the NASD, and use best 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 will furnish to
the holders of the Registrable Securities covered by such Registration Statement
and the underwriters, if any, copies of all such documents proposed to be filed,
which documents will be subject to the reasonable review of such holders and
underwriters, and the Company will not file any Registration Statement or
amendment thereto or any Prospectus or any supplement thereto to which the
holders of a majority of the Registrable Securities covered by such Registration
Statement or the underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep the
Registration Statement effective for the applicable period, or such shorter
period which will terminate when all Registrable Securities covered by such
Registration Statement have been sold; cause the Prospectus to be supplemented
by any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Securities Act; and comply with the provisions of
the Securities Act with respect to the disposition of all securities covered by
such Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth in
such Registration Statement or supplement to the Prospectus; the Company shall
not be deemed to have used its best efforts to keep a Registration Statement
effective during the applicable period if it voluntarily takes any action that
would result in selling holders of the Registrable Securities covered thereby
not being able to sell such Registrable Securities during that period unless
such action is required under applicable law, provided that the foregoing shall
not apply to actions taken by the Company in good faith and for valid business
reasons, including without limitation the acquisition or divestiture of assets,
so long as the Company promptly thereafter complies with the requirements of
Section 6(k), if applicable;
(c) notify the selling holders of Registrable Securities and the
managing underwriters, if any, promptly, and (if requested by any such Person)
confirm such advice in
6
<PAGE>
writing, (1) when the Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to the Registration Statement or any
post-effective amendment, when the same has become effective, (2) of any request
by the SEC for amendments or supplements to the Registration Statement or the
Prospectus or for additional information, (3) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose, (4) if at any time the
representations and warranties of the Company contemplated by paragraph (o)
below cease to be true and correct, (5) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (6) of the happening of any
event which makes any statement made in the Registration Statement, the
Prospectus or any document incorporated therein by reference untrue or which
requires the making of any changes in the Registration Statement, the Prospectus
or any document incorporated therein by reference in order to make the
statements therein not misleading;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(e) if requested by the managing underwriter or underwriters or a
holder of Registrable Securities being sold in connection with an underwritten
offering, promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters and the holders of a
majority of the Registrable Securities being sold agree should be included
therein relating to the plan of distribution with respect to such Registrable
Securities, including, without limitation, information with respect to the
number of Registrable Securities being sold to such underwriters, the purchase
price being paid therefor by such underwriters and with respect to any other
terms of the underwritten (or best efforts underwritten) offering of the
Registrable Securities to be sold in such offering; and make all required
filings of such Prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such Prospectus supplement or
post-effective amendment;
(f) furnish to each selling holder of Registrable Securities and each
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(g) deliver to each selling holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; the Company consents to the use of the
Prospectus or any amendment or supplement thereto by each of the selling holders
of Registrable Securities and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities, register
or qualify or cooperate with the selling holders of Registrable Securities, the
underwriters, if any, and their
7
<PAGE>
respective counsel in connection with the registration or qualification of such
Registrable Securities for offer and sale under the securities or blue sky laws
of such jurisdictions as any seller or underwriter reasonably requests in
writing and do any and all other acts or things necessary or advisable to enable
the disposition in such jurisdictions of the Registrable Securities covered by
the Registration Statement; provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process in any such jurisdiction where it is not then so subject;
(i) cooperate with the selling holders of Registrable Securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and enable such Registrable Securities to be in
such denominations and registered in such names as the managing underwriters may
request at least two business days prior to any sale of Registrable Securities
to the underwriters;
(j) use its best efforts to cause the Registrable Securities covered
by the applicable Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof or the underwriters, if any, to consummate the
disposition of such Registrable Securities;
(k) upon the occurrence of any event contemplated by paragraph (c)(6)
above, prepare a supplement or posteffective amendment to the Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, the Prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
(l) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange on which similar securities
issued by the Company are then listed if requested by the holders of a majority
of such Registrable Securities or the managing underwriters, if any;
(m) not later than the effective date of the Registration Statement,
provide a CUSIP number for all Registrable Securities and provide the applicable
trustee(s) or transfer agent(s) with printed certificates for the Registrable
Securities which are in a form eligible for deposit with Depositary Trust
Company;
(n) enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration (1) make such
representations and warranties to the holders of such Registrable Securities and
the underwriters, if any, in form, substance and scope as are customarily made
by issuers to underwriters in primary underwritten offerings and covering
matters including, but not limited to, those set forth in the Purchase
Agreement; (2) obtain opinions of counsel to the Company and updates thereof
8
<PAGE>
(which counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, and the holders of a majority
of the Registrable Securities being sold) addressed to each selling holder and
the underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be reasonably
requested by such holders and underwriters; (3) obtain "cold comfort" letters
and updates thereof from the Company's independent certified public accountants
addressed to the selling holders of Registrable Securities and the underwriters,
if any, such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters by underwriters in connection with
primary underwritten offerings; (4) if an underwriting agreement is entered
into, the same shall set forth in full the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be indemnified
pursuant to said Section; and (5) the Company shall deliver such documents and
certificates as may be requested by the holders of a majority of the Registrable
Securities being sold and the managing underwriters, if any, to evidence
compliance with clause (k) above and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the Company. The
above shall be done at each closing under such underwriting or similar agreement
or as and to the extent required thereunder;
(o) make available for inspection by a representative of the holders
of a majority of the Registrable Securities, any underwriter participating in
any disposition pursuant to such registration, and any attorney or accountant
retained by the sellers or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such representative, underwriter, attorney or accountant in
connection with such registration; provided that any records, information or
documents that are designated by the Company in writing as confidential shall be
kept confidential by such Persons unless disclosure of such records, information
or documents is required by court or administrative order;
(p) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, and make generally available to its security
holders, earnings statements satisfying the provisions of Section 11(a) of the
Securities Act, no later than 45 days after the end of any 12-month period (or
90 days, if such period is a fiscal year) (1) commencing at the end of any
fiscal quarter in which Registrable Securities are sold to underwriters in a
firm or best efforts underwritten offering, or (2) if not sold to underwriters
in such an offering, beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the Registration
Statement, which statements shall cover said 12-month periods; and
(q) promptly prior to the filing of any document which is to be
incorporated by reference into the Registration Statement or the Prospectus
(after initial filing of the Registration Statement), provide copies of such
document to counsel to the selling holders of Registrable Securities and to the
managing underwriters, if any, make the Company's representatives available for
discussion of such document and make such changes in such document prior to the
filing thereof as counsel for such selling holders or underwriters may
reasonably request.
9
<PAGE>
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 6(k) hereof, such holder
will forthwith discontinue disposition of Registrable Securities until such
holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6(k) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings which are incorporated
by reference in the 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 such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the time periods
regarding the maintenance of such Registration Statement shall be extended by
the number of days during the period from and including the date of the giving
of such notice pursuant to Section 6(c)(6) hereof to and including the date when
each seller of Registrable Securities covered by such Registration Statement
shall have received the copies of the supplemented or amended prospectus
contemplated by Section 6(k) hereof or the Advice.
7. 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 associated with filings required to be made
with the NASD (including, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel as may be required by the rules and
regulations of the NASD), fees and expenses of compliance with securities or
blue sky laws (including fees and disbursements of counsel for the underwriters
or selling holders in connection with blue sky qualifications of the Registrable
Securities and determination of their eligibility for investment under the laws
of such jurisdictions as the managing underwriters or holders of a majority of
the Registrable Securities being sold may designate), printing expenses
(including expenses of printing certificates for the Registrable Securities in a
form eligible for deposit with Depositary Trust Company and of printing
prospectuses), messenger, telephone and delivery expenses, and fees and
disbursements of counsel for the Company and for the sellers of the Registrable
Securities (subject to the provisions of Section 7(b) hereof) and of all
independent certified public accountants of the Company (including the expenses
of any special audit and "cold comfort" letters required by or incident to such
performance), underwriters (excluding discounts, commissions or fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registrable Securities or
legal expenses of any Person other than the Company and the selling holders),
"road show" fees and expenses of the Company and its management, securities acts
liability insurance if the Company so desires and fees and expenses of other
Persons retained by the Company (all such expenses being herein called
"Registration
10
<PAGE>
Expenses") will be borne by the Company, regardless whether the Registration
Statement becomes effective. The Company will, 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, the fees and expenses incurred in connection with the listing
of the securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed, rating agency fees and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with the Shelf Registration or a Piggyback
Registration hereunder, the Company will reimburse the holders of Registrable
Securities being registered in such registration for the reasonable fees and
disbursements of not more than one counsel (or more than one counsel if a
conflict exists among such selling holders in the exercise of the reasonable
judgment of counsel for the selling holders and counsel for the Company) chosen
by the holders of a majority of such Registrable Securities.
8. Indemnification
(a) Indemnification by Company. The Company agrees to indemnify and
hold harmless, to the full extent permitted by law, each holder of Registrable
Securities, its officers, directors and employees 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 a material fact contained in any Registration Statement, Prospectus
or preliminary Prospectus or any omission or alleged omission to state therein 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; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any such preliminary Prospectus if (i)
such holder failed to deliver a copy of the Prospectus to the person asserting
such loss, claim, damage, liability or expense after the Company had furnished
such holder with a sufficient number of copies of the same and (ii) the
Prospectus completely corrected such untrue statement or omission; and provided,
further, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission in the Prospectus, if such untrue statement or alleged untrue
statement, omission or alleged omission is completely corrected in an amendment
or supplement to the Prospectus and the holder of Registrable Securities
thereafter fails to deliver such Prospectus as so amended or supplemented prior
to or concurrently with the sale of the Registrable Securities to the person
asserting such loss, claim, damage, liability or expense after the Company had
furnished such holder with a sufficient number of copies of the same. The
Company will also indemnify underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the distribution,
their officers and directors and each Person who controls such Persons (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, if
requested.
11
<PAGE>
(b) Indemnification by Holder of Registrable Securities. In connection
with the Shelf Registration or a Piggyback Registration, each holder of
Registrable Securities will furnish to the Company in writing such information
and affidavits as the Company reasonably requests for use in connection with any
Registration Statement or Prospectus and agrees to indemnify and hold harmless,
to the full extent permitted by law, 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 statement of a material fact or any omission of a material fact required
to be stated in the Registration Statement or Prospectus or preliminary
Prospectus or necessary to make the statements therein not misleading, to the
extent, 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
to the Company specifically for inclusion in such Registration Statement or
Prospectus. In no event shall the liability of any selling holder of Registrable
Securities hereunder be greater in amount than the dollar amount of the proceeds
received by such holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation. The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, to the same
extent as provided above with respect to information so furnished in writing by
such Persons specifically for inclusion in any Prospectus or Registration
Statement.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided, however, that any Person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such Person unless (a) the
indemnifying party has agreed to pay such fees or expenses, or (b) the
indemnifying party shall have failed to assure the defense of such claim and
employ counsel reasonably satisfactory to such Person or (c) in the reasonable
judgment of any such Person, based upon advice of its counsel, a conflict of
interest may exist between such Person and the indemnifying party with respect
to such claims (in which case, if the Person notifies the indemnifying party in
writing that such Person elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such claim on behalf of such Person). If such defense is not
assumed by the indemnifying party, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). No indemnifying party will be required to consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will 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, in which event the
12
<PAGE>
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
(d) Contribution. If for any reason the indemnification provided for
in the preceding clauses (a) and (b) is unavailable to an indemnified party or
insufficient to hold it harmless as contemplated by the preceding clauses (a)
and (b), then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by the indemnified party and the indemnifying party, but also
the relative fault of the indemnified party and the indemnifying party, as well
as any other relevant equitable considerations, provided that no Purchaser shall
be required to contribute in an amount greater than the dollar amount of the
proceeds received by such Purchaser with respect to the sale of any securities.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
9. Rule 144
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder (or, if the Company is not required to
file such reports, it will, upon the request of any holder of Registrable
Securities made after March 30, 2000, make publicly available other information
so long as necessary to permit sales pursuant to Rule 144 under the Securities
Act), and it will take such further action as any holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (a) Rule
144 under the Securities Act, as such Rule may be amended from time to time, or
(b) any similar rule or regulation hereafter adopted by the SEC. Upon the
request of any holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether it has complied with such
information and requirements.
10. Participation in Underwritten Registrations
If any of the Registrable Securities covered by the Shelf Registration
or a Piggyback Registration are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the holders of a majority of such
Registrable Securities included in such offering; provided that such investment
bankers and managers must be reasonably satisfactory to the Company. If
requested by the holders of a majority of such Registrable Securities, the
Company shall use its best efforts to make available its senior management to
participate in any "road shows" reasonably requested by such holders.
No Person may participate in any underwritten registration hereunder
unless such Person (a) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting
13
<PAGE>
agreements and other documents required under the terms of such underwriting
arrangements. Nothing in this Section 10 shall be construed to create any
additional rights regarding the registration of Registrable Securities in any
Person otherwise than as set forth herein.
11. Miscellaneous
(a) Remedies. Remedies for breach by the Company of its obligations to
register the Registrable Securities shall be as set forth herein.
Each holder of Registrable Securities, in addition to being entitled
to exercise all rights provided herein or granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after the
date of this Agreement enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
Other than as disclosed on Schedule 11(b) hereto, the Company has not previously
entered into any agreement with respect to its securities granting any
registration rights to any Person. The rights granted to the holders of
Registrable Securities hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's securities
under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of at least 50% of the outstanding Registrable Securities.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or air courier guaranteeing overnight
delivery:
(i) if to a holder of Registrable Securities, at the most current
address given by such holder to the Company in accordance with the
provisions of this Section 11(d), which address initially is, with
respect to the Purchaser, the address set forth next to the
Purchaser's name on the signature page of the Purchase Agreement, with
a copy to Latham & Watkins, 633 West 5th Street, Suite 4000, Los
Angeles, California 90071, Attention: Eva Herbst Davis, Esq.; and
(ii) if to the Company, initially to Regent Assisted Living,
Inc., 121 SW Morrison, Suite 1000, Attention: General Counsel and
thereafter at such other address, notice of which is given in
accordance with the provisions of this Section 11(d), with a copy to
Stoel Rives LLP, 900 SW Fifth Avenue, Suite 2300, Portland, Oregon
97204, Attention: Todd Bauman, Esq.
14
<PAGE>
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day if timely delivered to an air courier guaranteeing overnight
delivery.
(e) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent holders of Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of California.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the securities sold pursuant to the Purchase Agreement. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(k) Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, the successful party shall be entitled to
recover reasonable attorneys' fees in addition to its costs and expenses and any
other available remedy.
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
The Company: REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By: WALTER C. BOWEN
-------------------------------------
Walter C. Bowen
-------------------------------------
Title: President
Purchaser: CHRISTOPHER T. ISHIKAWA,
an individual
CHRISTOPHER T. ISHIKAWA
---------------------------------------------
Christopher T. Ishikawa
16
REGENT ASSISTED LIVING, INC.
-----------
REGISTRATION RIGHTS AGREEMENT
-----------
Dated as of March 30, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions.................................................................1
2. Securities Subject to this Agreement........................................3
3. Shelf Registration and Piggyback Registration...............................3
4. Grant of Registration Rights to Others......................................5
5. Hold-Back Agreements........................................................5
6. Registration Procedures.....................................................6
7. Registration Expenses......................................................10
8. Indemnification............................................................11
9. Rule 144...................................................................13
10. Participation in Underwritten Registrations...............................13
11. Miscellaneous.............................................................14
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of March 30, 1998, by and between REGENT ASSISTED LIVING, INC.,
an Oregon corporation (the "Company"), and PAMELA J. PRIVETT, an individual (the
"Purchaser").
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in Section 1 hereof.
This Agreement is made pursuant to the Convertible Subordinated Note
Purchase Agreement, dated as of March 30, 1998, by and between the Company and
the Purchaser (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 of this Agreement
is a condition to the closing under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Common Stock: The Common Stock, no par value, of the Company.
Exchange Act: The Securities Exchange Act of 1934, as amended from
time to time.
NASD: National Association of Securities Dealers, Inc.
Notes: The Company's 7.5% Convertible Subordinated Notes due March 31,
2008.
Other Registrable Securities: All shares of Common Stock issuable upon
conversion of Notes issued to the other purchasers pursuant to similar
agreements dated on or about the date of this Agreement.
Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
Piggyback Registration: See Section 3(c) hereof.
Preferred Purchase Agreement: Purchase Agreement dated as of December
16, 1996, between the Company and Prudential Private Equity Investors III, L.P.,
a Delaware limited partnership.
<PAGE>
Preferred Registrable Securities: (i) Any Common Stock issued upon the
conversion of the Company's Series A Preferred Stock issued pursuant to the
Preferred Purchase Agreement or issued upon conversion of the Company's Series B
Preferred Stock issued pursuant to the Preferred Purchase Agreement, (ii) any
Common Stock issued upon conversion of any of the Company's Series B Preferred
Stock issued pursuant to the Preferred Purchase Agreement, (iii) any Common
Stock issued upon exercise of the warrant issued pursuant to the Preferred
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 Preferred Registrable Security, such securities shall cease to be
Preferred Registrable Securities when they have been distributed to the public
through a broker, dealer of 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.
Prospectus: The prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material incorporated by
reference in such prospectus.
Registrable Securities: All shares of Common Stock issuable upon
conversion of Notes originally issued to the Purchaser; provided that a share
ceases to be a Registrable Security when it is no longer a Transfer Restricted
Security.
Registration Expenses: See Section 7 hereof.
Registration Statement: Any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration Statement.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended from time to
time.
Shelf Registration: See Section 3(a) hereof.
Transfer Restricted Securities: The Registrable Securities upon
original issuance thereof, and with respect to any particular such security, so
long as such security was acquired by the holder thereof other than pursuant to
an effective registration under Section 5 of the Securities Act or pursuant to
Rule 144; provided that a security that has ceased to be a Transfer Restricted
Security cannot thereafter become a Transfer Restricted Security.
underwritten registration or underwritten offering: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
2
<PAGE>
2. Securities Subject to this Agreement
(a) Registrable Securities. The securities entitled to the benefits of
this Agreement are the Registrable Securities.
(b) Holders of Registrable Securities. A Person is deemed to be a
holder of Registrable Securities whenever such Person owns Registrable
Securities or has the right to acquire such Registrable Securities, whether or
not such acquisition has actually been effected and disregarding any legal
restrictions upon the exercise of such right.
3. Shelf Registration and Piggyback Registration
(a) Shelf Registration. The Company shall file a "shelf" registration
statement on any appropriate form pursuant to Rule 415 (or similar rule that may
be adopted by the SEC) under the Securities Act (a "Shelf Registration"), as
promptly as practicable and in no event later than June 1, 1998, for the
Registrable Securities (the "Shelf Registration"). The Company agrees to use its
best efforts to cause such Shelf Registration to become effective and thereafter
to keep it continuously effective, and to prevent the happening of any event of
the kind described in Section 6(k) hereof that requires the Company to give
notice pursuant to the last paragraph of Section 6 hereof, for a period of two
years from the date on which the SEC declares the Shelf Registration effective
or such shorter period which will terminate when all the Registrable Securities
covered by the Shelf Registration have been sold pursuant to such Shelf
Registration.
(b) Additional Interest and Reduction of Conversion Rate Under Certain
Circumstances. If the Shelf Registration is not filed with the SEC by June 1,
1998, or if the Shelf Registration is not declared effective by the SEC by
September 1, 1998, (i) the interest rates on the Notes affected by such failure
shall increase (effective June 1, 1998, with respect to a failure to file the
Shelf Registration, or September 1, 1998 with respect to the failure of the
Shelf Registration to be declared effective) by 50 basis points (1/2%) over the
annual interest rates then in effect and (ii) the Conversion Rate on the Notes
affected by such failure shall decrease (effective June 1, 1998, with respect to
a failure to file the Shelf Registration, or September 1, 1998 with respect to
the failure of the Shelf Registration to be declared effective) by five percent
(5%). If the Shelf Registration is not filed and declared effective by December
1, 1998, then (i) the annual rate at which the Company shall pay interest on the
Notes shall further increase with respect to the Notes, effective on December 1,
1998, by 50 basis points (1/2%) over the annual interest rate then in effect and
(ii) the Conversion Rate on the Notes shall further decrease with respect to the
Notes, effective on December 1, 1998, by five percent (5%). The annual rate at
which the Company shall pay interest shall continue to increase by 50 basis
points (1/2%) and the Conversion Rate shall continue to decrease by five percent
(5%) at the end of each 180-day period thereafter, effective on the 181st day,
until the Shelf Registration is filed and declared effective by the SEC. The
interest rates and the Conversion Rate on the Notes shall return to the rates
otherwise in effect on the Notes but for the application of the preceding
provisions on the date the Shelf Registration is filed with or declared
effective by the SEC, as applicable. The Company shall notify holders of the
affected Notes immediately after the occurrence of each and
3
<PAGE>
every event which pursuant to this paragraph (b) results in any increase or
decrease in the interest rates payable and the Conversion Rate on such Notes.
(c) Piggyback Registration.
(i) Right to Piggyback. Whenever the Company proposes to register
any of its securities under the Securities Act (other than pursuant to a Shelf
Registration in accordance with Section 3(a)) and the registration form to be
used may be used for the registration of the Registrable Securities (a
"Piggyback Registration"), the Company shall give prompt written notice to all
holders of Registrable Securities of its intention to effect such registration
and shall include in such registration (other than registrations only of shares
issued (A) for the purpose of acquiring another company or companies or (B)
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.
(ii) 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 the
registration (A) first, the securities the Company proposes to sell, (B) second,
the Preferred Registrable Securities requested to be included in such
registration, pro rata among the holders of such Preferred Registrable
Securities on the basis of the number of shares owned by each such holder, (C)
third, the Registrable Securities and the Other Registrable Securities requested
to be included in such registration, pro rata among the holders of all
Registrable Securities and all Other Registrable Securities on the basis of the
number of shares requested to be included in such registration by each such
holder, and (D) fourth, other securities requested to be included in such
registration.
(iii) 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 the registration (A)
first, the securities requested to be included therein by the holders requesting
such registration and the Preferred Registrable Securities requested to be
included in such registration, pro rata among the holders of such securities on
the basis of the number of shares owned by each such holder, (B) second, the
Registrable Securities and the Other Registrable Securities requested to be
included in such registration, pro rata among the holders of all Registrable
Securities and all Other Registrable Securities on the basis of the number of
shares requested to be included in such registration by each such holder, and
(C) third, other securities requested to be included in such registration.
(d) Other Registrations. If the Company has previously filed a
Registration Statement with respect to the Registrable Securities pursuant to
this Section 3, and if such
4
<PAGE>
previous Registration Statement 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 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.
4. Grant of Registration Rights to Others
If registration rights are granted to any holder of shares of any
class of capital stock or debt of the Company, other than a holder of
Registrable Securities or Other Registrable Securities ("Additional Registration
Rights"), then the Company shall promptly notify the holders of Registrable
Securities upon the grant of such registration rights and offer to the holders
of Registrable Securities such additional registration rights granted to such
other holders so that the terms and conditions of all registration rights
granted to the holders of Registrable Securities by this Agreement and any
subsequent agreement are at least as favorable as the registration rights
granted to such other holders in all terms and conditions. Upon receipt of such
notice and offer, the holders of Registrable Securities shall have 30 days to
provide notice to the Company that any such holder of Registrable Securities
accepts such additional registration rights. If any such other holder exercises
any Additional Registration Rights during such 30-day period, the holders of
Registrable Securities shall have the right within such 30-day period to accept
the offer, and to provide notice of the intent of any such holder of Registrable
Securities to join in any such registration, subject to the terms and conditions
of the Additional Registration Rights and this Agreement, as applicable.
5. Hold-Back Agreements
(a) Restrictions on Public Sale by Holder of Registrable Securities.
Each holder of Registrable Securities whose Registrable Securities are covered
by a Registration Statement filed pursuant to Section 3 hereof agrees, if
requested by the managing underwriters in an underwritten offering, not to
effect any public sale or distribution of securities of the Company of the same
class as the securities included in such Registration Statement, including a
sale pursuant to Rule 144 under the Securities Act (except as part of such
underwritten registration), during the 10-day period prior to, and during the
90-day period beginning on, the closing date of each underwritten offering made
pursuant to such Registration Statement, to the extent timely notified in
writing by the Company or the managing underwriters; provided, however, that
each holder of Registrable Securities shall be subject to the hold-back
restrictions of this Section 5(a) only once during each 12-month period of this
Agreement.
(b) Restrictions on Sale of Common Stock by the Company and Others. In
the event a holder of Registrable Securities notifies the Company in writing of
its intent to effect an underwritten offering of any Registrable Securities, the
Company agrees (1) not to effect any public or private offer, sale or
distribution of its Common Stock, including a sale pursuant to Regulation D
under the Securities Act, during the 10-day period prior to, and during the
45-day period beginning with, the effective date of a Registration Statement
filed under Section 3 to the extent timely notified in writing by a holder of
Registrable Securities or the managing
5
<PAGE>
underwriters (except as part of such registration, if permitted, or pursuant to
registrations on Forms S-4 or S-8 or any successor form to such Forms).
6. Registration Procedures
In connection with the Company's registration obligations pursuant to
Section 3 hereof, the Company will use its best efforts to effect such
registration to permit the sale of such Registrable Securities in accordance
with the intended method or methods of distribution thereof, and pursuant
thereto the Company will as expeditiously as possible:
(a) prepare and file with the SEC, as soon as practicable, a
Registration Statement or Registration Statements on any appropriate form under
the Securities Act, which form shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution thereof and shall include all financial statements required by the
SEC to be filed therewith, cooperate and assist in any filings required to be
made with the NASD, and use best 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 will furnish to
the holders of the Registrable Securities covered by such Registration Statement
and the underwriters, if any, copies of all such documents proposed to be filed,
which documents will be subject to the reasonable review of such holders and
underwriters, and the Company will not file any Registration Statement or
amendment thereto or any Prospectus or any supplement thereto to which the
holders of a majority of the Registrable Securities covered by such Registration
Statement or the underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep the
Registration Statement effective for the applicable period, or such shorter
period which will terminate when all Registrable Securities covered by such
Registration Statement have been sold; cause the Prospectus to be supplemented
by any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Securities Act; and comply with the provisions of
the Securities Act with respect to the disposition of all securities covered by
such Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth in
such Registration Statement or supplement to the Prospectus; the Company shall
not be deemed to have used its best efforts to keep a Registration Statement
effective during the applicable period if it voluntarily takes any action that
would result in selling holders of the Registrable Securities covered thereby
not being able to sell such Registrable Securities during that period unless
such action is required under applicable law, provided that the foregoing shall
not apply to actions taken by the Company in good faith and for valid business
reasons, including without limitation the acquisition or divestiture of assets,
so long as the Company promptly thereafter complies with the requirements of
Section 6(k), if applicable;
(c) notify the selling holders of Registrable Securities and the
managing underwriters, if any, promptly, and (if requested by any such Person)
confirm such advice in
6
<PAGE>
writing, (1) when the Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to the Registration Statement or any
post-effective amendment, when the same has become effective, (2) of any request
by the SEC for amendments or supplements to the Registration Statement or the
Prospectus or for additional information, (3) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose, (4) if at any time the
representations and warranties of the Company contemplated by paragraph (o)
below cease to be true and correct, (5) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (6) of the happening of any
event which makes any statement made in the Registration Statement, the
Prospectus or any document incorporated therein by reference untrue or which
requires the making of any changes in the Registration Statement, the Prospectus
or any document incorporated therein by reference in order to make the
statements therein not misleading;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(e) if requested by the managing underwriter or underwriters or a
holder of Registrable Securities being sold in connection with an underwritten
offering, promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters and the holders of a
majority of the Registrable Securities being sold agree should be included
therein relating to the plan of distribution with respect to such Registrable
Securities, including, without limitation, information with respect to the
number of Registrable Securities being sold to such underwriters, the purchase
price being paid therefor by such underwriters and with respect to any other
terms of the underwritten (or best efforts underwritten) offering of the
Registrable Securities to be sold in such offering; and make all required
filings of such Prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such Prospectus supplement or
post-effective amendment;
(f) furnish to each selling holder of Registrable Securities and each
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(g) deliver to each selling holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; the Company consents to the use of the
Prospectus or any amendment or supplement thereto by each of the selling holders
of Registrable Securities and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities, register
or qualify or cooperate with the selling holders of Registrable Securities, the
underwriters, if any, and their
7
<PAGE>
respective counsel in connection with the registration or qualification of such
Registrable Securities for offer and sale under the securities or blue sky laws
of such jurisdictions as any seller or underwriter reasonably requests in
writing and do any and all other acts or things necessary or advisable to enable
the disposition in such jurisdictions of the Registrable Securities covered by
the Registration Statement; provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process in any such jurisdiction where it is not then so subject;
(i) cooperate with the selling holders of Registrable Securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and enable such Registrable Securities to be in
such denominations and registered in such names as the managing underwriters may
request at least two business days prior to any sale of Registrable Securities
to the underwriters;
(j) use its best efforts to cause the Registrable Securities covered
by the applicable Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof or the underwriters, if any, to consummate the
disposition of such Registrable Securities;
(k) upon the occurrence of any event contemplated by paragraph (c)(6)
above, prepare a supplement or posteffective amendment to the Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, the Prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
(l) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange on which similar securities
issued by the Company are then listed if requested by the holders of a majority
of such Registrable Securities or the managing underwriters, if any;
(m) not later than the effective date of the Registration Statement,
provide a CUSIP number for all Registrable Securities and provide the applicable
trustee(s) or transfer agent(s) with printed certificates for the Registrable
Securities which are in a form eligible for deposit with Depositary Trust
Company;
(n) enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration (1) make such
representations and warranties to the holders of such Registrable Securities and
the underwriters, if any, in form, substance and scope as are customarily made
by issuers to underwriters in primary underwritten offerings and covering
matters including, but not limited to, those set forth in the Purchase
Agreement; (2) obtain opinions of counsel to the Company and updates thereof
8
<PAGE>
(which counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, and the holders of a majority
of the Registrable Securities being sold) addressed to each selling holder and
the underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be reasonably
requested by such holders and underwriters; (3) obtain "cold comfort" letters
and updates thereof from the Company's independent certified public accountants
addressed to the selling holders of Registrable Securities and the underwriters,
if any, such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters by underwriters in connection with
primary underwritten offerings; (4) if an underwriting agreement is entered
into, the same shall set forth in full the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be indemnified
pursuant to said Section; and (5) the Company shall deliver such documents and
certificates as may be requested by the holders of a majority of the Registrable
Securities being sold and the managing underwriters, if any, to evidence
compliance with clause (k) above and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the Company. The
above shall be done at each closing under such underwriting or similar agreement
or as and to the extent required thereunder;
(o) make available for inspection by a representative of the holders
of a majority of the Registrable Securities, any underwriter participating in
any disposition pursuant to such registration, and any attorney or accountant
retained by the sellers or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such representative, underwriter, attorney or accountant in
connection with such registration; provided that any records, information or
documents that are designated by the Company in writing as confidential shall be
kept confidential by such Persons unless disclosure of such records, information
or documents is required by court or administrative order;
(p) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, and make generally available to its security
holders, earnings statements satisfying the provisions of Section 11(a) of the
Securities Act, no later than 45 days after the end of any 12-month period (or
90 days, if such period is a fiscal year) (1) commencing at the end of any
fiscal quarter in which Registrable Securities are sold to underwriters in a
firm or best efforts underwritten offering, or (2) if not sold to underwriters
in such an offering, beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the Registration
Statement, which statements shall cover said 12-month periods; and
(q) promptly prior to the filing of any document which is to be
incorporated by reference into the Registration Statement or the Prospectus
(after initial filing of the Registration Statement), provide copies of such
document to counsel to the selling holders of Registrable Securities and to the
managing underwriters, if any, make the Company's representatives available for
discussion of such document and make such changes in such document prior to the
filing thereof as counsel for such selling holders or underwriters may
reasonably request.
9
<PAGE>
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 6(k) hereof, such holder
will forthwith discontinue disposition of Registrable Securities until such
holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6(k) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings which are incorporated
by reference in the 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 such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the time periods
regarding the maintenance of such Registration Statement shall be extended by
the number of days during the period from and including the date of the giving
of such notice pursuant to Section 6(c)(6) hereof to and including the date when
each seller of Registrable Securities covered by such Registration Statement
shall have received the copies of the supplemented or amended prospectus
contemplated by Section 6(k) hereof or the Advice.
7. 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 associated with filings required to be made
with the NASD (including, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel as may be required by the rules and
regulations of the NASD), fees and expenses of compliance with securities or
blue sky laws (including fees and disbursements of counsel for the underwriters
or selling holders in connection with blue sky qualifications of the Registrable
Securities and determination of their eligibility for investment under the laws
of such jurisdictions as the managing underwriters or holders of a majority of
the Registrable Securities being sold may designate), printing expenses
(including expenses of printing certificates for the Registrable Securities in a
form eligible for deposit with Depositary Trust Company and of printing
prospectuses), messenger, telephone and delivery expenses, and fees and
disbursements of counsel for the Company and for the sellers of the Registrable
Securities (subject to the provisions of Section 7(b) hereof) and of all
independent certified public accountants of the Company (including the expenses
of any special audit and "cold comfort" letters required by or incident to such
performance), underwriters (excluding discounts, commissions or fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registrable Securities or
legal expenses of any Person other than the Company and the selling holders),
"road show" fees and expenses of the Company and its management, securities acts
liability insurance if the Company so desires and fees and expenses of other
Persons retained by the Company (all such expenses being herein called
"Registration
10
<PAGE>
Expenses") will be borne by the Company, regardless whether the Registration
Statement becomes effective. The Company will, 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, the fees and expenses incurred in connection with the listing
of the securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed, rating agency fees and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with the Shelf Registration or a Piggyback
Registration hereunder, the Company will reimburse the holders of Registrable
Securities being registered in such registration for the reasonable fees and
disbursements of not more than one counsel (or more than one counsel if a
conflict exists among such selling holders in the exercise of the reasonable
judgment of counsel for the selling holders and counsel for the Company) chosen
by the holders of a majority of such Registrable Securities.
8. Indemnification
(a) Indemnification by Company. The Company agrees to indemnify and
hold harmless, to the full extent permitted by law, each holder of Registrable
Securities, its officers, directors and employees 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 a material fact contained in any Registration Statement, Prospectus
or preliminary Prospectus or any omission or alleged omission to state therein 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; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any such preliminary Prospectus if (i)
such holder failed to deliver a copy of the Prospectus to the person asserting
such loss, claim, damage, liability or expense after the Company had furnished
such holder with a sufficient number of copies of the same and (ii) the
Prospectus completely corrected such untrue statement or omission; and provided,
further, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission in the Prospectus, if such untrue statement or alleged untrue
statement, omission or alleged omission is completely corrected in an amendment
or supplement to the Prospectus and the holder of Registrable Securities
thereafter fails to deliver such Prospectus as so amended or supplemented prior
to or concurrently with the sale of the Registrable Securities to the person
asserting such loss, claim, damage, liability or expense after the Company had
furnished such holder with a sufficient number of copies of the same. The
Company will also indemnify underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the distribution,
their officers and directors and each Person who controls such Persons (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, if
requested.
11
<PAGE>
(b) Indemnification by Holder of Registrable Securities. In connection
with the Shelf Registration or a Piggyback Registration, each holder of
Registrable Securities will furnish to the Company in writing such information
and affidavits as the Company reasonably requests for use in connection with any
Registration Statement or Prospectus and agrees to indemnify and hold harmless,
to the full extent permitted by law, 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 statement of a material fact or any omission of a material fact required
to be stated in the Registration Statement or Prospectus or preliminary
Prospectus or necessary to make the statements therein not misleading, to the
extent, 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
to the Company specifically for inclusion in such Registration Statement or
Prospectus. In no event shall the liability of any selling holder of Registrable
Securities hereunder be greater in amount than the dollar amount of the proceeds
received by such holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation. The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, to the same
extent as provided above with respect to information so furnished in writing by
such Persons specifically for inclusion in any Prospectus or Registration
Statement.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided, however, that any Person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such Person unless (a) the
indemnifying party has agreed to pay such fees or expenses, or (b) the
indemnifying party shall have failed to assure the defense of such claim and
employ counsel reasonably satisfactory to such Person or (c) in the reasonable
judgment of any such Person, based upon advice of its counsel, a conflict of
interest may exist between such Person and the indemnifying party with respect
to such claims (in which case, if the Person notifies the indemnifying party in
writing that such Person elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such claim on behalf of such Person). If such defense is not
assumed by the indemnifying party, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). No indemnifying party will be required to consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will 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, in which event the
12
<PAGE>
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
(d) Contribution. If for any reason the indemnification provided for
in the preceding clauses (a) and (b) is unavailable to an indemnified party or
insufficient to hold it harmless as contemplated by the preceding clauses (a)
and (b), then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by the indemnified party and the indemnifying party, but also
the relative fault of the indemnified party and the indemnifying party, as well
as any other relevant equitable considerations, provided that no Purchaser shall
be required to contribute in an amount greater than the dollar amount of the
proceeds received by such Purchaser with respect to the sale of any securities.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
9. Rule 144
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder (or, if the Company is not required to
file such reports, it will, upon the request of any holder of Registrable
Securities made after March 30, 2000, make publicly available other information
so long as necessary to permit sales pursuant to Rule 144 under the Securities
Act), and it will take such further action as any holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (a) Rule
144 under the Securities Act, as such Rule may be amended from time to time, or
(b) any similar rule or regulation hereafter adopted by the SEC. Upon the
request of any holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether it has complied with such
information and requirements.
10. Participation in Underwritten Registrations
If any of the Registrable Securities covered by the Shelf Registration
or a Piggyback Registration are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the holders of a majority of such
Registrable Securities included in such offering; provided that such investment
bankers and managers must be reasonably satisfactory to the Company. If
requested by the holders of a majority of such Registrable Securities, the
Company shall use its best efforts to make available its senior management to
participate in any "road shows" reasonably requested by such holders.
No Person may participate in any underwritten registration hereunder
unless such Person (a) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting
13
<PAGE>
agreements and other documents required under the terms of such underwriting
arrangements. Nothing in this Section 10 shall be construed to create any
additional rights regarding the registration of Registrable Securities in any
Person otherwise than as set forth herein.
11. Miscellaneous
(a) Remedies. Remedies for breach by the Company of its obligations to
register the Registrable Securities shall be as set forth herein.
Each holder of Registrable Securities, in addition to being entitled
to exercise all rights provided herein or granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after the
date of this Agreement enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
Other than as disclosed on Schedule 11(b) hereto, the Company has not previously
entered into any agreement with respect to its securities granting any
registration rights to any Person. The rights granted to the holders of
Registrable Securities hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's securities
under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of at least 50% of the outstanding Registrable Securities.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or air courier guaranteeing overnight
delivery:
(i) if to a holder of Registrable Securities, at the most current
address given by such holder to the Company in accordance with the
provisions of this Section 11(d), which address initially is, with respect
to the Purchaser, the address set forth next to the Purchaser's name on the
signature page of the Purchase Agreement, with a copy to Latham & Watkins,
633 West 5th Street, Suite 4000, Los Angeles, California 90071, Attention:
Eva Herbst Davis, Esq.; and
(ii) if to the Company, initially to Regent Assisted Living, Inc., 121
SW Morrison, Suite 1000, Attention: General Counsel and thereafter at such
other address, notice of which is given in accordance with the provisions
of this Section 11(d), with a copy to Stoel Rives LLP, 900 SW Fifth Avenue,
Suite 2300, Portland, Oregon 97204, Attention: Todd Bauman, Esq.
14
<PAGE>
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day if timely delivered to an air courier guaranteeing overnight
delivery.
(e) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent holders of Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of California.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the securities sold pursuant to the Purchase Agreement. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(k) Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, the successful party shall be entitled to
recover reasonable attorneys' fees in addition to its costs and expenses and any
other available remedy.
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
The Company: REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By: WALTER C. BOWEN
------------------------------------
Walter C. Bowen
------------------------------------
Title: President
Purchaser: PAMELA J. PRIVETT,
an individual
PAMELA J. PRIVETT
--------------------------------------------
Pamela J. Privett
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEET OF REGENT ASSISTED LIVING, INC. AS OF MARCH 31, 1998,
AND THE RELATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS IN THE PERIOD
ENDED MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,508,629
<SECURITIES> 0
<RECEIVABLES> 464,305
<ALLOWANCES> 27,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,384,720
<PP&E> 59,135,057
<DEPRECIATION> 660,814
<TOTAL-ASSETS> 66,707,418
<CURRENT-LIABILITIES> 1,986,769
<BONDS> 46,411,202
10,808,703
0
<COMMON> 9,349,841
<OTHER-SE> (6,786,862)
<TOTAL-LIABILITY-AND-EQUITY> 66,707,418
<SALES> 4,216,580
<TOTAL-REVENUES> 4,288,205
<CGS> 4,190,136
<TOTAL-COSTS> 6,686,558
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,415
<INCOME-PRETAX> (2,395,575)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,395,575)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,395,575)
<EPS-PRIMARY> (.55)
<EPS-DILUTED> (.55)
</TABLE>
